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M/s Earth Stone Group Versus Addl. Commissioner of Income Tax

2016 (4) TMI 824 - ITAT DELHI

Deduction u/s 10B - Export sales made through the sister concern - Held that:- Export sales directly made to the consignee through the sister concern was the deemed export of the assessee and deduction u/s 10B of the Act was available.

We direct the AO to allow the deduction u/s 10B of the Act to the assessee on the export sales made through the sister concern M/s Stone World and accordingly the disallowance made by the AO is deleted. - Decided in favour of assessee - ITA No. 2188/Del .....

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: 1. On the facts and circumstances of the case and in law, the Ld. A.O. erred in holding that the definition of the Export Turn Over u/s 10B of the I.T. Act excludes the Deemed Export. 2. On the facts and circumstances of the case and in law, the Ld. A.O. erred in disallowing the deduction claimed u/s 10B of the income-tax Act at ₹ 1,52,51,935/-. 3. That the Appellant prays for addition, deletion, amendment and modification in the ground of appeal before the disposal of the same in the in .....

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law, the Ld. CIT(A) erred in holding that the Assessee Firm is not entitled to Exemption u/s 10B on a sum of Rs.l,52,51,935/-. b) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not giving a finding that the definition of Export Turn Over u/s 10B of the Act also includes Deemed Export. c) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not holding that the export of goods through Partner Sh. Lokesh Arora, are Deemed Export of the Ass .....

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f Marble, sand stone, slate stone, tiles, lime stone, quartzite etc. and filed the return of income on 27.09.2008 declaring Nil income after claiming the deduction u/s 10B of the Act amounting to ₹ 9,64,64,001/-. The said return was processed u/s 143(1) of the Act on the same income. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO on examination of account of the assessee found that it had made local sale to its sister concern M/s Stone Wor .....

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lable to them. As per provisions, EOU need not export their manufactured goods themselves but may use an export house/trading house/star trading house or other EOUs subject to certain conditions EOUs may execute export orders also through third parties given that the goods will be directly transferred from the customs boned factory to the part of shipment find all export benefits will be to EOUs only, 3. The assessee has bona-fide reason to believe that the export made through third party are co .....

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kindly note that the total sales of the firm is ₹ 25,60,57.574/- against which the value of third party export is ₹ 403,66,362/- lacs only. The stated amount for disallowance of ₹ 9,64,64,001/- lacs is on the entire amount, which is accordance to the parameters of EOU scheme and bona-fide belief of deduction against deemed export against ₹ 403 lacs. 7. Further, it is to be kindly noted that the overall Gross Profit and Net Profit of the firm is 59.92% and 37.42% respectiv .....

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gher than what it had paid to Earth Stone Group against purchases for Deemed Export. Cost of raw materials: Due to cutting, tumbling and pasting. It is having higher raw material consumption than the other material. Further, Mosaic/Listello/Boarders are not sold to any other party other than Stone World. Packaging required as per instructions of the Third Party exporter in-accordance to the parameters of the ultimate customer in overseas market. The cost of packing material is high. It requires .....

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ocal sales and export sales, and explained as under: For your kind reference we are annexing the Detailed Profit & Loss Account for both Deemed Export and Export separately along with the parameters of segregation of expenses. It is to be kindly noted that, we have not taken the following expenses for calculation of Net Profit for Deemed Export: Clearing and Forwarding Expenses Donation Foreign Exchange Fluctuation However, you may please be noted Donation is allowable under section 80G agai .....

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he provisions of Section 10A and 10B of the Act are special provision in respect of newly established 100% Export Oriented Undertaking in free trade zone and there is no provision of deemed export in Section 10A of the Act. He further observed that the assessee had accepted that M/s Stone World exported the purchases made by it at a higher value and in the process earned profit for itself, the foreign exchange was also received in the hands of M/s Stone World and no part of such profit or the fo .....

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ee had not maintained separate books of accounts in respect of its export business and local business. The AO held that the deduction u/s 10B of the Act was claimed excessive by the AO. He worked out the allowable deduction at ₹ 8,12,12,066/- instead of ₹ 9,64,64,001/- in the following manner: Export Turnover Rs.21,55,72,197/- Local Sales Rs.4,04,85,277/- Total Turnover Rs.25,60,57,474/- Total Profit as per Computation Rs.9,64,64,001/- Allowable deduction u/s 10B of the Act: 96464001 .....

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hat the partners carried out the business severally and collectively in the name of the firm only which is not legally different from its partners and any tax benefit arising on the export of goods, even though exported by a partner would belong to the assessee firm. The assessee also referred to the Excise Department Circular No. 19 dated 11.09.2006 and submitted that an Export Oriented Unit (EOU) is eligible to get Domestic Tariff Area (DTA) sale benefits of exports effected through third part .....

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entitled to a deduction of profits and gains derived from the export of articles, and that the deduction is to be computed in the proportion of export turnover to total turnover. She was of the view that the assessee s contention that the export made through its partner in capacity of proprietor of his firm M/s Stone World, should be deemed exports of the firm, derived no support from the language of Section 10B of the Act. She further observed that the assessee firm and the partner are separat .....

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ction, but also lays down the procedure for computation of the deduction when the export turnover is of a different amount than the total turnover. The ld. CIT(A) held that the AO has correctly applied the provisions of Section 10B of the Act to compute the deduction equal to the profits derived from the export of articles or things, in the same proportion as the export turnover bears to the total turnover. Accordingly, disallowance of the alleged excess deduction claimed at ₹ 1,52,51,935/ .....

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h is the copy of said form dated 18.11.2007. He also referred to the copy of invoice placed at page no. 115 wherein consignee has been mentioned as overseas buyers in USA and name of the exporter is Earth Stone Group i.e. the assessee through M/s Stone World. Accordingly, it was submitted that the goods were directly exported on behalf of M/s Stone World by the assessee. He also referred to page no. 117 of the assessee s paper book which is the copy of declaration form in the shipping bill for e .....

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me Tax Return acknowledgment of Sh. Lokesh Arora, proprietor of M/s Stone World and computation of income of Sh. Lokesh Arora, which are placed at page nos. 322-324 and it was submitted that no deduction u/s 10B of the Act was claimed by Sh. Lokesh Arora, proprietor of M/s Stone World. It was accordingly submitted that the deduction claimed by the assessee was wrongly reduced by the AO and the ld. CIT(A) was not justified in confirming the action of the AO. Reliance was placed on the decision of .....

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rvations of the ld. CIT(A) in para 6 & 7 of the impugned order and strongly supported the said order. 11. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the assessee is 100% Export Oriented Unit and exporting the goods directly and also through a sister concern, namely, M/s Stone World, proprietorship concern of the partner Sh. Lokesh Arora. The goods which were exported through S .....

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The detail has been given in Form A.R.E.1, which is a application for removal of excisable goods for export (copy of which is placed at page no.116 of the assessee s paper book). In the said form, a declaration has been given by the assessee that the goods were removed for the purpose of export to USA through M/s Stone World, New Delhi, shipping bill number is mentioned as 01723123. The invoice raised is placed at page no. 115 wherein consignee is overseas buyers and the name of the local buyer .....

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ra). This controversy has been settled by the Hon ble Karnataka High Court in ITA No. 411/2008 in the case of M/s Tata Elxsi Ltd., Bangalore Vs ACIT, Circle-12(3), Bangalore (supra) vide order dated 20.10.2014 wherein relevant findings have been given in para 20 as under: 20. From the aforesaid provisions, it is clear that if a assessee wants to claim the benefit of Section 10A, firstly he must export articles or things or computer software. Secondly, the said export may be done directly by him .....

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d in the aforesaid referred to case of M/s Tata Elxsi Ltd. Vs ACIT. Therefore, by respectfully following the said order, we set aside the impugned order of the ld. CIT(A), particularly when, no deduction u/s 10B has been claimed by the sister concern M/s Stone World through whom export sales were made by the assessee to the overseas buyers. Therefore, it can be said that the export sales directly made to the consignee through the sister concern was the deemed export of the assessee and deduction .....

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