The Dy. Commissioner of Income-tax, Amritsar. V. M/s. Chand Engineering, Amritsar.

ITA 477/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0684 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: E PASS AMRITSAR
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.477(ASR)/2014 ASSESSMENT YEAR:2010-11 PAN: AACFC6235D DY. COMMR. OF INCOME TAX, VS. M/S. CHAND ENGINEERIN G, CIRCLE-IV, AMRITSAR. MAJITHA ROAD BYE PASS, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. UMESH TAKKYAR, DR RESPONDENT BY: NONE DATE OF HEARING: 01/06/2016 DATE OF PRONOUNCEMENT: 13/06/2016 ORDER PER A.D. JAIN, JM THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2010-11, AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING T HE ADDITION OF RS.1,08,44,263/- ON ACCOUNT OF DEEMED DUTY DRAWBACK RECEIPTS, RS.2,50,274/- ON ACCOUNT OF REFUND OF SERVICE TAX A ND RS,154,565/- ON ACCOUNT OF FBP INTEREST BY ALLOWING EXEMPTION/DEDU CTION UNDER SECTION 10B(4) OF THE INCOME TAX ACT ( IN SHORT, THE ACT) , 1961. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE, DESPITE SENDING RPAD NOTICE. HOWEVER, FINDING THAT THE MATTER COULD BE P ROCEEDED WITH IN THE ABSENCE OF THE ASSESSEE, WE HAVE HEARD THE LD. DR. 3. THE LD. CIT(A) , WHILE DELETING THE ABOVE ADDIT IONS, AS OBSERVED AS FOLLOWS: ITA NO.477(ASR)/2014 A.Y. 2010-11 2 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER, ASSES SES SUBMISSIONS, AND VARIOUS CASE LAWS IN THIS REGARD. BY FINANCE ACT, 2001, WITH EFFECT FROM 01.04.2001, THE PRESENT SUBS ECTION (4) IS SUBSTITUTED IN THE PLACE OF OLD SUBSECTION 10(B) SP EAKS ABOUT DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWA RE. THEREFORE, IT EXCLUDES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUBSECTION (4) EXPLAINS WHAT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES AS MENTIONED IN SUBSECTION (1). THE SUBSTITUTED SUBSEC TION (4) SAYS THAT PROFITS DERIVED FROM EXPORTS OF ARTICLES OR TH INGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEAR TO THE PROF ITS OF THE BUSINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. THEREFORE, PROFITS AND GAINS DE RIVED FROM EXPORT OF ARTICLES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THE PROFITS OF THE BUS INESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXP ORT OF THE ARTICLES AS WELL AS ALL OTHER INCIDENTAL INCOMES DE RIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS INTERESTING TO NOTE THAT SIMILAR PROVISIONS ARE NOT THERE WHILE DEALING WITH COMPUTA TION OF INCOME UNDER SECTION 80HHC. ON THE CONTRARY, THERE IS SPEC IFIC PROVISIONS LIKE SECTION 80HHB WHICH EXPRESSLY EXCLUDES THIS TY PE OF INCOMES. THEREFORE, IN VIEW OF THE AFORESAID PROVISIONS, IT IS CLEAR THAT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAINS FROM T HE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF T HE UNDERTAKING. IN THE INSTANT CASE, THE ASSESSEE IS A 100% EOU, WH ICH HAS EXPORTED ENGINEERING GOODS AND EARNED THE INCOME. A PORTION OF THAT INCOME IS INCLUDED IN DUTY DRAW BACK ACCOUNT. THE ASSESSEE HAS RECEIVED FBP INTEREST OF RS.1,54,5 65/- AND SERVICE TAX REFUND OF RS.2,50,274/-. THE INTEREST I S RECEIVED ON ACCOUNT OF ACCESS CHANGES OF INTEREST BY THE BANK P REVIOUSLY WHICH HAVE BEEN RETURNED BACK BY THE BANK NOW. SIMILARLY SERVICE TAX REFUND WAS THE EXPENSES CLAIM EARLIER AND ON ACCOUN T OF MAKING EXPORT, THE ASSESSEE WAS ENTITLED TO REFUND OF SUCH SERVICE TAX AND AS SUCH REDUCES/ INCREASES PROFIT OF THE BUSINESS I N RESPECTIVE YEARS. NOW THE QUESTION IS WHETHER SUCH DUTY DRAW BACK AND THE CONSIDERATIONS RECEIVED BY THE ASSESSEE IS TO BE CO NSTRUED AS INCOME OF THE BUSINESS OF THE UNDERTAKING. THERE IS A DIRECT NEXUS BETWEEN THIS INCOME AND THE INCOME OF THE BUSINESS OF THE UNDERTAKING. THOUGH IT DOES NOT PAR TAKE THE CHARAC TER OF A PROFIT AND GAINS FROM THE SALE OF AN ARTICLE, IT IS THE IN COME WHICH IS DERIVED FROM THE CONSIDERATION REALIZED BY EXPORT O F ARTICLES. IN VIEW ITA NO.477(ASR)/2014 A.Y. 2010-11 3 OF THE DEFINITION OF INCOME FROM PROFIT AND GAINS INCORPORATED IN SUBSECTION (4), THE ASSESSEE IS ENTITLED TO THE BEN EFIT OF EXEMPTION OF THE SAID AMOUNT AS CONTEMPLATED UNDER SECTION 10B O F THE ACT. THEREFORE, ASSESSEE IS ENTITLED TO THE BENEFIT TO T HE AFORESAID AMOUNTS ALSO. SIMILAR ISSUE HAS BEEN DECIDED BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MARAL OVERSEES LTD. VS A DDITIONAL CIT, INDORE 136 ITD 177 (SB) WHICH IS APPLICABLE AND IDE NTICAL TO THE FACTS OF THIS CASE. A SIMILAR DECISION HAS BEEN GIV EN BY HONBLE KARNATAKA HIGH COURT IN ITA NO. 428 OF 2007 IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS PVT. LTD VIDE ITS ORDER DATED 11.12.2013. HONBLE RAJASTHAN HIGH COURT HAS ALSO GIVEN SIMILAR DECISIONS ON THE ISSUE OF INTEREST RECEIVED BY THE ASSESSEE FROM SISTER CONCERN AGAINST PURCHASE OF GOODS, ELIGIBLE FOR EXEMPTION U /S 10B ON THE BASIS OF FACT THAT EXPRESSION PROFIT AND GAINS AS USED IN SECTION 2(24) IS WIDER EXPRESSION { CIT VS. HYCRON INDIA LT D. 308 ITR 251 (RAJ)} AND RECENT DECISION AS QUOTED BY THE ASSESSE E ON THE ISSUE OF DEDUCTION U/S 10B ARE IN FAVOUR OF THE ASSESSEE AND IN ALL CASES IT HAS BEEN EXPLAINED THAT THE PROFIT OF THE BUSINESS OF THE UNDER TAKING INCLUDES THE PROFIT AND GAINS FROM EXPORT OF THE ARTICLES AS WELL AS ALL OTHER INCIDENTAL INCOME DERIVE FROM THE BUSINESS OF THE UNDER TAKING. IN-FACT, HONBLE KARNATAKA HIGH COURT HAS CONSIDERED ALL THE DECISIONS QUOTED BY THE AO NAMELY PANDIAN C HEMICALS (262 ITR 278), STERLING FOODS (237 ITR 579), CAMBAY ELEC TRICAL SUPPLY (113 ITR 84) AND CIT VS. MENON IMPEX (259 ITR 403). IN VIEW OF ABOVE FINDINGS INCOME EARNED BY THE ASSESSEE OF RS. 1,08,49,263/- AS DUTY DRAW BACK, RS. 2,50,274/- AS SERVICE TAX RE FUND AND RS. 1,54,565/- AS FBP INTEREST IS NOT TAXABLE AND ELIGI BLE FOR EXEMPTION/DEDUCTION U/S 10B (4) OF THE INCOME TAX A CT. 4. THE LD. DR CONTENDED THAT WHILE WRONGLY DELETING THE ADDITION MADE, THE LD. DR HAS OVER-LOOKED THE FACT THAT THE ASSESSEE HAD NEGOTIATED PURCHASE PRICE WITH ITS SUPPLIERS AND H AD CLAIMED DUTY DRAWBACK WHICH WAS AVAILABLE TO ITS SUPPLIERS. THUS , THE PROXIMATE SOURCE OF THE RECEIPT WAS DISCLAIMER OF BENEFITS GI VEN BY THE ASSESSEE AND NOT THE EXPORT ACTIVITIES PER SE. THUS, WHILE THE I NCOME MAY BE ATTRIBUTABLE TO THE EXPORT ORIENTED UNIT, IT CANNOT BE SAID THAT THE SAME WAS DERIVED FROM THE UNIT EVEN WITHIN THE MEANING O F SECTION 10B(4) OF ITA NO.477(ASR)/2014 A.Y. 2010-11 4 THE ACT. THEREFORE, EXEMPTION OF DEEMED DUTY DRAWBA CK RECEIVED U/S 10B OF THE ACT HAS BEEN RIGHTLY DENIED TO THE ASSE SSEE. FURTHER, THE LD. CIT(A) HAS EARNED IN CONCLUDING THAT INTEREST INC OME AND SERVICE TAX REFUND IS INCIDENTAL TO HUMAN ACTIVITY TO BE COVERE D U/S 10B(4), AS THESE INCOMES CANNOT BE CALLED AS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS MANUFACTURED BY THE ASSESSEE AND THEREFORE, THE ASS ESSEE CANNOT BE ALLOWED EXEMPTION 10B OF THE ACT. 5. HAVING HEARD THE LD. DR IN THE LIGHT OF THE MATE RIAL AVAILABLE ON RECORD, IT IS SEEN THAT AS PER AMENDMENT BROUGHT IN BY FINANCE ACT, 2001, W.E.F. 01.04.2011, PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTIO N AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THIS IS THE MANDATE OF SECTION 10B(4) OF THE ACT, AS SUB STITUTED BY THE FINANCE ACT, 2001, W.E.F. 01.04.2001. IT IS THIS PROVISION, WHICH HAS BEEN DULY TAKEN INTO CONSIDERATION BY THE LD. CIT(A). ACCORDI NGLY, AS CORRECTLY OBSERVED, PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES IS DIFFERENT THE INCOME DERIVED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THIS POSITION HAS NOT BEEN DISPUTED. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXP ORT OF THE ARTICLES AS WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKING. AS SUCH, THE LD. CIT(A) CANNOT BE FAU LTED IN HOLDING THAT ITA NO.477(ASR)/2014 A.Y. 2010-11 5 WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAIN S FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF T HE UNDERTAKING. THEREFORE, THE ASSESSEE BEING A 100% EXPORT ORIENTE D UNIT, WHICH EXPORTED ENGINEERING GOODS TO EARN THE INCOME, A PO RTION OF THAT INCOME IS INCLUDED IN THE DUTY DRAWBACK ACCOUNT. HENCE, T HE FACT THAT THERE IS A DIRECT NEXUS BETWEEN THIS INCOME AND THE INCOME O F THE BUSINESS OF THE UNDERTAKING REMAINS UNDISPUTED. IT IS ALSO UNCHALLE NGED THAT THIS IS THE INCOME DERIVED FROM THE CONSIDERATION REALIZED BY EXPORT OF ARTICLES. RELIANCE BY THE LD. CIT(A), IN THIS REGARD ON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, IN THE CASE OF MARAL OVERSEAS LTD . VS. CIT, 136 ITD (SB) (INDORE) AND ON THE DECISION DATED 11.12.2013, IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS PVT. LTD. , RENDERED BY THE HONBLE KARNATAKA HIGH COURT IN ITA NO.428 OF 2007, HAS NOT BEEN COUN TERED BY THE LD. DR BY CITING ANY DECISION TO THE CONTRARY. THEREFORE, THE DELETION OF THE ADDITION OF RS.1,08,44,263/- ON ACCOUNT OF DEEMED D UTY DRAWBACK RECEIPTS IS CONFIRMED. 6. SIMILAR IS THE POSITION WITH REGARD TO FBP INTER EST OF RS.1,54,565/- AND SERVICE TAX REFUND OF RS.2,50,274/-. THE INTERE ST WAS RECEIVED ON ACCOUNT OF EXCESS CHARGE OF INTEREST BY THE BANK, W HICH WAS RETURNED LATER. THE SERVICE TAX REFUND CONSTITUTED EXPENSES CLAIMED EARLIER, WHICH WERE REFUNDED. THESE AMOUNTS ARE ALSO COVERED BY TH E AMENDED SECTION 10B(4) OF THE ACT AND THE LD. CIT(A) HAS CORRECTLY DELETED THESE ADDITIONS ALSO. ITA NO.477(ASR)/2014 A.Y. 2010-11 6 7. THEREFORE, FINDING NO ERROR WHATSOEVER IN THE OR DER OF THE LD. CIT(A), THE SAME IS CONFIRMED, REJECTING THE GRIEVA NCE SOUGHT TO BE RAISED BY THE DEPARTMENT. 8. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/06/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 13/06/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. CHAND ENGINEERING, AMRITSAR. 2. THE DCIT, CIRCLE-IV, AMRITSAR. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.