Income Tax Appellate Tribunal - Amritsar
Chand Engineering, Amritsar. vs Department Of Income Tax on 13 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. A.D. JAIN, JUDICIAL MEMBER
AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER
ITA No.477(Asr)/2014
Assessment Year:2010-11
PAN: AACFC6235D
Dy. Commr. of Income Tax, vs. M/s. Chand Engineering,
Circle-IV, Amritsar. Majitha Road Bye Pass,
Amritsar.
(Appellant) (Respondent)
Appellant by: Sh. Umesh Takkyar, DR
Respondent by: None
Date of hearing: 01/06/2016
Date of pronouncement: 13/06/2016
ORDER
PER A.D. JAIN, JM
This is the Department's appeal for the assessment year 2010-11, against the action of the ld. CIT(A) in deleting the addition of Rs.1,08,44,263/- on account of Deemed Duty Drawback receipts, Rs.2,50,274/- on account of refund of service tax and Rs,154,565/- on account of FBP interest by allowing exemption/deduction under section 10B(4) of the Income Tax Act ( In short, the 'Act'), 1961.
2. None appeared on behalf of the assessee, despite sending RPAD notice. However, finding that the matter could be proceeded with in the absence of the assessee, we have heard the ld. DR.
3. The ld. CIT(A) , while deleting the above additions, as observed as follows:
2 ITA No.477(Asr)/2014
A.Y. 2010-11 "6. I have gone through the assessment order, assesses submissions, and various case laws in this regard. By Finance Act, 2001, with effect from 01.04.2001, the present Subsection (4) is substituted in the place of old Subsection 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 Subsection (4) explains what is the profit derived from export of articles as mentioned in Subsection (1). The substituted Subsection (4) says that profits derived from exports of articles or things or computer software shall be the amount which bear 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 the instant case, the assessee is a 100% EOU, which has exported engineering goods and earned the income. A portion of that income is included in duty draw back account.
The assessee has received FBP interest of Rs.1,54,565/- and Service Tax Refund of Rs.2,50,274/-. The interest is received on account of access changes of interest by the bank previously which have been returned back by the bank now. Similarly Service Tax Refund was the expenses claim earlier and on account of making export, the assessee was entitled to refund of such service tax and as such reduces/ increases profit of the business in respective years.
Now the question is whether such duty draw back and the considerations received by the assessee is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view 3 ITA No.477(Asr)/2014 A.Y. 2010-11 of the definition of 'Income from Profit and Gains' incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under section 10B of the Act. Therefore, assessee is entitled to the benefit to the aforesaid amounts also. Similar issue has been decided by the special bench of the ITAT in the case of Maral Oversees Ltd. vs Additional CIT, Indore 136 ITD 177 (SB) which is applicable and identical to the facts of this case. A similar decision has been given by Hon'ble Karnataka High Court in ITA No. 428 of 2007 in the case of CIT vs. Motorola India Electronics Pvt. Ltd vide its order dated 11.12.2013. Hon'ble Rajasthan High Court has also given similar decisions on the issue of interest received by the assessee from sister concern against purchase of goods, eligible for exemption u/s 10B on the basis of fact that expression 'profit and gains' as used in section 2(24) is wider expression { CIT vs. Hycron India Ltd. 308 ITR 251 (RAJ)} and recent decision as quoted by the assessee on the issue of deduction u/s 10B are in favour of the assessee and in all cases it has been explained that the profit of the business of the under taking includes the 'profit and gains' from export of the articles as well as all other incidental income derive from the business of the under taking. In-fact, Hon'ble Karnataka High Court has considered all the decisions quoted by the AO namely Pandian Chemicals (262 ITR 278), Sterling Foods (237 ITR 579), cambay electrical supply (113 ITR 84) and CIT vs. Menon Impex (259 ITR 403). In view of above findings income earned by the assessee of Rs. 1,08,49,263/- as duty draw back, Rs. 2,50,274/- as Service Tax Refund and Rs. 1,54,565/- as FBP interest is not taxable and eligible for exemption/deduction u/s 10B (4) of the Income Tax Act."
4. The ld. DR contended that while wrongly deleting the addition made, the ld. DR has over-looked the fact that the assessee had negotiated purchase price with its suppliers and had claimed Duty Drawback which was available to its suppliers. Thus, the proximate source of the receipt was disclaimer of benefits given by the assessee and not the export activities per se. Thus, while the income may be attributable to the export oriented unit, it cannot be said that the same was derived from the unit even within the meaning of section 10B(4) of 4 ITA No.477(Asr)/2014 A.Y. 2010-11 the Act. Therefore, exemption of Deemed Duty Drawback received u/s 10B of the Act has been rightly denied to the assessee. Further, the ld. CIT(A) has earned in concluding that interest income and service tax refund is incidental to human activity to be covered u/s 10B(4), as these incomes cannot be called as derived from the export of articles or things manufactured by the assessee and therefore, the assessee cannot be allowed exemption 10B of the Act.
5. Having heard the ld. DR in the light of the material available on record, it is seen that as per amendment brought in by Finance Act, 2001, w.e.f. 01.04.2011, "profits derived from the export of articles 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. This is the mandate of section 10B(4) of the Act, as substituted by the Finance Act, 2001, w.e.f. 01.04.2001. It is this provision, which has been duly taken into consideration by the ld. CIT(A). Accordingly, as correctly observed, profits and gains derived from export of articles is different the income derived from the profits of the business of the undertaking. This position has not been disputed. 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. As such, the ld. CIT(A) cannot be faulted in holding that 5 ITA No.477(Asr)/2014 A.Y. 2010-11 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. Therefore, the assessee being a 100% export oriented unit, which exported engineering goods to earn the income, a portion of that income is included in the Duty Drawback account. Hence, the fact that there is a direct nexus between this income and the income of the business of the undertaking remains undisputed. It is also unchallenged that this is the income derived from the consideration realized by export of articles. Reliance by the ld. CIT(A), in this regard on the Special Bench decision of the Tribunal, in the case of 'Maral Overseas Ltd. vs. CIT', 136 ITD (SB) (Indore) and on the decision dated 11.12.2013, in the case of 'CIT vs. Motorola India Electronics Pvt. Ltd.' , rendered by the Hon'ble Karnataka High Court in ITA No.428 of 2007, has not been countered by the ld. DR by citing any decision to the contrary. Therefore, the deletion of the addition of Rs.1,08,44,263/- on account of deemed duty drawback receipts is confirmed.
6. Similar is the position with regard to FBP interest of Rs.1,54,565/- and service tax refund of Rs.2,50,274/-. The interest was received on account of excess charge of interest by the bank, which was returned later. The service tax refund constituted expenses claimed earlier, which were refunded. These amounts are also covered by the amended section 10B(4) of the Act and the ld. CIT(A) has correctly deleted these additions also.
6 ITA No.477(Asr)/2014
A.Y. 2010-11
7. Therefore, finding no error whatsoever in the order of the ld. CIT(A), the same is confirmed, rejecting the grievance sought to be raised by the Department.
8. In the result, the appeal of the Department is dismissed.
Order pronounced in the open court on 13/06/ 2016.
Sd/- Sd/-
(T.S. KAPOOR) (A.D. JAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
/SKR/
Dated: 13/06/2016
Copy of the order forwarded to:
1. The Assessee:M/s. Chand Engineering, Amritsar.
2. The DCIT, Circle-IV, Amritsar.
3. The CIT(A), Asr.
4. The CIT, Asr.
5. The SR DR, ITAT, Amritsar.
True copy By order Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.