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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 ..... of granting deduction U/s.10B of the Act with respect to the gain derived from EEFC account which does not have direct nexus with the profits earned out of export by holding that such gains should be excluded for the purpose of deduction U/s.10B of the Act. This is only for the limited purpose of granting deduction U/s.10B of the Act. However as per the provisions of the Act, any gain or loss incurred by the 10-B unit of the assessee, though not eligible for deduction while computing the income of the assessee, such gains or losses have to be considered in accordance with the normal provisions of the Act. We do not find any bar on the claim of the assessee by any of the provisions under the Act. Therefore, we do not find it necessary to interfere with the order of the Ld. CIT (A). - Decided in favour of assessee. Excluding Telecommunication expenditure and Travelling expenditure incurred in foreign currency from export turnover, though the same were not included in the export turnover - Held that:- 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent : Dr.Anita Sumanth ,Advocate ORDER PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: This appeal in ITA No.2049/Mds./2012 is filed by the Revenue and the other appeal in ITA No.2064/Mds./2012 by the Assessee for the assessment year 2006-07, aggrieved by the order of the Learned Commissioner of Income Tax (A)-V, Chennai, dated 31.08.2012 in ITA No.40/2011-12 passed under section 143(3) read with section 250 of the Act. 2.1 The Revenue has raised four grounds in its appeal, however, the cruxes of the issues are concised as follows:- 1. The ld. CIT(A) had erred in holding that expenditure incurred in foreign exchange towards telecommunication expenditure and travel expenditure deducted from export turnover should also be deducted from total turnover for arriving at the eligible 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y should only be deducted from the export turnover and not from the total turnover and accordingly, computed the deduction U/s. 10B of the Act. 4.2 The Ld. A.R. had argued before the Ld. Assessing Officer that the afore-stated expenditures should be excluded from the export Turnover as well as from the total turnover relying on the decision of the Special Bench of the Chennai Tribunal in the case ITO Vs. Sak Soft Ltd., reported in 313 ITR (AT) 353. However the Ld. A.O opined that since the Revenue is in appeal and the decision of the Tribunal has been contested by the Department, he need not follow that decision. 4.3 On appeal, the Ld. CIT (A) discussing the issue in depth and by following the decision in the case of ITO Vs. Sak Soft Ltd., cited supra decided the issue in favour of the assessee. The relevant portion of the Ld. CIT(A) s order is reproduced 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2009] 313 ITR (AT) 353 (Chennai). The Chennai SB observed as under:- if the parity principle is to be applied, it follows that whatever has been excluded from the export turnover by the definition shall stand excluded from the total turnover also. The position would be somewhat similar to the case before the calcutta Bench of the Tribunal in the case of Chloride India Ltd [1995] 53 lTD I 8.in clause (iii,1 of Explanation 2 to section 1 OB, the freight, telecom charges and insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in providing technical services outside India have been excluded from export turnover. Therefore, the same have to be excluded also from the total turnover though thatexpression has not been defined in that section . Following the ruing of the jurisdictional SB and the order in the case of the Appellant in the earlier 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 expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusing the orders cited by the Ld. A.R, it is evident that the Special Bench of the Tribunal in the case cited supra has categorically held that expenditure incurred towards freight charges and insurance premium in foreign exchange ought to be excluded from both export turnover as well as from the total turnover. Further in the recent decision of the Chennai Bench of the Tribunal in the case M/s. Allsec Technologies Ltd. in ITA No.1710/Mds./2013 vide order dated 21.01.2015, the issue has been further clarified concurring with the order of the Special Bench of the Tribunal. The relevant portion of the recent order of the Tribunal at page-16, para No.6.1 is reproduced herein below for reference:- 6.1 At the outset we find that the Ld. CIT (A) has simply followed the decision in the case of ITO Vs. Sak Soft Ltd., reported in 313 ITR (AT) 353 (Chennai)(SB) and decided the matter in favour of the assessee. The relevant portion of 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 sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide of the profit and loss account , however the export turnover and the total turnover will stand reduced to the extent of telecommunication charges so excluded. 4.6 Further as cited by the Ld. A.R., in the assessee s own case in ITA No.1302/Mds./2008 dated19.08.2011, the identical issue has been decided in favour of the assessee following the special bench of the Tribunal cited supra. In these circumstances, we do not find it necessary to interfere with the order of the Ld. CIT (A) on this issue. 5.1 Ground No.2 Loss on account of conversion of the amount outstanding in EEFC account in foreign currency to Indian currency. The assessee had raised an additional ground before the Ld. CIT (A) in respect of the treatment of the loss incurred on Earners Exchange Foreign Currency (EEFC) Account amounting to ₹ 1,00,70,120/- pertaining to the 10-B unit of the assessee. Considering the ground raised by the assessee, the Ld. CIT (A) has held the issue 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 amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only decided the issue of granting deduction U/s.10B of the Act with respect to the gain derived from EEFC account which does not have direct nexus with the profits earned out of export by holding that such gains should be excluded for the purpose of deduction U/s.10B of the Act. This is only for the limited purpose of granting deduction U/s.10B of the Act. However as per the provisions of the Act, any gain or loss incurred by the 10-B unit of the assessee, though not eligible for deduction while computing the income of the assessee, such gains or losses have to be considered in accordance with the normal provisions of the Act. We do not find any bar on the claim of the assessee by any of the provisions under the Act. Therefore, we do not find it necessary to interfere with the order of the Ld. CIT (A). Assessee s Appeal 6.1 Ground Nos.1 2 Excluding Telecommunication expenditure and Travelling expenditure incurred in foreign currency from export turnover, though the same were not included 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 expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to tax. 6.4.1 As per the provisions of section 10B(4) the deduction under section 10B B on the profits derived from the export of article or thing or software etc. will be allowed to the extent of the profits of business in the ratio of export turnover to the total turnover. The said profit of business shall not increase due to disallowance u/s 40(a)(ia) read with the provisions of Chapter XVII-B of the Act. Since the profits shall not increase the deduction shall be allowed only to the extent of profits of business. The profits of business will not increase because of disallowance under section 40a(ia) because the expenses that expenses have already been incurred by the appellant and the same have been irretrievably lost/paid out. Because of the clear mandate of proviso to section 40a(ia) the expenses that have been disallowed for failure to deduct TDS under the provisions of chapter XVII-B shall be allowed in the year in which such tax has been deducted and paid. However the provisions of section 40(a)(ia) read with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Ground No.4 Invoking the provisions of Section-14A of the Act for the earlier assessment years. The Ld. Assessing Officer had observed in his order that the management recharge expenses and software expenses were also expenses related to earning of exempt income U/s.10B of the Act and therefore, cannot be allowed against the taxable income in view of the provisions of section 14A of the Act relaying on the various decisions cited in his order. For the purpose of giving effect to this finding of the Ld. CIT (A) he directed the Ld. Assessing Officer to re-compute the income of the assessee for the earlier assessment years 2002-03 to 2005-06. Aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us by stating that Ld. CIT (A) had exceeded his jurisdiction by directing the Ld. Assessing Officer to re-comptue the deduction U/s.10B of the Act for the earlier assessment years other than the year under appeal. Since we have already held in the earlier ground at para 7.3 that the Ld. CIT (A) has powers under the provisions of the Act to direct the Ld. Assessing Officer to modify the assessment of the earlier years based on the findings in the subsequent asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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