Income Tax Appellate Tribunal - Ahmedabad
Lubrizol Advanced Material India ... vs Dy.Cit., Circle-1(2),, Baroda on 20 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
Before: Shri Rajpal Yadav, Judicial Member
And Shri Amarjit Singh, Accountant Member
ITA No. 2720/Ahd/2013
Assessment Year 2005-06
Lubrizol Advanced The DCIT,
Material India Pvt. Ltd. Circle-1(2),
(Formerly known as Vs Baroda
India Malt P. Ltd), At & (Respondent)
PO, Manjusar, Tal.
Savli, Disrict: Vadodara
PAN: AAACI1436B
(Appellant)
Revenue by: Shri Sitaram Meena, Sr. D.R.
Assessee by: M s. Urvashi Shodhan, A.R.
Date of hearing : 15-02-2017
Date of pronouncement : 20-02-2017
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee's appeal for A.Y. 2009-10, arises from order of the CIT(A)-I, Ahmedabad dated 30-09-2013 in appeal no. CAB- I/69/12-13, in proceedings under section 154 r.w.s. 292-B of the Income Tax Act, 1961; in short "the Act".
I.T.A No. 2720/Ahd/2013 A.Y. 2005-06 Page No 2 Lubrizol Advanced Material India P. Ltd. vs. DCIT
2. The assessee has raised following grounds of appeal:-
"1 Ld. CIT (A) erred in law and on facts in confirming recomputation by AO of exempted profit u/s 10B of the Act. Both the lower authorities erred in not appreciating submissions that carriage, insurance & freight on goods sold on the facts of the case ought not to have been excluded from export turnover. The order Id. CIT (A) confirming exclusion of export freight from export turnover for computing exempted profit u/s 10B of the Act deserves to be set aside. It be so held now.
2 Ld. CIT (A) erred in law and on facts in confirming action of AO in not accepting alternate contention of the appellant that on principle of parity export freight if excluded from export turnover ought to be excluded from total turnover also while computing exempted profits u/s 10B of the Act. Ld. CIT (A) gravely erred in not appreciating ratio of the judicial decisions that when export freight is to be excluded from the export turnover then it ought to be excluded from the total turnover, which are the numerator and the denominator respectively in the formula. It be so held now.
3 Initiation of penalty proceedings u/s 271 (1)(c) are not justified."
All the grounds of appeal are interconnected so they are decided together as under.
3. In this case, return of income declaring income of Rs. 86,30,290/- was filed on 28th October, 2005. The assessee company was engaged in the business of manufacturing of Cassia Gum Powder and Guar Gum Powder. The assessee company has claimed deduction u/s. 10B of the act. The assessing officer completed the assessment u/s. 143(3) on 26th December, 2008 by allowing the claim u/s. 10B(4) of the act to the amount of Rs. 7,64,98,712/-. Subsequently, assessing officer has initiated proceedings u/s. 154 of the act stating that it was noticed that in the I.T.A No. 2720/Ahd/2013 A.Y. 2005-06 Page No 3 Lubrizol Advanced Material India P. Ltd. vs. DCIT claim u/s. 10B, the assessee company has not deducted an amount of Rs. 1,29,44,675/- from export turn-over being export freight. Thereafter, the assessing officer has passed order u/s. 154 of the act on 25th April, 2012 and reworked the deduction u/s. 10B of the act and restricted it to the extent of Rs. 7,21,23,996/-after reducing export freight as discussed supra in this order. Thereafter, the assessee filed appeal before theLd. CIT(A) against the order of assessing officer regarding re-computation of exempted profit u/s. 10B(4) of the act by making reduction of export freight of Rs. 1,29,44,675/- from export turn-over. The ld. CIT(A) has dismissed the appeal of the assessee by observing as under:-
"6.11 Thus, as per explanation 2(iii) below section 10B export turnover means the consideration in respect of the export by the undertaking of articles or things or computer software received or brought into India in convertible foreign exchange, but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India. In view of this the freight and insurance etc. as incurred by the appellant in Indian currency and which are attributable to the delivery of articles or things outside India i.e. beyond the custom station are required to be excluded from the export turnover, but the same cannot be excluded from total turnover as these are not in the nature of reimbursement expenses. Thus, the parity principle cannot be applied in the case of appellant in view of the fact that the freight and insurance charges etc. are not in the nature .of reimbursement expenses and therefore they do not form part of export turnover and total .turnover. These expenses are born by the appellant only. However, as per explanation 2(iii) below section 10B, freight and insurance charges etc. attributable to the delivery of the articles or things or computer software outside India are required to be excluded from the export turnover. Considering all these facts, it is held that the AO has correctly recomputed the exempted profit u/s 10B(4) in the case of appellant by excluding export freight charges of Rs.1,29,44,675/- from export turnover and therefore the action of I.T.A No. 2720/Ahd/2013 A.Y. 2005-06 Page No 4 Lubrizol Advanced Material India P. Ltd. vs. DCIT the AO in this regard is confirmed. Thus, the ground of appeal no.2 as well as additional ground of appeal of the appellant is dismissed."
4. During the course of appellate proceedings before us, learned counsel contended that on principle of parity if export freight excluded from export turn-over and the same also ought to be excluded from total turnover while computing exempted profit u/s. 10B of the act. In this connection, she relied on the order of the hon'ble high court of Karnataka (2010) 17 taxmann.com 100 (Karnataka) in the case of CIT vs. Tata Elexi Ltd. On the other hand the ld. departmental representative supported the order of ld. CIT(A).
5. After hearing both sides and perusal of material on record, we find that on identical issue hon'ble high court of Karnataka in the CIT vs. Tata Elexi Ltd supra held that while computing deduction u/s. 10A if export turnover numerator is to be arrived at after excluding certain expenses, such expenses are also to be excluded in computing export turnover as a component of total turnover in denominator. After perusal of the findings of hon'ble high court , we find that claim of assessee u/s. 10B is similar to the issue decided by the hon'ble high court and the relevant part of the decision of the hon'ble high court is reproduced as under:-
"From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the I.T.A No. 2720/Ahd/2013 A.Y. 2005-06 Page No 5 Lubrizol Advanced Material India P. Ltd. vs. DCIT legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the ease of Section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in Section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in Section 10-A, there is nothing in the said Section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export I.T.A No. 2720/Ahd/2013 A.Y. 2005-06 Page No 6 Lubrizol Advanced Material India P. Ltd. vs. DCIT turnover. Therefore, the formula for computation of the deduction under Section 10-A, would be as under:
Export turn over
---------------------------------- Profits of the business A-(Export turnover + domestic turn over) undertaking Total Turn Over
11. In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of Section 80HHC in interpreting Section 10-A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue."
5.1 In view of the above stated judicial findings we considered that the components of the export turnover in the numerator and the denominator cannot be different. After considering the legal findings as supra, we find that on principle of parity if export freight excluded from export turn-over and the same also ought to be excluded from total turnover while computing exempted profit u/s. 10B of the act therefore, we allow the appeal of the assessee.
6. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 20-02-2017 Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 20/02/2017 I.T.A No. 2720/Ahd/2013 A.Y. 2005-06 Page No 7
Lubrizol Advanced Material India P. Ltd. vs. DCIT आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद