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Deputy Commissioner of Income Tax, Circle-2, Jaipur Versus M/s Bhansali Trading Company

2016 (7) TMI 1016 - ITAT JAIPUR

Eligibility of deduction U/s 10B - Held that:- Admittedly, the assessee was not having any positive income from the export of articles on account of activities in the export oriented unit, therefore, in our view, there is no occasion for the assessee to claim deduction U/s 10B of the Act. Since there is no positive income, there was no occasion for the assessee to file certificate in terms of Section 10B(8) of the Act. Even otherwise, though, the assessee can withdraw the declaration given at an .....

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ld CIT(A) is confirmed and the appeal of the revenue is dismissed. - Decided in favour of assessee - ITA No. 784/JP/2014 - Dated:- 14-7-2016 - SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM For The Revenue : Shri Rajendra Singh (Addl.CIT) For The Assessee : Shri H.M. Singhvi (CA) ORDER PER: LALIET KUMAR, J.M. This is an appeal filed by the revenue against the order dated 17/09/2014 passed by the ld CIT(A)-I, Jaipur for the A.Y. 2011-12. The effective grounds of appeal are as under:- i Whether o .....

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on U/s 10B is available to assessee from A.Y. 2001-02 to 2010-11 only. iii. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) has erred in allowing the deduction U/s 10B for eleventh year when the assessee had admittedly not fulfilled the condition stipulated in sub-section (8) of Section 10B in A.Y. 200-102, which was mandatory in nature. 2. The assessee firm is engaged in the business of manufacturing and trading of precious and semi precious stones and studded .....

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a deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee: Provided that where in computing the total income .....

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be ninety per cent. of the profits and gains derived by an undertaking from the export of such articles or things or computer software: Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years. Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under subsection (1) of sec .....

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he benefit of 10B to the assessee for the following reasons:- During assessment proceedings, the A/R of the assessee vide his submission dated 26.11.2013 has furnished copy of form No. 56G alongwith annexure-A giving necessary details and working of exemption u/s 10B of the I.T. Act, 1961. Perusal of para-6 of Annexure-A of form 56G reveals that the firm was registered as 100% EOU on 26.02.2001 and unit has commenced manufacturing and production on 12.03.2001 as certified by the auditor vide par .....

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as to why exemption u/s 10B should not be disallowed. In response thereto, the A/R of the assessee submitted vide his letter dated 18.12.2013 as under: that the assessee claimed deduction u/s 10B for the first time w.e.f. in A.Y.2002-03 and ten consecutive years will complete in the assessment year 2011-12. Though, the registration of EOU unit was effective from 09.02.2001. The arguments put-forth by the A/R of the assessee are considered and found not acceptable in view of subsection (1) of se .....

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e may be, shall be allowed from the total income of the assessee Plain reading of the provisions of section 10B of the I.T.Act, 1961 referred above clears that the exemption u/s 10B is available to the eligible unit for a period often consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. Here in the case of assessee, the EOU unit had commenced manufacturing with effect from 12.03 .....

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ee for ten years from the year in which the exemption was claimed first time, have no merits. The act clearly state that period of exemption starts from the day undertaking begins to manufacture or produce articles or things, and in no way rely when the company starts its exports. Furthermore, the act provides no liberty to the assessee to choose its first year of exemption. It is worthwhile to submit here that the assessee firm has submitted its manufacturing trading and Profit & Loss accou .....

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s of ₹ 82,288/- and transferred the cost of production of ₹ 78,66,593/- to the trading account. The depreciation chart of the assessee for A.Y. 2001-02 clearly shows that assessee has claimed depreciation of ₹ 10,790/-on plant and machinery which shows that they were put to use for business purpose. Moreover electricity bills of ₹ 13147/- were paid by the assessee & claimed as expenses for business. All these factors clearly prove that manufacturing activity had begun .....

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he total income of the assessee. Penalty proceedings u/s 271(1)© have been initiated separately for furnishing inaccurate particulars by claiming wrong exemption u/s 10B as discussed above. 3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal by observing as under:- 4. I have considered the facts of the case. It is noted that the appellant is engaged in the business of manufacturing and trading of preci .....

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AO denied the exemption holding that the manufacturing had started with effect from 12.03.2001 and the exemption had no connection with the period when the company started its exports. The AO in this regard relied on the certificate of the auditor stating that the unit had started manufacturing activities with effect from 12.03.2001. He accordingly, denied the claim of exemption made by the appellant on the ground that this was the eleventh A.Y. and hence, no exemption was available in this year .....

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this section was claimed by the appellant even in the return filed by it. This is also clear from the Annexure-08 of the tax audit report filed by the appellant. These facts clearly show that the appellant had not claimed the exemption in that year. It is also noted that the assessee had filed a letter dated 18.12.2013 before the AO mentioning that it had claimed deduction u/s 10B for the first time w.e.f. 2002-03 and 10 consecutive years will complete in the assessment year 2011-12 though the r .....

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ion not to avail of the same. Section 10B would have application only if the EOU had a positive income, so that the issue whether the assessee had opted out of section 10B can arise only in the year when the income turned positive. In the case of Expo Packaging (ITA No. 3005/AHD/1990), it has been held with respect to section 10A that in case there were no profits and gains, the assessee cannot be fastened with the provisions which were, prima facie, not beneficial to him. Provisions of section .....

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return and computation of income that there was no positive income in unit II (EOU) in the assessment year 2001-02. Hence, it is clear that in such a situation the exemption would start from the assessment year 2002-03. In view of the above legal and factual matrix of the case, it is held that the appellate is entitled to exemption u/s 10B in the year under consideration. The appeal on this ground is, therefore, allowed. 4. Now the revenue is in appeal before us. The ld DR has submitted that as .....

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he provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation 2.- For the purposes of this section,- (i) computer software means,- (a) any computer programme recorded on any disc, tape, perforated media or other information storage device ; or (b) any customized electronic data or any product or service of similar nature, as may be notified by the Board, which is transmitted or exported .....

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e received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India ; (iv) hundred per cent. export-oriented undertaking means an undertaking which has been approved as a hundred per cent. .....

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on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. Explanation 4.- For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semi-precious stones. On the basis of the above, it was contended by the ld DR that the assessee has not filed declaration as required U/s 10B(8) of the Act, ther .....

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e Delhi High Court in the case of Moesr Baer India Ltd 295 ITR (AT) 148 (Del) and other judgments. On the basis of the above, it was submitted that the declaration U/s 10B(8) of the Act was merely directory in nature and is not mandatory in nature. He further submitted that the assessee did not claim any deduction u/s 10B in A.Y. 2001-02. It was clearly shown in the I.T. Computation of Income and similarly in the Audit Report in Form No. 56G no deduction was claimed. In the A.Y. 2001-02 there wa .....

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i.e. A.Y. 1999-2000 and not A.Y. 1998-99 in which there was a trial production. As per provisions contained in sub sec(8) of 10B the assessee has been given option for not applying the provision of this section for any relevant assessment year. The assessee vide letter dated 18/12/2013 to the AO in reply to the show cause for disallowing the claim u/s 10B filed detailed submissions. However, the AO intentionally did not reproduce the letter as a whole leaving three lines of the para. For the sak .....

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ssee s claim giving reasoned order considering all the legal aspects. The AO has not prescribed any specific mode for excesing the option. The intention of the legislature was to bring it to the knowledge of AO of the option for not claiming deduction u/s 10B. If in the return of income if it is exercised it is sufficient information. He relied on the following decisions:- (i) CIT Vs G.R. Govindarajulu & Sons 280 CTR 303. (ii) ITO Vs Expo Packages 51 TTJ (Ahd) 174. (iii) Kwal Pro Exports v. .....

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e above facts has allowed the appeal of the assessee relying on the judgment of Delhi ITAT Bench in the case of Moser Baer India Ltd. (295 ITR (AT) 148) (Delhi) in which it was held that requirement of filing declaration for opting out as directory in nature and not mandatory. That Learned CIT appeal has rightly allowed the appeal of the appellant by allowing the claim u/s 10B and it is requested that no interference be made. 6. We have heard the rival contentions of both the parties and perused .....

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pt the income of such undertaking accrued to them on account of export of the articles manufactured, produce etc., therefore, the soul of the provision is earning of profit and gains on account of export by the export oriented unit. In absence of any profit and gains derived by such undertaking, there is no question of making any declaration by such undertaking in view of Section 10B(8) of the Act. Admittedly, it is the case before the ld Assessing Officer that no export was done in the assessme .....

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