TMI Blog2015 (2) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect in this approach as under the provisions of section 80IA(10), the comparison has to be made between the assessee and any other person; whereas in the facts of the present case; the comparison has been made between the results of export sales of manufactured items with the domestic sales of manufactured items carried on by the assessee itself. The provisions of section 80IA(7) of the Act are not attracted in such a scenario and have been incorrectly applied by the Assessing Officer while computing the deduction under section10B of the Act in the hands of the assessee. Also the profits declared by the assessee against export sales were found to be correct and no addition was suggested on account of arm’s length price of such transaction of sale of manufactured goods to parties outside India. In such circumstances, where the export sales have been found by the TPO to be at arm’s length price and no adjustment in this regard has been made by the Assessing Officer while completing assessment under section143(3) r.w.s.144C of the Act, we find no merit that while computing the exemption under section10B of the Act, the Assessing Officer has re-worked the profits eligible for such de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Hence, the same is dismissed as withdrawn. 4. The Revenue in ITA No.1206/PN/2011 has raised the following grounds of appeal:- 1) Whether on the facts and circumstances of the case the CIT(A) is correct deleting the addition made by the AO on account of re-computation of deduction under section 10B relying on the case of California Software Ltd Vs. ACIT (2008) 118 TTJ 842, 13 DTR 553 (Chennai). 2) Whether on the facts and circumstances of the case the CIT(A) is correct deleting the addition made by the AO on account of G.P. addition on export sale and deciding that the provision of section 10B(7) r.w.s. 80IA(10) are not attracted. 3) Whether on the facts and circumstances of the case the CIT(A) is correct deleting the addition made by the AO on account of special capital incentive specially when the provision of section 41(1) and section 43(1) explanation 10 of the Act is attracted. 4) The order of the AO be restored and that of the CIT(A) be vacated. 5) The appellant craves leave to add, amend or alter any grounds of appeal. 5. The issue in ground of appeal No.1 raised by the Revenue is against recomputation of deduction under section10B of the Act. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account were incurred in Indian rupees. Further, it was also pointed out that the adjustment on account of legal and professional charges was not provided in the Explanation 2 to section 10B of the Act. Another contention without prejudice was raised that in case freight, communication, insurance and legal and professional expenses are to be reduced from export turnover, then the said amounts are also to be reduced from total turnover, while computing the deduction under section10B of the Act. Reliance in this regard was placed on various case laws. 9. The CIT(A) re-worked the deduction under section10B of the Act and observed as under:- 6.2 I have carefully considered the facts of the case and rival contentions of the A.O. and the appellant. On perusal of the same, it has been observed that the A.O. is justified in considering the net profit and gains of business of the appellant at ₹ 15,50,66,523/- for the purpose of computing deduction under section10B of the Act as against ₹ 15,84,47,220/- considered by the appellant as the other income amounting to ₹ 33,80,697/- towards bank interest, surplus on sale of fixed assets etc., cannot be regarded as derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. Vs. ACIT (2008) 118 TTJ 842, 13 DTR 553 (Chennai), I hold that the A.O. is not justified in reducing the export turnover claimed by the appellant at ₹ 58,46,09,183/- for the purpose of computing deduction u/s 10B of the Act. The deduction u/s 10B of the Act is, therefore, worked out at ₹ 7,30,16,357/-by considering business profit at ₹ 15,50,66,523/-, export turnover at ₹ 58,46,09,183/- and total turnover at ₹ 1,24,15,48,014/-. The addition made by the A.O. is, therefore, confirmed to the extent of ₹ 15,96,439/- (Rs.7,46,12,796/- - ₹ 7,30,16,357/-). Ground Nos.3 4 stands partly allowed. 10. The learned Departmental Representative for the Revenue has failed to controvert the finding of the CIT(A). 11. The learned Authorised Representative on the other hand drew our attention to the statement of income filed. The FOB value of the exports was taken at ₹ 58,46,09,183/-. The said computation of income is placed at pages 22 to 24 of the Paper Book with the Schedule at page 3 of the Paper Book. In the totality of the above facts and circumstances, we are in conformity with the finding of the CIT(A) in this regard and we uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer had failed to bring on record the plausible reason/justification for applying the provisions of section 10B(7) r.w.s. 80IA(10) of the Act. The CIT(A) thus deleted the disallowance worked out by re-computing the deduction under section10B of the Act. 15. The Revenue is in appeal against the said order of the CIT(A). 16. The learned Departmental Representative for the Revenue took us through the orders of the authorities below and placed reliance on the ratio laid down by the Mumbai Bench of the Tribunal in Sanghvi Jewellery Manufacturing Co. Pvt. Ltd. Vs. ITO vide ITA Nos. 352 to 577/Mum/2008, relating to assessment year 2004-05, order dated 30-11-2011. 17. The learned Authorised Representative for the assessee on the other hand pointed out that the Assessing Officer had re-worked the GP by applying the average GP rate for the year under consideration. It was further pointed by the learned Authorised Representative for the assessee that in view of sub-section 4 to section 10B of the Act, if average rate has to be applied and the deduction has been claimed by the assessee at 12.76% of the net profit. In case average theory is to be applied and where the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other reason, the course of business between them is so arranged that the business transacted between them produced to the assessee more than ordinary profits, the Assessing Officer shall in computing the profits of the eligible business for the purpose of deduction under the section take the amount of profits as may be the reasonably deemed to have been derived from them. For invoking and applying the provisions of section 80IA(10) of the Act, the basic condition is that where in view of the close connection between the assessee carrying on the business and any other person, business is so arranged with them, which produced profits higher than as may be expected to arise in such carrying on of business, then the Assessing Officer is empowered to re-work profits of the eligible business while computing the deduction under section80IA of the Act. Similar provisions have been incorporated while computing the deduction u/s10B of the Act by way of subsection 7 to section 10B of the Act. 20. Now coming to the facts of the present case, the Assessing Officer had compared the results shown by the assessee in the export sales to the results shown by the assessee in domestic sales and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Bombay High Court has held that the same cannot lead to the conclusion that there was an arrangement between the parties. In the facts of the said case before the Hon ble Bombay High Court, the comparison was made between the industrial sewing machine needles imported and traded by the Mumbai Division with the items manufactured and exported by the Kandla Division and it was held that the two items were different. In view thereof, the Hon ble Bombay High Court held that there was no arrangement between the parties to show extraordinary profits in respect of its Kandla Division so as to claim deduction under section10A of the Act. Following the same parity of reasoning, we uphold the order of CIT(A) in deleting addition made on account of re-working exemption under section10B of the Act to the extent of ₹ 1,21,58,748/-. The ground of appeal No.2 raised by the Revenue is thus, dismissed. 24. The issue in ground of appeal No.3 raised by the Revenue is against the deletion of addition made under section41(1) and Explanation 10 to section 43(1) of the Act on account of special capital incentive. 25. The brief facts relating to the issue are that during the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital subsidy received for setting up of the industry in backward areas, though quantified on the basis of capital investment was capital received and was not deductible from the actual cost of the asset for calculating the depreciation. Reliance in this regard was placed by the CIT(A) on the ratio laid down by the Pune Bench of the Tribunal in the case of M/s. Sapna Re-rolling Industries vide ITA No.1382/PN/2006, relating to assessment year 2003-04, dated 24-12-2008. In view thereof, the CIT(A) held that there was no justification for making the addition of ₹ 30 lakhs on account of capital incentive receipt. 28. The Revenue is in appeal against the said order of the CIT(A). 29. The learned Departmental Representative for the Revenue pointed out that the addition was made in the hands of the assessee under section 41(1) of the Act. Another alternate contention was also raised by the Assessing Officer that the cost of the asset should be reduced under section 43(1)(b) of the Act. In this regard, the learned Departmental Representative for the Revenue placed reliance on the ratio laid down in CIT Vs. Shree Renuka Sugars Ltd. 28 Taxmann.com 268. 30. The learned Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 30 lakhs in respect of eligible unit provided, if the entrepreneur does not opt for availing sales tax incentive under Part-III of 1993 scheme. Under the said scheme a grant of ₹ 30 lakhs was disbursed to the assessee. The question arising before us is the taxability of the said grant of ₹ 30 lakhs. 33. The contention of the learned Authorised Representative for the assessee was that 1993 scheme formulated by the Government of Maharashtra has been considered by the Mumbai Bench of the Tribunal in Everest Industries Vs. ACIT (Supra), wherein it has been held that the incentive received under the scheme was capital receipt. It has also been held by the Mumbai Bench of the Tribunal that the scheme referred to in the case of Reliance Industries Ltd., i.e. 1979 scheme was identical to the 1993 scheme. The Hon ble Bombay High Court in the case of CIT Vs. Reliance Industries Ltd., (Supra) in the appeal filed by Revenue against the order of Special Bench of Mumbai Tribunal reported in (2004) 88 ITD 273 (SB) (Mum) have held that the subsidy received under the 1979 scheme for setting up new units in backward areas was a capital receipt. Applying the same ratio to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plea of the assessee before us was that the turnover of international outsourcing and the process of international outsourcing should be excluded from total sales turnover and the profits of the business, while computing the deduction under section10B of the Act. It was fairly pointed by the learned Authorised Representative for the assessee that in the return of income and also during the assessment proceedings no such issue was raised. However, before CIT(A) additional grounds of appeal were raised which have not been adjudicated by the CIT(A). Reliance in this regard was placed upon the decision of the Pune Bench of the Tribunal in the case of M/s.Surya Buildcon vide ITA No.964/PN/2011 relating to assessment year 2007-08 order dated 31-07-2012 wherein the Tribunal held that the CIT(A) ought to have entertained the fresh claim made by the assessee and adjudicate the same in accordance with law. 38. The perusal of record and the appeal filed by the assessee reflects that the assessee had raised following additional grounds of appeal before the CIT(A):- a. Without considering provisions of section 10B of the Income Tax act, 1961, the computation of exemption/deduction, sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered and instead these figures have been considered for the entire business of the assessee Company. 5. Without prejudice to the foregoing and without considering facts and circumstances of the case and the law obtaining, the ACIT, Circle - 1, Aurangabad, has erred in considering the excise duty paid/payable as part of total turnover within the meaning of section 10B of the Act. 6. There is error in assessment of income while considering deduction/exemption under section 10B of the Income tax act, 1961, sales turnover, expenses and profits of international outsourcing activity has not been excluded and that solely of the Export Oriented Undertaking (EOU) has not been considered, particularly when the entire data was on record at the time of assessment. 7. The assessee craves leave to add, alter, amend, modify, delete all or any of the grounds of appeal. 41. The learned Authorised Representative for the assessee at the outset pointed out that the grounds of appeal Nos.1, 2, 3 and 6 are not pressed. The learned Departmental Representative for the revenue has no objection to the same and hence the same are dismissed as not pressed. 42. The issue in ground of appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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