ASSISTANT COMMISSIONER OF INCOME TAX, BANGALORE vs. M/S.NUWARE SYSTEMS PVT. LTD.,, BANGALORE

PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :

2.1 The assessee, a company engaged in the business of development and export of computer software, filed its return of income for Assessment Year 2009-10 on 20.09.2009 declaring total income of Rs.45,54,134/- after, inter alia, claiming deduction u/s. 10A of the Income Tax Act, 1961 (in short ‘the Act’) to the tune of Rs.18,11,36,634/-. The case was taken up for scrutiny and the assessment was completed u/s. 143(3) of the Act vide order dated 27.12.2012 wherein the assessee’s income was determined at Rs.1,05,87,919/- in view of, inter alia, the Assessing Officer (‘AO’) disallowing the assessee’s excess claim for deduction u/s. 10A of the Act to the extent of Rs.60,33,785/-. On appeal, the CIT(A)-6, Bangalore partly allowed the assessee’s appeal vide order dated 1.6.2016. In doing so, the ld. CIT(A) allowed the assessee’s claim for deduction u/s. 10A 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).

3.1 Aggrieved by the order of the CIT(A)-12, Bangalore dated 1.6.2016 for Assessment Year 2009-10, 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 travel, telecommunication etc, both from the Export Turnover as well as the Total Turnover for the purpose of computation of deduction u/s.10A 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 subsection 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.

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 telecommunication charges, professional and consultation fees, travelling and conveyance expenses etc.; which are attributable to the delivery of software outside India and in rendering of technical services outside India, the 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. 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., (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 for the purposes of computing the eligible deduction u/s. 10A 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.

Order pronounced in the open court on 23rd November, 2017.