The Madras High Court while upholding the order of Dispute Resolution Panel (DRP), ordered in favour of the assessee, Renault Nissan in computing deduction.
The assessee, Renault Nissan is an undertaking registered as a Special Economic Zone (SEZ) which is eligible to claim deduction under Section 10AA of the Income Tax Act, 1961 and it renders services out of this SEZ premises in Chennai.
The assessee filed its Return of Income for the assessment year returning a total income of Rs.5,83,39,429/-, after claiming a deduction of Rs.29,96,00,054/- under Section 10AA of the Act.
The assessment was completed under Section 143(3) of the Act and the Assessing Officer proposed to exclude the following expenditure incurred in foreign currency from the ‘export turnover’ of the assessee for the purpose of computing deduction under Section 10AA of the Act.
The assessee contended that what can be excluded is only expenditures in the nature of freight, telecommunication charges, and insurance, if attributable, for delivery of articles or things outside India or any foreign currency expenditures which have been specifically incurred for rendering services outside India and no other expenditure could have been deducted from ‘export turnover’ while computing deduction under Section 10AA of the Act.
The DRP held that the professional and consultation fee needs to be excluded from the export as well as total turnover for the purposes of computing deduction under Section 10AA of the Act.
However, the Tribunal reversed the order of DRP and opined that the foreign currency expenditures cannot be considered as a part of ‘export turnover’ and at the same time, it also cannot form part of the ‘total turnover’ and directed the Assessing Officer not to exclude the same in the ‘export turnover’ as well as in the ‘total turnover’ while computing deduction under Section 10AA of the Act.
The division bench of Justice T.S. Sivagnanam held that the Tribunal fell in error in reversing the decision of the DRP.
“In our considered view, the issue is not as to whether reimbursement or advances, but the issue is whether these were incurred by the assessee in foreign exchange in respect of rendering services outside India. If it is established that no services have been rendered outside India and the assessee has been reimbursed the actual cost only, the question of exclusion from the ‘export turnover’ does not arise,” the bench said.
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