ASSISTANT COMMISSIONER OF INCOME TAX, BANGALORE vs. M/S.REAMETRIX INDIA PVT. LTD., BANGALORE

PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :

2 2.1 The assessee, a company engaged in the business of Research and development and manufacturing of various types of Reagents and Bio-Informatics filed its return of income for Assessment Year 2007- 08 on 9.10.2007 declaring Nil income after, interalia, claiming deduction u/s. 10B of the Income Tax Act, 1961 (in short ‘the Act’).

The assessment was reopened by initiation of proceedings u/s 147 of the Act and issue of notice u/s 148 of the Act on 8/6/2011. The assessment was completed u/s. 143(3) r.w.s 147 of the Act vide order dated 21.03.2013 wherein the assessee’s income was determined at Nil after, interalia, restricting the deduction u/s 10B of the Act to Rs.59,90,648/- and set off of brought forward business losses and depreciation of asst. year 2004-05. On appeal, the CIT(A)-5, Bangalore partly allowed the assessee’s appeal vide order dated 26.5.2016. In doing so, the ld. CIT(A), interalia allowed the assessee’s claim for deduction u/s. 10B of the Act following the decision of the Hon’ble Karnataka High Court in the case of CIT v Tata Elxsi Ltd. (349 ITR 98) (Kar).

3 3.1 Aggrieved by the order of the CIT(A)-5, Bangalore dated 26.5.2016 for Assessment Year 2007-08, Revenue has filed this appeal, raising the following grounds:- “

1. The order of the Commissioner of Income Tax(Appeals) - 5, Bangalore, is opposed to the law and not on the facts and circumstances of the case.

2. On the facts and in the circumstances of the case, the CIT(A) erred in law in directing the Assessing Officer to reduce the expenditure incurred in Insurance, telecommunication etc, both from the Export Turnover as well as the Total Turnover for the purpose of computation of deduction u/s.10B of the IT Act without appreciating the fact that the statue allows exclusion of such expenditure only from the Export turnover by way of specific definition of Export Turnover as envisaged by sub-clause(4) of explanation 2 below sub-section 8 of section 10A. On the other hand, there is no specific provision in section 10A warranting exclusion of above expenses from total turnover also. Provisions of section l0B are analogous to that of section 10A of the IT Act, 1961.

3. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored.

4 4. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal.”

The ld. DR was heard in support of the grounds raised.

3.2 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited. As regards the issue of reduction of the items of expenditure incurred in foreign currency such as issuance expenses, telecommunication charges, and foreign travel expenses etc.; which are attributable to the delivery of software outside India, the Hon’ble jurisdictional High Court of Karnataka in the case of CIT v Tata Elxsi Ltd (349 ITR 98) (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. 10A of the Act, such expenses are also to be excluded from total turnover as export turnover is a part of total turnover. Section 10A of the Act being pari meteria with sec. 10B of the Act, the aforesaid decision in the case of Tata Elxsi Ltd., 349 ITR 98, (kar). The decision in the case of Tata Elxsi Ltd (supra) has also been followed by the Hon’ble Court in its 5 order in the case of DCIT v Motor Industries Co. Ltd., (ITA No.

776/2006, 744/2007 and 1155/2006 dated 13.06.2014), holding that if any expenditure is sought to be removed from export turnover, then it should also be reduced from total turnover also for the purposes of computing the eligible deduction u/s. 10A/10B of the Act. 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, and therefore uphold the same. Consequently, the grounds S.Nos. 1 to 4 raised by revenue are dismissed.