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Judgment
PER AMITABH SHUKLA, AM,
This appeal filed by the Revenue is against the order dated 30.07.2025 of the Learned Commissioner of Income Tax(Appeals)/National Faceless Appeal Centre, New Delhi,[hereinafter referred to as 'ld. CIT(A)] arising out of assessment order dated 26.03.2013passed u/s 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2010-11. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The Revenue has raised following grounds of appeal:-
1.Whether on the facts and circumstances of the case Ld. CIT(A) is justified in allowing deduction under Section 10A of the Income-tax Act, 1961, despite the fact that the foreign exchange was not directly received by the assessee from the foreign clients, but was routed through M/s Indus BPO Services Pvt. Ltd., Chennai.
2.Whether on the facts and circumstances of the case Ld. CIT(A) failed to appreciate that as per the provisions laid down under section 10A of the Act, deduction is admissible only in respect of profits derived from the export of eligible services by the undertaking itself, and further, that foreign exchange must be received in India in convertible foreign exchange by the assessee, and not by a third party on its behalf.
3.Whether Ld. CIT(A) erred in holding that the routing of foreign exchange through an intermediary (M/s Indus BPO Services Pvt. Ltd.) breaks the nexus between the assessee and the foreign clients, thereby defeating the essential condition laid down under Section 10A(3) of the Act.
The only issue raised by the appellant Revenue through its grounds of appeal is regarding the decision of Ld. CIT(A) in deleting the addition made by the ld. AO invoking provisions of section 10A of the Act.
We have heard rival arguments in the light of material available on records. The assessee company is a private limited company engaged in the business of providing healthcare outsourcing services for healthcare industry in USA. Return of Income for AY 2010-11 was filed on 15.10.2010 declaring NIL income. Assessment u/s 143(3) was completed at total income of Rs.5,62,62,257/- vide order dated 26.03.2013. The ld. AO inter alia made an addition of Rs.9,75,98,089/- on account of disallowance of deduction u/s 10A of the Act. The ld. AO held that the amount of Rs.9,75,98,089/-earned by the assessee from Indus BPO Services Pvt. Ltd. does not qualifies Export turnover as the same was not received from the overseas client but through an Indian intermediary.
The ld. Counsel for the assessee repeated the same arguments taken before the ld. CIT(A) and argued that there was no infirmity in the order of the First Appellate Authority. In particular, our attention was invited to the contents of para 4.2 of the appellate order on pages 12 to 14 of the order. For the purposes of the clarity, the same are reproduced hereunder:-
“….4.2 Discussion and appellate decision:- In this case, the appellant has changed its name multiple times. Initially,
at the time the assessment order was passed, the name of the appellant company was “e4e Healthcare Business Services Pvt. Ltd.” Subsequently, it was changed to “nThrive Global Solutions Pvt. Ltd.,” and it has now been changed to “Savista Global Solutions Pvt. Ltd.”
The submission filed by the appellant has been duly considered and material available on record has been perused. Case laws cited by the appellant have been gone through. The appellant is engaged in the business of providing healthcare outsourcing services for the healthcare industry in the United States of America. The appellant rendered such services through a third-party arrangement and claimed exemption u/s.10A of the Income-tax Act, 1961, on the basis of deemed exports. The A.O. denied the exemption u/s.10A, stating that the services were not directly exported by the appellant and were routed through a third party, thus not qualifying as "exports" for the purpose of Section 10A.
It is important to note that in the appellant’s own case for A.Y. 2009-10, involving similar issues, the Ld. CIT(A) partly allowed the appeal. Subsequently, the appellant filed a further appeal before the Hon’ble ITAT, which set aside the matter and remanded it back to the file of the AO for fresh adjudication. In compliance, the jurisdictional AO allowed the deduction u/s.10A of the Income-tax Act on export sales made through Indus BPO and also addressed the disallowance u/s.40(a)(ia) of the Act in the appellant’s own case for A.Y. 2009-10, vide order u/s.143(3) r.w.s. 254 of the Act dated 06.12.2019.
As far as the eligibility for deduction u/s.10A of the Act is concerned, various decisions of the Courts and the ITAT are squarely applicable to the case of the appellant. Some of the relevant judicial pronouncements as relied upon by the appellant are as under:-
(i)Hon’ble Supreme Court in the case of Deputy Commissioner of Income Tax, Circle-12(1), Bangalore v. Metal Closures (P.) Ltd. [2019] 102 taxmann.com 72 (SC) (which supports the case of the appellant) laid down the law that exports routed through third parties can still be considered as eligible exports for the purposes of deduction under Section 10A, provided the appellant is the actual service provider and earns foreign exchange from such services.
(ii)The Karnataka High Court in the case of M/s Tata Elxsi Limited vs ACIT (ITA No.411/2008) clarified that Section 10A focuses on the nature of the activity and the earning of foreign exchange, rather than the mode or channel of export. Services rendered by the assessee which resulted in the inflow of convertible foreign exchange qualified for deduction, even if routed through an intermediary.
(iii)The Karnataka High Court in the case of Principal CIT, Bengaluru v. International Stones India (P.) Ltd [2018] 95 taxmann.com 287 upheld the eligibility of deduction under Section 10A in the case of exports made through third parties, where the goods/services ultimately reach a foreign destination and foreign exchange is received. It confirmed that indirect exports still meet the requirements of Section 10A.
(iv)The Hon’ble Tribunal in the case of DCIT vs. M/s Sasken Communication Technologies Ltd (ITA No 44-45 of 2016) held that software development or technology-enabled services rendered from India and ultimately consumed abroad are eligible for exemption under Section 10A, irrespective of whether billing is done directly to the foreign client or routed through another Indian company.
(v)The decisions of the Hon’ble Tribunals in the cases of CIT V/s Earth Stone Group (ITA 735/2016) and Earth Stone Group Vs. ACIT (ITA 2188/Del/2012) confirmed that when the beneficiary of export is outside India, and necessary documentation (such as agreements, foreign inward remittance certificates, and third-party confirmations) is available, the deduction under Section 10A cannot be denied on mere technical grounds.
(vi)The Hon’ble Tribunal in the case of Magnum Forge and Machine Works Pvt Ltd V/s ACIT (ITA No.07/PN/2014) reiterated that what matters is the nature of the transaction and realization of foreign exchange, not necessarily the direct contractual relationship with the foreign buyer. The third-party route did not preclude eligibility for Section 10A deduction.
In support of the contention that deemed export is eligible for the deduction u/s.10A of the Act, the appellant has relied upon the above decisions of various courts including jurisdictional Courts. I have gone through the said decision, and find that the ratio laid down in the said judgment is squarely applicable to the case of the appellant. In its entirety, the appellant has duly established that it has fulfilled all the conditions laid down u/s.10A of the Act and, therefore, the disallowance of claim u/s.10A of the Act of Rs.9,75,98,089/- made by the AO is not sustainable in law. Accordingly, the AO is directed to allow the claim of deduction u/s.10A the Act of Rs.9,75,98,089/-. Further, the deduction should have been computed only with reference to the export turnover of Rs.44,53,04,978/-, which pertains exclusively to the STPI-registered unit eligible for deduction u/s.10A. Hence, the grounds No.1 to 4, 9 &11.i& 11.vi of appeal are allowed…..”
The ld. DR vehemently argued in favour of the assessment order. In particular, our attention was drawn to the decision of Hon’ble Apex Court in the case of Dilip Kumar, so as to drive home the point that due process of law is required to be followed for claiming any deduction exemption by a tax payer.
We have noted that no infirmity can be attached to the order of the First Appellate Authority as his decision is based upon true understanding of the facts of the case and interpretation of law. We have noted that in assessee’s own case for immediately preceding Assessment Year i.e. AY-2009-10, a similar addition was made by the AO. The matter travelled up to this Tribunal which had remanded the issue back to the ld. AO for readjudication. The ld. AO upon reconsideration, allowed the assessee deduction u/s 10A on exports sales made through Indus BPO. We have noted that no distinguishment of facts have been pointed out by the ld. DR for the Revenue of present year with those of AY 2009-10. Therefore, for the purposes of consistency, no different view can be taken in AY 2010-11 and to the extent, the order of the ld. CIT(A) rests on a firm footing.
We have also noted that Hon’ble Apex Court in the case of Metal Closures Pvt. Ltd. 102 taxmann.com 72, Hon’ble Karnataka High Court in the case of Tata Elxsi and in the case of International Stones India 95 taxmann.com 287 have held that eligibility of deduction u/s 10A does not gets vitiated even if the proceeds are received through intermediaries. Similar view has been taken by Co-ordinate Benches of this Tribunal and of Hon’ble Pune Tribunal in a plethora of decisions adjudicated by them on identical facts.
Accordingly, we are of the considered view that the assessee was rightly entitled for allowance of deduction u/s 10A and that the consequent relief granted by ld. CIT(A) was in order, requiring no interference at this stage. The appeal of the Revenue raised through its grounds of appeal is dismissed.
In the result, the appeal of the Revenue is dismissed.