Tribunal Allows ISP Charges and Forex Expenses in Export Turnover for 2001-02; Upholds PF Disallowance for 2000-01.

The tribunal ruled that the AO erred in excluding ISP charges and foreign exchange expenses related to software development from the export turnover under section 10A. The tribunal allowed the assessee's appeals regarding these exclusions for the assessment year 2001-02. However, for the assessment year 2000-01, the tribunal upheld the disallowance of Rs. 2,52,340 as employees' contribution to the provident fund, affirming it as income from other sources due to late deposit beyond the due date.

---

---

Issues Involved:
1. Calculation of export turnover for the purpose of section 10A.
2. Deduction of ISP charges and expenses incurred in foreign exchange for providing technical services outside India from export turnover.
3. Disallowance of employee's contribution to provident fund after the due date.

Issue-wise Detailed Analysis:

1. Calculation of Export Turnover for the Purpose of Section 10A:

The appeals pertain to the calculation of export turnover for the purpose of section 10A, specifically whether ISP charges and expenses incurred in foreign exchange for providing technical services outside India should be excluded from export turnover. The assessee contested the reduction of these amounts from the export turnover, arguing that the entire profit was from export business only and that the formula for calculating eligible profits under section 10A(4) should not apply. The assessee maintained that the expenses were not recovered from the customer and thus should not be excluded from the export turnover.

2. Deduction of ISP Charges and Expenses Incurred in Foreign Exchange for Providing Technical Services Outside India from Export Turnover:

The Assessing Officer (AO) had excluded Rs. 40,93,493 (ISP charges) and Rs. 1,16,61,307 (expenses incurred in foreign exchange for providing technical services outside India) from the export turnover. The Commissioner of Income-tax (Appeals) upheld this decision, interpreting that these expenses fell under the non-inclusion clause of the definition of export turnover as per Explanation 2 to section 10A. However, the tribunal found that ISP charges were for transmitting data (software) and not attributable to the delivery of software outside India, thus not to be excluded from the export turnover. Similarly, the tribunal concluded that the expenses of Rs. 1,16,61,307 were not for providing technical services but were related to the development of software, and therefore, should not be excluded from the export turnover.

3. Disallowance of Employee's Contribution to Provident Fund after the Due Date:

For the assessment year 2000-01, an additional issue was the disallowance of Rs. 2,52,340 as employees' contribution to the provident fund, which was not deposited within the due date. The Commissioner of Income-tax (Appeals) confirmed the AO's decision to treat this amount as income from other sources based on sections 2(24)(x), 36(1)(va), and 56(2)(ic) of the Income-tax Act. The tribunal upheld this decision, stating that the unpaid provident fund contribution could not be treated as a business receipt and should be assessed as income from other sources.

Conclusion:

The tribunal concluded that the AO was incorrect in excluding the ISP charges and the expenses incurred in foreign exchange for providing technical services from the export turnover. The tribunal allowed the appeals for the assessment year 2001-02 and partly allowed the appeal for the assessment year 2000-01, confirming the disallowance of the employee's contribution to the provident fund.

---