2014 (1) TMI 178 - AT - Income Tax

Excluding foreign travel expenses from turnover for tax deduction promotes fair treatment

The Asst. Commissioner of Income Tax Versus M/s Makino India Private Limited

The ITAT Bangalore upheld the CIT(A)'s decision to exclude foreign travel expenses from both export turnover and total turnover for calculating the ... Computation of deduction u/s 10A of the Act - Exclusion of foreign travel expenses from the total turnover – Held that:- Following Commissioner of Income-tax Versus Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] -while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator - When the statute prescribed a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover - If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible - the order of the CIT(A) is correct and in accordance with law and he is justified in directing the AO to exclude the expenses both from the export turnover as well as from the total turnover while calculating deduction u/s 10A of the Act – Decided against Revenue. Issues:- Interpretation of deduction under section 10A of the Income Tax Act for assessment year 2008-2009.- Exclusion of foreign travel expenses from export turnover and total turnover.- Applicability of the decision of the Hon'ble High Court of Karnataka in the case of CIT v Tata Elxsi Ltd. and others (2011) 247 CTR 334 (Karnataka).Interpretation of Deduction under Section 10A:The case involved an appeal by the revenue against the order of the CIT(A)-III, Bangalore for the assessment year 2008-09. The assessee, a company engaged in the manufacture and sale of connectors, declared an income of Rs.14,86,91,468/- for the year. The assessment was completed under section 143(3) of the Income Tax Act, resulting in the determination of the assessee's income at Rs.14,97,71,478/-. The dispute arose due to the re-computation of the eligible deduction under section 10A of the Act by the Assessing Officer, specifically concerning the exclusion of travel expenditure of Rs.18,19,524/- incurred in foreign currency from the export turnover.Exclusion of Foreign Travel Expenses:The main contention revolved around the exclusion of foreign travel expenses from both the export turnover and total turnover for calculating the deduction under section 10A of the Income Tax Act. The CIT(A) allowed the assessee's appeal, directing the Assessing Officer to recompute the eligible deduction under section 10A by excluding the mentioned expenses, citing the decision of the Hon'ble High Court of Karnataka in the case of CIT v Tata Elxsi Ltd. and others (2011) 247 CTR 334. The revenue challenged this decision, arguing that the exclusion should only apply to export turnover as per the statutory provisions, as total turnover was not defined in section 10A of the Act.Applicability of High Court Decision:The ITAT Bangalore considered the interpretation of the High Court decision in the Tata Elxsi case, which emphasized the exclusion of certain expenses from both export turnover and total turnover to maintain consistency in the calculation of deductions under section 10A. The Tribunal referred to similar decisions by the Mumbai High Court and the Special Bench in the case of Sak Soft Ltd. to support the position that expenses excluded from export turnover should also be excluded from total turnover. Ultimately, the ITAT upheld the CIT(A)'s order, stating that the exclusion of foreign travel expenses from both turnovers was in line with the law and the High Court's decision, dismissing the revenue's appeal for the assessment year 2008-09.In conclusion, the judgment by the ITAT Bangalore in the case involving the interpretation of deduction under section 10A of the Income Tax Act for the assessment year 2008-09 highlighted the importance of excluding specific expenses, such as foreign travel expenses, from both export turnover and total turnover to calculate the eligible deduction accurately. The decision aligned with the rulings of the High Courts and the statutory intent to promote exports through consistent and fair tax treatment.