Appellate Tribunal excludes foreign exchange expenses from turnover for deduction computation

The Appellate Tribunal upheld the Commissioner's decision to exclude expenses incurred in foreign exchange from both export turnover and total turnover for the purpose of computing deduction u/s. 10A. The Tribunal found the issue to be covered by a previous Special Bench decision and dismissed the Revenue's appeal, affirming the Commissioner's order. No appearance was made on behalf of the assessee during the proceedings. The judgment was pronounced on May 9, 2014, in Chennai.

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Issues:
Recomputation of deduction u/s. 10A by excluding expenses incurred in foreign exchange from export turnover and total turnover.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-III, Chennai, relevant to the assessment year 2009-2010. The sole issue raised in the appeal was the recomputation of deduction u/s. 10A by excluding the expenses incurred in foreign exchange from both export turnover and total turnover. The assessee, a private limited company engaged in Information Technology support services, had filed its return of income claiming deduction u/s. 10A. The Assessing Officer observed that certain expenses in foreign currency were excluded from export turnover alone, leading to scrutiny assessment and subsequent appeal by the assessee.

During the course of assessment, the Assessing Officer noted specific expenses incurred by the assessee in foreign currency, including IT Co-ordination charges, Travel Expenses, and Onsite Training Expenses, totaling B3,36,42,939/-. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to exclude these expenses from the total turnover for calculating relief u/s. 10A. The Commissioner relied on a previous Special Bench decision of the Tribunal, emphasizing that what is excluded from export turnover should also be excluded from total turnover for sections 10A and 10B of the Act.

The Appellate Tribunal, after hearing the submissions of the ld. DR and reviewing the orders of the authorities below, found the issue to be squarely covered by the Special Bench decision in the case of M/s. Sak Soft Ltd. The Tribunal upheld the Commissioner's direction to reduce the expenditure incurred in foreign exchange from the total turnover for calculating the deduction u/s. 10A. Consequently, the Tribunal dismissed the appeal, affirming the correctness of the Commissioner's order. Despite the service of notice, no one appeared on behalf of the assessee during the proceedings.

In conclusion, the Appellate Tribunal upheld the Commissioner's decision to exclude expenses incurred in foreign exchange from both export turnover and total turnover for the purpose of computing deduction u/s. 10A, based on the precedent set by the Special Bench decision. The Tribunal found no fault in the Commissioner's order and dismissed the Revenue's appeal, pronouncing the judgment on May 9, 2014, in Chennai.

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