Tribunal affirms exclusion of telecommunication charges from turnover for deduction under Section 10A

The Tribunal upheld the CIT(A)'s decision to exclude 50% of telecommunication charges from total turnover for deduction under Section 10A, following the principle that certain expenses are not considered as part of turnover. Additionally, the Tribunal agreed with the CIT(A) that deduction under Section 10A can be allowed without setting off brought forward unabsorbed depreciation and business losses, emphasizing that the computation should be based on profits of the assessment year without reducing losses. The revenue's appeals were dismissed, affirming the CIT(A)'s decisions on both issues.

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Issues Involved:
1. Exclusion of telecommunication charges from total turnover for deduction u/s 10A.
2. Allowance of deduction u/s 10A without setting off brought forward unabsorbed depreciation and business losses.

Summary:

Issue 1: Exclusion of Telecommunication Charges from Total Turnover
The revenue appealed against the CIT(A)'s decision to exclude 50% of telecommunication charges from the total turnover for computing deduction u/s 10A of the I.T. Act. The Tribunal referenced the Special Bench decision in ITO vs Sak Soft Ltd., which held that expenses like freight, telecom charges, or insurance attributable to the delivery of goods outside India, and expenses incurred in foreign exchange for technical services outside India, should not be included in the total turnover. These receipts are considered reimbursements and do not represent "consideration" for exports. Consequently, the CIT(A) was justified in directing the Assessing Officer to exclude 50% of the telecommunication charges from the total turnover.

Issue 2: Deduction u/s 10A Without Setting Off Brought Forward Unabsorbed Depreciation and Business Losses
The second issue pertained to the CIT(A)'s direction to allow deduction u/s 10A without setting off brought forward unabsorbed depreciation and business losses of earlier years. The Assessing Officer initially held that such set-offs were necessary before ascertaining the quantum of deduction allowable u/s 10A. However, the assessee argued that losses pertaining to non-STPI units could not be set off against profits of STPI units, citing various decisions, including KPIT Cummins Infosystems (P) Ltd. vs ACIT.

The Tribunal noted that Section 10A(1) allows deduction of profits derived from export activities from the total income of the assessee, without mentioning the need to reduce brought forward losses and unabsorbed depreciation. The Tribunal emphasized that the computation of deduction should be based on the profits of the particular assessment year, as indicated by the third proviso to Section 10A(1) and the absence of a provision similar to Section 80AB in Section 10A. The Tribunal also referenced the Supreme Court decision in CIT vs Lakshmi Machine Works, which supported the exclusion of certain items from total turnover.

The Tribunal concluded that the CIT(A) was justified in directing that brought forward losses and unabsorbed depreciation should not be reduced while computing deduction u/s 10A. This conclusion was supported by the jurisdictional Bench's decision in KPIT Cummins Infosystems (P) Ltd. vs ACIT, which clarified that unabsorbed depreciation should not be factored into the computation of profits for deduction u/s 10A.

Conclusion:
Both appeals by the revenue were dismissed, affirming the CIT(A)'s decisions on both issues. The judgment was pronounced in the open Court on 24.7.2009.

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