2011 (8) TMI 1367 - AT - Income Tax

Summary

Issues involved:
The judgment involves the treatment of foreign exchange gain by the Assessing Officer (AO) and the claim of deduction u/s.10A by the assessee.

Issue 1: Treatment of foreign exchange gain
The assessee, a private limited company engaged in software services export, claimed deduction u/s.10A on foreign exchange gain. The AO disallowed the claim and treated it as income from other sources. The CIT(A) allowed the claim for a portion of the gain but disallowed a specific amount related to the revaluation of bank balance. The ITAT noted that the issue was covered against the assessee by the decision of the Jurisdictional High Court and upheld the disallowance based on precedents related to foreign exchange gain being part of export turnover.

Issue 2: Claim of deduction u/s.10A
The assessee contested the disallowance of deduction u/s.10A on the foreign exchange gain arising from the revaluation of bank balance. The ITAT referred to the decision of the Jurisdictional High Court, which emphasized that the exchange fluctuation post-export transaction does not have a direct nexus with the export activity and cannot be considered as part of the profits derived from export. The interest income from deposits in the EEFC account was also deemed not to be business income but income from other sources. Consequently, the ITAT decided the issue against the assessee and in favor of the Revenue, dismissing the appeal.

This judgment highlights the importance of legal precedents and interpretations in determining the tax treatment of foreign exchange gains and deductions u/s.10A in the context of export-oriented businesses.