Tribunal excludes foreign currency expenses from turnover for Section 10A deductions

The Tribunal upheld the exclusion of expenses in foreign currency from total turnover, disallowance under Section 14A of the Act, and emphasized parity between export and total turnover for computing deductions under Section 10A. The Tribunal dismissed both Revenue and assessee's appeals, confirming the exclusion of such expenses for deduction under Section 10A. The order was pronounced on 29th June 2017 in Chennai.

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Issues:
1. Exclusion of expenditure incurred in foreign currency towards communication expenses, project travel, software development charges, etc.
2. Disallowance made under Section 14A of the Act.
3. Exclusion of expenditure incurred in foreign currency while computing deduction under Section 10A of the Act.

Issue 1: Exclusion of Expenditure Incurred in Foreign Currency:
The Tribunal heard both the Revenue and assessee's appeals together. The main issue was the exclusion of expenses in foreign currency from total turnover. The CIT(A) directed the Assessing Officer to exclude these expenses from total turnover since they were already excluded from export turnover. The Tribunal upheld this decision citing Section 10A of the Income-tax Act, emphasizing the need for parity in excluding factors from both export and total turnover. Thus, the Tribunal confirmed the direction to exclude these expenses from total turnover.

Issue 2: Disallowance under Section 14A of the Act:
In the assessee's appeal, the issue was the disallowance made by the Assessing Officer under Section 14A of the Act concerning dividend income. The Assessing Officer computed the disallowance using Rule 8D of the Income-tax Rules, 1962, based on interest paid on borrowed funds and changes in investments and asset values. The Tribunal noted that Rule 8D computation is mandatory when the Assessing Officer is not satisfied with the assessee's claim. The Tribunal upheld the disallowance, stating that the method of computation under Rule 8D is undisputed.

Issue 3: Exclusion of Expenditure in Foreign Currency for Section 10A Deduction:
The Tribunal addressed the exclusion of expenditure in foreign currency for computing deduction under Section 10A of the Act. It reiterated the need for parity between export turnover and total turnover, emphasizing that if expenses in foreign currency are not included in export turnover, they cannot be part of total turnover. Therefore, the Tribunal dismissed both the Revenue and assessee's appeals, confirming the exclusion of such expenditure for computing deduction under Section 10A.

In conclusion, the Tribunal's judgment upheld the exclusion of expenses in foreign currency from total turnover, the disallowance under Section 14A of the Act, and reiterated the importance of maintaining parity between export and total turnover for computing deductions under Section 10A. Both appeals were dismissed, and the order was pronounced on 29th June 2017 in Chennai.

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