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2015 (9) TMI 280 - ITAT CHENNAI

2015 (9) TMI 280 - ITAT CHENNAI - TMI - Eligibility for deduction U/s.10B - whether expenditure incurred in foreign exchange towards telecommunication expenditure and travel expenditure deducted from export turnover should also be deducted from total turnover for arriving at the eligible deduction U/s.10B - Held that:- As held in ITO Vs. Sak soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] expenditure incurred towards freight charges and insurance premium in foreign exchange ought to be excluded fro .....

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Tribunal on the earlier occasion in the assessee’s own case has only decided the issue of granting deduction U/s.10B of the Act with respect to the gain derived from EEFC account which does not have direct nexus with the profits earned out of export by holding that such gains should be excluded for the purpose of deduction U/s.10B of the Act. This is only for the limited purpose of granting deduction U/s.10B of the Act. However as per the provisions of the Act, any gain or loss incurred by the 1 .....

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n foreign currency from export turnover, though the same were not included in the export turnover - Held that:- Assessing Officer had excluded the Telecommunication expenditure and Travelling expenditure from the export turnover, though it was not included in the export turnover. On this issue, we have only to say that if these expenditures have already been excluded by the assessee, the same need not be excluded once again - Decided in favour of assessee.

Re-compute the deduction U/s .....

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ct is also a provision with fiction and a provision with fiction cannot be super imposed on another provision with fiction. Therefore, the Ld. CIT (A) has rightly directed the Ld. Assessing Officer to re-compute the deduction U/s.10B of the Act for the earlier years, however, subject to the period of limitation provided under the Act. If the Assessing Officer has the option to assess one, or other of the entities in the alternative, the Ld. CIT (A) can direct him to do what the Ld. Assessing Off .....

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re-comptue the deduction U/s.10B of the Act for the earlier assessment years other than the year under appeal? - Held that:- Since we have already held in the earlier ground at para 7.3 that the Ld. CIT (A) has powers under the provisions of the Act to direct the Ld. Assessing Officer to modify the assessment of the earlier years based on the findings in the subsequent assessment year under appeal before the Ld. CIT (A), this ground is also accordingly disposed off. - Decided against assessee. - .....

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)-V, Chennai, dated 31.08.2012 in ITA No.40/2011-12 passed under section 143(3) read with section 250 of the Act. 2.1 The Revenue has raised four grounds in its appeal, however, the cruxes of the issues are concised as follows:- 1. The ld. CIT(A) had erred in holding that expenditure incurred in foreign exchange towards telecommunication expenditure and travel expenditure deducted from export turnover should also be deducted from total turnover for arriving at the eligible deduction U/s.10B of t .....

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ruxes of the issues are concised as follows:- 1) The Ld. CIT (A) had erred in excluding the entire telecommunication expenditure from the export turnover, though the same was not included in the export turnover. 2) The Ld. CIT (A) had erred in excluding the expenditure incurred in foreign currency from the export turnover, though the same was not included in the export turnover. 3) The Ld. CIT (A) had erred in directing the AO to re-compute the deduction u/s.10B of the Act for the earlier assess .....

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s income as ₹ 80,22,796/- after claiming deduction of ₹ 3,95,23,332/- u/s.10B of the Act. The case was taken up for scrutiny and the assessment was completed u/s.143(3) of the Act on 09.12.2009 wherein the ld. Assessing Officer made certain additions u/s.40(a)(ia) of the Act for ₹ 1,54,03,137/- and disallowance u/s.10B of the Act for ₹ 47,26,748/- (Rs.3,95,23,332 - ₹ 3,47,26,748). Revenue s Appeal 4.1 Ground No.1 - Expenditure incurred in foreign exchange towards te .....

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8377; 8,74,533/-) both incurred in foreign currency, from the export turnover as well as from the total turnover. The Ld. Assessing Officer was of the view that Telecommunication charges and Travelling expenses incurred in foreign currency should only be deducted from the export turnover and not from the total turnover and accordingly, computed the deduction U/s. 10B of the Act. 4.2 The Ld. A.R. had argued before the Ld. Assessing Officer that the afore-stated expenditures should be excluded fro .....

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decided the issue in favour of the assessee. The relevant portion of the Ld. CIT(A) s order is reproduced herein below for reference:- The Appellant had put-forth the following arguments: • If the telecommunication expenditure is not included in export turnover in the first place, the same should riot be excluded from export turnover. • The telecommunication expenditure is incurred in Indian Rupees and hence, should not be excluded from export turnover. • Only telecommunication ex .....

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i Special Bench) 7.1 I have carefully considered the submissions of the Appellant as above. With respect to the ground that expenses should not be excluded from export turnover in the first place, I am of the view that the formula seeks to impute a mechanism to exclude items even if not included. In other words, Rs.does not include in the definition of the term Rs.export turnover should be read as Rs.as reduced by . Therefore, this ground of appeal is rejected. 7.2 With respect to the grounds th .....

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dia should be excluded from export turnover, I am of the view that the expenditure has been entirely incurred for the purpose of business. Therefore, this ground of appeal is rejected. 7.4 On the treatment of excluding the telecommunication expenditure from Rs.total turnover , the Appellant, during the course of hearin.g submitted that the Hon ble Chennai ITAT in the Appellant s own case (ITA No. 1989/Mds/2010 and 1990/Mds/2010) has held that telecommunication expenditure (whether included or no .....

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tion shall stand excluded from the total turnover also. The position would be somewhat similar to the case before the calcutta Bench of the Tribunal in the case of Chloride India Ltd [1995] 53 lTD I 8.in clause (iii,1 of Explanation 2 to section 1 OB, the freight, telecom charges and insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in providing technical services outside India have been excluded from export turnover. Therefore, the same .....

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rred in foreign currency from export turnover in computing the deduction under section 1OB of the Act. It has been submitted that the Appellant had incurred ₹ 64,33,093 in foreign currency for travel abroad by employees in connection with training, preparatory and auxiliary work of understanding client specification and meeting client personnel before commencement of actual IT Enabled Services (Rs. ITES ) activity and other related expenses and reimbursements. The AO has deducted the expen .....

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-06 held that such expenditure in foreign currency have to be reduced from export turnover. The Appellant had made similar arguments as it had made for telecommunication expenditure. As the principle involved here is the same as that of the earlier ground, this ground of appeal is also allowed on the same basis as that of the earlier ground. This ground of the Appellant in this regard is not allowed. 8.2 With respect to the ground that foreign currency expenditure excluded from export turnover s .....

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the assessment year 2004-05 vide order dated 19.08.2011 and the Special bench of the Tribunal in the case of ITO Vs. Sak soft Ltd. cited supra wherein it was held that such expenditure ought to be excluded both from export turnover as well as from the total turnover. The Ld. D.R could not controvert the submissions of the Ld. A.R. 4.5 After hearing both sides and perusing the orders cited by the Ld. A.R, it is evident that the Special Bench of the Tribunal in the case cited supra has categorical .....

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unal at page-16, para No.6.1 is reproduced herein below for reference:- 6.1 At the outset we find that the Ld. CIT (A) has simply followed the decision in the case of ITO Vs. Sak Soft Ltd., reported in 313 ITR (AT) 353 (Chennai)(SB) and decided the matter in favour of the assessee. The relevant portion of the aforesaid portion is reproduced herein below for reference:- For the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges, or insurance attribu .....

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ofit derived from export of article of 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. Thus, the eligible profit for deduction U/s. 10A would be:- Profit X Export turnover Total Turnover In this context, Explanation 2(iv) to Section 10A of the Act stipulates t .....

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In the given case before us, the relevant expenditure that has to be excluded from the export turnover is telecommunication charges . Thus on giving effect to Explanation 2(iv) to Section 10A of the Act, the telecommunication charges should be excluded not only from export turnover , but it has also to be reduced from the debit side of profit and loss account . Moreover, once the telecommunication charge is reduced from the export turnover , it will stand reduced to that extend in total turnove .....

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to the extent of telecommunication charges so excluded. 4.6 Further as cited by the Ld. A.R., in the assessee s own case in ITA No.1302/Mds./2008 dated19.08.2011, the identical issue has been decided in favour of the assessee following the special bench of the Tribunal cited supra. In these circumstances, we do not find it necessary to interfere with the order of the Ld. CIT (A) on this issue. 5.1 Ground No.2 - Loss on account of conversion of the amount outstanding in EEFC account in foreign cu .....

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reign Currency (Rs. EEFC Account incurred by the Appellant amounting to ₹ 1,00,70,120 pertaining to tax holiday unit while computing the deduction under section 10B of the Act. The Appellant during the course of hearing has submitted that the Hon ble Chennai ITAT in the Appellant s own case for the AY 2004-0 5 and 2005-06 has held that gain on EEFC account does not have any direct nexus with the profits of export oriented undertaking and therefore not eligible for deduction under section 1 .....

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nd such loss should be considered as business loss which is eligible for set off against other business income/ any other income, as per the provisions of the Act. Based on the submissions filed by the Appellant, I am of the view that the loss from EEFC account should be treated similar to treatment adopted for gain from EEF C account. Therefore, loss on EEFC account should be excluded while computing the profits eligible for deduction under section 10B and such loss should be considered as busi .....

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A.R. relied on the order of the Ld. CIT (A). 5.3 After hearing both the sides and carefully perusing the materials on record, we do not find any infirmity in the order of the Ld. CIT (A). Any loss incurred by the assessee has to be allowed to be set off against the same business income or against the other business income or any other income as per the provisions of the Act. The Tribunal on the earlier occasion in the assessee s own case has only decided the issue of granting deduction U/s.10B .....

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losses have to be considered in accordance with the normal provisions of the Act. We do not find any bar on the claim of the assessee by any of the provisions under the Act. Therefore, we do not find it necessary to interfere with the order of the Ld. CIT (A). Assessee s Appeal 6.1 Ground Nos.1 & 2 - Excluding Telecommunication expenditure and Travelling expenditure incurred in foreign currency from export turnover, though the same were not included in the export turnover. It appears from t .....

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ted (supra) while giving effect to the order of Tribunal in this relevant case before us. 7.1 Ground No.3 - Direction of the Ld. Assessing Officer to re-compute the deduction U/s.10B of the Act for the earlier years. It appears that the assessee is aggrieved by the order of the Ld. CIT (A) for directing the Ld. Assessing Officer to re-compute the profit of the business eligible for deduction U/s.10B of the Act for the earlier years by not increasing the profit due to disallowance U/s.40(a)(ia) o .....

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mitted to the revenue authorities. 7.2 On this issue the Ld. CIT (A) had held as follows:- 6.4 I have considered the submissions of the appellant and have also gone through the reasons given by the AO in the assessment order for denying the allowability of the expenses which were disallowed in the earlier years on account of non-deduction of tax and which the appellant has claimed during the year under consideration on the basis of proviso to section 40(a)(ia) of the Act. The expenses in questio .....

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income is subject to tax. 6.4.1 As per the provisions of section 10B(4) the deduction under section 10B B on the profits derived from the export of article or thing or software etc. will be allowed to the extent of the profits of business in the ratio of export turnover to the total turnover. The said profit of business shall not increase due to disallowance u/s 40(a)(ia) read with the provisions of Chapter XVII-B of the Act. Since the profits shall not increase the deduction shall be allowed o .....

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owever the provisions of section 40(a)(ia) read with the provisions of Chapter XVII-B of the Act cannot be allowed to be used as a device to claim double benefit that is to postpone the claim of expenditure in the year when the period of tax holiday is over. In the present case there is no doubt that there has been no effect of the disallowance made under section 40(a)(ia) as the appellant had incorrectly been allowed deduction under section 10B B of the Act on the addition of amount in the resp .....

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om the above, it is apparent that the Ld. Assessing Officer for the earlier years have incorrectly granted deduction U/s.10B of the Act i.e., even for the increase in profits due to disallowance U/s.40(a)(ia) of the Act. While granting deduction U/s.10B of the Act, the disallowance made U/s.40(a)(ia) of the Act cannot be taken into consideration for the purpose of granting the benefit of deduction because Section-10B of the Act is a provision with fiction and Section.40(a)(ia) of the Act is also .....

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officer. He can do what the Assessing Officer can do and also direct him to do what he has failed to do. If the Assessing Officer has the option to assess one, or other of the entities in the alternative, the Ld. CIT (A) can direct him to do what the Ld. Assessing Officer should have done in the circumstance of the case as held by the Hon ble Apex Court in the case CIT Vs. Kanpur Court Syndicate (1964) reported in 53 ITR 225. Therefore we hereby confirm the order of the Ld. CIT(A) subject to th .....

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