Income Tax Appellate Tribunal - Chennai
Rieter-Lmw Machinery Ltd., Coimbatore vs Assessee on 31 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER
AND SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER]
I.T.A.Nos.1776 and 1896/Mds/2007
Assessment years : 2001-02 and 2002-03
M/s Rieter-LMW Machinery Ltd vs The ACIT
Sulur Railway Feeder Road Company Circle IV(2)
Muthugoundenpudur Coimbatore
Coimbatore 641 406
[PAN AABCR 0309M]
(Appellant) (Respondent)
Appellant by : Shri R.Vijayaraghavan, Advocate
Respondent by : Shri Shaji P. Jacob, Addl. CIT
Date of Hearing : 31-07-2012
Date of Pronouncement : 31-07-2012
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
These are the appeals filed by the assessee against the orders of the CIT(A) dated 17.4.2007 and 18.5.2007, for assessment years 2001-02 and 2002-03 respectively.
2. The only issue involved in assessment year 2001-02 and the issue involved in Ground Nos. 2 to 5 in assessment year 2002-03 is that the CIT(A) erred in not allowing deduction to the assessee on the :- 2 -: I.T.A.No.1776 and 1896/07 entire domestic sale of scrap of ` 23,76,390/- in assessment year 2001-02 and ` 21,91,984/- in assessment year 2002-03.
3. The brief facts of the case are that during assessment year 2001-02 the assessee had shown export sales of ` 74,57,18,839/- and domestic sale of scrap of ` 23,76,390/-. The assessee contended before the Assessing Officer that as per second proviso to section 10B(1), any profits and gains derived from domestic sales of articles of things or computer software which did not exceed 25 percent of the total sales shall be deemed to be the profits and gains derived from the export of articles or things or computer software. It is the contention of the assessee that out of the total turnover, export turnover is 99.68 percent and the domestic turnover is 0.32 percent and therefore, the assessee was entitled to deduction of the entire income from its business of ` 8,60,20,343/- as deduction u/s 80B of the Act. The Assessing Officer did not accept the contention of the assessee on the ground that the proceeds of scrap sales are not realized in convertible foreign exchange by the assessee and in view of the provisions of section 10(3) deduction u/s 10B cannot be allowed in respect of sales of scrap.
4. The order of the Assessing Officer was confirmed in appeal by the CIT(A).
:- 3 -: I.T.A.No.1776 and 1896/07
5. The DR supported the order of the lower authorities.
6. The A.R of the assessee filed before us a copy of the decision of the Hon'ble Madras High Court in the case of CIT vs Savvy Systems (India) Ltd, [2007] 291 ITR 105(Mad) and submitted that the Hon'ble Madras High Court has held that where the domestic turnover of the sales did not exceed 25 percent of the total sales and it was not in dispute that the domestic turnover was less than 25 percent of the total sales, thus, fully satisfying the requirements as provided in the second proviso to sub-section (1) of section 10B at the relevant period of time. The Tribunal was right in holding that for the purpose of the deduction under section 10B the domestic turnover formed part of the export turnover. It was, therefore, his submission that in view of the above decision of the Hon'ble Jurisdictional High Court, the appeal of the assessee should be allowed.
7. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the present appeal for assessment year 2001-02 before us, the undisputed facts are that the total export turnover of the assessee in the year was ` 74,57,18,839/- which was 99.68 percent of the total turnover and the domestic sales of scrap was ` 23,76,390/- which was 0.32 percent of the total turnover and the income from the business of the assessee was ` 8,60,20,343/-. Thus, the domestic turnover of :- 4 -: I.T.A.No.1776 and 1896/07 the sales of the assessee in the year under consideration did not exceed 25 percent of the total sales and it is not in dispute that the domestic turnover was less than 25 percent of the total sales of the assessee and therefore, the conditions of the second proviso to sub- section (1) of section 10B are fully satisfied in the present year of appeal. Therefore, respectfully following the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs Savvy Systems (India) Ltd (supra), we hold that the assessee was entitled to deduction of the entire income of ` 8,60,20,343/- as deduction u/s 10B of the Act. Thus, the grounds of appeal of the assessee are allowed in assessment year 2001-02.
8. In assessment year 2002-03, it is observed that the scrap sale of the assessee was ` 21,91,984/-. The assessee has claimed deduction u/s 10B of the Act on ` 21,91,984/- also. The Assessing Officer has disallowed the deduction u/s 10B of the Act on the ground that the sale of scrap was made in India and the sale proceeds of scrap were not realized in convertible foreign exchange by the assessee. The Assessing Officer, therefore, held that it was income from other sources while computing the total income of the assessee and disallowed deduction u/s 10B of the Act on scrap sales.
9. On appeal, the CIT(A) confirmed the action of the Assessing Officer.
:- 5 -: I.T.A.No.1776 and 1896/07 10. The A.R of the assessee argued that this scrap was
generated during the manufacture of textile machinery, therefore, the sale of scrap was part of the trading receipts of the assessee. He submitted that the sale of scrap cannot be equated as income from other sources of the assessee. It was his submission that after omission of the second proviso to sub-section (1) of section 10B of the Act from assessment year 2002-03 and onwards, the assessee will get deduction for export sales on proportionate basis. He submitted that the scrap sales would form part of the total turnover of the assessee in the formula for computing the eligible deduction u/s 10B of the Act. He submitted that the sale proceeds of scrap cannot be reduced from the eligible profits of the business of the assessee.
11. The DR , on the other hand, supported the orders of the lower authorities.
12. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that the assessee realized scrap sales of ` 21,91,984/- during the year under consideration and included the same in the total turnover of the assessee for working out deduction u/s 10B of the Act. The Assessing Officer reduced the receipt from scrap sales of ` 21,91,984/- from the business profits of the assessee and treated it as income from other sources of the assessee while :- 6 -: I.T.A.No.1776 and 1896/07 computing the income of the assessee. The same was confirmed in appeal by the CIT(A).
13. We find that it is not the case of the Revenue that the scrap was not generated during the manufacturing of textile machinery by the assessee. Thus, the sale of scrap is part and parcel of the business receipt of the assessee. That being so, it has to be included in the total turnover of the assessee and cannot be reduced from the business profits of the assessee while computing the deduction u/s 10B of the Act. We, therefore, set aside the orders of the lower authorities and direct the Assessing Officer to recompute the deduction u/s 10B of the Act after including the sale proceeds of scrap in the total turnover of the assessee and including the same in the business income of the assessee. Therefore, Ground Nos.2 to 5 of the appeal of the assessee for assessment year 2002-03 are allowed.
14. Ground No.1 of the appeal relates to sustaining the proceedings u/s 147 of the Act by the CIT(A).
15. At the time of hearing, no arguments were made by the A.R of the assessee on this ground of appeal, hence, the same is dismissed for want of prosecution.
16. Ground No.6 of the appeal is general in nature, hence, requires no separate adjudication by us.
:- 7 -: I.T.A.No.1776 and 1896/07
17. In the result, appeal of the assessee for assessment year 2001-02 is allowed and that of assessment year 2002-03 is partly allowed.
Order pronounced on Tuesday, the 31st of July, 2012, at Chennai.
Sd/- Sd/-
(SATBEER SINGH GODARA) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 31st July, 2012
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR