TMI Blog2011 (8) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent by : Shri Vikash Dhariwal, C.A. ORDER PER BENCH : These two appeals preferred by the department are directed against separate orders of the CIT(A) LTU, Bangalore both dated 28/9/2010. The relevant asst. years are 2004-05 and 2005- 06. 2. Since common issues are raised in these appeals and they pertain to the same assessee, these appeals are heard together and disposed off by this consolidated order for the sake of convenience and brevity. 3. In these appeals, identical five grounds are raised. However, the solitary issue that is raised is whether the CIT(A) is justified in directing the AO to recompute deduction u/s 10A of the Act after excluding expenditure incurred on up-linking charges out of telecommunication expenses from both export turnover and the total turnover. 4. Briefly stated the facts are as follows:- The assessee is a company. It is engaged in the business of development of software for the global research and development needs of the Intel Group as well as providing sales support and warranty support services. For the asst. year 2004-05, return of income was filed on 1.11.2004 declaring a loss of Rs.3,48,802/- after claiming a ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of the expenses incurred in foreign currency from export turnover be given by reducing it from the total turnover as well, for uniformity between the two components while computing the deduction u/s 10A of the Act. The copy of the order is enclosed herewith as Annexure 2. 2. Further we wish to submit as under - 2.1 As per section 10A(4) of the Act, for the purpose of computing the deduction u/s 10A, the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking - Export turnover * Profits of the undertaking Total turnover The Company contends that parity should be maintained with regard to items of inclusions and exclusions between numerator and denominator i.e. export turnover and total turnover, in the formula prescribed u/s 10A of the Act. The term total turnover has not been defined in section 10A of the Act. However, for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the sale proceeds of exports at c.i.f. value. With a view to removing this anomaly, it is proposed to clarify that total turnover will also not include such freight or insurance . The Hon ble Members would therefore note that the legislature itself has admitted that where a specific definition of total turnover is not provided in the section (for excluding the said expenses) and a definition of export turnover exists (with such exclusions), it is an anomaly. The Hon ble Members would appreciate that thelaw is to be interpreted in a manner that it does not give rise to anomalous result. 2.5 Further, we wish to place reliance on various recent judicial pronouncements on this matter: 2.5.1 In the case of CIT v Gem Plus Jewellery India Ltd. (2010) 330 ITR 175 (Bom HC), the Hon ble Bombay High Court on the issue of adjustment of freight and insurance expenses from the total turnover while computing deduction u/s 10A of the Act has laid down the principle that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er software only. Therefore, the entire profits of the Company are subject of deduction u/s 10A of the Act. If export turnover and total turnover are taken up on different basis (by not excluding the telecommunication expenses from the total turnover) then a portion of the profits of STP units would become profits arising from domestic turnover, which the Company does not factually have. The Hon'ble Members would appreciate that it is not the intention or purpose of law to bring the tax profits arising from 100% export of computer software by applying unequal basis in export turnover and total turnover. It is humbly submitted that where the entire turnover of the STP units consists of export, the allocation, effectively, is not required. In absence of a domestic turnover, no profit can be allocated to such non-existent domestic turnover. 2.7 Therefore, we request the Hon'ble Members to give the corresponding effect of reduction of telecommunication expenses from the export turnover by reducing it from the total turnover as well, for uniformity between the two components while computing the deduction u/s 10A of the Act. 2.8 Further, the appellant has relied on the ruling of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act. The relevant finding of the Hon ble Mumbai High Court reads as follows:- Held : The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression export turnover in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83: (2007) 292 ITR 641 (SC) relied on 10.1 In the case of Sak Soft Ltd. (supra), the assessee was engaged in the business of exporting computer software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claimed by the assessment u/s 10B of the Act. 10.2 In light of the above facts, the Special Bench held as under:- For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula. The appeals filed by the department are thus dismissed . Although the order of Special Bench is in the contex ..... 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