DCIT, Bangalore V. M/s International Stones India Pvt. Ltd., Bangalore

ITA 814/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8475 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 17-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C RAMESH
• Assessee Lawyers: V S SREELEKHA
• Keywords: Depreciation; Opportunity of being heard; Question of law; Deemed export; Unabsorbed depreciation
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI A. MOHAN ALANKAMONY, AM ITA NO. 814(BANG.)/2009 (ASSESSMENT YEAR : 2006-07) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(4), BANGALORE APPELLANT VS M/S INTERNATIONAL STONES INDIA PVT.LTD., NO.55/12, ALANKAR APARTMENT, FLAT NO.1, 39 TH CROSS, 14 TH MAIN, JAYANAGAR, BANGALORE-560 041. RESPONDENT REVENUE BY : SMT.V.S. SREELEKHA APPELLANT BY : SHRI C. RAMESH O R D E R PER SHAILENDRA KUMAR YADAV,JM: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) ON THE FOLLOWING GROUNDS; 1. THE LEARNED CIT(A) WAS NOT CORRECT IN HOLDING THAT THE EXPENDITURE INCURRED ON FREIGHT AND INSURANCE CHARGES REDUCED FROM THE EXPORT TURNOVER, HAS TO BE REDUCED FROM THE TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THERE IS NO PROVISION IN SECTION 10B WHICH REQUIRES THE ITA NO.814(B)/09 2 CONCERNED EXPENSES, WHICH ARE REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER AS PER CLAUSE(III) OF EXPLANATION 2 TO SECTION 10B, TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. 3. THE CIT(A) WAS NOT CORRECT IN HOLDING THAT THE EXPORT OF THE GODS MANUFACTURED BY THE ASSESSEE COMPANY THROUGH THIRD PARTIES AMOUNTING TO RS.13,05,22,177/- CLAIMED AS DEEMED EXPORT SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWANCE U/S 10B. 4. THE CIT(A) FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AO EXCLUDED THE DEEMED EXPORTS FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10B 5. THE CIT(A) ERRED IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN RESTRICTING THE DEDUCTION AVAILABLE TO THE ASSESSEE U/S 10B AFTER SETTING OFF THE UNABSORBED DEPRECIATION AGAINST THE PROFITS OF THE UNDERTAKING ELIGIBLE WHILE COMPUTING THE DEDUCTION U/S 10B OF THE ACT. 6. THE CIT(A) FAILED TO APPRECIATE THAT UNDER THE AMENDED PROVISION OF SECTION 10B, WITH EFFECT FROM 1.4.2001, THE DEDUCTION IS REQUIRED TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE COMPUTED AFTER SET OFF OF THE UNABSORBED DEPRECIATION RELATI NG TO EARLIER ASSESSMENT YEARS. ITA NO.814(B)/09 3 2. THE FIRST ISSUE IS WITH REGARDS TO EXCLUSION OF TRANSPORT CHARGES OF RS.1,75,49,074/- AND INSURANCE CHARGES O F RS.30,000/- INCURRED IN INDIAN RUPEES FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. THE AO REDUCED THE ABOVE SAID EXPENDITUR E FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 1 0B OF THE IT ACT. THE MATTER WAS CARRIED BEFORE THE FIRST APPELL ATE AUTHORITY, WHO AFTER FOLLOWING THE DECISION IN M/S I GATE GLOBAL S OLUTIONS LTD., VS ACIT (ITA NOS.248 & 249)(BNG.)/2007 DATED 27-11-200 7, M/S TATA ELXSI LTD VS ACIT (ITA NO.315(BNG.)/2006 DATED 1 6-10-2007) AND ACIT/DCIT VS INFOSYS TECHNOLOGIES LTD., (ITA NOS.65 3 & 969(BNG.)/2006 DATED 17-10-2007).DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, WHEREBY THE AO WAS DIRECTED TO EXCLUDE TH E ABOVE SAID EXPENDITURE ON FREIGHT AND INSURANCE FROM THE TOTAL TURNOVER AS WELL, BY OBSERVING AS UNDER; 4.4 AS REGARDS THE APPELLANTS RELIANCE ON THE DECISION OF HONBLE ITAT, CHENNAI BENCH IN THE CASE OF CALIFORNIA SOFTWARE CO. LTD.,(2008) 119 TTJ 842, CLAUSE(III) TO EXPLANATION 2 TO SEC. 10B(8) DEFINES THE TERM EXPORT TURNOVER TO MEAN CONSIDERATION RECEIVED IN RESPECT OF EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE ITA NO.814(B)/09 4 OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. IN THIS CONNECTION, THE RELEVANT EXTRACT OF THE DECISION OF THE HONBLE ITAT, CHENNAI BENCH WITH REGARD TO DEDUCTION OF EXPENSES INCURRED ON FREIGHT & INSURANCE IN INDIA RUPEES IS REPRODUCED BELOW: ONE CAN SEE THAT THE ABOVE DEFINITION OF EXPORT TURNOVER IS MORE OR LESS SIMILAR TO THE ON E THAT APPEARS IN SECTIONS 80HHB & 80HHC AS DISCUSSED IN THE ABOVE PARAS. FROM THE DISCUSSION OF THE LEGISLATIVE HISTORY ONE CAN SEE THAT THE QUANTUM OF TAX RELIEF THAT WAS TO BE ALLOWED TO AN EXPORTERS WAS TO BE BASED ON NET INFLOW OF FOREIGN EXCHANGE IN THE CASE OF THAT EXPORTER. IN OTHER WORDS, THE CONSIDERATION OF TH E SALE PROCEEDS IN THE FORM OF CONVERTIBLE FOREIGN EXCHANGE WAS TO BE REDUCED BY THE OUTFLOW OF THE FOREIGN EXCHANGE IN THE FORM OF VARIOUS EXPENSES INCURRED BY THE EXPORTER. THEREFORE, IF WE LOOK AT THE ABOVE DEFINITION OF EXPORT TURNOVER , IN THE LIGHT OF THIS DISCUSSION, IT BECOMES CLEAR T HAT THE CONSIDERATION RECEIVED BY A EXPORTER IN CONVERTIBLE FOREIGN EXCHANGE HAS TO BE REDUCED BY ONLY THOSE EXPENSES WHICH WERE INCURRED BY THE EXPORTER IN FOREIGN EXCHANGE. IF THIS WAS THE INTENTION OF THE LEGISLATURE, AS IS APPARENT F ROM THE ABOVE DISCUSSION, THEN IT HAS TO BE INFERRED ITA NO.814(B)/09 5 THAT THE CONDITION OF INCURRED IN FOREIGN EXCHANGE WAS ALSO APPLICABLE TO THE EXPENSES INCURRED ON FREIGHT, TELECOMMUNICATION CHARGES AND INSURANCE. AND CONSEQUENTLY, THE AFORESAID CONJUNCTION OR SHOULD BE READ AS AND. IN VIEW OF THE ABOVE DISCUSSION, THEREFORE, WE HAVE TO HOLD THAT THE EXPENSES WHICH WERE INCURRED IN INDIAN RUPEES ARE NOT TO BE DEDUCTED. RESPECTFULLY FOLLOWING THE DECISIONS OF THE JURISDICTIONAL TRIBUNAL (SUPRA) AND THE DECISION OF THE SPECIAL BENCH(SUPRA), I ACCORDINGLY, DIRECT THE AO TO EXCLUDE THE EXPENDITURE INCURRED ON FREIGHT & INSURANCE CHARGES FROM THE TOTAL TURNOVER AS WELL. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BE HALF OF REVENUE. UNDER THE FACTS AND CIRCUMSTANCES, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF CIT(A), WHO HAS RIGHT LY HELD THAT THE EXPENDITURE INCURRED ON FREIGHT AND INSURANCE CHARG ES ARE TO BE REDUCED FROM EXPORT TURNOVER AS WELL FOR THE PURPOS E OF COMPUTING DEDUCTION U/S 10B OF THE IT ACT. 3. THE NEXT ISSUE IS WITH REGARDS TO EXCLUSION OF D EEMED EXPORTS AMOUNTING TO RS.13,05,22,177/- FOR THE PURP OSE OF CALCULATING DEDUCTION U/S 10B. IN APPEAL, THE CIT (A) GRANTED RELIEF. WE FIND THAT THE ASSESSEE FILED DECLARATION FROM M/ S ITA NO.814(B)/09 6 S.K.INTERNATIONAL, NEW DELHI AS WELL AS M/S ELE STO NES(INDIA) PVT.LTD., CERTIFYING THE PAYMENTS OF RS.9,76,52,462 /- & RS.3,28,69,715/- TOTALING RS.13,05,22,177/- HAD BEE N REALIZED IN CONVERTIBLE FOREIGN EXCHANGE AGAINST MATERIALS PUR CHASED FROM THE ASSESSEE UNDER THE THIRD PARTY EXPORT BASIS. THE C HAPTER VI OF THE FOREIGN TRADE POLICY AS WELL AS THE POLICY STATEMEN T OF THE GOVERNMENT OF INDIA CLARIFIES THAT EVEN THE THIRD P ARTY EXPORTS WERE ELIGIBLE FOR BENEFIT AVAILABLE U/S 10B OF THE IT AC T. THE THIRD PARTY EXPORTS ARE ALSO CONSIDERED AS EXPORTS AND SINCE TH E CONSIDERATION IN RESPECT OF SUCH THIRD PARTY EXPORTS MADE BY 100% EOU WHICH MANUFACTURES THE ARTICLE OR THINGS ARE RECEIVED IN OR BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE, EITHER BY TH E 100% EOU ITSELF OR THROUGH THE THIRD PARTY EXPORTER THEN SUCH EXPOR TS AMOUNTS TO EXPORT TURNOVER AND ARE FULLY ELIGIBLE FOR BENEFITS U/S 10B OF THE IT ACT. THE THREE ESSENTIAL INGREDIENTS OF EXPORTS WA S FOUND TO BE PRESENT IN THE INSTANT CASE WHICH READS AS UNDER; 1. THE GOODS ARE MANUFACTURED BY 100% EOU. 2. THE GOODS ARE EXPORTED OUT OF THE COUNTRY AS PER FTP PROVISIONS 3. CONVERTIBLE FOREIGN EXCHANGE IS BROUGHT INTO IND IA. 4. THE CIT(A) OBSERVED FROM THE SUMMARY OF YEAR WIS E DIRECT EXPORTS AND EXPORTS MADE THROUGH THIRD PARTIES FURN ISHED BY THE ITA NO.814(B)/09 7 ASSESSEE THAT IT HAS BEEN CONSISTENTLY INDULGING IN EXPORT THOUGH THIRD PARTY MAINLY M/S S.K.INTERNATIONAL AND M/S EL E STONES (INDIA) LTD., ON RECEIPT OF CONFIRMED EXPORT ORDER S FROM RESPECTIVE OVERSEAS CUSTOMERS FOR EXPORT CUT AND POLISHED GRAN ITE SLABS, TITLES, SLATES ETC. THE ABOVE PARTIES PLACED PURCHASE ORDER S ON THE ASSESSEE ALONG WITH DISCLAIMER CERTIFICATES DECLARING THAT T HEY WILL NOT BE CLAIMING EXPORT BENEFIT ON THE THIRD PARTY EXPORT S ALES MADE BY THEM THEREBY TRANSFERRING THE SAME TO THE MANUFACTU RERS VIZ. THE ASSESSEE AND ALSO SIMULTANEOUSLY UNDERTAKING TO IND ICATE THE ASSESSEE AS THE 100% EOU MANUFACTURER OF THE MATERI ALS BEING EXPORTED IN THE SHIPPING BILLS FILED WITH THE CUSTO MS AUTHORITIES. COPIES OF PURCHASE ORDERS, INVOICES, DISCLAIMER CER TIFICATES, APPLICATION MADE FOR REMOVAL OF EXCISABLE GOODS FOR EXPORT (FORM A.R.E 1) & SHIPPING BILLS WERE PRODUCED BEFORE CIT( A) TO SUBSTANTIATE THE. IN VIEW OF THE FOREGOING ANALYSI S AND IN THE LIGHT OF THE INCONTROVERTIBLE EVIDENCE FILED ON BEHALF O F ASSESSEE, THE CIT(A) HELD THAT THE DEEMED EXPORT TOTALING TO RS.1 3,05,22,177/- SHOULD NOT BE EXCLUDED FOR THE PURPOSE OF CALCULATI NG DEDUCTION U/S10B OF THE IT ACT. WE UPHOLD THE SAME. 4.1 THE NEXT ISSUE IS WITH REGARD TO SETTING OFF OF UNABSORBED DEPRECIATION OF RS.4,36,19,476/- AGAINST THE PROFIT S OF THE ITA NO.814(B)/09 8 UNDERTAKING BEFORE CALCULATING ELIGIBLE DEDUCTION U /S 10B OF THE ACT. THE AO RESTRICTED THE DEDUCTION AVAILABLE TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 10B OF THE ACT, AFT ER SETTING OFF OF UNABSORBED DEPRECIATION AGAINST THE PROFITS OF THE UNDERTAKING BEFORE CALCULATING DEDUCTION ELIGIBLE U/S 10B OF TH E ACT. IN APPEAL, THE CIT(A) RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S KPIT CUMMINS INFOSYSTEMS (P) LTD., VS ACIT(2008) 26 SOT 529, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WHICH IS SUBJUDICE BEFORE THE HONBLE HIGH COURT. 4.2 IN THIS REGARD, THE LEARNED AUTHORIZED REPRESEN TATIVE HAS FILED AN APPLICATION UNDER THE PROVISIONS OF SECTIO N 158A(1) OF THE INCOME TAX ACT, 1961 THEREBY, IT WAS SUBMITTED THAT SIMILAR CASE IS PENDING IN THE CASE OF M/S. KPIT CUMMINS INFO-SYSTE MS (P) LTD. BEFORE JURISDICTIONAL HIGH COURT IN RESPECT OF ASSE SSMENT YEAR 2004- 05. THE IDENTICAL ISSUE IS ARISING IN THIS CASE I. E M/S. INTERNATIONAL STONES INDIA PVT. LTD. IN RESPECT OF A.Y. 2006-07. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF LEARNED D EPARTMENTAL REPRESENTATIVE. 5. IN VIEW OF ABOVE, WE FIND IT UNDISPUTED THAT IDE NTICAL QUESTION OF LAW ARISING IN THE ASSESSEES CASE IS S IMILAR TO THAT OF KPIT CUMMINS INFO-SYSTEMS (P) LTD. (SUPRA). SO IN THE INTEREST OF ITA NO.814(B)/09 9 JUSTICE, WE RESTORE THIS MATTER TO ASSESSING OFFICE R WITH A DIRECTION TO DECIDE THIS ISSUE IN THE LIGHT OF FINAL OUTCOME IN THE CASE OF KPIT CUMMINS INFO-SYSTEMS (P) LTD. (SUPRA) AFTER AFFORDI NG A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SINCE WE ARE RESTORING THIS ISSUE IN VIEW OF OUR OBSERVATION ABOVE, WE ARE REFRAINING OURSELVES TO COMMENT ON THE MERIT OF ISSUE ON HAND. THIS ISSUE IS DISPOSED OFF AS INDICATED ABOVE. 6. IN THE RESULT, THE APPEAL BY THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE (A. MOHAN ALANKAMONY) (SHAILENDRA KUMAR Y ADA V) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: 2010 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI) BY ORDER AR, ITAT, BANGALORE