Tribunal rules on deduction computation & export turnover inclusion. Communication expenses excluded.

The Tribunal held that deduction under section 10B should be computed after setting off unabsorbed business losses and depreciation carried forward. The inclusion of equity shares as export turnover for deduction was denied as it did not involve inflow of foreign exchange. Communication expenses were rightly excluded from export and total turnover for deduction calculation. The assessee's appeal was dismissed, and the revenue's appeal was partly allowed.

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Issues Involved:
1. Computation of deduction u/s 10B before setting off brought forward losses.
2. Inclusion of export turnover received in the form of equity shares for deduction u/s 10B.
3. Exclusion of communication expenses from export turnover and total turnover.

Summary:

Issue 1: Computation of Deduction u/s 10B Before Setting Off Brought Forward Losses
The assessee argued that the exemption u/s 10B should be deducted from the current year's business profit before setting off brought forward losses. The Assessing Officer (AO) disagreed, stating that post-amendment, section 10B is treated as a deduction rather than an exemption, and thus, the deduction should be allowed after setting off brought forward losses. The CIT(A) directed the AO to compute the deduction u/s 10B before setting off the brought forward business loss. The Tribunal, following its earlier decision in the case of CCL Products (I) Ltd., held that the deduction u/s 10B should be computed after setting off unabsorbed business losses and depreciation carried forward from earlier years. Thus, the Tribunal reversed the CIT(A)'s order on this issue.

Issue 2: Inclusion of Export Turnover Received in the Form of Equity Shares for Deduction u/s 10B
The assessee claimed that Rs. 2,26,30,000 received as equity investment in an American company should be considered as export turnover for the purpose of deduction u/s 10B. The AO rejected this claim, stating that there was no inflow of foreign exchange into India. The Tribunal upheld the AO's decision, stating that the objective of section 10B is to encourage the inflow of convertible foreign exchange into India. The sale proceeds must be physically brought into India, and investment in equity shares does not qualify as receipt in convertible foreign exchange. Therefore, the assessee was not entitled to the benefit of section 10B on this investment.

Issue 3: Exclusion of Communication Expenses from Export Turnover and Total Turnover
The CIT(A) directed the AO to exclude communication expenses from both export turnover and total turnover for computing deduction u/s 10B. The Tribunal upheld this decision, referencing the case of ITO v. Sak Soft Ltd., which held that expenses attributable to the delivery of articles or things or computer software outside India should be excluded from both export turnover and total turnover. Thus, the Tribunal found no infirmity in the CIT(A)'s order on this issue.

Conclusion:
The appeal of the assessee was dismissed, and the revenue's appeal was partly allowed.

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