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TMI Blog2018 (4) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue, the only issue that arises for consideration is as to whether the CIT(A) was justified in directing the AO to exclude from the export turnover and total turnover reimbursement of telecommunication expenses and Insurance expenses incurred in foreign currency while computing deduction u/s.10A of the Act. 3. The Assessee is a company engaged in the business of development of computer software and is eligible for deduction u/s.10A of the Income Tax Act, 1961 (Act) on profits and gains as are derived from the export of computer software. Sec.10A(4) provides the methodology of computation of deduction u/s.10A of the Act and it lays down that the profits derived from export of articles or things or computer software shall be the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, it was engaged in development of computer software and not in rendering any technical services. Communication expenses were incurred not for export of computer software outside India and therefore the exclusion from export turnover as done by the AO was not correct . Without prejudice to its contention that the aforesaid sums should not be excluded from the export turnover while computing deduction u/s.10A of the Act, the Assessee has also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and in this regard has placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn) wherein i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any interference and accordingly the same is confirmed. 8. In the result, the appeal by the revenue is dismissed. 9. As far as the appeal by the Assessee is concerned, there are two issues that arise for consideration. The first issue is as to whether the CIT(A) was justified in excluding interest income derived from fixed deposits from "income from business" while computing deduction u/s.10A of the Act. As far as this issue is considered the Tribunal in Assessee's own case in AY 2011-12 in ITA No.1717/Bang/2017 order dated 2.3.2018, on identical issue held that interest income arose from fixed deposits that were made out of profits generated from export business and therefore the Assessee was entitled to deduction u/s.10A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than the price at which it had exported its software. To safeguard against adverse fluctuation in foreign exchange and consequent loss, the Assessee entered into forward contracts in foreign exchange. As on the last date of the relevant previous year, the forward contract was subsisting and was not settled. The Assessee as on the last date of the relevant previous year noticed that there was a fluctuation in the foreign exchange rates and consequently as on that date there would be a loss on account of forward contract in foreign exchange and claimed the said loss as a deduction while computing income from business. The AO held that the loss was speculative in nature and cannot be allowed as a deduction. On appeal by the Assessee, the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iced that there was a fluctuation in the foreign exchange rates and consequently as on that date there would be a loss on account of forward contract in foreign exchange and claimed the said loss as a deduction while computing income from business. The AO held that the loss was speculative in nature and cannot be allowed as a deduction. On appeal by the Assessee, the CIT(A) held that the loss is notional and cannot be allowed as a deduction. 13. In the case of Quality Engineering & Software Technologies (P) Ltd., (Supra), the facts were The assessee-company engaged in the business of providing computer aided engineering analysis and software services. It is filed its return and claimed provision for loss on derivative contracts. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the facts and circumstances of the case, the appeal of the assessee on this issue, succeeds for the following reasons: - A binding obligation accrued against the assessee when it entered into foreign exchange forward contracts; - The forward contracts are in respect of consideration for export proceeds, which are revenue items; - The liability is determinable with reasonable certainty when an obligation is pending on the balance sheet date and such a liability cannot be said to be a contingent liability. - The accounting treatment is as per Accounting Standards and the ICAI Guidelines. - The principles enunciated by the Apex Court in the case of CIT Vs. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254/179 taxman 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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