The exclusion of expenses incurred in foreign exchange for technical services outside India from the export turnover for the purpose of arriving at the deduction admissible under s. 80HHE of the Act.

V.G. Sabhahit, J.—These appeals are filed by the Revenue being aggrieved by the order passed by the Income-tax Appellate Tribunal, Bangalore Bench TV (hereinafter referred to as the Tribunal) in ITA Nos. 794/Bang/1998 (asst. yr. 1994-95), 50/Bang/2001 (asst. yr. 1996-97), 793/Bang/1998 (asst. yr. 1993-94) dt. 31st March, 2005 wherein the appeals filed by the assessee had been allowed. Since all these appeals arise out of the common order passed by the Tribunal, appellate authority and the AO, the facts pertaining to ITA No. 2973 of 2005 are narrated as follows :

2. The assessee-respondent is carrying on the business of development of software and sale of software packages. In respect of asst. yr. 1996-97, the assessee filed return of income on 29th Nov., 1996 declaring an income of Rs. 6,90,06,915. The AO took up the matter for scrutiny assessment and found that for the purpose of computation of total turnover and export turnover, the assessee had failed to take into consideration the expenditure incurred in foreign currency when computing deduction under s. 80HHE of the IT Act, 1961 (hereinafter called the Act'). The AO has also rejected the claim of the assessee that the expenditure had been incurred for the purpose of marketing only and, therefore the same cannot be deducted before granting deduction under s. 80HHE of the Act. Further, the assessee had taken the premises on lease for a period of six years and he spent a sum of Rs. 15,89,613 for renovation of the building. 'The AO held that the extensive repair works done to the building amounts to capital expenditure and consequently, depreciation at the rate applicable to building was allowed and the claim that expense should be treated as a revenue expense was disallowed. The assessee had contributed a sum of Rs. 6.93 lakhs to the Traffic Police at Bangalore to regulate traffic on Hosur Road and the same was claimed as an expenditure under s. 37 of the Act. The AO held that it is the duty of the Traffic Police to regulate the traffic and therefore, contribution made for regulating traffic cannot be treated as a revenue expenditure under s. 37 of the Act and accordingly passed an order of assessment dt. 26th March, 1999. Being aggrieved by the said order of the AO, the appeal was filed before the appellate authority. The appellate authority was of the view that the expenditure incurred in foreign currency has to be excluded while computing the export turnover and total turnover before granting deduction under s. 80HHE of the Act. The appellate authority further held that for the purpose of computation, the method which should be adopted was dealt with and consequently the AO was directed to rework the deduction in accordance with the directions issued. The appellate authority further held that the expenses incurred amounting to Rs. 15,89,613 under the head 'Building maintenance expenditure' towards brick work, cement, plastering, painting walls, ceiling and providing and laying ceramic tiles and other works was extensive repairs undertaken by the assessee, which would constitute capital expenditure and affirmed the finding of the AO following the judgment of the apex Court in Ballimal Naval Kishore and Another Vs. Commissioner of Income Tax, AIR 1997 SC 851a. So far as expenditure of Rs. 6.93 lakhs given to the traffic police Bangalore to regulate traffic on Hosur Road is concerned, the appellate authority held that the same cannot be treated as expenditure under s. 37(1) of the Act. Consequently, the appellate authority rejected the appeal by order dt. 15th Nov., 2000. Being aggrieved by the said order, the assessee preferred the appeal before the Tribunal and the Tribunal allowed the appeal and held that the expenditure incurred towards repairs was revenue expenditure, the contribution made to Bangalore Traffic Police to regulate traffic at Hosur Road, in a sum of Rs. 6.93 lakhs was due to business compulsions and therefore was entitled to deduction under s. 37 of