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2014 (1) TMI 551 - AT - Income TaxEligibility for deduction u/s 10BA - Held that:- Following assessee's own case for A.Y. 2006-07 - "The expression "splitting up" or "reconstruction" as used in clause (b) of sub-section (2) of Section 10BA, are with respect to an undertaking which is formed by the splitting up or the reconstruction of a business already in existence - It does not involve a case like this where all the assets have passed to the new owner, i.e. the company, without breaking the existence of undertaking into different sections of the activities previously conducted and carried independently by different owner as sole proprietor thereof nor there is transfer of assets of the undertaking to another undertaking - The Central Board of Direct Taxes in its circular F. No. 15/5/63-IT(AI) dated 13/12/1963 in the context of Section 84 where for grant of deduction where a similar condition that "the industrial undertaking is not formed by splitting up, or the reconstruction of a business already in existence" was under consideration, agreed that the benefit of section 84 of the I.T. Act, 1961, attaches to the undertaking and not to the owner thereof - The successor will be entitled to the benefit for the unexpired period of five years provided the undertaking is taken over as a going concern - The mere change of ownership does not amount to splitting up or reconstruction - The authorities were not justified in denying the exemption u/s 10BA of the Act – Decided against Revenue. Whether DDB and DEPB be treated as part of export business – Held that:- Following M/s Suraj Exports India, Churu Vs. Income Tax Officer, ward-2, Churu [2013 (11) TMI 262 - ITAT JODHPUR] - As per the amendment vide the Finance Act, 2001 w.e.f. 01.04.2001 in section 10BA(4) - The profits derived from export of articles or thing means the amount which bears to the profits and gains of the business of the undertaking and not from any other business carried on by the assessee – Whereas prior to amendment the profits derived from export of articles was meant the amount which bore to the profits of the business, the same proportion as export turnover in respect of such articles bear to the total turnover of the business carried on by the assessee - By this amendment only the profits of the business of the undertaking only is to be considered for working out the profits and gains as are derived by an undertaking from export out of India of eligible articles or things - The profits and the gains of the business of the undertaking is to be worked out as per the provisions of section 28(i) which does not include the profits of items under sub sections (iiia), (iiib), (iiic), (iiid) and (iiie) etc. - Section 28 itself makes it abundantly clear that the profit on account of Duty Draw Back or on transfer of DEPB will not form part of profit and gains of the business or profession which was carried on by the assessee - 'such profits' as are derived from the export out of India shall be allowed from the total income of the assessee. Sub Section (1) of Section 10BA is subject to the provisions of S.Ss. 2, 3, 5, 6 and 7 but s.s. 4 lays down a method of computation for the purpose of sub section (1). The sale proceeds of DEPB cannot be considered as part of turnover as it is not the sale proceeds of the articles or things manufactured and sold by the assessee, then the profits from sale of DEPB cannot apportioned on treated on profit derived by the undertaking from export out of India - The exemption provisions in 10BA have to be liberally interpreted unless the credit of DEPB and DDB is expressly taken away - The manufacturing activities of the assessee are eligible for deduction provided u/s 10BA of the Act - The assessees before us are eligible for deduction u/s 10BA of the Act – Decided against Revenue. Rejection of books of accounts and estimation of G.P. rate – Held that:- The assessee explained the reasons for declining in the G.P. rate, which was mainly due to recession and this explanation of the assessee appears to be true because the turnover declined to Rs. 6.88 crores in subsequent year in comparison to Rs. 10.09 crores in the year under consideration - The other reasons given by the assessee was the increase in labour and raw material cost, the Assessing Officer had not commented on the explanation of the assessee - Certain defects were pointed out by the Assessing Officer and books were rejected u/s 145(3) of the Act, the said action of the Assessing Officer has not been challenged by the assessee - The G.P. rate estimated by the Ld. CIT(A) is on higher side, to meet the ends of justice, it would be fair and reasonable to apply G.P. rate of 10% instead of 11% - Partly allowed in favour of assessee. Interest expense to be set off against interest receipts - Held that:- If the interest receipts are treated as "income from other sources", then the corresponding expenses shall also be allowed u/s 57 of the Act - The issue is remanded back to the file of the Assessing Officer to be decided after considering the explanation of the assessee that there was a nexus in the interest bearing funds and the advances from which interest is received. Whether purchases were genuine or not – Held that:- On account of the assessee having shown bogus purchases, the books of accounts had been rejected, and the matter was proceeded u/s 145 - The income is to be determined on the basis of best judgment assessment - The gross sales figure for the relevant year is not in controversy in the sense, that whatever bogus sales have been found by the A.O., if they were to be considered literally, they would have reduced the figure of sale, and there is no material or finding, or any indication, to show that the gross sale was shown by the assessee at any deflated figure - For making best judgment assessment the only relevant thing, required to be considered was, application of particular GP rate, which has been applied by the Tribunal and the CIT(A), on relevant consideration, being the GP rate applied in the last year - It cannot be said that any material evidence has not been considered, or any irrelevant consideration has been taken into account by the Tribunal – Decided against assessee.
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