Appeal dismissed on telecom expenditure exclusion & profit computation for tax exemption under sections 40(a)(ia) and 36

The appeal of the Revenue was dismissed by the Tribunal. The exclusion of telecommunication expenditure from total turnover and export turnover was upheld, based on the lack of profit element. Additionally, disallowances under sections 40(a)(ia) and 36 were considered in profit computation for exemption under section 10A. The CIT (A) order was upheld, and the revenue's appeal was rejected. The order was pronounced on 31-03-2011.

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Issues involved: Appeal against CIT (A) order for assessment year 2006-07.

Ground 1 - Communication charges reduction:
The Tribunal upheld exclusion of telecommunication expenditure from total turnover and export turnover based on ITO vs. DE Block India Software case. The exclusion should be from both denominator and numerator, as it lacks profit element. Revenue's appeal on this ground rejected.

Ground 2 - Disallowance under sections 40(a)(ia) and 36:
The Tribunal ruled in favor of the assessee citing DCIT vs. Planet Online Private Limited case. Profit computation u/s 10A must consider disallowances under section 40a (ia) as per sections 29 and 28 of the Act. Therefore, exemption u/s 10A should be based on profits post disallowances. CIT (A) order upheld, and revenue's appeal on this ground dismissed.

Conclusion:
The appeal of the Revenue was dismissed, and the order was pronounced on 31-03-2011.

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