Profit of Business Undertaking in Proportion of Export Turnover to Total Turnover would be Eligible for Deduction u/s 10 A of Income Tax Act: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the profit of business undertaking in proportion of export turnover to total turnover would be eligible for deduction under Section 10A of the Income Tax Act, 1961.

The Assessing Officer held that the income was not eligible for claiming benefit of deduction under Section 10A & 10AA of the Income Tax Act as the same are not derived or attributable to the export activity of the assessee company. According to AO, these incomes have only incidental nexus with the export activity of the assessee and they do not have first degree nexus with the export activity which was eligible for deduction under Section 10A & 10AA of the Income Tax Act.

Mr. Waseem Arshad representing the revenue argued that there was no business compulsion for the assessee to deploy funds in the deposits as well as by giving loans to employees and earn interest income thereon. He argued that the entities to whom funds are advanced by the assessee are having running accounts with the assessee and thus funds are advanced to benefit global operations and not Indian business. Hence, no nexus has been proved by the assessee on the deployment of the funds, which had fetched interest income for the assessee eligible undertaking under Section 10A & 10AA of the Income Tax Act.

The two member bench of the tribunal comprising Yogesh Kumar US (Judicial member) and M. Balaganesh (Accountant member) observed that once it is treated as ‘business income’, the assessee would be automatically eligible for deduction under Section 10A & 10AA of the Income Tax Act. 1961, Even otherwise, the provisions of Section 10A(4) are very clear to state that the entire ‘profits of the business of the undertaking’ in proportion of export turnover to total turnover would be eligible for deduction under Section  10A of the Income Tax Act.

 ITAT did not find any infirmity in the order of the CIT (A), accordingly, appeal of the assessee was allowed.

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