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TMI Blog2015 (9) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction U/s.10B of the Act. 2. The Ld. CIT (A) had erred in holding that loss on account of conversion of amount outstanding in EEFC account to Indian Rupee has to be excluded, while computing the deduction u/s.10B of the Act, and the same has to be treated as "other losses'' and allowed to be set off against any other income, though this ground was not raised by the assessee before the Ld. A.O thus, violating the provision Section 46A of the Act. 2.2 The Assessee has raised three grounds in its appeal, however, the cruxes of the issues are concised as follows:- 1) The Ld. CIT (A) had erred in excluding the entire telecommunication expenditure from the export turnover, though the same was not included in the export turnover. 2) The Ld. CIT (A) had erred in excluding the expenditure incurred in foreign currency from the export turnover, though the same was not included in the export turnover. 3) The Ld. CIT (A) had erred in directing the AO to re-compute the deduction u/s.10B of the Act for the earlier assessment years. Additional ground raised by the assessee 4) The ld. CIT(A) ought not have invoked the provision of Sec.14A of the Act in this relevant case with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced herein below for reference:- "The Appellant had put-forth the following arguments: * If the telecommunication expenditure is not included in export turnover in the first place, the same should riot be excluded from export turnover. * The telecommunication expenditure is incurred in Indian Rupees and hence, should not be excluded from export turnover. * Only telecommunication expenditure attributable to delivery of computer software outside India would need to be excluded from the ambit. * It was also submitted that incase telecommunication expenditure are excluded from export turnover, the same should be excluded from total turnover also. Reliance in this regard has been placed by the Appellant on the following judicial precedents: * Gem plus Jewellery India Private Limited [330 ITR 175] [Bombay HC] * ITO v Sak Soft Ltd [20091 [313 ITR 353] (ITAT Chennai Special Bench) 7.1 I have carefully considered the submissions of the Appellant as above. With respect to the ground that expenses should not be excluded from export turnover in the first place, I am of the view that the formula seeks to impute a mechanism to exclude items even if not included. In other words, Rs.does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, it is held that telecommunication expenditure when reduced from the export turnover should be excluded from the total turnover also. Accordingly, this ground is he][d in favor of the appellant to this extent. 8. The fourth ground of appeal relates to exclusion of expenditure incurred in foreign currency from export turnover in computing the deduction under section 1OB of the Act. It has been submitted that the Appellant had incurred Rs. 64,33,093 in foreign currency for travel abroad by employees in connection with training, preparatory and auxiliary work of understanding client specification and meeting client personnel before commencement of actual IT Enabled Services (Rs. ITES') activity and other related expenses and reimbursements. The AO has deducted the expenditure in foreign currency from export turnover for the purpose of computing deduction under section 10A of the Act. However, no corresponding deduction was made from total turnover. The AO had made the adjustment on the ground that the term Rs.export turnover' as defined in explanation 2(iv) to section 1OA is an explicit provision and therefore the export turnover should be reduced by the expenses mentioned the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid portion is reproduced herein below for reference:- "For the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges, or insurance attributable to delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula." The same analogy is applicable with respect to Section 10A of the Act. Let us examine this issue in another perspective. Sub-section (4) to Section.10A stipulates that the profit derived from export of article of things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Thus, the eligible profit for deduction U/s. 10A would be:- Profit X Export turnover Total Turnover In this context, Explanation 2(iv) to Section 10A of the Act stipulates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue in favour of the assessee by observing as under:- "9. The Appellant has raised an additional ground on treatment of loss on Earners Exchange Foreign Currency (Rs. EEFC Account incurred by the Appellant amounting to Rs. 1,00,70,120 pertaining to tax holiday unit while computing the deduction under section 10B of the Act. The Appellant during the course of hearing has submitted that the Hon'ble Chennai ITAT in the Appellant's own case for the AY 2004-0 5 and 2005-06 has held that gain on EEFC account does not have any direct nexus with the profits of export oriented undertaking and therefore not eligible for deduction under section 10B of the Act. The Appellant during the subject AY has incurred a loss of Rs. 1,00,70,120 on EEFC account which pertains to tax holiday unit. Relying on the decision of the Hon'ble ITAT, the Appellant submitted that since gain on EEFC account was held as not eligible for deduction under section 10B of the Act, then loss from EEFC account should also be treated in a similar manner. The loss from EEFC account should be excluded while computing profits eligible for deduction under section 10B and such loss should be considered as business loss which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in the export turnover. It appears from the ground raised by the assessee that the Ld. Assessing Officer had excluded the Telecommunication expenditure and Travelling expenditure from the export turnover, though it was not included in the export turnover. On this issue, we have only to say that if these expenditures have already been excluded by the assessee, the same need not be excluded once again. Further, the Ld. Assessing Officer is hereby directed to follow the decision of the Special bench of the Tribunal in the case Sak Soft cited (supra) while giving effect to the order of Tribunal in this relevant case before us. 7.1 Ground No.3 - Direction of the Ld. Assessing Officer to re-compute the deduction U/s.10B of the Act for the earlier years. It appears that the assessee is aggrieved by the order of the Ld. CIT (A) for directing the Ld. Assessing Officer to re-compute the profit of the business eligible for deduction U/s.10B of the Act for the earlier years by not increasing the profit due to disallowance U/s.40(a)(ia) of the Act. On the earlier occasion the assessee had raised the following grounds before the Ld. CIT (A):- Grounds "The Ld. Assessing Officer is not j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the provisions of Chapter XVII-B of the Act cannot be allowed to be used as a device to claim double benefit that is to postpone the claim of expenditure in the year when the period of tax holiday is over. In the present case there is no doubt that there has been no effect of the disallowance made under section 40(a)(ia) as the appellant had incorrectly been allowed deduction under section 10B B of the Act on the addition of amount in the respective years. In view of the above discussion and facts of the case the AO is directed to allow the claim of the appellant in respect of these expenses as per the clear mandate of proviso to section 40a(ia) and to re-compute the deduction under section 10B B already allowed to the appellant in the respective years and to withdraw the incorrect deduction allowed on the expenses disallowed under section 40(a)(ia). Subject to this the ground raised by the Appellant in this regard is allowed." 7.3 From the above, it is apparent that the Ld. Assessing Officer for the earlier years have incorrectly granted deduction U/s.10B of the Act i.e., even for the increase in profits due to disallowance U/s.40(a)(ia) of the Act. While granting deduction U/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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