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TMI Blog2011 (12) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... 72. Regarding disallowance of additional liability arising due to exchange fluctuation - ld. counsel for the assessee submitted that during the year under consideration the assessee claimed only the expenses related to foreign exchange variation and the actual expenses were allowed in the earlier year - In the present case, one of the contentions of the ld. counsel for the assessee was that the expenditure incurred for restrictive covenant in the preceding year has been allowed and it was only the exchange fluctuation variation which was claimed as revenue expenditure in the year under consideration - Held that: this fact is not verifiable as to whether the expenditure incurred in the earlier year was considered as revenue expenditure by the department and the claim of the assessee was allowed and this year only the exchange fluctuation variation was claimed - Decided in favor of the assessee by way of remand to AO. Reduction of telecommunication expenses from export turnover. - held that:- for the purpose of computation of deduction u/s. 10A of the Act, if any expenditure is excluded from the export turnover, the same has to be excluded from the total turnover also. - ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,46,58,999 in respect of non-compete fee. 3.2 That the learned CIT(A) erred in not holding that noncompete fees having been allowed as a deduction in the preceding assessment year, the loss on exchange fluctuation thereof is to be allowed as a deduction in the year under appeal. 4.1 That the learned CIT(A) has erred in not reversing the action of the Assessing Officer by reducing the telecommunication expenses of Rs.1,52,87,286 only from 'export turnover' and treating the said telecommunication expenditure as attributable to the delivery of software outside India. 4.2 That the learned CIT(A) failed to appreciate that if the said telecommunication expenses are reduced from the export turnover then the said telecommunication expenses should also be reduced from the total turnover as well. 5. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of this Appeal." 3. Ground Nos. 1.1 to 1.3 were not pressed, as such these are dismissed as not pressed. 4. Vide ground Nos. 2.1 to 2.3, the grievance of the assessee relates to the deduction u/s. 10A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. It was further stated that the claim of the assessee is justified and matter is covered in favour of the assessee by the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Yokogawa India Ltd. and Ors. in ITA No.78/2011, order dated 9.8.2011. Copy of the said order was furnished. 7. In her rival submissions, the ld. CIT(DR) supported the orders of the authorities below. 8. After considering the submissions of both the parties and the material on record, it is noticed that the issue under consideration is squarely covered by the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Yokogawa India Ltd. and Ors. (supra) wherein at page 57 para 31 Their Lordships have observed as under: "31. As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10- A unit cannot be set off against the income of 10-A unit under section 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore, as the profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omoters for undertaking certain specified business activities. It was also stated that the expenditure on the payment of non-compete fee was incurred during the preceding year relevant to A.Y. 2001-02 and the present claim was on account of foreign exchange variation. Reliance was placed on the judgment of Hon'ble Madras High Court in CIT v. Late G.D. Naidu and Ors. Reported in 165 ITR 63. The AO did not find merit in the submissions of the assessee by observing that in the case of the assessee the consulting business of M/s. Network Solutions Ltd. had been acquired and the restrictive covenant was placed along with the acquisition of the business, by means of restrictive covenant, the assessee derived an enduring benefit, therefore the expenditure incurred was to be treated as capital expenditure. 12. The assessee carried the matter to the ld. CIT(A), who confirmed the action of the AO. Now the assessee is in appeal. 13. The ld. counsel for the assessee submitted that during the year under consideration the assessee claimed only the expenses related to foreign exchange variation and the actual expenses were allowed in the earlier year. It was further submitted that when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover given in clause (iv) Explanation 2 to Sec. 10A of the Act, the same was to be reduced by the telecommunication charges attributable to delivery of computer software outside India. He also pointed out that the two STP units of the assessee did not have any domestic turnover, therefore, the entire telecommunication charges were attributable to the delivery of software outside India. He therefore reduced a sum of Rs.1,52,87,286 from the export turnover, but not from the total turnover and accordingly worked out the deduction u/s. 10A. 18. The assessee carried the matter to the ld. CIT(Appeals), who confirmed the action of the AO. Now the assessee is in appeal. 19. The ld. counsel for the assessee submitted that this issue is squarely covered by the decision of the ITO v. Sak Soft Ltd. 313 ITR (AT) 353 (Chennai) SB and also of the Hon'ble jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd. and Ors. in ITA No.70 of 2009 order dated 30.8.2011. Copy of the said order was furnished. 20. In her rival submissions, the ld. CIT(DR) although supported the orders of authorities below, but could not controvert the above contention of the ld. counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport turnover"." 22. The aforesaid decision had been considered and affirmed by the Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd. and Ors. wherein it has been held that for the purpose of computation of deduction u/s. 10A of the Act, if any expenditure is excluded from the export turnover, the same has to be excluded from the total turnover also. A similar view has also been taken by the Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. We, therefore, by considering the totality of the facts as discussed hereinabove, are of the view that the ld. CIT(Appeals) was not justified in confirming the action of the Assessing Officer. We therefore set aside the impugned order on this issue and the Assessing Officer is directed to exclude the telecommunication charges from the export turnover as well as total turnover while working out the deduction u/s. 10A. 23. Now we will deal with ITA No.979/Bang/2010. This appeal is against the order dated 2.6.2010 of the ld. CIT(A)-I, Bangalore who has considered the appeal of the assessee against the assessment order dated 16.3.2005 u/s. 143(3) of the Act passed by the Assessing Officer as infructuous b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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