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The Deputy Commissioner of Income Tax, Chennai Versus M/s. Adventnet Development Centre India P. Ltd.

2015 (5) TMI 811 - ITAT CHENNAI

Exemption u/s 10A - Treatment to foreign exchange rate gain on packing credit foreign currency loan - income from other sources OR income from business for the purpose of computing deduction under section 10A - Held that:- On going through the order of the Commissioner of Income Tax (Appeals), we do not find any valid reason to reverse the findings of the Commissioner of Income Tax (Appeals) in holding that the foreign exchange gain on packing credit foreign currency loan is not eligible for ded .....

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- ITAT MADRAS-D), rightly directed the Assessing Officer to exclude the travelling expenditure from total turnover also. Thus, we uphold the order of the Commissioner of Income Tax (Appeals) on this issue.

Excluding 50% of telecommunication expenditure incurred in Indian rupee from the export turnover - Held that:- only if telecommunication charges were incurred in foreign exchange, the same can be excluded fom the export turnover. However, in the instant case, the entire telecommuni .....

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N ALANKAMONY AND SHRI CHALLA NAGENDRA PRASAD, JJ. For The Appellant : Mr. G.Baskar, Advocate For The Respondent : Mr. S.Das Gupta,JCIT ORDER Per Challa Nagendra Prasad, JM: These two appeals are filed by the Revenue and assessee respectively against the order of the Commissioner of Income Tax (Appeals) (Central)-I, Chennai dated 25.03.2014 for the assessment year 2005-06. 2. The only grievance of the assessee in its appeal is that Commissioner of Income Tax (Appeals) erred in treating foreign ex .....

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ssessing Officer noticed that assessee received ₹ 54,99,546/- on account of difference in exchange rate in foreign currency on the packing credit foreign currency loan taken by the assessee. According to the Assessing Officer, the assessee has not derived this income from export of computer software, therefore such gain is not eligible for deduction under section 10A of the Act. Thus he withdrew deduction under section 10A on such gain. On appeal, the Commissioner of Income Tax (Appeals) s .....

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tire loan taken from HDFC. Counsel for the assessee submits that at the time of repayment of loan rupee appreciated against US dollar which resulted in gain of ₹ 43,05,000/-. Counsel submits that entire loan from the Citi Bank was outstanding as on the year ending and to comply with the Accounting Standard-11, the assessee passed entry in the books of account debiting packing credit foreign currency loan account and crediting exchange rate fluctuation for an amount of ₹ 11,94,546/-. .....

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treated as profit or loss if the foreign currency is held by the assessee on revenue account, but if the foreign currency is held as capital asset or fixed asset, profit or loss would be capital nature. He submits that this position was also reiterated in the case of CIT Vs. Woodward Governor India Pvt. Ltd. (312 ITR 254). Counsel for the assessee submits that loan having been raised for working capital requirements, it is certainly a business transaction, any gain or loss in the said transacti .....

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assessee borrowed packing credit foreign currency loan. He submits that this undertaking is doing business of development and export of computer software as well as developing software for the local market apart from maintenance of computer software. Placing reliance on the decision in the case of CIT Vs. Pentasoft Technologies Ltd., (347 ITR 578), counsel for the assessee submits that gain on foreign exchange fluctuation is eligible for deduction under section 10A of the Act. 5. Departmental Re .....

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t derived from export of software business and is eligible to be assessed as income from other sources. The Commissioner of Income Tax (Appeals) affirmed the said contention of the Assessing Officer observing as under:- 6.3 I have perused the Assessing Officer s observations and the appellant s contentions in this regard. It is seen from the facts of the case that the appellant company had made gains on exchange fluctuation on the following foreign currency loans:- HDFC Bank : ₹ 9,16,20,00 .....

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5/-. The appellant is in the business of export of computer software. The proceeds from the export of computer software received in foreign exchange are converted into Indian Rupees and accounted as the. appellant's revenue. There could be an exchange rate gain or loss arising out of turnover as well. However the :exchange gain in discussion above has not arisen, out of turnover. The said gain had arisen out of transactions 'in the capital field. Therefore, the gain on foreign exchange h .....

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essed under Income from other sources', In this regard, reliance is placed on the following case laws: (i) Indian Leather Corpn. Pvt.ltd vs. CIT (SC) 227 ITR 552 The Phrase derived from" is different from "Attributable to - It is no .doubt true that the words 'attributable to' have a wider meaning than the words 'derived from But at the same time it cannot be ignored that normally the word 'attributable' implies that 'for a result to be attributable to anyth .....

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uot;derived from" Industrial undertaking-The words "derived from" must be understood as something which has direct or immediate nexus, with the industrial undertaking ... Where 'the Words are unequivocal, there is no scope for importing any rule of Interpretation. (iii) CIT v NSC Shoes (Mad) 258 ITR 749 Interest on ;amount deposited with Bank as guarantee fund for opening the letters of' credit for the purpose of Import of material cannot be said to be income derived from& .....

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ssioner of Income Tax (Appeals) in holding that the foreign exchange gain on packing credit foreign currency loan is not eligible for deduction under section 10A of the Act. The case laws relied on by the counsel for the assessee are distinguishable on facts and are not applicable to the facts of the assessee s case. The grounds raised by the assessee are rejected. ITA No.1839/Mds/2014:- 8. The first issue in the appeal of the Revenue is that Commissioner of Income Tax (Appeals) erred in directi .....

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nch held that the travelling expenses incurred in foreign currency if excluded from the export turnover have to be excluded from the total turnover on a parity of reasoning. 10. Departmental Representative supports the order of Assessing Officer . 11. Heard both sides. Perused orders of lower authorities and the decision relied on. The Assessing Officer while completing the assessment excluded the travelling expenditure incurred in foreign currency from the export turnover but not from total tur .....

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puting the deduction u/s.10A. The appellant in the written submissions relied on the following judicial precedents wherein it was held that the numerator and the denominator should be given the same treatment. i) CIT Vs. Lakshmi Machine Works (290 ITR 667) ii) CIT Vs. Sudharshan Chemicals Industries Ltd. (245 ITR 769) iii) CIT Vs. Chioride India Ltd. (256 ITR 625) iv) CIT Vs. Bharat Earth Movers Ltd. (268 ITR 232) v) CIT Vs. Trans Lotus Travel P.Ltd. (290 ITR 1 (Del) On perusal of the above, I a .....

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Officer to exclude travelling expenditure from the total turnover also while computing deduction u/s.10A of the Act. In the result, the ground raised by the appellant is allowed. The Commissioner of Income Tax (Appeals) following the Special Bench decision in the case of ITO Vs. Saksoft Ltd.(supra), rightly directed the Assessing Officer to exclude the travelling expenditure from total turnover also. Thus, we uphold the order of the Commissioner of Income Tax (Appeals) on this issue. 12. The nex .....

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e excluded from export turnover as it was not incurred in foreign exchange. He submits that Commissioner of Income Tax (Appeals) followed the said decision of this Tribunal while allowing the claim of the assessee. 14. Departmental Representative supports the order of the Assessing Officer. 15. Heard both sides. Perused orders of lower authorities. The Assessing Officer while completing the assessment excluded 50% of telecommunication charges from export turnover in computing relief under sectio .....

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r was not given the same treatment by the AO. In this regard, the appellant contended that the telecommunication charges as reflected in the profit and loss account consist of broadband charges(paid to STPI and VSNL) incurred in Indian Rupees .. As per the Clause (iv) of the Explanation 2 of Section l0A defines export turnover as under: "Export turnover means the consideration in respect of export By the undertaking of articles or things or computer software received in, or brought into, In .....

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