ITO, BANGALORE vs. M/S GOOD RICH AEROSPACE SERVICES PVT. LTD., BANGALORE

The appeal is by the revenue and the cross objection by the assessee against the order of the CIT(Appeals)-I, Bangalore relating to assessment year 2007-08.

The assessee is engaged in the business of manufacture, repair, overhaul and maintenance services for aircraft safety and evacuation systems. The manufacturing activities are carried out by a 100% EOU division. The profits of EOU division were entitled to deduction u/s. 10B of the Act. During the previous year relevant to A.Y. 2007-08, the assessee had set up a new business line of providing design services for certain components manufactured by other group of companies. In this regard, the assessee had set up a new unit ‘India Design Centre’ and registered the same as a 100% EOU under STPI scheme. The profits of this unit were entitled to claimed deduction u/s. 10A of the Act.

While computing the eligible deduction u/s. 10A/10B of the Act, the Assessing Officer reduced from the export turnover the following sales:-

According to the AO, in view of the aforesaid definition of export turnover, telecommunication expenses, freight outwards and foreign travel expenses had to be excluded from the export turnover for the purpose of computing deduction u/s. 10A/10B of the Act. The plea of the assessee before the AO was that telecommunication and freight expenses incurred by the assessee did not form part of its export turnover. The entire export turnover accounted for by the assessee during FY 2006-07 represented consideration for export of services/articles to Goodrich entities outside India. These expenses incurred by Goodrich India were not separately charged-back to Goodrich entities. Sample copy of the invoices evidencing the above were also furnished.

Without prejudice to the above, the assessee also submitted that if the aforesaid expenditure is excluded from the export turnover, they should also be reduced from the total turnover for the purpose of computing deduction u/s. 10A/10B of the Act.

The AO did not agree with the aforesaid submissions on behalf of the assessee and excluded the aforesaid expenses from the export turnover alone.

On appeal by the assessee, the CIT(Appeals) directed the AO to exclude the expenses in question both from the export turnover as well as total turnover. In doing so, the CIT(Appeals) relied on the decision of the Hon’ble High Court of Karnataka in CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn).

Aggrieved by the order of the CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal.

In the Cross Objection, the assessee apart from supporting the order of the CIT(Appeals), has also contended that the telecommunication expenses were not attributable to the delivery of computer software outside India and that the travel and freight expenses were not incurred for rendering any technical services outside India and therefore, ought not to have been excluded from the export turnover.

As far as the cross objection of the assessee is concerned, we are of the view that no adjudication on the grounds raised in the CO is necessary at this stage. The question is therefore left open for adjudication, if and when the issue raised by the assessee in the CO requires adjudication.

In the result, the appeal by the revenue as well as the CO by the assessee is dismissed.