ACIT, UDAIPUR V. M/s. Harmony Plastics Pvt. Ltd., UDAIPUR

ITA 566/JODH/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7900 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Keywords: Earning of tax free income
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 566/JU/2010 ASSESSMENT YEAR : 2007-08 THE ACIT, VS M/S HARMONY PLASTICS PVT.LTD., CIRCLE-1, UDAIPUR UDAIPUR PAN NO. AABCH5399D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.R. KOKANI RESPONDENT BY : NONE DATE OF HEARING : 17.09.2012 DATE OF PRONOUNCEMENT : 20.09.2012 ORDER PER N.K.SAINI, A.M. THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST T HE ORDER DATED 7.10.2010 OF CIT(A), UDAIPUR. 2. DURING THE COURSE OF HEARING, NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE, NEITHER ANY ADJOURNMENT WAS SOUGHT. WE, THEREFORE, PROCEEDED EX.PARTE QUA THE ASSESSEE AND THE APPEAL IS DECIDED ON MERIT AFTER HEARING THE LD. DR. 2 3. THE ONLY GROUND IN THIS APPEAL READS AS UNDER:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD CIT(A) HAD ERRED IN REDUCING THE ADDIT ION OF RS. 25,19,766/- TO RS. 12,16,747/- MADE BY THE ASSE SSING OFFICER U/S 10B OF THE INCOME TAX ACT, 1961 BY APPL YING THE PRINCIPAL OF PARITY . 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING OF PP FABRIC, S ACKS & HDPE SACKS AND HAD CLAIMED EXEMPTION U/S 10B OF THE INCOME-TAX ACT , 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] AS 100% EXPORT ORIENTED UNIT (EOU). FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT AMOUNTING TO RS. 3,26,33,646/- ON THE BASIS OF WORKING GIVEN IN FORM NO. 56G FILED ALONGWITH THE RETURN ON 31.10.2007. I N THE SAID RETURN OF INCOME, THE ASSESSEE DECLARED AN INCOME OF RS. 11,3 2,024/-. IT WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT. LATER ON, THE C ASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE BASIS FOR WORKING OUT THE EXEMPT INCOME AND HOW THE FIGURE WAS ARRIVED AT. THE SUBMISSIONS OF THE ASSESSEE WERE AS UNDER:- BASIS OF EXEMPTION CLAIMED U/S 10B:- AS PER FORM NO. 56G THE EXPORT TURNOVER TAKEN IS RS. 20,50,08,673/- WHEREAS IN PRO FIT & LOSS ACCOUNT THE EXPORT TURNOVER IS RS. 22,20,72,023/-. THUS THERE IS A DIF FERENCES OF RS. 1,70,63,350/- AND TOTAL TURNOVER IS RS. 22,91,83,541/-. THUS THERE IS A DIFFERENCE OFRS. 1,70,63,350/-. THE EXPORT TURNOVER TAKEN IN FORM NO. 56G HAS BEEN ARRIVED AS UNDER:- EXPORT REALIZATION AS PER ENCLOSED STATEMENT DETAI LS OF FOREIGN EARNING EXCHANGE FOB AND C&F BASIS I.E. BANK REALIZATION C ERTIFICATE (BRC) THE VALUE COMES AS UNDER: AS PER SUM OF PAGE NO. 6 19,50,12,485 AS PER SUM OF PAGE NO. 7 1,88,96,697 21,39,09,182 3 LESS: OCEAN FREIGHT CLAIMED IN P&L AC RS. 88,55 ,735 INSURANCE EXPENSES RS. 44,774 89,00,509 20,50,08,683 THE DIFFERENCE BETWEEN EXPORT TURNOVER AS PER PROFI T & LOSS A/C AND AS PER FORM NO. 56G IS RS. 1,70,63,350 (22,20,72,023 - 20,50,08,673) AND THE SAME HAS BEEN ALSO REDUCED FROM TOTAL TURNOVER AS PER PROFIT & LO SS A/C AND AS FORM NO. 56G RS.L,70,63,350(22,91,83,541 - 21,21,20,191). 5. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT TH E BASIS OF WORKING OF TOTAL TURN OVER GIVEN BY THE ASSESSEE FOR CLAIMING DEDUCTION U/S 10B OF THE ACT. ACCORDING TO HIM, SECTION 10B ONLY DEFINES TH E EXPORT TURNOVER; IT NOWHERE DEFINES WHAT COMES UNDER TOTAL TURN OVER AND WHAT IS TO BE EXCLUDED BY ARRIVING AT TOTAL TURN OVER OF THE UNDE RTAKING. THE ASSESSING OFFICER TOOK TOTAL TURN OVER AS PER THE BOOKS AT 22 ,91,83,541/- AS AGAINST THE CLAIM OF ASSESSEE AT RS. 21,21,20,191/- THE ASSESSI NG OFFICER WORKED OUT THE EXEMPTION U/S 10B OF THE ACT AT RS. 3,01,13,880/- A ND MADE ADDITION OF RS. 25,19,766/- (RS. 3,25,33,646 RS. 3,01,13,880/-). THE ASSESSEE CARRIED THE MATTER TO THE LD CIT(A) AND SUBMITTED THAT THE ASSE SSEE CLAIMED THE EXEMPTION U/S 10B OF THE ACT ON THE BASIS OF AUDIT REPORT IN FORM NO. 56G. IT WAS ALSO STATED THAT THE EXEMPTION U/S10B OF THE ACT WAS WORKED OUT ON THE BASIS OF THE FORMULA GIVEN AND THE PROFIT OF BUSINE SS TURN OVER AS WELL AS TOTAL TURN OVER HAD BEEN REDUCED BY OCEAN FREIGHT & INSUR ANCE ATTRIBUTABLE ON EXPORT SALES ON FOB AND CIF BASIS. RELIANCE WAS PL ACED ON THE DECISION OF THE ITAT CHENNAI BENCH D (SPECIAL BENCH) (2009) 3 0 SOT 55 IN THE CASE OF ITO VS SAK SOFT LTD AND THE JUDGMENT OF THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GEM PLUS JEWELLERY INDIA LTD REPORTED IN (2010) 233 CTR (BOM) 248. 4 6. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD (SUPRA) DIRECTED T HE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION U/S 10B OF THE ACT AFTER EX CLUDING THE OCEAN FREIGHT AND INSURANCE FOR ELIGIBLE EXPORT FROM THE TOTAL TU RN OVER. NOW THE DEPARTMENT IS IN APPEAL. 7. DURING THE COURSE OF HEARING, NOBODY WAS PRESNET ON BEHALF OF THE ASSESSEE . HOWEVER, WE HAVE HEARD THE LD DR AND T HE APPEAL IS DECIDED ON MERIT. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS B EEN DECIDED IN.FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH OF ITAT CHENNAI IN TH E CASE OF ITO V. SAK SOFT LTD: 313 ITR (AT) 353 (CHENNAI)(SB) WHEREIN IT HAS BEEN HELD AS UNDER: TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF 'T OTAL TURNOVER FOR THE PURPOSE OF SECTION 10B, THERE IS NO AUTHORITY TO EXCLUDE ANYTHING FROM THE EXPRESSION A S UNDERSTOOD IN GENERAL PARLANCE WOULD BE WRONG, AS THERE HAS TO BE AN ELEMENT OF TURNOVER IN THE RECEI PT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNOVER. THAT ELEM ENT IS MISSING IN THE CASE OF FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN EXCH ANGE IN CONNECTION WITH THE PROVIDING OF TECHNICAL SERVI CES OUTSIDE INDIA, THESE RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT OF SUCH EXPENSES INCURRED BY HIM. MERE REIMBURSEMENT OF EXPENSES CANNOT HAVE AN ELEMENT OF TURNOVER, ONLY IN RECOGNITION OF THIS PO SITION THAT IN THE DEFINITION OF EXPORT TURNOVER' IN SEC TION 10B, THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO BE EXCLUDED. SECONDLY, THE DEFINITION OF EXPORT TURNOV ER CONTEMPLATES THAT THE AMOUNT RECEIVED BY THE ASSESS EE IN CONVERTIBLE FOREIGN EXCHANGE SHOULD REPRESENT 5 'CONSIDERATION' IN RESPECT OF THE EXPORT. ANY REIMBURSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONE D IN THE DEFINITION CAN UNDER NO CIRCUMSTANCES BE CONSID ERED TO REPRESENT CONSIDERATION' FOR THE EXPORT OF THE COMPUTER SOFTWARE OR ARTICLES OR THINGS. THUS, THE EXPRESSION TOTAL TURNOVER WHICH IS NOT DEFINED IN SECTION 10B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THUS, THE TWO ITEMS OF EXPENSES REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER CANNOT FORM PAR T OF THE TOTAL TURNOVER SINCE THE RECEIPTS BV WAY OF REC OVERY OF SUCH EXPENSES CANNOT BE SAID TO REPRESENT CONSIDERATION FOR THE GOODS EXPORTED SINCE TOTAL TURNOVER IS. NOTHING BUT THE AGGREGATE OF THE DOMES TIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA PRESCRIBED BY SECTION 10B(4) THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUMERATOR A ND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPE NSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER. 8. THE AFORESAID DECISION HAD BEEN CONSIDERED AN D AFFIRMED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD. & ORS. REPORTED IN 2011 - TIOL-684-HC-KAR-LL WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT, IF ANY EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVER, T HE SAME HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO. A SIMILAR VI EW HAS ALSO BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. 2010-TIOL-456- HC-MUM-IT. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE ID. CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AND DIRECTING THE AO TO EXCLUDE THE FREIGHT AND INSURAN CE EXPENSES BOTH FROM 6 EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE CAL CULATING THE DEDUCTION U/S 10B OF THE ACT. WE, THEREFORE, DO NOT FIND ANY INFI RMITY IN THE IMPUGNED ORDER OF THE LD CIT(A) ON THIS ISSUE. 9 IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DI SMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20.09.2 012) SD- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 20 TH SEPTEMBER, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR ITAT, JODHPUR