2021 (3) TMI 530

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....ection 143(1)(a) was issued, granting a refund of Rs. 2,12,43,455/-, which included interest amounting to Rs. 14,71,067/-. A notice under Section 143(2) was issued on 16.09.2003 and the gain from exchange fluctuation/deduction under Section 80HHE was claimed at Rs. 2,87,27,351/- and therefore, the assessee was asked to explain why the exchange gain of units excluding Chennai should be excluded from the eligible profit for the purpose of Section 80HHE. The Assessing Officer found that exchange fluctuation pertains to export of computer software and followed the assessment order passed for the year 1999-00 and 2001-02 by treating the foreign exchange fluctuation would not be eligible for calculating 80HHE deduction, instead the gains would be taxed under the head "income from other sources". 3. The other issue with regard to the gain from exchange fluctuation deduction under Section 10B, the Assessing Officer found that the exchange fluctuation relating to export of computer software and based on the decision for the assessment year 1999-00 and 2000-01, which was similar to the present assessment year, followed the same and held that exchange fluctuation gain was to be taxed separat....

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....the assessment made was erroneous and prejudicial to the interest of the Revenue, after issuing show cause notice, the CIT directed the Assessing Officer to quantify the amount of exemption under Section 10B and also to quantify the exemption for the purpose of Section 14A after providing opportunity to the assessee. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), which was partly allowed. Aggrieved by the order of the CIT (Appeals), both the assessee and the Revenue preferred appeals before the Income Tax Appellate Tribunal and the Tribunal partly allowed the Revenue's appeal and dismissed the assessee's appeal. Aggrieved by the same, the Revenue has filed the above appeal. 8. The above appeal has been admitted on the following substantial question of law: "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in directing the Assessing Officer to recompute the deduction under Section 10B by excluding telecommunication and other expenses incurred in foreign currency both from export turnover and total turnover?" 9. When the appeal is taken up for hearing, Mr. R. Venkat....

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.... freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover." (ii) (2019) 417 ITR 0441 (Mad) [M/s. Polaris Consulting & Services Ltd., (formerly known as M/s. Polaris Software Lab Limited) Vs. Deputy Commissioner of Income Tax], wherein a Division Bench of this Court held as follows: "... 16. On a perusal of the nature of the contract and the various steps, which been enumerated therein, we find that the element of 'technical services' have been rendered as integral part of the software development process. There was no material available before the Assessing Officer to split up the transaction into two or to bisect the transaction to find out an element of 'technical services'. As rightly pointed out by the assessee, this exercise has been done by the Assessing Officer based on the notes to the accounts in the financial statements, which would be impermissible. What is required to be examined is the nature of services rendered by the assessee to the foreign entity. Thus, we a....

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....r to a new business of plant and machinery previously used for any purpose. The Assessing Officer found that the assessee had not complied with both these conditions, hence, it was not entitled to any deduction under Section 10B. 6. For the Assessment Year 2002-03, in the case of the assessee Company itself, the Income Tax Appellate Tribunal "C" Bench, Chennai had dealt with the applicability of Clauses (ii) and (iii) of Section 10A(2) in its order dated 16.05.2008 in I.T.A. No. 2255/Mds/06. The Tribunal, after taking into consideration the decision of Apex Court reported in 107 ITR 195 [Textile Machinery Corporation Limited Vs. CIT] held as follows: "... this is not a case of setting up of a new business, but only transfer of business place of existing business to a new place located in STPI area and thereafter, getting the approval from the authorities, the assessee become entitled to deduction under Section 10A. Merely because by shifting the business from one place to another and keeping some of the plant and machinery as those are bearing charge of financial institution, does not violate Clause (ii) and (iii) of Sub Clause (2) to Section 10A of the Income Tax Act." 7. Th....