Income Tax Appellate Tribunal - Jaipur
Bhansali Trading Company, Jaipur vs Department Of Income Tax on 14 July, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh Hkkxpan] ys[kk lnL; ,oa Jh yfyr dqekj] U;kf;d lnL; ds le{k
BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 784/JP/2014
fu/kZkj.k o"kZ@Assessment Year : 2011-12
Deputy Commissioner of cuke M/s Bhansali Trading Company,
Income Tax, Vs. 2654, Shah Bhawan, Ghee
Circle-2, Jaipur. Walon Ka Rasta, Johari Bazar,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFB 8840 N
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Rajendra Singh (Addl.CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri H.M. Singhvi (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 12/07/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 14/07/2016
vkns'k@ ORDER
PER: LALIET KUMAR, J.M. This is an appeal filed by the revenue against the order dated 17/09/2014 passed by the ld CIT(A)-I, Jaipur for the A.Y. 2011-12. The effective grounds of appeal are as under:-
"i Whether on the facts and in the circumstances of the case and in law the ld CIT(A) has erred in allowing deduction U/s 10B of the Act amounting to Rs. 1,34,31,888/-.
2 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company ii. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) has erred in holding that exemption U/s 10B is available to the assessee for the first time w.e.f. A.Y. 2002-03 and ten consecutive years ignoring the fact that the assessee firm started manufacturing on 12/3/2001 as certified by Auditor. Hence exemption U/s 10B is available to assessee from A.Y. 2001-02 to 2010-11 only.
iii. Whether on the facts and in the circumstances of the case and in law the ld CIT(A) has erred in allowing the deduction U/s 10B for eleventh year when the assessee had admittedly not fulfilled the condition stipulated in sub-section (8) of Section 10B in A.Y. 200-102, which was mandatory in nature."
2. The assessee firm is engaged in the business of manufacturing and trading of precious and semi precious stones and studded gold and silver. Return for the year under consideration was e-filed on 29/09/2011 declaring total income of Rs. 3,80,100/-. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act). In the year 2001, the assessee was registered with appropriate authority U/s 10B of the Act. Section 10B(i) of the Act provides as under:-
"SPECIAL PROVISIONS IN RESPECT OF NEWLY
ESTABLISHED HUNDRED PERCENT- EXPORT-
ORIENTED UNDERTAKINGS.
10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the 3 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:
Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years:
Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub- section shall be ninety per cent. of the profits and gains derived by an undertaking from the export of such articles or things or computer software:
Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years.
Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub- section (1) of section 139."
It is the case of the assessee that the assessee was registered as export oriented unit (EOU) from 09/02/2001. It is also the case of the assessee that there were no export sales in export oriented unit in A.Y. 2001-02.
4 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company The assessee did not claim the deduction U/s 10B of the Act of the year 2001-02 and has filed the audit report in form NO. 56G of the Act.
2.1 The assessee claimed exemption U/s 10B of the Act for the assessment year 2011-12. However, the ld Assessing Officer declined the benefit of 10B to the assessee for the following reasons:-
"During assessment proceedings, the A/R of the assessee vide his submission dated 26.11.2013 has furnished copy of form No. 56G alongwith annexure-A giving necessary details and working of exemption u/s 10B of the I.T. Act, 1961. Perusal of para-6 of Annexure-A of form 56G reveals that the firm was registered as 100% EOU on 26.02.2001 and unit has commenced manufacturing and production on 12.03.2001 as certified by the auditor vide para-7 of said annexure. Further, vide para-8 of the Annexure-A, the auditor has certified that assessment year 2011-12 is the eleventh consecutive year for the exemption is claimed. Since, the exemption u/s 10B is available on the profits and gains derived by an 100% EOU from the export of articles and things or computer software for a period of ten consecutive assessment years only. Accordingly, the A/R of the assessee, vide order sheet entry dated 13.12.2013 was required to furnish justification as to why exemption u/s 10B should not be disallowed. In response thereto, the A/R of the assessee submitted vide his letter dated 18.12.2013 as under:
5 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company "that the assessee claimed deduction u/s 10B for the first time w.e.f. in A.Y.2002-03 and ten consecutive years will complete in the assessment year 2011-12. Though, the registration of EOU unit was effective from 09.02.2001.
The arguments put-forth by the A/R of the assessee are considered and found not acceptable in view of subsection (1) of section 10B of the I.T. Act, 1961 which is reproduced hereunder:
"10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee "
Plain reading of the provisions of section 10B of the I.T.Act, 1961 referred above clears that the exemption u/s 10B is available to the eligible unit for a period often consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. Here in the case of assessee, the EOU unit had commenced manufacturing with effect from 12.03.2001 as certified by the auditor vide annexure-A of form 56G for the current assessment year.
6 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company Accordingly, eligibility of the assessee firm for the exemption u/s 10B was available for ten consecutive assessment years from 12.03.2001(i.e. A.Y. 2001-02) which expires in A.Y.2010- 11 and no exemption under this section is available to the assessee for the year under consideration. In view of the above discussion the contention of the A/R of the assessee that the exemption is available to the assessee for ten years from the year in which the exemption was claimed first time, have no merits.
The act clearly state that period of exemption starts from the day undertaking begins to manufacture or produce articles or things, and in no way rely when the company starts its exports. Furthermore, the act provides no liberty to the assessee to choose its first year of exemption.
It is worthwhile to submit here that the assessee firm has submitted its manufacturing trading and Profit & Loss account of the eligible unit for A.Y.2001- 02 alongwith certificate of the auditor in form 56G, which are forming part of this order. The auditor in the respective columns of Annexure-A of 56G for A.Y. 2001-02 has certified that the eligible unit was registered as 100% EOU on 26.02.2001 and commenced its manufacturing activities with effect from 12.03.2001 which further proves from the manufacturing account of the eligible unit in which it has consumed raw material of Rs. 77,54,305/- and paid wages of Rs. 82,288/- and transferred the cost of production of Rs. 78,66,593/- to the trading account.
7 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company The depreciation chart of the assessee for A.Y. 2001-02 clearly shows that assessee has claimed depreciation of Rs. 10,790/- on plant and machinery which shows that they were put to use for business purpose. Moreover electricity bills of Rs. 13147/- were paid by the assessee & claimed as expenses for business. All these factors clearly prove that manufacturing activity had begun in A. Y.2001 -02(Depreciation chart for A.Y.2001-02 forms part of this order).
In view of the above discussion, it is held that the assessee firm had commenced manufacturing activities in its EOU unit eligible for 10B exemption in the A.Y.2001-02 and therefore, exemption u/s 10B of the Act is available to the assessee firm up to A.Y.2010-11 only. Hence, the exemption claimed u/s 10B of the I.T. Act, 1961 for the year under consideration of Rs. 1,34,31,888/- is disallowed and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) have been initiated separately for furnishing inaccurate particulars by claiming wrong exemption u/s 10B as discussed above.
3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal by observing as under:-
"4. I have considered the facts of the case. It is noted that the appellant is engaged in the business of manufacturing and trading of precious and semi-
8 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company precious stones etc. through its two units non-EOU and EOU Units. In the year under consideration, the appellant had claimed exemption u/s 10B amounting to Rs 1,34,31,888/- on profits from 100% EOU Unit registered as EOU in Noida Export Processing Zone. The AO noticed that as perform No. 56G and its annexure, the assessment year 2011-12 was the eleventh consecutive year for the exemption. Since the exemption u/s 10B was available only for a period of ten consecutive years, the AO denied the exemption holding that the manufacturing had started with effect from 12.03.2001 and the exemption had no connection with the period when the company started its exports. The AO in this regard relied on the certificate of the auditor stating that the unit had started manufacturing activities with effect from 12.03.2001. He accordingly, denied the claim of exemption made by the appellant on the ground that this was the eleventh A.Y. and hence, no exemption was available in this year.
4.1 It is, however, noted that in the computation and in the return filed by the appellant for the assessment year 2001-02, no deduction u/s 10B was claimed. In fact, a perusal of the copy of the computation of income shows that unit II (the EOU) had incurred a loss of Rs 50,974/- in that year. In form 56G filed by the appellant along with the return, it was clearly 9 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company mentioned in column 18 that no sales had been made up to 31.03.2001 and hence, no profit was determined. No exemption under this section was claimed by the appellant even in the return filed by it. This is also clear from the Annexure-08 of the tax audit report filed by the appellant. These facts clearly show that the appellant had not claimed the exemption in that year. It is also noted that the assessee had filed a letter dated 18.12.2013 before the AO mentioning that it had claimed deduction u/s 10B for the first time w.e.f. 2002-03 and 10 consecutive years will complete in the assessment year 2011-12 though the registration of EOU unit was effective from 09/02/2011.
4.2 As per section 10B (8), the assessee is entitled to opt out of the scheme of the section if he informs the AO that section may not be made applicable to him. Hon'ble Madras High Court in the case of Tamilnadu Jai Bharat Mills Ltd. (287 ITR 512) has held that it is open to the taxpayer to withdraw from the exemption in any year. The Hon'ble Court has so held on the ground that section 10B (8) itself suggests an option by making a declaration not to avail of the same. Section 10B would have application only if the EOU had a positive income, so that the issue whether the assessee had opted out of section 10B can arise only in the year when the income turned positive. In the case of Expo Packaging 10 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company (ITA No. 3005/AHD/1990), it has been held with respect to section 10A that in case there were no profits and gains, the assessee cannot be fastened with the provisions which were, prima facie, not beneficial to him. Provisions of section 10A (8) are analogous to those of section 10B (8). As mentioned above, there was a loss in the export oriented unit i.e., Unit II, in the AY 2001-02. The claim of exemption shall, therefore, be redundant for the assessment year 2001-02.
4.3 Apart from this, it has been held in the case of Moser Baer India Ltd. [295 ITR (AT) 148 Del.], that the requirement of filing declaration for opting out was directory in nature, and not mandatory. As mentioned above, in the present case it is clear from the return and computation of income that there was no positive income in unit II (EOU) in the assessment year 2001-
02. Hence, it is clear that in such a situation the exemption would start from the assessment year 2002-
03. In view of the above legal and factual matrix of the case, it is held that the appellate is entitled to exemption u/s 10B in the year under consideration. The appeal on this ground is, therefore, allowed.
4. Now the revenue is in appeal before us. The ld DR has submitted that as per provisions of law more particularly Section 10B(8) of the Act, the assessee is required to file a declaration in writing that the provisions 11 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company of Section 10B may not be applicable to him. Section 10B(8) of the Act provides as under:-
"(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.
Explanation2.-- For the purposes of this section,--
(i)"computer software" means,--
(a) any computer programme recorded on any disc, tape, perforated media or other information storage device ; or
(b) any customized electronic data or any product or service of similar nature, as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means;
(ii) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder or any other corresponding law for the time being in force;
(iii) "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but
12 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India ;
(iv) "hundred per cent. export-oriented undertaking"
means an undertaking which has been approved as a hundred per cent. export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act ;
(v) "relevant assessment years" means any assessment year falling within a period of ten consecutive assessment years, referred to in this section.
Explanation 3.-- For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.
Explanation 4.-- For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semi-precious stones."
On the basis of the above, it was contended by the ld DR that the assessee has not filed declaration as required U/s 10B(8) of the Act, therefore, initial year shall commence w.e.f. the date of establishment 13 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company and registration to EOU i.e. 09/02/2011 and 10 years should be counted from 09/02/2011.
5. At the outset, the ld AR of the assessee has submitted that the provisions of Section 10B are only attracted if there is income from the export by the EOU and if there is no export income under the unit in the assessment year, then there is no requirement of filing declaration by the assessee. He has also relied upon the decision of Hon'ble Delhi High Court in the case of Moesr Baer India Ltd 295 ITR (AT) 148 (Del) and other judgments. On the basis of the above, it was submitted that the declaration U/s 10B(8) of the Act was merely directory in nature and is not mandatory in nature.
He further submitted that the assessee did not claim any deduction u/s 10B in A.Y. 2001-02. It was clearly shown in the I.T. Computation of Income and similarly in the Audit Report in Form No. 56G no deduction was claimed. In the A.Y. 2001-02 there was trail production. Hon'ble Delhi High Court in the case of Commissioner of Income Tax v. Nestar Pharmaceuticals Ltd. has held that Trial production is different from commercial production. Further held that merely because same closing stock was shown in A.Y. 2008-09 would not lead 14 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company to the conclusion that there was commercial production as well. Initial assessment year for the purpose of Sec. 80IA is the assessment year relevant to the previous year in which the commercial production was started i.e. A.Y. 1999-2000 and not A.Y. 1998-99 in which there was a trial production. As per provisions contained in sub sec(8) of 10B the assessee has been given option for not applying the provision of this section for any relevant assessment year. The assessee vide letter dated 18/12/2013 to the AO in reply to the show cause for disallowing the claim u/s 10B filed detailed submissions. However, the AO intentionally did not reproduce the letter as a whole leaving three lines of the para.
For the sake of convenience we are reproducing his reply:-
"The assessee claimed deduction u/s 10B for the first time w.e.f. A.Y. 2002-03 and ten consecutive years will complete in A.Y. 2011-
12. Though the registration of EOU Unit was effective from 09/02/2001. The copy of computation and return for A.Y. 2001-02 and A.Y. 2002-03 are enclosed for your kind consideration.
The Learned AO disagreeing to the explanation given in letter dt.:-
10/12/2013 disallowed the claim. The Learned CIT(A) has allowed the assessee's claim giving reasoned order considering all the legal aspects.
The AO has not prescribed any specific mode for excesing the option.
The intention of the legislature was to bring it to the knowledge of AO of the option for not claiming deduction u/s 10B. If in the return of income
15 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company if it is exercised it is sufficient information. He relied on the following decisions:-
(i) CIT Vs G.R. Govindarajulu & Sons 280 CTR 303.
(ii) ITO Vs Expo Packages 51 TTJ (Ahd) 174.
(iii) Kwal Pro Exports v. ITO, Jodhpur, (2009) (Tax world, Vol.
41, Pg. No. 179).
(iv) Bajaj Temp Ltd. v. CIT, 188 ITR 196(SC)
(v) CIT v. Krishna Cooper and Steel Rolling Mills 193 ITR 281 (SC).
(vi) CIT v. Baby Marine Exports 290 ITR 323 (SC) He further submitted that as per the spirit of the incentive scheme as given in Sec. 10B the assessee has rightly claimed the deduction u/s 10B for a period of 10 years starting from A.Y. 2002-03 to A.Y. 2011-12, since tenth years expire on 31/03/2011. Learned CIT(A) considering the above facts has allowed the appeal of the assessee relying on the judgment of Delhi ITAT Bench in the case of Moser Baer India Ltd. (295 ITR (AT) 148) (Delhi) in which it was held that requirement of filing declaration for opting out as directory in nature and not mandatory. That Learned CIT appeal has rightly allowed the appeal of the appellant by allowing the claim u/s 10B and it is requested that no interference be made.
6. We have heard the rival contentions of both the parties and perused the material available on the record.
16 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company Section 10B of the Act was inserted in the Act with a view to encourage and establish the export oriented unit, so that foreign currency can be earned by the EOU. The provision provides complete deduction of profit and gains derived from export of articles or things on account of manufacturing, producing any articles or things or computer software. The intention to introduce this provision was to encourage the export oriented undertaking and further to exempt the income of such undertaking accrued to them on account of export of the articles manufactured, produce etc., therefore, the soul of the provision is earning of profit and gains on account of export by the export oriented unit. In absence of any profit and gains derived by such undertaking, there is no question of making any declaration by such undertaking in view of Section 10B(8) of the Act.
Admittedly, it is the case before the ld Assessing Officer that no export was done in the assessment year 2001-02 and therefore there was no positive income to the assessee. The sole basis of denying the claim to the assessee was the commencement of the manufacturing activity by the assessee and seeking the claim of depreciation of Rs.
10,790/- in the assessment year 2001-02. In our view, the bare reading of Section 10B(1) clearly provides that a deduction of such profits and 17 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or computer software. Therefore, decisive element for the purposes of claiming the deduction U/s 10B would be
(i) There should be 100% export oriented undertaking.
(ii) The deduction of profit and gains are derived by the EOU from the export of articles or things or computer software then for the 10 years beginning for the assessment year in which undertaking begins to manufacture or produce things or computer software shall be allowed.
Admittedly, the assessee was not having any positive income from the export of articles on account of activities in the export oriented unit, therefore, in our view, there is no occasion for the assessee to claim deduction U/s 10B of the Act. Since there is no positive income, there was no occasion for the assessee to file certificate in terms of Section 10B(8) of the Act. Even otherwise, though, the assessee can withdraw the declaration given at any time in terms of the judgment referred by the assessee during the course of argument, which is duly mentioned hereinabove. Therefore, in our opinion, furnishing of the declaration in 18 ITA 784/JP/2014_ DCIT Vs. M/s Bhansali Trading Company terms of Section 10B(8) of the Act is merely a formality and declaratory in nature and is not mandatory. If the assessee is having positive income then only there is occasion to claim the deduction. Admittedly, the positive income accrued to the assessee in the assessment year 2002-03 and from there onward the assessee has claimed the deduction U/s 10B of the Act for a period of 10 years. In view thereof, the order passed by the ld CIT(A) is confirmed and the appeal of the revenue is dismissed.
7. In the result, the revenue's appeal is dismissed.
Order pronounced in the open court on 14/07/2016.
Sd/- Sd/-
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(BHAGCHAND) (Laliet Kumar)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 14th July, 2016
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT, Circle-2, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Bhansali Trading Company, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 784/JP/2014) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar