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TMI Blog2022 (10) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... ired details to substantiate the claim that export turnover does not include the travel expenses as the assessee has not charged the customer and also that the travel expenses are largely incurred in INR. There is also a contention of the assessee that the travel expenses incurred in the course of business and not attributable to delivery of the articles or things outside India. These contentions need to be factually verified and the lower authorities have not carried out the verification based facts and evidences. We therefore remit this issue to the AO for fresh consideration, after giving reasonable opportunity of being heard to the assessee. The assessee is directed to submit the relevant details to substantiate its claim and cooperate with the proceedings. This ground is allowed for statistical purposes. Restricting benefit of 10AA deduction to the extent of export revenue brought into India in foreign currency - No reason to uphold the decision of the lower authorities in restricting the export turnover to the consideration received up to the date of filing of the return. In our considered view, the export turnover for the purpose of deduction u/s.10AA should not be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. Ground No.1 is general and does not warrant separate adjudication. 4. The brief facts of the case are that the assessee is a company engaged in the business of software development and allied activities. The assessee filed return of income on 29.11.2013 declaring a total income of Rs.288,49,27,710 after claiming deduction u/s. 10AA of the Act of Rs.166,14,02,409. The case was selected for scrutiny and the notices u/. 143(2) was issued. The AO completed the assessment by making the following adjustments:- (i) Disallowance of depreciation on goodwill of Rs.38,22,993. (ii) Disallowance of provision for discounts of Rs.1,44,00,000. (iii) Exclusion of insurance charges of Rs.1,17,87,049 from export turnover in computing deduction u/s. 10AA. (iv) Exclusion of telecommunication charges of Rs.4,71,19,750 from export turnover in computing deduction u/s. 10AA. (v) Exclusion of travelling expenses of Rs.7,58,80,369 (20% of total traveling expenses taken as incurred in foreign currency on adhoc basis) from export turnover in computing deduction u/s. 10AA. (vi) Non-consideration of actual revenue from export activity of Rs.1336,90,45,871 (i.e. before exclusion of af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue and the core reason for disallowances made by the lower authorities. Therefore for a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. 9. On merits, the ld. AR submitted that insurance charges are incurred in respect of property, business liability and overseas travel and not attributable to delivery of computer software outside India. The ld AR also submitted that the principle laid down by the jurisdictional High Court in assessee s own case for AY 2008-09 in Mindtree Ltd vs ACT (2020) 427 ITR 338 (Kar) with regard to exclusion of telecommunication charges should be made applicable to insurance charges also as according to the definition of export turnover , freight, telecommunication charges or insurance are to be excluded provided it is attributable to the delivery of the articles or things outside India. Hence the decision rendered in assessee s own case (supra) with regard to telecommunication expenses should be applicable to insurance charges also since the same is not incurred towards delivery of article or thing outside India. Without prejudice to this submission, the ld AR also submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for verification of the facts afresh after giving opportunity of being heard to the assessee. The AO is directed to consider the ratio laid down by the coordinate Bench of the Tribunal in the case of Tata Elxsi Ltd. (supra) in this regard. This ground is allowed for statistical purposes. Exclusion of 20% of traveling expenses from export turnover 14. The AO during the course of assessment has considered 20% of the travelling expenses incurred by the assessee as incurred in foreign exchange and excluded the same in accordance with Explanation 1 to section 10AA of the act. 15. Before the CIT(Appeals), the assessee contended that the expenses shall be excluded only if the same is incurred in rendering services outside India and not when the assessee is exporting computer software. It was also submitted that the assessee is in the business of development of computer software and the use of the words (including computer software ) would apply only in respect of rendering of services and not for development of computer software. However, the CIT(Appeals) held that development of computer software includes rendering of services as is evident from Explanation 2 to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The AO while computing deduction u/s. 10AA had considered only the export revenue realized upto the date of filing of return for the purpose of section 10AA admissibility. The assessee argued before the CIT(Appeals) that no such condition is provided in section 10AA unlike in section 10A(3) where the period by when the amount has to be received in convertible foreign exchange is specified. The assessee also submitted that convertible foreign exchange has not been defined in section 10AA of the Act and even the SEZ Act does not mandate that the consideration in respect of export has to be brought into India in convertible foreign exchange within a specified time limit. 20. The CIT(Appeals) confirmed the order of the AO on the basis that Explanation 1 to section 10AA defines export turnover as consideration in respect of export by the undertaking received in or brought into India by the assessee in convertible foreign exchange and therefore benefit of section 10AA would be available only to the extent of consideration which is brought into India. 21. The ld. AR submitted that subsection (3) to section 10A specifies that the section 10A deduction is applicable only to those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration, the export turnover and the consideration received would be equal / same unless the receivables become not recoverable. Any other interpretation may lead to anomaly since the exemption in respect of exports made in a particular year may be denied to the exporter assessee in the year of export itself to the extent of shortfall in repatriation of money and may also be denied even afterwards when the proceeds are repatriated in a subsequent year since there is no enabling provision to claim the deduction on subsequent receipt. This would not be the intention of legislature as the provisions of section 10AA was formulated with an intention to promote export of goods and services, investment from domestic and foreign sources and creation of employment opportunities. We also see merit in one of the arguments put forth by the ld AR that the Parliament was aware of the existence of provisions similar to subsection 3 to section 10A/10B despite which decided not to have similar provisions in section 10AA and therefore the AO could not add or mend what is consciously left out by the parliament which otherwise would amount to adding or mending casus omissus . 25. Further we not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special provision in respect of export of certain articles or things) stipulates the bringing into India by the Assessee of convertible foreign exchange. 5.1 In the present case, the goods have left India and consideration on sale of such goods having being received in India is not in dispute and in such a situation we are of the view that denial of deduction u/s 10AA of the Act is uncalled for more so, when as S.10AA of the Act does not provide for export of own goods or bringing in of foreign currency of the goods exported. We further find that Ld CIT(A) has relied on the decision of Hon'ble Kerala High Court in the case of Electronics Control and Discharge Systems Pvt. Ltd. 245 CTR 465 in coming to the conclusion that only direct exports where the assessee brings foreign convertible exchange into India qualifies for being eligible export turnover for the purpose of computing deduction u/s 10AA of the Act. We find that Hon'ble Kerala High Court in the aforesaid case was dealing with the provision of s. 10A and not with respect to s.10AA and in view of the difference in the definition of export turnover in both the sections, we are of the view that the aforesaid deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue the assessee has not exported the goods and therefore such sum do not fall in the definition of export and therefore it cannot fall into the definition of export turnover. Hence, according to us the deduction under section 10 AA of the income tax act cannot be allowed on this sum as it does not qualify the definition of export and export turnover. Even otherwise assessee has not given any details of receipt of foreign exchange and therefore the consideration in respect of that is either received in or brought into India by the assessee. Hence, we confirm the finding of the lower authorities regarding disallowance of deduction under section 10 AA of the income tax act on this sum. With respect to the other sum of Rs. 4.80 crores The assessee has given foreign inward remittance certificates and such sum has also been received in India on 04/02/2011 and 24/2/2011. The provisions of section 10 AA does not provide any time- limit of bringing such consideration into India like section 10 A (3) which provides for receipt of consideration or sale proceeds in India in convertible foreign exchange within a period of 6 months from the end of the previous year, or within such further p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... launch is done only once and the brand name or logo is in the nature of capital expenditure. The AO treated the expenditure of Rs.3,37,87,510 incurred towards brand launch as intangible asset and allowed depreciation on the same @ 12.8% resulting in a disallowance of Rs.2,95,64,071. 29. Before the CIT(Appeals), the assessee submitted that the said expenditure was incurred towards advertisement and publicity in respect of its brand and that the expenditure had neither created any asset nor any enduring benefit to the assessee. The provisions created during the year under consideration has already been reversed in the subsequent year and therefore disallowance, if any, would result in double disallowance. 30. The CIT(Appeals) confirmed the disallowance on the ground that expenditure on design, creation and launch of brand is capital in nature and hence not allowable as revenue expenditure. The CIT(Appeals) also held that the reversal of expenditure in subsequent year will not have any effect in the year under consideration as the dispute is not on the year of allowability, but the nature of expenditure. 31. The ld. AR submitted that the assessee has incurred the impugned ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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