TMI Blog2012 (7) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... rent year - Held that:- receipt by way of exchange rate fluctuation is includible in the total turnover of the assessee Employees' and employer's contribution to P.F. and ESIC were made within the grace period – Held that:- payments were made after the due date but within the grace period allowed under P.F./ESIC Acts - CIT(A) erred in fact and in law in confirming disallowance of Employers contribution to PF and ESIC made before filing Return of Income u/s. 139(1) - Assessing Officer be directed to allow Employers contribution to PF and ESIC made before filing Return of Income u/s. 139(1). Whether the assessee is entitled to relief under section 10B on such interest income – Held that:- Assessing Officer directed to recompute the income accordingly - assessee is not eligible for deduction on this interest income under section 80HHC in view of clause (baa) to explanation to section 80HHC Whether the assessee is entitled to deduction under section 80HHC - no relief has been claimed under section 10B, and to the extent the aggregate does not exceed the gross total income – Held that:- Exemption under section 10A of the Act is limited to 90% of the profits of the undertaking a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n undertaking begins to manufacture or produce an article or thing on or after 01.04.1994, it is entitled for exemption for 5 consecutive assessment years from the relevant assessment year in which the production started. Appellant had started the production in A.Y. 1993- 94 and was registered as 100% export oriented unit on 28.10.1992 at Bangalore. Appellant has given option for tax exemption period from A.Y. 1996-97 onwards and same has been accepted by the AO also. In view of above, AO observed that appellant company was eligible for deduction for a period of 5 assessment years from A.Y.1996-97 to A.Y.2000-01 and not thereafter including A.Y.2002-03, the year under consideration. AO, therefore, asked the appellant to explain as to why deduction u/s.10B should be allowed as the appellant has opted for deduction u/s. 10B from A.Y. 1996-97 onwards. Appellant submitted its reply which has been reduced by AO in the assessment order which is as under: (a) In A.Y. 1993-94, our company was formed and had done some Job Work of garments for our Principal Company. In A.Y. 1993-94, we have not purchased and installed any Plant and Machinery at our Factory and further due to this th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y.s as per Provisions of sec. 10B(1) which read as A deduction of such profits and gains as are derived by a hundred percent Export Oriented Undertaking from the Export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be shall be allowed from the Total income of the asssessee. Therefore, in view of the aforesaid section 10B(1) we are eligible for deduction u/s. 10B for 10 consecutive assessment years from A.Y. 1994-95 to 2003-04. AO considered the above submission of appellant but was not satisfied with the same. AO has observed that appellant was eligible for deduction for a period of five years for which it has opted from A.Y. 1996-97 onwards and appellant has therefore exhausted its tax holiday period of five consecutive assessment years from A.Y.1996-97 to A.Y.2000-01. AO, therefore. held that appellant is not eligible for deduction u/s.10B for A.Y.2001-02 and subsequent assessment years and disallowed deduction uls.10B in A.Y.2002-03, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief under section 10B. In support of his arguments, he relied on the Chandigarh Bench decision of the Tribunal in P.A. Time Industries v/s DCIT, (2006) 101 ITD 132 (Chd.). 11. Learned Departmental Representative, referring to ground no.3, submitted that the arguments made in ground no.2, would apply to this ground. 12. On ground no.4, which is on the issue of disallowance of manufacturing expenses on ad-hoc basis, the learned Departmental Representative, relied on the order passed by the Assessing Officer. 13. On ground no.5, the learned Departmental Representative submitted that employees' and employer's contribution to P.F. and ESIC were made within the grace period and that the issue is covered in favour of the assessee. 14. Learned Counsel, Mr. Nitesh Joshi, submitted that, as far as ground no.1 is concerned, the issue is covered in favour of the assessee by the decision of Delhi Bench of this Tribunal in Tech Books Electronics Services (P) Ltd. v/s ACIT, (2006) 100 ITD 125 (Del.). He submitted that the decision in case of Intergold (I) Ltd. (supra) and the decision in Tata Tea Ltd. (supra) are distinguishable as in both these cases, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was incorporated in assessment year 1993-94, and during that year, it just did some job works of garments. No machinery was purchased. During the assessment year 1994-95, the assessee started production of garments and claimed exemption under section 80HHC. Similar is the case for assessment year 1995-96. For the first time in assessment year 1996-97, the assessee opted to claim deduction under section 10B. The assessee claimed deduction under section 10B for five consequent assessment years i.e., from assessment years 1996-97 to 2000-01, and the same was allowed. 19. Now, we consider the amendment brought in statute w.e.f. 1st April 1999. Sub section (3) of section 10B, reads as follows:- Profits and gains referred to in sub-section (1), shall not be included in the total income of the assessee in respect of any ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. 20. The word ten was substituted for the word five by the I.T. (2nd Amendment) Act, 1998, w.e.f. 1st April 1999. The statement of objects and reasons - claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ology Park Scheme. Later on STPI has also granted approval under section 14 of the industries Act, to enable it to avail the benefits under section 10A and 10B from financial year 1993-94 up to 18.9.1997, the firm was exclusively exporting its software to an American Company. On 19.9.1997, the firm was converted into a private limited company and all the assets and liability of the firm became the property of the assessee company. Consequently, all the partners became share holders in the assessee company and the capital of the firm became paid up capital of the assessee company. In assessment year 2000-01, the assessee company for the first time claimed exemption under section 10B. The A.O. denied the exemption u/s 10B. The CIT(A) also confirmed the action of the A.O. On second appeal before the Tribunal, the Tribunal after discussing the issue in detail held that the assessee is entitled for deduction under section 10B. The provisions of section 10B before amendment and after amendment were taken into consideration. After taking into consideration all the aspects including the decision of Calcutta Bench in the case of Tata Tea, the Tribunal has held that assessee is entitled for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revival by the assessee of the business of any such industrial undertaking as is referred to in s. 33B, in the circumstances and within the period specified in that section; (iv) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. The learned CIT(A) has also held that the assessee is not entitled to the claim of exemption in view of the amended provisions of s. 10B. This finding of learned CIT(A) is not based on construction of relevant statutory provisions. The CBDT vide Circular No. 1 of 2005 [(2005) 193 CTR (St) 85] has clarified the position and, therefore, in view of the provisions of s. 10B as amended w.e.f. 1st April, 1999 the assessee shall be entitled to claim exemption in respect of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. Therefore, the EOU which existed before financial year 1998-99 and which was otherwise eligible for tax holiday of five assessment years out of block of eight assessment years, would be eligible for tax holiday for a block period of ten assessment years. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 1992-93 to 1996-97. After the amendment made w.e.f. 1st April 1999, the assessee sought deduction for the assessment year 1997-98, which is prior to the date of amendment. The Tribunal rightly so held that the amendment does not apply to assessment year 1997-98. The Tribunal, vide Para-23, had observed as follows:- 23. It is settled legal position that the substantive amendment is normally prospective unless stated otherwise. On the contrary the procedural provisions are regarded as applicable to pending proceedings as well. Where the statute confers power For the First time, it cannot be held that such power is meant to be exercised in respect of past periods as well. Unless retrospective operation has been assigned by the Legislature o a substantive provision, it can only be regarded as prospective. Our view is fortified by the judgment of the Hon'ble Madras High Court in the case of S. Subash v. IT [2001] 248 ITR 512. Thus a substantive provision i considered as prospective unless it is expressly made applicable from an earlier date. We now turn to examine as to whether sub-section (3) of section 10A is substantive or procedural provision. As noted above the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears of tax holiday to existing unit was indeed intention of the law makers but that question can only be examined in the year in which the amended law is to take effect, i.e., asst. yr. 1999-2000, or thereafter. The Tribunal, at Para-10, concluded as follows:- 10. In view of the above discussions, we see no merit in assessee's grievance. In our considered view, the assessee, having already availed s. 10B benefit for five consecutive assessment years, was not eligible for exemption under s. 10B any further, so far as asst. yr. 1998-99 is concerned. Accordingly, we confirm the conclusions arrived at by the authorities below and decline to interfere in the matter. 27. Thus, both these case laws do not come to the rescue of the Revenue. Consequently, respectfully following the decisions of the Tribunal in Tech Books Electronics Services (P) Ltd. (supra) and M/s. Consindia Pvt. Ltd. (supra), we uphold the findings of the Commissioner (Appeals) and dismiss ground no.1 of the Revenue. 28. Coming to ground no.2, which is on the issue of foreign exchange gains, the undisputed fact recorded by the Commissioner (Appeals) is that the whole of the gain is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of the business of the undertaking, the formula has to be applied and sub-section (4) leaves no choice. In this view of the matter we are in agreement with the submission of the learned counsel for the assessee. 6. The learned counsel for the assessee is right in his submission that in the case of section 80HHC, which was considered by the Supreme Court in K Ravindranathan Nair (supra), there is a specific Explanation (baa) which excludes 90% of the interest, even if it is assessed as business income, from the profits of the business. However, sub-section (4) of section 10B contains no such exclusion nor is there any other provision in the section similar to Explanation (baa) of section 80HHC. In Liberty India (supra), the Supreme Court was concerned with sections 80-I, 80-IA and 80-IB. In these sections also there is no statutory formula to prescribe as to what are the profits eligible for the deduction. There is no statutory prescription of such profits as in sub-section (4) of section 10B. Sub-section (5) of section 80-IA, which also has to be read as part of section 80-IB provides that the profits of an eligible business shall be computed as if such eligible busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 139(1) (Refer Page 22 and 23 of the CIT(A)'s Order). 3) On the facts and circumstances of the case, the learned CIT(A) erred in fact and in law in confirming disallowance of Employers contribution to PF and ESIC made before filing Return of Income u/s. 139(1). 4) The learned Assessing Officer be directed to allow Employers contribution to PF and ESIC made before filing Return of Income u/s. 139(1). C) Disallowance of part of Manufacturing Expenses (Refer Para iS of the CIT(A)'s Order). 5) On the facts and circumstances of the case, the learned CIT(A) erred in fact and in law in confirming disallowance of 10% of Manufacturing Expenses of ₹ 1,58,53,438. 6) The learned Assessing Officer be directed to allow fully Manufacturing Expenses. 35. After hearing the rival contentions, we find that the interest income in question is earned by the assessee from out of fixed deposit kept as margin money for the purpose of obtaining facilities from the bank. The Assessing Officer as well as the Commissioner (Appeals) held that the interest income should be assessed under the head Income From Other Sources . The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n claimed under section 10B, and to the extent the aggregate does not exceed the gross total income, we follow the decision of Mumbai Bench of the Tribunal in M/s. Genesys International Corporation Ltd. v/s DCIT, ITA no.6945/Mum./2006, order dated 16th January 2009, wherein the Tribunal held as follows:- ........... The exemption under section 10A of the Act is limited to 90% of the profits of the undertaking and the balance 10% of the profits on non-refundable as part of gross total income of the assessee is to be subjected to the deduction provided under Chapter VI-A of the Act before computing the total income of previous year relevant to the assessment year in the hands of the assessee. There is no miscellaneous deduction as the profits which are eligible for the benefit of the exemption under section 10A of the Act are restricted to 90% of such profits and the balance 10% is includable in the hands of the assessee as part of his gross total income. The provisions of section 10A(6) of the Act are not a hindrance to such allowance as the same are applicable after the holiday period is over. In any case section 80HHE of the Act is not covered by section 10A(6) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been reproduced in the assessment order as well as in this order. After considering the submissions made by appellant. AO has disallowed 20% of the total manufacturing expenses. However, appellant has contended that increase in expense was largely attributable to increase in production for exports. As against 9,69.498 number of pieces produced last year, 12,16,340 pieces were produced in the year under consideration. Secondly, expenses depend upon and vary based on pattern, style and design of product. Thirdly, the circumstance that there was reduction in cost of wages and salary for the. year does also reflect that, during the year, there was greater dependence on outsourcing. However, contentions and explanation of appellant are not fully acceptable. As observed in the assessment order, while there is substantial increase in the manufacturing expenses, increase in the production is not commensurate to the manufacturing expenses. Reduction in wages is only of ₹ 35 lakhs. It is interesting to note here that against the processing/dyeing charges of ₹ 85.364/- incurred in A.Y.2001-02, appellant, in A.Y.2002-03, has incurred processing/dyeing charges of ₹ 38,87,799 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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