DCIT, BANGALORE vs. M/S QUALITY ENGINNERING & SOFTWARE TECHNOLOGIES PVT. LTD., BANGALORE

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ITA 807/BANG/2012Status: DisposedITAT Bangalore30 July 2015AY 2007-084 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the decision of the jurisdictional High Court of Karnataka, which mandates exclusion from both total and export turnover, is binding. Therefore, the CIT(Appeals) order was confirmed.

What were the facts?

The revenue appealed against the CIT(Appeals) order which directed the exclusion of telecommunication charges and foreign travel/conveyance expenses from both total turnover and export turnover for computing deduction under Section 10A. The AO had argued for exclusion only from export turnover.

What were the issues?

Whether expenses attributable to delivery of software and foreign travel/conveyance should be excluded from both total turnover and export turnover for Section 10A deduction, following the jurisdictional High Court's precedent.

Which sections of the Income-tax Act were involved?

Section 10A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE

Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE

For Appellant: Shri S. Nambirajan, Jt. CIT(DR)
For Respondent: Shri Ankur Pai, CA
Hearing: 27.07.2015Pronounced: 30.07.2015

O R D E R Per N.V. Vasudevan, Judicial Member

This appeal by the revenue is against the order dated 02.03.2012 of the CIT(Appeals)-III, Bangalore relating to assessment year 2007-08.

2.

The only issue that arises for consideration in this appeal is as to whether the CIT(Appeals) was justified in directing the AO to exclude the expenses towards telecommunication charges amounting to Rs.44,39,870 as attributable to delivery of software and expenditure incurred on foreign travel and conveyance, in foreign currency, of Rs.12,59,20,855 as expenditure incurred in providing services outside India, from the total turnover as well as export turnover, while computing deduction u/s. 10A of the Act.

3.

According to the AO, as per the definition of export turnover given in clause (iv) to Explanation 2, the expenses incurred for freight expenses attributable to the delivery of the product or expenditure incurred in providing services outside India should be reduced from the export turnover. However, the provisions of section 10A do not provide for exclusion of such expenditure from total turnover. In the absence of a definition for total turnover in section 10A, the normal definition of total turnover has to be adopted and as such the expenses which are reduced from the export turnover in accordance with the specific definition cannot be reduced from the total turnover.

4.

On appeal by the assessee, the CIT(Appeals) following the decision of the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn), held that whatever is excluded from the export turnover, has also to be excluded from the total turnover.

5.

Aggrieved by the order of the CIT(Appeals), the revenue is in appeal before the Tribunal.

6.

The only grievance of the Revenue is that the decision of Hon'ble High Court of Karnataka in Tata Elxsi (supra) has not attained finality and a SLP by the department is pending before the Hon'ble Supreme Court. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. We therefore hold that the order of CIT(A) does not call for any interference and accordingly the same is confirmed.

7.

In the result, the appeal by the Revenue is dismissed.

Pronounced in the open court on this 30th day of July, 2015.

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