Income Tax Appellate Tribunal - Mumbai
Ito 8(2)2, Mumbai vs Kiara Jewellery P.Ltd, Mumbai on 19 December, 2016
आयकर अपील
य अ धकरण "A" यायपीठ मब
ंु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI
BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.5040/Mum/2014
( नधा रण वष / Assessment Year : 2009-10)
I.T.O. - 8(2 )-2, बनाम/ M/s Kiara Jewe llery P vt.
R. No. 212 /216A, 2nd floor, Ltd.,
v.
Aayakar Bhavan, Unit No. 180 , 1st floor,
M.K. Road, SDF VI,
Mumbai - 400 020. SEEPZ, SEZ ,
Andheri (E),
Mumbai - 400 096.
थायी ले खा सं . /PAN :AACCK4789M
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Revenue by : Shri A.K. Dhondial
Assessee by : Shri Hiro Rai
ु वाई क तार ख / Date of Hearing
सन : 20-10-2016
घोषणा क तार ख /Date of Pronouncement : 19-12-2016
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the Revenue, being ITA No. 5040/Mum/2014, is directed against the appellate order dated 16th May, 2014 passed by learned Commissioner of Income Tax (Appeals)- 17, Mumbai (hereinafter called "the CIT(A)"), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 31st January, 2013 passed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act,1961 (Hereinafter called "the Act").
2 ITA 5040/Mum/2014
2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:-
"1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction u/s 10AA before computing the brought forward business losses and unabsorbed depreciation without appreciating that after the amendment, S. 10A/10B has become "Deduction" and not "Exemption" and the income of the assessee has to be computed as per the Computation Of income as defined in S 2(45) of the Act."
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction u/s 10AA before computing the brought forward business losses and unabsorbed depreciation ignoring that the Hon'ble Karnataka High Court in the case of Commissioner of Income-tax Vs. Himatasingike Seide Ltd. reported in 286 ITR 255 (2006) has clarified that loss of 10-A unit has to be first set off against 10-A profit and only on balance amount deduction is available and ignoring the fact that decision of Karnataka High Court was upheld by Hon'ble Supreme Court in CA 1501 of 2008 holding that appeal is devoid of any men ..
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction u/s 10AA before computing the brought forward business losses and unabsorbed depreciation ignoring that the CBDT vide its Circular No. 7 of 2013 dated 16.07.2013 has categorically clarified as under:
.... "first the income/loss from various sources i.e. eligible and ineligible units, under the same head are aggregated in accordance with the provisions of section 70 of the Act. Thereafter, the income from one ahead is aggregated with the income or loss of the other head in accordance with the provisions of section 71 of the Act. If after giving effect to the provisions of sections 70 and 71 of the Act there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible for deduction in accordance with the provisions of Chapter VI-A or sections 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee ... "?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction u/s 10AA before computing the brought forward business losses and unabsorbed depreciation by placing reliance upon the decision of Bombay High 3 ITA 5040/Mum/2014 Court in the case of CIT Vs Black & Veatch Consulting P Ltd 20 Taxmann .com 727 (Bom) ignoring the fact that the department has not accepted the ratio laid down in the said case.
5. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the expenses required to be excluded from the export turnover in terms of Explanation 2 (iv) of Section 10A are also required to be excluded from the total turnover in terms of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd., 330 ITR 175, without appreciating that the Department has filed an SLP in respect of the said decision.
6. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored."
3. The brief facts of the case are that the assessee is engaged in the business of manufacturing and export of diamond studded gold and platinum jewellery. The manufacturing unit is located at Unit No. 180, SDF-VI, SEEPZ- SEZ, Andheri (E), Mumbai which is an approved Special Economic Zone under the SEZ Act, 2005 and assessee has claimed deduction u/s 10AA of the Act in respect of profit earned from export activity. It is an admitted and undisputed position between the rival parties that the assessee is entitled for deduction u/s 10AA of the Act. The assessee has claimed deduction u/s 10AA of the Act before setting off of the brought forward losses and unabsorbed depreciation from the eligible unit against the current year profits of the same eligible unit. While, the A.O. has contended that the deduction u/s 10AA of the Act is to be computed after setting off of brought forward business losses and unabsorbed depreciation of the eligible unit against current year profits of the eligible unit. The A.O. has concluded that the provision of Section 10AA of the Act was introduced in statute in 2005 and the provisions runs parallel with the provisions of Section 10A & 10B of the Act , which after amendments by Finance Act, 2000 are in the form of deduction from the gross total income of the assessee and not exemption.The said view is supported by decision of Hon'ble Bombay High Court in the case of Hindustan Lever Limited v. DCIT (2010) 325 ITR 102(Bom.HC). Thus, the 4 ITA 5040/Mum/2014 A.O. held that the concession u/s 10AA of the Act is in the form of deduction and not exemption. Thus, the Revenue is contemplating set off of brought forward business losses and unabsorbed depreciation of earlier years of the eligible unit from the current years' profit of eligible unit before allowing deduction u/s 10AA of the Act, while the assessee is contemplating the claim of deduction u/s 10AA of the Act of current years profit without set off of adjustment of brought forward business losses and unabsorbed depreciation of the eligible unit. On first appeal by the assessee before the learned CIT(A), the ld. CIT(A) accepted the contentions of the assessee that brought forward business losses and unabsorbed depreciation of earlier years of the eligible unit is not to be set off against the current year profit of eligible unit, before allowing the deduction u/s 10AA of the Act. The ld. CIT(A) relied upon the decision of Hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385(Kar.), the decision of Hon'ble Bombay High Court in the case of CIT v. Black & Veatch Consulting P. Ltd. [2012] 348 ITR 72 (Bom) and in the case of Hindustan Unilever v. Dy CIT [2010] 325 ITR 102 (Bom) and held as under:-
"I have carefully considered the submissions and contention of the Ld. AR of the appellant and also carefully gone through the facts and explanation given by the Ld. AR of the appellant as well as the Ld. Similar issue was involved in the appellant's case which has been adjudicated by my Ld. Predecessor wherein CIT(A) in his order for AY 2008-09 in favour of the appellant while placing reliance on the following decisions and concluded that section 10AA deduction has to be computed before computing the Gross Total Income and brought forward losses and unabsorbed losses cannot be set off against the Total income while computing the deduction u/s 10AA.
i) CIT vs. Black & Veatch Consulting Pvt. Ltd [2012] (348 ITR
72)(Bom.)
ii) Hindustan Unilever vs. Dy. CIT[2010] [325ITR 102 (Bomj] 5 ITA 5040/Mum/2014
iii) Scientific Atlanta vs. Asst. CIT [2010] 38, SOT 252 (Chennai)(SB)
iv) CIT vs. Yokogawa India Ltd [2012] (341ITR 385)(Kar.) Respectfully following the decision of my predecessor, I direct the Id. A.O to allow deduction u/s 10AA of the Act before setting off brought forward depreciation and losses. This ground of appeal is thus allowed."
Thus the ld. CIT(A) decided the issue in favour of the assessee vide appellate orders dated 16.05.2014.
4. Aggrieved by the appellate order dated 16.05.2014 of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
5. The ld. D.R. relied upon the order of the A.O. and on the decision of Hon'be Supreme Court in the case of Himatsingka Seide Ltd. v. CIT [2014] 48 taxmann.com 357 (SC) whereby the Hon'ble Supreme Court has dismissed the civil appeal filed by the assessee against the Hon'ble Karnataka High Court decision in the case of [2006] 156 Taxman 151 (Kar).The ld. D.R. submitted that brought forward business losses and unabsorbed depreciation of the eligible unit is to be set off from the profits of the current year of eligible unit before allowing deduction u/s 10AA of the Act.
6. It is the say of the ld. Counsel for the assessee that Hon'ble Bombay High Court in the case of CIT v. Techno Tarp Polymers Private Limited in ITA No.2134 of 2013 (2015) 97 CCH 0048 (Bom. HC) has duly considered the decision of Hon'ble Karnataka High Court in the case of CIT v. Himatasingike Seide Ltd. (2006) 156 Taxman 1512 (Kar.) which was upheld by Hon'ble Apex court vide orders dated 19-09-2013, the Hon'ble Apex Court has left the decision of the Hon'ble Karnataka High Court undisturbed in civil appeal no 1501 of 2008, by holding as under:
6 ITA 5040/Mum/2014 "We have heard learned counsel for the parties to the lis.
2. Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly.
Ordered accordingly"
The learned counsel for the assessee referred to decision of Hon'ble Bombay High Court in the case of CIT v. Techno Tarp Polymers Private Limited in ITA No.2134 of 2013 (2015) 97 CCH 0048 (Bom. HC) wherein Hon'ble Bombay High Court has held as under:
"5. We find that the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court was in respect of Assessment Year 1994-95. Thus it dealt with the provisions of Section 10B of the Act as existing prior to 1 April 2001 which was admittedly different from Section 10B as in force during Assessment Year 200910 involved in this appeal. Section 10B of the Act as existing prior to 1 April 2001 provided for an exemption in respect of profits and gains derived from export by 100% Export Oriented Undertakings and now it provides for deduction of profits and gains derived from a 100% Exported Oriented Units..
6. In any view of the matter, the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court dealt with the provision of law different from that which was dealt with in the impugned Order. A decision has to be considered in the context of the law as arising for consideration and a change in law would render the decision under the old law inapplicable while considering the amended law.
7. The issue as raised stands concluded by the decision of this Court in Black & Veatch Consulting(P) Ltd.(supra) and "Ganesh Polychem Ltd. Vs. ITO" against the Revenue. Therefore, the question of law as proposed for our consideration does not give rise to any substantial question of law.
8. Accordingly, the appeal is dismissed. No order as to costs."
7 ITA 5040/Mum/2014 It was submitted that in the case of CIT v. Techno Tarp Polymers Private Limited(supra) wherein the Hon'ble Bombay High Court relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Black & Veatch Consulting P. Ltd. [2012] 348 ITR 72 (Bom) and held that brought forward business losses and unabsorbed depreciation of the eligible unit are not to be set off against the current year profits of the eligible unit while computing deduction u/s 10AA of the Act.
7. We have considered the rival submissions and perused the material available on record including the case laws cited by both the parties. The assessee is engaged in the business of manufacturing and export of diamond studded gold and platinum jewellery having its manufacturing unit located at Unit No. 180, SDF-VI, SEEPZ-SEZ, Andheri (E), Mumbai which is an approved Special Economic Zone under the SEZ Act, 2005. The assessee is entitled for deduction u/s 10AA of the Act in respect of the profit earned from the export activity. We have observed that the assessee has claimed that there will be no set off of brought forward business losses and unabsorbed depreciation of eligible unit against current year profits of eligible unit before claiming deduction u/s 10AA of the Act , while the A.O. is contemplating adjustment of set off of brought forward business losses and unabsorbed depreciation of eligible unit against current years profit of eligible unit before allowing deduction u/s 10AA of the Act. The learned CIT(A) held in favour of the assessee and hence Revenue is in appeal before us. We have observed that Hon'ble Bombay High Court in the case of CIT v. Techno Tarp and Polymers Pvt. Ltd. In I.T. Appeal No. 2134 of 2013 dated 5th December, 2015 ( (2015) 97 CCH 0048 (Bom. HC)) has held that brought forward business losses and unabsorbed depreciation of the eligible unit are not to be set off and adjusted against the current year profits of the eligible unit while 8 ITA 5040/Mum/2014 allowing deduction u/s 10B of the Act keeping in view of the provisions of section 72 of the Act. Section 10AA is running parallel to the concession available under Section 10B of the Act .The Hon'ble Bombay High Court in the case of CIT v. Techno Tarp Polymers Private Limited in ITA No.2134 of 2013 ( (2015) 97 CCH 0048 (Bom. HC) ) has duly considered the decision of Hon'ble Karnataka High Court in the case of CIT vs. Himatasingike Seide Ltd. (2006) 156 Taxman 1512 (Kar.) which was upheld by Hon'ble Apex court wherein vide orders dated 19-09-2013 the Hon'ble Apex Court has left the decision of the Hon'ble Karnataka High Court undisturbed in civil appeal no 1501 of 2008, by holding as under:
"We have heard learned counsel for the parties to the lis.
2. Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly.
Ordered accordingly"
Hon'ble Bombay High Court in the case of CIT v. Techno Tarp Polymers Private Limited in ITA No.2134 of 2013 (2015) 97 CCH 0048 (Bom. HC) has allowed the relief to the assessee wherein question of law was answered in favour of the assessee. The question of law formulated in the said appeal in CIT v. Techno Tarp Polymers Private Limited(supra) was as under:
"(1) Whether on the facts and in circumstances of the case and in law, the Tribunal was justified in holding that the brought forward unabsorbed loss/depreciation of the assessee's 10B unit was not liable for set off against the current year's profit of the same 10B unit?"
9 ITA 5040/Mum/2014 The Hon'ble Bombay High Court answered above question of law vide judgment dated 05-12-2015 in ITA no. 2134 of 2013, by holding as under:
"5. We find that the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court was in resepct of Assessment Year 1994-95. Thus it dealt with the provisions of Section 10B of the Act as existing prior to 1 April 2001 which was admittedly different from Section 10B as in force during Assessment Year 200910 involved in this appeal. Section 10B of the Act as existing prior to 1 April 2001 provided for an exemption in respect of profits and gains derived from export by 100% Export Oriented Undertakings and now it provides for deduction of profits and gains derived from a 100% Exported Oriented Units..
6. In any view of the matter, the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court dealt with the provision of law different from that which was dealt with in the impugned Order. A decision has to be considered in the context of the law as arising for consideration and a change in law would render the decision under the old law inapplicable while considering the amended law.
7. The issue as raised stands concluded by the decision of this Court in Black & Veatch Consulting(P) Ltd.(supra) and "Ganesh Polychem Ltd. Vs. ITO" against the Revenue. Therefore, the question of law as proposed for our consideration does not give rise to any substantial question of law.
8. Accordingly, the appeal is dismissed. No order as to costs."
Respectfully following the decision of Hon'ble Bombay High Court in the case of Black & Veatch Consulting (P) Ltd. (supra) , in the case of Ganesh Polychem Ltd. v. ITO decided in ITA no. 8515/Mum/2010 on 10-08-2010 ((2013) 35 taxmann.com 446(Bom.) and the latest decision of Hon'ble Bombay High Court in the case of CIT v. Techno Tarp and Polymers Pvt. Ltd. In Income Tax Appeal No. 2134 of 2013 dated 5th December, 2015 ( (2015) 97 CCH 0048 (Bom. HC) , the appeal of the Revenue is not sustainable in law and hence 10 ITA 5040/Mum/2014 we dismiss appeal filed by the Revenue , by upholding/sustaining the appellate order of the ld. CIT(A)'s wherein relief was granted to the assessee by holding that the assessee is entitled to deduction u/s 10AA of the Act from current year's profits without setting off of carry forward of business losses and unabsorbed depreciation of the eligible unit and hence the appeal filed by the Revenue is dismissed. We order accordingly.
7. The second issue raised by Revenue in the instant appeal is with respect to the ld. CIT(A) granting relief to the assessee by holding that the freight expenses are required to be excluded from the export turnover in terms of Explanation 1(i) of section 10AA are also required to be excluded from the total turnover, as per the decision of Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. )330 ITR 175(Bom. HC). The brief facts are that the assessee achieved turnover of Rs 33,76,03,372/- during the impugned assessment year which included freight of Rs.8,50,250/- incurred for exporting goods outside India. The assessee contended that as per explanation 1(i) to Section 10AA of the Act, the freight attributable to delivery of articles or things outside India is to be excluded from the export turnover(numerator) and to maintain consistency and harmony, the same is also to be excluded from total turnover(denominator) as the formula for deduction u/s 10AA is as as follows:
Profit of the Business X Export Turnover
-----------------------
Total Turnover The assessee relied upon decision of Hon'ble Bombay High Court in the case of CIT v. Suderashan Chemicals Industries Limited (2000) 245 ITR 769(Bom.). The ld. CIT(A) granted relief to the assessee by holding as under:-
11 ITA 5040/Mum/2014 " I have carefully considered the submissions and contention of the Ld. AR of the appellant and also carefully gone through the facts and explanation given by the Ld. AR of the appellant as well as the Ld. AO. I find that the similar issue arose for the consideration of Special Bench of ITAT at Chennai in the case of ITO vs. Sak Soft Ltd. (2009) 121 TTJ (Chennai (SB) 865,wherein it was held that there is no definition of 'total turnover'. If the parity principle is to be applied, it follows that whatever has been excluded from the export turnover by the definition shall stand excluded from the total turnover also. In cl. (iii) of Expln. 2 to s.
10B, the freight, telecom charges and insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in providing technical services outside India have been excluded from export turnover. Therefore, the same have to be excluded also from the total turnover though that expression has not been defined in the section. The argument of the Department that in the absence of any definition of 'total turnover' for the purpose of s. 10B, there is no authority to exclude anything from the expression as understood in general parlance cannot be accepted for two reasons. Firstly there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange on connection with the providing of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses cannot have an element of turnover. It is only in recognition of this position that in the definition of export turnover in s. 10B the aforesaid two items have been directed to be excluded. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange should represent "consideration" in respect of the export. This can only refer to the price of the computer software exported out of India. Any reimbursement of the two items of expenses mentioned in the definition can under no circumstances be considered to represent "consideration" for the export of the computer software or articles or things. Thus there is evidence inherent in the definition of 'export turnover' itself that it should represent "consideration" for export of the articles or things or computer software. It follows that the expression 'total turnover' which is not defined in s. 10B should also be interpreted in the same manner. Thus the two items of 12 ITA 5040/Mum/2014 expenses referred to in the definition of 'export turnover' cannot form part of the total turnover since the receipts by way of recovery of such expenses cannot be said to represent consideration for the goods exported. In this behalf it must be borne in mind that total turnover is nothing but the aggregate of the domestic turnover and the export turnover. The figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of 'export turnover'. Further, the Hon'ble Bench held that the objection of the Department that the scheme of ss. 10A and 10B on the one hand and that of ss, 80HHC; 80HHE and 80HHF on the other was completely different and, therefore, it would be wrong to read into s. 10B the definition of 'total turnover' appearing in the other sections referred to above is not well-founded. The common thread running through all these sections is that they are all provisions granting relief to the assessees in respect of profits derived from export. It cannot be disputed that the object of these sections is to encourage the earning of foreign exchange and provide incentive to promote exports. If some of the sections such as ss. 80HHE and 80HHF provide for a formula for calculating the deduction which is identical with the formula prescribed by s. 10B, it follows that it would be incongruous to interpret s. 10B in a manner different from those two sections merely because there is no definition of 'total turnover' in that section. 'Export turnover' is defined in Expln. (c) below ss. 80HHE and' 80HHF. The definition excludes freight, telecom charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. Thus statutorily parity is maintained between export turnover and total turnover in these sections. There is no reason why such parity cannot be maintained between export turnover and total turnover in s. 10B just because 'total turnover' has not been defined in that section. The words 'total turnover' appearing in the various provisions of the IT Act should be construed in the same manner unless it leads to contextual inconsistencies or repugnancy: So far as the present controversy is concerned, the context requires that the above words be construed in such a manner as to be in harmony with the expression' export turnover' in the sense that whatever is excluded from the export turnover should also be excluded-from the total turnover, more particularly when all the provisions referred to above uniformly prescribe a formula in which the 13 ITA 5040/Mum/2014 export turnover is the numerator and the total turnover is the denominator. Therefore, the total turnover for the purpose of applying the formula prescribed by sub-s. (4) of s. 10B, though not defined should be construed in the same manner in which the export turnover has been defined in that section, that is to say, by excluding the freight, telecom charges and insurance attributable, to the delivery of goods outside India or expenses incurred in foreign exchange in providing technical services outside India.
3.3.2 I further find that in-the case of Capgemini India(P) Ltd. vs. Addl.CIT (2011) 46 SOT 195,Mumbai Tribunal following the decisions of ITO vs. Sak Soft Ltd. (2009) 121 TTJ (Chennai)(SB) 865 and CIT vs. Gem Plus Jewellery, India Ltd. (2010) 233 CTR (Bom) 248 has held that under the provisions of Expln. 2(iv) to s. 10A, expenses on freight, telecommunication charges and insurance attributable to the delivery of article or things or computer software outside India or expenses incurred in foreign exchange in providing technical services outside India are required to be excluded from the export turnover. In this case the data line cost being the telecommunication expenses have been excluded by the AO from the export turnover. The case of the assessee is that the telecommunication expenses had been incurred in the business of software development at the software undertakings of the assessee in India. This, claim has not been controverted by the AO by placing any material on record. The expenses incurred on development of software in India cannot be considered as expenses attributable to the delivery of computer software outside India. Therefore such expenses cannot be excluded from the export turnover and in case these are excluded, these have to be excluded from total turnover also. In any case since these expenses have been incurred in the business of software development in India, these could not be considered as expenditure attributable to delivery of computer software outside India. Therefore, expenses are not to be excluded from the export turnover. In view of the foregoing the Ld. A.O. is directed to verify the exact figure of the total turnover from his record and adopt the same for computation, the deletion of an item from total turnover is also to be reduced from the export turnover for the purposes of arriving at consistency in the computation so as to make the formula workable. This ground of appeal is thus allowed for statistical purposes."
14 ITA 5040/Mum/2014
8. Aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
9. The ld. D.R. submitted that Revenue has filed SLP with the Hon'ble Supreme Court and has not accepted the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra). The ld. Counsel for the assessee, on the other hand relied on the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra).
10. The brief facts are that the assessee achieved turnover of Rs 33,76,03,372/- during the impugned assessment year which included freight of Rs.8,50,250/- incurred for exporting goods outside India. The assessee had contended that as per explanation 1(i) to Section 10AA of the Act, the freight attributable to delivery of articles or things outside India is to be excluded from the export turnover(numerator) and to maintain consistency and harmony, the same is also to be excluded from total turnover(denominator) as the formula for deduction u/s 10AA is as as follows:
Profit of the Business X Export Turnover
-----------------------
Total Turnover The ld. CIT(A) granted relief to the assessee by holding that the freight expenses are required to be excluded from the export turnover in terms of Explanation 1(i) of section 10AA are also required to be excluded from the total turnover, as per the decision of Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. (2011) 330 ITR 175(Bom. HC), wherein Hon'ble Bombay High Court held as under:
15 ITA 5040/Mum/2014
3. According to the revenue the exemption under section 10A is liable to be computed after excluding freight and insurance from the total turnover. The Commissioner (Appeals) affirmed the view of the Assessing Officer and held that section 10A does not define turnover and that in the circumstances, the Assessing Officer was correct in not reducing insurance and freight from the total turnover while computing the deduction under section 10A. In appeal the Tribunal held that (i) The expression "total turnover" has not been defined in section 10A; (ii) Profits derived from export have to be computed by taking into consideration both the export turnover and total turnover of the business carried on by the undertaking; (iii) Both the export turnover and total turnover which constitute the numerator and denominator in the application of the formula under sub- section (4) of section 10A should be comparable; and
(iv) Freight and insurance have no element of profit and hence, cannot be included in the total turnover of the business carried on by the industrial undertaking. The Tribunal, accordingly, directed that the deduction under section 10A should be computed after excluding freight and insurance from the total turnover. It is this finding of the Tribunal which is questioned by the revenue in appeal.
4. Under sub-section (1) of section 10A a deduction is allowed from the total income of the assessee of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years commencing from the assessment year relevant to the previous year in which the undertaking begins manufacture or production. Sub-section (4) of section 10A provides the manner in which the profits derived from the export of articles or things or computer software shall be computed. Sub-section (4) provides as follows :
"For the purposes of sub-sections (1) and (1A), 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."
5. Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits derived from export. In other words, the profits of the business of the undertaking are multiplied by the export turnover in respect of the articles, things or, as the case may be, computer software and divided by the total turnover of the business 16 ITA 5040/Mum/2014 carried on by the undertaking. The formula which is prescribed by sub- section (4) of section 10A is as follows :
Profits derived from export of articles or things or computer software = export turnover in respect Profits of the business of the undertaking × of the articles or things or computer software total turnover of the business carried on by the undertaking The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator inasmuch as the export turnover is a part of the total turnover.
6. The export turnover, in the numerator must have the same meaning as the export turnover which is a constituent element of the total turnover in the denominator. The Legislature has provided a definition of the expression "export turnover" in Explanation (2) to section 10A by which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the Legislature has made a specific exclusion of freight and insurance charges.
7. The submission which has been urged on behalf of the revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of section 10A. However, the expression "export turnover" has been defined. The definition of "export turnover"
excludes freight and insurance. Since export turnover has been defined by Parlia- ment and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision to the contrary. However, no such provision having been made, the principle which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation
17 ITA 5040/Mum/2014 would lead to an absurdity. If the contention of the revenue were to be accepted, the same expression, viz., 'export turnover' would have a different connotation in the application of the same formula. The submission of the revenue would lead to a situation where freight and insurance, though it has been specifically excluded from "export turnover"
for the purposes of the numerator would be brought in as part of the "export turnover" when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided.
8. The view which we have taken is consistent with the view which was taken, though in the context of section 80HHC, by a Division Bench of this Court in CIT v. Sudarshan Chemicals Industries Ltd.[2000] 245 ITR
769. In Sudarshan Chemicals Industries Ltd.'s case (supra) the question of law that fell for decision was whether sales tax and excise duty ought to be included in the total turnover while working out the deduction under section 80HHC. For the purposes of section 80HHC, clause (b) of sub- section (3) provides that the profits derived from export shall be computed in terms of the proportion between the export turnover to the total turnover as applied to the profits of business. Hon'ble Mr. Justice S.H. Kapadia (as the Learned Chief Justice then was) speaking for a Division Bench of this Court did not accept the contention of the revenue that since the Legislature had excluded only insurance and freight from the total turnover, it was not open to the assessee to contend that excise duty and sales tax should also be excluded. In that context, the Division Bench observed that the meaning of export turnover in clause (b) of the Explanation to section 80HHC showed that export turnover did not include excise duty and sales tax. The Division Bench observed that the export turnover is the numerator in the formula whereas the total turnover is the denominator. The formula having been prescribed to arrive at profits from exports, sales tax and excise duty could not form part of the total turnover. If the denominator were to include those two items and the numerator excluded them, the formula (noted the Division Bench), would become unworkable. In the circumstances, the Division Bench held that while ascertaining the export profits, excise duty and sales tax could not be introduced to inflate the total turnover artificially in order to reduce the benefit to which the assessee is entitled. The decision of the Division Bench of this Court in Sudarshan Chemical Industries Ltd.'s case (supra) has been cited with approval by the Supreme Court in CIT v. Lakshmi Machine Works[2007] 290 ITR 667. The same view has been taken by the Supreme Court in CIT v. Catapharma (India) (P.) Ltd.[2007] 292 ITR 641 in which the decision of the Division Bench in Sudarshan Chemical Industries Ltd.'s case (supra) has also been adverted to.
18 ITA 5040/Mum/2014
9. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. In Lakshmi Machine Works' case (supra) the Supreme Court held that excise duty and sales tax did not possess any element of turnover since they are merely recoverable by the assessee on behalf of the Government.
10. Freight and insurance do not have an element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary. The first question of law would therefore, have to be answered against the revenue and in favour of the assessee"
We are of the considered view that merely because the Special Leave Petition has been filed by the Revenue with Hon'ble Apex Court under Article 136 of The Constitution of India against the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra), the assessee cannot be denied the relief as granted by the ld. CIT(A) who relied upon the decision OF Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra) which was decided by Hon'ble Bombay High Court in favour of the assessee by holding that receipts such as freight and insurance which does not have any element of profit cannot be included in total turnover as they donot have an element of turnover, wherein the issue under the instant appeal is directly covered by the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra). The provisions governing computation of export turnover as contained in explanation 2(iv) to Section 10A of the Act is para materia to explanation 1(i) to Section 10AA of the Act with respect to the excludability of freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any , incurred in foreign exchange in rendering of services outside India. The Hon'ble Bombay High Court decision is binding on us till it is reversed by the Hon'ble Apex Court. The Revenue has not been able to bring on record any other decision of the Hon'ble Apex Court which reflects contrary position as was taken by Hon'ble Bombay High Court in the case of 19 ITA 5040/Mum/2014 Gem Plus Jewellery India Ltd. (supra) and hence keeping in view the factual matrix of the case, we agree that the assessee is entitled for the relief and the freight of Rs.8,50,250/- incurred for exporting goods outside India attributable to delivery of articles or things outside India is to be excluded from the export turnover(numerator) and to maintain consistency and harmony, the same is also to be excluded from total turnover(denominator) as the formula for deduction u/s 10AA is as as follows:
Profit of the Business X Export Turnover
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Total Turnover Hence the appeal filed by the Revenue lacks merit and is hereby ordered to be dismissed as we are not inclined to interfere with the appellate orders of learned CIT(A) which we sustain/affirm keeping in view ratio of law laid down by Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra).We order accordingly.
11. In the result, appeal filed by the Revenue in ITA No. 5040/Mum/2014 for assessment year 2009-10 is dismissed.
Order pronounced in the open court on 19th December, 2016. आदे श क घोषणा खुले #यायालय म% &दनांकः 19-12-2016. को क गई ।
Sd/- sd/-
(MAHAVIR SINGH) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 19-12-2016
[
व.9न.स./ R.K., Ex. Sr. PS
20 ITA 5040/Mum/2014
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु:त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आय:
ु त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai "A" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai