Foreign Currency Expenses on Telecom charges and Technical Services outside India included in Export Turnover for Section 10A of Income Tax Act: ITAT grants Relief to Tech Mahindra [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, held that foreign currency expenses on telecommunication charges and technical services outside India should not be excluded from the export turnover for computing under Section 10A of the Income Tax Act, 1961.

Tech Mahindra Limited, a joint venture between M/s Mahindra & Mahindra Limited and British Telecom Plc, engaged in software development and related services. The assessee filed an income return for A.Y. 2007-08, declaring a total income of Rs. 23,05,46,624. The case was scrutinized, and the Transfer Pricing Officer (TPO) determined the arm’s length price of international transactions.

The Assessing Officer, post TPO adjustment, noted foreign currency expenses of Rs. 2,86,68,68,261 on technical services and Rs. 11,10,04,486 on communication. The assessee argued that these should not be excluded from the export turnover as they were not recovered from customers. The Assessing Officer disagreed, reducing the amounts from the export turnover during Section 10A exemption computation.

The CIT(A) ruled in favor of the assessee, stating that no adjustment of foreign currency expenditure is necessary for computing export turnover under Section 10A. The Revenue appealed to the tribunal.

During proceedings, the counsel for the assessee argued that no adjustment was required from both export and total turnover since the expenses were not recovered and did not form part of the turnover. The Revenue's counsel relied on the Assessing Officer's order, citing the definition of export turnover.

The Tribunal observed that foreign currency expenses on telecommunication charges and technical services should not be excluded from export turnover for Section 10A computation, as they were not included in the assessee's export turnover.

The two-member bench of Padmavathy S (Accountant Member) and Amit Shukla (Judicial Member) held that foreign currency expenses on telecommunication charges and technical services outside India should not be excluded from the export turnover for computing under Section 10A of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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