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TMI Blog2012 (7) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the Revenue are in appeal before the Tribunal. 4. First we take up Revenue's appeal. Ground no.1, is on the issue of allowability of deduction under section 10B. 5. The facts, as brought in the impugned order passed by the Commissioner (Appeals) vide Page-2, is extracted below for ready reference:- "Appellant company is engaged in the business of manufacturing and export of garments and job work of stitching. Appellant has claimed deduction u/s.10B to the tune of Rs. 5,89,91,153/-. After considering the old records, AO has observed that appellant opted for deduction for 5 years from A.Y. 1996-97 to A.Y. 2000-01. As per the condition of the provisions of sub-section (2) of section 10B of the l.T.Act if an 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for undertaking stitching of garments only. The aforesaid stitching work is considered as labour charges done for stitching of garments for other parties. In view of the above facts and circumstances, we strongly state that we have rightful claim of deduction of Income u/s. 10B of the I.T.. Act, 1961. Further, we once again state that Amendment made to Sec. 10B(2)(ia) is not applicable to our company, since we had started production of garments before 1.4.1994 and we do not have any Local Sales, we have only Export Sales. ii) You have stated that we are eligible for option u/s. 10B from A.Y. 1995-96 TO A.Y. 2000-01. As per our contention, we are eligible to take the benefit of deduction of Income u/s. 10B for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground no.2, the learned Departmental Representative submitted that the Assessing Officer, as a matter of abundant caution and without prejudice to his main finding that the assessee is not entitled to deduction under section 10B, also held that deduction cannot be granted on foreign exchange gain and job work receipts. On foreign exchange gain, he submitted that if the foreign exchange related to the turnover of the current year, the same should be allowed and if the exchange gain relates to turnover of earlier year, it should be disallowed. 10. The learned Departmental Representative on job work charges received, submitted that such income is not derived from the industrial undertaking and, hence, not eligible for relief 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 Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the Act. He further relied on Mumbai Bench decision of the Tribunal in ITO v/s M/s. Jewelex International P. Ltd., ITA no.3302/Mum./2009, order dated 30th September 2010, and submitted that the issue, as to which income can be said to be derived from, is to be decided based on the formula given in section, and not general interpretation. 16. On grounds no.4 and 5, the learned Counsel relied on the impugned order passed by the Commissioner (Appeals). 17. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 18. The undisputed facts relating to ground no.1 are that, 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons which is very clear that the persons who are claiming deduction u/s 10B earlier they can claim deduction for ten years. Suppose any person have claimed deduction for five years then he can claim deduction for next five years and not ten years from the date i.e., 1.4.1999. This issue has been discussed in detail by the Delhi Bench in case of Tech Books Electronics Services (P) Ltd. (supra). In that case the facts are similar as a partnership firm in the name of Tech Books Electronics Services (P) Ltd. (supra) was formed for carrying business of development and export of software data processing on 14.12.1992, the Software Technology Park of India (STPI) granted permission for the firm for setting up 100% EOU under the Software Technology 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of the assessee. As provided in cl. (2) of s. 10B, the exemption is available to undertakings which fulfil all the following conditions, namely: "(i) it manufactures or produces any article or thing; (ii) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy five per cent of the total sales thereof during the previous year; (iii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the year in which the claim is preferred and if in earlier years the assessee waived his right then he cannot be stopped in claiming the benefit in the subsequent years." 23. In both the aforesaid decisions, the Tribunal was considering the claim for deduction in assessment year 2001-02 and assessment year 2000-01 respectively. In our opinion, these two cases cover the case in hand. 24. Coming to the Mumbai Bench decision of the Tribunal in Intergold (I) Ltd. (supra), relied upon by the learned Departmental Representative, the assessment year in question was 1997-98, when the amendment was not in the statute. The assessee, in that case, had already availed deduction for a block of five assessment year from 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment." [emphasis own] 25. From the last four lines of the above, it is clear that the Tribunal was of the view that, had the period of five years not yet expired, the assessee would have been entitled for a larger period of ten years which is exactly the case of the assessee before us. 26. Coming to the Calcutta Bench decision of the Tribunal in Tata Tea Ltd. (supra), the claim was for assessment year 1998-99 and this was also for a period prior to the substitution w.e.f. 1st April 1999. In this case also, the Tribunal, while rejecting the claim of the assessee, vide Para-7 (last four lines) observed as follows:- "Be that as it may, even assuming, for argument's sake, that giving five more years 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. Subsection (4) of section 10B statutorily prescribes a formula as to what should be considered as profits derived from export of articles. The profits of the business of the undertaking are to be ascertained first and the next step is to bifurcate the same in the same proportion as the export turnover in respect of the articles bears to the total turnover of the business carried on by the undertaking. If the interest income forms part of the profits of the business of the undertaking, then in the light of the statutory formula the resultant figure after applying the formula has to be statutorily considered as profits derived from export of articles. In the present case the interest having been assessed as part of the profits 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-Tax Act (Refer Page 24 and25 of CIT(A)'s Order). 1) On the facts and circumstances of the case, the learned CIT(A) erred in fact and in law in not treating interest on Bank Fixed Deposit as Business Income and disallowed deduction of the interest income for deduction u/s. 10B/8OHHC. 2) On the facts and circumstances of the case, the appellant is entitled to deduction u/s. 8OHHC along side deduction u/s. lOB. The learned Assessing Officer be directed to grant both deductions concurrently to the extent the aggregated thereof does not exceed Gross Total Income. B) Disallowance of Employers contribution to PF and ESIC of Rs. 6,62,380 and Rs. 7,63,982 made before filing Return of Income 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 Manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the assessee that the income interest in question should be assessed under the head "Income From Business". 37. Coming to the issue whether the assessee is entitled to relief under section 10B on such interest income, as already held in the Revenue's appeal, we follow the decision of Mumbai Bench of the Tribunal in M/s. Jewelex International P. Ltd. (supra) and direct the Assessing Officer to recompute the income accordingly. The assessee is not eligible for deduction on this interest income under section 80HHC in view of clause (baa) to explanation to section 80HHC. 38. On the issue whether the assessee is entitled to deduction under section 80HHC, to the extent no relief has been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner (Appeals) held as follows:- "I have considered the facts of the case and submission made by appellant. Appellant has claimed manufacturing expenses of Rs. 7,92,67,l89/- as against Rs. 3,70,49,929/- in the preceding assessment year. Details show that manufacturing expenses of Rs. 7.92 crores including charges of Rs. 6,84,43,308/-, sample-imports of Rs. 95,562/-, testing fees of Rs. 2,53,444/-, processing/dyeing charges of Rs. 38,87,799/- and washing charges of Rs. 65,87,076/-. Since manufacturing expenses claimed in this year were very high as compared to last year, AO asked the appellant to explain the same. Appellant submitted its explanation which has 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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