Tribunal upholds income exemption under Section 10A, export turnover inclusion, and expense reduction. Advances written back allowed.

The Tribunal dismissed the revenue's appeals for assessment years 2010-11 and 2011-12, upholding the eligibility of 'other income' for exemption under Section 10A and the inclusion of export sale proceeds in the current year's turnover. The Tribunal also affirmed that losses of one 10A unit cannot be set off against profits of another unit and upheld the reduction of telecommunication and insurance expenditure from both export and total turnover. The assessee's cross-appeal was allowed concerning advances written back to the profit and loss account. The Tribunal's decision was pronounced on 05th December 2018.

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Issues Involved:

1. Eligibility of 'other income' for exemption under Section 10A.
2. Inclusion of export sale proceeds realized subsequently in the current year's export turnover.
3. Set-off of losses of one 10A unit against profits of another 10A unit.
4. Reduction of telecommunication and insurance expenditure from both export turnover and total turnover.

Detailed Analysis:

1. Eligibility of 'Other Income' for Exemption Under Section 10A:

The revenue challenged the finding of the CIT(A) that 'other income' is eligible for exemption under Section 10A. The CIT(A) based its decision on various rulings by the Karnataka High Court, including cases like Subex Ltd, Green Agro Pack Pvt. Ltd., and Wipro Ltd. The Tribunal upheld the CIT(A)'s decision, referencing the Full Bench decision of the Karnataka High Court in CIT vs. Hewlett Packard Global Soft Ltd., which determined that incidental income such as interest on bank deposits or staff loans constitutes part of the profits and gains of special undertakings like 100% Export Oriented Units (EOUs). Therefore, the Tribunal found no merit in the revenue's appeal on this ground and dismissed it.

2. Inclusion of Export Sale Proceeds Realized Subsequently in Current Year's Export Turnover:

The revenue also contested the CIT(A)'s inclusion of export sale proceeds realized after the prescribed time as part of the current year's export turnover. The CIT(A) relied on Section 155(11A) of the Act and the Karnataka High Court's decision in Wipro Ltd. vs. DCIT, which supports treating such proceeds as part of the current year's export turnover. The Tribunal upheld the CIT(A)'s decision, noting that the revenue did not provide evidence of the Supreme Court reversing the High Court's ruling. Thus, this ground of appeal was also dismissed.

3. Set-off of Losses of One 10A Unit Against Profits of Another 10A Unit:

The revenue argued against the CIT(A)'s decision not to set off the loss of one 10A unit against the profits of another 10A unit. The CIT(A) followed the ITAT's decision in the assessee's own case for the assessment year 2007-08 and the Supreme Court's ruling in CIT vs. Yokogawa India Ltd., which clarified that deductions under Section 10A are specific to the eligible undertaking and should be computed independently. The Tribunal agreed with the CIT(A)'s interpretation and dismissed the revenue's appeal on this ground.

4. Reduction of Telecommunication and Insurance Expenditure from Both Export Turnover and Total Turnover:

The revenue challenged the CIT(A)'s decision to reduce telecommunication and insurance expenditure incurred in foreign currency from both export turnover and total turnover. The CIT(A) based its decision on the Supreme Court's ruling in CIT vs. HCL Technologies Ltd., which held that such expenditures should be excluded from both export turnover and total turnover to avoid an illogical and unjust result. The Tribunal upheld the CIT(A)'s decision, finding it consistent with the Supreme Court's interpretation, and dismissed the revenue's appeal on this ground.

Separate Judgments Delivered:

The Tribunal delivered a common judgment for ITA Nos. 1516 & 1517/Bang/2017, dismissing the revenue's appeals for both assessment years 2010-11 and 2011-12. In the cross-appeal (ITA No. 1222/Bang/2017) filed by the assessee for the assessment year 2011-12, the Tribunal allowed the appeal, holding that advances written back to the profit and loss account constitute business income eligible for deduction under Section 10A, following the Karnataka High Court's decision in Hewlett Packard Global Soft Ltd.

Conclusion:

The appeals filed by the revenue were dismissed, and the cross-appeal filed by the assessee was allowed. The Tribunal's order was pronounced in the open court on 05th December 2018.

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