Tribunal Adjusts Turnover Calculations for Software Exports; Affirms Legality of Interest Under Tax Sections 234B, 234C, 234D.

The Tribunal partly allowed the appeals filed by the assessee. It directed the AO not to exclude expenses incurred in foreign currency for software development from the export turnover. Additionally, the AO was instructed to exclude telecommunication expenses from the total turnover to maintain consistency in the formula for computing deductions. The Tribunal upheld the legality of the consequential charging of interest under sections 234B, 234C, and 234D, affirming it as lawful.

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Issues Involved:
1. Exclusion of expenses incurred in foreign currency from 'export turnover'.
2. Applicability of ITAT Bangalore's decision in the case of Infosys Technologies Ltd.
3. Adjustment of telecommunication expenses to 'export turnover' and 'total turnover'.
4. Exclusion of telecommunication expenses from 'total turnover'.
5. Legality of the order passed by the CIT(A) including consequential effects under sections 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Exclusion of Expenses Incurred in Foreign Currency from 'Export Turnover':
The assessee contested the exclusion of expenses incurred in foreign currency for providing software development services outside India from the 'export turnover'. The Tribunal referred to the case of M/s. Infosys Technologies Ltd. vs. JCIT, where it was held that expenses incurred in foreign currency for software development outside India should not be excluded from the export turnover for computing deduction under section 10B of the Income-tax Act, 1961. The Tribunal concluded that the facts in the present case were similar and directed the AO not to exclude such expenses from the export turnover.

2. Applicability of ITAT Bangalore's Decision in the Case of Infosys Technologies Ltd.:
The assessee argued that the decision of the ITAT Bangalore in the case of Infosys Technologies Ltd. should be applied to their case. The Tribunal acknowledged that the issue was covered by the Infosys Technologies Ltd. case, which supported the assessee's contention that expenses incurred in foreign currency for software development should not be excluded from the export turnover. Consequently, this ground became academic as the first ground was already allowed.

3. Adjustment of Telecommunication Expenses to 'Export Turnover' and 'Total Turnover':
The assessee challenged the CIT(A)'s decision that telecommunication expenses should not be adjusted to the 'total turnover' despite being excluded from the 'export turnover'. The Tribunal referred to its decision in the case of Tata Elxsi Ltd., where it was held that the formula for computing deductions under section 10A should be consistent. If expenses are excluded from the 'export turnover', they should also be excluded from the 'total turnover'. The Tribunal directed the AO to exclude the telecommunication expenses from the total turnover, aligning with the principle of maintaining consistency in the formula.

4. Exclusion of Telecommunication Expenses from 'Total Turnover':
The Tribunal reiterated the principle that if certain expenses are excluded from the 'export turnover', they must also be excluded from the 'total turnover' to ensure consistency. This was supported by various High Court decisions, including CIT vs. Sudarshan Chemicals Industries Ltd., CIT vs. Chloride India Ltd., and CIT vs. Bharat Earth Movers Ltd. The Tribunal directed the AO to exclude the telecommunication expenses from the total turnover, thereby granting relief to the assessee.

5. Legality of the Order Passed by the CIT(A) Including Consequential Effects Under Sections 234B, 234C, and 234D:
The assessee contended that the order passed by the CIT(A) and its consequential effects under sections 234B, 234C, and 234D were bad in law. The Tribunal held that the charging of interest under these sections is consequential and cannot be deemed illegal. Therefore, this ground was not upheld.

Conclusion:
The Tribunal partly allowed the appeals filed by the assessee. The AO was directed not to exclude expenses incurred in foreign currency for software development from the export turnover and to exclude telecommunication expenses from the total turnover. The consequential charging of interest under sections 234B, 234C, and 234D was upheld as lawful.

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