Tribunal excludes expenses from turnover for deduction

The Tribunal upheld the CIT(Appeals) decision directing exclusion of certain expenses from both export turnover and total turnover for deduction purposes under sections 10A and 10B of the Act. The Tribunal relied on the binding precedent set by the Hon'ble High Court of Karnataka in a similar case. Both the Revenue's appeal and the assessee's cross objection were dismissed, affirming the CIT(Appeals) order.

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Issues:
1. Appeal by the revenue and cross objection by the assessee against the order of the CIT(Appeals)-I, Bangalore for assessment year 2007-08.

Detailed Analysis:

1. The assessee was involved in the business of aircraft safety and evacuation systems, with a 100% EOU division eligible for deduction u/s. 10B of the Act. A new business line was set up for design services under 'India Design Centre,' registered as a 100% EOU under STPI scheme, eligible for deduction u/s. 10A of the Act.

2. The Assessing Officer reduced telecommunication expenses, freight outwards, and foreign travel expenses from the export turnover for computing deduction u/s. 10A/10B. The AO relied on the definition of "export turnover" under Explanation 2 to Section 10A and Clause (iii) of Explanation to Section 10B, excluding certain expenses from export turnover.

3. The assessee argued that the telecommunication and freight expenses were not part of the export turnover as they were not separately charged back to entities outside India. Invoices were provided to support this claim. Additionally, the assessee requested that if these expenses were excluded from export turnover, they should also be reduced from the total turnover for deduction purposes.

4. The AO disagreed with the assessee's submissions and excluded the expenses only from the export turnover. On appeal, the CIT(Appeals) directed the AO to exclude the expenses from both export turnover and total turnover, citing the decision of the Hon'ble High Court of Karnataka in CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn).

5. The Revenue appealed to the Tribunal, challenging the CIT(Appeals) order. The Tribunal upheld the CIT(Appeals) decision, stating that the law declared by the jurisdictional High Court, i.e., the Hon'ble High Court of Karnataka, is binding. The Tribunal confirmed the CIT(A) order, dismissing the Revenue's appeal.

6. The assessee, in the cross objection, supported the CIT(Appeals) order and argued that the telecommunication, travel, and freight expenses should not have been excluded from the export turnover. The Tribunal did not adjudicate on the cross objection, leaving the question open for future adjudication if necessary.

7. Ultimately, the Tribunal dismissed both the Revenue's appeal and the assessee's cross objection, confirming the CIT(Appeals) order. The decision was pronounced in open court on 27.3.2015.

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