ITAT dismisses revenue's appeal for AY 2012-13 & 2013-14 due to low tax effect and expense deductions

The revenue's appeal for Assessment Year 2012-13 was dismissed by the ITAT due to low tax effect, falling below the threshold set by CBDT Circular No. 3/2018. The appeal for Assessment Year 2013-14 regarding the treatment of expenses for deduction u/s 10A was also dismissed, with the ITAT upholding the CIT(A)'s decision to reduce certain expenses from export turnover. Both appeals of the revenue and the assessee were dismissed based on the specific issues analyzed in the judgment.

---

---

Issues:
1. Maintainability of revenue's appeal for Assessment Year 2012-13 due to low tax effect.
2. Treatment of expenses for computing deduction u/s 10A for Assessment Year 2013-14.

Analysis:
1. Issue 1 - Maintainability of revenue's appeal for Assessment Year 2012-13:
The revenue's appeal for Assessment Year 2012-13 was challenged on the grounds of low tax effect. The tax effect in the appeal was below the threshold of Rs. 20 Lakhs as per CBDT Circular No. 3/2018. The total addition made by the Assessing Officer was Rs. 54,77,248, with only a partial disallowance upheld by the CIT(A). The revenue contended that the tax effect for the deletions being appealed was less than Rs. 20 Lakhs. The ITAT held that as per the CBDT instructions, the appeal of the revenue was not maintainable due to the low tax effect. Consequently, the appeal of the revenue for Assessment Year 2012-13 and both C.Os. of the assessee were dismissed.

2. Issue 2 - Treatment of expenses for computing deduction u/s 10A for Assessment Year 2013-14:
In the appeal for Assessment Year 2013-14, the revenue raised concerns regarding the deduction allowable under section 10A of the Income Tax Act. The dispute centered on whether expenses incurred in foreign currency for telecommunication and foreign travel should be reduced from export turnover only or total turnover as well. The CIT(A) directed the AO to recompute the deduction after reducing these expenses from export turnover. The revenue argued against this direction, citing no provision in Section 10A requiring such expenses to be reduced from total turnover. The ITAT noted that the issue was whether such expenses should affect total turnover, as per judgments of the Karnataka High Court and the Apex Court. Following the precedents, the ITAT upheld the CIT(A)'s order, dismissing the revenue's appeal for Assessment Year 2013-14.

In conclusion, both appeals of the revenue and both C.Os. of the assessee were dismissed based on the specific issues discussed and analyzed in the judgment.

---