Karnataka High Court Pr. Commissioner Of Income Tax vs M/S Sasken on 31 October, 2018 I.T.A.Nos.4445/2016 1 DATED THIS THE 31st DAY OF OCTOBER , 2018 PRESENT HON'BLE MR.JUSTICE DINESH MAHESHWARI, CHIEF JUSTICE AND HON'BLE MR.JUSTICE S.G.PANDIT I.T.A. Nos.4445 OF 2016 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX C.R. BUILDINGS QUEENS ROAD BANGALORE560 001. 2. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 12(3) BANGALORE. ... APPELLANTS (BY SRI. E.I. SANMATHI, ADVOCATE ) AND: M/S. SASKEN COMMUNICATION TECHNOLOGIES LTD., 139/25, DOMLUR RING ROAD DOMLUR, BANGALORE, ... RESPONDENT (BY SRI. K .K. CHYTHANYA, ADVOCATE) THESE ITAs ARE FILED UNDER SECTION 260A OF INCOME TAX ACT, 1961, PRAYING TO DECIDE THE QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THIS COURT AND SET ASIDE THE APPELLATE ORDER DATED:31/07/2015 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO.ITA NO.1253/BANG/2014 & C.O.NO.32/B/2015 FOR ASSESSMENT YEAR 200506. I.T.A.Nos.4445/2016 2 THESE ITAs HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S.G.PANDIT. J., PRONOUNCED THE FOLLOWING: JUDGMENT 1. These appeals are by the revenue questioning the order dated 31.07.2015 of the Income Tax Appellate Tribunal 'B' Bench, Bangalore, ('the Tribunal') in proceedings ITA No.1253/Bang/2014 and C.O.No.32/Bang/2015 for the assessment year 20052006. 2. Brief facts of the case are that : The respondent assessee is in the business of manufacture and export of software, which claimed the benefit under Section 10A of the Income Tax Act, 1961, (for short 'the Act'). The assessee filed returns, which was processed and subsequently taken up for scrutiny and notices were issued. The respondent assessee produced necessary books of accounts, when the information was called for by the Assessing Authority. The Assessing Authority disallowed expenditure incurred in the foreign currency as well as from total turnover; disallowed compensation received on termination of export/service contract as it cannot be treated I.T.A.Nos.4445/2016 3 as business income, arising out of export activity and denied the claim of brought forward losses against income claimed as deduction under Section 10A of the Act. 3. Aggrieved by the said order of assessment, the respondentassessee filed appeals before the Commissioner of Income Tax (Appeals) II, Bangalore. The Appellate Authority by its order dated 28.02.2014 allowed the appeals of the assessee in part. While allowing the appeals, the Appellate Authority held that the compensation received by the assessee on termination of export/service contract is capital in nature. Further the Appellate Authority held that if certain expenses are to be reduced from the total turnover, deduction is to be calculated under Section 10A of the Act. The Appellate Authority also allowed set off of brought forward loss. 4. Aggrieved by the said order of the Appellate Authority, the revenue filed appeal before the Income Tax Appellate Tribunal, Bangalore Bench 'B'. The assessee also filed cross objection insofar as finding on compensation received for termination of export/service contract and also in respect of I.T.A.Nos.4445/2016 4 deemed export on account of sale to another STP unit. The Tribunal on consideration of the appeals held that the amount received by the assessee under the contract and particularly, on termination of the export/service contract has a direct nexus with the business activity of the assessee and further held that such compensation is income derived from the business and would be part of profits of business. With regard to exclusion of expenses incurred in foreign exchange from the export turnover as well as from the total turnover relying upon the decision of this Court in Commissioner of Income Tax and Anr. vs. Tata Elxsi Ltd. : (2012) 349 ITR 98, the Tribunal held that no interference is called for on the order of the Appellate Authority. Insofar as setting off of brought forward losses relying upon the decision of this Court in the case of Commissioner of Income Tax vs. Yokogawa India L