CORE JEWELLERY P. LTD, MUMBAI V. ITO WD 8(1)2), MUMBAI

ITA 715/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48413 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Keywords: Competent authority

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) CORE JEWELLERY P LTD, G-J-04,SDP VII, SEEPZ, ANDHERI (E), MUMBAI-400096 PAN:AABCC1946P .APPELLANT VS INCOME TAX OFFICER, WARD 8(1)(2), AAYAKAR BHAVAN M K ROAD, MUMBAI-400020 ..RESPONDENT ASSESSEE BY : SHRI SATISH R MODY REVENUE BY :SHRI HARI GOVIND SINGH O R D E R PER VIJAY PAL RAO THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 17.11.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2006- 07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONCLUDIN G THAT THE RECALCULATION OF BENEFIT U/S 10A, IS TO B E DONE BY REDUCING THE UNREALIZED EXPORTS, TILL THE D ATE OF ASSESSMENT, WHILE CALCULATING EXPORT TURNOVER 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONCLUDIN G ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 2 THAT THE RECALCULATION OF BENEFIT U/S 10A, IS TO B E DONE, BY REDUCING THE NETTING OFF OF EXPORTS, WITH THE PAYMENT FOR IMPORTS, AMOUNTING TO RS.82,55,682/- WHILE CALCULATING EXPORT TURNOVER 3. LD. CIT(A) ERRED IN LAW AND IN FACTS OF THE CASE WHILE CONCLUDING THAT, RECALCULATION OF BENEFIT, U /S 10A, IS TO BE DONE BY REDUCING THE EXPENSES INCURRE D IN FOREIGN CURRENCY OF RS.6,284,429/- WHILE CALCULATING EXPORT TURNOVER; 4. LD. CIT(A) ERRED IN LAW AND IN FACTS OF THE CASE BY TREATING INTEREST EARNED ON DEPOSIS KEPT FOR TH E PURPOSE OF BUSINESS, AMOUNTING TO RS.36,432/- AS INCOME FROM OTHER SOURCES 3. GROUNDS OF APPEAL NO.1 IS REGARDING REDUCING THE UNREALIZED EXPORT PROCEEDINGS WHILE CALCULATING THE EXPORT TURNOVER. THE LEARNED AR OF THE ASSESSEE HAS SUB MITTED THAT IN VIEW OF THE RESERVE BANK OF INDIAS CIRCULAR NO .9/2009-10 DATED 1.7.2009, THE EXISTING TIME LIMIT OF SIX MONT H OR 12 MONTH IN THE EARLIER CIRCULAR FOR EXTENSION OF TIME LIMIT BY THE COMPETENT AUTHORITY HAS BEEN TAKEN AWAY, THEREFORE, THERE IS NO TIME LIMIT FOR BRINGING THE EXPORTS PROCEEDING T O AVAIL THE DEDUCTION U/S 10A. THE LEARNED AR HAS REFERRED THE SAID CIRCULAR AND SUBMITTED THAT IN CASE OF THE UNIT SI TUATED IN SPECIAL ECONOMIC ZONE (SEZ) THEY ARE PERMITTED T O REALIZE AND REPATRIATE INDIA THE FULL VALUE OF GOODS AT AN Y TIME AND THERE IS NO PROHIBITION OF TIME LIMIT FOR REALIZAT ION FOR EXPORT MADE BY THE SEZ. THE LEARNED AR HAS ALSO REFERRED THE CIRCULARS OF THE RBI NO. 91 DATED 1.4.2003 IN SUPP ORT OF HIS CONTENTION. THUS, THE LEARNED AR OF THE ASSESSEE H AS ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 3 SUBMITTED THAT WHEN THE RBI HAS REMOVED THE LIMIT ATION TIME AS STIPULATED IN THE EARLIER CIRCULARS THEN THERE I S NO REQUIREMENT OF SEEKING ANY EXTENSION FOR BRINGING THE EXPORT PROCEEDS IN INDIA AS PRESCRIBED UNDER THE PROVISION S OF SECTION 10A. 4. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTE D THAT THE RBI CIRCULAR CANNOT OVERRIDE OR OVERRULE THE P ROVISIONS OF STATUTE. HE HAS REFERRED THE CONDITIONS AS PRESCRI BED IN SUB-SECTION 3 OF SECTION 10A AND SUBMITTED THAT TH E DEDUCTION IS AVAILABLE TO THE UNDERTAKING IF THE SALE PROCEE DS FROM THE EXPORT GOODS ARE RECEIVED IN OR TO BROUGHT INTO I NDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE WITHIN A P ERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEARS OR W ITHIN SUCH FURTHER PERIOD AS COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. THEREFORE, THE CONDITION PROVIDED U/S 10A(3) CANNOT BE OVERRULED BY THE CIRCULARS OF THE RBI. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RE LEVANT RECORD. WE FIND THAT THE PROVISIONS OF SECTION 10A (3) STIPULATES THE CONDITION FOR AVAILING THE DEDUCTION THAT THE SALE PROCEEDINGS OF THE GOODS EXPORTED ARE RECEIVED IN I NDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 4 FURTHER PERIOD AS COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. AS PER EXPLANATION -1 TO SUB-SECTION (3), THE COMP ETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS AUTHORIZED BY ANY LAW FOR THE TIME BEI NG. THE SECTION 10A(3) ALONG WITH EXPLANATION -1 IS QUOT ED A S UNDER : [ SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. 10A. (1) (2).. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT I NTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE P REVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETEN T AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION 1.FOR THE PURPOSES OF THIS SUB-SECTION , THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORI SED UNDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGUL ATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE. 6. IT IS MANIFEST FROM THE SUB-SECTION (3) TO SE CTION 10A THAT BRINGING THE SALES PROCEEDS OF EXPORT OF THE GOODS OR ARTICLES INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE PERIOD OF SIX MONTHS OR SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IS MANDATORY CONDITION. FOR THIS PURPO SE EARLIER THE RBI ISSUED CIRCULARS FROM TIME TO TIME FOR G RANTING THE FURTHER EXTENSION PERIOD OF SIX MONTHS OR 12 MONTHS AS THE ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 5 CASE MAY BE. ULTIMATELY, BY THE MASTER CIRCULAR NO. 9/2009- 10 DATED 1.7.2009, THE SAID LIMIT OF EXTENSION BY THE COMPETENT AUTHORITY /RBI WAS DONE AWAY. THE EFFE CT OF THE MASTER CIRCULAR AS WELL AS THE CIRCULAR NO.91 DATED 1.4.2003 IS THAT THE CONDITION ON THE COMPETENT AUTHORITY TO E XTEND THE TIME PERIOD UP TO SIX MONTHS OR ONE YEAR IS REMOVE D. IN OTHER WORDS, AFTER THESE NEW CIRCULARS, THE RBI OR THE COMPETENT AUTHORITY MAY EXTEND THE TIME LIMIT BEY OND 6 MONTHS OR 12 MONTHS WITHOUT ANY RESTRICTION OF PERI OD AS IT WAS PRESCRIBED IN THE EARLIER CIRCULARS. THEREFORE, TH E AMENDMENT IN THE CIRCULAR IS ONLY LIFTING THE RESTRICTION OF TIME PERIOD OF GRANTING THE EXTENSION AND IT DOES NOT MEAN THAT THE CONDITION OF GRANTING EXTENSION HAS BEEN DONE AWAY. AFTER AMENDMENT OF THE CIRCULAR IF THE ASSESSEE HAS NOT B ROUGHT THE SALE PROCEEDS OF THE EXPORT OR ARTICLES OR GOODS OR COMPUTER SOFTWARE WITHIN THE PERIOD OF SIX MONTHS FROM THE E ND OF THE PREVIOUS YEAR THEN THE COMPETENT AUTHORITY MAY ALLO W THE ASSESSEE TO BRING THE SAME WITHIN SUCH PERIOD AS I T DEEM FIT AND PROPER WITHOUT ANY RESTRICTION AS PROVIDED IN T HE EARLIER CIRCULAR OF THE RBI. THEREFORE, WE DO NOT AGREE W ITH THE CONTENTION OF THE LD. AR THAT BY THE AMENDED CIRC ULAR OF THE RBI THE VERY CONDITION OF EXTENSION HAS BEEN DONE AWAY AS PRESCRIBED UNDER SUB-SECTION 3 TO SECTION 10A.. UNDOUBTEDLY, THE ASSESSEE HAS NOT BROUGHT THE SALE PROCEEDS ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 6 IN QUESTION IN TO INDIA IN THE CONVERTIBLE FOREIGN EXCHANGE AND THE SAME AMOUNT REMAINED UNREALIZED THEN IN THE AB SENCE OF ANY EXTENSION SOUGHT OR GRANTED BY THE RBI AS PRE SCRIBED UNDER SECTION 10A(3), THE SAID UNREALIZED AMOUNT I S NOT ENTITLED FOR DEDUCTION U/S 10A. SINCE, THE CIT(A) HAS DIRECTED THE AO TO RECOMPUTE THE DEDUCTION AFTER CONSIDERIN G THE CIRCULAR, THEREFORE, WE DO NOT FIND ANY REASONS TO INTERFERE IN THE ORDER OF THE CIT(A). 7. GROUNDS OF APPEAL NO.1 OF THE ASSESSEES APPE AL IS DISMISSED. 8. GROUNDS OF APPEAL NO.2 IS REGARDING EXCLUSION OF THE PAYMENT MADE FOR IMPORT FROM THE EXPORT FOR THE PU RPOSE OF COMPUTATION OF DEDUCTION U/S 10A. THE AO HAS REDU CED AN AMOUNT OF RS.82,55,682/- BEING NETTING OF EXPORT A GAINST THE PAYMENT OF IMPORTS WHILE CALCULATING THE EXPORT TU RNOVER. 9. ON APPEAL, THE CIT(A) HAS UPHELD THE ACTION O F THE AO. 10. BEFORE US, THE LEARNED AR OF THE ASSESSEE H AS SUBMITTED THAT THE NETTING OF EXPORT IS PERMISSIBL E AS PER THE RBI CIRCULAR, THEREFORE, THERE SHOULD NOT BE ANY R EDUCTION OF SUCH AMOUNT WHILE CALCULATING THE EXPORT TURNOVER. HE HAS FURTHER CONTENDED THAT THE ASSESSEE HAS UTILIZED TH E EXPORT PROCEEDINGS FOR IMPORT OF GOODS WHICH IS USED FOR T HE EXPORT BUSINESS OF THE ASSESSEE, THEREFORE, THIS EXPENDITU RE CANNOT ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 7 BE CONSIDERED AS SALE PROCEED NOT BROUGHT INTO IND IA. HE HAS RELIED ON THE DECISION OF THE HON.SUPREME COURT IN THE CASE OF J. B. BODA AND COMPANY PRIVATE LIMITED. VS CBDT(SC) REPORTED IN 223 ITR 271(SC). 11. ON THE OTHER HAND, THE LD. DR HAS RELIED UPO N THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE R BI CIRCULAR AND GUIDELINES CANNOT BE OVERRULED THE PROVISIONS O F STATUTE. 12. HE HAS FURTHER SUBMITTED THAT WHEN THE NETTI NG OF THE EXPORT AS CLAIMED BY THE ASSESSEE IS NOT PERMISSIBL E UNDER THE PROVISIONS OF ACT, THEREFORE, THE SAME WILL NOT BE REDUCED FROM THE EXPORT TURNOVER. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORD. WE FIND THAT THE AO REDUCED THE AMOUNT WHIC H WAS UTILIZED BY THE ASSESSEE FOR IMPORTS ON THE GROUND THAT THE ASSESSEE DID NOT BROUGHT THIS EXPORT TURNOVER IN F OREIGN EXCHANGE. WHEN THE IMPORT EXPENDITURE IS ALLOWABLE THEN IT WOULD NOT BE JUST FOR INSISTING THE TWO WAY TRA FFIC OF THE SAME AMOUNT FIRST BRING THE ENTIRE EXPORT PROCEEDIN GS IN FOREIGN EXCHANGE AND THEN AGAIN MAKE THE PAYMENT FO R IMPORTS. THEREFORE, THE PAYMENT MADE FOR IMPORTS AG AINST THE EXPORT REALIZATION IS DEEMED TO BE BROUGHT TO INDIA . AS THERE IS NO REQUIREMENT OF TWO WAY TRAFFIC OF THE SAME AM OUNT AS ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 8 HELD BY THE HON. SUPREME COURT IN THE CASE OF J. B. BODA AND COMPANY PRIVATE LIMITED. VS CBDT(SC) REPORTED IN 223 ITR 271(SC). IN THE SAID CASE, THE HON SUPREME COURT H AS HELD AS UNDER : THE FACTS BROUGHT OUT IN THIS CASE ARE CLEAR AS TO HOW THE REMITTANCE TO THE FOREIGN REINSURANCE COMPANY I S MADE THROUGH THE RESERVE BANK OF INDIA IN CONFORMIT Y WITH THE AGREEMENT BETWEEN THE APPELLANT AND THE FOREIGN REINSURERS, AND THAT THE REMITTANCE STATEME NT FILED ALONG WITH ANNEXURE ' A ' WHICH EVIDENCES THA T THE AMOUNT DUE TO THE FOREIGN REINSURERS AS ALSO TH E BROKERAGE DUE TO THE APPELLANT AND THE BALANCE DUE TO THE FOREIGN REINSURERS IS REMITTED (AND EXPRESSED S O) IN DOLLARS. IT IS COMMON GROUND THAT THE ENTIRE TRANSACTION EFFECTED THROUGH THE MEDIUM OF THE RESERVE BANK OF INDIA IS EXPRESSED IN FOREIGN EXCHANGE AND IN EFFECT THE RETENTION OF THE FEE DUE TO THE APPELLANT IS IN DOLLARS FOR THE SERVICES RENDER ED. THIS, ACCORDING TO US, IS RECEIPT OF INCOME IN CONVERTIBLE FOREIGN EXCHANGE. IT SEEMS TO US THAT A ' TWO-WAY TRAFFIC ' IS UNNECESSARY. TO INSIST ON A FO RMAL REMITTANCE TO THE FOREIGN REINSURERS FIRST AND THEREAFTER TO RECEIVE THE COMMISSION FROM THE FOREI GN REINSURER, WILL BE AN EMPTY FORMALITY AND A MEANINGLESS RITUAL, ON THE FACTS OF THIS CASE. ON A PERUSAL OF THE NATURE OF THE TRANSACTION AND IN PARTICULAR THE STATEMENT OF REMITTANCE FILED IN THE RESERVE BANK OF INDIA REGARDING THE TRANSACTION, WE ARE UNABLE TO UPHOLD THE VIEW OF THE RESPONDENT THA T THE INCOME UNDER THE AGREEMENT IS GENERATED IN INDI A OR THAT THE AMOUNT IS ONE NOT RECEIVED IN CONVERTIB LE FOREIGN EXCHANGE. WE ARE OF THE VIEW THAT THE INCOM E IS RECEIVED IN INDIA IN CONVERTIBLE FOREIGN EXCHANG E, IN A LAWFUL AND PERMISSIBLE MANNER THROUGH THE PREMIER INSTITUTION CONCERNED WITH THE SUBJECT-MATTER -- TH E RESERVE BANK OF INDIA. IN THIS VIEW, WE HOLD THAT T HE PROCEEDINGS OF THE CENTRAL BOARD OF DIRECT TAXES DATED MARCH 11, 1986, DECLINING TO APPROVE THE AGREEMENTS OF THE APPELLANT WITH SEDGWICK OFFSHORE RESOURCES LTD., LONDON, FOR THE PURPOSES OF SECTION 80-O OF THE INCOME-TAX ACT, ARE IMPROPER AND ILLEGA L. WE DECLARE SO. WE DIRECT THE RESPONDENT TO PROCESS THE AGREEMENTS IN THE LIGHT OF THE PRINCIPLES LAID DOWN ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 9 BY US HEREINABOVE. THE APPEAL IS ALLOWED. THERE SHA LL BE NO ORDER AS TO COSTS 14. THE ANALOGY AS LAID DOWN BY THE HON. SUPREME C OURT IN THE ABOVE SAID MATTER IS APPLICABLE IN THE FACTS O F THE PRESENT CASE. FURTHER AS PER THE RBI CIRCULAR NO.91 DATED 1 .4..2003 THE NETTING OFF OF EXPORT RECEIVABLE AGAINST IMPORT PAY MENTS IS IN RESPECT OF THE SAME INDIAN ENTITY AND THE OVERSEAS BUYER/SUPPLIER (BILATERAL NETTING) IS PERMITTED AS PER THE CLAUSE (D) OF THE SAID CIRCULAR WHICH IS REPRODUCED AS UNDER : D. NETTING OFF' OF EXPORT RECEIVABLES AGAINST IMPORT PAYMENTS IT HAS BEEN DECIDED THAT AUTHORISED DEALERS MAY ALL OW REQUESTS RECEIVED FROM EXPORTERS FOR ' NETTING OFF ' OF EXPORT RECEIVABLES AGAINST IMPORT PAYMENTS FOR UNITS LOCAT ED IN SPECIAL ECONOMIC ZONES SUBJECT TO THE FOLLOWING : ( I ) THE ' NETTING OFF ' OF EXPORT RECEIVABLES AGA INST IMPORT PAYMENTS IS IN RESPECT OF THE SAME INDIAN ENTITY AN D THE OVERSEAS BUYER / SUPPLIER ( BILATERAL NETTING ). TH E NETTING MAY BE DONE AS ON DATE OF BALANCE SHEET OF THE UNIT IN SEZ. ( II ) THE DETAILS OF EXPORT OF GOODS IS DOCUMENTED IN GR(O) FORMS/DTR AS THE CASE MAY BE WHILE DETAILS OF IMPOR T OF GOODS / SERVICES IS RECORDED THROUGH A1/A2 FORM AS THE CASE MAY BE. THE RELATIVE GR / SDF FORMS WILL BE TREATED AS COMPLETE BY THE DESIGNATED AUTHORISED DEALER ONLY A FTER THE ENTIRE PROCEEDS ARE ADJUSTED / RECEIVED. ( III ) BOTH THE TRANSACTIONS OF SALE AND PURCHASE IN 'R' RETURNS UNDER FET-ERS ARE REPORTED SEPARATELY. ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 10 ( IV ) THE EXPORT / IMPORT TRANSACTIONS WITH ACU CO UNTRIES ARE KEPT OUTSIDE THE ARRANGEMENT. ( V ) ALL THE RELEVANT DOCUMENTS ARE SUBMITTED TO T HE CONCERNED AUTHORISED DEALER WHO SHOULD COMPLY WITH ALL THE REGULATORY REQUIREMENTS RELATING TO THE TRANSACTION S. 15. ACCORDINGLY, IN VIEW OF THE DECISION OF THE H ON. SUPREME COURT AS WELL AS THE RBI CIRCULAR, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOW THE NETTING OF THE EXPORT RECEIVABLE AGA INST THE IMPORTS FOR THE PURPOSE FOR DEDUCTION 10A. 16. . GROUNDS OF APPEAL NO.2 OF THE ASSESSEES APP EAL IS ALLOWED. 17. GROUNDS OF APPEAL NO.3, IS REGARDING THE REDU CTION IN EXPENDITURE INCURRED IN FOREIGN CURRENCY WHILE CAL CULATING THE EXPORT TURNOVER. WE HAVE HEARD THE LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT RECORD. TH E LEARNED AR HAS RELIED UPON THE DECISION OF CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF ZYLOG SYSTEMS LTD V/S ITO REPORTED IN (2011) 49 DTR (CHENNAI)SB)(TRIB) 1 AND SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CU RRENCY AS FOREIGN CHARGES FOR TRAVELING, BUSINESS PROMOTION AND ADVERTISEMENT EXPENDITURE ETC. WHICH DOES NOT FALL WITHIN ANY OF THE CATEGORY OF THE EXPENDITURE AS PRESCRIBED IN THE ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 11 DEFINITION OF FOREIGN EXCHANGE UNDER EXPLANATION 2 (IV) AFTER SUB-SECTION 8 OF THE SECTION 10A. THE LEARNED AR H AS SUBMITTED THAT AS PER THE EXPLANATION 2 (IV), THE , THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR TECHNI CAL SERVICES, INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES OR THINGS OUTSIDE FROM THE EXPENDITURE NET PROFIT OF TECHNICA L SERVICES OUTSIDE INDIA ARE EXCLUDED FROM THE EXPORT PROCEED INGS FOR THE PURPOSE OF EXPORT TURNOVER. 18. ON THE OTHER HAND, THE LEARNED DR RELIED UPO N THE ORDERS OF THE LOWER AUTHORITIES. 19. AFTER CONSIDERING THE RIVAL CONTENTIONS AND R ELEVANT RECORD, WE FIND THAT THE AO HAS GIVEN FREIGHT AND INSURANCE AND OTHER EXPENDITURES INCURRED IN THE FOREIGN CUR RENCY WHICH ARE AS UNDER : 1 FREIGHT RS.19,16,384 2 INSURANCE RS.41,716 3 EXPENSES INCURRED IN FOREIGN CURRENCY AS SEEN FROM THE SCHEDULE-16 SIGNIFICANT ACCOUNTING POLICIES BEING EXPENDITURE INCURRED IN FOREIGN CURRENCY RS.62,84,429 4 UNREALIZED EXPORT PROCEEDS AS STATED ABOVE RS.5, 36,11,396 5 AS PER NOTE-2 THE ASSESSEE COMPANY HAS ALSO SET OFF THE AMOUNT OF RS.82,55,682- WHICH IS INCURRED ON ACCOUNT OF IMPORT OF GOODS MADE DURING THE YEAR IN FOREIGN CURRENCY WHICH IS THE ASSESSEE COMPANY HAS TAKEN INTO ACCOUNT IN THE EXPORT TURNOVER OF RS.32,34,31,125 ACCORDINGLY THE SAME IS TO BE REDUCED/EXCLUDED FROM EXPORT TURNOVER SINCE THIS AMOUNT IS NOT RECEIVED IN FOREIGN CURRENCY IN INDI A TOTAL RS,7,01,09,607 ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 12 20. THEREFORE, FROM THE DETAILS GIVEN BY THE AO AT PAGES 6 OF THE ASSESSMENT ORDER THE EXPENDITURE ON FREIGHT AND IN SURANCE ARE TO BE EXCLUDED FROM THE SALE PROCEEDS OF THE ARTICLES AN D GOODS FOR THE PURPOSE OF EXPORT TURNOVER. SINCE THE AO HAS NOT G IVEN THE FINDINGS THAT THE OTHER EXPENDITURE IN FOREIGN CURRENCY ARE FOR PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA, THEREFORE, THE SAME CANNOT BE EXCLUDED AS PER THE MEANING OF EXPORT TURNOVER PROVIDED UNDER EXP LANATION (2)((IV). FURTHER, IN VIEW OF THE DECISION OF THE SPECIAL BE NCH OF THIS TRIBUNAL, CHENNAI BENCH IN THE CASE OF ZYLOG SYSTEMS LTD V/S ITO (SUPRA), THE EXPENDITURE OTHER THAN FREIGHT AND INSURANCE NOT IN CURRED FOR TECHNICAL SERVICES OUTSIDE INDIA CANNOT BE EXCLUDED WHILE CA LCULATING EXPORT TURNOVER. 21. GROUNDS OF APPEAL NO.3 IS PARTLY ALLOWED. 22. GROUNDS OF APPEAL NO.4 IS REGARDING THE INTER EST EARNED ON DEPOSITS AS INCOME FROM OTHER SOURCES. 23. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE RELEVANT RECORD. THIS ISSUE IS SETTLED BY THE VARIOUS DECISION OF TH E VARIOUS HIGH COURT AND PARTICULARLY THE DECISION OF THE HON. MADRAS HIGH C OURT IN THE CASE OF CIT V/S MENON IMPEX P LTD REPORTED IN 259 ITR 403 HELD AS UNDER : HELD, THAT THE INTEREST RECEIVED BY THE ASSESSEE WAS ON DEPOSITS MADE BY IT IN THE BANKS, IT WAS THE DEPO SIT WHICH WAS THE SOURCE OF THE INTEREST INCOME. THE MERE FACT TH AT THE DEPOSIT WAS MADE FOR THE PURPOSE OF OBTAINING LETTERS OF CR EDIT WHICH ITA NO. 715/MUM/2010 (ASSESSMENT YEAR 2006-07) 13 WERE IN TURN USED FOR THE PURPOSE OF THE BUSINESS O F THE INDUSTRIAL UNDERTAKING DID NOT ESTABLISH A DIRECT N EXUS BETWEEN THE INTEREST AND THE INDUSTRIAL UNDERTAKING AND , T HEREFORE, THE ASSESSEE WAS NOT ENTITLED TO GET THE BENEFIT OF SEC TION 10A IN RELATION TO THE INTEREST. 24. IN VIEW OF THE DECISION OF THE HON. MADRAS HI GH COURT THIS ISSUE DECIDED AGAINST THE ASSESSEE. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 13TH APRIL, 2 011 SD SD (J.SUDHAKAR REDDY) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, ON THIS 13 TH DAY OF APRIL, 2011 SRL:6411 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI