2014 (1) TMI 1751 - AT - Income Tax

Tribunal directs exclusion of foreign currency expenses from export turnover for technical services

Robert Bosch Engineering & Business Solutions Ltd. (formerly Robert Bosch India Ltd.), Versus The Deputy Commissioner of Income Tax, LTU

Robert Bosch Engineering & Business Solutions Ltd. (formerly Robert Bosch India Ltd.), Versus The Deputy Commissioner of Income Tax, LTU - TMI Issues Involved:1. Exclusion of communication charges and expenses incurred in foreign currency from export turnover.2. Whether the exclusion of expenses incurred in foreign currency from export turnover should also apply to total turnover.3. Determination of whether the expenses incurred in foreign currency were for providing technical services outside India.Detailed Analysis:Issue 1: Exclusion of Communication Charges and Expenses Incurred in Foreign Currency from Export TurnoverThe assessee, a company engaged in software development and related activities, claimed a deduction under Section 10A of the Income Tax Act. The Assessing Officer (AO) excluded communication charges and expenses incurred in foreign currency from the export turnover based on clause (iv) of Explanation 2 of Section 10A. The AO referred to the ITAT Chennai Bench decision in California Software Co. Ltd. v. ACIT, which held that such exclusions need not be reduced from the total turnover. Consequently, the AO computed the deduction by reducing these expenses from the export turnover alone, resulting in a lower deduction amount.Issue 2: Whether the Exclusion of Expenses Incurred in Foreign Currency from Export Turnover Should Also Apply to Total TurnoverThe assessee argued before the CIT(A) that if expenses are excluded from the export turnover, they should also be excluded from the total turnover. The CIT(A) agreed with this alternative submission, following the Special Bench decision of ITAT Chennai in ITO v. Sak Soft Ltd., and directed the AO to exclude the telecommunication expenses and expenses incurred in foreign currency from the total turnover as well.Issue 3: Determination of Whether the Expenses Incurred in Foreign Currency Were for Providing Technical Services Outside IndiaThe assessee contended that the expenses incurred in foreign currency were not for providing technical services outside India but for software development. The CIT(A) did not address this issue on merits. The Tribunal noted that the Hyderabad Bench of ITAT in Patni Telecom Pvt. Ltd. held that expenses incurred for software development should not be excluded from the export turnover if they are not for independent technical services. The Tribunal found that the factual position regarding whether the expenses were for technical services was not clear and required verification. Thus, the Tribunal set aside the CIT(A)'s order and remanded the issue for further examination.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the CIT(A) to verify the nature of the expenses incurred in foreign currency and decide whether they should be excluded from the export turnover. The Tribunal emphasized that the exclusion of such expenses should only apply if they were for providing technical services outside India.