2012 (12) TMI 615 - AT - Income Tax

Tribunal grants relief to assessee, rejects Revenue's appeals on various tax issues.

M/s iNautix Technologies India Pvt. Ltd Versus The Assistant Commissioner of Income Tax Company Circle II(3) Chennai

M/s iNautix Technologies India Pvt. Ltd Versus The Assistant Commissioner of Income Tax Company Circle II(3) Chennai - TMI Issues Involved:1. Exclusion of foreign currency expenses from export turnover for computing deduction under section 10A.2. Inclusion of foreign exchange gain in eligible profits for deduction under section 10A.3. Inclusion of CST refunds in eligible profits for deduction under section 10A.4. Treatment of loss from provision of workstations.5. Disallowance under section 14A.6. Treatment of software cost as capital expenditure.7. Parity between export turnover and total turnover.Issue-wise Detailed Analysis:1. Exclusion of Foreign Currency Expenses from Export Turnover:The primary issue was whether expenses incurred in foreign currency for travel and other activities should be excluded from export turnover while computing deduction under section 10A. The assessee argued that these expenses should not be excluded as they were part of 'software development' and not 'technical services.' The Tribunal found in favor of the assessee, noting that the company was engaged in software development, supported by evidence such as the STPI approval and Transfer Pricing Order. The Tribunal also noted that if these expenses were excluded from export turnover, they should also be excluded from total turnover to maintain parity, as supported by several judicial precedents.2. Inclusion of Foreign Exchange Gain in Eligible Profits:The Revenue challenged the inclusion of foreign exchange gain in the eligible profits for deduction under section 10A. The Tribunal upheld the CIT(A)'s decision to include the foreign exchange gain, noting that it had a direct nexus with the business of the undertaking. The Tribunal referenced decisions from other cases, such as Pentasoft Technologies Ltd and M/s Mysodet (P) Ltd, which supported the assessee's position.3. Inclusion of CST Refunds in Eligible Profits:The Revenue contested the inclusion of CST refunds in the eligible profits for deduction under section 10A. The Tribunal upheld the CIT(A)'s decision, agreeing that the CST refund had a direct nexus with the eligible undertaking. The Tribunal referenced the decision in Dy. CIT vs Aarti Industries, which supported the inclusion of such refunds in eligible profits.4. Treatment of Loss from Provision of Workstations:The Revenue argued that the loss from leasing unutilized facilities should be included in the total turnover for computing deduction under section 10A. The Tribunal upheld the CIT(A)'s decision to treat the income from leasing as 'income from other sources' and not part of the total turnover, as this activity was not part of the assessee's core business.5. Disallowance under Section 14A:The assessee did not press the issue regarding the disallowance of estimated 2% of dividend income under section 14A, leading to its dismissal.6. Treatment of Software Cost as Capital Expenditure:The assessee did not press the issue regarding the treatment of software cost as capital expenditure, leading to its dismissal.7. Parity between Export Turnover and Total Turnover:The Tribunal consistently held that there must be parity between export turnover and total turnover for the purpose of computing deduction under section 10A. The Tribunal referenced several judicial decisions, including the Hon'ble Supreme Court's decision in the case of Lakshmi Machine Works, which supported maintaining parity between the two figures.Summary of Results:- All appeals by the assessee were partly allowed.- All appeals by the Revenue were dismissed.