TMI Blog2016 (12) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cannot be said to be erroneous in the facts of the case. It would be pertinent to notice here that in the earlier AY 2007-08, the interest income has been accepted for the purpose of deduction u/s.10B of the Act purportedly on the premise that AO has mainly relied upon the decision of the Hon’ble Apex Court in the case of Liberty India (2009 (8) TMI 63 - SUPREME COURT ) which was distinguished by the Tribunal on facts. As against this, in the assessment year in appeal, the AO has rejected the interest claim on the ground that the income arising from Bank deposits are in the nature of “income from other sources” and not business income with which we fully agree. Hence, we find no infirmity in the order of CIT(A) for denial of deduction under S.10B of the Act towards interest income. As regards insurance refund we note that CIT(A) has granted partial relief to the extent of 75% of the insurance claim received holding the same to be akin to business income and rejected balance 25% of the insurance claim so received towards capital loss. Relevant facts are necessary to understand as to whether the impugned “insurance receipts” are in the name of “business income” or not. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was observed that the assessee had shown interest income of ₹ 7,17,20/-. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show caused to explain as to why interest income shown by the assessee should not e treated as income from other sources. 3.1. The assessee vide letter dtd. 21/11/2011 filed the written submission stated as under: Interest income of ₹ 7,17,270/- is derived from the Deposit kept with bank out of surplus funds generated from the undertaking and therefore this is derived from the undertaking. At this stage, we would like to state that the assessee does not have any other undertaking and therefore all the surplus funds have been generated from EOU only. We Systems Software Ltd. V. Assistant Commissioner of Income Tax, Range 8(1) SOT 230 (BOM) wherein the Tribunal while allowing deduction u/s.10B in respect of interest income observed as under: As regards the claim of deduction under section 10B on interest income, in the light of the fact that we have held that the assessee is entitled to relief under section 10B on interest income in the light of the fact that we have held that that the assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st respectfully submit that all such items are to be considered while computing deduction u/s.10B. Accordingly, the deduction claimed by the assessee is correct and no disallowance is required to be made in this regard. 4.2. The assessee s reply was carefully considered and found not to be acceptable as the Insurance Refund is not the profit of the business income. Further, the Section 10B deduction is only related to the profit of the business derived by hundred percent export oriented undertaking from the export of the articles or things, or computer software for the 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 as the case may be from the above definition it is very clear that that it should be related to the profits and gains derived from the 100% export oriented. The reliance is also placed in Liberty India Pvt.Ltd. Therefore, the claim of deduction of insurance refund of ₹ 28,87,424/- u/s.10B is disallowed and added back to the returned income. 5. Sales Tax Refund : On verification of profit and loss account, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and added back to the income. 6 Sundry Balance written off: On verification of profit and loss account, it was seen that the assessee has shown sundry balance written off amounting to ₹ 30,72,912/- as income from other sources and the same has been claimed as deduction u/s.10B of the Act. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show cause to explain as to why sundry balance written off shown by the assessee should not be treated as income from other sources. 6.1. The assessee vide letter dtd. 21/11/2011 filed the written submission stated as under: During the year under consideration raw materials were purchased from one of the suppliers (Macdermind Singapore Pte Ltd.). However, due to the fact that the goods were note up to the expected level of quality, the assessee asked the supplier to reduce the prices. After negotiation, the supplier agreed to waive a part amounting to ₹ 30,72,912/- of the purchase price and the same was credited to profit loss account, Such amount to be paid towards the supply of the said material which was written off actually depicts reduction in the purchase coast for the firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Tax Refund and (v) Interest income are not eligible for the purposes of deduction under S.10b of the Act. The AO also observed that what is eligible for deduction under S.10B of the Act is Profit and Gains derived by a 100% EOU from the export of articles or things, etc. and not every income which may be attributable to its business but not derived by an undertaking from exports of articles or things, etc. The AO thus declined to accept the claim of the assessee in the aforesaid items towards deduction under S.10B of the Act. 3. Aggrieved by the order of the AO, assessee preferred an appeal before the CIT(A). 4. The CIT(A) examined the various issues raised but did not find merit in the claim of the assessee towards deduction under S.10B of the Act on various miscellaneous income as noted above. However, he granted relief towards income from sale of scrap ₹ 16,88,437/- and partial relief towards compensation/insurance refund to the extent of 75% of the insurance receipt. The CIT(A) thus accordingly rejected the claim of exemption u/s.10B of the Act towards interest income of ₹ 7,17,270/-, sales tax refund of ₹ 91,00,150/-, sundry balance written off o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 business of the undertaking u/s.10B(4) r.w.s.10B(1) of the Act. 5.1 The learned CIT(A) as erred in stating that sundry balances writtenback (in relation to raw material purchased in the past) are not related to expenses of manufacturing despite the fact that Appellant s undertaking, eligible for deduction u/s.10B, is the only business undertaking it has through which the business is carried out on by it. 6. The learned CIT(A) has erred in not allowing deduction u/s.10B of the Act in respect to 25% (Rs.7,21,856) of the insurance claim received by the Appellant in respect of the loss incurred due to fire in its factory premises. 6.1.The learned CIT(A) has erred in considering 25% of the total claim received from Insurance company is capital loss, in respect of the loss suffered by the Appellant due to fire. The CIT(A) erred in not appreciating the fact that the entire loss (100%) incurred by the Appellant was towards loss of goods, consumables and certain labour (repairs) costs incurred due to fire. 7. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us claims towards various miscellaneous income for the purposes of section 10B arose in assessee s own case for AY 2007-08 where the appeal of the assessee was allowed. He therefore submitted that the CIT(A) was not justified in denying the relief claimed as per grounds of appeal and therefore order of the CIT(A) is to be set aside. The Ld.AR relied upon in its own case in ITA Nos.2665 2720/Ahd/2011, for AY 2007-08, order dated 01/01/2016 to support the grounds of appeal raised. 9. The Ld.DR for the Department Mr.Samir Vakil, on the other hand, supported Revenue s appeal. In support thereof, Ld.DR relied upon the order of the AO and challenged the order of the CIT(A) wherein certain reliefs were granted by him as per grounds of appeal raised by the AO. 10. We have carefully considered the rival submissions and orders of the authorities below and the case-laws cited. We find that the Coordinate Bench of the Tribunal has dealt with various grounds as per grounds of appeal and has decided the issues in favour of assessee. The relevant operative para of the order of the Coordinate Bench of the Tribunal in ITA No.2665 2720/Ahd/2011 relevant to AY 2007-08 in assessee s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 Profit of the business of the Undertaking X Export turnover Total turnover of business 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 tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relating to assessment years 2008-09 and 2009- 10, respectively. Tribunal has followed the decision of their Special Bench in the case of Maral Overseas Ltd. versus Additional Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot 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 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack 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 any merit in the present appeal and the same is dismissed. Karnataka High Court in Commissioner of Income Tax, Central Circle versus Motorola India Electronics (P) Ltd., ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. In view of the aforesaid 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). 14. In the result, the appeal of Assessee is allowed and that of Revenue is dismissed. 11. At the outset, we are inclined to agree with the contentions putforth on behalf of the assessee that the expression profits of business of the undertaking is wider than profits and gains derived by an undertaking . The reasons are not far to seek. We note that sub-section 4 to S.10B explicitly explains the term profit derived from export of articles or things etc. to mean the amount which bears to the profit of the undertaking , the same proportion as the export turnover bears to the total turnover of the business carried on by the undertaking. Thus, what is required to be determined is whether the receipts of various other/miscellaneous income in question qualifies as the profits of business of undertaking and not whether it is profit derived from the business . In other words, for determining the scope of section 10B(4), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded within the pale of business profits which is clearly in the nature of income from other sources in the instant case. Therefore, order of the CIT(A) to this extent cannot be said to be erroneous in the facts of the case. It would be pertinent to notice here that in the earlier AY 2007-08, the interest income has been accepted for the purpose of deduction u/s.10B of the Act purportedly on the premise that AO has mainly relied upon the decision of the Hon ble Apex Court in the case of Liberty India (317 ITR 218) which was distinguished by the Tribunal on facts. As against this, in the assessment year in appeal, the AO has rejected the interest claim on the ground that the income arising from Bank deposits are in the nature of income from other sources and not business income with which we fully agree. Hence, we find no infirmity in the order of CIT(A) for denial of deduction under S.10B of the Act towards interest income. 13. As regards insurance refund of ₹ 28,87,424/- we note that CIT(A) has granted partial relief to the extent of 75% of the insurance claim received holding the same to be akin to business income and rejected balance 25% of the insurance claim s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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