2013 (9) TMI 396 - AT - Income Tax

ITAT Chennai: Exclusion of Foreign Currency Expenditure, Upholding Deductions

The Appellate Tribunal ITAT Chennai ruled in favor of the assessee in the case, directing the exclusion of expenditure in foreign currency from both ... Exemption u/s 10A - allowing deduction under sec.10A before setting off of brought forward depreciation and losses. - Held that:- This issue was considered and decided by the Income-tax Appellate Tribunal, Chennai Bench in favour of the assessee, in the case of M/s. Scientific Atlanta India Technology Pvt. Ltd. (2010 (2) TMI 658 - ITAT, CHENNAI). - Hon’ble Karnataka High Court has considered this issue and decided in favour of the assessee in the case of CIT & Anr. Vs. Yokogawa India Ltd. and Others, [2011 (8) TMI 845 - Karnataka High Court]. The specific question considered by the High Court is, whether or not on the facts and in the circumstances, claim under sec.10A is to be allowed on the profits of the EOU without setting off of brought forward losses of earlier years of the non EOU? The Hon’ble Karnataka High Court again has considered similar issue and arrived at the same conclusion in the case of CIT & Anr. Vs. Tata Elxsi Ltd. & Others (2011 (8) TMI 782 - KARNATAKA HIGH COURT) - Decided in favor of assessee. Excluding expenditure incurred in foreign currency both from export turnover and total turnover. This issue already stands covered by the Special Bench decision of the Tribunal in the case of ITO v. Sak Soft Ltd. (2009 (3) TMI 243 - ITAT MADRAS-D). The grounds raised in the appeals filed by the Revenue fail. - Decided against the revenue. Issues:1. Exclusion of expenditure in foreign currency from export turnover.2. Allowing deduction under sec.10A before setting off brought forward depreciation and losses.Analysis:Issue 1: Exclusion of expenditure in foreign currency from export turnoverThe appeals filed by the assessee contested the exclusion of expenditure in foreign currency, including telecommunication expenditure, from the export turnover. The Income-tax Appellate Tribunal, Special Bench, Chennai, in the case of ITO v. Sak Soft Ltd., ruled in favor of the assessee, directing the exclusion of these items not only from the export turnover but also from the total turnover. Consequently, the assessing authority was instructed to exclude the mentioned items from both turnovers. The Tribunal's decision favored the assessee, leading to success in the appeals on this issue.Issue 2: Allowing deduction under sec.10A before setting off brought forward depreciation and lossesThe appeals filed by the Revenue raised concerns about the deduction under sec.10A being permitted before setting off brought forward depreciation and losses. The Income-tax Appellate Tribunal, Chennai Bench, in the case of M/s. Scientific Atlanta India Technology Pvt. Ltd., had previously decided this issue in favor of the assessee. The Revenue referred to a decision of the Karnataka High Court in the case of CIT v. Himatasingike Seide Ltd. However, subsequent decisions by the Hon'ble Karnataka High Court, such as in the cases of CIT & Anr. Vs. Yokogawa India Ltd. and Others, and CIT & Anr. Vs. Tata Elxsi Ltd. & Others, supported the assessee's position. Consequently, in light of the ITAT Chennai Bench's decision and the Karnataka High Court's rulings, it was held that the Commissioner of Income-tax(Appeals) had correctly concluded on this issue, ruling against the Revenue. The appeals filed by the assessee were allowed, while those filed by the Revenue were dismissed.In conclusion, the judgment by the Appellate Tribunal ITAT Chennai addressed the issues of exclusion of expenditure in foreign currency from export turnover and the timing of allowing deductions under sec.10A in a detailed and legally sound manner, providing clarity on these matters for the parties involved.