Uniformity in the interpretation of the formula for computing deductions under Section 10A of the Income Tax Act, specifically regarding the exclusion of telecommunication charges from the total turnover.

BADAR DURREZ AHMED, J

1. These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the said Act) have been preferred by the Revenue in respect of the Income Tax Appellate Tribunal’s orders dated 13.10.2009 and 04.03.2011 in ITA Nos 2170/DEL/2009 and 5556/DEL/2010, respectively. Both these appeals have been admitted and the common question arising in these appeals is as under:-

“Whether ITAT erred in directing that assessing officer to exclude communication expenses out of Total Turnover for computing eligible deduction under Section 10A of the Income Tax Act, 1961?”

2. ITA No.1519/2010 as well as ITA No.1076/2011, are both in respect of the assessment year 2004-05. ITA No.1519/2010 arises out of the order passed by the Commissioner of Income Tax in exercise of his powers under Section 263 of the said Act. The assessing officer in the original assessment had not included the communication expenses in the figure of total turnover for computing the eligible deduction under Section 10A of the said Act nor any inquiry to that effect had been made by the assessing officer. Consequently, the Commissioner of Income Tax, in exercise of his powers under Section 263 of the said Act directed the assessing officer to re-assess the income of the assessee after making the adjustments, as directed, by including the communication expenses in the figure of total turnover for the purposes of computing the eligible deduction under Section 10A of the said Act. The assessee had filed the appeal being ITA No.2170/DEL/2009 before the Income Tax Appellate Tribunal in respect of the said order passed by the Commissioner of Income Tax dated 12.03.2009 under Section 263 of the said Act. 3. In the meanwhile, the assessing officer, following the directions given by the Commissioner of Income Tax in his order under Section 263 of the said Act had completed the assessment giving the consequential effect as directed by the Commissioner of Income Tax by including the communication expenses in the figure of total turnover for the purposes of computing the deduction under Section 10Aof the said Act. Being aggrieved by the said assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).

4. By that time, the Income Tax Appellate Tribunal had disposed of the assessee’s appeal (ITA 2170/DEL/2009) by virtue of its order dated 13.10.2009. The Income Tax Appellate Tribunal, while it upheld the exercise of power under Section 263 of the said Act by the Commissioner of Income Tax, decided that the communication expenses had to be excluded from the total turnover for the purposes of computing the deduction under Section 10-A of the said Act.

5. As such, the Commissioner of Income Tax (Appeals), in the consequential proceedings, following the decision of the Income Tax Appellate Tribunal, allowed the assessee’s appeal.

6. Being aggrieved thereby, the Revenue preferred an appeal (ITA 5556/DEL/2010) before the Income Tax Appellate Tribunal which was also dismissed by the said Tribunal by virtue of its order dated 04.03.2011, following its earlier decision dated 13.10.2009. It is against these decisions of the Income Tax Appeal Tribunal that the present appeals have been preferred.

7. It has been contended by Mr Sabharwal, the learned counsel appearing on behalf of the Revenue, that Section 10A which provides for a deduction of profits and gains which are derived by an undertaking from the export of articles or things or computer software as specified therein has to be computed in terms of Section 10A(4). The said sub-section (4) specifically stipulates that profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. He further s