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2015 (6) TMI 58 - ITAT AHMEDABAD

2015 (6) TMI 58 - ITAT AHMEDABAD - TMI - Exemption u/s.10B - 'Income from Profits and Gains' - interest received and the consideration received by sale of import entitlement - Held that:- the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is .....

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is derived from the consideration realized by export of articles. In view of the definition of 'Income from Profits and Gains' incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also.

We respectfully following the aforesaid decision of Hon’ble Karnataka High Court in the case of Motorola India Electr .....

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o appeals, one filed by the Assessee and the other filed by the Revenue, are against the order of CIT(A)-V, Surat dated 16.11.2010 for A.Y. 2006-07. 2. The relevant facts as culled out from the material on record are as under. 3. Assessee is a partnership firm stated to be engaged in the business of import of rough diamonds and manufacturing and export of polished diamonds. Assessee filed its return of income for A.Y. 2006-07 on 28.12.2006 declaring its total income of ₹ 2,80,950/-. The ca .....

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circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in partly confirming the action of assessing officer in not granting deduction of ₹ 1,02,000/- out of ₹ 18,62,586/- u/s. 10B of the Act on account of interest income. 4. On the other hand the grounds raised by the Revenue reads as under:- 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing the assessee s claim of deduction u/s. 10B of interest income of ₹ .....

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bank on FDRs of ₹ 17,60,586/- and interest of ₹ 3,07,350/- on the deposits placed with Electricity Board. A.O was of the view that the interest income received from bank was derived from the FDRs and was not directly related to the business of export of article or things and not derived through foreign exchange which is the main criteria for claiming deduction u/s. 10B. He also noted that similar addition was made in earlier years and ld. CIT(A) had partly confirmed the addition and .....

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d. CIT(A). Ld. CIT(A) noted that identical issue arose in A.Y. 2005-06 in Assessee s own case and following the order of his predecessor, granted partial relief by deleting the addition of ₹ 17,60,586/- on account of interest income earned from banks but however confirmed the addition of ₹ 1,02,000/- on the interest earned on deposit with Electricity Board. The relevant finding of ld. CIT(A) is as under:- Decision: I have considered rival contentions. In the appellant own case for th .....

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on deposit with Electricity Board is confirmed. 7. Aggrieved by the order of ld. CIT(A), Assessee and Revenue are now in appeal before us. 8. Before us, at the outset, ld. A.R. submitted that against the order of ld. CIT(A) for A.Y. 05-06, Assessee and Revenue had preferred appeal before Hon ble Tribunal. Hon ble Tribunal which deciding the appeal (ITA No. 314 & 315/AHD/2009) dated 27.05.2011 confirmed the order of CIT(A) and decided the issue partly in favour of Assessee by holding as unde .....

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ubmissions of the appellant. After carefully analyzing the facts of the case it is seen that so far as interest income on FDR is concerned, I find merit in the contention of appellant that as FDR is placed out of loan borrowed from the bank, the expenditure incurred on loan is required to be reduced from the interest on FDR as said amount is expended for earning the interest income. As interest paid is more than interest on FDR, deduction u/s.10B cannot be curtailed on this ground in view of the .....

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company, I find that appellant has failed to prove any such nexus & thus, action of assessing officer in disallowing deduction u/s.10B on said interest income of ₹ 2,02,386/- is confirmed. Accordingly, out of total disallowance of Rs. l1,47,586/- made by assessing officer, disallowance to the extent ofRs.9,45,200/- is hereby deleted & the balance amount of ₹ 2,02,386/- is confirmed " 4.2. On the basis of observation of Id.CIT(A) since the assessee has not proved the nexu .....

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erest earned on deposits placed with Electricity Department ld. A.R. submitted that before A.O and ld. CIT(A), Assessee had relied on the decision of Bangalore Tribunal in the case of ACIT vs. Motorola India Electronics Pvt. Ltd. 114 ITD 387 but was found not applicable to Assessee s case and the same was not considered by them. He further submitted that the aforesaid decision of Tribunal which was relied by Assessee, before A.O and ld. CIT(A) has been upheld by Hon ble Karnataka High Court in I .....

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years and in view of the decision of Hon ble Karnataka High Court needs to be decided in favour of the Assessee. He also placed on record at page 11 to 31 of the paper book the copy of the aforesaid decision of Hon ble Karnataka High Court. Ld. D.R. on the other hand supported the order of A.O. 10. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to ignoring interest income for the purpose of deduction u/s. 10B of the Act. As .....

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ed on deposits placed with Electricity Department is concerned, we find that the issue was decided against the Assessee by the co-ordinate Bench of Tribunal in A.Y. 2005-06. We however find that the Hon ble Karnataka High Court, after considering the decisions of Apex Court in the case of Pandian Chemicals Ltd. vs. CIT (2003) 262 ITR 278, Liberty India vs. CIT (2009) 317 ITR 218, CIT vs. Sterling Foods (1999) 237 ITR 579 (SC) and other decisions and after considering the amendment made by Financ .....

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s mentioned in Subsection (1)• The substituted Subsection (4) says that profits derived from export of articles or things or computer software shall be the account which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the pro .....

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t of articles but also the income from the business of the undertaking. 8. In the instant, case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which .....

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