The Bangalore bench of the Income Tax Appellate Tribunal (ITAT), in M/s. Sunquest Information Systems India Pvt. Ltd v. JCIT, held that the expenses incurred in foreign exchange towards insurance, travelling etc does not form part of the export turnover and total turnover for the purpose of s. 10A of the Income Tax Act.
The Assessee company, a wholly owned subsidiary of Sunquest Information Systems Inc., USA, is engaged in the business of providing software services to its Associate Enterprises (AE). The AO, while completing assessment against the assessee, held that the travelling expenditure are not excludable from the export turnover for the purpose of calculation of benefit under 10A. The first appellate authority concluded the appeal in favour of the assessee.
Regarding the issue of including the portion of the expenses incurred in foreign exchange towards insurance, travelling and communication, the bench found that the issue is covered by the decision of the Karnataka High Court in the case of CIT vs. Tata Elxsi (349 ITR 98), wherein it was held that the same is required to be reduced from export turnover as well as total turnover.
Following the ratio of the decision of the Hon’ble jurisdictional High Court, the bench directed that expenses incurred in foreign exchange towards insurance, travelling and communication are to be reduced both from export turnover as well as total turnover.
Read the full text of the order below.