ASSISTANT COMMISSIONER OF INCOME-TAX, BANGALORE vs. M/S.CENTURY LINK TECHNOLOGY INDIA PVT. LTD.,, BANGALORE

PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :

2.1 The assessee, a company engaged in the business of rendering computer software development services, filed its return of income for Assessment Year 2011-12 on 29/11/2011 declaring income of Rs.2,82,03,458/- after claiming deduction of Rs.41,58,86,300/- u/s 10A of the Income-tax Act, 1961 (in short ‘the Act’). The return was processed u/s 143(1) of the Act and the case was taken up for scrutiny. The assessment was completed u/s 143(3) of the Act vide order dated 12/3/2005 wherein the assessee’s income was determined at Rs.3,32,52,905/- after inter alia, restricting the deduction u/s 10A of the Act to Rs.35,44,48,046/- 2.2 Aggrieved by the order of assessment dated 12/3/2015 for Assessment Year 2011-12 the assessee preferred an appeal before the CIT(A)-2, Bangalore, challenging the Assessing Officer’s order in restricting the assessee’s claim for deduction u/s 10A of the Act to Rs.35,44,48,046/-. The assessee’s appeal was allowed by the impugned order dated 6/9/2016.

“1) The order of the Ld. CIT(A) is contrary to the facts and circumstances of the case and hence not sustainable.

2) The CIT(A) has erred in directing the AO to exclude the expenditure incurred in foreign currency towards foreign travel, Telecommunication expenses and expat salary from both export turnover as well as from total turnover by placing its reliance on the case of Tata Elxsi Limited vs ACIT (349 FIR 98) without appreciating that there is no provision in section 10A that such expenses should be reduced from the total turnover, as clause(iv) of the Explanation to section 10A provides that such expenses are to be reduced only from the export turnover.

3) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CITCA) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.

4) The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.”

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 foreign travel, telecommunication expenses and ex-pat salary from both export turnover as well as from total turnover, 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 clause (iv) of the Explanation to Sec. 10A provides that such expenses are to be reduced only from export turnover. 3.3 We have heard the rival contentions of the ld DR for the Revenue and ld AR for the assessee and have perused and carefully considered the material on record; including the judicial pronouncement cited/relied on. As regards the issue of reduction of the items of expenditure incurred in foreign currency i.e; on foreign travel, telecommunication charges etc. 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. 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 15th May, 2017.