2015 (2) TMI 1325 - AT - Income Tax

Deduction u/s 10B - CIT (A) in having treated the miscellaneous receipts by way of freight discount allowed by Shipping Companies and the exchange fluctuation difference as part of business receipts - HELD THAT - Brokerage which is basically rebate allowed by the Shipping company as well as sale of sample is directly related to the business of the assessee and since the same has already been held to be part of the business income by the Tribunal therefore following the same we hold that these receipts are part of the business income and eligible for deduction u/s 10B. As far as the issue regarding processing charges is concerned the Hon ble Punjab Haryana High Court in the case of CIT v Vallabh Yarns P. Ltd 2010 (9) TMI 836 - PUNJAB AND HARYANA HIGH COURT following the earlier decision in the case of CIT vs Impel Forge and Allied Industries Ltd 2008 (12) TMI 370 - PUNJAB HARYANA HIGH COURT held that the assessee is entitled to deduction u/s 801B from the job work done for others. Therefore following this ratio even this issue is covered in favour of the assessee. We are of the opinion that assessee is entitled to deduction u/s 10B on all the items referred to in appeal. Therefore we set aside the order of Ld. CIT (A) and direct the Assessing Officer allow deduction u/s 10B Reducing the profits of undertaking for calculating deduction u/s 10 B which had already been reduced by the assessee - HELD THAT - We find force in the submissions of Ld. Counsel for the assessee because sub section (4) mandates proportionate deduction on profits depending upon the quantity of export. However the Assessing Officer has not discussed this issue in detail how much export was carried out by the assessee and whether any domestic sales were also there. Further this issue has not been adjudicated by CIT (A) and the same required verification of facts. Therefore in the interest of justice we remand this issue to the file of Assessing Officer to determine the facts regarding how deduction u/s 10B was claimed and whether some exports were there and some domestic sales were also there and then decide the issue in accordance with law. Interest received from customers on delayed payments - business income OR income from other sources - HELD THAT - Interest received from delayed payments on account of sale to customers of manufactured goods is directly related to the industrial undertaking and was to be considered as part of the profit for computing deduction. The Ld. CIT (A) has decided this issue in favour of the assessee by following this decision in PHATELA COTGIN INDUSTRIES P. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2007 (5) TMI 226 - PUNJAB AND HARYANA HIGH COURT . Therefore we find nothing wrong with the order of Ld. CIT (A) and we confirm the same. Treat the gain on forex fluctuation to be the income eligible for deduction u/s 10B - HELD THAT - If amounts are kept in the EEFC account and some interest and fluctuation on such EEFC account is received then the same is not eligible for deduction. However we again clarify that if gain on account of foreign exchange fluctuation is on account of normal sale proceeds then such gain would be eligible for deduction. Since these facts have not been examined by the Assessing Officer or CIT (A) therefore we set aside the order of Ld. CIT (A) and direct the Assessing Officer to examine these facts and then decide this issue in accordance with law.

Summary

Issues Involved:
1. Eligibility of various receipts for deduction under Section 10B.
2. Classification of interest income as "Income from Business or Profession" versus "Income from Other Sources."
3. Allowability of deduction under Sections 10B and 80IB simultaneously.
4. Eligibility of interest received from customers on delayed payments and gain on foreign exchange fluctuation for deduction under Section 10B.

Detailed Analysis:

Issue 1: Eligibility of Various Receipts for Deduction under Section 10B
The assessee included items such as brokerage on ocean freight, sale of samples, and processing charges in the profit for computing deduction under Section 10B. The Assessing Officer excluded these items based on the Supreme Court decision in CIT v. K. Ravindranathan Nair, which held that profit incentives like rent and commission are not part of the profits for deduction purposes. However, the Tribunal had previously decided in favor of the assessee, considering these receipts as part of business income. The ITAT upheld the Tribunal's earlier decisions, confirming that brokerage, sale of samples, and processing charges are part of business income and eligible for deduction under Section 10B.

Issue 2: Classification of Interest Income
The assessee argued that interest received from income tax refunds, bank interest, and other interest should be classified as "Income from Business or Profession" rather than "Income from Other Sources." The CIT(A) treated this interest as "Income from Other Sources." The ITAT found that the issue was not pressed by the assessee during the hearing, and therefore, dismissed it as not pressed.

Issue 3: Allowability of Deduction under Sections 10B and 80IB Simultaneously
The Assessing Officer disallowed the simultaneous claim of deductions under Sections 10B and 80IB, citing Section 10B(6)(iii) and 80IA(9) which prohibit double deductions. The assessee argued that deductions were claimed on a proportionate basis, with Section 10B for export sales and Section 80IB for domestic sales. The ITAT remanded this issue back to the Assessing Officer for detailed examination of the facts, including the proportion of export and domestic sales, and to decide the issue in accordance with the law.

Issue 4: Eligibility of Interest from Customers on Delayed Payments and Gain on Foreign Exchange Fluctuation for Deduction under Section 10B
The Assessing Officer excluded interest received from customers on delayed payments and gain on foreign exchange fluctuation from profits for deduction under Section 10B. The CIT(A) allowed these items as part of business income, following the Punjab & Haryana High Court decision in Phatela Cotgin Industries P. Ltd v. CIT, which held that interest on delayed payments is derived from the industrial undertaking. The ITAT upheld the CIT(A)'s decision, confirming that such interest is part of business income and eligible for deduction under Section 10B.

Regarding the foreign exchange fluctuation, the ITAT noted that the nature of the fluctuation (whether it arose from normal sale proceeds or deposits in EEFC accounts) was not examined. Citing the Bombay High Court decision in CIT v. Shah Originals, the ITAT clarified that only fluctuations arising from normal sale proceeds are eligible for deduction. The issue was remanded to the Assessing Officer for verification of facts and a decision in accordance with the law.

Conclusion:
The ITAT ruled in favor of the assessee on most issues, allowing the inclusion of various receipts and interest from delayed payments as part of business income eligible for deduction under Section 10B. The issue of simultaneous deductions under Sections 10B and 80IB was remanded for further examination. The nature of foreign exchange fluctuation gains was also remanded for detailed verification. The appeals were partly allowed, with some issues dismissed as not pressed.