The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that Development expense and exchange fluctuation loss deducted from export turnover needs to be deducted from total turnover.
M/s.Pentasoft Technologies Ltd, the assessee company is engaged in the business of software development & services and is exporting software and services from Software Technology Park and claimed deduction u/s.10A of the Act. The assessee has filed its return of income for the AY 2004-05 on 01.11.2004 declaring a loss of Rs.26,62,56,653/-.
The revenueschallenged the exclusion of software development expenses and exchange fluctuation loss from export turnover but not from total turnover. The AO while re-computing deduction u/s.10A of the Act, excluded expenditure incurred towards software development expenses as per Explanation (2) to sec.10A of the Act, and exchange fluctuation loss, but does not exclude same from the total turnover
The assessee relied on the decision of the Supreme Court in the case of HCL Technologies Ltd. v. CIT where it has been held that expenses deducted from export turnover also need to be deducted from the total turnover.
A Coram comprising of Shri V Durga Rao, Judicial Member and Shri G Manjunatha, Accountant Member observed that the issue of computation of deduction u/s.10A of the Act, in light of the definition of export turnover and total turnover, has been resolved by the Supreme Court in the case of HCL Technologies Ltd., where it was held that expenses deducted from export turnover need to be deducted from total turnover.
The ITAT held that the AO & the CIT(A) erred in not excluding expenses deducted from export turnover from total turnover and further directedthe AO to exclude expenditure incurred towards software development and foreign exchange loss from total turnover also.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.
