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2016 (2) TMI 225 - ITAT AHMEDABAD

2016 (2) TMI 225 - ITAT AHMEDABAD - TMI - Computing deduction u/s. 10B - eligibilty for deduction on the profits from subsidy, interest income, sale of scrap, sales tax refund and sundry balances written off - Held that:- he decision of Special Bench of Tribunal in the case of Maral Overseas (2012 (4) TMI 345 - ITAT INDORE ) wherein the ratio that once on income forms part of the business of the income of the eligible undertaking of the Assessee, the same cannot be excluded from the eligible pro .....

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id facts, we are of the view that Assessee is eligible for deduction on the profits from subsidy, interest income, 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 CHA .....

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l 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/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 17.08.2011 granted partial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue bo .....

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rned CIT(A) has erred in rejecting Appellant's contention that the term "derived by" as prescribed u/s 10B(1) of the Act is defined u/s 10B(4) of the Act to mean "profit of the business of the undertaking". It is submitted it be so held now. 2.1.Learned CIT(A) has erred in relying upon the decisions rendered by the judiciaries u/s. 80I / 80IB instead of decisions rendered u/s. 80HHC whereas provisions of Section 10B is in pari materia with provisions of Section 80HHC. It .....

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ean "profit of the business of the undertaking". 4.The learned CIT(A) has erred in law and on facts 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 of the Act. It is submitted it be so held now. 4.1. The learned CIT(A) has erred in holding the issue against the .....

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rofits 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 Sundr .....

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at the ground raised by the Revenue in its appeal is also connected with the grounds raised by Assessee. Ld. D.R. did not object to the aforesaid submission of ld. A.R. We therefore proceed to dispose of both the appeals together. 6. During the course of assessment proceedings and on perusing the Profit and Loss account, A.O noticed that Assessee had other income which comprised of the following:- (a) Incremental turnover & connectivity incentive Subsidy from government ₹ 50,47,078/- ( .....

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e for deduction u/s. 10B. The submissions of the Assessee were not found acceptable to the A.O. With respect to the subsidy received from the Government of ₹ 50,47,078/-, A.O was of the view that it was not an operational income but was income from the incentive scheme of the State Government. He was of the view that deduction u/s. 10B is only available on operational income and not on incentives. He therefore, relying on the decision of Hon ble Apex Court in the case of Liberty India Ltd. .....

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t 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 inc .....

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in not including the same in profits eligible for exemption u/s. 10B. The turnover subsidy although is a business income attributable to the production in the eligible unit, however, it is not profit derived from that unit It is a benefit received from third source like the duty drawback or import entitlements and are only deemed profits u/s. 28 of the IT Act. I agree with the AO that this is not eligible for-deduction u/s.10B. The corresponding grounds of appeal are therefore dismissed. 6.2 Th .....

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neither derived from Industrial undertaking nor even profits and gains of business, CFT Vs. Menon Impex (P) Ltd reported at 259 ITR 403 (Mad); Sham Tabrez Vanti, In RE reported at (2005) 273 ITR 299 (MR); India Commet International Vs. ITO reported at (2008) 304 FTR 322 are relied upon and it is held that no deduction u/s. 10B is allowable on this interest income. 7. Next ground of appeal is against considering Scrap sale of ₹ 23,64,835, generated out of manufacturing process at the EOU a .....

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dustrial undertaking and it has been so held that it is essentially a remainder portion of the rawmaterials/ finished goods in the case of DCIT Vs. Harjivandas Juthabhai Zaveri, 258 ITR 785 by Hon'ble Gujarat High Court, Accordingly, the addition on this account is deleted and this ground of appeal is allowed. 8. Next ground of appeal is against not considering Sales Tax Refund (Rs.4,40,360) and Sundry balances written off (Rs.21,916) for the purpose of exemption. 8.1 Sundry balances written .....

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reme 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 .....

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e business carried out from EOU. He further submitted that Section 10B(1) provides that profits derived from export or article or thing shall be eligible for deduction for the period of ten consecutive years and the computation of deduction is governed by Section 10B(4) and Section 10B(4) prescribes the formula as to how the deductible amount of export profits needs to be computed. He further submitted that deduction allowed u/s. 10B is proportion of profits of the business of the undertaking to .....

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to the Government subsidy that was granted to the Assessee, he submitted that it relates to the incremental turnover achieved by EOU and that the disbursement of the subsidy was directly linked to the achievement of incremental turnover and was thus derived from the business of undertaking. With respect to the realization from scrap, he submitted that the scrap was generated during the manufacturing process of the goods meant for export and therefore the sale of scrap was derived from the undert .....

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he undertaking. The ld. A.R. further submitted that case laws relied upon 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 considere .....

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on 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 profits for the purpose of computing deduction u/s. 10B of the Act. The ld. D.R. on the other hand supported the order of A.O and with respect to the interest income submitted that whether the interest income is derived from busin .....

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he A.O and for which A.O mainly relied on the decision of Hon ble Apex Court in the case of Liberty India (supra) We find that before Hon ble Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) one of the question for consideration was as to whether the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) r.w.s. 10B(4) of the Act. The Hon ble Special Bench, after considering the decision of the Apex Court in the case o .....

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export. Thus, the provisions of sub-section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and ( .....

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isions 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 .....

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er. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a d .....

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ections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the bu .....

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4 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 t .....

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seas 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 relating to assessment years 2008-09 and 2009-10, respectively. Tribunal has followed the d .....

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carried out by the undertaking 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. .....

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ndertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the profits of the business whic .....

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omputation 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 afor .....

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ent from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit. 80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B( 1) read with section 10B(4) of the Act. The aforesaid view is in consonance with the decision of this Court dated 1st September, 2014 .....

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ort of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking . Sub-section (4), therefore, is the special provision which enables the assessee to compute the profits derived from the export of articles or things or computer software. We do not see any con .....

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on under Sub-section (1). Neither of the two provisions should be made irrelevant and both have to be applied without negating the other. In other words, the manner of computing profits derived from exports under Sub-section (1), has to be determined as per the formula stipulated in Sub-Section (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 .....

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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 any merit in the present .....

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ns as derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles. But Sub-section (4) explains what is 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 d .....

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