KRUPA TRADING COMPANY, MUMBAI V. ADDL CIT 15(1), MUMBAI

ITA 8591/MUM/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2046 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDRAN
• Keywords: Business income
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.8591/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO.7700/MUM/2012 (ASSESSMENT YEAR 2008-09) M/S. KRUPA TRADING COMPANY, 5/32, 2 ND PANJRAPOLE LANE, C.P.TANK, MUMBAI 400 004 PAN: AAAFK 1940P ..... APPELLANT VS. ADDL.CIT 15(1), MATRU MANDIR, 1 ST FLOOR, OPP. BHATIA HOSPITAL, NANA CHOWK, MUMBAI . .... RESPO NDENT APPELLANT BY : SHRI RAHUL HAKANI RESPONDENT BY : SHRI A.RAMCHANDRAN DATE OF HEARING : 06/09/2016 DATE OF PRONOUNCEMENT : 09/11/2016 ORDER PER G.S.PANNU,A.M: THESE TWO APPEALS ARE FILED BY THE SAME ASSESSEE I NVOLVING COMMON ISSUES, THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE MAY NOW TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO.8591/MUM/2010 FOR ASSESSMENT YEAR 2007-08 WHICH IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-26, MUMBAI DATED 11/12/2012 , WHICH IN TURN, ARISES 2 ITA NO.8591/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO.7700/MUM/2012 (ASSESSMENT YEAR 2008-09) OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UN DER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 17 /11/2009. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 1OB FOR CEN TRAL SALES-TAX (CST) REFUND OF RS. 2,59,903/- RECEIVED DURING THE YEAR. 1. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOW ANCE MADE BY THE AO OF DEDUCTION U/S.1OB CLAIMED BY THE APPELLANT FOR CST REFUND OF RS.2,59,903/- RECEIVED DURING THE YEAR WITHOUT APPRECIATING THAT IT HAS DIRECT NEXUS WITH THE PROFIT DERIVED FROM EXPORTS AND APPELLANT IS ENTITLED TO DEDUCTION ON C ST REFUND IN TERMS OF PROVISIONS OF S. 10B(1) R.W.S. 10B(4). DISALLOWANCE OF CLAIM OF DEDUCTION U/S.1OB OF INTE REST OF RS.68,677/- EARNED ON TERM DEPOSITS REQUIRED TO BE KEPT WITH BANK AS MARGIN MO NEY. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWA NCE MADE BY THE A.O. OF DEDUCTION U/S. IOB OF INTEREST OF RS.68,677/- EARNED ON TERM DEPOSITS REQUIRED BY THE BANK AS MARGIN MONEY WITHOUT APPRECIATING THAT KEEPING SUCH TERM DEPOSITS ARE COMPULSORY AND INTEREST INCOME THERE ON IS ASSESSED AS BUSINES S INCOME AND THUS APPELLANT IS ENTITLED TO CLAIM DEDUCTION ON SUCH INCOME IN TERMS OF PROVISIONS OF S.10B(1)R.W.S. 10B(4). DISALLOWANCE OF CLAIM OF DEDUCTION IT/SO 1OB OF INT EREST 0 RS.47,4411- EARNED ON DEPOSIT WITH GUJARAT ELECTRICITY BOARD. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOW ANCE MADE BY THE A.O. OF DEDUCTION U/S. 1OB OF INTEREST OF RS.47,441/-- EARN ED ON DEPOSIT WITH GUJARAT ELECTRICITY BOARD WITHOUT APPRECIATING THAT KEEPING SUCH TERM DEPOSITS ARE KEPT FOR BUSINESS PURPOSES AND THUS APPELLANT IS ENTITLED TO CLAIM DEDUCTION ON SUCH INCOME IN TERMS OF PROVISIONS OF S.1OB(1) R.W.S. 1OB(4). 3. AS THE GROUNDS OF APPEAL REVEAL THAT THE ENTIRE DISPUTE IN THE APPEAL REVOLVES AROUND ASSESSEES CLAIM FOR DEDUCTION UNDE R SECTION10B OF THE ACT ON CERTAIN ELEMENTS OF INCOME. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, WHOSE BUSINESS INCLUDED MANUFAC TURE AND TRADING OF GLASS BEADS AND ALLIED GOODS, ETC. THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION UNDER SECTION 10B OF RS.9,36,31,606/- WITH RESPECT TO ITS 100% EXPORT ORIENTED 3 ITA NO.8591/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO.7700/MUM/2012 (ASSESSMENT YEAR 2008-09) UNDERTAKING (EOU). THE ASSESSING OFFICER NOTED THA T THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT INCLUDED INCOME BY WAY OF REIMBURSEMENT OF CENTRAL SALES TAX(CST) - RS.2,59,903/- , INTEREST EARNED ON TERM DEPOSITS RS.68,677/-; AND, INTEREST EARNED ON DEPOSITS WITH GUJARAT ELECTRICITY BOARD RS.47,441/-. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT WITH RESPECT TO THE AFORESAI D THREE ELEMENTS OF INCOME ON THE GROUND THAT SUCH INCOMES DO NOT CONSTITUTE A FIRST DEGREE PROFIT OF THE 100% EOU. FURTHER, AS PER ASSESSING OFFICER SUCH I NCOMES WERE NOT RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AND, FOR THE SAID REASON ALSO, BENEFIT OF SECTION 10B OF THE ACT WAS NOT ALLOWABLE ON SUCH IN COMES. THE CIT(A) HAS ALSO CONCURRED WITH THE ASSESSING OFFICER ON THE AFORESA ID ASPECT, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IN SO FAR AS THE CLAIM OF DEDUCTION ON THE AMOUN T OF REFUND OF CST IS CONCERNED, THE LD. REPRESENTATIVE FOR THE ASSESSEE EXPLAINED THAT THE REFUND HAS BEEN GRANTED TO THE ASSESSEE AS IT IS A 100% EO U AND, THEREFORE, IT IS EXEMPT FROM PAYMENT OF CST. IT HAS BEEN CONTENDED THAT BEING A REFUND, IT WOULD NOT CONSTITUTE AN INCOME PER-SE, AS IT WOULD BE SET OFF AGAINST THE PAYMENT OF CST MADE, BUT EVEN OTHERWISE IT IS EXPLA INED THAT THE CST PAID BEING RELATABLE TO THE EOU UNIT, THE REFUND THEREOF IS RELATABLE TO THE EOU UNIT, THUS, SUCH INCOME OF THE 100% EOU WOULD BE ELIGIBLE FOR THE BENEFITS OF SECTION 10B OF THE ACT. IN PARTICULAR, LD. REPRESE NTATIVE FOR THE ASSESSEE REFERRED TO THE PROVISIONS OF SECTION 10B(1) R.W.S. 10B(4) OF THE ACT TO POINT OUT THAT THE DEDUCTION IS ALLOWABLE WITH REFERENCE TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING COMPUTABLE IN TERMS OF SUB-SECTION( 4) OF SECTION 10B OF THE ACT . IN THIS CONTEXT, HE HAS RELIED UPON THE DECI SION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MARAL OVERSEAS LTD. VS. ADDL.CIT 16 ITR (TRIB ) 565 4 ITA NO.8591/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO.7700/MUM/2012 (ASSESSMENT YEAR 2008-09) (INDORE SPECIAL BENCH). APART THEREROM RELIANCE HA S BEEN PLACED ON THE FOLLOWING DECISIONS TO JUSTIFY THE CLAIM OF DEDUCTI ON:- (I) CIT V. FLOWSERVE MICROFINISH VALVES (P) LTD. ( 2012) 204 TAXMANN 133(KARN)(HC), (II) CIT VS. MOTROLA INDIA ELECTRONICS (P) LTD.(20 14) 265 CTR 94 (KAR)(HC) (III) RIVIERA HOME FURNISHING V. ADIT (2016) 237 TAXMAN 5 20 (DEL) (IV) BRIGHT ENGINEERING WORKS V. JCIT, ITA NO.7699/ MUM/2012 DTD 19/9/2014 (MUM.TRIB) (V) CIT VS. HRITHNIK EXPORTS PVT. LTD. IT APPEAL NO S. 219& 239 OF 2014, DATED 13/11/2014 (DEL) (HC). 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE HAS REITERATED THE STAND OF THE LOWER AUTHORITIES BY POINTING OUT THAT THE CST REFUND CANNOT BE SAID TO BE ON ACCOUNT OF PROFITS AND GAINS DERIV ED BY THE UNDERTAKING FROM EXPORT OF ARTICLES OR THINGS AND, THEREFORE, THE CL AIM OF DEDUCTION HAS BEEN RIGHTLY DENIED BY THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. PERTINENTLY, THE RIVAL STANDS ARE SIMILAR ON ALL THE THREE ISSUES RE LATING TO THE DENIAL OF DEDUCTION UNDER SECTION 10B OF THE ACT. THE CLAIM OF THE ASSESSEE IS WITH RESPECT OF THE PROFITS AND GAINS OF 100% EOU, WHICH IS ENGAGED IN THE BUSINESS OF EXPORT ARTICLES. IT IS QUITE CLEAR FROM A READI NG OF SECTION 10B(1) OF THE ACT THAT THE SAID SECTION ENVISAGES DEDUCTION IN RESPEC T OF PROFITS AND GAINS AS ARE DERIVED BY 100% EXPORT ORIENTED UNDERTAKING FROM TH E EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. FOR THE PRESENT PURP OSE, WE ARE CONCERNED WITH A 100% EOU ENGAGED IN THE EXPORT OF ARTICLE OR THIN GS. SUB-SECTION (4) OF SECTION 10B OF THE ACT PROVIDES A MECHANISM IN TERM S OF WHICH THE PROFITS DERIVED FROM EXPORT OF ARTICLES IS TO BE COMPUTED FOR THE PURPOSES OF SUB- SECTION(1) OF THE ACT. IN TERMS OF SUB-SECTION(4) OF THE ACT, THE ENTIRE PROFITS OF THE BUSINESS OF THE UNDERTAKING IS TO BE DETERMINED , WHICH IS REQUIRED TO BE 5 ITA NO.8591/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO.7700/MUM/2012 (ASSESSMENT YEAR 2008-09) APPORTIONED IN THE RATIO OF EXPORT TURNOVER TO TOTA L TURNOVER OF BUSINESS IN ORDER TO ARRIVE AT PROFITS DERIVED FROM EXPORT FO R THE PURPOSES OF SUB-SECTION 10B(1) OF THE ACT. CONSIDERING THE AFORESAID SPECI FIC PROVISION, THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MARAL OVERSEAS LTD.(SUPRA) HELD THAT ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE ELIGIBL E UNDERTAKING, THERE IS NO FURTHER MANDATE IN SECTION 10B OF THE ACT TO EXCLUD E IT FROM THE PROFITS ELIGIBLE FOR DEDUCTION. QUITE CLEARLY, THE SCHEMATIC MECHAN ISM OF SECTION 10B OF THE ACT, ESPECIALLY A JOINT READING OF SUB-SECTION (1) AND SUB-SECTION(4) WOULD SHOW THAT THERE IS NO REQUIREMENT FOR THE ASSESSEE TO ES TABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING SO LONG AS THE REL EVANT INCOME FORMS PART OF THE BUSINESS OF THE UNDERTAKING. IN THE PRESENT CA SE, THE ASSESSMENT ORDER ITSELF REVEALS THAT THE REFUND OF RS.2,59,903/- ON ACCOUNT OF CST HAS BEEN ASSESSED AS A PART OF THE BUSINESS INCOME OF THE 10 0% EOU. SIMILAR IS THE SITUATION WITH REGARD TO THE INTEREST INCOME OF RS. 68,677/- EARNED ON TERM DEPOSIT WITH THE BANK AND INTEREST OF RS.47,441/- E ARNED ON DEPOSIT WITH GUJARAT ELECTRICITY BOARD. UNDER THESE CIRCUMSTANC ES AND CONSIDERING THE LEGAL POSITION, WE FIND THAT THE CLAIM OF THE ASSESSEE FO R DEDUCTION U/S. 10B OF THE ACT IS QUITE JUSTIFIED. IN FACT, THE JUDGMENT OF TH E HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MOTROLA INDIA ELECTRONICS (P) LTD(SU PRA) IS DIRECTLY ON THE POINT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 10B OF THE ACT IN RELATION TO INTEREST INCOME EARNED FROM INTER-CORPORATE LOANS. THE HON BLE HIGH COURT HAS CONSIDERED THE DEFINITION OF PROFITS DERIVED FROM EXPORT CONTAINED IN SUB- SECTION (4) OF SECTION 10B OF THE ACT AND HELD THAT THE SAID INCOME WAS ELIGIBLE FOR DEDUCTION CONTEMPLATED UNDER SECTION 10B(1) OF THE ACT. CONSIDERED IN THE SAID LIGHT , IN OUR VIEW, THE ASSESSEE HAS SO SUCC EED IN GROUNDS OF APPEAL NO.1,2 & 3. 6 ITA NO.8591/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO.7700/MUM/2012 (ASSESSMENT YEAR 2008-09) 7.1 IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2007-08 IS ALLOWED. 8. AT THE TIME OF HEARING, IT WAS A COMMON POINT BE TWEEN THE PARTIES THAT SO FAR AS APPEAL FOR THE ASSESSMENT YEAR 2008-09 IS CONCERNED, THE ISSUES RAISED ARE SIMILAR TO THE GROUNDS OF APPEAL NO. 1 & 2 DEALT WITH BY US IN THE APPEAL FOR ASSESSMENT YEAR 2007-08. AS A CONSEQUEN CE, OUR DECISION IN APPEAL FOR ASSESSMENT YEAR 2007-08 SHALL APPLY MUTATIS MUTANDIS IN THE APPEAL FOR ASSESSMENT YEAR 2008-09 ALSO. 9. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 09/11/2016 SD/- SD/- ( RAM LAL NEGI) G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 09/11/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI