GoFrugal Technologies (P) Limited, CHENNAI V. DCIT, CHENNAI

ITA 1893/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90338 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 04-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S DAS GUPTAJCIT
• Assessee Lawyers: G BASKAR
• Keywords: Capital asset; Business expenditure
• Section: 143(3); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A.NO. 1839/MDS/2014 & C.O.NO.97/MDS/2014 (IN ITA NO.1839/MDS/2014) ( / ASSESSMENT YEAR: 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), CHENNAI-600 034. VS M/S. ADVENTNET DEVELOPMENT CENTRE INDIA P.LTD., (PRESENTLY KNOWN AS M/S.GOFRUGAL TECHNOLOGIES PVT.LTD.) SREE NARAYANA COMPLEX, 11, SARATHY NAGAR, VIJAYA NAGAR, VELACHERRY,CHENNAI-600 042. PAN:AACCA4341F ( /APPELLANT) (RESPONDENT/CROSS OBJECTOR) & ./ I.T.A.NO. 1893/MDS/2014 ( / ASSESSMENT YEAR: 2005-06) M/S.GOFRUGAL TECHNOLOGIES PVT.LTD. (FORMERLY KNOWN AS M/S. ADVENTNET DEVELOPMENT CENTRE INDIA P.LTD.) 351, 1 ST FLOOR, 37 TH CROSS, 7 TH MAIN, 5 TH BLOCK, JAYANAGAR, BANGALORE-560 041 VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), CHENNAI-600 034. PAN:AACCA4341F ( /APPELLANT) (RESPONDENT) ASSESSEE BY : MR. G.BASKAR, ADVOCATE REVENUE BY : MR. S.DAS GUPTA,JCIT /DATE OF HEARING : 25 TH MARCH, 2015 /DATE OF PRONOUNCEMENT : 20 TH MAY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS) (CENTRAL)-I, CHENNAI DATED 25.03.2014 FOR THE ASSESSMENT YEAR 2005-06. 2 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 2. THE ONLY GRIEVANCE OF THE ASSESSEE IN ITS APPEA L IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREAT ING FOREIGN EXCHANGE RATE GAIN ON PACKING CREDIT FOREIG N CURRENCY LOAN AS INCOME FROM OTHER SOURCES INSTEAD OF INCOM E FROM BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 10A OF THE ACT. 3. BRIEF FACTS ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXPORT OF SOFTWARE FILED RETURN OF INCOME ON 24.10.2005 DECLARING ` 1,62,47,800/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 28.11. 2008 DETERMINING THE INCOME AT ` 2,30,83,131/-. WHILE COMPLETING THE ASSESSMENT ASSESSING OFFICER NOTICED THAT ASSES SEE RECEIVED ` 54,99,546/- ON ACCOUNT OF DIFFERENCE IN EXCHANGE RATE IN FOREIGN CURRENCY ON THE PACKING CREDIT FORE IGN CURRENCY LOAN TAKEN BY THE ASSESSEE. ACCORDING TO THE ASSESS ING OFFICER, THE ASSESSEE HAS NOT DERIVED THIS INCOME F ROM EXPORT OF COMPUTER SOFTWARE, THEREFORE SUCH GAIN IS NOT EL IGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THUS HE WIT HDREW DEDUCTION UNDER SECTION 10A ON SUCH GAIN. ON APPEAL , THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ACTION 3 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 OF THE ASSESSING OFFICER IN TREATING THE SAID EXCHA NGE RATE FLUCTUATION ON PACKING CREDIT FOREIGN CURRENCY LOAN AS NOT DERIVED FROM BUSINESS FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 10A OF THE ACT. THE ASSESSEE IS IN A PPEAL BEFORE US. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THE ASSESSMENT YEAR ASSESSEE HAD BORROWED PACKING CREDI T FOREIGN CURRENCY LOAN FROM HDFC AND CITI BANK FOR W ORKING CAPITAL PURPOSES AS AUTHORIZED BY RESERVE BANK OF I NDIA AND REPAID THE ENTIRE LOAN TAKEN FROM HDFC. COUNSEL FO R THE ASSESSEE SUBMITS THAT AT THE TIME OF REPAYMENT OF L OAN RUPEE APPRECIATED AGAINST US DOLLAR WHICH RESULTED IN GAI N OF ` 43,05,000/-. COUNSEL SUBMITS THAT ENTIRE LOAN FROM THE CITI BANK WAS OUTSTANDING AS ON THE YEAR ENDING AND TO COMPLY WITH THE ACCOUNTING STANDARD-11, THE ASSESSEE PASSE D ENTRY IN THE BOOKS OF ACCOUNT DEBITING PACKING CREDIT FOR EIGN CURRENCY LOAN ACCOUNT AND CREDITING EXCHANGE RATE F LUCTUATION FOR AN AMOUNT OF ` 11,94,546/-. THEREFORE TOTAL GAIN ON EXCHANGE RATE FLUCTUATION STOOD AT ` 54,99,545/-. HE SUBMITS THAT INTEREST PAID ON LOAN WAS CHARGED TO PROFIT AN D LOSS 4 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 ACCOUNT AND ALLOWED IN THE ASSESSMENT. PLACING RELI ANCE ON THE DECISION OF THE SUPREME COURT IN THE CASE OF SU TLUJ COTTON MILLS LTD. VS. CIT (116 ITR 1), COUNSEL FOR THE ASSESSEE SUBMITS THAT WHERE PROFIT OR LOSS ARISES T O AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATIO N IN THE VALUE OF FOREIGN CURRENCY, SUCH PROFIT OR LOSS WOUL D ORDINARILY BE TREATED AS PROFIT OR LOSS IF THE FOREIGN CURREN CY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT, BUT IF THE FOREIGN CURRENCY IS HELD AS CAPITAL ASSET OR FIXED ASSET, PROFIT OR LOSS WOULD BE CAPITAL NATURE. HE SUBMITS THAT THIS POSITION WAS A LSO REITERATED IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. (312 ITR 254). COUNSEL FOR THE ASSESSEE S UBMITS THAT LOAN HAVING BEEN RAISED FOR WORKING CAPITAL RE QUIREMENTS, IT IS CERTAINLY A BUSINESS TRANSACTION, ANY GAIN OR LOSS IN THE SAID TRANSACTION IS TO BE CONSIDERED AS BUSINESS IN COME OR EXPENDITURE, MORE SO WHEN THE INTEREST ON LOAN WAS ALLOWED AS BUSINESS EXPENDITURE. COUNSEL FOR THE ASSESSEE S UBMITS THAT REASON ADDUCED FOR DENYING EXEMPTION UNDER SEC TION 10A OF THE ACT TO THIS GAIN IS THAT IT IS NOT DERIV ED FROM INDUSTRIAL UNDERTAKING AND THAT THERE IS NO DIRECT NEXUS. IN THIS CONNECTION, HE SUBMITS THAT ONLY EXPORTERS ARE ELIG IBLE TO GET 5 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 FOREIGN CURRENCY LOAN. STPI UNIT ONE AND ONLY UNDER TAKING AND IT IS FOR THIS UNDERTAKING, THE ASSESSEE BORROW ED PACKING CREDIT FOREIGN CURRENCY LOAN. HE SUBMITS THAT THIS UNDERTAKING IS DOING BUSINESS OF DEVELOPMENT AND EXPORT OF COMP UTER SOFTWARE AS WELL AS DEVELOPING SOFTWARE FOR THE LOC AL MARKET APART FROM MAINTENANCE OF COMPUTER SOFTWARE. PLACIN G RELIANCE ON THE DECISION IN THE CASE OF CIT VS. PEN TASOFT TECHNOLOGIES LTD., (347 ITR 578), COUNSEL FOR THE ASSESSEE SUBMITS THAT GAIN ON FOREIGN EXCHANGE FLUCTUATION I S ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 5. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN CONSIDERING THE EXCH ANGE GAIN ON PACKING CREDIT FOREIGN CURRENCY LOAN AS NOT DERI VED FROM FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 1 0A OF THE ACT. 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT DID NOT CONSIDER EXCHANGE GAIN ON PACKING CREDIT FOREIG N CURRENCY LOAN FOR THE PURPOSE OF COMPUTING RELIEF U NDER 6 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 SECTION 10A OF THE ACT HOLDING THAT SUCH GAIN IS NO T DERIVED FROM EXPORT OF SOFTWARE BUSINESS AND IS ELIGIBLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE COMMISS IONER OF INCOME TAX (APPEALS) AFFIRMED THE SAID CONTENTIO N OF THE ASSESSING OFFICER OBSERVING AS UNDER:- 6.3 I HAVE PERUSED THE ASSESSING OFFICERS OBSERVATIONS AND THE APPELLANTS CONTENTIONS IN THI S REGARD. IT IS SEEN FROM THE FACTS OF THE CASE THAT THE APPELLANT COMPANY HAD MADE GAINS ON EXCHANGE FLUCTUATION ON THE FOLLOWING FOREIGN CURRENCY LOANS :- HDFC BANK : ` 9,16,20,000.00 CITI BANK : ` 4,33,05,889.61 TOTAL ` 13,49,25,889.61 THE COMPANY HAD BORROWED MONEY FROM BANKS IN THE FORM OF PACKING CREDIT FOREIGN CURRENCY LOAN. PART OF THE LOAN WAS REPAID DURING THE YEAR. THERE WAS DIFFERENCE, IN THE-CONVERSION RATE (RUPEE VIS-A-VIS US$) AS ON THE DATE OF THE LOAN AND THE DATE OF REPAYMENT OF THE LOAN/LAST DATE OF THE, ACCOUNTING YEAR. SI NCE THERE WAS A DIFFERENCE IN THE EXCHANGE RATES, THE APPELLANT HAD GAINED TO AN 'EXTENT 'OF RS.54'99,545/-. THE APPELLANT IS IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE. THE PROCEEDS FROM THE EXPORT OF COMPUTER SOFTWARE RECEIVED IN FOREIGN EXCHANGE ARE CONVERTED INTO INDIAN RUPEES AND ACCOUNTED AS THE. APPELLANT'S REVENUE. THERE COULD BE AN EXCHANGE RATE GAIN OR LOSS ARISING OUT OF TURNOVER AS WELL. HOWEVER THE :EXCHANGE GAIN IN DISCUSSION ABOVE HAS NOT ARISEN, OUT OF TURNOVER. THE SAID GAIN HAD ARISEN OUT OF TRANSACTIONS 'IN THE CA PITAL FIELD. THEREFORE, THE GAIN ON FOREIGN EXCHANGE HAS BEEN DERIVED NOT IN THE ORDINARY COURSE OF THE BUSINESS. DEDUCTION U/S.10A GRANTED ONLY ON THE PROFITS DERIVED FROM THE 'EXPORT OF, COMPUTER SOFTWARE. HOWEVER, THE GAIN ON FOREIGN EXCHANGE ON REPAYMENT OR LEAN TAKEN IN FOREIGN EXCHANGE AND HENCE THERE IS NO DIRECT NEXUS BETWEEN THE ORIGIN OF THE GAIN AND THE EXPORT TURNOVER OF THE APPELLANT. WHEN THERE IS NO DIRECT NEXUS, THE SAID GAIN CANNOT BE SAID TO BE DERIVED FROM THE ACTIVITIES OF THE APPELLANT. THEREFORE/THE SAID GAIN HAS TO BE ASSESSED UNDER 7 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 INCOME FROM OTHER SOURCES', IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: (I) INDIAN LEATHER CORPN. PVT.LTD VS. CIT (SC) 227 ITR 552 THE PHRASE DERIVED FROM' IS DIFFERENT FROM 'ATTRIBUTABLE TO - IT IS NO .DOUBT TRUE THAT THE WORDS 'ATTRIBUTABLE TO' HAVE A WIDER MEANING THAN THE WORDS 'DERIVED FROM BUT AT THE SAME TIME IT CANNOT BE IGNORED THAT NORMALLY THE WORD 'ATTRIBUTABLE' IMPLIES THAT 'FOR A RESULT TO BE ATTRIBUTABLE TO ANYTHING IT MUST BE WHOLLY OR IN MATERIAL PART, CAUSED BY THAT THING-IN ORDER THAT INCOME TAN BE SAID TO BE ATTRIBUTABLE TO MANUFACTURE OR PROCESSING OF GOODS, THE EARNING OF THE INCOME MUST BE DIRECTLY CONNECTED WITH MANUFACTURE OR PROCESSING OF GOODS. IT IS ALSO NECESSARY THAT MATERIAL PART OF THE SAID INCOME SHOULD HAVE BEEN EARNED BY THAT ACTIVITY. (II) PANDIAN CHEMICALS LTD. V CLT (SC) 262 ITR 278 INTEREST ON DEPOSITS WITH ELECTRICITY BOARD MADE OU T OF STATUTORY COMPULSION-INTEREST NOT PROFIT 'DERIVED FROM' INDUSTRIAL UNDERTAKING-THE WORDS 'DERIVED FROM' MUST BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS, WITH THE INDUSTRIAL UNDERTAKING ... WHERE 'THE WORDS ARE UNEQUIVOCAL, THERE IS NO SCOPE FOR IMPORTING ANY RULE OF INTERPRETATION. (III) CIT V NSC SHOES (MAD) 258 ITR 749 INTEREST ON ;AMOUNT DEPOSITED WITH BANK AS GUARANTEE FUND FOR OPENING THE LETTERS OF' CREDIT FOR THE PUR POSE OF IMPORT OF MATERIAL CANNOT BE SAID TO BE INCOME DERIVED F ROM' INDUSTRIAL UNDERTAKING- THE DIRECT 'AND. PROXIMATE LINK IS WITH ~THE DEPOSIT IN THE BANK AND NOT WITH THE INDUSTRIAL UNDERTAKING. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE DECISIONS MENTIONED SUPRA, I HEREBY UPHOLD THE ACTION OF THE AO AND REJECT THE CONTENTIONS MADE BY THE AR. AS A RESULT, THE G ROUNDS RAISED IN THIS REGARD ARE DISMISSED. 7. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE DO NOT FIND ANY VALID REAS ON TO 8 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 REVERSE THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT THE FOREIGN EXCHANGE GAIN ON PACKING CREDIT FOREIGN CURRENCY LOAN IS NOT ELIGIBL E FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE CASE LA WS RELIED ON BY THE COUNSEL FOR THE ASSESSEE ARE DISTINGUISHA BLE ON FACTS AND ARE NOT APPLICABLE TO THE FACTS OF THE AS SESSEES CASE. THE GROUNDS RAISED BY THE ASSESSEE ARE REJECT ED. ITA NO.1839/MDS/2014:- 8. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO EXCLUDE TRAVELLING EXPENDITUR E INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER ALSO WH ILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT FO LLOWING THE SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD. 313 ITR (TRIB) 353(CHENNAI)(SB ) . 9. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IS SQUARELY COVERED BY THE D ECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF SAFSO FT LTD (SUPRA), WHEREIN THE SPECIAL BENCH HELD THAT THE TR AVELLING EXPENSES INCURRED IN FOREIGN CURRENCY IF EXCLUDED F ROM THE 9 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 EXPORT TURNOVER HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER ON A PARITY OF REASONING. 10. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER OF ASSESSING OFFICER . 11. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION RELIED ON. THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT EXCLUDED THE TRAVELLING EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER BUT NOT FROM TOTAL TURNOVER. THIS ISSUE HA S BEEN CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEA LS) OBSERVING AS UNDER:- 7.2 I HAVE PERUSED THE ASSESSING OFFICERS OBSERVATIONS AND THE APPELLANTS CONTENTIONS IN THI S REGARD. FOR THE PURPOSE OF COMPUTATION OF DEDUCTION ELIGIBLE U/S.10A, THE ASSESSING OFFICER EXCLUDED ` 23,08,352/- BEING TRAVELLING EXPENDITURE FROM THE E XPORT TURNOVER. AT THE SAME TIME, THE ASSESSING OFFICER H AS NOT EXCLUDED THE SAME FOR THE PURPOSE OF ARRIVING AT TH E TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S.10A. TH E APPELLANT IN THE WRITTEN SUBMISSIONS RELIED ON THE FOLLOWING JUDICIAL PRECEDENTS WHEREIN IT WAS HELD T HAT THE NUMERATOR AND THE DENOMINATOR SHOULD BE GIVEN THE SAME TREATMENT. I) CIT VS. LAKSHMI MACHINE WORKS (290 ITR 667) II) CIT VS. SUDHARSHAN CHEMICALS INDUSTRIES LTD. (2 45 ITR 769) III) CIT VS. CHIORIDE INDIA LTD. (256 ITR 625) IV) CIT VS. BHARAT EARTH MOVERS LTD. (268 ITR 232) V) CIT VS. TRANS LOTUS TRAVEL P.LTD. (290 ITR 1 (DE L) 10 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 ON PERUSAL OF THE ABOVE, I AM OF THE CONSIDERED OPI NION THAT THE ASSESSING OFFICERS ACTION IS NOT CORRECT AS THE ISSUE IS COVERED BY THE DECISION OF THE HONBLE SPE CIAL BENCH IN THE CASE OF ITO VS. M/S. SAKSOFT LTD. (121 TTJ (SB) 865), WHEREIN IT WAS HELD THAT ON THE BASIS O F PARITY PRINCIPLES WHATEVER HAS BEEN EXCLUDED FROM EXPORT TURNOVER SHALL ALSO BE EXCLUDED FROM THE TOTAL TURN OVER. 7.3 SINCE THE ISSUE INVOLVED IS COVERED BY THE DECISION MENTIONED SUPRA, RESPECTFULLY FOLLOWING TH E SAME, I HEREBY DIRECT THE ASSESSING OFFICER TO EXCL UDE TRAVELLING EXPENDITURE FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT. IN THE RESU LT, THE GROUND RAISED BY THE APPELLANT IS ALLOWED. THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE SPECIAL BENCH DECISION IN THE CASE OF ITO VS. SAKSO FT LTD.(SUPRA), RIGHTLY DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE TRAVELLING EXPENDITURE FROM TOTAL TURNOVER ALSO . THUS, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 12. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT ACTION OF THE ASSESSING OFFICER IN EXCLUDING 50% OF TELECOMMUNICATION EXPENDITURE INCURRED IN INDIAN RU PEE FROM THE EXPORT TURNOVER. 11 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 13. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL IS SQUARELY COVERED BY THE DECISION OF THE C O-ORDINATE BENCH IN THE CASE OF CALIFORNIA SOFTWARE COMPANY LT D. (2008) TIOL-610-ITAT (MAD) WHEREIN THE CO-ORDINATE BENCH HELD THAT SUCH EXPENDITURE CANNOT BE EXCLUDED FROM EXPOR T TURNOVER AS IT WAS NOT INCURRED IN FOREIGN EXCHANGE . HE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) F OLLOWED THE SAID DECISION OF THIS TRIBUNAL WHILE ALLOWING T HE CLAIM OF THE ASSESSEE. 14. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER. 15. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT EXCLUDED 50% OF TELECOMMUNICATION CHARGES FROM EXPO RT TURNOVER IN COMPUTING RELIEF UNDER SECTION 10AOF T HE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THI S ISSUE AT PARA 8.2 OF HIS ORDER AND ALLOWED THE CLAIM OF T HE ASSESSEE FOLLOWING THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CALIFORNIA (SUPRA) OBSERVING AS UNDER:- 12 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 8.2. I HAVE PERUSED THE AO'S OBSERVATIONS AND THE APPELLANT'S CONTENTIONS IN THIS REGARD. AO HELD THAT 50% OF THE TELECOMMUNICATION CHARGES SHOULD BE EXCLUDED FROM EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S L0A. HOWEVER, THE TOTAL TURNOVER WAS NOT GIVEN THE SAME TREATMENT BY THE AO. IN THIS REGARD, THE APPELLANT CONTENDED THAT THE TELECOMMUNICATION CHAR GES AS REFLECTED IN THE PROFIT AND LOSS ACCOUNT CONSIST OF BROADBAND CHARGES(PAID TO STPI AND VSNL) INCURRED I N INDIAN RUPEES .. AS PER THE CLAUSE (IV) OF THE EXPL ANATION 2 OF SECTION L0A DEFINES EXPORT TURNOVER AS UNDER: 'EXPORT TURNOVER MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTE R SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB -SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATIO N CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY , INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERV ICES OUTSIDE INDIA.' FROM THE ABOVE DEFINITION, IT IS CLEAR THAT ONLY IF TELECOMMUNICATION CHARGES WERE INCURRED IN FOREIGN EXCHANGE, THE SAME CAN BE EXCLUDED FOM THE EXPORT TURNOVER. HOWEVER, IN THE INSTANT CASE, THE ENTIRE TELECOMMUNICATION WERE INCURRED IN INDIAN RUPEES AN D HENCE REQUIRES NO EXCLUSION FROM THE EXPORT TURNOVE R AND THE HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF CALIFORNIA SOFTWARE COMPANY LTD. [2008] TIOL- 610-ITAT(MAD) HA S CONFIRMED THIS VIEW. THEREFORE, THE ACTION OF THE A O IS NOT JUSTIFIED IN EXCLUDING THE SAID EXPENDITURE FROM THE EXPORT TURNOVER AS IT WAS NOT INCURRED IN FOREIGN EXCHANGE. AS A RESULT, THIS GROUND OF APPEAL IS ALLOWED. 16. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT FIND ANY VALID REAS ON TO INTERFERE WITH THE REASONING GIVEN BY THE COMMISSIO NER OF 13 ITA NO.1893 &1839/MDS/2014 & C.O.NO.97/MDS/2014 INCOME TAX (APPEALS) IN ALLOWING THE CLAIM OF THE A SSESSEE AND THUS UPHOLD HIS ORDER ON THIS ISSUE. 17. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS). SINCE WE HAVE UPHELD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE CROSS OBJECTION BECOMES INFRUCTUOUS AND ACCORDINGLY DISMISSED. 18. IN THE RESULT, APPEALS OF THE ASSESSEE AND REV ENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DAY OF MAY, 2015 . SD/- SD/- ( . ) ( $ '( ) ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) + / ACCOUNTANT MEMBER ' + / JUDICIAL MEMBER ' /CHENNAI, - /DATED 20 TH MAY, 2015 SOMU )/0 10 / COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 )5 /DR 6. /GF .