TMI Blog2016 (2) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... come, sale of scrap, sales tax refund and sundry balances written off. We thus set aside the order of ld. CIT(A). - Decided in favour of assessee - ITA No: 2665 & 2720/AHD/2011 - - - Dated:- 1-1-2016 - SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER SHRI S.S. GODARA, JUDICIAL MEMBER For The Appellant : Shri Sanjay R. Shah, AR For The Respondent : Shri Albinus Tirkey, Sr. D.R. ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. These two appeals of which one is filed by the Assessee and the other is filed by the Revenue, are against the order of CIT(A), Gandhinagar dated 17.08.2011 for A.Y. 2007-08. 2. The relevant facts as culled out from the material on record are as under. 3. Assessee is a partnership firm and 100% Export Oriented Unit (EOU) engaged in the business of manufacturing and selling of Printed Circuit Boards. Assessee filed its return of income for A.Y. 2007-08 declaring total taxable income at Rs. Nil after claiming the profits as exempt u/s. 10B of the Act. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 28.12.2010 and the total taxable income was determined at ₹ 82,31,002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so held now. 5.The learned CIT(A) has erred in law and on facts in not considering Interest of ₹ 3,56,813, received on deposits kept with banks out of surplus funds generated from the EOU (the only unit of the Appellant), as part of profits gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s 10B of the Act. It is submitted it be so held now. 5.1 Without prejudice to above, it is submitted that the Learned CIT (A) has erred in law and on facts in considering interest income as income from other sources under Chapter- IVF of the Act in place of income from business or profession under Chapter-IVD of the Act. It is submitted it be so held now. 6.The learned CIT(A) has erred in law and on facts in not considering Sales Tax Refund (Rs.4,40,360) and Sundry balances written off (Rs.21,916) for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s 10B is what forms part of the 'profits of the business of the undertaking' u/s 10B(4) r.w.s. 10B(1) of the Act. It is submitted it be so held now. 5. Before us, at the outset, ld. A.R. submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income cannot be considered to have been derived from exports and therefore it cannot be considered to be exempt u/s. 10B. Similarly, with respect to the sales tax refund and sundry balances written of, he was of the view that the aforesaid items were not profit derived from export oriented unit. He therefore placing reliance on the decision of Hon ble Apex Court in the case of Liberty India (supra) denied the deduction u/s. 10B of the Act. He accordingly held that out of total other income of ₹ 1,40,68,898/- the aggregate amount of ₹ 82,31,002/- as being income from other sources and therefore not eligible for deduction u/s. 10B. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee granted partial relief by holding as under:- 6.1The second ground is against the AO in not considering Government subsidy of ₹ 50,47,078/- received on incremental turnover of the EOU (the only unit of the appellant), as part: of profits gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s. 10B. The turnover subsidy although is a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndry balances written off are not even proved to be related to expenses of manufacturing. In no case, such writing off can be income derived from the eligible business. Actually, these are deemed profits because of cessation of liability. The AO has correctly disallowed the claim of sec.10B on this income. As far as sales tax refund is concerned/ it is of similar nature as of DEPB and is linked to benefits given to exporter. It is not a case of excess deposit of tax which is refunded. The decision of Hon'ble Supreme Court in the case of Liberty India (supra) is squarely applicable on the facts. In section 10B(4) also, the words of the undertaking' were inserted w.e.f. 1/4/2001 to restrict the benefits for the profits on the undertaking only and not to profits of the business of the assessee. The benefits available to the assessee which are attributable to its business are not profits derived from exports of the assessee's industrial undertaking. The claim of the assessee has rightly been disallowed by the A.O. The ground of appeal is dismissed. 8. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue are now in appeal before us. 9. Before us, ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by ld. CIT(A) were for a period prior to 2001-02 and were not applicable . On the contrary, he submitted that the issues in the present case are directly covered by the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. vs. Additional CIT (2012) 20 Taxmann.com 346 (Indore Tribunal) (S.B). He further submitted that while rendering the aforesaid decision, the Special Bench of Tribunal has also considered the decision of Hon ble Supreme Court rendered in the case of Liberty India (supra). He also placed on record the copy of the aforesaid decision and pointed to the relevant portion of the decision. He also placed reliance on the decision of Hon ble Delhi High Court in the case of CIT vs. Hritnik Export Pvt. Ltd. in ITA No. 219 of 2014 order dated 13.11.2014 a copy of which was placed at page 158 to 160 of the paper book. He therefore submitted that as per the formula prescribed under Sub-section 4 of Section 10B, the entire profits of the business are to be considered in the ratio of export turnover to total turnover of the business and that once an income forms part of the business of the income of eligible undertaking, the same cannot be excluded from the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives. 78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :- Profit of the business of the Undertaking X Export turnover Total turnover of business carried out by the undertaking 79. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the assessee's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit. 11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 239/2014 order dated 13.11.2014) wherein Hon ble High Court dismissed the appeal of Revenue by holding as under:- By way of these appeals, the Revenue has challenged the orders passed by Income Tax Appellate Tribunal (Tribunal, for short) dated 11th September, 2013 and 24th October, 2013 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits of the business eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the asses see s own case the I.T.A.T. in the preceding years, after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (4), otherwise Sub-section (4) would become otise and irrelevant. The issue in question in this appeal which pertains to the Assessment Year 2009-10, relates to duty draw back in the form of DEPB benefits. As per Section 28, clause (iii-c), any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded. Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports. In view of the aforesaid, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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