DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(2), BANGALORE vs. M/S. STERLING COMMERCE SOLUTIONS INDIA PVT LTD, BANGALORE

Accordingly, the Ld CIT(A) agreed with the contentions of the assessee in principle. However, the Ld CIT(A) took the view that the assessee has not proved the claim of foreign exchange loss of Rs.2,04,66,809/- by producing documentary evidence to show that the loss was incurred. Accordingly he held that the disallowance of foreign exchange loss made by the AO is not called for.

With regard to the remaining items of expenses, the Ld CIT(A) directed the AO to follow the decisions rendered by Hon'ble Karnataka High Court (referred supra).

The revenue is aggrieved by the decision so rendered by the Ld CIT(A). The assessee has filed cross objection challenging the decision rendered by Ld CIT(A) in not excluding foreign exchange loss from total turnover. The assessee has also raised another issue relating to exclusion of “miscellaneous income of Rs.1,77,655/-” from the “Profits of undertaking” of the assessee while computing deduction u/s 10A of the Act.

We shall first take up the appeal filed by the revenue. We notice that the Ld CIT(A) has followed the binding decision rendered by Hon'ble Karnataka High Court in the case of Tata Elixi Ltd (supra) in holding that the expenses should be reduced both from Export turnover and Total turnover. Hence we do not find any reason to interfere with his order passed on this issue.

We shall now take up the Cross Objection filed by the assessee. The first issue relates to the confirmation of the order passed by the AO on “foreign exchange loss”. We notice that the issue before Ld CIT(A) was not related to the genuineness of the claim or lack of documentary evidence in support of the said claim. From the assessment order, it can be noticed that the AO has observed as under with regard to this issue:- “7.6 With regard to foreign exchange loss of Rs.2,04,66,809/- the assessee was asked to show cause as to why the same should not be reduced from the export turnover. The assessee has objected to the same but however has stated that in the event of the same being reduced from export turnover the same should be reduced from the total turnover also. This again is not acceptable for the reasons mentioned above and the said foreign exchange loss of Rs.2,04,66,809/- is reduced from the export turnover.” Hence, the issue before Ld CIT(A) was whether the foreign exchange loss should be reduced both from both export turnover and total turnover or not?. Thus, we notice that the Ld CIT(A) has misdirected himself in presuming that the issue before him was related to the genuineness of the claim.

Since the AO has reduced the foreign exchange loss from the Export turnover, the same is required to be reduced from the Total turnover also while computing deduction u/s 10A of the Act as per the decision rendered by Hon'ble Karnataka High Court in the case of Tata Elixi Ltd (supra). Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to reduce the foreign exchange loss both from export turnover and total turnover, while computing deduction u/s 10A of the Act.

The next issue urged by the assessee relates to the exclusion of miscellaneous income of Rs.1,77,655/- from the income of the assessee while computing profit of undertaking for the purpose of computing deduction u/s 10A of the Act. We notice that the Ld CIT(A) has not adjudicated this issue, even though the assessee has challenged the same before him. Accordingly, we restore this issue to the file of Ld CIT(A).

In the result, the appeal of the revenue is dismissed and the cross objection of the assessee is treated as allowed. Order pronounced on 23rd October, 2019 Sd/- Sd/- (Beena Pillai) (B.R Baskaran) Judicial Member Accountant Member Bangalore, Dated, October, 2019. / vms / Copy to:

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