The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that reduction of freight, telecommunication charges and recovery of expenses in respect of migration / job training services from total turnover was eligible for deduction under Section 10AA of Income Tax Act, 1961.
The assessee M/s Genpact India Private Limited was engaged in the business of providing Information Technology Enabled Services such as data entry, data processing services, data conversion, business support and billing services to its customers. During the year under consideration, the assessee company had claimed deduction under Section 10A/10AA of the Act amounting to Rs. 378, 22,79,469/-.
During the year under consideration, the assessee incurred telecommunication expenses in foreign currency amounting to Rs. 23,19,55,704/-. Out of this, the amount pertaining to undertakings eligible for claiming deduction under Section 10A and 10AA of the Act was Rs. 6,20,38,757/- and Rs. 3,24,95,309/- respectively.
It was submitted that under the overall ambit of IT Enabled Services, assessee also provides business process outsourcing services to customers located outside India as well as customers located in India. Provision of business process outsourcing services involve carrying out certain back office operations of the customers through employees employed and operating out of the STPI and SEZ units of the assessee in India.
For carrying out back office operations of the customers from India, adequate on-the-job training is required to be provided to the assessee’s employees in order to enable them to understand the operations of the customers and help in migrating those operations from overseas customer locations to STPI and SEZ units located in India.
The AO by referring to the definition of export turnover as provided in Section 2(iv) of Section 10A of the Act, reduced the telecommunication expenses incurred in foreign currency relating to reimbursement received by the assessee on account of migration/ on-the-job training activities from the export turnover and correspondingly did not reduce the same from the ambit of total turnover, thereby reducing the claim of deduction under Section 10A/10AA of the Income Tax Act.
It was held that the items that are subject matter of reduction from export turnover in the numerator need to be reduced in the denominator from the ambit of total turnover also as admittedly total turnover is nothing but the sum total of export turnover and domestic turnover. Hence, the export turnover reflected in the numerator cannot be different from the export turnover figure reflected in the denominator.
The bench held that the reduction of freight, telecommunication charges and recovery of expenses in respect of migration / job training services from total turnover was eligible for deduction under Section 10AA of Income Tax Act.
The two member bench of the tribunal comprising Yogesh Kumar S (Judicial member) and M. Balaganesh (Accountant member) concluded that purpose of computing the deduction under Section 10A/10AA/10B/80HHC/80HHE etc. all items that were sought to be excluded from export turnover need to be excluded from total turnover also in order to bring parity, this ground raised by the assessee were allowed and the revenue’s was dismissed.
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