Tribunal rules on foreign currency expenses exclusion from turnover for tax deduction

The Tribunal upheld the CIT(A)'s decision in the Revenue's appeal, ruling that certain expenses in foreign currency excluded from export turnover should also be excluded from total turnover for deduction under section 10B of the Income Tax Act. In the Assessee's appeal, the Tribunal allowed the appeal for statistical purposes, emphasizing the CIT(A)'s authority to consider additional grounds like depreciation on goodwill under section 32(1)(ii) of the Act. The Tribunal remanded the issue to the AO for fresh consideration, highlighting the significance of legal precedents and the CIT(A)'s powers in addressing such claims.

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Issues:
1. Whether certain expenditures incurred in foreign currency should be excluded from export turnover without reducing them from total turnover while computing deduction u/s. 10B of the Act.
2. Whether the assessee is entitled to depreciation on goodwill under section 32(1)(ii) of the Act and if the additional ground for depreciation on goodwill should have been admitted by the CIT(A).

Issue 1 - ITA No.672/B/14 (Revenue's appeal):
The main issue in this appeal was whether the CIT(Appeals) was correct in directing the AO to exclude certain expenses incurred in foreign currency from the export turnover without reducing them from the total turnover while calculating deduction under section 10B of the Income Tax Act. The AO argued that the expenses should only be reduced from export turnover as per the specific definition provided, without affecting total turnover. However, the CIT(Appeals, following the decision of the Karnataka High Court in a similar case, held that expenses excluded from export turnover should also be excluded from total turnover. The Tribunal upheld the CIT(A) decision, stating that the High Court's ruling was binding and confirmed the order.

Issue 2 - ITA No.705/B/14 (Assessee's appeal):
In this appeal, the question was whether the assessee was entitled to claim depreciation on goodwill under section 32(1)(ii) of the Act. The assessee, relying on a Supreme Court judgment, contended that goodwill should be considered an asset eligible for depreciation. The assessee raised an additional ground for depreciation on goodwill before the CIT(A), who refused to admit the ground for adjudication citing lack of factual basis on record. The Tribunal disagreed with the CIT(A) and held that the CIT(A) has plenary powers to consider such claims, even if not raised before the AO. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for fresh consideration, allowing the assessee's appeal for statistical purposes.

In conclusion, the Tribunal dismissed the Revenue's appeal while treating the assessee's appeal as allowed for statistical purposes, emphasizing the importance of considering legal precedents and the powers of the CIT(A) in addressing additional grounds raised during the appeal process.

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