Endress +Hauser Flowtec (India) Pvt. Ltd., Aurangabad V. ACIT, Circle-1, Aurangabad

ITA 295/PUN/2013

• Counselvise Citation: 29524514 RSA 2013
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C V CHITALE
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Capital receipt
• Section: 80HHC; 10B; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1206/PN/2011 ASSESSMENT YEAR : 2007-08 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD ... APPELLANT VS. M/S. ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD., PLOT NO.M-174/175, MIDC AREA, WALUJ, AURANGABAD-431136 ... RESPONDENT PAN NO.AAACE4919M ITA NO. 1215/PN/2011 ASSESSMENT YEAR : 2007-08 M/S. ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD., PLOT NO.M-174/175, MIDC AREA, WALUJ, AURANGABAD-431136 ... APPELLANT PAN NO.AAACE4919M VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD ... RESPONDENT CO NO.24/PN/2014 ARISING OUT OF ITA NO.1215/PN/2011 ASSESSMENT YEAR : 2007-08 M/S. ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD., PLOT NO.M-174/175, MIDC AREA, WALUJ, AURANGABAD-431136 ... CROSS OBJECTOR PAN NO.AAACE4919M VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD ... APPELLANT IN THE APPEAL AND ITA NO. 295/PN/2013 ASSESSMENT YEAR : 2008-09 M/S. ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD., PLOT NO.M-174/175, MIDC AREA, WALUJ, AURANGABAD-431136 ... APPELLANT PAN NO.AAACE4919M VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD ... RESPONDENT 2 ASSESSEE BY : C.V. CHITALE REVENUE BY : RAJESH DAMOR DATE OF HEARING : 07-01-2015 DATE OF PRONOUNCEMENT : 25-02-2015 ORDER PER SUSHMA CHOWLA, JM : OUT OF THESE THREE APPEALS, CROSS APPEALS ARE FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF CIT(A), AURANGABAD DA TED 27-07-2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST ORDER PASSED UNDER SECTION143(3) OF THE ACT,1961. THE ASSESSEE IS IN APPEAL AGAINST THE OR DER OF CIT(A), AURANGABAD DATED 19-11-2012 RELATING TO ASSESSMENT YEAR 2008-09 AGAI NST THE ORDER PASSED UNDER SECTION143(3) R.W.S. 144C OF THE ACT. THE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE REVENUE IN ASSESSME NT YEAR 2007-08. 2. ALL THE THREE APPEALS AND THE CROSS OBJECTIONS R ELATING TO SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE AS SESSEE AT THE OUTSET POINTED THAT THE ASSESSEE IS WITHDRAWING THE CROSS OBJECTIONS FILED IN ASSESSMENT YEAR 2007-08. THE LEARNED DEPARTMENTAL REPRESENTAT IVE FOR THE REVENUE HAD NO OBJECTION. HENCE, THE SAME IS DISMISSED AS WITHDRA WN. 4. THE REVENUE IN ITA NO.1206/PN/2011 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL:- 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT(A) IS CORRECT DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF RE-COMPUTATION OF DEDUCTION UNDER SECTION 10B RELYING ON THE CASE OF CALIFORNIA SOFTWARE LTD VS. ACIT (2008) 118 TTJ 842, 13 DTR 553 (CHENNAI). 2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT(A) IS CORRECT DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF G.P. ADDITION ON EXPORT SALE AND DECIDING THAT THE PROVISION OF SECTION 10B (7) R.W.S. 80IA(10) ARE NOT ATTRACTED. 3) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT(A) IS CORRECT DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF SPECIAL CAPITAL INCENTIVE SPECIALLY WHEN THE PROVISION OF SECTION 4 1(1) AND SECTION 43(1) EXPLANATION 10 OF THE ACT IS ATTRACTED. 4) THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE VACATED. 3 5) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY GROUNDS OF APPEAL. 5. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS AGAINST RE- COMPUTATION OF DEDUCTION UNDER SECTION10B OF THE AC T. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF INSTRUMENTS AND APPARA TUS FOR MEASURING OR CHECKING VARIABLES OF LIQUIDS OR GASES AND ALSO IN THE MANUF ACTURING OF PARTS AND ACCESSORIES THEREOF. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD DEBITED THE WHOLE FREIGHT CHARGES AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT, CONSEQU ENT TO WHICH THE PROFITS FROM EXPORT HAD ENHANCED. THE SAID PROFITS FROM EXPORTS WERE EXEMPT UNDER SECTION10B OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAD NOT GIVEN ANY BIFURCATION IN RESPECT OF THE ITEMS WHICH WERE TO BE ALLOWED IN TERMS OF CLAUSE (III) OF EXPLANATION 2 TO SECTION 10B OF THE ACT ADJUSTMENTS ARE TO BE MADE IN RESPECT OF THE EXPENDITURE INCURRED FOR EXPORT ACTI VITIES AND DOMESTIC SALES. SINCE THE EXPENDITURE WAS MAINLY INCURRED FOR EXPORT ACTI VITIES, 10% OF THE EXPENDITURE ON ACCOUNT OF COMMUNICATION, INSURANCE AND LEGAL AND P ROFESSIONAL CHARGES WAS DISALLOWED AND ADDITION OF RS.43,45,241/- WAS MADE WHICH WAS HELD TO BE NOT EXEMPT UNDER SECTION10B OF THE ACT. 7. THE OBJECTION RAISED BEFORE THE CIT(A) BY THE AS SESSEE WAS THAT BY A CLERICAL ERROR THE ASSESSING OFFICER HAD WORKED OUT THE ADDITION OF RS.43,45,241/- INSTEAD OF RS.42,65,241/-. FURTHER, CLAIM OF THE A SSESSEE WAS THAT THERE WAS NO JUSTIFICATION IN REDUCING THE FREIGHT, COMMUNICATIO N, INSURANCE AND LEGAL AND PROFESSIONAL CHARGES FROM THE EXPORT TURNOVER FOR C OMPUTING THE DEDUCTION UNDER SECTION10B OF THE ACT. IT WAS ALSO POINTED BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT FOB VALUE OF EXPORTS OF MANUF ACTURED GOODS WAS RS.58,46,09,183/- WHICH SHOWS THAT THE AMOUNTS OF F REIGHT, COMMUNICATION, INSURANCE AND LEGAL AND PROFESSIONAL CHARGES WERE N OT FORMING PART OF TURNOVER, CONSIDERED FOR ASCERTAINING QUANTUM OF EXPORT PROFI T. 8. THE NEXT PLEA OF THE LEARNED AUTHORISED REPRESEN TATIVE FOR THE ASSESSEE WAS THAT THE ADJUSTMENT UNDER EXPLANATION 2 TO SECT ION 10B OF THE ACT IS PRESCRIBED 4 ONLY WHERE TWO CONDITIONS ARE SATISFIED THAT THE EX PENSES HAVE BEEN INCURRED IN FOREIGN EXCHANGE AND EXPENSES HAVE BEEN INCURRED FO R PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. AS PER THE ASSESSEE, BOTH THE CONDI TIONS WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE, AS ALL THE EXPENSES DEBITED T O THE PROFIT AND LOSS ACCOUNT WERE INCURRED IN INDIAN RUPEES. FURTHER, IT WAS AL SO POINTED OUT THAT THE ADJUSTMENT ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES WAS NO T PROVIDED IN THE EXPLANATION 2 TO SECTION 10B OF THE ACT. ANOTHER CONTENTION WITH OUT PREJUDICE WAS RAISED THAT IN CASE FREIGHT, COMMUNICATION, INSURANCE AND LEGAL AN D PROFESSIONAL EXPENSES ARE TO BE REDUCED FROM EXPORT TURNOVER, THEN THE SAID AMOU NTS ARE ALSO TO BE REDUCED FROM TOTAL TURNOVER, WHILE COMPUTING THE DEDUCTION UNDER SECTION10B OF THE ACT. RELIANCE IN THIS REGARD WAS PLACED ON VARIOUS CASE LAWS. 9. THE CIT(A) RE-WORKED THE DEDUCTION UNDER SECTION 10B OF THE ACT AND OBSERVED AS UNDER:- 6.2 I HAVE CAREFULLY CONSIDERED THE FACT S OF THE CASE AND RIVAL CONTENTIONS OF THE A.O. AND THE APPELLANT. ON PERUSAL OF THE SAME, IT HAS BEEN OBSERVED THAT THE A.O. IS JUSTIFIED IN CON SIDERING THE NET PROFIT AND GAINS OF BUSINESS OF THE APPELLANT AT RS.15,50,66,5 23/- FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION10B OF THE ACT AS AGAINST RS.15,84,47,220/- CONSIDERED BY THE APPELLANT AS THE OTHER INCOME AMOUNTING TO RS.33,80,697/- TOWARDS BANK INTERES T, SURPLUS ON SALE OF FIXED ASSETS ETC., CANNOT BE REGARDED AS DERIVED FR OM EXPORT OF ARTICLES, THINGS OR COMPUTER SOFTWARE. IT HAS ALSO BEEN NOTIC ED THAT THE A.O. IS NOT JUSTIFIED IN CONSIDERING EOU MANUFACTURING EXPORT T URNOVER AT RS.56,32,41,283/- AS AGAINST CLAIMED BY THE APPELL ANT AT RS.58,46,09,183/- BY REDUCING FREIGHT CHARGES AT RS.1,82,42,974/-, CO MMUNICATION CHARGES AT RS.1,93,438/, INSURANCE AT RS.1,76,909/- AND LEGAL & PROFESSIONAL CHARGES AT RS.27,66,719/-. THE REDUCTION FROM EXPORT TURNOVER ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES OF RS.27,66,719/- IS NOT JUSTI FIED AS THE SAME HAS NOT BEEN INCURRED FOR PROVIDING TECHNICAL SERVICES OUTS IDE INDIA AND THE SAME HAS NOT BEEN INCURRED IN FOREIGN EXCHANGE. THIS FA CT IS EVIDENT FROM SCHEDULED-14; NOTES TO THE ACCOUNTS SPECIFYING EXPE NDITURE IN FOREIGN CURRENCY INCURRED IN THE YEAR UNDER APPEAL. THE ABOVE PROPOSITION OF LAW IS ALSO SUPPORTED BY THE DECISIONS RELIED ON BY THE APPELLANT. AS REGARDS FREIGHT CHARGES AT RS.1,82,42,974/-, CO MMUNICATION CHARGES AT RS.1,93,438/-, INSURANCE AT RS.1,76,909/- R EDUCED BY THE A.O. FROM EXPORT TURNOVER, THE APPELLANT HAS CLAIMED THAT AS PER THE AUDITED FINAL ACCOUNTS, NOTE NO.7(B) IN SCHEDULE-14 TO THE ACCOUN TS, STATES FOB VALUE OF EXPORTS OF MANUFACTURED GOODS AT RS. 58,46,09,183/- . THE APPELLANT'S CONTENTION THAT THE SAID SALE DOES NOT INCLUDE THE AMOUNTS REDUCED BY THE A.O. FOR COMPUTING EXPORT TURNOVER IS, THEREFORE, A PPEARS TO BE REASONABLE AND HENCE ACCEPTED. THE CONTENTION OF THE APPELLANT THAT EVEN FREIGHT CHARGES RS.L,82,42,974/-, COMMUNICATION CHARGES RS. 1,93,438/-, INSURANCE RS.1,76,909/- IF NOT INCURRED IN FOREIGN EXCHANGE C ANNOT BE REDUCED FROM EXPORT TURNOVER IS SUPPORTED BY THE DECISION IN THE CASE OF CALIFORNIA SOFTWARE CO.LTD. VS. ACIT (2008) 118 TTJ 842, 13 DT R 553 (CHENNAI). FURTHER, THE FACT THAT THE APPELLANT HAS NOT INCURR ED THE ABOVE MENTIONED EXPENDITURE IN FOREIGN CURRENCY IS EVIDENT FROM SCH EDULED-14, NOTES TO THE ACCOUNTS SPECIFYING EXPENDITURE IN FOREIGN CURRENCY INCURRED IN THE YEAR UNDER APPEAL. THE DECISION OF HON'BLE ITAT, CHENNAI IS HAVING BINDING ON THE UNDERSIGNED IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE 5 CASE OF BANK OF BARODA VS. H.C. SHRIVASTAVA (2002) 256 ITR 385. IN VIEW OF THE ABOVE FACTS AND RESPECTFULLY FOLLOWING THE ABOV E DECISION OF HON'BLE CHENNAI TRIBUNAL IN THE CASE OF CALIFORNIA SOFTWARE CO. LTD. VS. ACIT (2008) 118 TTJ 842, 13 DTR 553 (CHENNAI), I HOLD THAT THE A.O. IS NOT JUSTIFIED IN REDUCING THE EXPORT TURNOVER CLAIMED BY THE APPELLA NT AT RS.58,46,09,183/- FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF T HE ACT. THE DEDUCTION U/S 10B OF THE ACT IS, THEREFORE, WORKED OUT AT RS. 7,30,16,357/-BY CONSIDERING BUSINESS PROFIT AT RS.15,50,66,523/-, E XPORT TURNOVER AT RS.58,46,09,183/- AND TOTAL TURNOVER AT RS.1,24,15, 48,014/-. THE ADDITION MADE BY THE A.O. IS, THEREFORE, CONFIRMED TO THE EX TENT OF RS.15,96,439/- (RS.7,46,12,796/- - RS.7,30,16,357/-). GROUND NOS.3 & 4 STANDS PARTLY ALLOWED. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS FAILED TO CONTROVERT THE FINDING OF THE CIT(A). 11. THE LEARNED AUTHORISED REPRESENTATIVE ON THE OT HER HAND DREW OUR ATTENTION TO THE STATEMENT OF INCOME FILED. THE FOB VALUE OF THE EXPORTS WAS TAKEN AT RS.58,46,09,183/-. THE SAID COMPUTATION OF INCOME IS PLACED AT PAGES 22 TO 24 OF THE PAPER BOOK WITH THE SCHEDULE AT PAGE 3 OF THE P APER BOOK. IN THE TOTALITY OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE IN CONFORMITY WITH THE FINDING OF THE CIT(A) IN THIS REGARD AND WE UPHOLD THE SAME. THE GROUND OF A PPEAL NO.1 RAISED BY THE REVENUE IS THUS DISMISSED. 12. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY TH E REVENUE IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF GP ADDITION ON EXPORT SALES. 13. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSE E TO FURNISH THE RATIO OF GP OF EXPORT SALES AND DOMESTIC SALES. IN REPLY, THE ASS ESSEE FURNISHED THE INFORMATION THAT THE FOB VALUE OF EXPORTS WAS RS.58,46,21,323/- . THEREAFTER THE ASSESSEE WORKED OUT THE GP RATE ON EXPORTS AT 29.08% AND GRO SS PROFIT RATE ON DOMESTIC SALES AT 22.39%. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED EXCESS PROFIT FROM EXPORT SALES AS COMPARED TO THE DOMESTIC SALES. ANOTHER POINT NOTED BY THE ASSESSING OFFICER WAS TH AT ALL THE DOMESTIC SALES OR EXPORT SALES WERE MADE TO RELATED PARTIES OR ASSOCI ATED ENTERPRISES ONLY AND THERE WAS NO OPEN MARKET FOR SALE OF THE SAID GOODS DIREC TLY. AS PER THE ASSESSING OFFICER, IN SUCH CIRCUMSTANCES, THE VARIATION IN GP RATE OF EXPORT SALES AND DOMESTIC SALES WAS NOT JUSTIFIABLE. SINCE THE ASSESSEE WAS NOT MAINTAINING SEPARATE ACCOUNTS, THE ASSESSING OFFICER WAS OF THE VIEW THA T THE PROVISIONS OF SECTION 6 10B(7) OF THE ACT WERE TO BE APPLIED TO DETERMINE T HE PROFIT AT ARMS LENGTH. THE ASSESSING OFFICER IN ABSENCE OF SUFFICIENT DATA, AP PLIED THE AVERAGE GP RATIO AS STANDARD PARAMETER TO THE EXPORT SALES, THE INCOME FROM WHICH WAS EXEMPT AND THE SAME COULD BE WORKED OUT. THUS, GROSS PROFIT RATIO OF EXPORT SALES WAS APPLIED AT 27% AS AGAINST 29.08% SHOWN BY THE ASSESSEE AND THE DIFFERENCE OF RS.1,21,58,748/- WAS ADDED TO THE TOTAL INCOME OF T HE ASSESSEE. 14. THE CIT(A) VIDE PARA 7.2 OBSERVED THAT THE EXPO RT TRANSACTION HAD BEEN REFERRED TO THE TRANSFER PRICING OFFICER UNDER SECT ION92CA OF THE ACT FOR COMPUTING THE ARMS LENGTH PRICE. THE TPO HAD ACCEPTED THE A RMS LENGTH PRICE OF THE EXPORT TRANSACTIONS OF THE ASSESSEE VIDE ORDER UNDER SECTI ON92CA(3) OF THE ACT, WHICH IS CLEARLY STATED BY THE ASSESSING OFFICER IN PARA 4 T O 4.2 OF THE ASSESSMENT ORDER. IN VIEW THEREOF, THE CIT(A) HELD THAT THE ASSESSING OF FICER HAD ERRED IN NOT ACCEPTING THE ARMS LENGTH PRICE OF EXPORTS AND IN HOLDING TH AT THE ASSESSEE HAD EARNED MORE THAN ORDINARY PROFITS IN RESPECT OF EXPORT SALES. THE CIT(A) FURTHER NOTED THAT THE ASSESSING OFFICER HAD FAILED TO BRING ON RECORD THE PLAUSIBLE REASON/JUSTIFICATION FOR APPLYING THE PROVISIONS OF SECTION 10B(7) R.W.S. 80 IA(10) OF THE ACT. THE CIT(A) THUS DELETED THE DISALLOWANCE WORKED OUT BY RE-COMPUTING THE DEDUCTION UNDER SECTION10B OF THE ACT. 15. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT(A). 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE TOOK US THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND PLACED RELI ANCE ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN SANGHVI JEWELLERY M ANUFACTURING CO. PVT. LTD. VS. ITO VIDE ITA NOS. 352 TO 577/MUM/2008, RELATING TO ASSESSMENT YEAR 2004-05, ORDER DATED 30-11-2011. 17. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE ON THE OTHER HAND POINTED OUT THAT THE ASSESSING OFFICER HAD RE-WORKE D THE GP BY APPLYING THE AVERAGE GP RATE FOR THE YEAR UNDER CONSIDERATION. IT WAS FURTHER POINTED BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT IN VIEW OF SUB-SECTION 4 TO SECTION 10B OF THE ACT, IF AVERAGE RATE HAS TO BE A PPLIED AND THE DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE AT 12.76% OF THE NET PROFIT . IN CASE AVERAGE THEORY IS TO BE 7 APPLIED AND WHERE THE ASSESSEE HAD CLAIMED THE DEDU CTION ON AVERAGE BASIS, NO SEPARATE ADDITION WAS WARRANTED. IT WAS FURTHER PO INTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAD NOT GIVEN THE BENEFIT OF OTHER RELATED EXPENSES AND ONL Y OUT OF THE VALUE OF EXPORTS AND DOMESTIC SALES THE AMOUNT OF MATERIAL CONSUMED HAS BEEN DEDUCTED. ANOTHER REFERENCE WAS MADE TO THE PROVISIONS OF SECTION 80I A(10) OF THE ACT AND IT WAS POINTED OUT THAT THE ASSESSING OFFICER HAS TO ESTAB LISH THAT THERE WAS AN ARRANGEMENT BETWEEN TWO CONCERNS TO EARN MORE PROFI T. HOWEVER, IN THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER HAS COMPARE D THE DOMESTIC AND EXPORT SALES RESULTS AND RE-WORKED THE DEDUCTION UNDER SEC TION10B OF THE ACT. RELIANCE WAS PLACED UPON THE RATIO LAID DOWN BY THE PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF CIT VS. SCHMETZ INDIA PVT. LTD. VIDE ITA NO.4508 /PN/2010, RELATING TO ASSESSMENT YEAR 2004-05, ORDER DATED 04-09-2012. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS ENGAGED IN BOTH EXPORT AND DOMESTIC SALES OF MA NUFACTURED GOODS. THE CLAIM OF THE ASSESSEE WAS THAT THE SAID SALES WERE BEING MADE TO RELATED PARTIES OR TO ASSOCIATED ENTERPRISES ONLY AND THERE WAS NO OPEN M ARKET SALE OF THESE GOODS. THE ASSESSING OFFICER IN THE SAID CIRCUMSTANCES WAS OF THE VIEW THAT THE GP RATE OF BOTH EXPORT SALES AND DOMESTIC SALES SHOULD BE SAME . THE PERUSAL OF THE ASSESSMENT ORDER WITH SPECIAL REFERENCE TO TABULATE D DETAILS AT PAGES 8 AND 9 OF THE ASSESSMENT ORDER REFLECT THAT WHILE COMPUTING THE G P ON EXPORTS SALES (MANUFACTURED ITEMS) AND ON DOMESTIC SALES (MANUFAC TURED ITEMS), THE ASSESSING OFFICER HAD CONSIDERED THE FOB VALUE OF EXPORTS AND VALUE OF DOMESTIC SALES AFTER DEDUCTING THE MATERIAL CONSUMED FOR EACH OF THE LIN E OF SALES. THE GP ON MANUFACTURED EXPORTS WAS WORKED OUT AT 29.08% AND G P ON DOMESTIC SALES WAS WORKED OUT AT 22.39%. THE CONSOLIDATED GROSS PROFI T FOR THE YEAR WAS WORKED OUT TO 27%. 19. UNDER THE PROVISIONS OF SECTION 10B(7) OF THE A CT, IT IS POINTED OUT THAT THE PROVISIONS OF SECTION 80IA(10) OF THE ACT SHALL APP LY IN RELATION TO UNDERTAKING REFERRED TO IN THIS SECTION. THE PROVISIONS OF SEC TION 80IA(10) OF THE ACT PROVIDES THAT WHERE IT APPEARS TO THE ASSESSING OFFICER, THA T IN VIEW OF THE CLOSE CONNECTION 8 BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSIN ESS AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN TH EM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCED TO THE AS SESSEE MORE THAN ORDINARY PROFITS, THE ASSESSING OFFICER SHALL IN COMPUTING T HE PROFITS OF THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER THE SECTION TAKE THE AMOUNT OF PROFITS AS MAY BE THE REASONABLY DEEMED TO HAVE BEEN DERIVED FROM THE M. FOR INVOKING AND APPLYING THE PROVISIONS OF SECTION 80IA(10) OF THE ACT, THE BASIC CONDITION IS THAT WHERE IN VIEW OF THE CLOSE CONNECTION BETWEEN THE ASSESSEE C ARRYING ON THE BUSINESS AND ANY OTHER PERSON, BUSINESS IS SO ARRANGED WITH THEM , WHICH PRODUCED PROFITS HIGHER THAN AS MAY BE EXPECTED TO ARISE IN SUCH CARRYING O N OF BUSINESS, THEN THE ASSESSING OFFICER IS EMPOWERED TO RE-WORK PROFITS O F THE ELIGIBLE BUSINESS WHILE COMPUTING THE DEDUCTION UNDER SECTION80IA OF THE AC T. SIMILAR PROVISIONS HAVE BEEN INCORPORATED WHILE COMPUTING THE DEDUCTION U/S 10B OF THE ACT BY WAY OF SUB- SECTION 7 TO SECTION 10B OF THE ACT. 20. NOW COMING TO THE FACTS OF THE PRESENT CASE, TH E ASSESSING OFFICER HAD COMPARED THE RESULTS SHOWN BY THE ASSESSEE IN THE E XPORT SALES TO THE RESULTS SHOWN BY THE ASSESSEE IN DOMESTIC SALES AND WAS OF THE VIEW THAT THE PROFITS FROM EXPORT SALES HAVE BEEN SHOWN AT HIGH PERCENTAGE AS COMPARED TO THE CONSOLIDATED GROSS PROFIT BY THE ASSESSEE FOR THE YEAR UNDER CON SIDERATION. IN THE FIRST INSTANCE, WE HOLD THAT THE ASSESSING OFFICER IS NOT CORRECT I N THIS APPROACH AS UNDER THE PROVISIONS OF SECTION 80IA(10), THE COMPARISON HAS TO BE MADE BETWEEN THE ASSESSEE AND ANY OTHER PERSON; WHEREAS IN THE FACTS OF THE PRESENT CASE; THE COMPARISON HAS BEEN MADE BETWEEN THE RESULTS OF EXP ORT SALES OF MANUFACTURED ITEMS WITH THE DOMESTIC SALES OF MANUFACTURED ITEMS CARRIED ON BY THE ASSESSEE ITSELF. THE PROVISIONS OF SECTION 80IA(7) OF THE A CT ARE NOT ATTRACTED IN SUCH A SCENARIO AND HAVE BEEN INCORRECTLY APPLIED BY THE A SSESSING OFFICER WHILE COMPUTING THE DEDUCTION UNDER SECTION10B OF THE ACT IN THE HANDS OF THE ASSESSEE. 21. THE SECOND ASPECT OF THE ISSUE THAT VIS--VIS T HE EXPORT SALES MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE, THE ASSESSIN G OFFICER HAD REFERRED THE INTERNATIONAL TRANSACTION TO THE TPO, WHO HAD ACCEP TED THE SAME TO BE AT ARMS LENGTH PRICE. IN OTHER WORDS, THE PROFITS DECLARED BY THE ASSESSEE AGAINST EXPORT 9 SALES WERE FOUND TO BE CORRECT AND NO ADDITION WAS SUGGESTED ON ACCOUNT OF ARMS LENGTH PRICE OF SUCH TRANSACTION OF SALE OF MANUFAC TURED GOODS TO PARTIES OUTSIDE INDIA. IN SUCH CIRCUMSTANCES, WHERE THE EXPORT SAL ES HAVE BEEN FOUND BY THE TPO TO BE AT ARMS LENGTH PRICE AND NO ADJUSTMENT IN TH IS REGARD HAS BEEN MADE BY THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT UNDER SECTION143(3) R.W.S.144C OF THE ACT, WE FIND NO MERIT THAT WHILE COMPUTING THE EXEMPTION UNDER SECTION10B OF THE ACT, THE ASSESSING OFFICER HAS RE-WORKED THE PR OFITS ELIGIBLE FOR SUCH DEDUCTION BY APPLYING THE CONSOLIDATED GROSS PROFIT OF THE YE AR UNDER APPEAL AS THE BASIS FOR EARNING THE SAID INCOME. 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE KARNATAKA HIG H COURT IN CIT VS. SHREE RENUKA SUGARS LTD. (2012 29 TAXMANN.COM 266 (KAR.) WHICH IS FACTUALLY A DIFFERENT CASE AND THE SAID RATIO IS NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE. 23. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONB LE BOMBAY HIGH COURT IN CIT VS. SCHMETZ INDIA PVT. LTD.(SUPRA) WHEREIN EVEN IN THE PRESENCE OF EXTRAORDINARY PROFITS, THE HONBLE BOMBAY HIGH COURT HAS HELD THA T THE SAME CANNOT LEAD TO THE CONCLUSION THAT THERE WAS AN ARRANGEMENT BETWEEN TH E PARTIES. IN THE FACTS OF THE SAID CASE BEFORE THE HONBLE BOMBAY HIGH COURT, THE COMPARISON WAS MADE BETWEEN THE INDUSTRIAL SEWING MACHINE NEEDLES IMPOR TED AND TRADED BY THE MUMBAI DIVISION WITH THE ITEMS MANUFACTURED AND EXPORTED B Y THE KANDLA DIVISION AND IT WAS HELD THAT THE TWO ITEMS WERE DIFFERENT. IN VIE W THEREOF, THE HONBLE BOMBAY HIGH COURT HELD THAT THERE WAS NO ARRANGEMENT BETWE EN THE PARTIES TO SHOW EXTRAORDINARY PROFITS IN RESPECT OF ITS KANDLA DIVI SION SO AS TO CLAIM DEDUCTION UNDER SECTION10A OF THE ACT. FOLLOWING THE SAME PARITY O F REASONING, WE UPHOLD THE ORDER OF CIT(A) IN DELETING ADDITION MADE ON ACCOUNT OF R E-WORKING EXEMPTION UNDER SECTION10B OF THE ACT TO THE EXTENT OF RS.1,21,58,7 48/-. THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS THUS, DISMISSED. 24. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY TH E REVENUE IS AGAINST THE DELETION OF ADDITION MADE UNDER SECTION41(1) AND EX PLANATION 10 TO SECTION 43(1) OF THE ACT ON ACCOUNT OF SPECIAL CAPITAL INCENTIVE. 10 25. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD RECEIVED SPECIAL CAP ITAL INCENTIVE AT RS.30 LAKHS FROM SICOM LTD. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE ASSESSEE HAD AVAILED THE BENEFIT OF ESTABLISHING NE W INDUSTRIAL UNDERTAKING IN THE BACKWARD AREA OF MAHARASHTRA UNDER THE SALES TAX IN CENTIVE SCHEME. UNDER PART- I OF 1993 SCHEME, THE INCENTIVE WAS GRANTED TO ENCO URAGE SMALL SCALE INDUSTRIES TO PUT UP THE MANUFACTURING PLANTS IN UNDERDEVELOPED A REAS. AS PER THE SCHEME THE ASSESSEE WAS SANCTIONED A SUM OF RS.25,50,000/- TOW ARDS THE CAPITAL INCENTIVE AS ON 10-04-2000 AND THE SUM DOES NOT RELATE TO ANY SP ECIFIC ASSET. THE ASSESSEE RECEIVED RS.30 LAKHS TOWARDS DISBURSEMENT OF SPECIA L INCENTIVE VIDE CHEQUE DATED 28-09-2006 AND CLAIM OF ASSESSEE WAS THAT THE PROVI SIONS OF SECTION 41(1) OF THE ACT WERE NOT APPLICABLE. THE ASSESSING OFFICER APP LYING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SAWHNEY STEEL & PRESS WORKS LTD. VS. CIT 228 ITR 253 (SC) POINTED OUT THAT THE SUBSIDY SCHEM E ITSELF WOULD NOT DECIDE THE NATURE OF SUBSIDY, I.E. WHETHER IT IS REVENUE OR CA PITAL, RATHER IT IS THE PURPOSE FOR WHICH THE SUBSIDY WAS GIVEN TO DECIDE THE NATURE OF THE SUBSIDY. THE ASSESSING OFFICER NOTED THAT UNDER THE SCHEME WHILE THE UNITS WERE ELIGIBLE FOR SALES TAX INCENTIVE ONLY AFTER THE COMMENCEMENT ON THE PRODUC TION, HOWEVER, THE UNITS WERE ELIGIBLE TO DRAW SPECIAL CAPITAL INCENTIVE AT CERTA IN PERCENTAGE OF THE FIXED CAPITAL INVESTMENT AFTER COMPLETION OF ALL EFFECTIVE STEPS DURING THE PROCESS OF SETTING OF THE UNIT AND EVEN BEFORE THE COMMENCEMENT OF THE PRODUC TION. IN VIEW OF THE NATURE OF THE RECEIPT, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID SUM OF RS.30 LAKHS WAS TO BE ADDED AS INCOME UNDER SECTION 41(1) OF TH E ACT AS THE SUBSIDY RECEIVED BY THE ASSESSEE WAS A OPERATIONAL SUBSIDY WHICH WAS GIVEN TO THE SSE UNITS. 26. ANOTHER POINT RAISED BY THE ASSESSING OFFICER W AS THAT THE PROVISIONS OF EXPLANATION 10 OF SECTION 43(1) OF THE ACT WERE ALS O APPLICABLE AND VALUE OF FIXED ASSETS SHOULD BE REDUCED BY THE QUANTUM OF SPECIAL CAPITAL INCENTIVE RECEIVED DURING THE YEAR. HOWEVER, SINCE THE ASSESSING OFFI CER HAD TREATED THE SAID INCENTIVE AS INCOME UNDER SECTION 41(1) OF THE ACT, THE PROVISIONS OF SECTION 43(1) OF THE ACT WERE NOT APPLIED. 11 27. THE CIT(A) HELD THAT THE SETTLED LAW SUPPORTED BY VARIOUS DECISIONS WAS THAT THE CAPITAL SUBSIDY RECEIVED FOR SETTING UP OF THE INDUSTRY IN BACKWARD AREAS, THOUGH QUANTIFIED ON THE BASIS OF CAPITAL INVESTMENT WAS C APITAL RECEIVED AND WAS NOT DEDUCTIBLE FROM THE ACTUAL COST OF THE ASSET FOR CA LCULATING THE DEPRECIATION. RELIANCE IN THIS REGARD WAS PLACED BY THE CIT(A) ON THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SAPNA RE- ROLLING INDUSTRIES VIDE ITA NO.1382/PN/2006, RELATING TO ASSESSMENT YEAR 2003-0 4, DATED 24-12-2008. IN VIEW THEREOF, THE CIT(A) HELD THAT THERE WAS NO JUSTIFIC ATION FOR MAKING THE ADDITION OF RS.30 LAKHS ON ACCOUNT OF CAPITAL INCENTIVE RECEIPT . 28. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT(A). 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ADDITION WAS MADE IN THE HANDS OF THE ASSESSEE UNDER SECTION 41(1) OF THE ACT. ANOTHER ALTERNATE CONTENTION WAS ALSO RAISED BY THE ASSESSING OFFICER THAT THE COST OF THE ASSET SHOULD BE REDUCED UNDER SECTION 43(1)( B) OF THE ACT. IN THIS REGARD, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE RATIO LAID DOWN IN CIT VS. SHREE RENUKA SUGARS LTD. 28 TA XMANN.COM 268. 30. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE ON THE OTHER HAND POINTED OUT THAT THE PERUSAL OF THE 1993 SCHEME PLA CED AT PAGE 70 OF THE PAPER BOOK WOULD REFLECT THAT THE DISBURSEMENT WAS TO BE MADE FOR ESTABLISHING THE INDUSTRY IN BACKWARD AREAS THOUGH THE BASIS FOR DIS BURSEMENT WAS FOR THE FIRST OF ITS KIND BUT IT WAS NOT FOR SUBSIDIZING THE COST OF THE ASSET. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EVEREST INDUSTRIES LTD. VS. ACIT VIDE ITA NO.814/MUM/2007 RELATING TO ASSESSMENT YEAR 200 3-04 ORDER DATED 04-12- 2009 AND POINTED OUT THAT THE TRIBUNAL HAD COMPARED THE 1979 SCHEME WITH WHICH THE RELIANCE INDUSTRIES LTD. WAS CONCERNED WITH TH E 1993 SCHEME WITH WHICH THE ASSESSEE WAS CONCERNED, AND HAD COME TO A CONCLUSIO N THAT THE TWO SCHEMES WERE SIMILAR IN ALL MATERIAL ASPECTS WHILE DETERMINING T HE QUESTION AS TO WHETHER THE INCENTIVE WAS CAPITAL OR REVENUE IN NATURE. THE RE LEVANT OBSERVATION OF THE TRIBUNAL READS AS UNDER:- 12 10.4 COMING TO THE MERITS OF THE CASE, THE 'G' BEN CH OF THE TRIBUNAL IN THE CASE OF M/S ZENITH FIBRES LTD (SUPRA) HAD CONSIDERE D THE INCENTIVE SCHEME OF THE MAHARASHTRA GOVERNMENT OF 1993 AND CAME TO A CONCLUSION THAT THIS SCHEME IS IDENTICAL TO THE INCENTIVE SCHEME OF 1979 CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS RELIANCE INDUSTRIES LTD 88 ITD 273 (MUM)(SB) AND CONCLUDED THAT THE RECEIPT IN QUESTION IS CAPITAL RECEIPT. 31. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE FURTHER POINTED OUT THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. RELIANCE INDUSTRIES LTD. 339 ITR 632 (SC) HELD THAT WHERE THE OBJECT OF SUBS IDY WAS TO SET UP NEW UNITS IN BACKWARD AREAS, THE SAME WAS CAPITAL RECEIPTS. 32. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE PLACED ON RECORD THE AGREEMENT BETWEEN THE ASSESSEE AND THE GOVERNMENT OF MAHARASHTRA AT PAGES 68 TO 75 OF THE PAPER BOOK. T HE PURPOSE OF THE SCHEME WAS TO ESTABLISH INDUSTRIES IN THE UNDERDEVELOPED AREAS OF THE MAHARASHTRA STATE UNDER WHICH THE GOVERNMENT APPOINTED SICOM LTD. TO ACT AS AN AGENT OF THE GOVERNMENT FOR THE IMPLEMENTATION OF THE SCHEME. UNDER THE 19 93 SCHEME, THE PROCEDURES WERE FRAMED AND THE ENTREPRENEUR WAS ENTITLED TO SP ECIAL CAPITAL INCENTIVE OF 15% OF THE GROSS FIXED CAPITAL INVESTMENT, SUBJECT TO CEIL ING OF RS.30 LAKHS IN RESPECT OF ELIGIBLE UNIT PROVIDED, IF THE ENTREPRENEUR DOES NO T OPT FOR AVAILING SALES TAX INCENTIVE UNDER PART-III OF 1993 SCHEME. UNDER THE SAID SCHE ME A GRANT OF RS.30 LAKHS WAS DISBURSED TO THE ASSESSEE. THE QUESTION ARISING BE FORE US IS THE TAXABILITY OF THE SAID GRANT OF RS.30 LAKHS. 33. THE CONTENTION OF THE LEARNED AUTHORISED REPRES ENTATIVE FOR THE ASSESSEE WAS THAT 1993 SCHEME FORMULATED BY THE GOVERNMENT O F MAHARASHTRA HAS BEEN CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN E VEREST INDUSTRIES VS. ACIT (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE INCENTIV E RECEIVED UNDER THE SCHEME WAS CAPITAL RECEIPT. IT HAS ALSO BEEN HELD BY THE MUMB AI BENCH OF THE TRIBUNAL THAT THE SCHEME REFERRED TO IN THE CASE OF RELIANCE INDUSTRI ES LTD., I.E. 1979 SCHEME WAS IDENTICAL TO THE 1993 SCHEME. THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD., (SUPRA) IN THE APPEAL FILED BY REVENUE AGAINST THE ORDER OF SPECIAL BENCH OF MUMBAI TRIBUNAL REPORTED IN (2004) 88 ITD 273 (SB) (MUM) HAVE HELD THAT THE SUBSIDY RECEIVED UNDER THE 1979 SCHEME FOR SETTING UP NEW UNITS IN BACKWARD AREAS WAS A CAPITAL RECEIPT. APPLYING THE SAME RATIO TO THE 13 FACTS OF THE PRESENT CASE, WE ARE IN CONFORMITY WIT H THE ORDER OF THE CIT(A) IN HOLDING THAT THE GRANT OF RS.30 LAKHS RECEIVED BY T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS A CAPITAL RECEIPT AND NOT T AXABLE IN THE HANDS OF THE ASSESSEE. FURTHER, THERE IS NO MERIT IN INVOKING O F THE PROVISIONS OF EITHER SECTION 41(1) OR SECTION 43(1)(B) OF THE ACT. THUS, GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS DISMISSED. ITA NO.1215/PN/2011 (A.Y. 2007-08) : 34. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL : A) WITHOUT CONSIDERING PROVISIONS OF SECTION 10B OF THE INCOME TAX ACT, 1961, THE COMPUTATION OF EXEMPTION/DEDUCTION, SALES TURNOVER, EXPENSES AND PROFITS OF THE EXPORT ORIENTED UNDERTAKING ARE NOT CONSIDERED AND INSTEAD THESE FIGURES HAVE BEEN CONSIDERED FOR THE ENTIRE BUSINESS OF THE ASSESSEE COMPANY AND COMMISSIONER OF INCOME TAX (AP PEALS), AURANGABAD ERRED IN CONSIDERING FIGURES OF ENTIRE B USINESS INSTEAD OF FIGURES OF EXPORT ORIENTED UNDERTAKING. B) THERE IS ERROR IN ASSESSMENT OF INCOME WHI LE CONSIDERING DEDUCTION/EXEMPTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961, SALES TURNOVER, EXPENSES AND PROFITS OF INTERNATIONAL OUT SOURCING ACTIVITY HAS NOT BEEN EXCLUDED AND THAT SOLELY OF THE EXPORT ORIENTE D UNDERTAKING HAS NOT BEEN CONSIDERED AND COMMISSIONER OF INCOME TAX (APP EALS), AURANGABAD ERRED IN NOT EXCLUDING THE SAME. C) THE ASSESSMENT ORDER SUFFERS FROM A DEFICI ENCY THAT CONTRIBUTIONS AND DONATIONS MADE TO VARIOUS INSTITUTIONS, BEING EXPEN SES LAID OUT, WHOLLY AND EXCLUSIVELY, FOR BUSINESS PURPOSES HAVE REMAINED TO BE CONSIDERED AND ALLOWED AS DEDUCTION IN DETERMINATION OF TOTAL INCO ME AND COMMISSIONER OF INCOME TAX (APPEALS), AURANGABAD ERRED IN NOT ALLOW ING THE SAME D) THE APPELLANT CRAVES LEAVE TO ADD, AMEND O R ALTER ANY OF THE GROUNDS OF APPEAL. 35. GROUNDS OF APPEAL NO.(A) AND (C) BY THE ASSESSE E WERE NOT PRESSED AND HENCE THE SAME ARE BEING DISMISSED AS NOT PRESSED. 36. THE ONLY OTHER ISSUE RAISED BY THE ASSESSEE VID E GROUND OF APPEAL NO.(B) IS COMPUTATION OF DEDUCTION UNDER SECTION10B OF THE AC T. 37. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN TWO LINES OF BUSINESS, I.E. EXPORT SALES OF MANUFACTURED ITEMS AND ALSO BUSINESS OF INTERNATIONAL OUTSOURCIN G WHEREIN TRADING BY WAY OF PURCHASES FROM ONE COUNTRY AND SALES TO OTHER COUNT RIES WERE MADE. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT THE TURNOVER OF INT ERNATIONAL OUTSOURCING AND THE PROCESS OF INTERNATIONAL OUTSOURCING SHOULD BE EXCL UDED FROM TOTAL SALES TURNOVER 14 AND THE PROFITS OF THE BUSINESS, WHILE COMPUTING TH E DEDUCTION UNDER SECTION10B OF THE ACT. IT WAS FAIRLY POINTED BY THE LEARNED AUTH ORISED REPRESENTATIVE FOR THE ASSESSEE THAT IN THE RETURN OF INCOME AND ALSO DURI NG THE ASSESSMENT PROCEEDINGS NO SUCH ISSUE WAS RAISED. HOWEVER, BEFORE CIT(A) A DDITIONAL GROUNDS OF APPEAL WERE RAISED WHICH HAVE NOT BEEN ADJUDICATED BY THE CIT(A). RELIANCE IN THIS REGARD WAS PLACED UPON THE DECISION OF THE PUNE BENCH OF T HE TRIBUNAL IN THE CASE OF M/S.SURYA BUILDCON VIDE ITA NO.964/PN/2011 RELATING TO ASSESSMENT YEAR 2007-08 ORDER DATED 31-07-2012 WHEREIN THE TRIBUNAL HELD TH AT THE CIT(A) OUGHT TO HAVE ENTERTAINED THE FRESH CLAIM MADE BY THE ASSESSEE AN D ADJUDICATE THE SAME IN ACCORDANCE WITH LAW. 38. THE PERUSAL OF RECORD AND THE APPEAL FILED BY T HE ASSESSEE REFLECTS THAT THE ASSESSEE HAD RAISED FOLLOWING ADDITIONAL GROUNDS OF APPEAL BEFORE THE CIT(A):- A. WITHOUT CONSIDERING PROVISIONS OF SECTION 10B O F THE INCOME TAX ACT, 1961, THE COMPUTATION OF EXEMPTION/DEDUCTION, SALES TURNOVER, EXPENSES AND PROFITS OF THE EXPORT ORIENTED UNDERTA KING ARE NOT CONSIDERED AND INSTEAD THESE FIGURES HAVE BEEN CONS IDERED FOR THE ENTIRE BUSINESS OF THE ASSESSEE COMPANY. B. THERE IS ERROR IN ASSESSMENT OF INCOME WHILE CON SIDERING DEDUCTION/EXEMPTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961, SALES TURNOVER, EXPENSES AND PROFITS OF THE INTERNA TIONAL OUTSOURCING ACTIVITY HAS NOT BEEN EXCLUDED AND THAT SOLELY OF T HE EXPORT ORIENTED UNDERTAKING HAS NOT BEEN CONSIDERED. C. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE GROUNDS OF APPEAL 39. THE CIT(A) HAS NEITHER CONSIDERED THE SAID GROU NDS OF APPEAL NOR ADJUDICATED THE ISSUE RAISED VIDE THE SAID ADDITION AL GROUNDS OF APPEAL. THE CIT(A) WHILE EXERCISING ITS POWERS OF APPELLATE AUTHORITY IS EMPOWERED TO CONSIDER A FRESH CLAIM RAISED BY THE ASSESSEE BEFORE HIM AND NON-ADJ UDICATION OF THE SAME INFRINGES THE RIGHTS OF THE ASSESSEE. IN VIEW THEREOF, WE DE EM IT FIT TO RESTORE THE ADJUDICATION OF ADDITIONAL GROUNDS OF APPEAL TO THE FILE OF THE CIT(A), WHO SHALL DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDS OF APPEAL NO.(B) IS THUS SET ASI DE TO THE FILE OF THE CIT(A). SINCE THE ISSUE HAS BEEN SET-ASIDE TO THE FILE OF T HE CIT(A) WE ARE NOT ADJUDICATING THE MERITS OF THE ISSUE. ITA NO.295/PN/2013 (A.Y. 2008-09) : 40. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 15 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, AURA NGABAD / COMMISSIONER OF INCOME TAX APPEALS, AURANGABAD HAS ERRED IN MAKING AGGREGATE ADDITION OF RS. 50,34,427/-. 2. WITHOUT CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW, THE ACIT, CIRCLE - 1, AURANGABAD, HAS ERRED IN MAKING A DDITION OF RS. 50,34,427/- BY ALLEGING THAT IT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, (THE ACT). 3. WITHOUT PREJUDICE TO THE AFORESAID CONTENTIONS OF THE ASSESSEE COMPANY, THE ACIT, CIRCLE - 1, AURANGABAD HAS ERRED IN DETERMINING AMOUNT OF RS. 50,34,4277- OF PROFITS INELIGIBLE FOR EXEMPT ION UNDER SECTION 10B OF THE ACT. 4. WITHOUT CONSIDERING PROVISIONS OF SECTION 10B OF THE INCOME TAX ACT, 1961, THE COMPUTATION OF EXEMPTION/DEDUCTION, SALES TURNOVER, EXPENSES AND PROFITS OF THE EXPORT ORIENTED UNDERTAKING ARE NOT CONSIDERED AND INSTEAD THESE FIGURES HAVE BEEN CONSIDERED FOR THE ENTIRE BUSINESS OF THE ASSESSEE COMPANY. 5. WITHOUT PREJUDICE TO THE FOREGOING AND WITHOUT CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW OBTAINING, TH E ACIT, CIRCLE - 1, AURANGABAD, HAS ERRED IN CONSIDERING THE EXCISE DUT Y PAID/PAYABLE AS PART OF TOTAL TURNOVER WITHIN THE MEANING OF SECTION 10B OF THE ACT. 6. THERE IS ERROR IN ASSESSMENT OF INCOME WHILE C ONSIDERING DEDUCTION/EXEMPTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961, SALES TURNOVER, EXPENSES AND PROFITS OF INTERNATIONAL OUT SOURCING ACTIVITY HAS NOT BEEN EXCLUDED AND THAT SOLELY OF THE EXPORT ORIENTE D UNDERTAKING (EOU) HAS NOT BEEN CONSIDERED, PARTICULARLY WHEN THE ENTIRE D ATA WAS ON RECORD AT THE TIME OF ASSESSMENT. 7. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, AMEND , MODIFY, DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 41. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE AT THE OUTSET POINTED OUT THAT THE GROUNDS OF APPEAL NOS.1, 2, 3 AND 6 ARE NOT PRESSED. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS NO OBJECTION TO THE SAME AND HENCE THE SAME ARE DISMISSED AS NOT PRESSED. 42. THE ISSUE IN GROUND OF APPEAL NO.4 IS IN RELATI ON TO COMPUTATION OF DEDUCTION UNDER SECTION10B OF THE ACT. THE PLEA OF THE ASSES SEE BEFORE US WAS THAT ONLY THE SALES TURNOVER EXPENSES AND PROFITS OF THE EXPORT O RIENTED UNITS WERE TO BE CONSIDERED WHILE COMPUTING THE EXEMPTION UNDER SECT ION10B OF THE ACT AND THE SALES TURNOVER EXPENSES AND PROFITS OF THE ENTIRE B USINESS SHOULD NOT BE CONSIDERED. 16 43. WE FIND THAT SIMILAR ISSUE HAS BEEN RAISED BY T HE ASSESSEE IN ASSESSMENT YEAR 2007-08 ALSO VIDE GROUND OF APPEAL NO.(B) RAIS ED BEFORE US. THE SAID ISSUE WAS RAISED BY WAY OF ADDITIONAL GROUNDS OF APPEAL B EFORE THE CIT(A) DURING ASSESSMENT YEAR 2007-08 WHICH WAS NOT ADJUDICATED B Y THE CIT(A). WE HAVE REMITTED THE ISSUE BACK TO THE FILE OF THE CIT(A) T O DECIDE THE SAME IN ACCORDANCE WITH LAW. THE ISSUE RAISED VIDE GROUND OF APPEAL N O.4 BEFORE US IN ASSESSMENT YEAR 2008-09 IS IDENTICAL TO THE ISSUE RAISED VIDE GROUND OF APPEAL NO. (B) IN ASSESSMENT YEAR 2007-08 AND ACCORDINGLY WE SET-ASID E THIS ISSUE ALSO BACK TO THE FILE OF THE CIT(A) TO DECIDE THE SAME IN LINE WITH THE DECISION IN THE EARLIER YEAR. GROUND OF APPEAL NO.4 IS THUS ALLOWED FOR STATISTIC AL PURPOSES. 44. THE ISSUE IN GROUND OF APPEAL NO.5 RAISED BY TH E ASSESSEE IS AGAINST THE WORKING OF THE TOTAL TURNOVER BY EXCLUDING EXCISE D UTY PAID/PAYABLE, WHILE COMPUTING THE EXEMPTION UNDER SECTION10B OF THE ACT . 45. THE PLEA OF THE ASSESSEE WAS THAT THE ISSUE STA NDS COVERED BY THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. LAXMI MACHINE WORKS 290 ITR 667 (SC). THE ASSESSING OFFICER WHILE COMPUTING THE EX EMPTION UNDER SECTION10B OF THE ACT HAD CONSIDERED THE TOTAL TURNOVER TO BE INC LUSIVE OF EXCISE DUTY AT RS.148,80,10,182/- WHEREAS THE ASSESSEE HAD CLAIMED THE TOTAL TURNOVER EXCLUDING THE EXCISE DUTY AT RS.143,84,82,325/-. THE ASSESSI NG OFFICER IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE ACT DISMISSED THE PLEA OF THE ASSESSEE. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER AG AINST WHICH THE ASSESSEE IS IN APPEAL. 46. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY T HE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. LAXMI MACHINE WORK S (SUPRA). THE HONBLE SUPREME COURT HELD THAT WHILE INTERPRETING THE WORD S 'TOTAL TURNOVER' IN THE FORMULA IN SECTION 80HHC OF THE ACT, ONE HAS TO GIVE A SCHE MATIC INTERPRETATION AND THE VARIOUS AMENDMENTS MADE THEREIN SHOW THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, ETC. DO NOT FORM PART O F BUSINESS PROFITS, AS THEY HAVE NO NEXUS WITH THE ACTIVITY OF EXPORT, AND THEREFORE, E XCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TOTAL TURNOVER' UNDER SECT ION 80HHC(3) OF THE ACT. 17 47. WE ALSO FIND THE TRIBUNAL IN ASSESSEES OWN CAS E IN ITA NO.1597/PN/2007 RELATING TO ASSESSMENT YEAR 2003-04, ORDER DATED 31 -07-2009 AND IN ITA NO.1441/PN/2007 RELATING TO ASSESSMENT YEAR 2004-05 , ORDER DATED 07-09-2011 HAD HELD THAT THE EXCISE DUTY IS TO BE EXCLUDED FRO M TOTAL TURNOVER WHILE COMPUTING EXEMPTION UNDER SECTION10B OF THE ACT. FOLLOWING T HE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DEDU CTION UNDER SECTION10B OF THE ACT. GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 48. IN THE RESULT, ITA NO.1206/PN/2011 FILED BY THE REVENUE AND CO NO.24/PN/2014 FILED BY THE ASSESSEE ARE DISMISSED, ITA NO.1215/PN/2011 AND ITA NO.295/PN/2013 FILED BY THE ASSESSEE ARE PARTLY ALL OWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDI CIAL MEMBER PUNE DATED: 25 TH FEBRUARY, 2015 SATISH/GCVSR COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE