TMI Blog2023 (3) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... AA deduction - CIT(A) directed the AO to exclude from export turnover as well as from the total turnover, the insurance charges while computing deduction under Section 10AA - HELD THAT:- The insurance charges incurred by the assessee are not attributable to delivery/export of computer software outside India. AO and CIT(A) have failed to appreciate that the assessee is engaged in export of computer software which are developed by the assessee in India. The said software is exported through electronic media, i.e. internet/ digital media with click of a button and same are not physically exported to get it insured. Thus the question of insuring the software exported by assessee does not arise. Such being the case it cannot be said that insurance charges are included in export turnover. The assessee has not charged its customers separately in respect of the insurance charges nor has the assessee included the same in the export turnover nor recovered it from its customers. Export turnover of the assessee does not include the aforesaid expenses. Such being the case, the question of reducing the aforesaid expenditure from the export turnover does not arise. As decided in Tata Elxs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The CIT(A) vide the impugned order dated 28.09.2022 partly allowed the appeal of the assessee. 4. Aggrieved by the order of the first appellate authority the Revenue has filed the present appeal before the Tribunal and the assessee has filed the CO. We shall take up for adjudication the Revenue s appeal first. ITA No. 1069/Bang/2022 (Revenue appeal) 5. The grounds of appeal raised by the Revenue read as follows: - 1. Whether on the facts and in circumstances of the case, the ITAT was right in law in holding that the provision for discount is allowable as expense in the current year? 2. Whether on the facts and in circumstances of the case, the ITAT was right in law in holding that the provision for discount is allowable when same is contingent in nature? 6. The assessee had claimed deduction of provision for discount amounting to Rs.29 crores. The Assessing Officer (AO) disallowed the provision for discount by observing as follows: - 4. Provisions for Discounts During the year the assessee has debited a sum of Rs 29 Crores towards provisions for discounts. This provision has not been added back by the assessee. The assessee was given opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal read as follows: - 5. Coming to the Revenue s appeals, we find that the grounds raised by the Revenue are against the order by the learned CIT (Appeals) in directing the Assessing Officer to delete the disallowance of provision for discount, provision for warranty and to treat the software purchased as Revenue in nature. The other ground is relating to the direction by the learned CIT (Appeals) to the Assessing Officer to exclude travel expenses, professional charges, branch office expenses and other expenses from both the 'export turnover' as well as the 'total turnover'. We find that the last ground relating to the exclusion of certain expenses from both the 'export turnover' as well as the 'total turnover' is covered by the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd (supra) which has been followed by the learned CIT (Appeals) in giving the above direction. In view of the same, we do not interfere with the same. This ground of Revenue is accordingly rejected. 6. As regards the disallowance of provision for discount is concerned, brief facts of the case are that the assessee company, dealing with software d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Act. 9. The learned counsel for the assessee, on the other hand, supported the order of the learned CIT (Appeals) and submitted that the assessee gives discount to the customers based upon the volume of the sale and after reaching a specified target. He submitted that by following the matching principle of Revenue, the assessee has to make a provision for discount to be paid to the customer after the target is achieved. He submitted that since the Revenue is earned during the relevant Assessment Year but the discount is paid often after the target is achieved, in some cases, after the end of the financial year, the assessee is making a provision for discount and as observed by the learned CIT (Appeals), these provisions have been discharged fully in subsequent years which shows that the assessee is making the provision on a scientific and specific method. He also submitted that the Assessing Officer has himself allowed such provision for discount in the Assessment Years subsequent to A.Y. 2004-05. 10. Having heard both the parties and having considered the rival contentions, we find that the assessee is giving discount to its customers depending upon the volume of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2. The Commissioner (Appeals) Officer has failed to appreciate that the phrase used in the Explanation l(i) to section 10AA does not include and not to be reduced by . The said phrases have different connotations. The phrase does not include deals with the items which by trade practice or contractual terms or accounting treatment are considered as components of export turnover but by the aforesaid fiction are not to be so considered. The phrase to be reduced by may mean statutory deduction irrespective of the composition of the sale price. 2.3. The Learned Commissioner (Appeals) is not justified in failing to appreciate that in the present case of the Assessee, when the insurance charges incurred were not attributable to the delivery of the computer software outside India, no exclusion could have been made from the 'export turnover' of the Assessee. 2.4. The Learned Commissioner (Appeals) is not justified in excluding insurance charges of Rs. 2,53,00,297/- from the export turnover when the same is incurred in respect of property, business liability overseas travel insurance and not attributable to delivery of computer software outside India. 2.5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L Account are as follows: - Particulars Amount Property Insurance 40,65,484 Liability Insurance 3,50,04,090 Overseas Travel Insurance Direct 5,68,198 Total 3,96,37,772 14. From the above it is evident that the insurance charges incurred by the assessee are not attributable to delivery/export of computer software outside India. The AO and CIT(A) have failed to appreciate that the assessee is engaged in export of computer software which are developed by the assessee in India. The said software is exported through electronic media, i.e. internet/ digital media with click of a button and same are not physically exported to get it insured. Thus the question of insuring the software exported by assessee does not arise. Such being the case it cannot be said that insurance charges are included in export turnover. 15. Moreover, the assessee has not charged its customers separately in respect of the insurance charges nor has the assessee included the same in the export turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X
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