M/s Indus Medicare Private Limited, Hyderabad V. Dy.CIT, Circle-2(1), Hyderabad

ITA 205/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7669 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 20-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Business income; Competent authority
• Section: 10AA; 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 205/HYD/2013 ASSESSMENT YEAR : 2007-08 M/S INDUS MEDICARE PVT. LTD., HYDERABAD. PAN AAAC16449L DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(1),HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI C.P. RAMASWAMY REVENUE BY SHRI SOLGY JOSE T. KOTTARAM DATE OF HEARING 27-08-2014 DATE OF PRONOUNCEMENT 16-09-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20/12/12 OF CIT(A), VIJAYAWADA FOR AY 2007-08. ASSE SSEE HAS RAISED 5 GROUNDS. GROUND NO.S 1 & 5 BEING GENERAL IN NATUR E ARE NOT REQUIRED TO BE ADJUDICATED UPON. GROUND NO. 2 WITH ITS SUB-GROUND RELATES TO THE RESTRICTING DEDUCTION CLAIM U/S 10B TO RS. 36,28,536 AS AGAINST RS. 1,42,65,614 CLAIMED BY THE ASSESSEE. 2. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISPU TE ARE, ASSESSEE A COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE A ND SALE OF SHEATH CONTRACEPTIVES. ASSESSEE IS ALSO AN APPROVED 100% EXPORT ORIENTED UNIT (EOU). FOR THE AY UNDER DISPUTE, ASSE SSEE FILED ITS RETURN OF INCOME ON 31/10/07 DECLARING INCOME OF RS . 91,99,741 AFTER CLAIMING DEDUCTION OF RS. 1,42,65,614 U/S 10B OF TH E ACT. DEDUCTION 2 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. CLAIMED U/S 10B IS FOR THE EIGHTH YEAR. DURING SCRU TINY ASSESSMENT PROCEEDING, AO ON EXAMINING THE FACTS AND MATERIALS ON RECORD, NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF RS. 1,42,65,614 ON EXPORT TURNOVER OF RS. 11,04,52,037. ON VERIFICATION OF DETAILS SUBMITTED BY THE ASSESSEE RELATING TO ITS E XPORT TURNOVER, AO NOTICED THAT OUT OF THE TOTAL AMOUNT CLAIMED AS EXP ORT TURNOVER, AN AMOUNT OF RS. 3,37,14,685 WAS RECEIVED IN INDIAN CU RRENCY TOWARDS SALES MADE WITHIN THE COUNTRY. WHEN THE AO ASKED TH E ASSESSEE TO EXPLAIN WHY LOCAL SALES HAVE BEEN INCLUDED IN THE E XPORT TURNOVER, ASSESSEE EXPLAINED THAT THE SAME REPRESENTS MERCHAN T EXPORTS. IN OTHER WORDS, SALES WERE MADE TO TWO COMPANIES M/S M EDTEC PRODUCTS LTD., CHENNAI, WHICH IS ALSO A 100% EOU PROJECT FOR CONDOMS, AND M/S SYNMEDIC LABS, NEW DELHI, BOTH OF 100% EOU AND WHO WHO ULTIMATELY EXPORTED THEM OUT OF THE COUNTRY. ASSESS EE FURTHER CLAIMED AS PER THE PROVISIONS OF EXIM POLICY, A SALE TRANSA CTION FROM ONE 100% EOU PROJECT TO ANOTHER 100% EOU PROJECT IS CON SIDERED AS MERCHANT EXPORT AND HAS TO BE TREATED AS EXPORT SAL ES. THE AO ON INTERPRETING PROVISIONS CONTAINED U/S 10B OF THE AC T, HOWEVER, WAS OF THE VIEW THAT DEDUCTION U/S 10B IS ALLOWED ONLY ON PROFIT AND GAINS DERIVED FROM EXPORT OF ARTICLES OR THINGS MANUFACTU RED BY THE UNDERTAKING AND NOT ON THE ENTIRE PRODUCTS DERIVED FROM THE UNDERTAKING. AO NOTED THAT THE TERM EXPORT OUT OF INDIA THOUGH HAS NOT BEEN DEFINED IN SECTION 10B, BUT, THE SAME IS D EFINED IN SECTION 10BA AND APPLYING THE MEANING OF EXPORT OUT OF IND IA AS CONTEMPLATED U/S 10BA OF THE ACT, AS WELL AS ON GOI NG THROUGH THE PROVISIONS CONTAINED U/S 10B AS A WHOLE, AO OPINED THAT THE INTENTION OF THE LEGISLATURE FROM SECTION 10B IS TO GIVE BENE FIT OF DEDUCTION ATTRIBUTABLE TO EXPORT OF GOODS OR ARTICLES BUT NOT ENTIRE SALES OF UNDERTAKING. AO WAS OF THE VIEW THAT THOUGH AS PER THE EXIM POLICY SALE BY ONE 100% EOU TO ANOTHER EOU MAY BE TREATED AS EXPORT BUT AS PER SECTION 10B IT CANNOT BE TREATED AS EXPORT SALE UNDER THE IT ACT. FURTHER, REFERRING TO CIRCULARS NO. 657 & 684 OF CBDT AS WELL AS THE PROVISION OF SECTION 10B WHICH WAS AMENDED W.E. F. 01/04/03, AO 3 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. HELD THAT UNDER THE AMENDED PROVISIONS OF SECTION 1 0B DEDUCTION IS ALLOWABLE ONLY ON EXPORTS OUT OF INDIA WITH THE CON DITIONS THAT EXPORT PROFITS ARE BROUGHT INTO THE COUNTRY WITHIN A PERIO D OF 6 MONTHS FROM THE END OF THE PREVIOUS YEAR. ACCORDINGLY, AO CONCL UDE THAT AS THE ASSESSEE HAS NOT DIRECTLY EXPORTED THE SALES AMOUN TING TO RS. 3,37,14,685, WHICH WAS SOLD TO ANOTHER EOU WITHIN T HE COUNTRY, ASSESSEE WOULD NOT BE ELIGIBLE FOR CLAIM OF EXEMPTI ON ON THE SAID TURNOVER. AO ALSO NOTED THAT OUT OF THE TOTAL EXPOR T TURNOVER CLAIMED OF RS. RS. 11,04,52,037, ONLY THE AMOUNT OF RS. 4,4 9,00,628 IS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE, THEREFORE , AO HELD THAT THE EXPORT TURNOVER, WHICH IS ELIGIBLE FOR DEDUCTION U/ S 10B IS RS. 4,49,00,628 AND ACCORDINGLY ALLOWED DEDUCTION OF RS . 36,28,536. BEING AGGRIEVED OF THE PART DISALLOWANCE OF EXEMPTI ON CLAIMED U/S 10B, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), ASSESSEE REITERATED THE ARGUM ENTS ADVANCED BEFORE THE AO. CIT(A) CONFIRMING THE VIEW OF THE AO THAT ASSESSEE HAS NOT EXPORTED GOODS REPRESENTING THE TURNOVER OF RS. 3,37,14,685, BUT, HAS SOLD IT TO ANOTHER 100% EOU WITHIN THE COU NTRY, HELD THAT THE SAME CANNOT BE CONSIDERED AS PART OF EXPORT TURNOVE R. IN THIS CONTEXT, HE RELIED UPON A DECISION OF HONBLE AP HIGH COURT IN CASE OF SWAYAM CONSULTANCY (P) LTD. VS. ITO, 336 ITR 189. T HE RELEVANT FINDINGS OF THE LEARNED CIT(A) ARE EXTRACTED HEREUN DER: 7B. THE SECOND ISSUE RELATES TO THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE CLAIM OF DEDUCTION U/S 1 0B OF THE IT ACT TO RS. 36,28,536/- INSTEAD OF RS. 1,42,65,614/- CLA IMED BY THE APPELLANT. FOR THE SAID RESTRICTION, THE ASSESSING OFFICER HAS MADE 5 ADJUSTMENTS, THE MERITS OF WHICH ARE DISCUSS ED AS UNDER: 7B(I) THIS ISSUE RELATES TO EXPORT TURNOVER, WHERE SALES ARE MADE FROM ONE 100% EOU TO ANOTHER 100% EOU, INVOLVI NG AN AMOUNT OF RS. 3,37,14,685. IT MAY BE NOTED HERE THA T THE APPELLANT HAS SOLD PART OF THE MERCHANDISE TO TWO O F 100% EOUS AND CLAIMED THAT IN RESPECT OF THIS TURNOVER A LSO, THE PROFITS DERIVED WAS ELIGIBLE FOR DEDUCTION U/S 10B, BUT WHEREAS, 4 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. THE ASSESSING OFFICER HAS NEGATIVE IT ON THE GROUND THAT AS ONLY INDIAN RUPEES WERE RECEIVED FROM BOTH THE 100% EOUS , DISENTITLED THE INCOME PROPORTIONATELY, WHICH IS UN DER PROTEST. IT MAY BE NOTED HERE THAT AS PER PROVISO TO SUB-SECTIO N (1) OF SECTION 10B FURTHER PROVIDES THAT PROFITS ON DOMEST IC SALES TO THE EXTENT OF 25% OF TOTAL SALES SHALL BE DEEMED TO BE THE PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES O R THINGS OR COMPUTER SOFTWARE. IN COURSE OF THE APPELLATE PROCE EDINGS, THE AR HAS EXPLAINED THAT 'EOU' MEANS AN EXPORT ORIENTE D UNIT FOR WHICH AN LOP (LETTER OF PERMISSION) HAS BEEN ISSUED BY THE DEVELOPMENT COMMISSIONER'. AND THE SALE TO 100% EOU CAN BE CONSIDERED AS EXPORT SALES AS - UNIT WILL BE CUSTOM BONDED - THE DATE OF COMMENCEMENT OF PRODUCTION SHALL BE T AKEN PLACE AFTER GETTING THE APPROVAL FROM THE DEVELOPMENT COM MISSIONER, SPECIAL ECONOMIC ZONE FOR FULFILLING THE TERMS AND CONDITIONS MENTIONED IN LOP. - SALES MADE FROM ONE 100% EOU TO ANOTHER 100% EOU. SINCE ALL THE THREE CONDITIONS WERE FULFILLED BY TH E APPELLANT, IT IS REQUESTED THAT THE UNIT CAN BE CONSIDERED FOR THESE SALES AS EXPORT SALES. IT IS FURTHER EXPLAINED THAT AS PER F OREIGN TRADE POLICY, PARA NOS. 6.10, 6.11 (A), 6.12(A) AND 6.19 IT IS CLEARLY MENTIONED THAT SALES MADE BY AN 100% EOU UNIT TO AN OTHER 100% EOU UNIT CAN BE ELIGIBLE FOR 10B EXEMPTION EVE N THOUGH THERE IS NO FOREIGN CURRENCY I ROUTED THEREIN. THIS CONTENTION OF THE APPELLANT WAS ALREADY REJECTED BY THE AO ON THE GROUND THAT AS FAR AS SEZ, DEVELOPMENT COMMISSIONER, FOREIGN TR ADE POLICY ETC ARE CONCERNED; IT MAY BE ENTITLED FOR EX EMPTION, BUT IN MY CONSIDERED OPINION, WHEN THERE IS A CLASH WIT H INCOME TAX PROVISIONS, IT WOULD NOT SURVIVE, I.E., IT IS N OT ENTITLED FOR EXEMPTION UNDER SECTION 10B. IN THIS CONTEXT, IT IS IMPORTANT TO NOTE HERE THAT THE AP HIGH COURT IN THE CASE OF SWA YAM CONSULTANCY (P) LTD VS. ITO, REPORTED IN (2011) 63 DTR 205 (AP) HAS HELD THAT IN THE CIRCUMSTANCES STATED BY T HE APPELLANT, IT IS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 10B OF THE IT ACT, 1961. TO QUOTE, IT IS HELD, 'TRANSACTION OF MANUFAC TURING MACHINES IN INDIA BY EOU AND DELIVERING THEM IN IND IA TO ANOTHER 100 PERCENT EOU, WHICH IS ALLEGED TO BE THE AGENT OF A FOREIGN BUYER DOES NOT AMOUNT TO 'EXPORT OUT OF IND IA' EITHER UNDER THE CUSTOMS ACT OR UNDER THE INCOME TAX ACT, HENCE THE APPELLANT IS NOT ENTITLED TO EXEMPTION UNDER SECTIO N 10B'. IN VIEW OF THE AP HIGH COURT DECISION, I AM OF THE FIR M VIEW THAT THE APPELLANT IS NOT ELIGIBLE TO CLAIM EXEMPTION UN DER SECTION 10B IN THE PROFITS ATTRIBUTABLE TO TURNOVER DERIVED FROM LOCAL SALES TO 2 100% EOUS AND IN THE PROCESS, THE STAND OF THE AO 5 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. IS UPHELD. 4. LEARNED AR MOSTLY REITERATING THE SUBMISSIONS MA DE BEFORE THE AO AS WELL AS BEFORE THE CIT(A) SUBMITTED THAT ASSE SSEE HAVING SOLD THE GOODS TO 100% EOUS, IT IS ELIGIBLE FOR EXEMPTI ON U/S 10B WITH REGARD TO THAT PART OF THE TURNOVER ALSO IN VIEW OF THE EXIM POLICY. LEARNED AR PLACING STRONG RELIANCE ON THE EXIM POLI CY SUBMITTED THAT AS PER THE EXIM POLICY SINCE SALE TO ANOTHER 100% E OU IS ALSO TREATED AS EXPORT SALES, ASSESSEE SHOULD NOT BE DENIED EXEM PTION U/S 10B OF THE ACT ON THAT PART OF THE TURNOVER, WHICH WAS SOL D TO 100% EOU. LEARNED AR SUBMITTED THAT ITAT AHMEDABAD BENCH IN C ASE OF ITO VS. ANITA SYNTHETICS (P) LTD., 100 TTJ 277 WHILE D EALING WITH THE ISSUE HAS CONSIDERED EXIM POLICY AND HELD THAT SALE S MADE TO ANOTHER 100% EOU WHICH IN TURN EXPORTS TO FOREIGN COUNTRY I S ALSO ELIGIBLE FOR EXEMPTION U/S 10B. LEARNED AR SUBMITTED THAT AO WHI LE COMING TO HIS CONCLUSION HAS RELIED ON THE PROVISIONS CONTAIN ED U/S 10BA OF THE ACT, WHICH USES THE EXPRESSION EXPORT OUT OF INDIA , WHEREAS NO SUCH EXPRESSION HAS BEEN USED U/S 10B OF THE ACT. FURTHE R, DISTINGUISHING THE DECISION OF THE HONBLE AP HIGH COURT, LEARNED AR SUBMITTED THAT RATIO LAID THEREIN WILL NOT APPLY TO THE FACTS OF T HE PRESENT CASE AS THE 100% EOU TO WHOM ASSESSEE HAS SOLD THE PRODUCTS ARE NOT THE AGENTS OF THE ASSESSEE. LEARNED AR, THEREFORE, URGE D THAT ASSESSEES CLAIM OF EXEMPTION U/S 10B SHOULD BE ALLOWED. 5. LEARNED DR, ON THE OTHER HAND, STRONGLY RELYING UPON THE ORDER OF THE CIT(A) SUBMITTED THAT THE ISSUE HAVING BEEN SQUARELY COVERED BY THE DECISION OF THE HONBLE AP HIGH COURT IN CAS E OF SWAYAM CONSULTANCY (P) LTD.(SUPRA), THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S, PERUSED THE MATERIALS ON RECORD AND THE ORDERS OF THE REVENUE A UTHORITIES. THERE IS NO DISPUTE TO THE FACTUAL ASPECT THAT THE TURNOV ER OF RS. 6 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. 3,37,46,108 REPRESENTS SALES MADE BY ASSESSEE TO TW O 100% EOUS INSIDE THE COUNTRY AGAINST INDIAN CURRENCY, WHO IN TURN HAD ACTUALLY EXPORTED THE GOODS OUTSIDE INDIA. IT IS THE CONTENT ION OF THE LEARNED AR THAT AS PER THE EXIM POLICY SALES MADE TO A 100% EOU SHOULD ALSO BE CONSIDERED AS EXPORT SALES AND ACCORDINGLY ALLOWABLE AS DEDUCTION U/S 10B OF THE ACT. HOWEVER, ON A PLAIN R EADING OF PROVISIONS OF SECTION 10B AS A WHOLE AND SPECIFICAL LY SUB-SECTION (3) OF SECTION 10B, IT BECOMES CLEAR THAT ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION IF SALE PROCEEDS OF ARTICLES OR THINGS E XPORTED OUT OF INDIA ARE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MONTHS OR FURTHER TIME AS MAY BE ALLOWED. IT IS A F ACT ON RECORD THAT IN THE PRESENT CASE, THE CONDITIONS OF SUB-SECTION (3) OF SECTION 10B HAS NOT BEEN FULFILLED IN RESPECT OF THE TURNOVER OF RS . 3,37,46,108 SOLD TO TWO OTHER 100% EOU IN INDIA. THE HONBLE AP HIGH CO URT WHILE EXAMINING IDENTICAL NATURE OF DISPUTE OF DISALLOWAN CE OF EXEMPTION U/S 10B ON SALES MADE TO ANOTHER 100% EOU ANALYSED THE PROVISIONS OF SECTION 10B AS A WHOLE AND ALSO IN THE CONTEXT O F SECTIONS 10A, 10AA AND 80 HHC OF THE ACT. THE HONBLE JURISDICTIO NAL HIGH COURT HELD AS UNDER: 7. THE TERM 'EXPORT' IS NOT DEFINED IN THE IT ACT THOU GH THE TERM 'EXPORT TURNOVER' IS EXPLAINED/DEFINED BY FOUR PROVISIONS, NAMELY, THE EXPLANATIONS TO SS. 10A, 10AA, 10B AND 80HHC OF THE ACT. BE IT N OTED, S. 10A OF THE ACT ENABLES AN UNDERTAKING IN A FREE TRADE ZONE TO CLAI M DEDUCTION OF PROFITS AND GAINS FROM THE EXPORT OF ARTICLES OR THINGS OR COMP UTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIVE YEARS. SIMILARLY, UNDER S. 10AA O F THE ACT, A NEWLY ESTABLISHED UNIT IN A SPECIAL ECONOMIC ZONE CAN CLA IM DEDUCTION OF 100 PER CENT PROFITS AND GAINS DERIVED FROM THE EXPORT FOR A PERIOD OF 10 YEARS AND, UNDER S. 10B OF THE ACT, AN ASSESSEE CAN CLAIM DEDU CTION OF PROFITS AND GAINS AS ARE DERIVED BY 100 PER CENT EOUS FROM THE EXPORT OF ARTICLES OR THINGS FOR A PERIOD OF 10 YEARS. SEC. 80HHC OF THE ACT IS TO THE EFFECT THAT AN ASSESSEE, BEING AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA, MAY BE ALLOWED DEDUCTION OF THE PROF ITS TO THE EXTENT SPECIFIED IN S. 80HHC(1B) OF THE ACT. THE EXPLANATIONS TO ALL THESE PROVISIONS HAS A DEFINITE BEARING IN UNDERSTANDING S. 10B(3) OF THE ACT ON WHICH THE PETITIONERS COUNSEL PLACED CONSIDERABLE EMPHASIS. FOR READY REFERENCE, WE QUOTE THE SAME HEREUNDER. 'SEC. 10B(3). THIS SECTION APPLIES TO THE UNDERTAKI NG, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY TH E ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SI X MONTHS FROM THE 7 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PE RIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF.' 8. THE LANGUAGE OF S. 10B(3) OF THE ACT IS PLAIN. IT D OES NOT ADMIT ANY OTHER MEANING THAN WHAT IS CONVEYED BY THE LANGUAGE USED THEREIN. THE BENEFIT UNDER S. 10B(1) OF THE ACT IS AVAILABLE TO 100 PER CENT EOUS ONLY IF THE SALE PROCEEDS OF ARTICLES OR THINGS EXPORTED OUT OF INDI A ARE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. TWO CONDITIONS SHOULD BE SATISFIED BEFORE THE BENEFIT UNDER S. 10B(1) OF THE ACT IS CLAIMED. THER E SHOULD BE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUT OF INDI A, AND THE SALE PROCEEDS THEREFOR SHALL BE RECEIVED IN CONVERTIBLE FOREIGN E XCHANGE. ONE WOULD NOT EXCLUDE THE OTHER NOR ONLY ONE CONDITION WOULD SATI SFY THE ELIGIBILITY CONDITIONALITIES. THE INTENTION OF THE PARLIAMENT, IN GRANTING BENEFIT TO THE UNITS IN FREE TRADE ZONES, SPECIAL ECONOMIC ZONES A ND EOUS, IS TO ALLOW THE BENEFIT OF DEDUCTION ONLY WHEN THE ARTICLES OR THIN GS OR COMPUTER SOFTWARE ARE ACTUALLY AND FACTUALLY EXPORTED OUT OF INDIA FO R FOREIGN CURRENCY. THIS IS MADE VERY CLEAR BY THE EXPLANATIONS TO OTHER SUCH S IMILAR SECTIONS CONFERRING THE BENEFIT OF DEDUCTION OF PROFITS. FOR READY REFERENCE, THEY ARE SHOWN IN THE FOLLOWING TABLE. SEC. 10A EXPLN. 2(IV) 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANG E IN ACCORDANCE WITH SUB- S. (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 T HE TECHNICAL SERVICES OUTSIDE INDIA; SEC. 10AA EXPLN. 1 (I) 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING, BEING THE UNIT OF ARTICLES OR THINGS OR SERVICES RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OUTSIDE INDIA OR EXPENSES, IF A NY, INCURRED IN FOREIGN EXCHANGE IN RENDERING OF SERVICES (INCLUDING COMPUTER SOFTWARE) OUTSIDE INDIA; 'EXPORT IN RELATION TO THE SPECIAL ECONOMIC ZONES' MEANS TAKING GOODS OR PROVIDING SERVICES OUT OF INDIA FROM A SPECIAL ECONOMIC ZONE BY LAND, SEA, AIR, OR BY ANY OTHER MODE, WHETHER PHYSICAL OR OTHERWISE; SEC. 10B EXPLN. 2(III) 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB- S. (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 FORE IGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA; SEC. 80HHC EXPLN. (AA) 'EXPORT OUT OF INDIA' SHALL NOT INCLUDE ANY TRANSACTION BY WAY OF SALE OR OTHERWISE, IN A SHOP, EMPORIUM OR ANY OTHER ESTABLISHMENT SITUATED IN INDIA, NOT INVOLVING CLEARANCE AT ANY CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT, 1962 (52 OF 1962); EXPLN. (B) 'EXPORT TURNOVER' MEANS THE SALE PROCEEDS RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH CL. (A) OF SUB-S. (2) OF ANY GOODS OR MERCHANDISE TO WHICH THIS 8 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. SECTION APPLIES AND WHICH ARE EXPORTED OUT OF INDIA, BUT DOES NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCHANDISE BEYOND THE CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT, 1962 (52 OF 1962); (EMPHASIS, ITALICIZED IN PRINT, SUPPLIED) 9. SECS. 10A, 10AA, 10B AND 80HHC OF THE ACT ALLOW AN ASSESSEE TO CLAIM DEDUCTION OF PROFITS FROM EXPORT OF ARTICLES. THESE PROVISIONS, IN EFFECT, DEAL WITH DIFFERENT CATEGORIES OF ELIGIBLE UNDERTAKINGS AND ESTABLISHMENTS ENGAGED IN THE EXPORT OF ARTICLES AND THINGS IN VAR IOUS LOCATIONS. THE EXPLANATION TO THESE PROVISIONS DEFINES/EXPLAINS TH E 'EXPORT TURNOVER'. THE FREIGHT AND TELECOMMUNICATION CHARGES INCURRED IN C ONNECTION WITH THE 'DELIVERY OF ARTICLES OR THINGS OUTSIDE INDIA' DURI NG THE COURSE OF EXPORT CANNOT BE RECKONED AS 'EXPORT TURNOVER'. THIS CLEAR LY INDICATES THAT WHEN THE PROFITS FROM EXPORTS ARE ALLOWED AS DEDUCTION, THE PARLIAMENT INTENDED THE ACTUAL EXPORT OUT OF INDIA OF THE ARTICLES OR T HINGS. THE INTENTION WAS NEVER TO CONSIDER THE DELIVERY OF GOODS TO A FOREIG N BUYER IN INDIA AS AMOUNTING TO EXPORT. 10. THE DECISIONS RELIED BY THE PETITIONERS COUNSEL DO NOT IN ANY MANNER ASSIST THE POINT ARGUED BY HIM. INDEED THEY SUPPORT THE VIEW EXPRESSED BY US SUPRA. EXPLANATION (AA) OF S. 80HHC OF THE ACT I S CLARIFICATORY IN NATURE AND EXPLAINS A TRANSACTION WHICH CANNOT BE TREATED AS 'EXPORT OUT OF INDIA'. A SALE IN A SHOP, EMPORIUM, OR OTHER ESTABLISHMENT IN INDIA WHICH DOES NOT REQUIRE ANY CLEARANCE IN ANY CUSTOMS STATION IS NOT CONSIDERED AS 'EXPORT OUT OF INDIA'. THE VIEW OF THE ALLAHABAD HIGH COURT IN RAM BABU & SONS (SUPRA) TO THE SAID EFFECT FOLLOWED BY THE RAJASTHA N HIGH COURT RECEIVED IMPRIMATUR FROM THE SUPREME COURT IN SILVER & ARTS PALACE (SUPRA). SUFFICE TO EXCERPT THE FOLLOWING OBSERVATIONS FROM THE DECI SION OF THE SUPREME COURT WHICH READS AS UNDER : 'THE ALLAHABAD HIGH COURT SPECIFICALLY CONSIDERED T HE EFFECT OF INTRODUCTION OF EXPLN. (AA) TO S. 80HHC OF THE ACT AND HAD TAKEN VIEW IN RAM BABU & SONS & ANR. VS. UNION OF INDIA & ANR. (1997) 141 CTR (ALL) 310 : (1996) 222 ITR 606 (ALL) THAT THIS EXPL ANATION MEANS THAT, FOR THE PURPOSE OF THIS SECTION, THERE WILL B E NO EXPORT OUT OF INDIA IF TWO CONDITIONS ARE CUMULATIVELY FULFILLED VIZ., (A) IT IS A TRANSACTION BY WAY OF SALE OR OTHERWISE IN A SHOP, EMPORIUM OR ESTABLISHMENT SITUATE IN INDIA, AND (B) THAT IT DOE S NOT INVOLVE CLEARANCE IN ANY CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT. THIS VIEW OF THE ALLAHABAD HIGH COURT HAD BEEN CONSISTEN TLY FOLLOWED BY 9 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. SEVERAL OTHER HIGH COURTS, INCLUDING THE RAJASTHAN HIGH COURT ITSELF IN ITO VS. VAIBHAV TEXTILES (2002) 177 CTR (RAJ) 593 : (2002) 258 ITR 346 (RAJ).' 11. IT IS THE ADMITTED POSITION HEREIN THAT INITIALLY P ROTECO AGREED TO TAKE DELIVERY OF WIRE/CABLE DRAWING MACHINES AT HYDERABA D EX-FACTORY, SUBSEQUENTLY PROTECO SENT A COMMUNICATION ADVISING THE APPELLANT TO DELIVER THE MACHINERY TO THEIR AGENT AT SILVASA WHICH IS AL SO A 100 PER CENT EOU, THE PAYMENT WAS RECEIVED IN CONVERTIBLE FOREIGN EXC HANGE AS EVIDENCED BY FIRC, AND THE GOODS WERE DELIVERED TO THE AGENT UND ER A PROFORMA INVOICE IN THE NAME OF THE FOREIGN BUYER. THIS TRANSACTION OF MANUFACTURING MACHINES IN INDIA BY EOU AND DELIVERING THEM IN IND IA TO ANOTHER 100 PER CENT EOU, WHICH IS ALLEGED TO BE THE AGENT OF A FOR EIGN BUYER, DOES NOT AMOUNT TO 'EXPORT OUT OF INDIA' EITHER UNDER THE CU STOMS ACT OR UNDER THE IT ACT. THE AO, THE APPELLATE AUTHORITY AND THE LEA RNED TRIBUNAL APPRECIATED THE PRINCIPLE OF LAW AND APPLIED IT CORRECTLY. THE APPEAL IS MISCONCEIVED. THE RATIO LAID DOWN BY THE HONBLE AP HIGH COURT, A S AFORESAID, SQUARELY APPLIES TO ASSESSEES CASE, HENCE, ASSESSE E WILL NOT BE ENTITLED FOR EXEMPTION U/S 10B IN RESPECT OF TURNOV ER OF RS. 3,37,46,108 SOLD TO 100% EOU IN INDIA. THE CONTENTI ON OF THE LD. AR THAT DECISION OF THE HONBLE AP HIGH COURT BEING FA CTUALLY DISTINGUISHABLE WILL NOT APPLY TO ASSESSEES CASE, IN OUR VIEW, IS DEVOID OF MERIT. AT LEAST IN THE CASE OF SWAYAM CON SULTANCY (P) LTD. (SUPRA) ASSESSEE HAD TAKEN A PLEA THAT THE 100% EOU TO WHOM GOODS WERE SOLD IS THE AGENT OF FOREIGN BUYER, HENC E, THE SALE SHOULD BE CONSIDERED AS A SALE DIRECTLY MADE TO FOREIGN BU YER. STILL THEN HONLE HIGH COURT HELD THAT IT CANNOT BE SAID AS EX PORT SALE. WHEREAS, IN CASE OF ASSESSEE IT IS A SALE SIMPLICITER TO ANO THER 100% EOU WITHIN THE COUNTRY. SO FAR AS THE DECISION OF THE I TAT, AHMEDABAD BANK (SUPRA) WE HAVE TO OBSERVE THAT THE SAID DECIS ION WAS RENDERED IN THE CONTEXT OF PROVISIONS CONTAINED U/S 10B OF T HE ACT, WHICH WAS EXISTING IN THE STATUTE BOOK DURING AY 1999-2000 AF TER WHICH THERE IS A SIGNIFICANT CHANGE IN THE SAID PROVISIONS BY VIRT UE OF AMENDMENT BROUGHT TO STATUTE W.E.F 01/04/03. FURTHER, IN VIEW OF THE BINDING PRECEDENT OF HONBLE JURISDICTIONAL HIGH COURT, THE DECISION OF ITAT, AHMEDABAD BENCH WILL NOT BE OF ANY HELP TO THE ASSE SSEE. ACCORDINGLY, WE UPHOLD THE DECISION OF CIT(A) ON TH IS ISSUE. 10 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. 7. THE NEXT ISSUE AS RAISED IN GROUND NO. 3 RELATES TO DISALLOWANCE OF AMOUNT OF RS. 18,54,969/- BEING THE SALE OF PACKING MATERIAL TO NAMBIA. AS CAN BE SEEN, DURING THE ASSE SSMENT PROCEEDING, AO HELD THAT AS THE PACKING MATERIALS W ERE NOT MANUFACTURED BY THE ASSESSEE, IT CANNOT BE ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT AS 10B IS NOT APPLICABLE FOR TRADING OF GOODS. AO OBSERVED THAT ASSESSEE DOES NOT PRODUCE PACKING MAT ERIAL, IT REQUIRED PACKING MATERIAL FOR PACKING ITS PRODUCT B Y PURCHASING IT FROM OUTSIDE PARTIES. ACCORDINGLY, HE TREATED THE TURNOV ER OF RS. 18,54,969 AS NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. C IT(A) ALSO CONFIRMED THE VIEW OF THE AO BY HOLDING THAT SINCE THE ASSESS EE HAS NOT MANUFACTURED PACKING MATERIAL BUT HAS PURCHASED IT FROM THIRD PARTIES AND EXPORTED TO FOREIGN COUNTRY IT WILL NOT COME WI THIN THE PURVIEW OF EXPORT TURNOVER AS ENVISAGED U/S 10B OF THE ACT. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN FROM THE OR DERS OF THE REVENUE AUTHORITIES, THE ONLY REASON ON WHICH THEY HAVE HELD THAT THE AMOUNT OF RS. 18,54,969 WOULD NOT BE ELIGIBLE FOR E XEMPTION U/S 10B IS PACKING MATERIALS WERE NOT MANUFACTURED BY ASSES SEE. IN THIS CONTEXT, HOWEVER, WE HAVE TO OBSERVE THAT THE PRODU CTS MANUFACTURED BY ASSESSEE COULD NOT HAVE BEEN EXPORTED WITHOUT PA CKING MATERIALS, HENCE, THE OBSERVATION BY THE LOWER AUTHORITIES THA T IT CANNOT BE CONSIDERED AS PART OF THE EXPORT TURNOVER, IN OUR V IEW, IS NOT CORRECT. WHEN A PARTICULAR ARTICLE OR THING CANNOT BE EXPORT ED WITHOUT ITS CONTAINER/PACKING, SAME HAS ALSO TO BE CONSIDERED A S PART OF THE PRODUCT AND CONSEQUENTLY HAS TO BE TREATED AS PART OF THE EXPORT TURNOVER OF ASSESSEE. IN THE AFORESAID VIEW OF THE MATTER, WE HOLD THAT THE TURNOVER OF RS. 18,54,969 BEING PART OF THE EXP ORT TURNOVER OF THE ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION U/S 10B. T HIS GROUND OF THE ASSESSEE IS ALLOWED. 11 ITA NO.205/HYD/2013 M/S INDUS MEDICARE PVT. LTD. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 16/09/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 16 TH SEPTEMBER, 2014 KV COPY TO:- 1) M/S INDUS MEDICARE PVT. LTD., C/O DR. C.P. RAM ASWAMI, ADVOCATE, FLAT NOS. 102 & 303, GITANJALI APTS. PLOT NO. 108, SRINAGAR COLONY,, HYDERABAD 500 073 2) THE DCIT,CIRCLE 2(1), AAYAKAR BHAVAN, BASHEER BAG, HYDERABAD 3) CIT(A), VIJAYAWADA 4) CIT-II, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.