D.C.I.T CIR - 2,KOLKATA, KOLKATA vs. M/S METALOGIC SYSTEMS PVT LTD, KOLKATA

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-XX, Kolkata dated 14.12.2012. Assessment was framed by ACIT, Circle-2, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.10.2006 for assessment year 2004-05. Shri D.C. Mondal, Ld. Departmental Representative represented on behalf of Revenue and Shri Sajjan Kumar Tulsiyan, Ld. Advocate appeared on behalf of assessee.

The solitary substantial grievance of the Revenue is that Ld. CIT(A) has erred in directing the Assessing Officer to take the total turnover in pursuance DCIT Cir-2, Kol. Vs. M/s Metalogic Systems Pvt. Ltd. Page 2 of provision of Sec. 80HHE of the Act for the purpose of calculating the deduction u/s. 10A of the Act.

The facts in brief are that assessee is a private limited company engaged in the business of exports of computer software. The assessee in the year under consideration has made a revised claim of deduction u/s. 10A of the Act for ₹94,28,468/- only. The assessee while determining deduction under section 10A of the Act, has reduced the expenses incurred in foreign exchange in providing technical services outside India from the total turnover. However, the AO was of the view that the assessee has shown total turnover of ₹ 6.04 crores in its books of account. Therefore, the assessee was required to determine the deduction u/s. 10A of the Act by taking the total turnover of ₹ 6.04 crores. Accordingly, AO worked out the deduction u/s. 10A of the Act for ₹ 61,54,684/- only.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that expense incurred by it in foreign currency for providing services outside India shall not be part of total turnover for the purpose of calculation of deduction u/s. 10A of the Act. The assessee also submitted that Ld. CIT(A) for the immediate preceding AY 2003-04 has accepted the contention of assessee in appeal No. 92/A-II/Cir-2/05-06 dated 23.05.2006. The assessee also submitted that there is no definition given under the provision of Sec. 10A of the Act. Therefore the definition provided under the provision of Sec. 80HHE defining the total turnover should be applied in the instance case. Ld. CIT(A) after considering the submission of assessee has granted relief by observing as under:- “.2 I have perused the assessment order and considered the submission of the appellant. The similar issue in the appellant’s own case for the A.Y 2003- 04 was decided by the CIT(A)-II, Kolkata vide his order No.92/A-II/Cir-2/05-06 dated 23.05.2006 in which he allowed the appeal in favour of the appellant on the similar facts. Following the decision taken by the CIT(A) (supra) which has been discussed in detail by him in his order, appeal is allowed.” The Revenue, being aggrieved, is in appeal before us on the following grounds:-

Ld. DR vehemently relied on the order of Assessing Officer whereas Ld. AR for the assessee has relied heavily on the order of Ld. CIT(A). Ld. AR for the assessee also filed paper book which is running pages from 1 o 40 and submitted that the issue was allowed in assessee’s own case for A.Y. 2003-04 in dated 17.08.2007.

We have heard the rival contentions of both the parties and perused the materials available on record. We have also considered the paper book filed by the Ld. Counsel for the assessee. In the instant case, the assessee has claimed deduction u/s. 10A of the Act for ₹94,28,468/- after having reliance in the definition of total turnover as specified in Explanation-(e) below section 80HHE(5) of the Act. However, AO disregarded the computation for the deduction u/s. 10A of the Act and reduced the same from the amount as claimed by assessee as discussed above. In this connection, we find that CBDT in Circular No. 694 issued dated 23.11.1994 has clarified that the total turnover for the purpose of Sec. 10A will be taken as per the provision of u/s 80HHE of the Act i.e. the expenditure incurred in foreign currency in providing technical services outside India should be excluded from the total turnover of the assessee. In the case on hand, we find that assessee has worked out the deduction u/s/. 10A of the Act in terms of the CBDT Circular No. 694 as discussed above. Thus, there remain no errors in the computation of deduction u/s. 10A of the Act. In this connection, we also rely in the judgment of Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd reported in 330 ITR 175 (Bom) where in the relevant extract is reproduced below:- “The Assessing Officer held that while computing exemption under section 10A, freight and insurance charges should not be excluded from total turnover. The DCIT Cir-2, Kol. Vs. M/s Metalogic Systems Pvt. Ltd. Page 4 Commissioner (Appeals) affirmed the view of the Assessing Officer. On appeal, the Tribunal held that (i) the expression 'total turnover' has not been defined in section 10A; (ii) profits derived from export have to be computed by taking into consideration both - the export turnover and total turnover of the business carried on by the undertaking; (iii) both - the export turnover and total turnover which constitute the numerator and denominator in the application of the formula under sub-section (4) of section 10A should be comparable; and (iv) freight and insurance have no element of profit and, hence, cannot be included in the total turnover of the business carried on by the industrial undertaking. The Tribunal, accordingly, directed that the deduction under section 10A should be computed after excluding freight and insurance charges from the total turnover.”