ITAT Hyderabad grants appellant's claim on Section 10A deduction, emphasizes export turnover inclusion

The ITAT Hyderabad allowed the appeal, setting aside the orders of the CIT(A) and AO. It directed the inclusion of the invoice amount in the export turnover for the year, granting the appellant's claim related to disallowance of deduction under Section 10A for the assessment year 2010-11 and treatment of invoice raised on 31st March 2010 as export turnover for the financial year 2009-10. The ITAT also emphasized that any amount excluded from export turnover should similarly be excluded from total turnover, in line with relevant judicial precedents.

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Issues involved:
1. Disallowance of deduction under Section 10A for the assessment year 2010-11.
2. Treatment of invoice raised on 31st March 2010 as export turnover for the financial year 2009-10.
3. Disallowance of depreciation on certain used Fixed Assets.
4. Exclusion of invoice amount from export turnover but inclusion in total turnover.

Issue 1: Disallowance of deduction under Section 10A for the assessment year 2010-11:
The appellant, primarily engaged in IT and IT-enabled services, appealed against the Commissioner of Income Tax (Appeals) order for the AY 2010-11. The Assessing Officer (AO) denied the deduction under Section 10A by excluding an invoice amount from export turnover, which was upheld by the CIT(A). The ITAT Hyderabad held that the AO and CIT(A) actions were not in accordance with the provisions of the Income Tax Act. The only condition for software exported to be considered in a year is the receipt of sales proceeds within six months in convertible foreign exchange. The view of the AO and CIT(A) to treat the invoice amount as part of the next year's turnover based on Softex form submission was deemed unwarranted and against industry practice.

Issue 2: Treatment of invoice raised on 31st March 2010 as export turnover for the financial year 2009-10:
The AO excluded the invoice amount from export turnover for FY 2009-10 as it was cleared by STPI authority in FY 2010-11. However, the ITAT Hyderabad noted that the proceeds from the invoice were received during the year as an advance, making the furnishing of SOFTEX form a mere formality. The ITAT directed the AO to include the turnover and allow the deduction accordingly, emphasizing that the exports made via the invoice should be considered part of the same year's turnover.

Issue 3: Disallowance of depreciation on certain used Fixed Assets:
Ground No. 3 regarding the disallowance of depreciation on specific used Fixed Assets was not pressed by the appellant during the appeal proceedings.

Issue 4: Exclusion of invoice amount from export turnover but inclusion in total turnover:
The AO excluded the invoice amount from export turnover but retained it in total turnover, which the ITAT Hyderabad found unjustified. The ITAT directed the AO to include the invoice amount as part of the export turnover for the year, citing the principle that any amount excluded from export turnover should also be excluded from total turnover. The ITAT referred to judgments by the Hon'ble Bombay High Court and a Special Bench of ITAT to support the appellant's contentions.

In conclusion, the ITAT Hyderabad allowed the appeal, setting aside the orders of the CIT(A) and AO, and directed the inclusion of the invoice amount in the export turnover for the year, thereby granting the appellant's claim.

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