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

PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :

2.1 The assessee, a company engaged in the business of research and development and manufacture of various types of re-agents and bio-informatics, filed its return of income for asst. year 2008-09 on 23/9/2008 declaring loss of (-)Rs.8,59,210/- after claiming deduction of Rs.84,05,726/- u/s 10B of the Income-tax Act, 1961 (in short ‘the Act’). Book profits were computed u/s 115JB of the Act at Rs.52,55,722/-. The assessment was completed u/s 143(3) of the Act vide order dated 18/10/2010, wherein the assessee’s income under the normal provisions were Rs.6,99,315/-. Aggrieved by this order of assessment for asst. year 2008-09 dated 18/10/2010, the assessee preferred an appeal before the CIT(A)-5, Bangalore who disposed off the appeal vide the impugned order dated 2/6/2016, allowing the assessee partial relief.

3.1 Revenue, being aggrieved by the order of the CIT(A)-5, Bangalore dated 26/5/2016 for asst. year 2008-09, has preferred 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. 1 OB 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.

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

3.2 In the grounds of appeal raised (Supra), Revenue contends that the ld CIT(A) has erred in directing the Assessing Officer (‘AO’) to exclude the expenditure incurred in foreign currency towards insurance, telecommunication expenses and freight from both export turnover as well as from total turnover while computing deduction u/s 10B of the Act, following the decision of the Hon’ble Karnataka High Court in the case of Tata Elxsi Ltd., Vs. ACIT (349 ITR 98). It is contended that in doing so, the ld CIT(A) did not appreciate that there is no provision in sec. 10A of the Act that mandates that such expenses should be reduced from the total turnover and that sub clause (4) of the Explanation 2 below sub section 8 to Sec. 10A provides that such expenses are to be reduced only from export turnover. It is submitted that provisions of sec. 10B are analogous to sec. 10A of the Act.

3.3 We have heard the contentions of the ld DR for the Revenue and have perused and carefully considered the material on record: As regards the issue of reduction of the items of expenditure incurred in foreign currency i.e; on freight issuance and telecommunication charges, 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 Tata Elxsi Ltd., Vs. ACIT (349 ITR 98) has held that when certain expenses are excluded from the export turnover for the purposes of claiming 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 forms part of total turnover. Section 10B of the Act being analogous, the aforesaid decision of Hon’ble Karnataka High Court in the case of Tata Elxsi Ltd., (Supra) would equally apply in favour of the assessee in the case on hand for computing eligible deduction u/ s10B of the Act. As observed by the ld CIT(A), the decision in the case of Tata Elxsi Ltd., (Supra) has also been followed by the Hon’ble Court in the case of DCIT Vs. Motor Industries Co. Ltd; (ITA No.776/2006, 744/2007 and 1155/2006 dated 13/6/2014), holding that if any expenditure is sought to be reduced 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/requirement to interfere with or deviate from the finding rendered by the ld CIT(A) on this issue and, therefore, uphold the same. Consequently, finding no merit in the grounds raised by Revenue (Supra) we dismiss the same.

Order pronounced in the open court on 31st May, 2017.