M/s. Magnum Forge and Machine Works P.Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 7/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0737 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 02-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: SUNIL U PATH AK
• Keywords: Additional evidence; Question of law; Deemed export; Benefit of exemption
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 07 /PN/20 14 / ASSESSMENT YEAR : 20 0 8 - 0 9 MAGNUM FORGE AND MACHINE WORKS PVT. LTD., FLAT NO.26, 82, PARVATI TOWERS, PUNE 411009 . / APPELLANT PAN: AABCM2183Q VS. THE ASST. COMMISSIONER OF INCOME TAX, CORCLE - 11(2) , PUNE . / RESPONDENT / APPELLANT BY : SHRI SUNIL U. PATHAK / RESPONDENT BY : SHRI ANIL CHAWARE / DATE OF HEARING : 27 . 0 7 .201 6 / DATE OF PRONOUNCEMENT: 2 6 . 0 9 .201 6 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF C I T (A) - I , PUNE , DATED THIS APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF C I T (A) - I , PUNE , DATED 3 0 . 0 9 .20 13 RELATING TO ASSESSMENT YEAR 200 8 - 0 9 AGAINST ORDER PASSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING CONCISE GROUND S OF APPEAL: - 1] THE ASST. ORDER PASSED BY THE LEARNED ASSESSING OFFICER IS BARRED BY LIMITATION AND HENCE, THE SAME MAY BE DECLARED NULL AND VOID. 2] THE ASST. ORDER PASSED ANY TIME AFTER TIME BARRING DATE VIZ. 31.12.2011 BY THE LEARNED A.O. WAS DATED 11TH NOVEMBER, 2011 IS THUS BACK DATED AND HENCE, THE SAME BE HELD TO BE NULL WAS DATED 11TH NOVEMBER, 2011 IS THUS BACK DATED AND HENCE, THE SAME BE HELD TO BE NULL AND VOID BEING TIME BARRED. ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 2 3] THE ASSESSEE SUBMITS THAT THE A.O. PASSED A DRAFT ASST. ORDER AS HE DID NO T MAKE UP HIS MIND TO MAKE FINAL ORDER TILL 31 ST DECEMBER 2011 AND THE FINAL ASSESSMENT ORDER WAS PASSED AFTER THE PERMISSIBLE DATE FOR COMPLETING ASSESSMENT ORDER U/S 143(3). ALSO NO DEMAND NOTICE WAS ISSUED ALONG WITH THE SAID ORDER. AND HENCE, THE APPE LLANT SUBMITS THAT THE SAID ASST. ORDER IS INVALID IN LAW AND THE ASST. MADE BE DECLARED NULL AND VOID. 4] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PREVAILING LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT ALLOWING EXEMPTION U/S 10B. 4.1 THE ASSESSEE COMPANY IS A 100% EXPORT - ORIENTED UNDERTAKING (EOU) CARRYING THE BUSINESS OF EXPORT OF STEEL CASTINGS. THE ASSESSEE IS GOVERNED BY EXIM POLICY AND MONITORED BY GOVERNMENT AUTHORITY I.E. SEEPZ. EXPORTS OF EOU SHOULD BE CONSIDERED AS PER EXIM POLICY. 4.2 THE EXPORTS OF 100% EOU'S AS PER ANNUAL PERFORMANCE REPORT TO BE SUBMITTED TO SEEPZ AS PER EXIM POLICY ARE INCLUSIVE OF EXPORTS AND DEEMED EXPORTS. AS PER EXIM POLICY, SUPPLY BY ONE EOU TO ANOTHER EOU IS CONSIDERED AS 'DEEMED EXPORTS.' A LSO DEEMED EXPORTS ARE TAKEN AT PAR WITH OTHER EXPORTS FOR GRANT OF EXPORT HOUSE STATUS. 4.3 IN THE CASE OF ASSESSEE, ALL THE SALES PROCEEDS OF SALE TO ANOTHER EOU (DEEMED EXPORT) RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE IN STIPULATED TIME THROUGH NORMAL BANKING CHANNELS. 4.4 DEEMED EXPORTS ARE EXPORTS FOR THE PURPOSE OF SECTION 10B. THIS VIEW HAS BEEN UPHELD BY APPELLATE TRIBUNALS IN VARIOUS JUDGMENTS. 5. THE APPELLANT REQUESTS FOR ADMISSION OF ADDITIONAL EVIDENCES IF ANY REQUIRED IN THE COURSE OF APPE AL HEARING. 3. THE GROUNDS OF APPEAL NO.1 TO 3 ARE NOT PRESSED AND HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. 4. THE ISSUE IN GROUND OF APPEAL NO.4 IS AGAINST DENIAL OF DEDUCTION UNDER SECTION 10B OF THE ACT ON SUPPLIES MADE BY THE ASSESSEE WHICH IS 100% EXPORT ORIENTED UNDERTAKING (EOU) TO ANOTHER EOU, WHICH WERE TO BE CONSIDERED AS DEEMED EXPORTS. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF FERROUS FORGING & MACHIN ING. THE ASSESSEE WAS 100% EXPORT ORIENTED UND ERTAKING ( EOU ) . FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 1,70,66,460/ - . THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT AT RS. 6,58,54,214/ - . DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO EXPLAIN AS TO WHY THE DEDUCTION CLAIMED UNDER SECTION 10B OF THE ACT SHOULD NOT BE DISALLOWED AS THE ASSESSEE HAD SOLD SOFTWARE TO ANOTHER STPI UNIT WITHIN THE COUNTRY. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS HOW SALE OF SOFTWARE BY ONE ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 3 STPI TO ANOTHER STPI WHICH WAS TO BE CONSIDERED AS DEEMED EXPORT ONLY FOR THE PURPOSE OF DUTY DRAW BACK AND EXEMPTION FROM TERMINAL EXCISE DUTY, ENTITLED IT TO CLAIM THE DEDUCTION UNDER SECTION 10B OF THE A CT. IN RESPONSE, THE ASSESSEE FURNISHED WRITTEN SUBMISSIONS BEFORE THE ASSESSING OFFICER EXPLAINING THE PROVISIONS OF SECTION 10B OF THE ACT AND DIFFERENCE BETWEEN SECTION 10A AND 10B OF THE ACT . FURTHER, REFERENCE WAS MADE TO EXIM POLICY, UNDER WHICH DE EMED EXPORT IS ALSO PROVIDED , WHICH RECOGNIZE S THE SUPPLY OF GOODS TO EOU S OR STPS OR EHTPS OR BTPS . THE ASSESSEE ALSO EXPLAINED THAT THE PURPOSE OF DEDUCTION UNDER SECTION 10B OF THE ACT WAS TO FULFIL L THE CONDITIONS BRINGING EXPORT SALES PROCEEDS WHETHE R DEEMED OR DIRECT, TO INDIA IN CONVERTIBLE FOREIGN EXCHANGE, WITHOUT ANY DISTINCTION BETWEEN EXPORT OR DEEMED EXPORT. RELIANCE IN THIS REGARD WAS PLACED ON VARIOUS DECISIONS. THE ASSESSEE ALSO POINTED OUT THAT THE ISSUE BEFORE THE BANGALORE BENCH OF TRI BUNAL IN TATA ELXSI LTD VS. ACIT REPORTED IN 115 TTJ (BANG) 423 WAS IN RELATION TO SECTION 10A OF THE ACT AND HENCE, NOT APPLICABLE. THE ASSESSING OFFICER BRUSHED ASIDE THE ABOVE SAID DIFFERENCE POINTED OUT BETWEEN SECTION 10A AND 10B OF THE ACT BEING ABOVE SAID DIFFERENCE POINTED OUT BETWEEN SECTION 10A AND 10B OF THE ACT BEING WIT HOUT ANY LOGIC. IT WAS FURTHER POINTED OUT BY THE ASSESSING OFFICER THAT AS PER EXIM POLICY FOR CLAIMING THE DEDUCTION UNDER SECTION 10B OF THE ACT, THE ASSESSEE WAS REQUIRED TO FURNISH FORM NO.1 I.E. BANK CERTIFICATE OF EXPORT & REALIZATION (BRC) AND IN ADDITION, THERE SHOULD BE REALIZATION OF MONEY IN FOREIGN EXCHANGE, WHICH WAS NOT PLACED ON RECORD BY THE ASSESSEE DESPITE SEVERAL OPPORTUNITIES. THE ASSESSING OFFICER THUS, HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THE DEDUCTION UNDER SECTION 10B OF THE ACT AND THE SAME WAS WITHDRAWN. 6. BEFORE THE CIT(A), PRIME CONTENTION RAISED BY THE ASSESSEE WAS THAT THE SALES MADE TO OTHER REGISTERED STP UNITS WITHIN INDIA SHOULD BE TREATED AS DEEMED EXPORT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10B OF TH E ACT. THE CIT(A) REFERRING TO THE EXIM POLICY CLAUSE 8.3 DEFINING DEEMED EXPORTS OBSERVED AS UNDER: - ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 4 4.1.1 THE ABOVE CLAUSES IN EXIM POLICY 2004 - 09 WOULD CLEARLY INDICATE THAT SALE BY ONE STP TO ANOTHER STP WITHIN THE COUNTRY WOULD BE TREATED AS DEEMED EXPORT ONLY FOR THE LIMITED P URPOSE OF CONFERRING CERTAIN BENEFITS TO THE EXPORTERS VIZ. ADVANCE LICEN S E FOR INTERMEDIATE SUPPLY, DUTY DRAW BACK AND, EXEMPT FROM TERMINAL EXCISE DUTY. FURTHER, AS PER CHAPTER 6, CLAUSE 6.12 OF THE EXIM POLICY 2004 - 09, OTHE R ENTITLEMENTS OF STP UNITS INCLUDE EXEMPTION FROM INCOME - TAX AS PER THE PROVISIONS OF SECTION 10 A AND 10 B OF IT ACT. THUS, FROM THE PERUSAL OF CHAPTER - 6 OF EXIM POLICY, IT COULD BE SEEN THAT WHATEVER BENEFIT GIVEN TO THE EXPORTERS UNDER THE I . T. ACT SHOUL D BE IN ACCORDANCE WITH THE PROVISIONS OF SEC. 10 A AND 10 B OF THE IT ACT. APART FROM THE BENEFIT CONFERRED UNDER THE AFORESAID CHAPTER - 6, NOTHING HAS BEEN INDICATED IN RESPECT OF ANY DEEMED EXPORT WHEN THE ISSUE IS CONSIDERED UNDER THE IT ACT. THE EXIM POLI CY EXTRACTED ABOVE (CHAPTER 8.1 AND 8.3) DOES NOT INCLUDE BENEFIT TO BE GIVEN UNDER IT ACT OTHER THAN ONE REFERRED TO UNDER CHAPTER 6.12(A). IT IS ALSO IMPORTANT TO NOTE THAT THE CONCEPT OF 'DEEMED EXPORT' UNDER THE EXIM POLICY IS NOT INCORPORATED IN THE S CHEME OF DEDUCTION UNDER SECTION 10 B OF THE INCOME - TAX ACT AND IT IS THE SETTLED POSITION THAT THE INCOME - TAX ACT IS A SELF - CONTAINED CODE AND THE VALIDITY OR CORRECTNESS OF THE CLAIM HAS TO BE CONSIDERED WITH REFERENCE TO INCOME TAX PROVISIONS. WHEN SECTI ON 10 B PROVIDES FOR EXEMPTION ONLY IF THE SALE PROCEEDS OF ARTICLES OR THINGS EXPORTED OUT OF INDIA ARE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE, THE LEGISLATURE NEVER INTENDED THE BENEFIT TO BE EXTENDED TO LOCAL SALES MADE BY STP/EOU UNITS TO OTHER STP/EO U UNITS. SEC.10B(3) IS SPECIFICALLY GEARED TO PROFITS ON ACTUAL EXPORTS, THAT TOO, MADE AGAINST RECEIPT OF CONVERTIBLE FOREIGN EXCHANGE. AS THE LEGISLATURE DID NOT INTEND DUPLICITY IN EXEMPTION ON EXPORT PROFIT, LNTER - E OU UNIT SALES ARE NOT TREATED AS EXPO RTS WITHIN THE MEANING OF SECTION 10 B OF THE INCOME - TAX ACT, NO MATTER SUCH TRANSFERS ARE TREATED AS EXPORTS FOR THE PURPOSE OF DUTY EXEMPTION ETC. UNDER THE EXIM POLICY. IN THIS CONTEXT, REFERENCE CAN BE MADE TO THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. VENKATESHWARA HATCHERIES LTD. (237 ITR 174), WHEREIN IT IS OBSERVED THAT THE MEANING ASSIGNED TO A PARTICULAR WORD IN A PARTICULAR STATUTE OR POLICY CANNOT BE IMPORTED TO A WORD USED IN A DIFFERENT STATUTE. THEREFORE, JUST BECAUSE SUCH LO CAL SALES TO OTHER USED IN A DIFFERENT STATUTE. THEREFORE, JUST BECAUSE SUCH LO CAL SALES TO OTHER STP/EOU UNIT ARE CONSIDERED AS EXPORTS FOR THE PURPOSE OF EXTENDING CERTAIN BENEFITS/INCENTIVES AS PER EXIM POLICY, THE SAME CANNOT BE TREATED AS DEEMED EXPORTS E VEN FOR THE PURPOSE OF DEDUCTION UNDER SEC.10 B UNDER THE I T ACT IN THE ABS ENCE OF SPECIFIC PROVISION UNDER THE I T ACT TO DO . 7. THE CIT(A) HELD THE ASSESSEE NOT TO BE ELIGIBLE TO CLAIM THE DEDUCTION UNDER SECTION 10B OF THE ACT ON SUCH LOCAL SALES MADE TO ANOTHER EOU UNIT EVEN IF THE PROCEEDS WERE REALIZED BY THE EOU OR THE A SSESSEE , IN EQUIVALENT CONVERTIBLE FOREIGN EXCHANGE, AS SUCH EXPORTS WERE NOT MADE OUT OF INDIA BY THE ASSESSEE AS REQUIRED UNDER SECTION 10B(3) OF THE ACT. RELIANCE PLACED UPON ON VARIOUS DECISIONS BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSE E WERE HELD TO BE MISPLACED SINCE THE HONBLE KERALA HIGH COURT IN ELECTRONIC CONTROLS & DISCHARGE SYSTEMS (P.) LTD. REPORTED IN 245 CTR 465 (KER) HAD HELD THAT THE CONCEPT OF DEEMED EXPORT UNDER THE SPECIAL ECONOMIC ZONES WAS NOT INCORPORATED IN THE SCHEM E OF EXEMPTION UNDER SECTION 10A OF THE ACT AND WHERE THE ACT WAS SELF CONTAINED CODE, THE VALIDITY OR CORRECTNESS OF THE ASSESSMENT HAD TO BE CONSIDERED WITH REFERENCE TO THE STATUTORY ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 5 PROVISIONS. THE CIT(A) FURTHER OBSERVED THAT THOUGH THE DECISION OF H ONBLE KERALA HIGH COURT WAS RENDERED WHILE INTERPRETING THE PROVISIONS OF SECTION 10A OF THE ACT AND SEZ ACT, THE PRINCIPLE LAID DOWN BY THE HONBLE KERALA HIGH COURT THAT THE CONCEPT OF DEEMED EXPORT UNDER OTHER ENACTMENTS OR EXIM POLICY IS NOT INCORPORA TED IN THE SCHEME OF EXEMPTION UNDER SECTION 10A OF THE ACT AND THE STATUTORY PROVISIONS OF THE INCOME TAX ACT, THE SAME WAS EQUALLY APPLICABLE TO T HE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT . I N VIEW OF SUBSEQUENT DECISION OF HONBLE KERALA HIGH C OURT IN ELECTRONIC CONTROLS & DISCHARGE SYSTEMS (P.) LTD. (SUPRA) , THE CIT(A) HELD THAT THE DECISION S OF CHENNAI BENCH OF TRI BUNAL RELIED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WERE OF NO ASSISTANCE TO THE CASE OF ASSESSEE AND THE O RDER OF ASSESSING OFFICER WAS THUS, UPHELD. 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE DEDUCTION UNDER SECTION 10B OF THE ACT HAS BEEN CLAIMED BY 100% EOU UNIT. HE DEDUCTION UNDER SECTION 10B OF THE ACT HAS BEEN CLAIMED BY 100% EOU UNIT. HE POINTED OUT THAT WITH REGARD TO SUPPLIES MADE TO M/S. WORLDWIDE OIL FIELD MACH IE PVT. LTD . , WHEREIN THE TOTAL SUPPLIES WERE TO THE TUNE OF ABOUT RS.43 CRORES , T HE SALE CONSIDERATION W AS RECEIVED IN FOREIGN EXCHANGE AND IT WAS TO BE TAKEN AS DEEMED EXP ORTS UNDER THE EXIM POLICY. OUR ATTENTION WAS DRAWN TO DATE - WISE AND BILL - WISE DETAILS OF DEEMED EXPORTS PLACED AT PAGE 181 OF THE PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE FIRST PAYMENT OF US $ 3 , 06 , 817 WAS RECEIVED ON 04.10.2007, WHICH WAS DEPOSITED IN EEFC ACCOUNT OF THE ASSESSEE, WHEREIN THE CURRENCY MENTIONED WAS US DOLLARS. HE REFERRED TO THE DOCUMENT PLACED AT PAGE 188 OF THE PAPER BOOK IN THIS REGARD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER CLARIFIED THAT AS AGAINST EARNING IN DOLLAR EXCHANGE, THE ASSESSEE COULD MAKE PAYMENT IN DOLLAR AND OUR ATTENTION WAS DRAWN TO THE ENTRIES IN THE BANK ACCOUNT IN THIS REGARD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FUR THER REFERRED TO THE EXIM POLICY AND ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 6 THE PROVISIONS OF SECTION 10B OF THE ACT ON DEEMED EXPORTS . THE COPY OF EXIM POLICY IS ALSO PLACED AT PAGE 39 OF PAPER BOOK. HE STRESSED THAT THE ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER THE DEDUCTION UNDER SECT ION 10B(1) OF THE ACT IS APPLICABLE TO DEEMED EXPORTS. HE ADMITTED THAT THE BANGALORE BENCH OF TRIBUNAL IN TATA ELXSI LTD VS. ACIT (SUPRA) HAD HELD THAT THE EXPORTS SHOULD BE OUTSIDE INDIA IN ORDER TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT AND T HE ASSESSING OFFICER HAD APPLIED THE PROPOSITION LAID DOWN IN TATA ELXSI LTD VS. ACIT (SUPRA) TO DENY THE DEDUCTION TO THE ASSESSEE. HE FURTHER POINTED OUT THAT THE SAID DECISION OF BANGALORE BENCH OF TRIBUNAL HAS BEEN REVERSED BY THE HONBLE HIGH COURT O F KARNATAKA IN TATA ELXSI LTD VS. ACIT IN INCOME TAX APPEAL NO.411 OF 2008, VIDE JUDGMENT DATED 20.10.2014. HE REFERRED TO PARA 18 OF THE SAID DECISION TO POINT OUT THAT THE HONBLE HIGH COURT HELD THAT SECTION 10A OF THE ACT WAS INTRODUCED TO GIVE EFFECT TO EXIM POLICY OF THE GOVERNMENT OF INDIA AND THEREFORE, THE PROVISIONS OF EXIM POLICY HAD TO BE CONSIDERED. FURTHER, IN PARA 19, THE HONBLE HIGH COURT HELD THAT AN EOU UNIT CAN EXPORT THE GOODS DIRECTLY OR THROUGH ANY OTHER EXPORTER OR EOU AND HENCE, I T WAS EXPORT THE GOODS DIRECTLY OR THROUGH ANY OTHER EXPORTER OR EOU AND HENCE, I T WAS HELD THAT EXPORT THROUGH ANOTHER EXPORTER WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT, PROVIDED THE EXPORTS YIELDED FOREIGN EXCHANGE. RELIANCE WAS PLACED ON VARIOUS OTHER DECISIONS IN THIS REGARD BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. HE FURTHER POINTED OUT THAT NO DEDUCTION UNDER SECTION 10B OF THE ACT IN RESPECT OF E XPORTS PROCEEDS RECEIVED BY THE ASSESSEE WAS CLAIMED BY M/S. WORLDWIDE OIL FIELD MACHIE PVT. LTD. AND REFERENCE WAS MADE TO THE COMPUTATION OF INCOME FI LED IN THIS REGARD. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE ORDERS OF AUTHORITIES BELOW POINTED OUT THAT UNDER THE PROVISIONS OF SECTION 10B(3) OF THE ACT, THE DEDUCTION IS AVAILABLE IF EXPORT PROCEEDS ARE BRO UGHT INTO INDIA BY THE ASSESSEE ; BUT IN THE PRESENT CASE, FOREIGN EXCHANGE WAS BROUGHT IN BY SOME OTHER CONCERN, SO THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF DEDUCTION. ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 7 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING I N THE PRESENT APPEAL IS IN RELATION TO THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT BY EOU UNIT, WHICH IN TURN HAS MADE THE EXPORTS THROUGH ANOTHER EOU UNIT. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF CASTING AND FORGING AND FOR THE YEAR UNDE R CONSIDERATION, HAD DECLARED TOTAL EXPORTS OF RS.73.63 CRORES, WHICH CONSISTED OF DIRECT EXPORTS OF RS.30.51 CRORES AND DEEMED EXPORTS OF RS.43.12 CRORES, BEING THE AMOUNT OF SALES MADE THROUGH THE OTHER EOU UNIT I.E. M/S. WORLDWIDE OIL FIELD MACHIE PVT. LTD. OUT OF DIRECT EXPORTS, THE ASSESSEE RECEIVED SUM OF RS.28.03 CRORES IN FOREIGN EXCHANGE ON OR BEFORE 30.09.2008. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT AT RS.6,58,54,214/ - ON TOTAL EXPORTS OF RS.73.63 CRORES. THE SAID CLAIM MADE BY THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AND WAS UPHELD BY THE CIT(A) , AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. THE MAIN REASON FOR REJECTING THE CLAIM OF ASSESSEE WAS THE DECISION OF BANGALORE BENCH OF TRIBUNAL IN TATA ELXSI LTD . VS. ACIT (SUPRA) , WHEREIN IT WAS HELD THAT THE SALE OF GOODS BY ONE STP / EOU UNIT VS. ACIT (SUPRA) , WHEREIN IT WAS HELD THAT THE SALE OF GOODS BY ONE STP / EOU UNIT TO ANOTHER STP / EOU UNIT WITHIN THE COUNTRY WAS TREATED AS DEEMED EXPORTS ONLY FOR THE PURPOSE OF DUTY DRAW BACK AND EXEMPTION FROM T ERMINAL EXCISE DUTY , BUT FOR THE PURPOSE OF INCOME TAX, THE BANGALORE BENCH OF TRIBUNAL DENIED THE DEDUCTION UNDER SECTION 10A OF THE ACT. APPLYING THE SIMIL E , THE ASSESSING OFFICER AND THE CIT(A) ALSO HELD THAT FOR THE PURPOSE OF CLAIMING DEDUCTION WHAT IS TO BE TREATED AS EXPORTS SOLD WAS CLEARLY PROVIDED IN SECTION 10B OF THE ACT ITSELF AND THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT IN RESPECT OF SALES MADE TO ANOTHER STP / EOU UNIT WITHIN INDIA. 1 2. THE FIRST ASPECT OF THE ISSUE IS THAT THE DECISION OF BANGALORE BENCH OF TRIBUNAL IN TATA ELXSI LTD VS. ACIT (SUPRA) HAS BEEN REVERSED BY THE HONBLE HIGH COURT OF KARNATAKA IN TATA ELXSI LTD VS. ACIT (SUPRA) , COPY OF THE JUDGMENT IS PLACED ON RECORD. THE HONBLE HIGH COURT AFTER TAKING NOTE OF THE PROVISIONS OF ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 8 DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT REFERRED TO EXPLANAT ION (2) (IV) TO SECTION 10A OF THE ACT DEFINES THE TERM EXPORT TURNOVER FOR THE PURPOSE OF SECTION, WHEREIN THE SECTION HOLD S THAT THE CONSIDERATION IN RESPECT OF EXPORTS BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT IN TO, INDIA BY THE ASSESSEE SHOULD BE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB - SECTION (3). FURTHER, EXPLANA TION MAKES IT CLEAR THAT EXPORT TURNOVER DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA, OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. THEN REFERENCE WAS MADE TO THE DEFINITION OF WORD EXPORT UNDER SECTION 2(18) OF CUSTOMS ACT, 1962, UNDER WHICH IT IS PROVIDED THAT EXPORT WITH ITS GRAMMATICAL VARIATIONS AND COGNATE EXPRESSIONS, MEANS TAKING OUT OF INDIA TO A PLACE OUTSIDE INDIA. VIDE PARA 18 OF THE JUDGMENT, THE HONBLE HIGH COURT OF KARNATAKA HELD AS SECTION 10A WAS INTRODUCED TO GIVE EFFECT TO THE EXIM POLICY OF THE CENTRAL GOVERNMENT, WE HAVE TO TAKE INTO CONSIDERATION THE PROVISIONS OF THE EXIM POLICY. VIDE PARA 19, REFERENCE WAS M ADE CONSIDERATION THE PROVISIONS OF THE EXIM POLICY. VIDE PARA 19, REFERENCE WAS M ADE TO THE RELEVANT PROVISIONS OF EXIM POLICY WHICH READS AS UNDER: - 19. PARAGRAPH 6.10 OF THE EXIM POLICY SPEAKS ABOUT EXCHANGE THROUGH OTHERS. IT PROVIDES THAT A EOU/EHTP/STP/BTP UNIT MAY EXPORT GOODS MANUFACTURED / SOFTWARE DEVELOPED BY IT THROUGH ANOTHER EXPORTER OR ANY OTHER EOU/EHTP/STP/SEZ UNIT SUBJECT TO THE CONDITIONS MENTIONED IN PARAGRAPH 6.19 OF HANDBOOK. THE CONDITIONS TO BE FULFILLED IF A UNIT HAS TO EXPORT THROUGH OTHER EXPORTERS IS AS UNDER: - 6.19 AN EOU/EHTP/STP/BTP UNIT MAY EXPORT GOODS MANUFACTURED / SOFTWARE DEVELOPED BY IT THROUGH OTHER EXPORTER OR ANY OTHER EOU/EHTP/STP/SEZ/BTP UNIT SUBJECT TO CONDITION THAT: A ) GOODS SHALL BE PRODUCED IN EOU/EHTP/STP/BTP UNIT CONCERNED. B ) LEVEL OF NFE OR ANY OTH ER CONDITIONS RELATING TO IMPORTS AND EXPORTS AS PRESCRIBED SHALL CONTINUE TO BE DISCHARGED BY EOU/EHTP/STP UNIT CONCERNED. C ) EXPORT ORDERS SO PROCURED SHALL BE EXECUTED WITHIN PARAMETERS OF EOU/EHTP/STP/BTP SCHEMES AND GOODS SHALL BE DIRECTLY TRANSFERRED F ROM UNIT TO PORT OF SHIPMENT. D ) FULFILMENT OF NFE BY EOU/EHTP/STP/BTP UNITS IN REGARD TO SUCH EXPORTS SHALL BE RECKONED ON BASIS OF PRICE AT WHICH GOODS ARE SUPPLIED BY EOUS TO OTHER EXPORTER OR OTHER EOU/EHTP/STP/BTP/SEZ UNIT. E ) ALL EXPORT ENTITLEMENTS, INC LUDING RECOGNITION AS STATUS HOLDER WOULD ACCRUE TO EXPORTER IN WHOSE NAME FOREIGN EXCHANGE EARNINGS ARE REALIZED. HOWEVER, SUCH EXPORT SHALL BE COUNTED TOWARDS FULFILMENT OF OBLIGATION UNDER EOU/EHTP/STP/ BTP SCHEME ONLY. ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 9 13. VIDE PARA 20 OF THE SAID JUD GMENT, IT IS HELD THAT IF THE ASSESSEE WANTS TO CLAIM THE BENEFIT OF SECTION 10A OF THE ACT, FIRSTLY HE MUST EXPORT ARTICLES OR THINGS OR COMPUTER SOFTWARE; SECONDLY, THE SAID EXPORT MAY BE DONE DIRECTLY BY HIM OR THROUGH OTHER EXPORTER AFTER FULFILLING TH E CONDITIONS MENTIONED THEREIN AND THIRDLY, SUCH AN EXPORT SHOULD YIELD FOREIGN EXCHANGE WHICH SHOULD BE BROUGHT INTO THE COUNTRY. WHERE ALL THE THREE CONDITIONS ARE FULFILLED, THE HONBLE HIGH COURT HELD THAT THE OBJECT OF ENACTING SECTION 10A OF THE ACT IS FULFILLED AND THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF EXEMPTION FROM PAYMENT OF TAX ON THE PROFITS AND GAINS DERIVED BY THE UNDERTAKING FROM EXPORTS. THEN REFERENCE WAS MADE TO THE CLAUSES OF EXIM POLICY VIS - A - VIS DEEMED EXPORT VIDE PARA 21 A ND IT WAS OBSERVED AS UNDER: - 21. CLAUSE 6.11 OF EXIM POLICY DEALING WITH ENTITLEMENT FOR SUPPLIES FROM THE DTA STATES THAT SUPPLIES FROM THE DTA TO EOU/EHTP/STP/BTP UNITS WILL BE REGARDED AS DEEMED EXPORT, BESIDES BEING ELIGIBLE FOR RELEVANT ENTITLEMEN TS UNDER PARAGRAPH 6.12 OF THE POLICY. THEY WILL ALSO BE ELIGIBLE FOR THE ADDITIONAL ENTITLEMENTS MENTIONED THEREIN. WHAT IS OF IMPORTANCE IS WHEN A SUPPLY IS MADE FROM DTA TO STP, IT DOES NOT SATISFY THE REQUIREMENTS OF EXPORT AS DEFINED UNDER THE CUSTO MS ACT. HOWEVER, FOR THE PURPOSE OF EXIM POLICY, IT IS TREATED AS DEEMED EXPORT. THEREFORE, WHEN SECTION 10A OF THE ACT WAS INTRODUCED TO GIVE EFFECT TO THE EXIM POLICY, THE SUPPLIES MADE FROM ONE STP TO ANOTHER STP HAS TO BE TREATED AS DEEMED EXPORT BECAUSE MADE FROM ONE STP TO ANOTHER STP HAS TO BE TREATED AS DEEMED EXPORT BECAUSE CLAUSE 6.19 SPECIFICALLY PROVIDES FOR EXPORT THROUGH STATUS HOLDER. IT PROVIDES THAT AN EOU/EHTP/STP/BTP UNIT MAY EXPORT GOODS MANUFACTURED / SOFTWARE DEVELOPED BY IT THROUGH OTHER EXPORTER OR STATUS HOLDER RECOGNIZED UNDER THIS POLICY OR ANY OTH ER EOU/EHTP/STP/SEZ/BTP UNIT. WHAT FOLLOWS FROM THIS PROVISION IS THAT TO BE ELIGIBLE FOR EXEMPTION FROM PAYMENT OF INCOME TAX, EXPORT SHOULD EARN FOREIGN EXCHANGE. IT DOES NOT MEAN THAT THE UNDERTAKING SHOULD PERSONALLY EXPORT GOODS MANUFACTURED / SOFTW ARE DEVELOPED BY IT OUTSIDE THE COUNTRY. IT MAY EXPORT OUT OF INDIA BY ITSELF OR EXPORT OUT OF INDIA THROUGH ANY OTHER STP UNIT. ONCE THE GOODS MANUFACTURED BY THE ASSESSEE IS SHOWN TO HAVE BEEN EXPORTED OUT OF INDIA EITHER BY THE ASSESSEE OR BY ANOTHER STP UNIT AND FOREIGN EXCHANGE IS DIRECTLY ATTRIBUTABLE TO SUCH EXPORT, THEN SECTION 10A OF THE ACT IS ATTRACTED AND SUCH EXPORTER IS ENTITLED TO BENEFIT OF DEDUCTION OF SUCH PROFITS AND GAINS DERIVED FROM SUCH EXPORT FROM PAYMENT OF INCOME TAX. THEREFORE, THE FINDING OF THE AUTHORITIES THAT THE ASSESSEE HAS NOT DIRECTLY EXPORTED THE COMPUTER SOFTWARE OUTSIDE COUNTRY AND BECAUSE IT SUPPLIED THE SOFTWARE TO ANOTHER STP UNIT, WHICH THOUGH EXPORTED AND FOREIGN EXCHANGE RECEIVED WAS NOT TREATED AS AN EXPORT AND WAS HELD TO BE NOT ENTITLED TO THE BENEFIT IS UNSUSTAINABLE IN LAW. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL IS ALLOWED. THE IMPUGNED ORDERS ARE SET ASIDE. THE ASSESSEE IS HELD TO BE ENT ITLED TO DEDUCTION OF SUCH PROFITS AND GAINS DERIVED FROM THE EXPORT OF THE COMPUTER SOFTWARE . UNDERLINE D FOR EMPHASIS BY US 14. THE HONBLE HIGH COURT THUS, HELD THAT WHERE THE GOODS MANUFACTURED BY THE ASSESSEE WERE EXPORTED OUT OF INDIA EITHER BY THE ASSESSEE OR BY ANY STP UNIT AND FOREIGN EXCHANGE DIRECTLY ATTRIBUTABLE TO SUCH EXPORTS WAS BROUGHT INTO INDIA , THEN ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 10 SECTION 10A OF THE ACT WAS ATTRACTED AND THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DEDUCTION UNDER THE SAID SECTION. 15. THE SAID PROPOSIT ION HAS BEEN FOLLOWED BY THE HONBLE HIGH COURT OF KARNATAKA IN TATA ELXSI LTD VS. ACIT (SUPRA) IN SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2002 - 03 VIDE INCOME TAX APPEAL NO.142 OF 2008 ITSELF. THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IS IN RESPECT OF PROVISIONS OF SECTION 10A OF THE ACT. THOUGH THE ISSUE ARISING IN THE APPEAL BEFORE US IS IN RELATION TO SECTION 10B OF THE ACT BUT READING TWO SECTIONS, IT APPEARS THAT THE DEDUCTION UNDER SECTION 10B OF THE ACT IS ALLOWABLE TO ESTABLISHME NT OF 100% EOU AGAINST EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE , W HEREAS UNDER SECTION 10A OF THE ACT, THE SAID DEDUCTION IS AVAILABLE TO AN UNDERTAKING FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE AGAINST PROFITS ARISING FROM THE MANUFA CTURE OR PRODUCTION OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, WHERE SUCH AN UNDERTAKING IS ESTABLISHED IN A FREE TRADE ZONE. THE BASIS ON WHICH THE DEDUCTION IS TO BE ALLOWED ESTABLISHED IN A FREE TRADE ZONE. THE BASIS ON WHICH THE DEDUCTION IS TO BE ALLOWED UNDER SECTION 10A OR 10B OF THE ACT IS AGAINST THE PR OFITS AND GAINS ARISING FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. HOWEVER, SECTION 10A OF THE ACT IS IN RESPECT OF FREE TRADE ZONE AND IN CASE OF SECTION 10B OF THE ACT IS AGAINST 100% EOU. ADMITTEDLY, THE ASSESSEE BEFORE US IS 100% EOU UNI T, WHICH HAS UNDERTAKEN THE EXPORT OF ARTICLE OR THING MANUFACTURED BY IT EITHER DIRECTLY BY EXPORT ING IT OUTSIDE THE COUNTRY OR THROUGH ANOTHER EOU UNIT, WHICH ADMITTEDLY, AS PER EXIM POLICY , IS REFERRED AS DEEMED EXPORT. THE PROVISIONS OF EXIM POLICY ARE APPLICABLE FOR THE UNITS WHETHER ESTABLISHED IN FREE TRADE ZONE OR AS 100% EOU UNIT. ONCE THE ASSESSEE HAD MADE THE EXPORTS THROUGH ANOTHER EOU UNIT AND HAD RECEIVED THE EXPORT CONSIDERATION IN FOREIGN EXCHANGE, THEN THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN TATA ELXSI LTD VS. ACIT (SUPRA) IS SQUARELY APPLICABLE AND THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION UNDER SECTION 10B OF THE ACT. ACCORDINGLY, WE HOLD SO. THE PROPOSITION RAISED BY THE LEARNED DEPARTMENTAL ITA NO . 07 /PN/20 14 MAGNUM FORGE & MACHINE WORKS PVT. LTD. 11 REPRESENTATIV E FOR THE REVENUE THAT THE EXPORT OF ARTICLE OR THING SHOULD BE BY THE ASSESSEE ITSELF AND NOT THROUGH ANOTHER UNIT DOES NOT STAND, IN VIEW OF THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN TATA ELXSI LTD VS. ACIT (SUPR A). ANOTHER ASP ECT TO BE KEPT IN MIND IS THAT M/S. WORLDWIDE OIL FIELD MACHIE PVT. LTD. , WHICH IS EOU UNIT THROUGH WHOM THE ASSESSEE HAS MADE THE EXPORTS HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 10B OF THE ACT ON SUCH DEEMED EXPORTS . IN VIEW THEREOF, WE DIRECT THE AS SESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE UNDER SECTION 10B OF THE ACT. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 16 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 26 TH DAY SEPTEMBER , 201 6 . SD/ - SD/ - ( R.K. PANDA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; D ATED : 26 TH SEPTEMBER , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESP ONDENT; 3. ( ) / THE C I T (A) - I , PUNE ; 4. / THE C I T - I , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE