FAIRFIELD ATLAS LTD, MUMBAI V. DCIT (OSD) -I, MUMBAI

ITA 4063/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9922 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 14-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: FORUM MEHTA
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 143(3); 10B; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , BEFORE S/SHRI RAJENDRA, AM AND SANDEEP GOSAIN,JM ./ITA NO.4063/MUM/2016, /ASSESSMENT YEAR: 2010-11 FAIRFIELD ATLAS LIMITED SURVEY NO.157, DEVARWADI VILLAGE, OFF, VENGURLA ROAD, TAL-CHANGAD, DIST. KOOLHAPUR, KOLHAPUR-416 507 PAN: AAACA 4439 Q VS. DCIT ,CIRCLE-1(1)(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI RAJESH KUMAR YADAV ASSESSEE BY: SHRI FORUM MEHTA / // / DATE OF HEARING: 22.01.2018 / DATE OF PRONOUNCEMENT:14.03.2018 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , -PER RAJENDRA,AM: CHALLENGING THE ORDER DATED 21/03/2016 OF THE CIT( A)-2, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF MANUFACTURING AND SALE OF TRANSMISSION GEARS AND GEAR BOXES, FILED ITS RETURN OF INCOME ON 13/10/2010, DECLARING TOTAL INCOME AT RS.NIL.THE ASSESSING OFFICER (AO) COMPLET ED THE ASSESSMENT ON 18/03/2014 U/S. 143(3) R.W.S. 144C(1) OF THE ACT, DETERMINING ITS T OTAL INCOME AT RS.10.10 CRORES. 2 .FIRST GROUND OF APPEAL IS ABOUT DENYING THE DEDUCT ION, UNDER SECTION 10B OF THE ACT, WITH RESPECT TO INTEREST INCOME OF RS. 9.81 LAKHS. DURIN G THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD EARNED INTEREST ON DEPO SITS AND OUT OF THE SAME AND AMOUNT OF RS.9,81,482/-HAD BEEN INCLUDED IN THE PROFIT FROM E XPORT ORIENTED UNIT (EOU). HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME ON DEP OSITS SHOULD NOT BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 10B OF THE AC T.AFTER CONSIDERING THE SUBMISSIONS, THE AO REFERRED TO THE CASE OF STERLING FOODS AND HELD THAT THERE WAS NO DIRECT NEXUS BETWEEN THE INTEREST INCOME AND THE PROFIT AND GAINS OF THE IND USTRIAL UNDERTAKING.HE ALSO REFERRED TO THE CASE OF LIBERTY INDIA.FINALLY,HE HELD THAT INTEREST INCOME FROM DEPOSITS COULD NOT BE INCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER S ECTION 10B OF THE ACT. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE DETAILED SUBMISS IONS. HOWEVER, IN HIS ONE LINE ORDER, THE FAA HELD THAT INTEREST INCOME WAS NOT DIRECTLY DERIVED FROM THE BUSINESS, THAT THE AO WAS JUSTIFIED IN EXCLUDING THE SAID INCOME FOR THE 10B DEDUCTION PURPOSES. 4063/M/16-(10-11) FAIRFIELD ATLAS LTD. 2 2.2. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR) STATED THAT BUSINESS FUNDS OF EOU WERE RETAINED FOR SUBSEQUENT BUSINESS REQUIREMENTS,THAT FUNDS WERE NOT KEPT IDLE,THAT FINANCIAL WISDOM REQUIRED TO EAR N INCOME ON SUCH FUNDS,THAT INTEREST INCOME WAS DIRECTLY LINKED WITH THE BUSINESS OF THE EOU.HE RELIED ON THE CASES OF MARAL OVERSEAS LTD. (ITA/777 AND 900/IND/2004,DATED 28/03 /2012)AND HEWLETT PACKARD GLOBAL SOFT LTD.(ITA 812 OF 2007 OF HONBLE KARNATAKA HIGH COURT).THE DEPARTMENTAL REPRESENTA - TIVE(DR)SUPPORTED THE ORDER OF THE AO AND STATED TH AT INCOME WAS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING,THAT THE CASES RELIED UPON B Y THE AR WERE NOT SIMILAR TO THE FACTS ARE CASE UNDER CONSIDERATION. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT IN THE CASE OF MARAL OVERSEAS (SUPRA) THE SPECIAL BENC H OF THE TRIBUNAL HAD DEALT WITH THE IDENTICAL ISSUE.WE ARE REPRODUCING THE RELEVANT PO RTION OF THE ORDERS OF THE TRIBUNAL AND IT READS AS UNDER: 77. . IT IS CLEAR FROM THE PLAIN READING OF SECT ION 10B(1) OF THE ACT THAT THE SAID SECTION ALLOWS DEDUCTION IN RESPECT OF PROFITS AND GAINS AS ARE DE RIVED BY A 100% EOU. FURTHER, SECTION 10B(4) OF THE ACT STIPULATES SPECIFIC FORMULA FOR COMPUTING THE P ROFIT DERIVED BY THE UNDERTAKING FROM EXPORT. THUS, THE PROVISIONS OF SUB-SECTION (4) OF SECTION 10B OF THE ACT MANDATE THAT DEDUCTION UNDER THAT SECTION SHAL L BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINES S OF THE UNDERTAKING IN THE RATIO OF EXPORT TURNOVE R BY THE TOTAL TURNOVER. THUS, EVEN THOUGH SUB-SECTION ( 1) OF SECTION 10B REFERS TO PROFITS AND GAINS AS AR E DERIVED BY A 100% EOU, THE MANNER OF DETERMINING SU CH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SUB-SECTION (4) OF THAT SECTION. BOTH SUB-SECTIONS (1) AND (4) ARE TO BE READ TOGETHER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S 10B OF THE ACT. WE CANNOT IG NORE SUB-SECTION (4) OF SECTION 10B WHICH PROVIDES SPECIFIC FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING FROM EXPORT. AS PER THE FORMULA SO LAID DOWN, THE ENTIRE PROFITS OF THE BUSINESS ARE T O BE DETERMINED WHICH ARE FURTHER MULTIPLIED BY THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BUS INESS. IN CASE OF LIBERTY INDIA, THE HON'BLE SUPREM E COURT HAS DEALT WITH THE PROVISIONS OF SECTION 80IA OF THE ACT WHEREIN NO FORMULA WAS LAID DOWN FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING WH ICH HAS SPECIFICALLY BEEN PROVIDED UNDER SUB-SECTIO N (4) OF SECTION 10B WHILE COMPUTING THE PROFITS DERI VED BY THE UNDERTAKING FROM THE EXPORT. THUS, THE DECISION OF THE HON'BLE SUPREME COURT IS OF NO HELP TO THE REVENUE IN DETERMINING THE CLAIM OF DEDUCTI ON U/S 10B IN RESPECT OF EXPORT INCENTIVES. 78. 79. THUS, SUB-SECTION (4) OF SECTION 10B STIPULATED THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTE D BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE UND ERTAKING IN THE RATIO OF TURNOVER TO THE TOTAL TURN OVER. THUS, NOT-WITH-STANDING THE FACT THAT SUB-SECTION ( 1) OF SECTION 10B REFERS THE PROFITS AND GAINS AS A RE DERIVED BY A 100% EOU, YET THE MANNER OF DETERMININ G SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINE D IN SUB-SECTION (4) OF SECTION 10B OF THE ACT. AS PE R THE FORMULA STATED ABOVE, THE ENTIRE PROFITS OF T HE BUSINESS ARE TO BE TAKEN WHICH ARE MULTIPLIED BY TH E RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVE R OF THE BUSINESS. SUB-SECTION (4) DOES NOT REQUIRE AN A SSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINE SS OF THE UNDERTAKING AND ONCE AN INCOME FORMS PART OF TH E BUSINESS OF THE UNDERTAKING, THE SAME WOULD BE INCLUDED IN THE PROFITS OF THE BUSINESS OF THE UNDE RTAKING. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HEW LETT PACKARD GLOBAL SOFT LTD. (SUPRA) HAS DELIBERATED UPON THE ISSUE IN THE PARAGRAPH NUM BER 35 AND IT READS AS UNDER: 35. THE SCHEME OF DEDUCTIONS UNDER CHAPTER VIA IN SECTIONS 80-HH, 80-HHC, 80- IB, ETC FROM THE GROSS TOTAL INCOME OF THE UNDERTA KING, WHICH MAY ARISE FROM DIFFERENT SPECIFIED ACTIVITIES IN THESE PROVISIONS AND OTHER INCOMES MAY EXCLUDE 4063/M/16-(10-11) FAIRFIELD ATLAS LTD. 3 INTEREST INCOME FROM THE AMBIT OF DEDUCTIONS UNDER THESE PROVISIONS, BUT EXEMPTION UNDER SECTION 10-A AND 10-B OF THE ACT ENCOMPASSES THE ENTIRE INCOME DERIVED FROM THE BUSINESS OF EXPORT OF SUCH ELIGIBLE UNDERTAKING S INCLUDING INTEREST INCOME DERIVED FROM THE TEMPORARY PARKING OF FUNDS BY SUCH UNDERTA KINGS IN BANKS OR EVEN STAFF LOANS. THE DEDICATED NATURE OF BUSINESS OR THEIR SP ECIAL GEOGRAPHICAL LOCATIONS IN STPI OR SEZS. ETC. MAKES THEM A SPECIAL CATEGORY OF ASSESSEES ENTITLED TO THE INCENTIVE IN THE FORM OF 100% DEDUCTION UNDER SECTI ON 10-A OR 10-B OF THE ACT, RATHER THAN IT BEING A SPECIAL CHARACTER OF INCOME ENTITLED TO DEDUCTION FROM GROSS TOTAL INCOME UNDER CHAPTER VI-A UNDER SECTION 80-H H, ETC. THE COMPUTATION OF INCOME ENTITLED TO EXEMPTION UNDER SECTION 10-A OR 10-B OF THE ACT IS DONE AT THE PRIOR STAGE OF COMPUTATION OF INCOME FROM PROFITS A ND GAINS OF BUSINESS AS PER SECTIONS 28 TO 44 UNDER PART-D OF CHAPTER IV BEFORE GROSS TOTAL INCOME AS DEFINED UNDER SECTION 80-B(5) IS COMPUTED AND AFTER WHICH T HE CONSIDERATION OF VARIOUS DEDUCTIONS UNDER CHAPTER VI-A IN SECTION 80HH ETC. COMES INTO PICTURE. THEREFORE ANALOGY OF CHAPTER VI DEDUCTIONS CANNOT BE TELESCOP ED OR IMPORTED IN SECTION 10-A OR 10-B OF THE ACT. THE WORDS DERIVED BY AN UNDERT AKING IN SECTION 10-A OR 10-B ARE DIFFERENT FROM DERIVED FROM EMPLOYED IN SECTI ON 80-HH ETC. THEREFORE ALL PROFITS AND GAINS OF THE UNDERTAKING INCLUDING THE INCIDENTAL INCOME BY WAY OF INTEREST ON BANK DEPOSITS OR STAFF LOANS WOULD BE E NTITLED TO 100% EXEMPTION OR DEDUCTION UNDER SECTION 10-A AND 10-B OF THE ACT. S UCH INTEREST INCOME ARISES IN THE ORDINARY COURSE OF EXPORT BUSINESS OF THE UNDERTAKI NG EVEN THOUGH NOT AS A DIRECT RESULT OF EXPORT BUT FROM THE BANK DEPOSITS ETC., A ND IS THEREFORE ELIGIBLE FOR 100% DEDUCTION. RESPECTFULLY,FOLLOWING THE ABOVE,WE DECIDE FIRST GR OUND OF APPEAL IN FAVOUR OF THE ASSESSEE HOLDING THAT THE AO SHOULD NOT HAVE DENIED THE DEDU CTION UNDER SECTION 10 B OF THE ACT IN RESPECT OF INTEREST INCOME OF RS. 9.81 LAKHS AND FR OM BUSINESS DEPOSITS PERTAINING TO EOU OF THE ASSESSEE. 3. NEXT FOUR GROUNDS OF APPEAL(G.SOA 2-5)ARE ABOUT DIR ECTION OF THE FAA TO VERIFY THE CLAIMS MADE BY THE ASSESSEE.DURING THE ASSESSMENT PROCEEDI NGS,THE AO HAD DISALLOWED CLAIMS REGARDING DEDUCTION UNDER SECTION 43B(RS.2.12 CRORE S),DEDUCTION ABOUT EXCISE DUTY (RS. 12.63 CRORES),OTHER EXPENSES(RS. 1.77 CRORES)AND CL AIM FOR SET OFF OF UNABSORBED DEPRECIATION. 3.1. THE ASSESSEE AGITATED ALL THE ISSUE BEFORE THE FAA. AFTER CONSIDERING THE MATERIAL,HE DIRECTED THE AO TO VERIFY THE CLAIM MADE BY THE ASS ESSEE AND TO ALLOW THE SAME AFTER VERIFICATION. 3.2. BEFORE US,THE AR STATED THAT THE AO HAD NOT PASSED ANY ORDER EVEN THOUGH THE FAA HAS COMPLETED THE APPELLATE PROCEEDINGS IN THE MONTH OF MARCH, 2016. WE FIND THAT THE FAA HAS DIRECTED THE AO TO ALLOW T HE CLAIM/REDUCTIONS AFTER MAKING VERIFICATION.IN OUR OPINION,HIS ORDER DOES NOT SUFF ER FROM ANY LEGAL INFIRMITY.THE AO IS DIRECTED TO GIVE EFFECT TO THE ORDER OF THE FAA WIT HIN A PERIOD OF THREE MONTHS OF RECEIPT OF 4063/M/16-(10-11) FAIRFIELD ATLAS LTD. 4 OUR ORDER. ALL THE FOUR GROUNDS OF APPEAL, RAISED B Y THE ASSESSEE,ARE ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. !' #$%&%'( . ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2018. 14 , 2018 SD/- SD/- ( / SANDEEP GOSAIN ) ( %)*+ / RAJENDRA) * !, / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; -! $ /DATED : 14.03.2018 . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR D BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.