DCIT - 8(2), MUMBAI V. M/s. TROPICATE TEXTILES P. LTD.(AMALGAMATING CO.), MUMBAI

ITA 2323/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56355 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 24-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 23-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH SR
• Keywords: Business income; Additional evidence
• Section: 43B; 80HHC; 234B; 10B

Judgement Text

ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 1 OF 19 IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1660/MUM/2007 (ASSESSMENT YEAR: 2003-04) M/S TROPICATE TEXTILES DCIT 8(2) (P)LTD(AMALGAMATING CO) ROOM NO.216 A M/S LEELA SCOTTISH LACE AAYAKAR BHAVAN (P) LTD LEELA BAUGH VS MK ROAD SIR MV ROAD, ANDHERI (E) MUMBAI PAN AAACD 9926 D MUMBAI 400020 APPELLANT RESPONDENT ITA NO.2323/MUM/2007 (ASSESSMENT YEAR: 2003-04) DCIT 8(2) M/S TROPICATE TEXTILES ROOM NO. 216 A (P)LTD(AMALGAMATING CO) AAYAKAR BHAVAN MK ROAD M/S LEELA SCOTTISH LACE (P)LTD. SIR MV ROAD, VS ANDHERI(E) MUMBAI PAN AAA CD 9926 D APPELLANT RESPONDENT DEPARTMENT BY: SHRI D.S.SUNDER SINGH,SR.DR ASSESSEE BY: SHRI NITESH JOSHI DATE OF HEARING: 01/12/2011 DATE OF PRONOUNCEMENT: 30/12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGA INST THE IMPUGNED ORDER DATED 29.12.2006 PASSED BY THE CIT ( A) 29 MUMBAI FOR ASSESSMENT YEAR 2003-04. ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 2 OF 19 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 ON 20 TH OCTOBER, 2003 DECLARING A TOTAL INCOME OF ` 28,79,000/- AFTER CLAIMING A DEDUCTION UNDER SECTION 10B AT ` 2,30,83,893/-.THE ASSESSING OFFICER ASSESSED THE INCOME AT ` 2,20,17,354/- DISALLOWING THE DEDUCTION UNDER SECTION 10B WHILE ALLOWING THE DEDUCTION UNDER SECT ION 80HHC. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE CIT (A) WHO GRANTED PARTIAL RELIEF. AGGRIEVED BOTH ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. ITA NO.1660/MUM/2007 3. WE TAKE UP THE ASSESSEES APPEAL FIRST. THE ASSESSE E HAS RAISED SIX GROUNDS. 4. THE GROUND NO.1 PERTAINS TO THE ISSUE OF DISALLOWAN CE OF CLAIM FOR DEDUCTION UNDER SECTION 10B/80HHC WITH RE SPECT TO EXPORT OF SALE PROCEEDS OF ` 3.06 CRORES BY CATEGORIZING THEM AS NON- QUALIFYING RECEIPTS ON ACCOUNT OF BELATED REALIZATI ON OF FOREIGN EXCHANGE. IT WAS THE CONTENTION THAT THESE AMOUNTS WERE REALIZED SUBSEQUENTLY AND POST FACTO APPROVAL WAS GRANTED BY THE RBI AND THUS CONSTITUTING ELIGIBLE REALIZATION FOR THE PURP OSE OF DEDUCTION UNDER SECTION 10B/80HHC. THE LEARNED COUNSEL PLACED ON RECORD ADDITIONAL EVIDENCE IN THE FORM OF APPROVALS FROM T HE BANK STATED TO HAVE BEEN RECEIVED SUBSEQUENTLY. IT WAS THE CONTENT ION THAT SINCE THE AMOUNTS WERE APPROVED, THE SAME SHOULD BE CONSI DERED AS ELIGIBLE FOR DEDUCTION. 5. AFTER CONSIDERING THE RIVAL ARGUMENTS OF THE LEARNE D COUNSEL AS WELL AS THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE ARE OF THE VIEW THAT SECTION 155(13) SHOULD HAVE BEEN CONSIDER ED BY THE ASSESSING OFFICER WHILE EXAMINING THE ISSUE OF AMOU NTS REALIZED SUBSEQUENTLY, WITH THE APPROVAL OF THE RBI OR SUCH AUTHORITY, AS IS ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 3 OF 19 PROVIDED UNDER THE LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENT AND RECEIPTS IN FOREIGN EXCHANGE. SINCE THE ASSESSEE HAS PLACED ON RECORD THE APPROVALS THAT HAVE BEEN OBTAI NED SUBSEQUENTLY, IT IS NECESSARY FOR THE ASSESSING OFF ICER TO EXAMINE THESE ASPECTS AND CONSIDER THE AMOUNTS FOR ALLOWING DEDUCTION AS PROVIDED. IN VIEW OF THESE, WE ARE OF THE OPINION T HAT THE MATTER REQUIRES RE-EXAMINATION BY THE ASSESSING OFFICER. A O IS DIRECTED TO CONSIDER THE APPROVALS FOR GIVING THE BENEFIT AS PE R THE PROVISIONS OF THE ACT. WITH THESE DIRECTIONS, THE ISSUE IN GROUND NO. 1 IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DOING THE NEEDFUL. THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO.2 PERTAINS TO THE ISSUE OF EXCLUDING THE RECEIPTS FROM STITCHING CHARGES FROM PROFITS WHILE WORKING D EDUCTION UNDER SECTION 10B ON THE REASON THAT SUCH INCOME IS NOT D ERIVED FROM THE INDUSTRIAL UNDERTAKING. IT WAS CONTENDED THAT AO HA S INCLUDED THE STITCHING CHARGES IN TOTAL TURNOVER BUT EXCLUSION FROM PROFITS OF BUSINESS IS NOT CORRECT. 6.1 IT WAS FAIRLY ADMITTED THAT THIS ISSUE WAS CONS IDERED BY THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO.1827 /MUM/2006 AND ITA NO.2544/MUM/2006 DATED 30.09.2011. 29. COMING TO THE JOB WORK CHARGES, THE MUMBAI J BENCH OF THE TRIBUNAL IN M/S. JEWELEX INTERNATIONAL P. LTD. (SUP RA) HAS BROUGHT OUT THE DISTINCTION BETWEEN SECTION 80I, 80IA AND 8 0HHC, AS WELL AS SECTION 10B. IT CONSIDERED THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN LIBERTY INDIA V/S CIT, (2009) 317 ITR 218 (SC) AND CIT V/S K. RAVINDRANATHAN NAIR, (2007) 295 ITR 228 (SC), AND AT PARAS-5 & 6, THE TRIBUNAL HELD AS FOLLOWS:- 5. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE INTEREST WAS RECEIVED FROM MARGIN MONIES KEPT AS DEPOSITS WITH THE BANKS FOR THE PURPOSE OF BORROWING MONIES FOR THE BUSINESS. THE A SSESSEES BUSINESS IS IN THE EXPORT OF JEWELLERY AND IN THE F IRST PAGE OF THE ASSESSMENT ORDER IT HAS BEEN STATED BY THE ASSESSIN G OFFICER THAT THE ASSESSEE IS A 100% EXPORT ORIENTED UNDERTA KING WITHIN THE MEANING OF SECTION 10B. IF THAT IS THE FACTUAL POSITION, THE ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 4 OF 19 INTEREST HAS TO BE CONSIDERED AS HAVING BEEN DERIVE D FROM THE EXPORT OF THE ARTICLES. EVEN IF IT IS ARGUED THAT T HE IMMEDIATE SOURCE OF THE INTEREST IS THE DEPOSITS WITH THE BAN KS AND NOT THE EXPORT OF ARTICLES, IN VIEW OF SUB-SECTION (4) OF SECTION 10B THE ASSESSEE IS ENTITLED TO SUCCEED. THE ASSESSING OFFICER HAS NOT ASSESSED THE INTEREST UNDER THE HEAD INCOME FR OM OTHER SOURCES. HE HAS TREATED THE INTEREST AS PART OF TH E PROFITS OF THE ASSESSEES BUSINESS. SUBSECTION (4) OF SECTION 10B STATUTORILY PRESCRIBES A FORMULA AS TO WHAT SHOULD BE CONSIDERED AS PROFITS DERIVED FROM EXPORT OF ARTICL ES. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ARE TO B E ASCERTAINED FIRST AND THE NEXT STEP IS TO BIFURCATE THE SAME IN THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. IF THE INTEREST INCOME FORMS PART OF T HE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THEN IN THE LIGHT OF THE STATUTORY FORMULA THE RESULTANT FIGURE AFTER APPLYI NG THE FORMULA HAS TO BE STATUTORILY CONSIDERED AS PROFITS DERIVED FROM EXPORT OF ARTICLES. IN THE PRESENT CASE THE INTEREST HAVIN G BEEN ASSESSED AS PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE FORMULA HAS TO BE APPLIED AND SUB- SECTION (4) LEAVES NO CHOICE. IN THIS VIEW OF THE MATTER WE ARE IN AGREEMENT WITH THE SUBMISSION OF THE LEARNED COUNSE L FOR THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT IN THE CASE OF SECTION 80HHC, WHICH WAS CONSIDERED BY THE SUPREME COURT IN K RAVINDRANATHAN NAIR (SUPRA), THERE IS A SPECIFIC EXPLANATION (BAA) WHIC H EXCLUDES 90% OF THE INTEREST, EVEN IF IT IS ASSESSED AS BUSI NESS INCOME, FROM THE PROFITS OF THE BUSINESS. HOWEVER, SUB-SECT ION (4) OF SECTION 10B CONTAINS NO SUCH EXCLUSION NOR IS THERE ANY OTHER PROVISION IN THE SECTION SIMILAR TO EXPLANATION(BAA ) OF SECTION 80HHC. IN LIBERTY INDIA (SUPRA), THE SUPREME COURT WAS CONCERNED WITH SECTIONS 80-I, 80-IA AND 80-IB. IN T HESE SECTIONS ALSO THERE IS NO STATUTORY FORMULA TO PRES CRIBE AS TO WHAT ARE THE PROFITS ELIGIBLE FOR THE DEDUCTION. TH ERE IS NO STATUTORY PRESCRIPTION OF SUCH PROFITS AS IN SUB-SE CTION (4) OF SECTION 10B. SUB-SECTION (5) OF SECTION 80-IA, WHIC H ALSO HAS TO BE READ AS PART OF SECTION 80-IB PROVIDES THAT T HE PROFITS OF AN ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF SUCH E LIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESS EE. THIS IS NOT SIMILAR TO THE STATUTORY FORMULA PRESCRIBED IN SUB-SECTION (4) OF SECTION 10B. IT CANNOT ALSO BE STATED THAT T HE ASSESSEE WAS ADOPTING A DEVICE TO INFLATE THE PROFITS OF THE EXPORT ORIENTED UNDERTAKING BY INCLUDING THE INTEREST INCO ME THEREIN BECAUSE EVEN THE ASSESSING OFFICER DID NOT DISPUTE THAT THE INTEREST INCOME FORMS PART OF THE BUSINESS PROFITS. ONCE SUCH A CONCLUSION IS REACHED, SUB-SECTION (4) OF SECTION 1 0B TAKES OVER. FOR THESE REASONS WE UPHOLD THE DECISION OF T HE CIT(A) AND DISMISS THE FIRST GROUND TAKEN BY THE REVENUE. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO T O INCLUDE THE AMOUNTS AS PROFITS OR GAINS OF BUSINESS OR PROF ESSION AND ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 5 OF 19 WORK OUT THE ELIGIBLE AMOUNT UNDER SEC 10B(4) AND A LLOW THE DEDUCTION ACCORDINGLY . 7. GROUND NO.3 PERTAINS TO THE ISSUE WHETHER THE A SSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC ALONG WI TH DEDUCTION UNDER SECTION 10B ON CONCURRENT BASIS. IT WAS THE A SSESSEES CONTENTION THAT IT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B AND ALSO UNDER SECTION 80HHC. ON THIS ISSUE THE COORDIN ATED BENCH CONSIDERED THE ISSUE IN EARLIER YEARS AND DECIDED A S UNDER: 38. ON THE ISSUE WHETHER THE ASSESSEE IS ENTITLED T O DEDUCTION UNDER SECTION 80HHC, TO THE EXTENT NO REL IEF HAS BEEN CLAIMED UNDER SECTION 10B, AND TO THE EXTENT T HE AGGREGATE DOES NOT EXCEED THE GROSS TOTAL INCOME, W E FOLLOW THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN M/S. GENESYS INTERNATIONAL CORPORATION LTD. V/S DCI T, ITA NO.6945/MUM./2006, ORDER DATED 16 TH JANUARY 2009, WHEREIN THE TRIBUNAL HELD AS FOLLOWS:- .. THE EXEMPTION UNDER SECTION 10B OF THE ACT IS LIMITED TO 90% OF THE PROFITS OF THE UNDERTAKING AN D THE BALANCE 10% OF THE PROFITS ON NON-REFUNDABLE AS PAR T OF GROSS TOTAL INCOME OF THE ASSESSEE IS TO BE SUBJECT ED TO THE DEDUCTION PROVIDED UNDER CHAPTER VI-A OF THE AC T BEFORE COMPUTING THE TOTAL INCOME OF PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN THE HANDS OF THE ASSESSEE. THERE IS NO MISCELLANEOUS DEDUCTION AS TH E PROFITS WHICH ARE ELIGIBLE FOR THE BENEFIT OF THE E XEMPTION UNDER SECTION 10B OF THE ACT ARE RESTRICTED TO 90% OF SUCH PROFITS AND THE BALANCE 10% IS INCLUDABLE IN THE HA NDS OF THE ASSESSEE AS PART OF HIS GROSS TOTAL INCOME. THE PROVISIONS OF SECTION 10B(6) OF THE ACT ARE NOT A H INDRANCE TO SUCH ALLOWANCE AS THE SAME ARE APPLICABLE AFTER THE HOLIDAY PERIOD IS OVER. IN ANY CASE SECTION 80HHE O F THE ACT IS NOT COVERED BY SECTION 10B(6) OF THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALL OW THE CLAIM OF THE ASSESSEE IN RESPECT OF THE DEDUCTION C LAIMED UNDER SECTION 80HHC OF THE ACT ON THE BALANCE PROFI TS IN PROPORTION TO TOTAL TURNOVER AND RECOMPUTE THE INCO ME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF T HE ACT. THE GROUND OF APPEAL NO.1 AND 2 RAISED BY THE ASSES SEE ARE THUS ALLOWED. ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 6 OF 19 7.1 THE LEARNED COUNSEL ALSO RELIED ON THE DECI SION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULE S (P) LTD VS. DCIT 332 ITR 42 (BOM) FOR THE PROPOSITION THAT THE RESTRICTIONS PLACED UNDER SECTION 80A AND 80IA(1) WILL ONLY APPL Y TO THE ALLOWANCE OF DEDUCTION AND NOT TO COMPUTATION OF DE DUCTION AS HELD BY THE HON'BLE BOMBAY HIGH COURT. EVEN THOUGH THAT THE JUDGMENT WAS GIVEN IN THE CONTEXT OF SECTION 80IA(9) AND 80H HC, THE PRINCIPLES ARE EQUALLY APPLICABLE AS WAS CONSIDERED BY THE COORDINATED BENCH REFERRED ABOVE. IN VIEW OF THE AB OVE, GROUND NO.3 OF THE ASSESSEE IS CONSIDERED AS ALLOWED. ASSE SSING OFFICER IS DIRECTED TO WORKOUT THE DEDUCTION ACCORDINGLY. 8. GROUND NO.4 PERTAINS TO THE ISSUE OF TREATING THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IT WAS SUBMITTED THAT THE INTEREST INCOME REPRESENTED INTE REST ON BANK DEPOSITS HELD AS MARGINAL MONEY, IN THE COURSE OF N ORMAL EXPORT BUSINESS AND IT CONSTITUTED BUSINESS INCOME. IT WAS FURTHER SUBMITTED THAT ITAT IN THE EARLIER YEAR HAS ALLOWED THE ASSESSEES CONTENTION AS UNDER: 35 AFTER HEARING THE RIVAL CONTENTIONS, WE FIND TH AT THE INTEREST INCOME IN QUESTION IS EARNED BY THE ASSESS EE FROM OUT OF FIXED DEPOSIT KEPT AS MARGIN MONEY FOR THE P URPOSE OF OBTAINING FACILITIES FROM THE BANK. THE ASSESSIN G OFFICER AS WELL AS THE COMMISSIONER (APPEALS) HELD THAT THE INTEREST INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE HON'BLE JURISDICTI ONAL HIGH COURT IN CIT V/S INDO SWISS JEWELS LTD. & ANR. , (2006) 284 ITR 389 (BOM.) HELD AS FOLLOWS:- THOUGH THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE, THE APPELLATE AUTHORITY IN THE FACTS OF T HE CASE AND IN THE LIGHT OF THE MATERIAL PLACED BY THE ASSE SSEE ON RECORD, WAS SATISFIED THAT THE FUNDS WERE KEPT BY T HE ASSESSEE IN THE VARIOUS COMPANIES FOR SHORT-TERMS F OR PAYMENT FOR IMPORTED MACHINERY. IN THIS CONNECTION, THE APPELLATE AUTHORITY HELD THAT THE BALANCE SHEET FOR THE NEXT YEAR ALSO SHOWED THAT ALL THESE DEPOSITS WERE WITHDRAWN AND PAID FOR THE MACHINERY. THE APPELLATE ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 7 OF 19 AUTHORITY WAS SATISFIED WITH THE EXPLANATION PUT FO RTH BY THE ASSESSEE. THE TRIBUNAL DID NOT FIND ANY ERROR I N THE APPROACH OF THE APPELLATE AUTHORITY, THAT THE MACHI NERY WAS IN FACT IMPORTED BY THE ASSESSEE IS NOT IN QUES TION. FROM THE FACTS AND CIRCUMSTANCES OF THE PRESENT CAS E IT IS CLEAR THAT THE INTERCORPORATE DEPOSITS WERE MADE BY THE ASSESSEE FROM THE SURPLUS FUNDS THAT WERE SET APART FOR THE PAYMENT OF IMPORTED MACHINERY. THAT THE SAID DEPOSITS WERE WITHDRAWN AND PAYMENT WAS MADE TOWARD S IMPORT OF THE MACHINERY IS ALSO NOT QUESTIONED BY T HE REVENUE. THE INTEREST EARNED ON THE SHORT-TERM DEPO SITS OF THE MONEY KEPT APART FOR THE PURPOSE OF BUSINESS HAS TO BE TREATED AS INCOME EARNED ON BUSINESS AND CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. WE, ACCORDING LY, ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. THE TAX APPEAL IS DISMISSED. SINCE THE ASSESSEE HAS CHOSEN NOT TO APPEAR, NO ORDER AS TO C OSTS. 36. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT O F THE HON'BLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE CO NTENTION OF THE ASSESSEE THAT THE INCOME INTEREST IN QUESTIO N SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. 37. COMING TO THE ISSUE WHETHER THE ASSESSEE IS ENT ITLED TO RELIEF UNDER SECTION 10B ON SUCH INTEREST INCOME, A S ALREADY HELD IN THE REVENUES APPEAL, WE FOLLOW THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN M/S. JE WELEX INTERNATIONAL P. LTD. (SUPRA) AND DIRECT THE ASSESS ING OFFICER TO RECOMPUTE THE INCOME ACCORDINGLY. THE AS SESSEE IS NOT ELIGIBLE FOR DEDUCTION ON THIS INTEREST INCO ME UNDER SECTION 80HHC, IN VIEW OF CLAUSE (BAA) TO EXPLANATI ON TO SECTION 80HHC . 8.1 KEEPING THE ABOVE PRINCIPLES IN MIND, WE DIRE CT THE AO TO WORK OUT PROFITS ELIGIBLE FOR DEDUCTION AS PER PROVISION S OF SEC 10B(4) BY INCLUDING THE INTEREST RECEIVED AS BUSINESS INCOME. HOWEVER A DIFFERENT WORKING HAS TO BE MADE IN VIEW OF EXPLANA TION (BAA) UNDER 80HHC. WITH THESE DIRECTIONS, GROUND NO.4 IS CONSID ERED ALLOWED. 9. GROUND NO.5 PERTAINS TO THE ISSUE OF UPHOLDING DISALLOWANCE UNDER SECTION 43B IN RESPECT OF CONTRIBUTION TO EPF ` 35.57 LAKHS AND ESIC ` 9.13 LAKHS AFTER THE DUE DATE BUT WITHIN THE FINANC IAL YEAR UNDER REFERENCE. ON EXAMINATION OF THE FACTS, IT IS SEEN THAT ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 8 OF 19 THE ASSESSEE HAS PAID THE ABOVE AMOUNTS WITHIN THE FINANCIAL YEAR EVEN THOUGH BELATEDLY AFTER THE GRACE PERIOD. TO TH E EXTENT OF AMOUNTS PAID WITHIN GRACE PERIOD, REVENUE CONTESTS IN THEIR APPEAL WHICH WILL BE CONSIDERED SEPARATELY, BUT TO THE EXT ENT OF AMOUNT PAID BEYOND THE GRACE PERIOD BUT WITHIN THE FINANCI AL YEAR THE ISSUE IS COVERED BY THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF ALOM EXTRUSIONS LTD 319 ITR 306. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT, ASSESSING OFFICER IS DIRECTE D TO ALLOW THE AMOUNTS UNDER SECTION 43B. GROUND NO.5 IS THEREFO RE, ALLOWED. 10. GROUND NO.6 PERTAINS TO THE LEVY OF INTEREST UNDER SECTION 234B WHICH IS CONSEQUENTIAL. NO SEPARATE ADJUDICATI ON IS REQUIRED ON THIS. 11. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.2323/MUM/2007 12. IN THIS REVENUE APPEAL, THE REVENUE HAS RAISED 8 G ROUNDS. 13. GROUND NO.1 PERTAINS TO THE ISSUE OF CLAIM OF DEDUC TION UNDER SECTION 10B WHICH THE CIT (A) HAS ALLOWED. IT WAS FAIRLY ADMITTED THAT THIS ISSUE IS COVERED BY THE ORDER OF THE ITAT IN ASSESSMENT YEAR 2002-03 IN THE ASSESSEES OWN CASE. THE ORDER OF TH E ITAT ON THIS ISSUE IS AS UNDER: 18.THE UNDISPUTED FACTS RELATING TO GROUND NO.1 AR E THAT, THE ASSESSEE WAS INCORPORATED IN ASSESSMENT YEAR 19 93- 94, AND DURING THAT YEAR, IT JUST DID SOME JOB WORK S OF GARMENTS. NO MACHINERY WAS PURCHASED. DURING THE ASSESSMENT YEAR 1994-95, THE ASSESSEE STARTED PRODU CTION OF GARMENTS AND CLAIMED EXEMPTION UNDER SECTION 80H HC. SIMILAR IS THE CASE FOR ASSESSMENT YEAR 1995-96. FO R THE FIRST TIME IN ASSESSMENT YEAR 1996-97, THE ASSESSEE OPTED TO CLAIM DEDUCTION UNDER SECTION 10B. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10B FOR FIVE CONSEQUENT ASSESSMENT YEARS I.E., FROM ASSESSMENT YEARS 1996-9 7 TO 2000-01, AND THE SAME WAS ALLOWED. ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 9 OF 19 19. NOW, WE CONSIDER THE AMENDMENT BROUGHT IN STATU TE W.E.F. 1 ST APRIL 1999. SUB SECTION (3) OF SECTION 10B, READS AS FOLLOWS:- PROFITS AND GAINS REFERRED TO IN SUB-SECTION (1), S HALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF ANY TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING W ITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE ARTICLES OR THINGS. 20. THE WORD TEN WAS SUBSTITUTED FOR THE WORD FI VE BY THE I.T. (2 ND AMENDMENT) ACT, 1998, W.E.F. 1 ST APRIL 1999. THE STATEMENT OF OBJECTS AND REASONS CLAUSE (3), READS AS FOLLOWS:- 3. CLAUSE 3 SEEKS TO AMEND SECTION 10B OF THE ACT. UNDER THE EXISTING PROVISIONS, TAX HOLIDAY IS AVAIL ABLE TO NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS SET UP IN FREE TRADE ZONES AND, TO UNITS SET UP IN SOFTWARE TECHNO LOGY PARKS FOR FIVE YEARS OUT OF THE BLOCK OF INITIAL EI GHT YEARS, SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. THE P ROPOSED AMENDMENT SEEKS TO EXTEND THE PERIOD OF TAX HOLIDAY FROM FIVE YEARS TO TEN YEARS IN ORDER TO GIVE ADDED THRU ST TO EXPORTS . CLAUSE 4 SEEKS TO SIMILARLY EXTEND THE FIVE YEAR TAX HOLIDAY PERIOD TO TEN YEARS TO THE EXPORT ORIEN TED UNITS UNDER SECTION 10B OF THE ACT. [EMPHASIS OWN] 21. FROM THE ABOVE, IT IS CLEAR THAT THE PERIOD OF TAX HOLIDAY HAS BEEN EXTENDED FROM FIVE YEARS TO TEN YE ARS. THE MUMBAI BENCH OF THE TRIBUNAL IN M/S. CONSINDIA PVT. LTD. (SURPA), VIDE PARAS-2.3 AND 2.4, HELD AS FOLLOWS :- 2.3 AFTER CONSIDERING THE SUBMISSIONS OF BOTH PARTI ES AND ORDERS OF THE AUTHORITIES BELOW, INCLUDING THE DECISIONS OF THE TRIBUNAL IN CASE OF TATA TEA LTD. AND IN CAS E OF TECH BOOKS ELECTRONICS SERVICES PVT. LTD., WE FIND THAT T HE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B. THERE I S NO DISPUTE AS PER ORIGINAL PROVISION OF LAW THAT THE A SSESSEE WAS ENTITLED FOR EXEMPTION U/S 10B FOR FIVE YEARS. THE ASSESSEE HAD ALREADY CLEARED THE DEDUCTION FOR FIVE YEARS I.E., FROM 1993-94 TO 1997-98. FOR ASSESSMENT YEAR 1998- 99, THE DEDUCTION WAS CLAIMED UNDER SECTION 80HHC INSTEAD OF DEDUCTION UNDER SECTION 10B. WITH EFFECT FROM 1.4.1999, PROVISIONS OF SECTION 10B WERE AMENDED AN D THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION FOR TEN YE ARS. AS ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 10 OF 19 PER AMENDED PROVISIONS WHICH IS VERY CLEAR THAT THE PERSONS WHO ARE CLAIMING DEDUCTION U/S 10B EARLIER THEY CAN CLAIM DEDUCTION FOR TEN YEARS. SUPPOSE ANY PERSO N HAVE CLAIMED DEDUCTION FOR FIVE YEARS THEN HE CAN C LAIM DEDUCTION FOR NEXT FIVE YEARS AND NOT TEN YEARS FRO M THE DATE I.E., 1.4.1999. THIS ISSUE HAS BEEN DISCUSSED IN DETAIL BY THE DELHI BENCH IN CASE OF TECH BOOKS ELECTRONIC S SERVICES (P) LTD. (SUPRA). IN THAT CASE THE FACTS AR E SIMILAR AS A PARTNERSHIP FIRM IN THE NAME OF TECH BOOKS ELECTRONICS SERVICES (P) LTD. (SUPRA) WAS FORMED FO R CARRYING BUSINESS OF DEVELOPMENT AND EXPORT OF SOFT WARE DATA PROCESSING ON 14.12.1992, THE SOFTWARE TECHNOLO GY PARK OF INDIA (STPI) GRANTED PERMISSION FOR THE FIRM FOR SETTING UP 100% EOU UNDER THE SOFTWARE TECHNOLOGY PA RK SCHEME. LATER ON STPI HAS ALSO GRANTED APPROVAL UNDER SECTION 14 OF THE INDUSTRIES ACT, TO ENABLE IT TO A VAIL THE BENEFITS UNDER SECTION 10B AND 10B FROM FINANCIAL Y EAR 1993-94 UP TO 18.9.1997, THE FIRM WAS EXCLUSIVELY EXPORTING ITS SOFTWARE TO AN AMERICAN COMPANY. ON 19.9.1997, THE FIRM WAS CONVERTED INTO A PRIVATE LI MITED COMPANY AND ALL THE ASSETS AND LIABILITY OF THE FIR M BECAME THE PROPERTY OF THE ASSESSEE COMPANY. CONSEQUENTLY, ALL THE PARTNERS BECAME SHARE HOLDERS IN THE ASSESSEE COMPANY AND THE CAPITAL OF THE FIRM BECAME PAID UP CAPITAL OF THE ASSESSEE COMPANY. IN ASSESSMENT YEAR 2000-01, THE ASSESSEE COMPANY FOR THE FIRST TIME CL AIMED EXEMPTION UNDER SECTION 10B. THE A.O. DENIED THE EXEMPTION U/S 10B. THE CIT(A) ALSO CONFIRMED THE AC TION OF THE A.O. ON SECOND APPEAL BEFORE THE TRIBUNAL, T HE TRIBUNAL AFTER DISCUSSING THE ISSUE IN DETAIL HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10 B. THE PROVISIONS OF SECTION 10B BEFORE AMENDMENT AND AFTE R AMENDMENT WERE TAKEN INTO CONSIDERATION. AFTER TAKI NG INTO CONSIDERATION ALL THE ASPECTS INCLUDING THE DE CISION OF CALCUTTA BENCH IN THE CASE OF TATA TEA, THE TRIBUNA L HAS HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10 B FOR THE YEARS INVOLVED I.E., ASSESSMENT YEAR 2000-01 AND 20 01- 02. THE TRIBUNAL HAS CATEGORICALLY HELD THAT FIRST YEAR OF EXEMPTION U/S 10B WAS ASSESSMENT YEAR 1994-95 AS ASSESSEE IS ENTITLED FOR EXEMPTION UPTO ASSESSMENT YEAR 2003-04. THEREFORE, THE CLAIM OF THE ASSESSEE FOR T WO YEARS AS MENTIONED ABOVE WAS ALLOWED. 2.4 AS STATED ABOVE, SIMILAR FACTS ARE INVOLVED HERE BEFORE US. THE FIRST YEAR OF EXEMPTION U/S 10B WAS 1993- 94, AND IN THIS WAY THE ASSESSEE IS ENTITLED FOR EX EMPTION UPTO ASSESSMENT YEAR 1993-94. THE YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2001-02, THEREFORE , WE HOLD THAT ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10 B FOR ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 11 OF 19 THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE DIREC T THE A.O. TO ALLOW THE DEDUCTION UNDER SECTION 10B AS CL AIMED BY THE ASSESSEE. 22. THE DELHI BENCH OF THE TRIBUNAL IN TECH BOOKS ELECTRONICS SERVICES (P) LTD. (SUPRA), HELD AS FOLL OWS:- 10. WE HAVE CAREFULLY CONSIDERED THE ENTIRE RELEVAN T MATERIAL AND THE RIVAL SUBMISSIONS. ON GOING THROUG H THE RELEVANT PROVISIONS OF LAW AND THE DECISIONS OF VAR IOUS COURTS ON WHICH RELIANCE HAS BEEN PLACED BY THE LEA RNED COUNSEL FOR THE ASSESSEE, WE FIND FORCE IN HIS SUBM ISSIONS AND ACCEPT THE SAME. OUR FINDINGS AND OBSERVATIONS ARE AS UNDER. 10.1 THE EXEMPTION UNDER S. 10B, AS THE HEADING OF THE SECTION SUGGESTS, IS IN RESPECT OF 'NEWLY ESTABLISH ED HUNDRED PER CENT EOUS'. SEC. 10 WAS INSERTED BY THE FINANCE ACT, 1988 W.E.F. 1ST APRIL, 1989 AND LATER ON IT WAS AMENDED FROM TIME TO TIME. ACCORDING TO THIS PROVIS ION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PER CENT EOU SHALL NOT BE INCLUDED IN THE T OTAL INCOME OF THE ASSESSEE. AS PROVIDED IN CL. (2) OF S . 10B, THE EXEMPTION IS AVAILABLE TO UNDERTAKINGS WHICH FU LFIL ALL THE FOLLOWING CONDITIONS, NAMELY : '(I) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THI NG; (II) IN RELATION TO AN UNDERTAKING WHICH BEGINS TO MANUFACT URE OR PRODUCE ANY ARTICLE OR THING ON OR AFTER THE 1ST DA Y OF APRIL, 1994, ITS EXPORTS OF SUCH ARTICLES AND THING S ARE NOT LESS THAN SEVENTY FIVE PER CENT OF THE TOTAL SALES THEREOF DURING THE PREVIOUS YEAR; (III) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RES ULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN S. 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN TH AT SECTION; (IV) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE.' THE LEARNED CIT(A) HAS ALSO HELD THAT THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF EXEMPTION IN VIEW OF THE A MENDED PROVISIONS OF S. 10B. THIS FINDING OF LEARNED CIT(A ) IS NOT BASED ON CONSTRUCTION OF RELEVANT STATUTORY PROVISI ONS. THE CBDT VIDE CIRCULAR NO. 1 OF 2005 [(2005) 193 CTR (ST ) 85] HAS CLARIFIED THE POSITION AND, THEREFORE, IN V IEW OF THE ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 12 OF 19 PROVISIONS OF S. 10B AS AMENDED W.E.F. 1ST APRIL, 1 999 THE ASSESSEE SHALL BE ENTITLED TO CLAIM EXEMPTION IN RE SPECT OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE AR TICLES OR THINGS. THEREFORE, THE EOU WHICH EXISTED BEFORE FINANCIAL YEAR 1998-99 AND WHICH WAS OTHERWISE ELIG IBLE FOR TAX HOLIDAY OF FIVE ASSESSMENT YEARS OUT OF BLO CK OF EIGHT ASSESSMENT YEARS, WOULD BE ELIGIBLE FOR TAX H OLIDAY FOR A BLOCK PERIOD OF TEN ASSESSMENT YEARS. HOWEVER , THE PERIOD OF TEN YEARS SHALL COMMENCE FROM THE FINANCI AL YEAR RELEVANT TO THE ASSESSMENT YEAR IN WHICH THE UNDERT AKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS . IN THE INSTANT CASE, SINCE THE FIRM STARTED MANUFACTURING OR PRODUCING ARTICLES OR THINGS IN ASST. YR. 1994-95, FROM THAT ASSESSMENT YEAR THE FIRM SHALL BE ELIGIBLE FOR EXEM PTION FOR TEN CONSECUTIVE ASSESSMENT YEARS AND THE DEDUCT ION SHALL BE AVAILABLE FOR THE UNEXPIRED PERIOD OF TEN YEARS. 10.8 IN THE CASE OF THE ASSESSEE, NEITHER THE PERIO D OF FIVE YEARS NOR THE BLOCK PERIOD OF EIGHT YEARS EXPI RED WHEN THE AMENDMENT REPLACING THE WORD TEN FOR FIVE W AS INTRODUCED BY IT (SECOND AMENDMENT) ACT, 1998 W.E.F. 1 ST APRIL, 1999. SINCE THE ASSESSEE WAS ENTITLED TO EXE MPTION IN THE YEAR IN WHICH AMENDMENT BECAME EFFECTIVE AND OPERATIVE, THE ASSESSEE WILL BE ENTITLED TO THE EXT ENDED PERIOD OF EXEMPTION BECAUSE THE PERIOD OF FIVE YEAR S HAD NOT EXHAUSTED UPTO ASST. YR. 1999-2000. SINCE THE R IGHT OF THE ASSESSEE WAS CONTINUING IN THE YEAR OF AMENDMEN T AND WAS NOT LOST ON THE DATE WHEN THE AMENDMENT CAM E INTO EXISTENCE, THE VIEW TAKEN BY THE LEARNED CIT(A ) CANNOT BE UPHELD. 10.9 SO FAR AS THE OBJECTIONS OF THE LEARNED CIT(A) REGARDING CONDUCT OF THE ASSESSEE-FIRM IN NOT CLAIM ING THE EXEMPTION IN EARLIER YEAR ARE CONCERNED, THE APPROA CH OF THE LEARNED CIT(A) RAISING THIS OBJECTION, CANNOT BE LEGALLY JUSTIFIED BECAUSE IF THE ASSESSEE IS ENTITLED TO AN Y BENEFIT UNDER ANY STATUTORY PROVISION THEN THE PAST CONDUCT CANNOT BE RELEVANT PARTICULARLY WHEN REFERENCE TO S UCH CONDUCT IS NOT MADE IN THE ACT. THE ELIGIBILITY OF THE ASSESSEE HAS TO BE SEEN IN THE YEAR IN WHICH THE CL AIM IS PREFERRED AND IF IN EARLIER YEARS THE ASSESSEE WAIV ED HIS RIGHT THEN HE CANNOT BE STOPPED IN CLAIMING THE BEN EFIT IN THE SUBSEQUENT YEARS. 23. IN BOTH THE AFORESAID DECISIONS, THE TRIBUNAL W AS CONSIDERING THE CLAIM FOR DEDUCTION IN ASSESSMENT Y EAR ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 13 OF 19 2001-02 AND ASSESSMENT YEAR 2000-01 RESPECTIVELY. I N OUR OPINION, THESE TWO CASES COVER THE CASE IN HAND . 24. COMING TO THE MUMBAI BENCH DECISION OF THE TRIBUNAL IN INTERGOLD (I) LTD. (SUPRA), RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE ASSESSMENT YEAR IN QUESTION WAS 1997-98, WHEN THE AMENDMENT WAS NOT IN THE STATUTE. THE ASSESSEE, IN THAT CASE, HAD ALREADY AVAILED DEDUCTION FOR A BLOCK OF FIVE ASSES SMENT YEAR FROM 1992-93 TO 1996-97. AFTER THE AMENDMENT MADE W.E.F. 1 ST APRIL 1999, THE ASSESSEE SOUGHT DEDUCTION FOR THE ASSESSMENT YEAR 1997-98, WHICH IS PRIOR TO THE DATE OF AMENDMENT. THE TRIBUNAL RIGHTL Y SO HELD THAT THE AMENDMENT DOES NOT APPLY TO ASSESSMEN T YEAR 1997-98. THE TRIBUNAL, VIDE PARA-23, HAD OBSERVED AS FOLLOWS:- 23. IT IS SETTLED LEGAL POSITION THAT THE SUBSTANTI VE AMENDMENT IS NORMALLY PROSPECTIVE UNLESS STATED OTHERWISE. ON THE CONTRARY THE PROCEDURAL PROVISION S ARE REGARDED AS APPLICABLE TO PENDING PROCEEDINGS AS WE LL. WHERE THE STATUTE CONFERS POWER FOR THE FIRST TIME, IT CANNOT BE HELD THAT SUCH POWER IS MEANT TO BE EXERC ISED IN RESPECT OF PAST PERIODS AS WELL. UNLESS RETROSPECTI VE OPERATION HAS BEEN ASSIGNED BY THE LEGISLATURE O A SUBSTANTIVE PROVISION, IT CAN ONLY BE REGARDED AS PROSPECTIVE. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBIE MADRAS HIGH COURT IN THE CASE OF S. SUBASH V. IT [2001] 248 ITR 512. THUS A SUBSTANTIVE PROVISION I CONSIDERED AS PROSPECTIVE UNLESS IT IS EXPRESSLY MA DE APPLICABLE FROM AN EARLIER DATE. WE NOW TURN TO EXA MINE AS TO WHETHER SUB-SECTION (3) OF SECTION 10B IS SUB STANTIVE OR PROCEDURAL PROVISION. AS NOTED ABOVE THE DEDUCTI ON WAS ALLOWED TO THE ASSESSEE FOR FIVE CONSECUTIVE ASSESS MENT YEARS FALLING WITHIN THE PERIOD OF EIGHT YEARS BEGI NNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGAN TO MANUFACTU RE OR PRODUCE ARTICLES OR THINGS. BY VIRTUE OF THE AMENDM ENT CARRIED OUT WITH EFFECT FROM 1-4-1999 THE DEDUCTION CAME 1-0 BE ALLOWED IN RESPECT OF TEN CONSECUTIVE ASSESS MENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE ASSESSMENT YEAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLE OR THINGS. WHEREAS IN THE PERIOD ANTERIOR TO THE AMENDMENT, TH E DEDUCTION WAS ALLOWED FOR FIVE CONSECUTIVE ASSESSME NT YEARS AT THE OPTION OF THE ASSESSEE, IN THE PERIOD POSTERIOR TO AMENDMENT IT CAME TO BE ALLOWED FOR TEN CONSECUT IVE ASSESSMENT YEARS. OBVIOUSLY THE AMENDMENT SO MADE T O ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 14 OF 19 SUBSECTION (3) IS SUBSTANTIVE AS IT HAS EXPANDED TH E PERIOD OF DEDUCTION FROM THE EARLIER FIVE YEARS TO TEN YEA RS. THERE IS NOTHING LIKE GIVING ANY CLARIFICATION FOR THE EA RLIER PROVISION OR LAYING DOWN ANY PROCEDURE IN RESPECT O F THE EXISTING PROVISION.\A NEW EXTENDED BENEFIT WAS CONF ERRED FOR THE FIRST TIME. BY NO STRETCH OF IMAGINATION IT CAN BE SAID TO BE CLARIFICATORY OR PROCEDURAL SO AS TO THE BRANDED AS THE RETROSPECTIVE. IT IS INDEED A SUBSTANTIVE AM ENDMENT AND WILL HOLD THE FIELD FROM THE DATE WHEN IT HAS B EEN MADE APPLICABLE FROM, WHICH IN THE PRESENT CASE IS ASSESSMENT YEAR 1999-2000. THE POSITION WOULD HAVE BEEN DIFFERENT IF THE PERIOD OF FIVE YEARS HAD NOT YET EXPIRED AND THE AMENDMENT HAD COME IN BETWEEN . IN THAT CASE THE ASSESSEE WOULD HAVE BEEN ENTITLED TO DEDUC TION FOR THE LARGER PERIOD AS PER THE AMENDMENT . [EMPHASIS OWN] 25. FROM THE LAST FOUR LINES OF THE ABOVE, IT IS CL EAR THAT THE TRIBUNAL WAS OF THE VIEW THAT, HAD THE PERIOD O F FIVE YEARS NOT YET EXPIRED, THE ASSESSEE WOULD HAVE BEEN ENTITLED FOR A LARGER PERIOD OF TEN YEARS WHICH IS EXACTLY THE CASE OF THE ASSESSEE BEFORE US. 26.COMING TO THE CALCUTTA BENCH DECISION OF THE TRIBUNAL IN TATA TEA LTD. (SUPRA), THE CLAIM WAS FO R ASSESSMENT YEAR 1998-99 AND THIS WAS ALSO FOR A PER IOD PRIOR TO THE SUBSTITUTION W.E.F. 1 ST APRIL 1999. IN THIS CASE ALSO, THE TRIBUNAL, WHILE REJECTING THE CLAIM OF THE ASSESSEE, VIDE PARA-7 (LAST FOUR LINES) OBSERVED AS FOLLOWS:- BE THAT AS IT MAY, EVEN ASSUMING, FOR ARGUMENTS S AKE, THAT GIVING FIVE MORE YEARS OF TAX HOLIDAY TO EXIST ING UNIT WAS INDEED INTENTION OF THE LAW MAKERS BUT THAT QUE STION CAN ONLY BE EXAMINED IN THE YEAR IN WHICH THE AMEND ED LAW IS TO TAKE EFFECT, I.E., ASST. YR. 1999-2000, O R THEREAFTER. THE TRIBUNAL, AT PARA-10, CONCLUDED AS FOLLOWS:- 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE SEE NO ME RIT IN ASSESSEES GRIEVANCE. IN OUR CONSIDERED VIEW, THE ASSESSEE, HAVING ALREADY AVAILED S. 10B BENEFIT FOR FIVE CONSECUTIVE ASSESSMENT YEARS, WAS NOT ELIGIBLE FOR EXEMPTION UNDER S. 10B ANY FURTHER, SO FAR AS ASST. YR. 1998-99 IS CONCERNED. ACCORDINGLY, WE CONFIRM THE ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 15 OF 19 CONCLUSIONS ARRIVED AT BY THE AUTHORITIES BELOW AND DECLINE TO INTERFERE IN THE MATTER. 27. THUS, BOTH THESE CASE LAWS DO NOT COME TO THE RESCUE OF THE REVENUE. CONSEQUENTLY, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN TECH BOO KS ELECTRONICS SERVICES (P) LTD. (SUPRA) AND M/S. CONSINDIA PVT. LTD. (SUPRA), WE UPHOLD THE FINDINGS OF THE COMMISSIONER (APPEALS) AND DISMISS GROUND NO.1 OF THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) AND ACCORDI NGLY THE GROUND IS REJECTED. 14. GROUND NO.2 PERTAINS TO THE ISSUE OF NOT EXC LUDING THE FOREIGN EXCHANGE GAIN OF ` 3,73,948/- FROM BUSINESS PROFITS FOR COMPUTING THE DEDUCTION UNDER SECTION 10B. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE VIDE PARA 28 OF THE ORDER WH ICH IS AS UNDER: 28. COMING TO GROUND NO.2, WHICH IS ON THE ISSUE O F FOREIGN EXCHANGE GAINS, THE UNDISPUTED FACT RECORDE D BY THE COMMISSIONER (APPEALS) IS THAT THE WHOLE OF THE GAIN IS ATTRIBUTABLE TO EXPORT SALE REALIZATION OF THE CURR ENT YEAR. THE HON'BLE JURISDICTIONAL HIGH COURT IN AMBAR EXPO RTS PVT. LTD. (SUPRA), HELD THAT RECEIPT BY WAY OF EXCH ANGE RATE FLUCTUATION IS INCLUDIBLE IN THE TOTAL TURNOVER OF THE ASSESSEE. ACCORDINGLY THE ORDER OF THE CIT (A) IS CONFIRMED A ND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 15. GROUND NO.3 PERTAINS TO THE ISSUE OF OTHER INC OME OF ` 33,75,654/- BEING THE PREMIUM ON LICENSE/QUOTA. THE ASSESSEE RECEIVED AN AMOUNT OF ` 33,75,654/-AS PART OF PREMIUM LICENSE/ QUOTA. RELYING ON THE CBDT INSTRUCTIONS NO.133/131/ 97 TPL DATED 23.02.1998 ASSESSEE CLAIMED THAT PREMIUM ON SALE O F EXPORT QUOTA IS TO BE CONSIDERED AS PROFITS UNDER SECTION 28. TH E CIT (A) WHILE ALLOWING THE AMOUNTS AS BUSINESS INCOME DIRECTED TH E ASSESSING OFFICER TO EXAMINE THE NATURE OF OTHER INCOME OF ` 33,75,654/-. WE ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 16 OF 19 DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT (A) AS THE DIRECTIONS ARE CORRECT AS PER THE LAW. MOREOVER , THE DEDUCTION IF AT ALL ALLOWABLE UNDER SECTION 10B IS TO BE CONSIDE RED UNDER SECTION 10B(4) IN DETERMINING PROFITS DERIVED, WHICH WAS AL READY DISCUSSED IN ASSESSEES APPEAL. THEREFORE, REVENUES GROUND IS DISMISSED. 16. GROUND NO.4 PERTAINS TO THE DEDUCTION IN RESP ECT OF EMPLOYERS AND EMPLOYEES CONTRIBUTION TO PF AND ESIC PAID WITH IN THE GRACE PERIOD. THE ASSESSING OFFICER DISALLOWED THE ENTIRE PAYMENT TOWARDS PF & ESIC MADE AFTER THE DUE DATES. THE CIT (A) ALL OWED THE AMOUNTS PAID WITHIN THE GRACE PERIOD ON WHICH REVEN UE IS AGGRIEVED. CONSEQUENT TO THE DECISION OF THE SUPREM E COURT IN THE CASE OF ALOM EXTRUSIONS LTD 319 ITR 306, THE AMOUNT S PAID BEYOND THE GRACE PERIOD WERE ALSO CONSIDERED ALLOWABLE UND ER SECTION 43B IN GROUND 5 IN ASSESSEE APPEAL. THEREFORE, PAYMENTS MADE WITHIN THE GRACE PERIOD ARE CERTAINLY ALLOWABLE. FURTHER I N THE CASE OF MAHARASHTRA SEED CORPORATION LTD., 14 OF 2000, HON' BLE BOMBAY HIGH COURT HAS HELD THAT PAYMENTS MADE WITHIN THE G RACE PERIOD AS A DEDUCTIBLE AMOUNTS. IN VIEW OF THIS, WE DO NOT SE E ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). ACCORDINGL Y, THIS GROUND IS REJECTED. 17. GROUND NO.5 PERTAINS TO THE ISSUE OF CONSIDER ING THE SUMS OF ` 4.01 CRORES AND ` 0.15 CRORES FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10B AND 80HHC, REALIZED BEL ATEDLY BY ASSESSEE. THIS ISSUE IS PARTLY DISCUSSED IN GROUND NO.1 OF THE ASSESSEE AND CONSEQUENT TO THE ADDITIONAL EVIDENCE FILED WITH REFERENCE TO THE AMOUNT RECEIVED SUBSEQUENTLY FOR W HICH APPROVALS WERE OBTAINED, THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER. ORIGINALLY THE ASSESSING OFFICER DISALLOWE D THE SUM OF ` 7.50 CRORES NOT RECEIVED BY THE END OF THE ACCOUNTING YE AR WHEREAS THE ASSESSEE FURNISHED THE BREAK-UP OF THE AMOUNTS REAL IZED AS UNDER: ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 17 OF 19 AMOUNT REALIZED BEFORE 30 TH SEPT.2003 ` 4.01 CRORE AMOUNT REALIZED AFTER 30.9.2003: BUT WITHIN PERIOD OF 360 DAYS PROVIDED BY GENERAL PERMISSION OF RBI. AMOUNT REALIZED BEYOND PERIOD OF 360 DAYS ` 0.15 ` 3.06 `3.21 SUB TOTAL `7.22 `0.28 TOTAL `7.50 THE CIT (A) ALLOWED THE AMOUNTS RECEIVED/REALIZED B EFORE 30.09.2003 TO THE EXTENT OF ` 4.00 CRORES AND AN AMOUNT OF ` 0.15CRORES RECEIVED WITHIN 360 DAYS BY GENERAL PERM ISSION OF THE RBI BUT, DID NOT ALLOW AMOUNT OF ` 3.06 CRORES RECEIVED BEYOND THE PERIOD OF 360 DAYS. WITH REFERENCE TO THE AMOUNT RE CEIVED AFTER 360 DAYS IT WAS RESTORED TO THE FILE OF THE ASSESSING O FFICER FOR EXAMINATION AS PERMISSIONS WERE STATED TO HAVE BEEN RECEIVED, AS PER PROVISIONS OF IT ACT. WITH REFERENCE TO THE AM OUNT ALLOWED BY THE CIT (A) NOW DISPUTED IN REVENUE APPEAL, WE DO N OT SEE ANY REASON TO INTERFERE AS THE AMOUNTS WERE REALIZED WI THIN THE PERIOD PERMITTED BY THE RESPECTIVE AUTHORITIES. HOWEVER, S INCE THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER IN AS SESSEE APPEAL, WE DIRECT THE AO TO EXAMINE THE DATES OF REALIZATION A ND PERMISSIONS GRANTED TO ALLOW THE DEDUCTION ACCORDINGLY EVEN ON THIS AMOUNT. THEREFORE, THIS GROUND IS ALLOWED FOR STATISTICAL P URPOSES. 18. GROUND NOS.6 AND 7 PERTAINS TO THE ISSUE OF DIR ECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S10B IN RESP ECT OF OTHER INCOMES AND FURTHER TO EXCLUDE ONLY IN NET JOB WORK RECEIPTS AND NOT THE GROSS JOB WORK RECEIPTS WHILE COMPUTING DED UCTION UNDER SECTION 10B. THIS GROUND OF THE REVENUE DOES NOT SU RVIVE IN VIEW OF THE FINDINGS GIVEN IN THE ASSESSEES APPEAL THAT TH E ABOVE RECEIPTS SHOULD BE CONSIDERED AS OPERATIONAL INCOME FOR THE PURPOSE OF ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 18 OF 19 DEDUCTION UNDER SECTION 10B AS WELL AS UNDER SECTIO N 80HHC. IN FACT THE CIT (A) DIFFERED FROM HIS PREDECESSORS OR DER IN THE EARLIER YEARS WHEREIN THE JOB WORK CHARGES WERE TREATED AS OPERATIONAL INCOME AND ALLOWED THE DEDUCTION UNDER SECTION 80HH C AND REVENUE HAS NOT CAME UP IN APPEAL ON THE ISSUE IN T HE EARLIER YEAR. THEREFORE, CONTESTING THE ISSUE ON THE DIRECTIONS O F ONLY THE NET INCOME SHOULD BE CONSIDERED IS NOT CORRECT. WE ARE OF THE OPINION THAT THE FINDINGS OF THE CIT (A) IN THE EARLIER YEA RS THAT THE JOB WORK CHARGES RECEIVED ARE TO BE CONSIDERED AS OPERATIONA L INCOME IS CORRECT AND THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B AND UNDER SECTION 80HHC. THE GROUNDS AR E REJECTED. 19. GROUND NO.8 PERTAINS TO THE ISSUE OF DEDUCTIO N UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON STITCHING CHARGES O F ` 77.27 LAKHS AND OTHER INCOME OF ` 33.75 LAKHS FOR THE PURPOSE OF EXCLUSION AS PER THE EXPLANATION (BAA) OF SECTION 80HHC. THI S GROUND OF THE REVENUE CAN NOT BE CONSIDERED FULLY IN VIEW OF THE FINDINGS GIVEN IN THE ASSESSEES APPEAL THAT THE ABOVE RECEIPTS ON ST ITCHING CHARGES SHOULD BE CONSIDERED AS BUSINESS INCOME FOR THE PUR POSE OF DEDUCTION UNDER SECTION 10B. IN FACT THE CIT (A) DI FFERED FROM HIS PREDECESSORS ORDER IN THE EARLIER YEARS WHEREIN TH E JOB WORK CHARGES WERE TREATED AS OPERATIONAL INCOME AND ALLO WED THE DEDUCTION UNDER SECTION 80HHC AND REVENUE HAS NOT C OME UP IN APPEAL ON THE ISSUE IN THE EARLIER YEAR. THEREFORE, CONTESTING THE ISSUE IS NOT CORRECT. WE ARE OF THE OPINION THAT TH E FINDINGS OF THE CIT (A) IN THE EARLIER YEARS THAT THE JOB WORK CHAR GES RECEIVED ARE TO BE CONSIDERED AS OPERATIONAL INCOME IS CORRECT AND THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC ON THE ISSUE. AS FAR AS THE RECEIPTS ON PREMIUM SHOWN AS O THER INCOME, IF THEY ARE OF THE NATURE OF ANY SUM REFERRED TO IN CL AUSES (IIIA),(IIIB),(IIIC),(IIID), AND (IIIE) OF SEC.28, THEN THEY ARE TO BE EXCLUDED AT 90% OF THE AMOUNT AS PER EXPLANATION(BA A) TO SEC ITA NOS 2323 & 1660 OF 2007 TROPICATE TEXTILES (P) LTD MUMBAI PAGE 19 OF 19 80HHC ITSELF. AO WAS DIRECTED BY CIT(A) TO EXAMINE THE NATURE OF RECEIPTS. THERE IS NO NEED TO ADJUDICATE ON THIS IS SUE. HOWEVER, AO IS DIRECTED TO EXAMINE THE NATURE OF RECEIPT AND IF THE AMOUNT IS COVERED BY THE PROVISIONS OF EXPLANATION (BAA) OF S EC.80HHC, THEN TO DECIDE ACCORDINGLY. THE GROUNDS ARE ACCORDINGLY REJECTED. 20. IN THE RESULT, ASSESSEE AND REVENUE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2011. SD/- SD/- (D.K.AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER VNODAN/SPS MUMBAI, DATED 30 TH DECEMBER, 2011. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI