M/S AMRAPALI EXPORTS, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR

ITA 191/JPR/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4761 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 18-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained expenditure; Business income; Deemed to accrue or arise in india; Question of law; Accommodation entries; TDS
• Section: 69C; 43B; 40A(3); 143(3); 10AA; 40(a)(ia); 10B; 195; 147; 69; 148; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC H B JAIPUR BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM ITA NOS. 190 & 191/JP/2019 ASSESSMENT YEAR :2009-10 & 2014-15 M/S AMRAPALI EXPORTS G-40, SEZ, PHASE-II, SITAPURA INDUSTRIAL AREA, JAIPUR CUKE VS. DCIT, CENTRAL CIRCLE-02, JAIPUR PAN/GIR NO.: AAKFA0905E APPELLANT RESPONDENT ASSESSEE BY : SHRI P. C. PARWAL (CA) REVENUE BY : SMT. RUNI PAL (JCIT) DATE OF HEARING : 26/09/2019 DATE OF PRONOUNCEMENT: 04/11/2019 ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF LD. CIT(A)-1, JAIPUR DATED 18.12.2018 FOR ASSESSMENT YEARS 2009-10 & 2014-15 RESPECTIVELY. SINCE THE COMMON ISSUES A RE INVOLVED, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. IN ITA NO. 190/JP/19, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UP HOLDING THE VALIDITY OF THE ORDER PASSED U/S 147 OF I.T. ACT, 1961. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF IT. AC T, 1961. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF AO IN TREATING THE PURCHASES OF RS. 11,22 ,000/- MADE FROM M/S KARISHMA DIAMONDS PVT. LTD. AS BOGUS BY NOT CONSIDE RING THE VARIOUS EVIDENCES FILED BY THE ASSESSEE. HE HAS FURTHER ERR ED IN CONFIRMING THE ADDITION OF RS. 2,80,500/- BY DISALLOWING 25% OF AL LEGED UNVERIFIABLE PURCHASES OF RS. 11,22,000/- U/S 69C OF IT. ACT, 19 61. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 2 4. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 22,440/- BEING 2% OF RS. 11,22,000/ - ON ACCOUNT OF ALLEGED COMMISSION PAID FOR OBTAINING THE ACCOMMODA TION ENTRY. 5. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT ACCEPTING THE CONTENTION OF ASSESSEE TO RECOMPUTED THE DEDUCTION U/S 10AA AFTER CONSIDERING THE TRADING ADDITION OF RS. 2,80,500/- IGNORING THE CBDT CIRCULAR NO. 37/2016 DATED 02.11.2016. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GOLD , SILVER AND BASE MATERIAL JEWELLERY PLAIN & STUDDED WITH PRECIOUS & SEMI PREC IOUS STONES. IT HAS SET UP ITS MANUFACTURING AND EXPORT UNIT/FACTORY IN SPECIA L ECONOMIC ZONE AT SITAPURA INDUSTRIAL AREA, JAIPUR AND HAS STARTED COMMERCIAL PRODUCTION FROM 21.04.2008 AND HAS CLAIMED DEDUCTION U/S 10AA OF THE ACT. THE ASSESSEE ORIGINALLY FILED ITS RETURN OF INCOME ON 23.09.2009 AT NIL INCOME AFTER CLAIMING DEDUCTION U/S 10AA AT RS. 2,42,21,021/-. THE ASSESSMENT WAS COMPL ETED U/S 143(3) ON 07.12.2011 WHEREIN THE RETURNED INCOME WAS ACCEPTED BY THE ASSESSING OFFICER. SUBSEQUENTLY, BASIS THE INFORMATION OBTAIN ED FROM INVESTIGATION WING, MUMBAI THAT THE ASSESSEE HAS OBTAINED BOGUS ENTRIES IN THE FORM OF BOGUS PURCHASES AMOUNTING TO RS. 11,22,000/- FROM M/S KAR ISHMA DIAMONDS PVT. LTD., NOTICE U/S 148 WAS ISSUED ON 30.03.2016. IN RESPONSE TO SUCH NOTICE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 15.04.2016 D ECLARING THE INCOME AT NIL AFTER CLAIMING DEDUCTION U/S 10AA AT RS. 2,42,21,02 1/-. THE REASSESSMENT ORDER U/S 143(3) READ WITH 147 WAS PASSED BY THE AS SESSING OFFICER ON 08.11.2016 WHEREIN THE ASSESSEE WAS FOUND ELIGIBLE FOR DEDUCTION U/S 10AA TO THE EXTENT OF RS. 2,42,21,021/- AS ORIGINALLY ASSES SED U/S 143(3) OF THE ACT. HOWEVER, BOOKS OF ACCOUNTS WERE REJECTED U/S 145(3) AND A SUM OF RS. 2,80,500/- WAS ADDED BACK TO THE TOTAL INCOME O F THE ASSESSEE, BEING UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT FOR THE REASON THAT THE ASSESSEE WAS FOUND INDULGING IN OBTAINING ACCOMMODATION ENTR Y OF PURCHASE OF GOODS FROM BOGUS CONCERN WHICH WAS OPERATED BY SHRI GAUTA M JAIN WITHOUT ANY ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 3 PHYSICAL DELIVERIES AND SUCH PURCHASES AMOUNTING TO RS 11,22,000 WERE TREATED AS NON GENUINE AND 25% OF SUCH PURCHASES WERE BROUG HT TO TAX AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. FURTHER , AN AMOUNT OF RS. 22,440/- ON ACCOUNT OF COMMISSION PAID FOR OBTA INING THE ACCOMMODATION ENTRY WAS ALSO BROUGHT TO TAX IN THE HANDS OF THE A SSESSEE. ON APPEAL, THE SAID FINDINGS HAVE BEEN SUSTAINED BY THE LD. CIT(A) AND AGAINST THE SAID FINDING, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 4. IN GROUND NO. 5, THE ASSESSEE HAS CONTESTED THE FINDINGS OF THE LD. CIT(A) WHEREIN HE HAS NOT ACCEPTED THE CONTENTION O F THE ASSESSEE TO RECOMPUTE THE DEDUCTION U/S 10AA AFTER CONSIDERING THE TRADING ADDITION OF RS. 2,80,500/- IGNORING THE CBDT CIRCULAR NO. 37/2016 D ATED 02.11.2016. THE RELEVANT FINDINGS OF THE LD. CIT(A) WHICH ARE UNDER CHALLENGE BEFORE US READ AS UNDER:- 3.4.2 DETERMINATION (I) THE AO DISALLOWED THE AMOUNT ON ACCOUNT OF BOGU S PURCHASE U/S 69C OF THE ACT, THE APPELLANT CONTENDE D THAT THE SECTION 69C IS NOT APPLICABLE AS IT HAS PROVIDED AL L THE INFORMATION EXPLANATIONS DETAILS AND SUPPORTED DOCUMENTS TO THE LD. AO. AS DISCUSSED IN THE PRECEDING PARAGRAPHS, THE APPELLANT WAS FOUND TO OBTAIN ACCOMMODATION ENTRIES TO INFLATE THE PURCHAS E. THE ACTION OF THE AO WAS BASED ON INFORMATION COLLECTED AND FO LLOW UP ACTIONS TAKEN. THE DETAILS/ SUBMISSIONS REGARDING A CCOUNTING OF PURCHASE ETC. DID NOT FIND SUPPORT IN VIEW OF INVES TIGATION MACE IN THIS RESPECT. THE APPELLANT RELIED UPON NUMBER OF C ASES BUT THEY ARE NOT DIRECTLY LINKED TO THE CASE AND ARE DISTING UISHABLE ON FACTS OF THE CASE. CONSIDERING THIS, IT IS HELD THAT THE AO WAS JUSTIFIED IN MAKING ADDITION U/S 69C OF THE ACT. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 4 (II) THE APPELLANT CONTENDED THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE CONSIDERED AS PROFIT OF SEZ UNIT AND B E EXEMPTED U/S 10AA OF THE ACT. AS DISCUSSED IN THE PRECEDING PARAGRAPH, THE ADDITION MADE BY THE AO HAVE BEEN UPHELD U/S 69 C OF THE ACT. THE SECTION 69C IS A DEEMING PROVISION WHERE I NCOME IS TAXED AS DEEMED INCOME WITHOUT SPECIFYING ANY HEAD OF INCOME. THE PROVISO TO SECTION 69C READ AS UNDER: 'PROVIDED THAT, NOTWITHSTANDING' ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT B E ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME.' (III) THUS, ANY DISALLOWANCE U/S 69C OF THE ACT CAN NOT BE CONSIDERED FOR BENEFIT UNDER ANY OTHER SECTION. FURTHER, SECTI ON 10AA OF THE ACT CONSIDERS THE BENEFIT FOR SEZ UNITS TO THE EXTENT OF PROFITS AND GAINS DERIVED FROM EXPORT. AS DEEMED INCOME U/S 69C IS NOT THE INCOME DERIVED FROM EXPORT ACTIVITIES AND ALS O IN VIEW OF THE PROVISION TO SECTION 69C OF THE ACT, THE ADD ITION MADE BY THE AO CANNOT BE CONSIDERED FOR GRANTING BENEFIT U/S 10AA OF THE ACT. THEREFORE, NO INTERFERENCE IS CALL ED FOR IN THE ORDER OF THE AO. 5. IN THIS REGARD, IT WAS SUBMITTED BY THE LD. AR T HAT DURING APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED THAT ANY DISAL LOWANCE MADE WILL INCREASE THE DEDUCTION U/S 10AA AND WILL HAVE NO IMPACT ON T HE TOTAL INCOME. THE LD. CIT(A) HOWEVER HELD THAT SECTION 69C IS DEEMING PRO VISION WHERE INCOME IS TAXED AS DEEMED INCOME WITHOUT SPECIFYING ANY HEAD OF INCOME. THUS, ANY DISALLOWANCE MADE U/S 69C OF THE ACT CANNOT BE CONS IDERED FOR BENEFIT UNDER ANY OTHER SECTION. FURTHER SECTION 10AA OF THE ACT CONSIDERS THE BENEFIT FOR SEZ UNITS ONLY TO THE EXTENT OF PROFIT & GAINS DERIVED FROM EXPORT. AS DEEMED ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 5 INCOME U/S 69C IS NOT THE INCOME DERIVED FROM EXPOR T ACTIVITIES, ADDITION MADE BY THE AO CANNOT BE CONSIDERED FOR GRANTING BENEFIT U/S 10AA OF THE ACT. 6. IT WAS SUBMITTED BY THE LD AR THAT EVEN IF THE P URCHASES MADE FROM M/S KARISHMA DIAMONDS PVT. LTD. IS HELD TO BE BOGUS AND DISALLOWED IN COMPUTING THE INCOME FROM BUSINESS, THE SAME WOULD INCREASE T HE PROFIT OF THE ASSESSEE TO THAT EXTENT AND SUCH INCREASED PROFIT IS ELIGIBL E FOR DEDUCTION U/S 10AA. THE CBDT IN CIRCULAR NO.37 OF 2016 DT. 2 ND NOV., 2016 HAS CLARIFIED THAT WHERE SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACT IVITY AGAINST WHICH CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEM ENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, THEN DEDUCTION UNDER CHAPTER VI- A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCES. THE RATIO OF THIS CIRCULAR IS EQUALLY APPLICABLE WHERE DEDUCTION IS CLAIMED U/S 10AA. HEN CE, ANY DISALLOWANCE MADE WILL INCREASE THE DEDUCTION U/S 10AA AND WILL HAVE NO IMPACT ON THE TOTAL INCOME. 7. IT WAS FURTHER SUBMITTED THAT THE LOWER AUTHORIT IES HAVE WRONGLY HELD THAT THE ADDITION IS MADE U/S 69C ON ACCOUNT OF UNE XPLAINED EXPENDITURE. THIS IS BECAUSE THE ENTIRE PAYMENT OF RS.11,22,000/- MAD E BY THE ASSESSEE IS RECORDED IN THE BOOKS OF ACCOUNTS. HENCE, THE QUEST ION OF UNEXPLAINED EXPENDITURE DOES NOT ARISE. IN FACT THE AO HAS DISA LLOWED 25% OF THE PURCHASES. THIS WOULD ONLY INCREASE THE BUSINESS IN COME AND IS NOT AN ADDITION FALLING U/S 69C. WHEREVER THE LEGISLATURE INTENDED NOT TO ALLOW DEDUCTION U/S 10A OR 10AA OR CHAPTER VI-A WITH REFERENCE TO THE A DDITION MADE TO THE TOTAL INCOME, IT HAS BEEN SPECIFICALLY SO PROVIDED FOR AN D REFERENCE CAN BE MADE TO SECTION 92C(4) WHERE IT IS SPECIFICALLY PROVIDED TH AT THE ARMS LENGTH ADJUSTMENT MADE BY THE AO WHICH ENHANCES THE TOTAL INCOME SHAL L NOT BE ENTITLED TO DEDUCTION UNDER THESE SECTIONS. THEREFORE, IN THE A BSENCE OF ANY BAR IN SECTION 10AA, THE INCOME INCREASED DUE TO THE ADDITION MADE BY THE AO IS ELIGIBLE FOR ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 6 DEDUCTION U/S 10AA. IN VIEW OF ABOVE, EVEN IF PURCH ASES MADE FROM M/S KARISHMA DIAMONDS PVT. LTD. IS HELD TO BE BOGUS, TH E AO BE DIRECTED TO RECOMPUTE THE DEDUCTION U/S 10AA AFTER CONSIDERING THE TRADING ADDITION OF RS.2,80,500/-. 8. THE LD. DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LD. CIT(A). IT WAS FURTHER SUBMITTED THAT THE CIRCULAR REFERRED BY THE LD. AR IS IN THE CONTEXT OF DEDUCTION ON ENHANCED PROFIT UNDER CHAPTER VI-A OF THE ACT WHEREAS IN THE PRESENT CASE, THE ASSESSEE HAS CLAIMED DEDUCTION U/ S 10AA WHICH FALLS UNDER CHAPTER II OF THE ACT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LIMITED ISSUE UNDER CONSIDERATION IS WHETHER THE ASSESSING OFFICER IS REQUIRED TO RECOMPUTE THE DEDUCTION U/S 10AA AFTER CONSIDERING THE ADDITION OF RS. 2,80,500/- SO MADE BY HIM AND IN TH AT SENSE, THE ADDITION SO MADE IS REVENUE NEUTRAL. IN THIS REGARD, WE REFER TO THE CBDT NO. 37/2016 DATED 2.11.2016 WHICH READS AS UNDER:- 'CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE ACT '), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUT ING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH A DISALLOWANCES PERTAINING TO S ECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIM ES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CL AIM FOR A HIGHER PROFIT- LINKED DEDUCTION UNDER CHAPTER- VI-A. 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON TH E ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GE NERALLY HELD THAT IF ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 7 THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINE SS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME I LLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLOWS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF N ON DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCRE ASE ASSESSEE'S PROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE UL TIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOULD QUALIFY FOR DEDUCTION UNDER SECTION 80- IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER-WARD 5(1) V. KEVAL CONSTRUCTION, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH CO URT COMMISSIONER OF INCOME-TAX IV, NAGPUR V. SUNIL VISH WAMBHARNATH TIWARI IT APPEAL NO. 2 OF 2011, SEPTEMBER 11, 2015, BOMBAY HIGH COURT (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE U NDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80- IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR V. SURYA MERCHANTS LTD. IT AP PEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHABAD HIGH COURT THE ABOVE VIEWS HAVE BEEN ATTAINED FINALITY AS THES E JUDGMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HA VE BEEN ACCEPTED BY THE DEPARTMENT. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 8 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A) (IA ), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATE D TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION H AS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBL E BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI- A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILE D ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILE D IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED.' 10. THOUGH THE AFORESAID CIRCULAR HAS BEEN ISSUED B Y THE CBDT IN THE CONTEXT OF CHAPTER VI-A OF THE ACT, THE DEDUCTION U /S 10AA IS EQUALLY PROFIT- LINK DEDUCTION THOUGH THE FALL UNDER CHAPTER III OF THE ACT AND THE LEGAL POSITION WHICH HAS BEEN ACCEPTED BY THE CBDT IN THE AFORESAID CIRCULAR WILL EQUALLY APPLIES TO THE DEDUCTIONS CLAIMED SECTION 1 0AA OF THE ACT. IN THE SAID CIRCULAR, THE CBDT HAS ACCEPTED THE JUDGMENT OF THE VARIOUS HIGH COURTS WHEREIN IT HAS BEEN HELD THAT IF THE EXPENDITURE DI SALLOWED IS RELATED TO BUSINESS ACTIVITY AGAINST WHICH DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON ENHANCED PROFIT WORKED OUT T AKING INTO CONSIDERATION THE DISALLOWANCES SO MADE BY THE ASSESSING OFFICER. 11. THE CO-ORDINATE BENCH IN CASE OF ITO VS. ANTHEL IO BUSINESS TECHNOLOGIES PVT. LTD. 78 TAXMANN.COM 203 (MUMBAI) IN CONTEXT OF DEDUCTION UNDER SECTION 10B RELYING ON THE AFORESAID CBDT CIRCULAR HAS TAKE N A SIMILAR VIEW AND IT WOULD BE RELEVANT TO REFER TO THE FINDINGS OF THE C O-ORDINATE BENCH WHICH READ AS UNDER:- ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 9 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUS ED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE AFORE-STATED CBDT CIRCULAR. WE HAVE OBSERVED THAT THE ASSESSEE IS REGISTERED AS A 100% EXPORT ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA SCHEME AND THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES AND OTHER BACK OFFICE S UPPORT SERVICES. IT IS ALSO AN UNDISPUTED AND ADMITTED POSITION BETWEEN BOTH THE P ARTIES THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 10B OF THE ACT AND THE PROFITS O F THE ASSESSEE ARE EXEMPT FROM PAYMENT OF TAXES U/S. 10B OF THE ACT. WE HAVE OBSER VED THAT THE ASSESSEE HAS UNDERTAKEN TOTAL TURNOVER OF RS. 32,76,00,596/- WHI CH IS ALSO EXPORT TURNOVER OF THE ASSESSEE AND THE ASSESSEE HAS CLAIMED DEDUCTION U/S . 10B OF THE ACT OF RS. 7,60,34,821/-. ADDITIONS HAVE BEEN PROPOSED U/S. 40 (A)(I) OF THE ACT AT RS. 1,49,73,455/- BY THE AO VIDE DRAFT ASSESSMENT ORDER, THE DETAILS OF WHICH ARE AS UNDER:- SL. NO. NAME OF THE PARTY AMOUNT (RS) 1 MARK R LUCIW 22,10,258/ - 2 GARRY O NEIL 1 ,04,57,012/ - 3 BRUCE SUGAARMAN 21,70,629/ - 4 JOHN BLYZINKYL 1,35,556/ - TOTAL 1,49,73,455/ - THE ABOVE EXPENSES WERE INCURRED BY THE ASSESSEE TO WARDS 'SALES AND MARKETING EXPENSES' FROM WHICH THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. ADDITIONS WERE PROPOSED BY THE A.O. OF RS. 1,49,73,455/- IN HIS DR AFT ASSESSMENT ORDER WHICH WAS RESTRICTED BY THE LD. DRP VIDE ORDER DATED 29TH NOV EMBER, 2014 TO AN AMOUNT OF RS. 1,35,556/-. WITH RESPECT TO THE PAYMENTS OF RS. 1,4 8,37,899/-, THE DRP DIRECTED TO DELETE THE SAME AS THE ASSESSEE HAS SUBMITTED THE N OTARIZED COPIES OF PASSPORTS, WHICH AS PER DRP PROVED THAT THREE INDIVIDUALS AT S. NO 1 TO 3 IN ABOVE CHART DID NOT VISIT INDIA DURING THE RELEVANT YEAR. HENCE, THE DRP DIRE CTED THAT SAID PAYMENTS WILL NOT BE SUBJECT TO WITHHOLDING TAX U/S. 195 OF THE ACT AND ACCORDINGLY THESE PAYMENT CANNOT BE DISALLOWED U/S. 40(A)(I) OF THE ACT.. THE DRP HELD THAT THESE PAYMENTS TO THE TUNE OF RS. 1,48,73,455/- ARE TO BE ALLOWED, WHILE, WITH RESPEC T TO THE 4TH PERSON MR. JOHN BLYZINSKYJ, THE PAYMENT OF RS. 1,35,556/- WITHOUT D EDUCTION OF TAX AT SOURCE HAD REMAINED UNSUBSTANTIATED AND THE LD. DRP CONFIRMED THE ADDITION OF RS. 135,556/- BY ISSUING DIRECTIONS U/S. 144C(5) OF THE ACT, WHICH A DDITIONS WERE CONFIRMED BY THE AO IN HIS ASSESSMENT ORDER DATED 17.12.2014 PASSED U/S. 1 43(3) OF THE ACT R.W.S. 144C(13) OF THE ACT IN PURSUANCE OF DIRECTIONS OF DRP.. WE HAVE OBSERVED THAT THE CBDT HAS ISSUED CIRCULAR NO. NO. 37/2016 DATED 2ND NOVEMBER, 2016, WHICH IS REPRODUCED BELOW: 'SECTION 80-IB, READ WITH SECTIONS 32, 40(A)(IA), 4 0A(3) & 43B, OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAI NS FROM INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 10 DEVELOPMENT UNDERTAKINGS - CHAPTER VIA DEDUCTIONS O N ENHANCED PROFITS CIRCULAR NO. 37/2016 [F.NO. 279/MISC./140/2015/ITJ] , DATED 2-11-2016 CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE ACT' ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PROFIT S AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DI SALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAI MED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT- LINKED DEDUCTION UNDER CHAPTER VI-A. 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON THE E NHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS H AVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOW ED IS RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI- A DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME I LLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLOWS: ( I ) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PU RPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF NON-DEDUCTION OF TDS UN DER LAW, SUCH ( II ) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS N OT ALLOWED, THE SAME W OULD HAVE TO BE ADDED TO THE PROFITS OF THE UNDERTAKING ON WHICH THE ASSE SSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY TH E COURT IN THE FOLLOWING CASE: DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S P ROF ITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJ USTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOULD QUALIFY FOR DEDUCTION UNDER SECTION 8 0- IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME - TAX OFFICER - WARD 5(1) V. KEVAL CONSTRUCTION [2013] 33 TAXMANN.COM 277 (GUJ.) COMMISSIONER OF INCOME - TAX - IV, NAGPUR V. SUNIL VISHWAMBHARNATH TIWARI [2016] 63 TAXMANN.COM 241 (BOM.) PRINCIPAL CIT, KANPUR V. SURYA MERCHANTS LTD. [2016] 72 TAXMANN.COM 16 (ALL.) . THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN ACCEPTED BY THE DEP ARTMENT. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 11 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SE TT LED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI- A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE P ROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY TH E DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED O N THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FI LED IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSE D UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED.' THE SUM, SUBSTANCE AND SPIRIT OF THE AFORE-STATED C IRCULAR IS THAT THE REVENUE DOES NOT WANT TO CONTINUE THE LITIGATION WITH RESPECT TO DIS ALLOWANCE MADE BY THE REVENUE U/S. 32,40(A)(IA), 40A(3), 43B ETC. OF THE ACT, WHICH UL TIMATELY LED TO INCREASE IN PROFITS WHICH ARE OTHERWISE ELIGIBLE FOR PROFIT LINKED DEDU CTION UNDER CHAPTER VI-A OF THE ACT. THE BOARD HAS ACCEPTED THAT THE DISALLOWANCE MADE U /S. 32, 40(A)(IA), 40A(3), 43B ETC. OF THE ACT AND OTHER DISALLOWANCE OUT OF SPECIFIC E XPENDITURE RELATED TO THE BUSINESS ACTIVITY MAY BE MADE BY REVENUE WHICH LED TO ENHANC EMENT OF PROFITS AGAINST WHICH CHAPTER -VIA PROFIT LINKED DEDUCTIONS HAS BEEN CLAI MED AND IT IS ACCEPTED THAT ENHANCED PROFIT LINKED DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE SAID DISALLOWANCE MADE BY THE REVEN UE. WE FIND THAT THE REVENUE'S APPEAL AND THE ASSESSEE'S CROSS OBJECTION ARE DULY COVERED BY THE CBDT CIRCULAR ALTHOUGH SECTION 10B OF THE ACT IS NOT PLACED UNDER CHAPTER VI-A OF THE ACT RATHER THE SAME IS PLACED UNDER CHAPTER-III OF THE ACT BUT THE DEDUCTIONS U/S. 10B OF THE ACT ARE PROFIT LINKED DEDUCTIONS AND HENCE THERE IS NO REAS ON WHY THE SAME SHOULD NOT BE ALLOWED KEEPING IN VIEW THE SPIRIT OF AFORE-STATED CBDT CIRCULAR AS THE DEDUCTION U/S. 10 B OF THE ACT IS ALSO PROFIT LINKED DEDUCTION. SI MILARLY, IT IS STATED IN THE CIRCULAR ABOUT DISALLOWANCE U/S. 40(A)(I) OF THE ACT WHICH I S SUCCEEDED BY THE WORD 'ETC' WHEREIN THE CIRCULAR HAS STATED AS UNDER: 'IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS A CTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANC ES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT.' THE USE OF THE WORD 'ETC.' CLEARLY DENOTES THAT IT WILL APPLY TO SIMILARLY PLACED DISALLOWANCES AND DISALLOWANCE U/S. 40(A)(I) OF THE ACT IS ALSO DISALLOWANCE DUE TO NON-DEDUCTION OF WITHHOLDING TAX AS IS CONTEMPLATED BY SECTION 40(A)(IA) OF THE ACT. HENCE THE CBDT CIRCULAR WILL BE APPLICABLE TO DEDUC TIONS U/S. 10B OF THE ACT AS WELL TO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT AS WELL. HEN CE THE APPEAL OF THE REVENUE IS NOT SUSTAINABLE/MAINTAINABLE IN VIEW OF AFORE-STATED CB DT CIRCULAR DATED 02-11-2016 AND WE DISMISS THE APPEAL FILED BY THE REVENUE, WHILE T HE C.O. FILED BY THE ASSESSEE IS ALLOWED AS THE ADDITIONS OF RS. 1,35,556/- MADE BY THE AO ARE W.R.T. DISALLOWANCE U/S. 40(1)(IA) OF THE ACT. IN ANY CASE THIS ISSUE IS ALS O COVERED BY DECISION OF HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN FAVOUR OF THE A SSESSEE IN GEM PLUS JEWELLERY INDIA LTD.'S CASE (SUPRA) AS DISALLOWANCE U/S. 40(A )(I) OF THE ACT IS A STATUTORY DISALLOWANCE AND THE HENCE ENHANCED PROFITS DUE TO DISALLOWANCE SHALL BE CONSIDERED FOR DEDUCTION U/S. 10B OF THE ACT. WE ORDER ACCORDI NGLY. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 12 12. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10AA OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS ONLY ONE BUSINESS UNDERTAKING WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GOLD, SILVER AND BAS E MATERIAL JEWELLERY PLAIN & STUDDED WITH PRECIOUS & SEMI PRECIOUS STONES SITUAT ED AT SITAPURA INDUSTRIAL AREA, JAIPUR AND THE TOTAL TURNOVER OF THE BUSINESS IS EQUIVALENT TO THE TOTAL TURNOVER OF THE UNDERTAKING AS WELL AS THE EXPORT T URNOVER. THE EXPENDITURE TO THE EXTENT OF 25% OF PURCHASES WHERE ARE HELD AS NO N-GENUINE AND DISALLOWED BY THE ASSESSING OFFICER RELATES TO THE SAME BUSINE SS ACTIVITY OF MANUFACTURE AND EXPORT IN RESPECT OF WHICH ASSESSEE IS HELD ELI GIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. THE DEDUCTION UNDER SECTI ON 10AA THEREFORE NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS AFTER TAKING INT O CONSIDERATION THE DISALLOWANCE OF RS 2,80,500 IN LIGHT OF ACCEPTED LE GAL POSITION BY THE CBDT AND FOLLOWING THE CONSISTENT POSITION TAKEN BY THE CO-O RDINATE BENCHES. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO RECOMPUT E THE DEDUCTION U/S 10AA TAKING INTO CONSIDERATION THE ADDITION OF RS. 2,80, 500/. IN THE RESULT, THE GROUND NO. 5 OF THE ASSESSEES APPEAL IS ALLOWED. 13. IN VIEW OF THE ABOVE, WE FIND THAT REST ALL GRO UND TAKEN BY THE ASSESSEE HAVE BECOME ACADEMIC AND THE SAME ARE THUS DISMISSE D AS INFRUCTUOUS. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISPOS ED OFF IN LIGHT OF ABOVE DIRECTIONS. ITA NO. 191/JP/2019 15. IN ITA NO. 191/JP/2019 FOR A.Y 2014-15, THE ASS ESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 13 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF OF RS. 2,56,714/- BY INVOKING PROVISIONS OF SECTION 2(24)(X) R.W.S 36(1) (VA). 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF RS. 2,87,694/- (50% OF RS. 5,75,388/-) U/S 10AA OF IT ACT BY CONSIDERING THE RECEIPT ON ACCOUN T OF FREIGHT, CLEARING & INSURANCE CHARGES AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE AO TO RECOMPUTE THE DEDUCTION U/S 10AA ON THE INCRE ASED BUSINESS INCOME ASSESSED BY AO ON ACCOUNT OF DISALLOWANCE OF PF CONTRIBUTION IGNORING THE CBDT CIRCULAR NO. 37/2016 DT. 02.11.20 16. 16. REGARDING GROUND NO.1, IT IS NOT DISPUTED THAT THE ASSESSEE HAS DEPOSITED THE EMPLOYEES CONTRIBUTIONS TOWARDS PF B EFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. HENCE, THE MATTER IS SQUAR ELY COVERED BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT VS. STATE BANK OF BIKANER AND JAIPUR AND THE GROUND OF APPEAL NO. 1 IS THUS ALLOW ED. GROUND NO. 3 THUS BECOMES INFRUCTIOUS AND IS DISMISSED. 17. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF DEDUCTION U/S 10AA OF THE ACT BY CONSIDERING THE RE CEIPT ON ACCOUNT OF FREIGHT, CLEARING & INSURANCE CHARGES AS INCOME FROM OTHER S OURCES AS AGAINST BUSINESS INCOME. 18. IN THIS REGARD, THE LD AR SUBMITTED THAT IN THE P&L A/C, THE ASSESSEE HAS DECLARED EXPORT SALES OF RS.30,20,77,213/-. IT INCL UDES EXCESS RECOVERY OF FREIGHT, CLEARING & INSURANCE EXPENSES OF RS.5,75,3 88/-. THIS AMOUNT IS NET OF THE FREIGHT RECOVERED FROM THE CUSTOMERS ON EXPORT OF GOODS RS.24,98,290/- AND THE FREIGHT EXPENDITURE INCURRED AT RS.19,22,90 2/-.THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10AA AT RS.4,08,51,049/ (IN T HE RETURN RS.4,08,51,804/-) CALCULATED AS UNDER:- ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 14 EXPORT SALES RS.30,20,77,213/- LESS:- FREIGHT, CLEARING & INSURANCE RS.5,75,387/- LESS:- EXCHANGE RATE DIFFERENCE RS.69,92,951/- NET EXPORT SALES RS.29,45,08,874/- LOCAL SALES RS.2,17,299/- TOTAL TURNOVER RS.29,47,26,173/- TOTAL PROFITS DERIVED BY THE UNDERTAKING RS.8,17,62 ,382/- DEDUCTION U/S 10AA RS.4,08,51,049/- (8,17,62,382/29,47,26,173*29,45,08,874)*50% 19. IT WAS SUBMITTED THAT THE AO OBSERVED THAT ASS ESSEE HAS SHOWN AN AMOUNT OF RS.5,75,388/- ON ACCOUNT OF FREIGHT, CLEA RING & INSURANCE EXPENSES AS PART OF EXPORT SALES AND CLAIMED DEDUCTION U/S 1 0AA OF THE ACT. HOWEVER, AS PER THE DEFINITION OF EXPORT TURNOVER GIVEN IN EXPL ANATION 1 TO SECTION 10AA, FREIGHT AND INSURANCE CHARGES IS SPECIFICALLY EXCLU DED FROM THE DEFINITION. ACCORDINGLY, HE HELD THAT FREIGHT, CLEARING & INSUR ANCE EXPENSES IS ASSESSABLE AS INCOME FROM OTHER SOURCES AND DISALLOWED DEDUCTI ON U/S 10AA AT RS.2,87,694/- (50% OF RS.5,75,338/-). THE LD. CIT(A ) CONFIRMED THE DISALLOWANCE BY UPHOLDING THE FINDINGS OF AO. 20. IT WAS FURTHER SUBMITTED THAT EXCESS OF FREIGHT , CLEARING & INSURANCE RECEIPT OVER THE EXPENSES IS A BUSINESS RECEIPT AS IT IS DIRECTLY LINKED TO THE EXPORT. HENCE, IT IS ASSESSABLE AS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. HOWEVER, SUCH RECEIPT IS NOT A PART OF EXP ORT TURNOVER AS PER EXPLANATION 1(I) OF SECTION 10AA AND ACCORDINGLY, A SSESSEE HIMSELF HAS EXCLUDED THE SAME IN WORKING OUT THE EXPORT TURNOVE R BUT SUCH RECEIPT REMAINS A PART OF THE BUSINESS INCOME. THE LOWER AUTHORITIE S BY REFERRING TO THE ABOVE EXPLANATION HAS WRONGLY INFERRED THAT SUCH RECEIPT IS NOT A PART OF BUSINESS ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 15 INCOME WHEREAS THE EXPLANATION ONLY PROVIDES SUCH R ECEIPT IS NOT A PART OF EXPORT TURNOVER. IT NOWHERE STATES THAT SUCH RECEIP T IS NOT PART OF BUSINESS INCOME. THE HONBLE SUPREME COURT IN CASE OF PCIT V S. VEDANSH JEWELS PVT. LTD. (2018) 258 TAXMAN 154 DISMISSED THE SLP FILED BY THE DEPARTMENT AGAINST HIGH COURT ORDER WHERE HIGH COURT UPHELD THE TRIBUN ALS ORDER THAT SURPLUS AMOUNT IN FREIGHT EXPORT ACCOUNT AND IN INSURANCE E XPORT ACCOUNT WAS DERIVED FROM EXPORT ACTIVITIES ELIGIBLE FOR DEDUCTION U/S 1 0AA. HENCE, THE ASSESSEE HAS CORRECTLY CLAIMED THE DEDUCTION U/S 10AA. 21. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE HAS I NCURRED FREIGHT, CLEARING AND INSURANCE EXPENSES OF RS 19,22,902 IN RESPECT OF EX PORT OF GOODS AND HAS RECOVERED AN AMOUNT OF RS 24,98,290 FROM ITS CUSTOM ERS, THUS THERE IS AN EXCESS RECOVERY OF RS 5,75,388 TOWARDS SUCH EXPENSE S AND SUCH RECOVERY HAS BEEN REFLECTED IN THE PROFIT/LOSS ACCOUNT. IN ITS COMPUTATION OF INCOME FOR CLAIMING DEDUCTION UNDER SECTION 10AA, THE ASSESSEE HAS EXCLUDED SUCH RECOVERY OF EXPENSES FROM THE EXPORT TURNOVER AS WE LL AS TOTAL TURNOVER. THEREFORE, THE LIMITED ISSUE IS REGARDING WHETHER S UCH EXCESS RECOVERY OF FREIGHT AND OTHER EXPENSE IN RESPECT OF EXPORT OF G OODS IS DERIVED FROM BUSINESS AND THE ELIGIBLE FOR DEDUCTION UNDER SECTI ON 10AA OF THE ACT. WE FIND THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TH E HONBLE RAJASTHAN HIGH COURT IN CASE OF PR. CIT, JAIPUR VS. VEDANSH JEWELS (P.) LTD . WHICH THE QUESTION OF LAW ADMITTED FOR CONSIDERATION WAS AS F OLLOWS: (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT WAS JUSTIFIED IN LAW IN HOLDING THAT SURPLUS AMOUNT IN THE FREIGH T EXPORT ACCOUNT AND IN THE INSURANCE EXPORT OF RS 1830488 IS DERIVED FROM EXPO RT ACTIVITIES AND ON THOSE ACCOUNTS DEDUCTION UNDER SECTION 10AA IS ALLOWABLE. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 16 AND IN THIS REGARD, THE HONBLE HIGH COURT HAS AFFI RMED THE FINDINGS OF THE TRIBUNAL AND THE RELEVANT FINDINGS ARE REPRODUCED A S UNDER:- 6.1 BRIEFLY THE FACTS OF THE CASE ARE THAT THE LD. AO DISALLOWED THE DEDUCTION U/S 10AA OF RS. 20,17,500/- FOR A.Y 2010-11 IN RESP ECT OF THE AMOUNT COMPRISING SURPLUS OF FREIGHT, INSURANCE CHARGES AN D MISC. BALANCES W/OFF ON THE ALLEGATION THAT THE SAME CONSTITUTED INDIRECT I NCOME NOT DERIVED FROM EXPORT OF GOODS. 6.8 THE NEXT QUESTION THAT ARISES FOR CONSIDERATION IS THE DEFINITION OF EXPORT TURNOVER WHICH HAS BEEN DEFINED IN EXPLANATION 1 TO SECTION 10AA OF THE ACT AND WHETHER THE SAME WOULD HAVE ANY EFFECT IN THE I NSTANT CASE. THE TERM EXPORT TURNOVER HAS BEEN DEFINED AS CONSIDERATIO N IN RESPECT OF EXPORT BY THE UNDERTAKING, BEING ARTICLE OR THING RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE BUT DOESNT INCLUDE FREIGHT, TELECOMMUNICA TION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS OUTSIDE INDIA. IN OUR VIEW, THE SAME MAY NOT HAVE ANY EFFECT AS WHERE THE FREIG HT OR INSURANCE CHARGES ARE REDUCED FROM THE EXPORT TURNOVER, THE SAME HAVE TO BE REDUCED FROM THE TOTAL TURNOVER AS WELL. THE SAME HAS BEEN THE CONSI STENT STAND OF THE VARIOUS COORDINATE BENCHES. 6.9 IN LIGHT OF ABOVE DISCUSSIONS AND IN THE ENTIRE TY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ALLOWANCE OF EXEMPTION UNDER SECTION 10AA IN RESPECT OF FREIGHT AND INSURANCE EXCESS RECEIPTS. ON PARITY OF REASON, THE SAME POSITION WOULD HOLD GOOD FOR MISC. BALANCE WRITTEN OFF. IN T HE RESULT, THE GROUND NO. 1 OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT, THE GROUND OF APPEAL IS ALLOWED. ITA NO.190 & 191/JP/2019 M/S AMRAP ALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 17 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISPOS ED OFF IN LIGHT OF ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 04/11/2019. SD/- SD/- ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED:- 04/11/2019 * GANESH KR. COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S AMRAPALI EXPORTS, JAIPUR 2. THE RESPONDENT- DCIT, CENTRAL CIRCLE-02, JAIPUR 3. CIT 4. CIT(A) 5. DR, ITAT, JAIPUR. 6. GUARD FILE {ITA NO.190 & 191/JP/2019} BY ORDER, ASST. REGISTRAR