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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI JASON P BOAZ & SHRI LALIET KUMAR
Per Jason P Boaz, Accountant Member
This appeal by Revenue is directed against the order of the CIT(A)-4, Bangalore dated 12.12.2017 for Assessment Year 2014-15.
Briefly stated, the facts relevant for disposal of this appeal are as under:
2.1 The assessee, a company, engaged in the business of computer aided designing for automobile components for commercial vehicles, filed its return of income for Assessment Year 2014-15 on 29.11.2014 declaring income of Rs.28,75,620/- after
Page 2 of 5 claiming deduction of Rs.4,01,25,599/- under section 10AA of the Income Tax Act, 1961 (in short ‘the Act’) . ‘Book Profits’ under section 115JB of the Act were computed at Rs.3,64,76,726/-. The case was taken up for scrutiny and the assessment was concluded under section 143(3) of the Act vide order dated 14.12.2016, wherein the assessee’s income under normal provisions was determined at Rs.1,07,14,250/- in view of the Assessing Officer (AO) re-computing and restricting the eligible deduction under section 10AA of the Act to Rs.3,22,86,975/- by excluding communication expenses, insurance changes and expenditure incurred in foreign currency from Export turnover. On appeal, the CIT(A)-4, Bangalore vide the impugned order dated 12.12.2017 allowed the assessee’s claim for deduction under section 10AA of the Act by following the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd., (349 ITR 198) (Kar).
3.1 Revenue, being aggrieved by the order of CIT(A)-4, Bangalore dated 12.12.2017 for Assessment Year 2014-15, has preferred this appeal before the Tribunal, wherein it has raised the following grounds:-
3.2 All these grounds (supra) relate to the exclusion of certain expenses incurred in foreign currency, towards communication expenses and insurance charges both from Export turnover as well as Total Turnover, while computing the deduction under section 10A & 10AA of the Act.
3.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited. The jurisdictional High Court of Karnataka in the case of CIT v Tata Elxsi Ltd (349ITR98) (Kar) has held that when certain expenses are excluded from the export turnover for the purposes of computing deduction admissible under the Act; like u/s.10Aof the Act, such expenses are also to be excluded from total turnover, as export turnover is a part of total turnover. The decision in the case of Tata Elxsi Ltd(supra) has also been followed by the Hon’ble Court in its order in the case of DCIT v Motor Industries Co. Ltd.,(ITANo.776/2006, 744/2007 and 1155/2006 dated13.06.2014), holding that if any expenditure is sought to be removed from export turnover, then it should also be reduced from total turnover for the purposes of computing the eligible deduction u/s.10A of the Act. Section 10A being para materia with section 10AA of the Act, the judicial pronouncements in the case of Tata Elxsi Ltd., (supra), would equally be applicable to the assessee in the case on hand. This issue is no longer res integra, and has been decided in favour of the assessee and against revenue by the decision of the Hon'ble Apex Court in the case of CIT V.HCL Technologies Ltd. (2018) 93 taxmann.com 33 (SC); wherein at paras19 to 21, it has been held as under:-
“19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well.
On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover.”
3.3.2 In this legal and factual matrix of the case, as discussed above, we find no reason to interfere with or deviate from the finding rendered by the ld. CIT(A) on this issue with respect to the deduction under section 10AA of the Act, and therefore respectfully following the decision of the Hon'ble Apex Court in the case of CIT Vs. HCL Technologies Ltd. (supra),we uphold the impugned order of the learned CIT (Appeals)’s allowing the assessee's claim for deduction under Section 10AA of the Act. Consequently, the grounds raised by revenue are dismissed.
In the result, Revenue’s appeal for Assessment Year 2014-15 is dismissed.
Order pronounced in the open court on this 5th day of April, 2019.