Income Tax Appellate Tribunal - Ahmedabad
Kiri Dyes & Chemicals (P) Ltd.,, ... vs Department Of Income Tax on 6 February, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD
(BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. Nos.814 & 1035 /AHD/2010
(Assessment Year:2003-04)
M/s Kiri Dyes & Chemicals V/S The Income Tax Officer,
Ltd., 53- Manekbaug Ward (1), Ahmedabad
Society, Lane No. 7, Gate
No. 3, Nehrunagar,
Ahmedabad
(Appellant) (Respondent)
The Income Tax Officer, V/S M/s Kiri Dyes & Chemicals
Ward (1), Ahmedabad Ltd., 53- Manekbaug Society,
Lane No. 7, Gate No. 3,
Nehrunagar, Ahmedabad
(Appellant) (Respondent)
PAN: AAACK 9025 C
Appellant by : Shri S.N. Soparkar A.R.
Respondent by : Shri Vimalendu Verma CIT,D.R.
आदे श)/ORDER
(आदे Date of hearing : 06-02-2014 Date of Pronouncement : 07 -03-2014 PER SHRI ANIL CHATURVEDI,A.M.
1. These two appeals, one filed by the Revenue and the other filed by the Assessee, are against the order of CIT(A)-VIII, Ahmedabad dated 30.11.2009 for A.Y. 2003-04.
2. The relevant facts as culled out from the material on record are as under.
2 ITA Nos 814 & 1035/AHD/2010
. A.Y. 2003-04
3. Assessee is a company engaged in the business of manufacturing of Dyes & Dyes Intermediates. It filed its return of income for A.Y. 03-04 on 29.11.2003 declaring total income of Rs. 90,31,849/- after claiming deduction under section 80HHC and 80IB. Subsequently, the Assessee filed revised return of income on 31.03.2005 declaring total income of Rs. 29,18,932/- wherein the Assessee claimed deduction under section 10B instead of deductions under 80HHC and 80IB of the Act claimed in the original return. The assessment on the basis of revised return was completed under section 143(3) vide order dated 30.03.2006 and the total income was determined at RS. 4,16,41,813/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) vide order dated 15.12.2006 partly allowed the Assessee's appeal. Against the order of CIT(A), Department filed second appeal before Hon'ble Tribunal. Tribunal vide order in ITA No. 16/AHD/2007 dated 1.03.2007 set aside the issue to the file of A.O. with a direction to work out profit u/s. 10B of the Act from 1.11.2002. Against the order of Tribunal, Department filed reference before Hon'ble Gujarat High Court interalia disputing the direction of ITAT to A.O. to work out the profits from 1.11.2002 and to grant appropriate relief. Hon'ble Gujarat High Court vide order dated 23.07.2008 in Tax Appeal No. 312/AHD/2008 held that since the matter was remitted to A.O. by ITAT, the appeal of Revenue was not admitted but however the A.O. was directed to consider the entire issue afresh. Pursuant to the direction of High Court, order was passed by A.O. under section 143(3) r.w.s. 254/260B of the Act vide order dated 15.12.2008 and the total income was determined at Rs. 4,16,41,810/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) vide order dated 30.11.2009 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), Revenue as well as Assessee are now in appeal before us. The effective grounds raised by Revenue reads as under:-
1. The Ld.CIT(A) has erred in law and on facts in holding that the assessee is entitled to deduction u/s. 10B of the Act.
1.1 The Ld.CIT(A) has erred in law and on facts in not appreciating the fact that the assessee has not fulfilled the conditions eligible for deduction u/s. 10B of the Act.
Therefore, the Assessing Officer was right in holding that the assessee is not entitled to deduction u/s. 10B of the Act.
1.2 The Ld. CIT(A) has further erred in law and on facts in not appreciating the fact that the assessee has no positive income for the year under appeal as the receipts shown by the assessee consists of DEPB, Duty Draw Back, DEPB difference, excise duty refund and interest.
.
3 ITA Nos 814 & 1035/AHD/2010
. A.Y. 2003-04
4. On the other hand, the effective grounds raised by the Assessee reads as under:-
1. The ld. CIT(A) has erred in law and on the facts of the case in directing the ld.
A.O. to reduce other receipts of Rs. 6,08,75,051/- out of eligible income for deduction u/s. 10B of the Act.
2. The ld. CIT(A) has erred in law and on the facts of the case in directing the ld. A.O. to reduce other receipts of Rs.. 5,55,31,132/- out of eligible income for deduction u/s 80IB of the Act in respect of Unit 1.
3. The ld. CIT(A) has erred in law and on the facts of the case in directing the ld. A.O. to allow the deduction u/s. 80HHC of the Act up to the period 01/11/2002 and not for the entire year under consideration.
5. Since the grounds raised by the Assessee and Revenue are interconnected and are with respect to deduction u/s. 10B all grounds are disposed of together.
6. During the course of assessment proceedings, A.O. noticed that Assessee had disclosed income from export incentives like DEPB, Duty Draw Back, DPEB Difference, Excise Duty Refund and Interest and the same were considered as income derived from 100% Export Oriented Undertaking by Assessee and accordingly deduction u/s. 10B of the Act was claimed on it. A.O. was of the opinion that in view of the decision of Hon'ble Supreme Court in the case of Sterling Food 237 ITR 579 and Pandian Chemicals 262 ITR 78, Export incentives, interest, Excise Duty Refund etc. cannot be considered as income derived by 100% Export Oriented Undertaking from the export of article or things and therefore Assessee was not eligible for deduction under section 10B of the Act. He also noted that if the receipts such as DEPB, Duty Draw Back, DEPB difference, excise duty refund and interest is taken out from the income, the income of the Assessee would be negative and hence the Assessee was not entitled for deduction under section 10B of the Act. Apart from the aforesaid, he was also of the view that Assessee was not entitled to deduction under 10B for the reason that the certificate claiming deduction under 10B was submitted by the Assessee along with the revised return and it was defective since the certificate was with reference to A.Y. 04-05. Further as per the revised certificate submitted by the Assessee, the export consideration amounting to Rs. 4.84 crore was unrealized as on 31.03.2003. He also noticed that Assessee had received certificate of 100% Export Oriented Unit (EOU) only on 01.11.2002 and thus the Assessee was not holding status of 100% EOU for the whole year. He accordingly denied the claim of deduction under section 10B of Rs. 3,78,28,641/-
4 ITA Nos 814 & 1035/AHD/2010
. A.Y. 2003-04
which was claimed by the Assessee. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) after considering he submissions allowed the appeal of the Assessee. The relevant portion from the order of CIT(A) are as under:-
4.19 The aforesaid would show that Hon'ble Gujarat High Court and the Hon'ble ITAT have upheld that the appellant is eligible to claim deduction u/s 10B of the Act.
In these circumstances, the only issue which was left open for the A.O. to be decided afresh was regarding quantification of deduction u/s 10B of the Act. I find that the A.O. has wrongly devoted his energy in deciding the eligibility of the appellant rather than quantifying the claim for deduction u/s 10B of the Act. The AO has pointed out that the appellant did not file the necessary certificate issued by the chartered Accountant in Form No. 56G. However, I find that the relevant certificate from the chartered accountant in Form No. 56G was filed during the proceedings carried out by the A.O in pursuance of the directions of the Hon'ble High court. It is correct that the certificate has been filed in the second round of litigation and the same was admittedly not filed alongwith the return of income. However, I find considerable force in the argument of the Id A. R that auditors certificate is a directory requirement, and same can be fulfilled even during the course of assessment or appellate proceedings. In this regard reliance is placed on the decision of Hon'ble Gujarat High court in the case of Zenith Processing Mills 219 ITR 721 and also in the case of Gujarat Oil and Allied Industries 201 ITR 325 wherein the Court has held that audit is a mandatory requirement however furnishing of proof of such audit is a directory requirement.
4.20 It is clear from the facts of the case that the appellant was granted 100% EOU status with effect from 1.11.2002, therefore, its claim for such deduction would be available from that period only. Therefore, the A.O. is directed to allow deduction to the appellant u/s 10B on the eligible profits worked out for the period 1.11.2002 to 31.03.2003.
4.21 As regards appellants claim that its other income namely DEPB, duty drawback, excise duty refund, bank interest etc. which has been mentioned in the table in para 4.7 above, shall be included in the income eligible for deduction u/s 10B, it is pointed out same is not admissible in view of Hon'ble Supreme courts decision in the case of Liberty India vs. CIT 317 ITR 218. ......................... 4.22 Though the judgment has been rendered by the apex court in respect of the eligibility of deduction u/s 80I, 80IA and 80IB of the Act on the incomes like DEPB, Duty drawback etc. yet, it is equally applicable for the deduction u/s 10B of the Act. The language of section 10B is pari materia to the language of sec. 80IA and 80IB. Section 10B of the Act provides that subject to the provisions of this section a deduction of such profit and gains as are derived by a 100% Export Oriented Undertaking from the export of articles or things or computer software for a period of 10 consecutive assessment years....... Further, in order to explain various provisions of the section a parallel has been drawn with the provisions of sec. 80I and 80IA in the section itself. Therefore, it can safely be held that the provisions of sec. 10B even from the procedural point of view are parallel to the provisions of section 80IA of the Act.
4.23 It may be pointed out that all the controversies with regard to eligibility of other incomes namely DEPB, interest, excise duty refund etc for deduction u/s 80IA and 80IB and similarly placed sections of the Act after the decision of Hon'ble Supreme court in the case of Liberty India (supra). The Hon'ble Apex court has held that only 5 ITA Nos 814 & 1035/AHD/2010 . A.Y. 2003-04 profit derived from the eligible business is entitled for such deduction. It has been held that the connotations of the words "derived from" is narrower as compared to that of the words " attributable to". By using the expression "derived from" Parliament intended to cover sources not beyond the first degree. Hon'ble Apex court in the aforesaid judgment has further observed that.................. 4.24 The appellant has drawn two profit and loss account for the periods 1.04.2002 to 27.10.2002 and 28.10.2002 to 31.03.2003 for claiming deduction u/s 10B of the Act. This account has been filed as per page 70 of the paper book during the course of appellate proceedings. The appellant has bifurcated the other receipts of rs. 11,34,67,923/- namely DEPB etc. between two periods i.e. up to 27.10.2002 it is at 5,55,31,132/- and from 28.10.2002 to 31.03.2003 it is at Rs. 6,08,75,051/-. Therefore keeping in view the discussion above the amount of Rs. 6,08,75,051/- is required to be excluded from the income eligible for deduction u/s. 10B of the Act. The A.O. is therefore, directed to work out the deduction u/s 10B of the Act as per the discussion above accordingly.
4.25 So far as the ld. A.R's claim for deduction u/s 80IB in respect of the first unit for the period 1.04.2002 to 31.10.2002 I find that my ld. Predecessor in his order dated 15.12.2006 has given direction in this regard in para 8.2 of the order as under;-
" I have considered the above claim. From the facts stated above it is clear that appellant has made a claim in the original return for the deduction u/s 80IB for the first unit. Since deduction u/s 10B has been disallowed by the A.O., the A.O. should have examined the claim of deduction u/s. 80IB. On consideration of the fact of the case, I direct the A.O. to consider this claim of deduction u/s. 80IB in respect of first unit for which claim of deduction amounting to Rs. 1,14,13,650/- was made in the original return and allow the claim as per provisions of law."
4.26 Therefore, in view of the above, the A.O. is directed to work out the deduction u/s 80IB of the Act in respect of Unit-I accordingly. However, while doing so he will keep in mind the decision of Hon'ble Supreme Court in the case of Liberty India (supra) with regard to admissibility of deduction u/s 80IB of the Act on the other incomes as referred to above.
4.27 As regards appellant's claim for deduction u/s 80HHC of the Act it is seen that after the amendment in the section made through Taxation Laws (Amendment) Act, 2005 with retrospective effect 1.04.1992, the appellant is required to fulfill the conditions laid down in fourth proviso below sub-section(3) of the section as its export turnover is Rs. 10 crore during the relevant period. There is nothing on record to show that the appellant has fulfilled the conditions in the proviso as referred to above. Further, assessment order is also silent on this issue. Despite of the fact the directions were made by the Hon'ble High Court and the ITAT to examine the appellant's claim in this regard while making the assessment in pursuance of their directions. In view of this the A.O. is directed to work out the deduction u/s 80HHC if any for the period prior to 1.11.2002 for the eligible profits as per law accordingly.
7. Aggrieved by the order of CIT(A), the Revenue and Assessee are now in appeal before us. Assessee is aggrieved by the order of CIT(A) in directing in excluding the other income from eligible for deduction u/s. 10B and on the other hand Revenue is aggrieved by the order of CIT(A) wherein he has held that Assessee is entitled to deduction u/s. 10B. Before us, the ld. D.R. took us to the finding of A.O. and strongly supported his order. The ld. A.R. on the other hand submitted that Assessee had 6 ITA Nos 814 & 1035/AHD/2010 . A.Y. 2003-04 claimed deduction under 10B in the revised return of income as it was registered as 100% EOU on 1.11.2002 during the year relevant to A.Y. 03-04 and therefore the profits for the entire year was split into two periods i.e. up to 31st October 2002 and from 1st Nov., 2002 to 31st March, 2003 and had claimed the profits for the period between 01.11.2002 to 31st March, 2003 as deduction under section 10B of the Act. He further submitted that CBDT Circular No. 1/05 dated 06.01.2005 has also clarified that in cases where the unit that was set up Domestic Tariff Area and were subsequently approved as 100% EOU, the year of approval of the deduction u/s. 10B shall be restricted to the profit derived from export, from and after the date of approval of the DTA Unit as 100% (EOU).
8. The ld. A.R. then pointed out to the details of other income is as under and were also placed at page 90 of the paper book.
Particulars Up to From Total Basis of
27/10/2002 28/10/02 to Allocation
31/03/03
DEPB Income 17697405 24194222 41891627 Actual
Duty draw back income 469174 557529 1026703 Actual
Excise duty refunds (M) 34421602 31558576 65980178 Actual
Excise duty refunds (T) 877852 969840 1847692 Actual
Bank Interest 490137 522547 1012684 Actual
Exchange Rate Difference 384492 38394 422886 Actual
DEPB difference 251815 180270 432085 Sales
Vatav kasar 95947 79693 175640 Actual
Discount income 126532 1050423 1176955 Actual
Duty draw back difference 303 303 Actual
Interest income-AEC 6222 4454 10676 Sales
Excise duty income -Machine 157348 112643 269991 Sales
Claim income 26325 26325 Actual
Quality difference income 58279 41721 100000 Sales
Rate difference 457451 1557403 2014854 Actual
Rent & Interest (Excise duty 175 125 300 Sales
PLA)
Sales tax set-off income 10073 7211 17284 Sales
Total 55531132 60875051 116406183
7 ITA Nos 814 & 1035/AHD/2010
. A.Y. 2003-04
9. From the aforesaid table, he fairly conceded that income from DPEB Duty Draw Back, DEPB rate difference and duty draw back difference would not be eligible for deduction under 10B in view of the decision of Hon'ble Apex Court in the case of Liberty India vs. CIT 317 ITR 218 (SC).
10. With respect to Excise Duty Refunds and Excise duty income machine, he submitted that the issue is covered in favour of Assessee by the decision of Hon'ble Delhi High Court in the case of CIT vs. Dharam Pal Premchand Ltd. (2009) 317 ITR 353 (Del) and the decision of Ahmedabad Tribunal in the case of ITO vs. Electro Ferro Alloys Ltd. (2012) 25 Taxman.com 458 (Ahd.) Tribunal .
11. With respect to bank interest and interest income, he submitted that the Assessee be allowed the netting of income and for which he placed reliance on the decision in the case of CIT vs. Nirma Ltd. Tax Appeal No. 810/A/2013 order dated 27.01.2014.
12. With respect to exchange rate difference, he submitted that since exchange difference was part of the sale price, the same should be considered as income eligible for deduction under section 10B and for which he placed reliance on the decision in the case of CIT vs. Rachna Udyog (2010) 230 CTR 72 (Bom). With respect to income from Vatav Kasar, discount income, quality difference income and rate difference, he submitted that it was part of sales and therefore eligible for deduction u/s. 10B.
13. With respect to claim income and sales tax set off, he submitted that it was part of sales and therefore eligible for deduction. The ld. D.R. on the other hand supported the order of A.O. and further submitted that the allocation of income into two periods has not been examined for the purpose of allowing the deduction.
14. We have heard the rival submissions and perused the material on record. The factual matrix of the case is that the Assessee's claim for deduction u/s 10B of the Act was rejected by the A.O. in the original assessment order whereupon in appeal before Tribunal, the co-ordinate Bench of Tribunal vide order dated 01.03.2007 had noted that there was no dispute about grant of 100% EOU status to Assessee with 8 ITA Nos 814 & 1035/AHD/2010 . A.Y. 2003-04 effect from 1/11/2002 and the issue was restored back to the file of A.O. to work out appropriate profit from 1/11/2002 and grant appropriate relief. Against the order of Tribunal, Revenue preferred appeal before Hon'ble High Court. Hon'ble H.C. vide order dated 23.07.2008 did not admit the appeal of Revenue meaning thereby that it upheld that Assessee is eligible to claim deduction u/s. 10B. CIT(A) in his order has given a finding that Assessee was granted 100% EOU status with effect from 1.11.2002. CBDT vide Circular No. 1/2005 had clarified that an undertaking set up in Domestic Tariff and which derives profit from export of articles or things or computer software manufactured or produced by it shall be eligible for deduction u/s. 10B of the Act on getting approval as 100% EOU and in the year of approval the deduction shall be restricted to the profits derived from exports from and after the date of approval of the DTA unit as 100% EOU. CIT(A) has also given a finding that Assessee was granted 100% EOU status with effect from 1/11/2002 and its claim for deduction u/s. 10B would be eligible for the period 1/11/2002 to 31/03/2003. The aforesaid finding of CIT(A) has not been controverted by Revenue by bringing any contrary material on record. With respect to various income on which Assessee has claimed deduction, we find that Assessee has submitted the details of other income which is also reproduced hereinabove. The ld. A.R. has submitted tht the issue with respect to income from DEPB Duty Draw Back, DEPB Duty Draw Back difference are covered against the Assessee in view of the decision of Apex Court in the case of Liberty India (supra). Thus the Assessee would not be eligible for deduction under section 10B on the aforesaid items.
15. With respect to other incomes other than those covered against the Assessee, it is submitted that the same are covered in favour of Assessee by the various decisions cited hereinabove. From the table it is seen that Assessee has bifurcated the income into 2 periods up to the period of granting of EOU status and subsequent to it. We are of the view that these factual aspect needs verification at the end of A.O. We therefore remit the issue to the file of A.O. for fresh examination of the claim of Assessee , the bifurcation of income into 2 periods in the light of the decisions cited by Assessee and thereafter decide the issue as per law and after giving a reasonable opportunity of hearing to the Assessee. The Assessee shall be at liberty to furnish additional evidence before A.O. Thus this ground is allowed for statistical purposes.
9 ITA Nos 814 & 1035/AHD/2010
. A.Y. 2003-04
16. In the result, the appeal of the Assessee and Revenue are allowed for statistical purposes.
Order pronounced in Open Court on 07 - 03 - 2014.
Sd/- Sd/-
(D.K. TYAGI) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad