TaxTMI 
TaxTMI 
2012 (12) TMI 615
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....essed u/s 143(1) on 12.3.2003 but subsequently, assessment was made u/s 143(3) determining total income at Rs. 1,13,46,149/-. Being aggrieved against the additions made in the returned income, the assessee preferred first appeal and from the ld. CIT(A) it has been successful in getting a part relief. Not being fully satisfied, a second appeal has been filed against the sustained addition. 4. The first issue of this appeal is against exclusion of certain expenses, incurred for travel, etc. in foreign currency, from export turnover while computing deduction u/s 10A of the Act as against the assessee having included the same. The assessee has claimed that these expenses should not have been excluded, but in the alternative, it is pleaded that, in case these expenses are to be excluded then these have to be excluded both from the total turnover as well as export turnover for the purpose of computing the deduction u/s 10A so that correct interpretation can be given to this provision. It was first and foremost argued by the ld.AR that these expenses are a part and parcel of 'export turnover' as the assessee is engaged in 'Software Development' and not in providing 'technical services'.....
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..... Therefore, the exclusion of these expenses from export turnover is not correct. The decision of ITAT Chennai Special Bench in the case of Zylog Systems 135 TTJ 129, inter alia, supports her contention. We have to accept this contention of the ld.AR mainly because we are convinced after running through the various pieces of evidence referred to above that the assessee is engaged in the business of 'software development', therefore, we decide this issue in favour of the assessee and against the Revenue. 8. The alternative plea although is now of academic interest, but we would like to mention that if the expenses are excluded from the export turnover these should also be excluded from the total turnover. The decision of Hon'ble Supreme Court rendered in the case of Lakshmi Machine Works,290 ITR 667, and that of Mumbai High Court in the case of Gem Plus Jewellery India Ltd, 330 ITR 175 and the decision of ITAT Special Bench, Chennai in the case of Saksoft , 121 TTJ 865, support such a premise. By following the ratio decidendi of the above decisions, we are of the opinion that there has to be parity between the export turnover and total turnover, to effectively apply the formula st....
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....ancial year and received after one or two years, the fluctuation arising at that time will have any relevance to the turnover reported for the previous year in which the sale took place or not is the puzzle of this issue. In the opinion of the Assessing Officer, the assessee loses its rights over the sold items on the very despatch of the same and as per Accounting Standard prescribed by the ICAI, foreign currency transactions are to be recorded at the date of the transactions applying the exchange rate between the reporting currency and the foreign currency as on such date of transaction(s). Thus, according to the Revenue, the sale proceeds should be the value recorded in the books and any increase or decrease in exchange fluctuation on the bill amount is only a subsequent event after the completion of the transaction; it is only an accretion to the amount due to be received by the assessee and not an accretion to the sale price of items exported. In this context, it was argued by the ld. CIT/DR that it may be a treasury income and although this gain arises in the course of export business yet it has no direct nexus with the business of the undertaking and hence, needs to be excl....
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....ld. CIT/DR, it was argued by Dr.Sumanth that the assessee-company is a STPI unit and procures certain goods locally for the business of software development, for which the assessee is liable to pay 'sales tax' and that on such supplies from the Domestic Operation Area to the STPI units are treated as 'Deemed Sales' as per Foreign Trade Policy. In this regard, a copy of the Foreign Trade Policy has been filed. We have perused it and have found that the assessee is entitled to a refund of the CST from the STPI Authorities on the basis of a 'periodic statement' detailing the indigenous purchases made. Thus, such a refund so generated has a direct nexus and connectivity with the eligible undertaking making it entitled for the deduction u/s 10A. In this regard, the decision rendered in the case of Dy. CIT vs Aarti Industries , 95 TTJ 14 , supports our above view. The ld. CIT(A) has also relied on this decision in which it has been held that "the refund of Excise Duty is to be considered as a part of eligible profits for the purpose of deduction u/s 80HHC". Moreover, the Assessing Officer has not sought to treat the CST refund as income from other sources, therefore, deriving parallels f....
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....ure to the extent of lNR 4,397,448 incurred by the Appellant is capital in nature. Issue 2 - Tax consultancy fee 2 The CIT(A) has erred in confirming AO's order by disallowing expenditure in the nature of tax consultancy fee incurred by the Appellant. Issue 3 - Expenditure incurred in foreign currency for computing export turnover. 3. The CIT(A) has erred in confirming the order of the AO by excluding travel and certain other expenses incurred in foreign currency from the export turnover, when such items were not included in the export turnover in the first place. 4. Without prejudice to ground 3 above, that the CIT(A) has erred in confirming the order of the AO in treating travel and certain other expenditure incurred in foreign currency as expenditure incurred for providing technical services outside India when the Appellant is engaged in the business of development of computer software. Accordingly, the CIT(A) has erred in confirming the AO's order that such expenses need to be excluded from export turnover. 5. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, before commencement off during proceedings before the ....
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....oviding technical services outside India is also to be excluded. The proceeds from on-site development abroad being the profits derived from export has nothing to do with the explanation of the 'export turnover' which quantifies the allowable deduction. He has further observed that exclusion of such expenditure is to compute the allowable deduction and it has nothing to do with the profit of the undertaking. So, according to him, allowable deduction of expenditure is restricted to the extent of net foreign exchange brought into India. He has also observed that for computation of allowable deduction, the nominator and denominator cannot be the same figure, therefore, the export turnover (nominator) is restricted to net convertible foreign exchange received in India. He has not adjusted the turnover to the extent of convertible foreign exchange received in India and has allowed the deduction on pro-rata basis. He has reduced the export turnover to the extent of Rs. 16,88,635/-. The ld. CIT(A) has also agreed with this action of the Assessing Officer. The assessee is further aggrieved and has assailed this finding by submitting that the it is engaged in the business of 'software deve....
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.... company had received in all a sum of Rs. 174,65,942/- from this activity and after claiming an expenditure of Rs. 1,70,17,143/- a net income of Rs. 4,48,799/- has been shown and offered for tax under the head 'income from other sources'. The Assessing Officer has included the entire sum of Rs. 1,74,65,942/- as forming part of business income of the assessee and has included this sum in the total turnover for the purpose of computing deduction u/s 10A. As we have already held in the earlier part of this order that this is an activity which is eligible for deduction u/s 10A therefore, we cannot reverse the finding of the ld. CIT(A) in this regard. 27. The next issue of Revenue's appeal is regarding finding of ld. CIT(A) that expenditure in foreign currency of Rs. 16,88,635/- should be excluded from the total turnover for the purpose of computing deduction u/s 10A. As per Revenue, the Legislature has specifically excluded expenditure incurred in foreign exchange and in the absence of equal definition to the term total turnover, the normal meaning of the term only should be applied. We have already held above that parity has to be maintained between export turnover and total turnover....
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....essing Officer has reduced a sum of Rs. 66,51,761/- from the total turnover. Similarly, he has reduced the figures relating to the earlier accounting period while adopting the figure of export turnover. The relevant figures are shown in the table below: Total turnover Rs. Export turnover Rs. As per appellant's working 85,73,37,819 85,73,37,819 As per Assessing Officer's working 85,17,16,058 84,49,93,829 Difference 56,21,761 1,23,43,990 30. According to the Assessing Officer, these figures relate to earlier accounting period and therefore, cannot be taken into consideration for the purpose of deduction u/s 10A of the Act of the impugned accounting period. The stand taken by the assessee would be clear from the submissions of the ld.AR made before the ld. CIT(A) as contained in para 7.2 at page 26 of is order. This is being extracted verbatim for ready reference: "Unbilled revenues for the period from March 24, 2003 to March 31, 2003 were included as part of revenues for the tax year ended March 31, 2003. Invoice for the same was raised during April 2003. However, given the services for the period March 24, 2003 to March 31, 2003 were rendered during the tax yea....
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....had been recognized in the books of account. We hereby wish to submit that the unbilled revenues relating to the period should be included to form part of export turnover and total turnover in computing the profits of the business" 31. After considering this explanation, the ld. CIT(A) has found that when the Assessing Officer has excluded a sum of Rs. 1,23,43,990/- from the export turnover he ought to have excluded similar sum from the total turnover also. Therefore, he has found inconsistency in the stand taken by the Assessing Officer. According to the assessee, a sum of Rs. 56,21,761/- represented unbilled Revenue and it relates very much to the exports made during the impugned accounting period and therefore, the same form part of the total turnover. Similarly, a sum of Rs. 1,23,43,919/- was not realized during the accounting period, so it cannot be excluded from the export turnover because it form part of total turnover for the impugned accounting period. 32. After hearing both sides in the light of available evidence on record, we find that the assessee has been consistently following Accounting Standard 9 issued by the ICAI and in case the action of the Assessing Officer ....
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....e regarding disallowance u/s 14A; and the second issue regarding Software cost, were not pressed at the time of hearing, and is also evident from the small compilation of the assessee where the expression 'Not Pressed' is written. Therefore, both the issues stand dismissed as not pressed. 36. The third issue regarding travel expenditure incurred in foreign currency for computing export turnover has been decided in favour of the assessee by us in earlier assessment year. In the same way and manner we decide the issue in this year also, and that too, in favour of the assessee-company. 37. In the result, the appeal of the assessee for assessment year 2004-05 stands partly allowed. I.T.A.No. 2177/Mds/2010 - A.Y 2004-05 - by Revenue 38. This is cross appeal of the Revenue for assessment year 2004- 05. In this appeal following grounds have been raised: "1. The order of the ld. CIT(A) is contrary to law and facts of the case. 2.1 The learned CIT(A) has erred in directing the assessing officer to exclude the expenditure incurred in foreign currency from the total turnover also for computation of deduction u/s.10A, as the same has been excluded from the export turnover. 2.2 The learn....
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....ction 14A 1. The learned Commissioner of Income tax (Appeals) ['CIT(A)'] has erred in confirming the order of the Assessing officer ('AO) that 2 percent of the dividend income (on an ad hoc basis) should be regarded as expenditure incurred for earning the dividend income and should accordingly be disallowed under section 14A, whereas, no expenditure was incurred by the Appellant towards earning such income. Issue 2 - Software cost 2. The learned CIT(A) has erred in confirming the AO's order that software expenditure to the extent of Rs. 55,20,827 incurred by the Appellant is capital in nature. Issue 3 - Travel expenditure incurred in foreign currency for computing export turnover. 3 The learned CIT(A) has erred in confirming the order of the AO by excluding travel expenditure incurred in foreign currency from the export turnover, when such items were not included in the export turnover in the first place. 4 Without prejudice to ground 3 above, the learned CIT(A) has erred in upholding the order of the AO in treating the travel expenditure incurred in foreign currency as expenditure incurred for providing technical services outside India when the Appellant is engaged in....