Anandi Lal Gehlot, Accountant Member -
(1.) THESE appeals by the assessee are directed against the orders dared 4.3.2006 and 12.10.2004 of the Commissioner of income tax (Appeals-II. Hyderabad for the asst. years 2000-01 and 2001-02. One ground raised in both appeals is based on identical set of facts, therefore, for the sake of convenience both appeals are decided by this common order.
(2.) A common ground raised in the grounds of appeal for both asst. years 2001-02 and 2000-01 pertains to calculation 'of export turnover for the purpose of Section 10A. The mounts involved in both years are as under:
The facts leading to the issue are in asst: year 2001-02, therefore, the acts and figures considered by us are for A.Y. 2001-02.
The ground raised in assessment year 2001-02 is that the C.I.T (Appeals) erred in confirming the deduction of Rs. 40,93,493/- in respect of Internet Service Provider (in short hereinafter called ISP) charges and Rs. 1,16,61,307/- in respect of expenses incurred in foreign exchange for providing technical services outside India from Export Turnover while computing exempted income and Section 10A of the Act.
(3.) BRIEF facts of the case are that the assessee company is engaged in the business of development and export of software. The assessee filed a return of income declaring an income of Rs. 3,72,771/- for A.Y. 2001-02 after claiming exemption under Section I0A to the tune of Rs. 1,12,93,116/-. The assessee has also filed form No. 56F, a report of the Chartered Accountant under Section 10A of the I.T. Act where the amount of deduction under Section 10A was arrived at Rs. 1,12,93,116/-. During the assessment proceedings, on perusal of the statement fled by the assessee, the A.O. noticed that total export amounted to Rs. 9,36,22,966/-. The expenses incurred in foreign exchange to earn the above export income was Rs. 1,16,61,043/-. The A.O. treated this expenditure as expenses incurred in foreign exchange in providing technical services outside India. The A.O. further noticed that the expenses attributable to the delivery of software are Rs. 40,93,493/- booked under Internet Service Provider (ISP) since the assessee got leased ISP line exclusively. The A.O. reduced export turnover by Rs. 1,16,61,043/- and Rs. 40,93,493/- on account of ISP and expenses attributable to delivery of software respectively. The relevant observations of the A.O. are reproduced as below:
The details of foreign exchange outflow were filed by the assessee during the course of hearing. It comprises Rs. 1,16,61,307/- on account of expenditure incurred in foreign exchange for providing technical services outside India, as per the statement filed by the Manager of the assessee company and he has staled that the said expenditure was incurred by the personnel on site. The balance amount of Rs. 2,03,936/- was spent in foreign exchange for training of the personnel.
The assessee has also filed the details of communication expenses of Rs. 68,04,550/- included under the head 'software development charges' which camprises other telephone expenses Rs. 7,93,441, ISP - Rs. 40,93,493, Fixed Telecom Aristdsoff - Rs. 12,88,632 and Mobile Telecom Ansfasoff - Rs. 6,28,984. According to the assessee, the expenses attributable to the delivery of the software are only Rs. 40,93,493/- booked under Internet Service Provider, since the assessee got leased ISP line exclusively.
After considering the assessee's submission, the A.O. computed the total income of the assessee as under:
Aggrieved by the order of the A.O., the assessee preferred appeal before the C.I.T.(Appeals) agitating the reduction of the claim of exemption under Section 10A from Rs. 1,12,93,116 to Rs. 93,89,508/-. The C.I.T. (Appeals) after considering the definition of the "export turnover" as provided in Clause (iv) below Explanation 2 of Section 10A of the Act, noticed that a plain reading of the said provision of the Act makes it clear that expenditure of Rs. 40,93,493/- is attributable to freight, telecommunication charges or insurance attributable to delivery of the articles or things or computer software outside India. In respect of ISP provider charges of Rs. 40,93,493/-, the C.I.T(Appeals) observed that the assessee has admitted before the A.O. that these expenses were attributable to delivery of the software and therefore squarely falls for non-inclusion within the meaning of export turnover as bid down in Clause (iv) of Explanation 2 to Section 10A of the Act. As regards the expenditure of Rs. 1,16,61,307/- the C.I.T.(A) noticed that there is a clear finding of the A.O. that this amount was attributable to the expenditure incurred for providing technical services outside India and therefore, tails for not to be included within the meaning of definition of export turnover as defined in Clause (iv) of explanation 2 of Section 10A of the Act. The C.I.T.(A) confirmed the order of the A.O. wherein the A.O. out of the export turnover of Rs. 9,34,65,038/- excluded the expenses Rs. 40,93,493/- on account of ISP provider charges and Rs. 1,16,61,307/- expenses incurred in foreign exchange in providing technical services outside India and accordingly computed the export turnover at Rs. 7,77,10,238/- (Rs. 9,34,65,038/- less Rs. 1,57,54,800/-).;