The ITO, Ward-4, Gandhinagar V. Sonic Technology (india) Inc., Gandhinagar

ITA 2914/AHD/2010

• Counselvise Citation: 291420514 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Section: 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO.2914/AHD/2010 A.Y. 2006-07 ITO, WARD-4, GANDHINAGAR. VS SONIC TECHNOLOGY (INDIA) INC., PLOT NO.C-9 GIDC ESTATE, SECTOR-25, GANDHINAGAR. PAN: AARFS 3913K (APPELLANT) (RESPONDENT) ITA NO.2938/AHD/2010 A.Y. 2006-07 SONIC TECHNOLOGY (INDIA) INC., PLOT NO.C-9 GIDC ESTATE, SECTOR-25, GANDHINAGAR. PAN: AARFS 3913K VS ITO, WARD-4, GANDHINAGAR. (APPELLANT) (RESPONDENT) ITA NO.2719/AHD/2011 A.Y. 2006-07 ITO, WARD-4, GANDHINAGAR. VS SONIC TECHNOLOGY (INDIA) INC., PLOT NO.C-9 GIDC ESTATE, SECTOR-25, GANDHINAGAR. PAN: AARFS 3913K (APPELLANT) (RESPONDENT) CO NO.284/AHD/2011 A.Y. 2006-07 SONIC TECHNOLOGY (INDIA) INC., PLOT NO.C-9 GIDC ESTATE, SECTOR-25, GANDHINAGAR. PAN: AARFS 3913K VS ITO, WARD-4, GANDHINAGAR. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.C. MATHEWS, SR.D.R., ASSESSEE(S) BY : SHRI SANJAY R. SHAH, A.R. ITA NO.2914, 2938/AHD/2010, 2719/AHD/2011 & CO NO.2 84/AHD/2011 ITO WARD-4, GANDHINAGAR VS. SONIC TECHNOLOGY (INDIA ) INC. FOR A.Y. 2006-07 - 2 - / DATE OF HEARING : 25/02/2014 / DATE OF PRONOUNCEMENT: 26/02/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER A. ITA NO.2914/AHD/2010 (REVENUES APPEAL) REVENUE HAS FILED THIS APPEAL AGAINST THE ORDER OF LEARNED CIT(A), GANDHINAGAR, DATED 12.08.2010 AND THE SUBSTANTIVE G ROUND RAISED IS AS UNDER: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION OF RS.28,62,448/- MADE ON ACCOUNT OF DISALLOWANCE OF E XEMPTION U/S.10B OF THE IT ACT ON THE AMOUNT OF SCRAP SALES. 1.1 AN ASSESSMENT U/S. 143(3), DATED 21.12.2009 WAS MADE, WHEREIN IT WAS NOTED THAT THE ASSESSEE FIRM IS A 100% EXPORT O RIENTED UNIT. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF PR INTING CIRCUIT BOARD. THE ASSESSEE CLAIMED AN EXEMPTION U/S. 10B OF IT AC T. ON VERIFICATION OF P & L A/C, IT WAS NOTED THAT THE ASSESSEE HAD SHOWN OTHER INCOME AMOUNTING TO RS.1,32,92,850/-, DETAILED AS UNDER: A) INCREMENTAL TURNOVER & CONNECTIVITY INCENTIVE R S.49,71,965/- SUBSIDY FROM GOVERNMENT B) INTEREST INCOME RS.3,74,922/- C) SALE OF SCRAP RS.28,62,448/- D) OTHER INCOME RS. 25,470/- E) EXCHANGE RATE OF FLUCTUATION RS.50,58,045/- 1.2 ONLY IN RESPECT OF GOVERNMENT SUBSIDY, INTEREST INCOME, OTHER INCOME AND SALE OF SCRAP, THE AO HAD ISSUED THE SHO W CAUSE NOTICE THAT THE SAME WAS NOT ELIGIBLE FOR DEDUCTION U/S. 10B OF IT ACT IN VIEW OF THE APEX COURT DECISION PRONOUNCED IN THE CASE OF M/S. LIBERTY INDIA, 183 TAXMAN 349 . ACCORDINGLY, IN RESPECT OF ABOVE REFERRED INCOME, THE ITA NO.2914, 2938/AHD/2010, 2719/AHD/2011 & CO NO.2 84/AHD/2011 ITO WARD-4, GANDHINAGAR VS. SONIC TECHNOLOGY (INDIA ) INC. FOR A.Y. 2006-07 - 3 - EXEMPTION U/S.10B WAS DISALLOWED AND ADDED BACK IN THE TAXABLE INCOME OF THE ASSESSEE. 2. WHEN THE MATTER WAS CARRIED BEFORE LEARNED CIT(A ), THE CLAIM OF DEDUCTION U/S.10B IN RESPECT OF GOVERNMENT SUBSIDY OF RS.49,71,965/- WAS REJECTED. IN RESPECT OF DISALLOWANCE OF INTERES T OF RS.3,74,922/- FOR EXEMPTION U/S.10B, THE ACTION OF THE AO WAS UPHELD. IN RESPECT OF SCRAP SALE OF RS.28,62,448/-, THE EXEMPTION U/S.10B WAS A LLOWED; THEREFORE, THE REVENUE IS NOW BEFORE US. FOR REST OF THE ADDITIONS CONFIRMED BY THE LEARNED CIT(A), THE ASSESSEE IS IN APPEAL. B. ITA NO.2938/AHD/2010 (ASSESSEES APPEAL) 3. THE SUBSTANTIVE GROUNDS RAISED BY THE ASSESSEE A RE AS FOLLOWS: 1. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING TH E DIFFERENCE IN THE LANGUAGE OF PROVISIONS OF SECTION 80IB(3) & SECTION 10B(4) AND THEREBY ERRONEOUSLY APPLYING DECISIONS RENDERED IN RELATION TO DEDUCTION U/S. 80IB TO THE PRESENT CASE. IT IS SUBMITTED IT BE SO HELD NOW . 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT IN HOLDING THAT GOVERNMENT SUBSIDY OF RS.49,71,965/- RECEIVED ON IN CREMENTAL EXPORT TURNOVER ( OF THE ONLY UNIT OF THE APPELLANT), IS N OT PART OF PROFITS OF THE BUSINESS OF THE EOU UNDERTAKING ELIGIBLE FOR EXEMPT ION U/S. 10B OF THE ACT. IT IS SUBMITTED IT BE SO HELD NOW. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT IN HOLDING THAT INTEREST OF RS.3,74,922/- RECEIVED ON DEPOSITS KEPT WITH BANKS OUT OF SURPLUS FUNDS GENERATED FROM THE EOU (THE ONLY UNIT OF THE APPELLANT), IS NOT PART OF THE BUSINESS OF THE EOU UNDERTAKING ELIGIBLE FOR EX EMPTION U/S. 10B OF THE ACT. IT IS SUBMITTED IT BE SO HELD NOW. 3.1 REST OF THE GROUNDS ARE EITHER ARGUMENTATIVE IN NATURE OR CONSEQUENTIAL IN NATURE. 3.2 AT THE OUTSET, LEARNED AR, MR. SANJAY R. SHAH H AS PLEADED THAT THE ISSUE OF GRANT OF EXEMPTION U/S.10B NOW STOOD COVER ED BY THE ORDER OF THE SPECIAL BENCH PRONOUNCED BY ITAT INDORE BENCH, IN THE CASE OF ITA NO.2914, 2938/AHD/2010, 2719/AHD/2011 & CO NO.2 84/AHD/2011 ITO WARD-4, GANDHINAGAR VS. SONIC TECHNOLOGY (INDIA ) INC. FOR A.Y. 2006-07 - 4 - MARAL OVERSEAS LTD, 20 TAXMANN.COM 346 (16 ITR (TRI B) 565, INDORE) . LEARNED AR HAS ALSO PLACED RELIANCE ON MOTOROLA INDIA ELECTRONICS (ITA NO.428 AND 447 OF 2007, ORDER DATED 11 TH DAY OF DECEMBER, 2013 (KARNATAKA) . 3.3 AN ANOTHER ORDER OF THE TRIBUNAL HAS ALSO BEEN REFERRED BEFORE US PRONOUNCED BY ITAT B BENCH AHMEDABAD, BEARING ITA NO.2890/AHD/2011 FOR A.Y.2005-06 IN THE CASE OF KAD AM EXPORTS PVT. LTD., DATED 31.07.2012. 4. IN THIS DECISION, THE RESPECTED CO-ORDINATE BENC H HAS CONSIDERED THE SPECIAL BENCH DECISION OF MARAL OVERSEAS (SUPRA ) AND THEREAFTER RESTORED THE ISSUE TO THE FILE OF THE AO IN THE FOL LOWING MANNER: AS FAR AS THE OTHER DECISIONS NAMELY, TOPMAN EXPOR TS VS. ITO (2009) 125 TTJ 289 (MUMBAI)[SB] AND LIBERTY OF INDIA VS. CIT ( 2009) 317 ITR 218 (SC) ARE CONCERNED, THE SAME ARE NOT PRONOUNCED IN THE C ONTEXT OF THE PROVISIONS OF SEC.10B, THEREFORE, FINALLY FROM THE SIDE OF THE APPELLANT ONLY THIS PRECEDENT WAS CITED IN RESPECT OF GROUND NOS.3 TO 6 FOR THE L EGAL PROPOSITION THAT EXPORT INCENTIVE IS TO BE ALLOWED IN TERMS OF THE VERDICT OF MARAL OVERSEAS LTD. (SUPRA). UNDISPUTEDLY, THIS DECISION OF THE RESPECT ED SPECIAL BENCH DATED 28/03/2012 WAS NOT AVAILABLE WHEN THE ASSESSMENT WA S FINALIZED. THE ASSESSING OFFICER DID NOT HAVE THE BENEFIT OF THIS VERDICT. THE RESPECTED SPECIAL BENCH HAS GIVEN THE DIRECTION THAT AN ASSES SEE IS ELIGIBLE FOR CLAIM OF DEDUCTION AS EXPORT INCENTIVE RECEIVED BY IT IN TER MS OF PROVISIONS OF SEC.10B(1) R.W.S. 10B(4) OF THE ACT. ON THE SAME LI NES, WE HEREBY DIRECT THE ASSESSING OFFICER TO VERIFY THE CORRECTNESS OF THE CLAIM AND IF SATISFIED, THEN APPLY THE FORMULA AS DISCUSSED IN THIS CASE-LAW AND THEREAFTER ALLOW AS PER LAW. RESULTANTLY, THESE GROUNDS MAY BE TREATED AS A LLOWED BUT FOR STATISTICAL PURPOSES ONLY. 4.1 THE ARGUMENT OF LEARNED AR IS THAT IN RESPECT O F 100% EXPORT ORIENTED UNDERTAKING SUB SECTION (1) OF SECTION 10B IS TO BE READ TOGETHER WITH SUB SECTION (4) OF SECTION 10B. THE SPECIAL BE NCH HAS MENTIONED THAT ALTHOUGH SECTION 10B(1) REFERS THE PROFITS DER IVED FROM EXPORT ORIENTED UNDERTAKING YET THE MANNER OF DETERMINING SUCH ELIGIBLE PROFIT ITA NO.2914, 2938/AHD/2010, 2719/AHD/2011 & CO NO.2 84/AHD/2011 ITO WARD-4, GANDHINAGAR VS. SONIC TECHNOLOGY (INDIA ) INC. FOR A.Y. 2006-07 - 5 - HAS BEEN PRESCRIBED IN SECTION 10B(4) OF IT ACT AS PER THE FORMULA IN SUB SECTION (4) THE ENTIRE PROFIT OF THE BUSINESS IS TO BE TAKEN INTO ACCOUNT AND TO BE MULTIPLIED BY THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER; HENCE, AS PER THE SAID SUB SECTION IT IS NOT REQUIR ED TO ESTABLISH A DIRECT NEXUS AND THE ENTIRE PROFIT OF THE BUSINESS OF THE UNDERTAKING IS TO BE TAKEN INTO ACCOUNT. THEREFORE, ACCORDING TO HIM THE SEGREGATION OF INCOME BY THE AO AND PART DISALLOWANCE BY LEARNED C IT(A) IS OF NO CONSEQUENCE AND THE ENTIRE BUSINESS PROFIT IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CLAIM OF DEDUCTION U/S.10B OF IT ACT . 5. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LEARNED SR.D.R., MR. K.C. MATHEWS HAS SUPPORTED THE ACTION OF THE AO AND ALSO ARGUED THAT IN ADDITION TO THE SUBSIDY AND INTEREST INCOME THE LEARNED CIT(A) WHO ALSO HAVE DISALLOWED THE SALE OF SCRAP FROM THE EXEMPTION OF SECTION 10B OF THE ACT. AS NOTED ABOVE, ALMOST ON IDENTICAL SITUATION WHEN AN ORDER OF THE SPECIAL BENCH HAS BEEN PRONOUNCED SUBS EQUENTLY AND THAT THE AO WAS NOT AWARE ABOUT THE ORDER OF THE SAID SP ECIAL BENCH, THEN IT WAS DEEMED FIT TO RESTORE THE ISSUE BACK TO THAT ST AGE SO THAT THE CORRECT INCOME CAN BE DETERMINED ON SATISFACTION, FOR THIS APPEAL THE SAME RECOURSE IS REQUIRED TO BE ADOPTED. AS ON DATE, WE HAVE BEEN INFORMED THAT THE SAID ORDER OF THE SPECIAL BENCH STANDS GOO D IN THE EYES OF LAW. AS FAR AS FEW OTHER DECISIONS AS CITED BY LEARNED A R ARE CONCERNED, THE SAME ARE PRONOUNCED IN RESPECT OF INCOME DIFFERENT IN NATURE THAN THE INCOMES IN QUESTION. 6. RESPECTFULLY, FOLLOWING OUR OWN DECISION AS CITE D SUPRA, WE DEEM IT PROPER TO RESTORE THIS ISSUE FOR BOTH THE APPEAL S BACK TO THE STAGE OF THE ITA NO.2914, 2938/AHD/2010, 2719/AHD/2011 & CO NO.2 84/AHD/2011 ITO WARD-4, GANDHINAGAR VS. SONIC TECHNOLOGY (INDIA ) INC. FOR A.Y. 2006-07 - 6 - AO TO BE DECIDED IN THE LINE OF THE SPECIAL BENCH D ECISION. A RESULT OF THIS OBSERVATION IS THAT THE APPEALS EITHER FILED B Y THE REVENUE OR BY THE ASSESSEE, BOTH ARE ALLOWED FOR STATISTICAL PURPOSE. C. ITA NO.2719/AHD/2011 (REVENUES APPEAL) 7. REVENUE HAS CHALLENGED THE DELETION OF PENALTY L EVIED U/S.271(1)(C) OF RS.49,71,965/- BY LEARNED CIT(A), GANDHINAGAR, VIDE ORDER DATED 17.08.2011. IT WAS HELD BY LEARNED CIT( A) THAT THE ISSUE BEING DEBATABLE IN NATURE, THEREFORE, IN A SITUATIO N WHEN ALL THE RELEVANT FACTS WERE PLACED ON RECORD THEN THERE WAS NO QUEST ION OF LEVY OF PENALTY IN RESPECT OF QUANTUM RELIEF GIVEN BY LEARNED CIT(A ). 8. IN OUR CONSIDERED OPINION, WHEN THE ISSUE OF QUA NTUM HAS BEEN RESTORED BACK TO THE FILE OF THE AO WHILE DECIDING THE CROSS APPEALS AS ABOVE; HENCE, AS A RESULT THEREOF THE CONCEALMENT P ENALTY DOES NOT SURVIVE PENALTY AND TO BE DECIDED AS PER THE FINAL OUTCOME OF THE ISSUE BY THE AO. IN THE RESULT, THE GROUND RAISED BY THE REV ENUE DOES NOT SURVIVE; HENCE DISMISSED. D. CO NO. 2841/AHD/2011 (ARISING OUT OF ITA NO.2719 /AHD/2011 8. THE ASSESSEE HAS RAISED THIS CROSS OBJECTION IN RESPECT OF PART RELIEF GIVEN BY THE LEARNED CIT(A) AND THE GROUNDS RAISED ARE AS FOLLOWS: 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND IN FACTS IN CONFIRMING PENALTY IN RESPECT OF DISALLOWA NCE OF DEDUCTION U/S.10B OF THE ACT IN RESPECT OF INTEREST INCOME (RS.3,74,922) AND OTHER INCOME (RS.25,470/-). IT IS SUBMITTED THAT IT BE SO HELD N OW. 2. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE RESPONDENT HAS FURNISHED INACCURATE PARTICULARS OF ITS INTEREST INCOME (RS.3,74,922) AND OTHER INCOME (RS. 25,470/-). IT IS SUBMITTED IT BE SO HELD NOW. ITA NO.2914, 2938/AHD/2010, 2719/AHD/2011 & CO NO.2 84/AHD/2011 ITO WARD-4, GANDHINAGAR VS. SONIC TECHNOLOGY (INDIA ) INC. FOR A.Y. 2006-07 - 7 - 9. IN THE LIGHT OF THE OBSERVATION MADE HEREINABOVE , SINCE THE QUANTUM ADDITION NOW STOOD SET ASIDE; HENCE, IN CON SEQUENCE THEREOF THE PENALTY DOES NOT SURVIVE. THE CROSS OBJECTOR SHOULD NOT HAVE ANY GRIEVANCE BECAUSE THE GROUND IS ALLOWED FOR STATIST ICAL PURPOSE ONLY. 10. THE COMBINED RESULT IS THAT THE MATTER BEING RE STORED BACK FOR CONSIDERATION AS PER THE SPECIAL BENCH VERDICT; HEN CE, ALL THESE APPEALS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSE O NLY. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 26/02/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD