Income Tax Appellate Tribunal - Ahmedabad
Sonic Technology (India) Inc. , ... vs Assessee on 1 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
(BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT
MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER)
ITA No: 2665 & 2720/AHD/2011
(Assessment Year: 2007-08)
Sonic Technology (India) V/S The Income Tax Officer
Inc. Plot No. C-9, GIDC Ward-4, Gandhinagar
Electronic Estate, Sector
25, Gandhinagar 382025
(Appellant) (Respondent)
The Income Tax Officer V/S Sonic Technology (India)
Ward-4, Gandhinagar Inc. Plot No. C-9, GIDC
Electronic Estate, Sector
25, Gandhinagar 382025
(Appellant) (Respondent)
PAN: AARFS 3913K
Appellant by : Shri Sanjay R. Shah, AR
Respondent by : Shri Albinus Tirkey, Sr. D.R.
(आदे श)/ORDER
Date of hearing : 10-12-2015
Date of Pronouncement : 01 -01-2016
2 ITA Nos. 2665 & 2720/Ahd/2011
. A.Y. 2007-08
PER ANIL CHATURVEDI, ACCOUNTANT MEMBER
1. These two appeals of which one is filed by the Assessee and the other is filed by the Revenue, are against the order of CIT(A), Gandhinagar dated 17.08.2011 for A.Y. 2007-08.
2. The relevant facts as culled out from the material on record are as under.
3. Assessee is a partnership firm and 100% Export Oriented Unit (EOU) engaged in the business of manufacturing and selling of Printed Circuit Boards. Assessee filed its return of income for A.Y. 2007-08 declaring total taxable income at Rs. Nil after claiming the profits as exempt u/s. 10B of the Act. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 28.12.2010 and the total taxable income was determined at Rs. 82,31,002/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 17.08.2011 granted partial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue both are now in appeal before us. The effective ground raised by the Revenue in its appeal in ITA No. 2720/Ahd/2011 reads as under:-
1. The learned CIT(Appeals) has erred in law and on facts in deleting the addition on scarp income of Rs.23,64,835/-.
4. On the other hand, the grounds raised by the Assessee in its appeal in ITA No. 2665/Ahd/2011 reads as under:-
1.The order passed by the Learned CIT(A) is erroneous and requires to be modified. It is submitted that it be so done now.
2. The learned CIT(A) has erred in rejecting Appellant's contention that the term "derived by" as prescribed u/s 10B(1) of the Act is defined u/s 10B(4) of the Act to mean "profit of the business of the undertaking". It is submitted it be so held now.3 ITA Nos. 2665 & 2720/Ahd/2011
. A.Y. 2007-08 2.1.Learned CIT(A) has erred in relying upon the decisions rendered by the judiciaries u/s. 80I / 80IB instead of decisions rendered u/s. 80HHC whereas provisions of Section 10B is in pari materia with provisions of Section 80HHC. It be so held now.
3.Learned CIT(A) has erred in holding against the Appellant solely relying upon the decision in case of Banyan Chemicals Ltd. 121 TTJ 751 (Ahd.) whereas the said decision does not deal with the issue under consideration. It is submitted it be so held now. 3.1 Learned CTT(A) has erred in solely relying on the said decision which does not deal with the Appellant's plea that the term "derived by" as prescribed u/s 10B(1) of the Act is defined u/s 10B(4) of the Act to mean "profit of the business of the undertaking".
4.The learned CIT(A) has erred in law and on facts in not considering Government subsidy of Rs. 50,47,078 received on incremental turnover of the EOU (the only unit of the Appellant), as part of profits & gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s. 10B of the Act. It is submitted it be so held now.
4.1. The learned CIT(A) has erred in holding the issue against the Appellant even after admitting/stating the fact that the turnover subsidy is a business income attributable to the production in the eligible unit. It is submitted it be so held now.
5.The learned CIT(A) has erred in law and on facts in not considering Interest of Rs.3,56,813, received on deposits kept with banks out of surplus funds generated from the EOU (the only unit of the Appellant), as part of profits & gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s 10B of the Act. It is submitted it be so held now.
5.1 Without prejudice to above, it is submitted that the Learned CIT (A) has erred in law and on facts in considering interest income as income from other sources under Chapter-
IVF of the Act in place of income from business or profession under Chapter-IVD of the Act. It is submitted it be so held now.
6.The learned CIT(A) has erred in law and on facts in not considering Sales Tax Refund (Rs.4,40,360) and Sundry balances written off (Rs.21,916) for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s 10B is what forms part of the 'profits of the business of the undertaking' u/s 10B(4) r.w.s. 10B(1) of the Act. It is submitted it be so held now.
5. Before us, at the outset, ld. A.R. submitted that though Assessee has raised various grounds but the issue which is to be decided is the availability of deduction u/s.10B of the Act and that the ground raised by the Revenue in its appeal is also connected with the grounds raised by Assessee. Ld. D.R. did not object to the aforesaid submission of ld. A.R. We therefore proceed to dispose of both the appeals together.
4 ITA Nos. 2665 & 2720/Ahd/2011. A.Y. 2007-08
6. During the course of assessment proceedings and on perusing the Profit and Loss account, A.O noticed that Assessee had other income which comprised of the following:-
(a) Incremental turnover & connectivity incentive Rs. 50,47,078/-
Subsidy from government
(b) Interest income Rs. 3,56,813/-
(c) Sale of scrap Rs. 23,64,835/-
(d) Exchange rate of fluctuation Rs. 58,37,896/-
(e) Sales tax refund Rs. 4,40,360/-
(f) Sundry Balance written off Rs. 21,916/-
7. He noticed that the aforesaid other income aggregating to Rs. 1,40,68,898/-
has been claimed as exempt u/s. 10B of the Act. The Assessee was asked to show cause as to why the different constituents of other income not be treated as "other income" and therefore being not eligible for deduction u/s. 10B. The submissions of the Assessee were not found acceptable to the A.O. With respect to the subsidy received from the Government of Rs. 50,47,078/-, A.O was of the view that it was not an operational income but was income from the incentive scheme of the State Government. He was of the view that deduction u/s. 10B is only available on operational income and not on incentives. He therefore, relying on the decision of Hon'ble Apex Court in the case of Liberty India Ltd. vs. CIT, reported in (2009) 183 Taxmann.com 349, held the subsidy to be not eligible for deduction and therefore excluded it from total income. With respect to the interest income of Rs. 3,56,813/-, he was of the view that the interest income is to be considered as "income from other sources" and not as "business income". With respect to the income from sale of scrap of Rs. 23,64,835/- he was of 5 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 the view that the income cannot be considered to have been derived from exports and therefore it cannot be considered to be exempt u/s. 10B. Similarly, with respect to the sales tax refund and sundry balances written of, he was of the view that the aforesaid items were not profit derived from export oriented unit. He therefore placing reliance on the decision of Hon'ble Apex Court in the case of Liberty India (supra) denied the deduction u/s. 10B of the Act. He accordingly held that out of total other income of Rs. 1,40,68,898/- the aggregate amount of Rs. 82,31,002/- as being income from other sources and therefore not eligible for deduction u/s. 10B. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee granted partial relief by holding as under:-
6.1The second ground is against the AO in not considering Government subsidy of Rs.50,47,078/- received on incremental turnover of the EOU (the only unit of the appellant), as part: of profits & gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s. 10B.
The turnover subsidy although is a business income attributable to the production in the eligible unit, however, it is not profit derived from that unit It is a benefit received from third source like the duty drawback or import entitlements and are only deemed profits u/s. 28 of the IT Act. I agree with the AO that this is not eligible for-deduction u/s.10B. The corresponding grounds of appeal are therefore dismissed. 6.2 The third ground is that the AO has erred in law and on facts in not considering Interest of Rs. 3,56,813, received on deposits kept with banks out of surplus funds generated from the EOU (the only unit of the Appellant), as part of profits & gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s 10B of the Act.
Here, the interest is not even the business profits. The interest earned on surplus funds is income from other sources. It is neither derived from Industrial undertaking nor even profits and gains of business, CFT Vs. Menon Impex (P) Ltd reported at 259 ITR 403 (Mad); Sham Tabrez Vanti, In RE reported at (2005) 273 ITR 299 (MR); India Commet International Vs. ITO reported at (2008) 304 FTR 322 are relied upon and it is held that no deduction u/s. 10B is allowable on this interest income.
7. Next ground of appeal is against considering Scrap sale of Rs. 23,64,835, generated out of manufacturing process at the EOU as not part of profits and gains derived from EOU and consequently not including the same in profits eligible for exemption u/s.10B of the Act.
6 ITA Nos. 2665 & 2720/Ahd/2011. A.Y. 2007-08 7.1 I have gone through the facts of the case, The generation of scrap in manufacturing process is definitely derived from the unit It is not the case that the scrap is generated out of capital assets etc. The scrap sale out of the raw material purchased goes directly to reduce the.-cost and increase the profits. Scrap is definitely a by-product of the industrial undertaking and it has been so held that it is essentially a remainder portion of the raw- materials/finished goods in the case of DCIT Vs. Harjivandas Juthabhai Zaveri, 258 ITR 785 by Hon'ble Gujarat High Court, Accordingly, the addition on this account is deleted and this ground of appeal is allowed.
8. Next ground of appeal is against not considering Sales Tax Refund (Rs.4,40,360) and Sundry balances written off (Rs.21,916) for the purpose of exemption. 8.1 Sundry balances written off are not even proved to be related to expenses of manufacturing. In no case, such writing off can be income derived from the eligible business. Actually, these are deemed profits because of cessation of liability. The AO has correctly disallowed the claim of sec.10B on this income.
As far as sales tax refund is concerned/ it is of similar nature as of DEPB and is linked to benefits given to exporter. It is not a case of excess deposit of tax which is refunded. The decision of Hon'ble Supreme Court in the case of Liberty India (supra) is squarely applicable on the facts. In section 10B(4) also, the words "of the undertaking' were inserted w.e.f. 1/4/2001 to restrict the benefits for the profits on the undertaking only and not to profits of the business of the assessee. The benefits available to the assessee which are attributable to its business are not profits derived from exports of the assessee's industrial undertaking. The claim of the assessee has rightly been disallowed by the A.O. The ground of appeal is dismissed.
8. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue are now in appeal before us.
9. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that Assessee is wholly engaged in the business of printed circuit board and no other business activity is carried by it except for the business of exports and all the operations, income and expenses of the firm are cause and result of the business carried out from EOU. He further submitted that Section 10B(1) provides that profits derived from export or article or thing shall be eligible for deduction for the period of ten consecutive years and the computation of deduction is governed by Section 10B(4) and Section 10B(4) prescribes the formula as to how the deductible amount of export profits needs to be computed. He further 7 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 submitted that deduction allowed u/s. 10B is proportion of "profits of the business of the undertaking" to the export turnover compared to total turnover. He further submitted that Section 10B does not states that the profits should be derived from the business of Industrial undertaking but merely states that the profits to be of the business of undertaking. He therefore submitted that the reliance placed by the A.O on the decision of Liberty India (supra) was misplaced because it was in the context of deduction u/s. 80IB and the language used u/s. 80IB and deduction 10B are different. With respect to the Government subsidy that was granted to the Assessee, he submitted that it relates to the incremental turnover achieved by EOU and that the disbursement of the subsidy was directly linked to the achievement of incremental turnover and was thus derived from the business of undertaking. With respect to the realization from scrap, he submitted that the scrap was generated during the manufacturing process of the goods meant for export and therefore the sale of scrap was derived from the undertaking. With respect to the interest income, he submitted that Assessee does not have any other undertaking and the interest was derived from deposits kept with the bank from the funds generated from the undertaking and therefore it was out of the business of the undertaking. With respect to sales tax refund, he submitted that it was derived from sales tax expenditure which was paid during the course of business and generated from the undertaking and the other expenses were also with respect to the undertaking. The ld. A.R. further submitted that case laws relied upon by ld. CIT(A) were for a period prior to 2001-02 and were not applicable . On the contrary, he submitted that the issues in the present case are directly covered by the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. vs. Additional CIT (2012) 20 Taxmann.com 346 (Indore Tribunal) 8 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 (S.B). He further submitted that while rendering the aforesaid decision, the Special Bench of Tribunal has also considered the decision of Hon'ble Supreme Court rendered in the case of Liberty India (supra). He also placed on record the copy of the aforesaid decision and pointed to the relevant portion of the decision. He also placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. Hritnik Export Pvt. Ltd. in ITA No. 219 of 2014 order dated 13.11.2014 a copy of which was placed at page 158 to 160 of the paper book. He therefore submitted that as per the formula prescribed under Sub-section 4 of Section 10B, the entire profits of the business are to be considered in the ratio of export turnover to total turnover of the business and that once an income forms part of the business of the income of eligible undertaking, the same cannot be excluded from the profits for the purpose of computing deduction u/s. 10B of the Act. The ld. D.R. on the other hand supported the order of A.O and with respect to the interest income submitted that whether the interest income is derived from business needs verification.
10. We have heard the rival submissions and perused the material on record. The issue in the present case is about deduction u/s. 10B of the Act. It is an undisputed fact that Assessee is a 100% EOU and its only business is of export of printed circuit board. During the year under consideration, Assessee had received Government subsidy and earned income from interest, sale of scrap, sales tax refund which were held to be not eligible for deduction u/s. 10B of the Act by the A.O and for which A.O mainly relied on the decision of Hon'ble Apex Court in the case of Liberty India (supra) We find that before Hon'ble Special Bench of Tribunal in the case 9 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 of Maral Overseas Ltd. (supra) one of the question for consideration was as to whether the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) r.w.s. 10B(4) of the Act. The Hon'ble Special Bench, after considering the decision of the Apex Court in the case of Liberty India (supra) held that provisions of Section 10B are different from the provisions of Section 80IA. The relevant portion of the decision reads as under:-
77...................It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives.
78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :-
Profit of the business of the Undertaking X ______________Export turnover________ Total turnover of business carried out by the undertaking
79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the 10 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business.
Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking.Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the business" eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the assessee's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit.
11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon'ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 & 239/2014 order dated 13.11.2014) wherein Hon'ble High Court dismissed the appeal of Revenue by holding as under:-
11 ITA Nos. 2665 & 2720/Ahd/2011. A.Y. 2007-08 By way of these appeals, the Revenue has challenged the orders passed by Income Tax Appellate Tribunal (Tribunal, for short) dated 11th September, 2013 and 24th October, 2013 relating to assessment years 2008-09 and 2009-10, respectively. Tribunal has followed the decision of their Special Bench in the case of Maral Overseas Ltd. versus Additional Commissioner of Income Tax decided on 20th March, 2012, in which it has been held:-
"78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :-
Profit of the business of the Undertaking X ______ Export turnover______________ Total turnover of business carried out by the undertaking
79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the ''profits of the business'' which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-
section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the ''profits of the business'' eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the 12 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the asses see's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit.
80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B( 1) read with section 10B(4) of the Act."
The aforesaid view is in consonance with the decision of this Court dated 1st September, 2014 passed in ITA 438/2014, Commissioner of Income Tax-VII versus XLNC Fashions in which this court has held as under :-
"Deduction under Section 10B of the Income Tax Act, 1961 (Act, in short) is to be made as per the formula prescribed by Sub-Section (4), which reads as under:
"10B. Special provision in respect of newly established hundred per cent export- oriented undertakings-
.........
...........
(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking".
Sub-section (4), therefore, is the special provision which enables the assessee to compute the profits derived from the export of articles or things or computer software. We do not see any conflict between Sub- section (1) and Sub-section (4) to Section 10B, as Sub- section (1) states that deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or software would be eligible under the said Section. Sub- section (1) is a general provision and identifies the income which is exempt and has to be read in harmony with Sub-section (4) which is the formula for finding out or computing what is eligible for deduction under Sub-section (1). Neither of the two provisions should be made irrelevant and both have to be applied without negating the other. In other words, the manner of computing profits derived from exports under Sub-section (1), has to be determined as per the formula stipulated in Sub-Section (4), otherwise Sub-section (4) would become otise and irrelevant.
The issue in question in this appeal which pertains to the Assessment Year 2009-10, relates to duty draw back in the form of DEPB benefits. As per Section 28, clause (iii-c), 13 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded.
Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports.
In view of the aforesaid, we do not find any merit in the present appeal and the same is dismissed."
Karnataka High Court in Commissioner of Income Tax, Central Circle versus Motorola India Electronics (P) Ltd., ITA No. 428/2007, decided on 11.12.2013, reported as [2014] 46 taxmann.com 167 (Karnataka) has also taken a similar view, wherein it has been held:-
"By Finance, Act, 2001, with effect from 01.04.2001, the present Sub- section (4) is substituted in the place of old Sub-section (4). No doubt Sub-section 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles. But Sub-section (4) explains what is says that profits derived from export of articles or things or computer software shall be the account which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary there is specific provisions like Section 80HHB which expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking."
In view of the aforesaid position, the appeals have to be dismissed. We order accordingly.
12. We thus find that the decision of Special Bench of Tribunal in the case of Maral Overseas (supra) wherein the ratio that once on income forms part of the business of the income of the eligible undertaking of the Assessee, the 14 ITA Nos. 2665 & 2720/Ahd/2011 . A.Y. 2007-08 same cannot be excluded from the eligible profits for the purpose of computing deduction u/s. 10B of the Act, has been upheld by Hon'ble Delhi & Karnataka High Courts in the case of Hritnik Exports Pvt. Ltd. & Motorola India Electronics Pvt. Ltd.
13. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material on record to demonstrate that Assessee was having any other business other than exports and the aforesaid income were derived out of that other business. In view of the aforesaid facts, we are of the view that Assessee is eligible for deduction on the profits from subsidy, interest income, sale of scrap, sales tax refund and sundry balances written off. We thus set aside the order of ld. CIT(A).
14. In the result, the appeal of Assessee is allowed and that of Revenue is dismissed.
Order pronounced in Open Court on 01 - 01 - 2016.
Sd/- Sd/-
(S.S. GODARA) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad