M/s. Dhir Global Industries Pvt. Ltd., New Delhi V. CIT(A)XVII, New Delhi

ITA 6506/DEL/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6658 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 05-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT JAIN SENIOR
• Assessee Lawyers: SAURABH DEV KARAN SINGH
• Keywords: Business income; Question of law; Benefit of exemption
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6506/DEL./2013 (ASSESSMENT YEAR : 2008-09) M/S. DHIR GLOBAL INDUSTRIES PVT. LTD., VS. ACIT, CI RCLE 10 (1), 14, NAVJEEVAN VIHAR, NEW DELHI. NEW DELHI 110 017. (PAN : AAACD7431P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAURABH DEV KARAN SINGH, ADVOCA TE REVENUE BY : SHRI AMIT JAIN, SENIOR DR DATE OF HEARING : 19.07.2018 DATE OF ORDER : 19.07.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. DHIR GLOBAL INDUSTRIES PVT. LI MITED (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FIL ING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATE D 03.09.2013 PASSED BY LD. CIT (APPEALS)-XVII, NEW DELHI QUA THE ASSESSMENT YEAR 2008-09 ON THE GROUNDS INTER ALIA THAT :- 1 (I). THAT ON FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN NOT ALLOWING BENEFIT OF STATUTORY DEDU CTION U/S 10B ON INTEREST INCOME OF RS.16,36,314/-. (II). THAT THE DISALLOWANCE IS IN TOTAL DISREGARD TO THE PROVISIONS OF SEC. 10B AS THE INTEREST INCOME IS EA RNED ON FIXED ITA NO.6506/DEL./2013 2 DEPOSITS TAKEN BY THE COMPANY FOR OPENING LETTER OF CREDIT WITH BANKS AND AS SUCH IT IS INCIDENTAL TO THE EXPORT BU SINESS OF THE APPELLANT. 2. THAT ORDERS OF THE LOWER AUTHORITIES ARE NOT JU STIFIED ON FACTS AND SAME ARE BAD IN LAW. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE COMPANY, A 1 00% EXPORT ORIENTED UNIT (EOU), IS INTO THE BUSINESS OF MANUFA CTURING OF SALE/ EXPORT OF ALL TYPES OF READYMADE GARMENTS, CLAIMING EXEMPTION UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) FOR EXPORT PROFITS. AO NOTICED THAT THE ASSESSEE H AS EARNED INTEREST INCOME FROM BANK FDR TO THE TUNE OF RS.16,36,314/- . AO WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE EXCLU DED INTEREST INCOME EARNED BY THE ASSESSEE FOR THE PURPOSE OF EX EMPTION U/S 10B OF THE ACT AND TREATED THE SAME AS INCOME FROM OTHER SOURCES AND MADE ADDITION THEREOF TO THE TOTAL INCOME OF TH E ASSESSEE. 3. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.6506/DEL./2013 3 5. UNDISPUTEDLY, THE ASSESSEE IS A 100% EOU, INTO B USINESS OF MANUFACTURING AND SALE OF EXPORT OF READYMADE GARME NTS ENTITLED TO EXEMPTION U/S 10B FOR EXPORT PROFIT. IT IS ALSO NOT IN DISPUTE THAT THE INTEREST INCOME HAS BEEN EARNED BY THE ASSESSEE COMPANY ON MARGIN MONEY OR FIXED DEPOSIT TAKEN BY THE COMPANY FOR OPENING LETTER OF CREDIT WITH THE BANK. IT IS ALSO NOT IN DISPUTE THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO PROVE THA T THE FUNDS AVAILED OF BY THE ASSESSEE COMPANY HAS NOT BEEN INV ESTED BY THE BUSINESS PARTIES. 6. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACT S, ARGUMENTS ADDRESSED BY LD. AUTHORIZED REPRESENTATIVES TO THE APPEALS, ORDERS PASSED BY THE LOWER REVENUE AUTHORITIES AND CASE LA W RELIED UPON, THE SHORT QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER INTEREST INCOME EARNED BY THE ASSESS EE ON MARGIN MONEY OR FIXED DEPOSIT TAKEN FOR OPENING LETTER OF CREDIT WITH THE BANK FORMS PART OF BUSINE SS INCOME FOR THE PURPOSES OF SECTION 10B OF THE ACT? 7. THE LD. AR FOR THE ASSESSEE TO SUPPORT HIS ARGUM ENTS RELIED UPON THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN CIT VS. MOTOROLA INDIA ELECTRONICS (P.) LTD (2014 ) 46 TAXMANN.COM 167 (KARNATAKA), HONBLE DELHI HIGH COU RT IN PR.CIT VS. UNIVERSAL PRECISION SCREWS ITA 392 /20 15 ORDER DATED 06.10.2015 AND RIVIERA HOME FURNISHING VS. AD DL. CIT ITA NO.6506/DEL./2013 4 ITA 459/2015 ORDER DATED 19.11.2015 . HOWEVER, ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIED UPON THE DE CISION RENDERED BY HONBLE DELHI HIGH COURT IN CIT VS. MEREENA CREATIO NS (2011) 330 ITR 199 (DELHI) TO SUPPORT THE ASSESSMENT ORDER AS WELL AS THE ORDER PASSED BY LD. CIT (A). 8. WHEN WE EXAMINE THE UNDISPUTED FACT THAT THE ASS ESSEE IS A 100% EOU ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT, THE CASE LAW RELIED UPON BY THE LD. AR FOR THE ASSESSEE IS SQUAR ELY APPLICABLE. HONBLE DELHI HIGH COURT IN PR.CIT VS. UNIVERSAL PRECISION SCREWS (SUPRA) DECIDED THE IDENTICAL ISSUE IN FAVOUR OF TH E ASSESSEE BY HOLDING THAT INTEREST INCOME EARNED BY THE ASSES SEE ON FDRS RECEIVED ON MARGIN KEPT IN THE BANK FOR UTILIZATION OF LETTER OF CREDIT IS HAVING DIRECT NEXUS TO THE BUSINESS ACTIV ITIES OF THE ASSESSEE AND IS TO FORM THE PART OF THE PROFIT OF BUSINESS OF THE UNDERTAKING. FOR READY PERUSAL, THE OPERATIVE PAR T OF THE JUDGMENT IN CASE OF PR.CIT VS. UNIVERSAL PRECISION SCREWS (SUPRA) IS EXTRACTED AS UNDER :- 9. ON THE QUESTION OF INTEREST ON THE FDRS, THE I TAT HAS REFERRED TO SECTION 10B(4) WHICH STATES THAT FOR TH E PURPOSES OF SECTION 10B(1), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WH ICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, TH E SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. AS NOTED B Y THIS COURT IN CIT V. HRITNIK EXPORTS PVT. LTD.(DECISION DATED 13 TH NOVEMBER, 2014 IN ITA NO.219 & 239 OF 2014), SECTION 10B(4) M ANDATES ITA NO.6506/DEL./2013 5 THE APPLICATION OF THE FORMULA FOR DETERMINING THE PROFITS DERIVED FROM EXPORTS FOR THE PURPOSES OF SECTION 10B(1). IN OTHER WORDS, THE FORMULA WOULD READ THUS: PROFITS DERIVED = PROFITS OF THE BUSINESS X EXPOR T TURNOVER FROM EXPORT OF THE UNDERTAKING TOTAL TURNOVER 9A. IN TERMS OF THE ABOVE FORMULA, THE QUESTION TH AT WOULD ARISE IS WHETHER THE INTEREST ON THE FDRS COULD FOR M PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THE A TTENTION OF THE COURT HAS BEEN DRAWN TO THE DECISION OF THE KARNATA KA HIGH COURT IN CIT V. MOTOROLA INDIA ELECTRONICS PVT. LTD . (2014) 46 TAXMANN.COM 167 (KAR.) WHICH HELD THAT THERE WAS A DIRECT NEXUS BETWEEN THE INTEREST RECEIVED FROM THE FDRS C REATED BY A SIMILARLY PLACED ASSESSEE FROM THE AMOUNTS BORROWED BY IT. THE HIGH COURT APPROVED THE ORDER OF THE ITAT IN THAT C ASE WHICH HELD THAT THE ENTIRE PROFITS OF THE BUSINESS OF THE UNDERTAKING SHOULD BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE ELIGIBLE DEDUCTION UNDER SECTION 10B OF THE ACT BY APPLYING THE MANDATORY FORMULA. 10. IN THE PRESENT CASE, THE ASSESSEE HAS STATED T HAT THE INTEREST ON FDRS WAS RECEIVED ON MARGIN KEPT IN TH E BANK FOR UTILIZATION OF LETTER OF CREDIT AND BANK GUARANTEE LIMITS. IN THOSE CIRCUMSTANCES, THE DECISION OF THE ITAT THAT SUCH I NTEREST BEARS THE REQUISITE CHARACTERISTIC OF BUSINESS INCOME AND HAS NEXUS TO THE BUSINESS ACTIVITIES OF THE ASSESSEE CANNOT BE F AULTED. IN OTHER WORDS, INTEREST EARNED ON THE FDRS WOULD FORM PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING FOR TH E PURPOSES OF COMPUTATION OF THE PROFITS DERIVED FROM EXPORT BY A PPLYING FORMULA UNDER SECTION 10B(4) OF THE ACT. 9. HONBLE KARNATAKA HIGH COURT IN CIT VS. MOTOROLA INDIA ELECTRONICS (P.) LTD (SUPRA) ALSO DEALT WITH THE IDENTICAL ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE BY RETURNING FOLL OWING FINDINGS :- 8. IN THE INSTANT CASE, THE ASSESSEE IS A 100% EO U, WHICH HAS EXPORTED SOFTWARE AND EARNED THE INCOME. A PORT ION OF THAT INCOME IS INCLUDED IN EEFC ACCOUNT. YET ANOTHER POR TION OF THE AMOUNT IS INVESTED WITHIN THE COUNTRY BY WAY OF FIX ED DEPOSITS, ANOTHER PORTION OF THE AMOUNT IS INVESTED BY WAY OF LOAN TO THE SISTER CONCERN WHICH IS DERIVING INTEREST OR THE CO NSIDERATION RECEIVED FROM SALE OF THE IMPORT ENTITLEMENT, WHICH IS PERMISSIBLE IN LAW. NOW THE QUESTION IS WHETHER THE INTEREST RE CEIVED AND THE CONSIDERATION RECEIVED BY SALE OF IMPORT ENTITLEMEN T IS TO BE ITA NO.6506/DEL./2013 6 CONSTRUED AS INCOME OF THE BUSINESS OF THE UNDERTAK ING. THERE IS A DIRECT NEXUS BETWEEN THIS INCOME AND THE INCOME O F THE BUSINESS OF THE UNDERTAKING. THOUGH IT DOES NOT PAR TAKE THE CHARACTER OF A PROFIT AND GAINS FROM THE SALE OF AN ARTICLE, IT IS THE INCOME WHICH IS DERIVED FROM THE CONSIDERATION REAL IZED BY EXPORT OF ARTICLES. IN VIEW OF THE DEFINITION OF IN COME FROM PROFITS AND GAINS' INCORPORATED IN SUB-SECTION (4), THE ASSESSEE IS ENTITLED TO THE BENEFIT OF EXEMPTION OF THE SAID AMOUNT AS CONTEMPLATED UNDER SECTION 10B OF THE ACT. THEREFOR E, THE TRIBUNAL WAS JUSTIFIED IN EXTENDING THE BENEFIT TO THE AFORESAID AMOUNTS ALSO. WE DO NOT FIND ANY MERIT IN THESE APP EALS. THEREFORE, THE FIRST SUBSTANTIAL QUESTION OF LAW RA ISED IN ITA NO.428/2007 IS ANSWERED IN FAVOUR OF THE REVENUE AN D AGAINST THE ASSESSEE AND THE FIRST SUBSTANTIAL QUESTION OF LAW IN ITA NO.447/2007 IS ANSWERED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE. 10. IN THE GIVEN CIRCUMSTANCES, THE DECISION RELIED UPON BY THE LD. DR FOR THE REVENUE IN CIT VS. MEREENA CREATIONS (SUPRA) IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF TH E CASE BECAUSE THE SAME PERTAINS TO DEDUCTION U/S 80HHC WHEREAS TH E CASE OF THE ASSESSEE IS WITH REGARD TO EXEMPTION U/S 10B OF THE ACT. MOREOVER, THE FACTS OF THE INSTANT CASE GO TO PROVE THAT THE ENTIRE EXERCISE AS TO EARNING INTEREST INCOME ON MARGIN MO NEY OR FIXED DEPOSIT BY THE ASSESSEE COMPANY FOR OPENING LETTER OF CREDIT WITH THE BANK IS HAVING DIRECT NEXUS WITH ITS BUSINESS A CTIVITIES AND THE FUNDS HAVE BEEN UTILIZED FOR THE REQUIREMENT OF BUS INESS AND THIS FACT HAS NOT BEEN DISPUTED BY THE AO. 11. SO, FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN PR.CIT VS. UNIVERSAL PRECISION SCREWS AND CIT VS. MOTOROLA INDIA ELECTRONICS (P.) LTD (SUPRA), WE ARE OF THE ITA NO.6506/DEL./2013 7 CONSIDERED VIEW THAT THE LD. CIT (A) HAS ERRED IN D ENYING THE BENEFIT OF DEDUCTION U/S 10B ON THE INTEREST INCOME OF RS.16,36,314/- TO THE ASSESSEE. SO, THE INTEREST I NCOME EARNED BY THE ASSESSEE IS ORDERED TO BE TREATED AS ELIGIBLE F OR DEDUCTION U/S 10B OF THE ACT. CONSEQUENTLY, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 19 TH DAY OF JULY, 2018. SD/- SD/- (N.K. BILLAIYA) (KULDIP SING H) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 19 TH DAY OF JULY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XVII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.