S.S.Godara, Member (J) -
(1.) THIS Revenue's appeal for assessment year 2006 -07; emanates from order dated 31.10.2013 passed by the Commissioner of Income Tax (Appeals) -III, Chennai in ITA No. 1560/2013 -14 in proceedings under section 143(3) of the Income Tax Act 1961 [in short the "Act"].
(2.) THE Revenue pleads its grievance in the present appeal as under: -
2.1 The learned CIT(A) erred in directing the assessing officer to reduce telecommunication charges, insurance and expenses incurred in foreign exchange in providing the technical services outside India both from the export turnover and also from the total turnover for the purpose of calculation of deduction u/s. 10A.
2.2 It is submitted that the decision of the Special Bench of the Jurisdictional ITA T in the case of M/s. Saksoft Ltd. relied upon by the CIT(A) has not become final and the department has preferred an appeal u/s. 260A before the Madras High Court".
The assessee/company is engaged in the business of software development. It had filed its 'return' on 17.11.2006 declaring income of Rs. 60,44,219/ - followed by 'revised' one dated 27.11.2007 admitting income of Rs. 40,03,372/ -. The Assessing Officer completed 'scrutiny' assessment on 28.11.2008. In course thereof, he noticed the assessee to have included in its export turnover of Rs. 25,42,49,015/ -, telecommunication expenses of Rs. 32,16,462/ -, Insurance sum of Rs. 9,84,751/ - totaling Rs. 42,01,213/ -. He held in the assessment order that as per Sec. 10A(8) Explanation 2(iv) of the Act, expenses attributed to delivery of computer software outside India had to be reduced from the export turnover. The Assessing Officer also came across expenditure on travel expenses, marketing and selling, professional fees, rent, salary and 'other' heads of Rs. 2,38,89,080/ -, Rs. 24,76,390/ -, Rs. 50,72,372/ -, Rs. 12,06,621/ -, Rs. 3,60,53,390/ - and Rs. 76,40,386/ - totaling Rs. 7,63,38,238/ - forming part of the export turnover. The Assessing Officer was of the view that as per the very statutory provision, these expenses attributable towards providing technical services outside India deserved to be excluded from export turnover.
(3.) IN assessee's appeal, the CIT(A) has held that whatever expenses incurred in foreign exchange is excluded from export turnover, the same are also to be excluded from total turnover as under: -
8.3 The next issue in the grounds of appeal is regarding the exclusion of expenditure incurred in foreign currency both from the export turnover in the numerator and also from the total turnover in the denominator. The Assessing Officer while completing the assessment u/s. 143 and also while passing the rectification order u/s. 154 has reduced the quantum of telecommunication charges of Rs. 32,16,462/ - and insurance expenses of Rs. 9,84,751/ - and also expenditure incurred in foreign currency outside India of Rs. 7,63,38,238/ - from the export turnover only and for calculating the total turnover, the expenses reduced from export turnover were not considered.
8.4 The A.R. of the appellant has argued that if the expenses in question are so excluded from the export turnover, the same should also be reduced from the total turnover while computing the deduction. In this regard, the appellant has relied on the decision of the Hon'ble ITAT, Bangalore in the case of Mphasis Bfl Ltd. Vs. ITO [ITA No. 120/Bang/2011] and the decision of the jurisdictional ITAT in the case of ITO Vs. Sak Soft Limited [ : 121 TTJ 865] in support of its contention.
8.5 I have carefully gone through the assessment order, considered the statement of facts and the grounds of appeal. After going though the written submissions, decision relied upon by the appellant, I am of the opinion that relief for excluding certain expenses and expenses incurred in foreign currency from the total turnover without corresponding reduction from the total turnover for the claim of benefit available u/s. 10A of the Act is squarely covered by the order of the ITAT, Chennai Special Bench's hearing in the case of M/s. Sak Soft Ltd. The decision highlighted in the said case is reproduced as under:
......we hold that for the purpose of applying the formula under sub -s. (4) of s. 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any incurred in foreign exchange in proving the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula......
8.5.1 Respectfully following the decision of the jurisdictional Bench of the Hon'ble Tribunal in the case of ITO Vs. Sak Soft Limited [ : 121 TTJ 865] and also on the decision of the Hon'ble ITAT 'C' Bench, Chennai in ITA Nos. 54 & 1197 (Mds)/2010 in the appellant's own case for the assessment years 2002 -03 and 2003 -04 cited supra, accordingly, I direct the AO to reduce telecommunication expenses, insurance and expenses incurred in foreign exchange in providing the technical services outside India both from the export turnover and also from the total turnover. This ground of the appellant is allowed.
In the result, the appeal is partly allowed.
Therefore, the Revenue is in appeal.;