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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
This appeal by Revenue is directed against the order of the CIT(A)-2, Bangalore dated 25.10.2016 for Assessment Year 2010-11.
Briefly stated, the facts of the case are as under:-
IT(TP)A No.1325/B/16 2 2.1 The assessee, a company engaged in the business of providing software development and allied services, filed its return of income for Assessment Year 2010-11 on 28.09.2010 declaring total income of Rs.4,51,233/- after, inter alia, claiming deduction u/s. 10A of the Income Tax Act, 1961. The assessee filed a revised return of income on 23/11/2011 declaring NIL income. The case was taken up for scrutiny and the assessment was completed u/s. 143(3) r.w.s 144C of the Act vide order dated 20.3.2014 wherein the assessee’s income was determined at Rs.73,27,270/- 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.73,27,270/-. On appeal, the CIT(A)-2, Bangalore partly allowed the assessee’s appeal vide order dated 25.4.2016. In doing so, the ld. CIT(A) allowed the assessee’s claim for deduction u/s. 10A of the Act following the decisions of the Hon’ble Karnataka High Court in the case of CIT v Tata Elxsi Ltd., (349 ITR 98) (Kar). 3.0 Aggrieved by the order of the CIT(A)-2, Bangalore dated 25.4.2016 for Assessment Year 2010-11, Revenue has filed this appeal, raising the following grounds:-
“1) The order of the Ld. CIT(A) is contrary to the facts and circumstances of the case and hence not sustainable. 2) Whether the id. CIT(A) is right on the issue of reduction of expenditure incurred in foreign exchange only from turnover for deduction u/s IOA by relying on IT(TP)A No.1325/B/16 3 the decision of the Hon'ble High Court in the case of Tata Elxsi Ltd., vs ACIT(In 349 ITR 98), which the department has not accepted and the SLP filed before the Apex Court is pending for adjudication, hence the order may be appealed against. 3) Whether the CIT(A) is right on the issue of set off of brought forward of losses(From non-STPI unit) for deduction u/s 10A, since the order on which the CIT(A) has relied on the judgment of Hon'ble High Court in the case of CIT vs. Yokogawa India Ltd.,(341 ITR 385), which is not accepted by the Department and the SLP filed on this issue is pending before the Supreme Court. 4) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.”
4. Grounds S.Nos. 1 and 4 4.1 These grounds being general in nature, no adjudication is called for thereon.
Ground No.2 – Deduction u/s 10A of the Act 5.1 The ld DR was heard in support of the ground raised (Supra) and placed strong reliance on the findings in the order of assessment by the AO on this issue.
IT(TP)A No.1325/B/16 4 5.2 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 ground at S.No. 2 raised by revenue is dismissed.
Ground No.3 – Computation of Deduction u/s 10A of the Act
IT(TP)A No.1325/B/16 5 6.1 The ld DR for Revenue was heard in support of the ground raised (Supra) and placed strong reliance on the finding in the orders of the AO on this issue. 6.2 Per contra, the ld AR for the assessee submitted that the assessee’s claim for being allowed the deduction claimed u/s 10A of the Act is squarely covered in its favour by the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Yokogowa India Ltd. (341 ITR 385). It is submitted that the ld CIT(A), following the aforesaid decision, has rightly directed the AO to compute the deduction u/s 10A of the Act before setting off the brought forward business losses and depreciation for the asst. year in question. 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record. From a perusal of the details on record it is seen that the AO was of the view that deduction u/s 10A of the Act was to be allowed only on the income computed after setting off the brought forward losses and depreciation. Accordingly, the assessee’s income for both asst. years was, inter alia, determined by the AO by first setting off the brought forward losses/depreciation from the business income for calculating the deduction u/s 10A of the Act. 6.3.2 We find that the issue in dispute before us is squarely covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd. (2012) 341 ITR 385 (Kar). In its decision the Hon’ble High Court had held that IT(TP)A No.1325/B/16 6 as the income of sec. 10A unit has to be excluded at source itself before arriving at the gross total income/loss. As the deduction u/s 10A of the Act has to be computed from the total income of the assessee, the brought forward business loss and depreciation being set off against such profit and gains of the undertaking as a whole would not arise. Section 10A of the Act being analogous with sec. 10B of the Act, the aforesaid decision of the Hon’ble High Court would equally apply to the case on hand. In this view of the matter and respectfully following the decision of the Hon’ble Karnataka High Court in Yokogawa India Ltd. (341 ITR 385), which has since been approved by the Hon’ble Apex Court in CIT Vs. Yokogawa India Ltd., (2017) 77 taxmann.com 41(SC), we uphold the impugned orders of the ld CIT(A) in directing the AO to compute the deduction u/s 10A of the Act in the case on hand without setting off the brought forward business losses and depreciation from the assessee’s income. We hold and direct accordingly. Consequently, the ground No.3 raised by Revenue is dismissed.
In the result, the Revenue’s appeal for the asst. year 2010-11 is dismissed. Order pronounced in the open court on 10th November, 2017. Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated : 10/11/2017 Vms
IT(TP)A No.1325/B/16 7