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2016 (11) TMI 290 - ITAT DELHI

2016 (11) TMI 290 - ITAT DELHI - TMI - Deduction u/s 10A - call centre - AO submitted that the activities of the assessee were not in the nature of call centre and, therefore, the assessee was not entitled for deduction under section 10A - Held that:- From the facts elaborated by the assessee there is no dispute that it is a call Centre engaged in managing accounts receivable and recovery. The calls are made by the “Predictive Dialer Software” and after the call the inputs of the relevant inform .....

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servation also supports that activities of the assessee are in the nature of call Centre and therefore in our considered opinion, the assessee is entitled for deduction under section 10A of the Act. In prior assessment years, the Assessing Officer has accepted the claim of the assessee and deductions have been allowed. In the year under consideration, there is no change in the business activity of the assessee, thus, in our view, the principle of consistency also demand that this deduction shoul .....

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ee has not charged the expenses on telecommunication and insurance from its customers, the same are not required to be excluded while computing the export turnover for the purpose of determining deduction u/s 10A of the Act. Once, the telecommunication insurance expenses are not part of export turnover, in our considered opinion, there is no reason for reducing the expenses incurred on communication and insurance from the export turnover for the purpose of computation of deduction under section .....

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A.M.: These two appeals of the Revenue for assessment years 2008-09 and 2009-10 are directed against two separate orders of the learned Commissioner of Income-tax (Appeals) dated 21/02/2012 and 21/05/2012 respectively. The grounds raised in both the appeals are identical except the amount involved and therefore both the appeals are heard together and disposed of by this consolidated order. ITA No. 1410/Del/2012 2. The grounds of appeal raised in ITA No. 1410/-Del/2012 are reproduced as under: i .....

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nd in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in directing the work out the deduction u/s 10A without excluding telecommunication and insurance expenses from the export turnover. iv. The appellant crave leave to add, alter or amend any ground of appeal raised above at time of hearing. 3. The facts in brief of the case are that during relevant period, the assessee was engaged in providing outsourcing services to its Group Company M/s. Chex Systems .....

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t of the actual outsourcing activity as it was worded differently in the report filed under section 92E in form No. 3CEB (Business Process Management and Call Centre services), Tax Audit Report in form No. 3CD (Business of Outsourcing Services related to global consumer and commercial collection and debt recovery) and in the submission dated 21st of October, 2010 made before the Assessing Officer (BPO Services related to accounts receivable and recovery management) and, therefore, he asked the d .....

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SO 890 (E) dated 26/09/2000 as computer software for the purpose of Explanation-2 to section 10A of the Act. According to the Assessing Officer, the assessee made calls to the CSI s International Customers and talked verbally to them and such a conversation was being made by the assessee manually through application of personal voice and judgment and there is no application of any computer software whatsoever neither for data processing not for making any such computerized calls. The Assessing O .....

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ction of ₹ 63,18,643/- under section 10A of the Income Tax Act, 1961 (in short the Act ) in respect of the STP unit located in Mumbai. Alternatively, the Assessing Officer also held that in case the assessee is granted deduction under section 10A of the Act, then the deduction should be restricted on the amount of export turnover calculated after excluding the communication and insurance expenses. Aggrieved, the assessee filed appeal before the learned Commissioner of Income Tax(Appeals) a .....

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9/2000 issued by the Central Board of Direct Taxes(CBDT). The assessee further submitted that circular/notifications issued by the CBDT are binding on the Departmental Officers. The assessee in its submissions provided details of services rendered by it and why the same fall in the definition of the computer services before the learned Commissioner of Income-tax (Appeals), who reproduced the same in the impugned order as under: 2.1 It is submitted that the Appellant is a service provider for its .....

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vailable to the Appellant on its computer systems connected through dedicated internet data lines. The activities undertaken by the Appellant for proving the services are as under: Financial Institutions ( FIs )based in USA (who are customers of CSI) report debt accounts through a web application known as CCC (e-access) which is assessable to CSI which in-turn provides access of the said, information to the Appellant via internet through dedicated internet data lines on a real-time basis. The Ap .....

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le in these accounts. Predictive Dialler Software automatically dials telephone numbers that have been uploaded on call tables. The Predictive Dialler has the ability to recognize a human voice and then transfer the phone call to any available collector (who is the personnel of the Appellant) who responds to the call being dialled automatically by the Predictive Dialler Software which is transferred automatically to the said collector. The Predictive Dialler Software has a web application interf .....

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computer systems on which details of the relevant debtor are viewed and recovery call is undertaken. It is a known fact that the Computer system includes a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. It may be noted that computer software is required so that the computer performs the desired functions in the desired manner. Without computer software, the hardware cannot function on its own. A common example would .....

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d to the customer electronically using the internet system. From the above, it is submitted that sophisticated softwares are used at each and every process right from accessing the information regarding debtors on a real-time basis, making calls to the debtors, updation of the system regarding collection, etc. 2.2 It is pertinent to mention here that the Ld. AO while disallowing the deduction under section 10A claimed by the Appellant has alleged that the Appellant does not fulfill the essential .....

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he same is transmitted to its customers outside India electronically. In support of the above the Appellant places its reliance on the judgment of the Hon ble Chennai Tribunal in the case of v. Accurum India (P.) Ltd. [2010] 126ITD 69 (CHENNAI) (TM) wherein in respect of customized electronic data it is observed as under: 9……….The requirement of the provision is that there should be a customized electronic data and such data be exported outside India. The data which a custom .....

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perhaps the purpose of giving impetus to software industry or to the computerization as a whole, would be defeated. As an illustration, if a person wants to open a garment shop in a particular locality, I may approach a consulting firm to explore the market potentiality of that area. In that case, the consulting firm will have to initially work manually to collect data like, number of garment shops in the locality, the economic strata to which the population residing in that locality belongs, th .....

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I) Scheme formulated by the Government of India for the development of computer software/IT enabled services and, therefore, its activity have been duly examined by the STPI Authorities. The relevant submissions of the assessee reproduced by the learned Commissioner of Income-tax (Appeals) in the impugned order are as under: 2.3 It is further submitted that the undertaking of the Appellant in Mumbai is registered under the Software Technology Parks of India ( STPI ) scheme formulated by the Gove .....

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ting that the nature of services of any unit to be an IT enabled service provider for the purpose of granting approval for operating a STP unit. Also, the eligible unit is required to file return of its activities and other details with the STPI authority. The return filled for the year under consideration submitted before the Ld. AO and placed as Annexure 3 of the Paper book. The said STPI return submitted by the Appellant duly states that the core business area of the assessee company is BPO & .....

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rious IT Services and are defined by the IT Task force of the Government of India as follows: IT Services including IT Enabled Services is defined as any unit that provides services, that result from the use of any IT Software over a Computer System for realizing any value addition. The Directorate of Industries has prepared and published an illustrative list of such IT Enabled Services (Appendix II) which is updated from time to time. [emphasis supplied by us] Further, the illustrative list of .....

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s to ₹ 54,63,611 out of the total gross bock of assets of ₹ 1,07,70,525 as on 31 March 2008 (i.e. more than 50% of the total assets of the asses see company). The same is corroborated from the Schedule 4 of fixed assets appended to the audited financial statements (please refer Annexure 5 of the Paper book). It is further submitted that the assessee company operates and makes calls via a dedicated internet data lines (Computerized) and does not have any ISD call facility (Manual) whi .....

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peals) why its activity are in the nature of call centers, as under: 2.5 The Ld. AO disregarded the submissions made by the Appellant and held that that the activities of the Appellant is not eligible for deduction under section 10A of the Act since the internet data lines used by the Appellant in connection with its business of providing call centre services are only a communication channel and communication device and mere change of communication channel from telephone line to Internet line ca .....

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e software and technology is elaborately discussed above. The Appellant would not be able to make any calls without information being displayed on its computer systems connected through dedicated internet data lines on a real-time basis. Also, the Appellant uses computer systems its business and it is a known fact that the computer system will include a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. It is reiterated .....

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smitted to the customer electronically. 3.3 Further, the assessee also submitted that the deduction claimed under section 10A has been allowed to the assessee in assessment years 2006-07 and 2007-08 after verification of the business activity of the assessee and there being no change in the business activity carried out during the year under consideration, following the rule of consistency, the deduction claimed with assessee should have been allowed. In support thereof, the assessee relied on t .....

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he Act on the amount of export turnover calculated after excluding the communication and insurance expenses following the earlier orders of the Commissioner of Income-tax (Appeals) on the issue in dispute Aggrieved, the Revenue are in appeals before the Tribunal, raising the grounds as reproduced above. 4. Grounds No. 1 and 2 of the appeal are related to the issue of eligibility of the assessee for deduction under section 10A of the Act. 4.1 Before us, the learned Senior Departmental Representat .....

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the assessee filed paper book containing pages from 1 to 268, reiterating the submission made before the learned Commissioner of Income Tax (Appeals), as under: (i) that the call made by the STPI unit of the assessee, are being dialled by the Predictive Dialler Software and when the software detects a human voice at the other end, the call is automatically connected by the software to any available collector who would be able to view the particulars of the relevant debtor to whom the call is co .....

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ervices include computerised call Centre( referred page 177 of the paper book) (v) that the call Centre are included in the IT enabled services as held in (2014) 110 DTR 105 (Del) (vi) the business activity of the assessee has been accepted as eligible for deduction under section 10 A of the Act in earlier assessment years 2006-07 and 2007-08 and in the year under consideration the same activity has been carried without any changes and therefore the rule of consistency, demands that the assessee .....

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. Further, in respect of the findings recorded by the ASSESSING OFFICER and discussed above, the following facts are observed: a. The activities of the Appellant though have been described in different words at the places identified i.e. Form 3CEB, 3CD and submission dated 21 October, 2010, however, the nature of business is the same. In nut-shell, the customers of Chex Systems Inc., SA ( CSI ) who are Financial Institutions in USA require debt collection services for their US clients and the ap .....

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t order on Page 8 has himself stated that Appellant is engaged in the provision of services in the sphere of managing accounts receivable and recovery. The ASSHSSING OFFICER further admits that the Appellant is making calls to CSI s International customers, however the ASSESSING OFFICER disputes that the appellant was not using any computer software in the process of making outbond calls to its customers, therefore deduction u/s 10A was disallowed. b. The contention of the ASSESSING OFFICER that .....

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ng the system regarding collection, transmitting the information to the customers electronically, etc. The use of all these software in the business process has been elaborately explained by the appellant. Thus, it makes clear that appellant is using computer software especially the Predictive Dialler Software which automatically dials the telephone numbers that have been uploaded on call tables. This software has the ability to recognize a human voice and then transfer the phone call to any ava .....

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on. The ASSESSING OFFICER in his order at Page No. 8 has himself stated that the Appellant uses computers systems connected through dedicated internet lines. It is a known fact that the Computer System includes a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. Computer Software is an essential element in a computer system so that the computer performs the desired functions in the desired manner. Without computer softw .....

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ion expenses are on record. All the calls are made using the Predictive Dialer Software using the internet facility. Thus, the contention of the ASSESSING OFFICER that no software is used by the Appellant is not based on the proper appreciation of the working of outbond call centers. Hence I do not agree with the findings of the ASSESSING OFFICER. c. The ASSESSING OFFICER has also mentioned that there is no customized electronic lata which is being prepared and sent to the customer and thus, it .....

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nancial Institutions in the real-time system and then transmit the same to the customers outside India electronically using the internet system. Thus, customized data are being transmitted electronically to the customer of the Appellant. In this regard the reference can be made to the decision of Hon ble ITAT Chennai in the case of ITO v. Accurum India (?.) Ltd. [2010] 126 IT'D 69 (CHENNAI) (TM) wherein it has made important observation in respect of customized electronic data as under: &hel .....

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ocess of actually collecting the data need not be IT enabled. What all is required that the data collected should be in an electronic form. In the case of the Appellant there is no dispute that there is a call centre engaged in managing accounts receivables and recovery, the calls are made by the Predictive Dialer Software and after the call, the inputs of the relevant information obtained from the debtor of the US Financial Institution in made in the real-time system which is transmitted to the .....

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pany. The appellant is not dialing any calls manually. The calls are being dialed by the Predictive Dialler Software automatically. The business activity of the Appellant i.e. Call Centre is specifically covered under the definition of computer software in terms of clause (b) of item (i) of Explanation 2 to section 10A of the I.T. Act, 1961 read with Notification No. SO 890(E) dated 26 September 2000 issued by the Central Board of Direct Taxes. Considering the business module of the appellant. I .....

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er calculated after excluding communication and insurance expenses. The said disallowance has also been deleted by the learned CIT(A) in both the assessment years and the appeal order passed in both the earlier years allowing the claim of the Appellant has been placed on record before me. It is also seen that the nature of business activities of the Appellant remains the same in the year under appeal as well as in the earlier assessment years i.e. 2006-07 and 2007-08. Thus, the Appellant is elig .....

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ialer Software for making outbound calls. The learned Authorized Representative has further explained that the Predictive Dialer Software has a web application interface for the personal login and start receiving calls and thus we find that the call dialing is not done manually and calls are being dialed by the Predictive Dialer Software using Internet facility. 4.5 We find that call Centre activity is specifically covered under the definition of computer software in terms of clause (b) of Item .....

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rmation obtained from the data of the US Financial Institution is made in real-time system which is transmitted to the customer outside India electronically using the Internet system. In view of the explanation of the assessee, it is evident that customized electronic data is being transmitted outside India electronically. The Assessing Officer has also mentioned that assessee is using Internet lines for telephone calls to its international customer rather than traditional telephone lines. This .....

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uld be allowed to the assessee. In view of above discussion, we find the order of learned Commissioner of Income-tax(Appeals) on the issue in dispute, is well reasoned and no interference on our part is required. Accordingly, we uphold the same. The grounds No. 1 and 2 of the appeal are dismissed. 5. In ground No. 3, the Revenue has raised the issue that if the deduction under section 10A of the Act is allowed to the assessee, then the export turnover for computation of deduction under section 1 .....

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espectively. The break-up of the telecommunication expenses incurred by the Appellant (and duly submitted before the Id. AO during the course of assessment proceedings are as under: Nature Total(in Rs.) Voice Lines expenses 1,000 Date Lease Lines 14,24,413 Telephone expenses 13,450 Grand Total 14,38,863 The insurance expenses amounting to 20,632 relates to the insurance of the assets of the Appellant. The telecommunication and insurance expenses were incurred by the Appellant during the course o .....

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consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software from the total income of the assessee. Further, section 10A(4) of the Act provides that for the purpose of sub section (I), the profits derived from the export of articles or things or computer software shall be the amount which bears the profits of the business of the undertaking, the same proportion .....

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but does not include freight telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses ,if any, incurred in foreign exchange in providing the technical services outside India. (emphasis supplied) It is submitted that the freight, telecommunication or insurance expenses are required to be deducted while computing the export turnover where the said expenses are included in the turnover and have been recovered from t .....

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he said invoices it is evident that the Appellant had not charged and received reimbursement of any expenses from its customers. The Appellant had only received consideration for services rendered to the customer. Thus, since the Appellant had only received sales consideration for services and no expenses had been charged by the Appellant to customers, the Ld. AO has erred in deducting the telecommunication which are attributable to data line and connectivity and insurance charges from the expor .....

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om the export turnover which were confirmed by the Commissioner (Appeals). The Tribunal held that the aspect which is required to he considered is that the consideration received in convertible foreign exchange is including such expenses. If such expenses are not included in the consideration received in convertible foreign exchange, deduction of such expenditures from the consideration does not arise. was held that The Hon ble Tribunal observed as under: The ISP expenses is not attributable to .....

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sideration the assessee received consideration against software, Le.. goods. For this purpose, the assessee has demonstrated by referring invoices (Pages 4.1 to 4.4) and agreement (page 2.1) of which photocopies have been placed assessee's paper book. The agreement, invoices and the turnover clearly show that the assessee did not recover any such expenditure. Therefore, there is no scope of any exclusion from the export turnover on account of such expenses. If at all on presumption, it is to .....

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he numerator. We therefore find that the Assessing Officer was not correct in excluding ₹ 40,93,493 from consideration received in convertible foreign exchange while calculating export turnover for the purpose of section 10A of the Income-tax Act. (emphasis supplied) 3.2 It may further be submitted the insurance expenses has been incurred on the insurance of the assets of the Appellant and they are in no way attributable to the delivery of services outside India. The details of insurance e .....

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under section 10A of the Act. 3.3 Without prejudice to the above contention, it is also submitted the expenses, if deducted from the export turnover, are also liable to be deducted from the total turnover and the ultimate deduction under section IOA would remain unchanged as the export turnover and the total turnover would remain the same. The issue has been considered in various judicial decisions and it has been held that where any expenditure is deductible from export turnover same is require .....

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Further, since in computing export turnover Legislature has made a specific exclusion of freight and insurance charges, these two items would have to be excluded from total turnover also for purpose of computing exemption under section 10A. b) In the case of the Hon ble Hyderabad Tribunal in the case Patni Telecom (P) Limited vs.ITO (supra) it was held that if at all on presumption, it is to be excluded for the purpose of 'export, turnover' then on the same assumption, reason and analogy .....

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493 from consideration received convertible foreign exchange while calculating export turnover for the purpose of section 10A of the Act. c) The Special Bench of the Hon'ble Chennai Tribunal the case of ITO vs. M/s Sak Soft Ltd reported in 30 SOT 55 (Chennai), held that "for the purpose of applying the formula under subsection (4) of section I OB, the freight, telecom chargesor insurance attributable to the delivery of articles or things or computer software outside India or the expense .....

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from the total turnover for the purpose of deduction 10A of the Act. The relevant text of the above mentioned decision is as under: "i) Whether the CIT(A)is justified holding that the expenditure incurred in foreign currency on travel and telecommunication expenses is to be reduced from the total turnover when the same is reduced from the export turnover for the purpose of computation of deduction under section 10A of the Act. 3.1 At the very outset, it is submitted by both the parties that .....

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nsurance 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. 3.2 As it is not disputed by the revenue that the above issue is already covered by the aforesaid, the first issue mentioned above is decided in favou .....

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Special Bench in case of Income Tax Officer vs. M/s Saksoft Ltd. held that the expenditure incurred towards freight, telecommunication charges be excluded from the total turnover for the purpose of computation income under section 10A of the Act. f) The decision of Special Bench was also considered by the Bangalore Tribunal in the decision of M/s. Intel Technology India Private Limited vs. DCIT, ITA No. 706/Bang/2009 wherein it was held that if expenses incurred in foreign currency are deducted .....

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ibunal in the case of ACIT, Bangalore vs. M/s Novell Software Development India Pvt. Ltd ITA Nos. 851 & 852(BNG)/2008 held that if expenses in foreign currency towards telecom connectivity for providing technical services are deducted from export turnover then such expenses are required be deducted from total turnover. i) The Bangalore Tribunal in the case of M/s Mphasis Ltd. vs. Asst. Commissioner of Income Tax ITA No. 524 and 619 (Bang)/2008 held that telecommunication expenses are to be e .....

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he case of the Asst. Commissioner of Income tax vs. M/s Khoday India Ltd ITA No 89/Bang/08, Bangalore Tribunal held that: ………….we hold that whatever is not included in the export turnover cannot be included in the total turnover as total turnover is the sum of export turnover + domestic turnover. The above-referred issue has been considered by this Bench in a number of cases and it has been held that whatever is not included the export turnover should not be included .....

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quot; already. It has also been pointed out that the deduction has to be computed under sub-s. (4) on the basis the ratio of "export turnover" to the turnover . In the case of Sudarshan Chemicals Industries Ltd., a similar question confronted the Hon'ble Bombay High Court under s. 80HHC. In that section the profits derived from the export business had to be worked out on the basis of a formula which involved the finding out the ratio of export turnover to the total turnover. Excise .....

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t exclude excise duty and sales-tax from the turnover, the Hon'ble Court came to the conclusion that the aforesaid two levies will have to be excluded from the "total turnover" on the ground that the deduction cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover while the same did not find a place in the numerator, namely, the export turnover. In other words, to arrive at a fair computation of the deduction, the export turnover and .....

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textual meaning, excluding the commonplace meaning, have to be taken into account while computing the numerator and the denominator. The definition of the "export turnover", in s. 10A excludes from its ambit any expenses incurred in foreign exchange in providing technical services outside India. In view decision in the case of Sudarshan Chemicals Industries, such expenses will have to be included (sicexcluded) from the total turnover also. Therefore, we are of the view that the learned .....

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ncome-tax Act, 1961 (hereinafter referred to as "the Act")……. Thus, based on the above rulings it apparently clear in law that telecommunication and insurance expenses if deducted from the export turnover will also be deducted from the total turnover. 3.4 It is further submitted that in earlier years the telecommunication expenses and insurance expenses have been excluded from export turnover for the purpose of claiming deduction under section 10A of the Act in earlier ye .....

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III, New Delhi. Copy of the order of the Hon ble CIT (Appeals)-VIII is being enclosed at Annexure 9 of the Paper book. Thus, the mater stands covered in favor of the assessee and the same shall be allowed to the assessee in the year under consideration. Apropos the above discussion, since the Appellant has not charged the expenses on telecommunication and insurance from its customers the same are not required to be excluded while computing the export turnover for the purpose of determining deduc .....

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the Assessment Year 2007-08 wherein the learned Commissioner of Income Tax(A) has decided the similar matter in favor of the Appellant thus, allowing the appeal and directed to consider and allow the deduction under section 10A without excluding the telecommunication and insurance expenses from the export turnover. 5.3 In view of the above submission and following the earlier order of the learned Commissioner of Income-tax (Appeals), the issue in dispute has been decided in favour of the assesse .....

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n and insurance expenses have been excluded from the export turnover for the purpose of computing the deduction under section 10A of the I.T. Act. It is seen that the Appellant had appealed against the assessment order for the AY 2006-07 and AY 2007-08 before the CIT(A)-VIII, New Delhi and the CIT(A)- V, New Delhi respectively and the said appeals have been decided in favour of the Appellant. The relevant extract of the decision of the CIT (Appeal) for A.Y. 2007-08 is reproduced hereunder:- &quo .....

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was decided favour of the Appellant. As the facts are identical, I am in agreement with the views of the New Delhi and the AO is therefore directed to allow deduction u/s 10A without excluding the telecommunication and insurance expenses from export turnover. As the facts of this assessment year are identical with the facts of the appellant s case for A.Y. 2006-07 and 2007-08, therefore I am in full agreement with the views of CIT( Appeals)-V, New Delhi and ASSESSING OFFICER is therefore directe .....

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