Income Tax Appellate Tribunal - Ahmedabad
Sonic Technology (India) Inc. , ... vs Income Tax Officer,Ward-4,, ... on 17 November, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'डी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH, AHMEDABAD
सव ी आर.पी.तोलानी, या यक सद य एवं द प कुमार के डया, लेखा सद य के सम!।
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
And SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
1. आयकर अपील सं./I.T.A. No.1150/Ahd/2013
2. आयकर अपील सं./I.T.A. No.1444/Ahd/2013
( नधा रण वष / Assessment Year : 2008-09)
1. Sonic Technology (India) Inc. बनाम/ 1. The Income Tax
Plot No.C-9, Vs. Officer
GIDC Electronic Estate Ward-4
Sector 25 Gandhinagar
Gandhinagar - 382 025
2. The Income Tax Officer 2. Sonic Technology
Ward-4 (India) Inc.
Gandhinagar Gandhinagar
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AARFS 3913 K
(अपीलाथ( /Appellants) .. ( )यथ( / Respondents)
Assessee by : Shri Sanjay R. Shah, AR
Revenue by : Shri Samir Vakil, Sr.DR
ु वाई क+ तार ख /
सन Date of Hearing 28/10/2016
घोषणा क+ तार ख /Date of Pronounce ment 17/11/2016
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM:
These cross-appeals by the Assessee and the Revenue are directed against the order of the Commissioner of Income-tax (Appeals), ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -2- Gandhinagar [CIT(A) in short] dated 14/02/2013 passed for Assessment Year (AY)2008-09.
2. Briefly stated, the relevant facts are that the assessee-firm is a 100% Export Oriented Unit (EOU) and engaged in carrying on business of manufacturing and selling of printed circuit boards. During the assessment year in appeal, the assessee has claimed exemption u/s.10B of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). It was noticed by the Assessing Officer (AO) that while claiming exemption available u/s.10B of the Act on business income derived from the 100% EOU, the assessee has also simultaneously claimed exemption u/s.10B of the Act on following other items of income allegedly not in the nature of business income and/or not derived from the business of Exports, namely:
• Interest [including tax deducted at source Rs.34,985/- previous year Rs.42,228/- Rs. 7,17,270/-
• Insurance refund Rs.28,87,424/-
• Sales Tax Refund Rs. 91,150/-
• Sale of Scrap Rs.16,88,437/-
• Sundry balance written off Rs.30,72,912/-
2.1. The AO discrded the claim of deduction under S.10B of the Act on the various items of income noted above, The relevant paras of the order of the AO dealing with the various items is reproduced hereunder for ready reference:ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)
Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -3-
"3. Interest Income:
On verification of P&L A/c of the assessee, it was observed that the assessee had shown interest income of Rs.7,17,20/-. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show caused to explain as to why interest income shown by the assessee should not e treated as income from other sources.
3.1. The assessee vide letter dtd. 21/11/2011 filed the written submission stated as under:
"Interest income of Rs.7,17,270/- is derived from the Deposit kept with bank out of surplus funds generated from the undertaking and therefore this is derived from the undertaking. At this stage, we would like to state that the assessee does not have any other undertaking and therefore all the surplus funds have been generated from EOU only.
We Systems & Software Ltd. V. Assistant Commissioner of Income Tax, Range 8(1) SOT 230 (BOM) wherein the Tribunal while allowing deduction u/s.10B in respect of interest income observed as under:
"As regards the claim of deduction under section 10B on interest income, in the light of the fact that we have held that the assessee is entitled to relief under section 10B on interest income in the light of the fact that we have held that that the assessee is naturally entitled for relief under section 10B of the Act in respect of the interest income also, which is admittedly a part of business income".
Hence, in view of the above as also the fact that the assessee has only one business unit, being the EOU unit subjected to benefit u/s.10B of the Act, it is submitted that such income is derived from business of the undertaking and therefore it cannot be excluded from computation f deduction for the purpose of section 10B."
3.2. The interest is not the business profits. The interest earned on surplus funds is income from other sources. It is neither derived from industrial undertaking nor even profits and gains of ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -4- business. CIT vs. Menon Impex (P) Ltd. reported at 259 ITR 403 (MAD); Sham Tabrej Vanti, In RE reported at (2005) 273 ITR 299 (AAR); India Commet International Vs. ITO reported at (2008) 304 ITR 322 are relied upon and it is held that no deduction u/s.10B is allowable on this interest income. The reply of the assessee is found to be not acceptable. The same is disallowed and added to the income of the assessee.
4. Insurance Refund:
On verification of P&L A/c of the assessee, it was observed that the assessee had shown Insurance Refund of Rs.28,87,424/-. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show caused to explain as to why Insurance Refund shown by the assessee should not be treated as income from other sources.
4.1. The assessee vide letter dtd. 21/11/20911 filed the written submission stated as under:
"Fire took place at the premise of the firm in October-2007 which resulted in damage of about Rs.80 lacs however finely the insurance claim amount received from the insurance company was Rs.8,87,424/- in this regard. The details and the documents in this regard were submitted before your good self vide submission dated 23rd August 2011.
The refund is received by the assessee in the due course of business. Hence the said income gets within the ambit of profit of business of undertaking and there is no reason as to why such items should not be considered for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s.10IB is what forms part of the "profits of the business of undertaking" u/s.10B(4) r.w.s. 10B(1) of the Act. In view of above said submission, we most respectfully submit that all such items are to be considered while computing deduction u/s.10B. Accordingly, the deduction claimed by ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -5- the assessee is correct and no disallowance is required to be made in this regard."
4.2. The assessee's reply was carefully considered and found not to be acceptable as the Insurance Refund is not the profit of the business income. Further, the Section 10B deduction is only related to the profit of the business derived by hundred percent export oriented undertaking from the export of the articles or things, or computer software for the 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 as the case may be from the above definition it is very clear that that it should be related to the profits and gains derived from the 100% export oriented. The reliance is also placed in Liberty India Pvt.Ltd. Therefore, the claim of deduction of insurance refund of Rs.28,87,424/- u/s.10B is disallowed and added back to the returned income.
5. Sales Tax Refund:
On verification of profit and loss account, it was seen that the assessee has shown sales tax refund as amounting to Rs.91,150/- as income from other sources and the same has been claimed as deduction u/s.10B of the Act.
5.1 The assessee vide letter dtd. 21/11/2011 filed the written submission sated as under:
"During the year under consideration, assessee received amount of Rs.91,150/- on account of refund of sales tax. The said amount pertains to F.Y. 2004-05 & F.Y. 2003-04 under Gujarat Sales Tax Act, 1969. The said Sales Tax Refund Rs.91,150/- is derived from the sales tax expenditure which is paid in the due course of the assessee's business and generated from this undertaking only. Details in this ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -6- regard were duly submitted vide assessment submission letter dated 23rd August 2011. There is no reason why such items should not be considered for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s.10B is what forms part of the "profits of the business of the undertaking"
u/s.10B(4) r.w.s.10B(1) of the Act."
5.2. The assessee's reply was carefully considered and found not to be acceptable. Sale Tax Refund is not a case of excess deposits of tax which is refunded. The decision of Honourable Supreme Court in the case of Liberty India (supra) is squarely applicable on facts. In Section 10B(4) also, the words "of the under taking"
were inserted w.e.f. 01/04/2001 to restrict the benefits for the profits on the under taking only and not to profits of the business of the assessee. The benefits available to the assessee which are attributable to its business are not profits derived from exports of the assessee's industrial undertaking. As the Section 10B deduction is only related to the profit of the business derived by hundred percent export oriented undertaking from the export of the articles or things, or computer software for the period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking beings to manufacture or produce articles or things as the case may be. From the above definition it is very clear that that it should be related to the profits and gains derived from the 100% export oriented, while the sales tax refund is not the profit which is derived from the export oriented. The claim of deduction of sales tax refund u/s.10B is disallowed and added back to the income.
6 Sundry Balance written off:
On verification of profit and loss account, it was seen that the assessee has shown sundry balance written off amounting to Rs.30,72,912/- as income from other sources and the same has ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -7- been claimed as deduction u/s.10B of the Act. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show cause to explain as to why sundry balance written off shown by the assessee should not be treated as income from other sources.
6.1. The assessee vide letter dtd. 21/11/2011 filed the written submission stated as under:
"During the year under consideration raw materials were purchased from one of the suppliers (Macdermind Singapore Pte Ltd.). However, due to the fact that the goods were note up to the expected level of quality, the assessee asked the supplier to reduce the prices. After negotiation, the supplier agreed to waive a part amounting to Rs.30,72,912/- of the purchase price and the same was credited to profit & loss account, Such amount to be paid towards the supply of the said material which was written off actually depicts reduction in the purchase coast for the firm and therefore it is not an income for the firm but only reduction in material cost. As already described above, such balance written back is nothing but reduction in the cost incurred in the past towards purchase of raw materials. In any case while calculating amount eligible for deduction u/s.10B the actual costs incurred by the assessee have to be considered and this amount of Rs.3072,912/- is nothing but reduction in that cost incurred by the assessee towards purchase of raw material which is nothing but a pure business transaction carried out by the assessee. These balances are written off in the normal course of business and should be constructed as profit of business of the undertaking. Hence the question of excluding the same for calculating exemption u/s.10B should not arise."
6.2. The assessee's reply was carefully considered and found not to be acceptable. In no case, such writing off can be income derived from the eligible business. Actually these are deemed profits because of cessation of liability. The same is disallowed and added to the income of the assessee.
ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -8-
7. Scrap Realization:
On verification of the P&L A/c, it was observed that the assessee has claimed scrap income amounting to Rs.16,88,437/- exempted u/s.10B. As per Section 10B a deduction of such profit and gain derived by 100% export oriented undertaking from the export of article of things of computer software for a period f ten consecutive assessment year beginning with the assessment year relevant to previous year in which 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. This section applies to the undertaking if the sale proceeds of articles or things or computer software export outside India are received in or brought into India by the assessee in the convertible foreign exchange within the period of six months from the end of the previous year or as the competent authority is allowed. Therefore, vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show caused to explain as to why Scrap Realization shown by the assessee should not be treated as income from other sources."
2.2 Accordingly, the AO held that income credited by the Assessee towards (i) scrap sale, (ii) sundry balance written off, (iii) Insurance refund, (iv) Sales Tax Refund and (v) Interest income are not eligible for the purposes of deduction under S.10b of the Act. The AO also observed that what is eligible for deduction under S.10B of the Act is Profit and Gains 'derived' by a 100% EOU from the export of articles or things, etc. and not every income which may be attributable to its business but not derived by an undertaking from exports of articles or things, etc. The AO ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09 -9- thus declined to accept the claim of the assessee in the aforesaid items towards deduction under S.10B of the Act.
3. Aggrieved by the order of the AO, assessee preferred an appeal before the CIT(A).
4. The CIT(A) examined the various issues raised but did not find merit in the claim of the assessee towards deduction under S.10B of the Act on various miscellaneous income as noted above. However, he granted relief towards income from sale of scrap Rs.16,88,437/- and partial relief towards compensation/insurance refund to the extent of 75% of the insurance receipt. The CIT(A) thus accordingly rejected the claim of exemption u/s.10B of the Act towards interest income of Rs.7,17,270/-, sales tax refund of Rs.91,00,150/-, sundry balance written off of Rs.30,72,912/- and 25% of the insurance claim amounting to Rs.7,21,856/-.
5. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal.
6. The various grounds raised in assessee's appeal in ITA No.1150/Ahd/2013 for AY 2008-09 read as under:-ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)
Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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Your Appellant being dissatisfied with the order passed by the Learned Commissioner of Income Tax (Appeals)-Gandhinagar [CIT(A)], presents this appeal against the same on the following amongst other ground appeal which are without prejudice to each other.
1. The order passed by the Learned CIT(A) is erroneous and requires to be suitable modified.
2. The learned CIT(A) has erred in rejecting Appellant's contention that the term "derived by" as prescribed u/s.10B(1) of the Act is defined u/s.10B(4) of the Act to mean "profit of the business of the undertaking"
2.1 Learned CIT(A) has erred in relying upon the decisions rendered by the judiciaries u/s.80I/80IB instead of decisions rendered u/s.80HHC whereas provisions of Section 10B is in pari material with provisions of Section 80HHC.
3. Learned CIT(A) has erred in holding against the Appellant solely relying upon the decision in case of Banyan Chemicals Ltd. 121 TTJ 751 (Ahd.) whereas the said decision does not deal with the issue under consideration.
3.1 .Learned CIT(A) has erred in solely relying on the said decision which does not deal with the Appellant's plea that the term "derived by" as prescribed u/s.10B(1) of the Act is defined u/s.10B(4) of the Act to mean "profit of the business of the undertaking".
4. The learned CIT(A) has erred in law and on facts in not considering Interest of Rs.7,17,270, received on deposits kept with banks out of surplus funds generated from the EOU (the only unit of the Appellant), as part of profits & gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s.10B of the Act.
4.1.Without prejudice to above, it is submitted that the Learned CIT(A) has erred in law and on facts in considering interest income as income from other sources under Chapter-IVF of the Act in place of income from business or profession under Chapter-IVD of the Act.
5. The learned CIT(A) has erred in law and on facts in not considering Sales Tax Refund (Rs.91,150) and Sundry balances written off (Rs.30,72,912) for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s.10B is ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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what forms part of the 'profits of business of the undertaking' u/s.10B(4) r.w.s.10B(1) of the Act.
5.1 The learned CIT(A) as erred in stating that sundry balances written- back (in relation to raw material purchased in the past) are not related to expenses of manufacturing despite the fact that Appellant's undertaking, eligible for deduction u/s.10B, is the only business undertaking it has through which the business is carried out on by it.
6. The learned CIT(A) has erred in not allowing deduction u/s.10B of the Act in respect to 25% (Rs.7,21,856) of the insurance claim received by the Appellant in respect of the loss incurred due to fire in its factory premises.
6.1.The learned CIT(A) has erred in considering 25% of the total claim received from Insurance company is capital loss, in respect of the loss suffered by the Appellant due to fire. The CIT(A) erred in not appreciating the fact that the entire loss (100%) incurred by the Appellant was towards loss of goods, consumables and certain labour (repairs) costs incurred due to fire.
7. Learned CIT(A) has erred in not allowing deduction u/s.10B in relation to Sales Tax Refund (Rs.9,150), Sundry balances written off (Rs.30,72,912) and 25% (Rs.7,21,856) of the insurance claim received despite considering these as business income.
7. Likewise, the AO is also aggrieved by the partial relief granted by CIT(A) and has preferred an appeal against the reliefs in its ITA No.1444/Ahd/2013 for AY 2008-09 by way of following grounds:-
1. The learned CIT(Appeals) has erred in law and on facts in allowing deduction u/s.10B of the Act, on Scrap income of Rs.16,88,437/- though the same was not derived from exports.
2. The learned CIT(Appeals) has erred in law and on facts in allowing deduction u/s.10B of the Act, towards insurance ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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Refund of Rs.21,65,568/- though the same is not income derived from Exports.
8. Before us, the Ld.AR for the Assessee Mr. Sanjay R. Shah, AR reiterated the submissions made before the AO and CIT(A) and submitted that the assessee is only engaged in the business of printed circuit boards and no other business activities are carried out by it except for the business of exports. All the income and expenses of the firm are on account of business carried out by the EOU alone. The Ld.AR further submitted that section 10B(1) provides that profits derived from exports of articles or things, etc. shall be eligible for deduction for the period of 10 consecutive years and the machinery for computation of deduction is provided by section 10B(4) of the Act. For the purpose of computation of deduction of profits and gains as derived by a 100% EOU from exports of articles or things, etc. section 10B(4) prescribes formula to determine the profits so derived from exports of articles or things, etc. The Ld.AR adverted our attention to section 10B(4) of the Act and submitted that deduction under S.10B is in proportion of the "profits of the business of the undertaking" to the "export turnover" compared to the "total turnover". The Ld.AR further submitted that section 10(4) does not state that profits should be derived from the business of the undertaking but merely states that the profits to be of the business of undertaking. He, thus, submitted that reliance placed by the AO on the ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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decision of Liberty India Pvt.Ltd. reported in 317 ITR 218(SC) is misplaced. The Ld.AR submitted that similar issues of disallowance of various claims towards various miscellaneous income for the purposes of section 10B arose in assessee's own case for AY 2007-08 where the appeal of the assessee was allowed. He therefore submitted that the CIT(A) was not justified in denying the relief claimed as per grounds of appeal and therefore order of the CIT(A) is to be set aside. The Ld.AR relied upon in its own case in ITA Nos.2665 & 2720/Ahd/2011, for AY 2007-08, order dated 01/01/2016 to support the grounds of appeal raised.
9. The Ld.DR for the Department Mr.Samir Vakil, on the other hand, supported Revenue's appeal. In support thereof, Ld.DR relied upon the order of the AO and challenged the order of the CIT(A) wherein certain reliefs were granted by him as per grounds of appeal raised by the AO.
10. We have carefully considered the rival submissions and orders of the authorities below and the case-laws cited. We find that the Coordinate Bench of the Tribunal has dealt with various grounds as per grounds of appeal and has decided the issues in favour of assessee. The relevant operative para of the order of the Coordinate Bench of the Tribunal in ITA No.2665 & 2720/Ahd/2011 relevant to AY 2007-08 in assessee's own case reads as under:-
ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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"10. We have heard the rival submissions and perused the material on record. The issue in the present case is about deduction u/s. 10B of the Act. It is an undisputed fact that Assessee is a 100% EOU and its only business is of export of printed circuit board. During the year under consideration, Assessee had received Government subsidy and earned income from interest, sale of scrap, sales tax refund which were held to be not eligible for deduction u/s. 10B of the Act by the A.O and for which A.O mainly relied on the decision of Hon'ble Apex Court in the case of Liberty India (supra) We find that before Hon'ble Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) one of the question for consideration was as to whether the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) r.w.s. 10B(4) of the Act. The Hon'ble Special Bench, after considering the decision of the Apex Court in the case of Liberty India (supra) held that provisions of Section 10B are different from the provisions of Section 80IA. The relevant portion of the decision reads as under:-
77...................It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives.
78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :-
Profit of the business of the Undertaking X ______________Export turnover________ Total turnover of business carried out by the undertaking
79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking.Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the business" eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the assessee's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit.
11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon'ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 & 239/2014 order dated 13.11.2014) wherein Hon'ble High Court dismissed the appeal of Revenue by holding as under:-
By way of these appeals, the Revenue has challenged the orders passed by Income Tax Appellate Tribunal (Tribunal, for short) dated 11th September, 2013 and 24th October, 2013 relating to assessment years 2008-09 and 2009- ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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10, respectively. Tribunal has followed the decision of their Special Bench in the case of Maral Overseas Ltd. versus Additional Commissioner of Income Tax decided on 20th March, 2012, in which it has been held:-
"78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :-
Profit of the business of the Undertaking X Export turnover Total turnover of business carried out by the undertaking
79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with- standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the ''profits of the business'' which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the ''profits of the business'' eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the asses see's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit.
80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B( 1) read with section 10B(4) of the Act."
The aforesaid view is in consonance with the decision of this Court dated 1st September, 2014 passed in ITA 438/2014, Commissioner of Income Tax-VII versus XLNC Fashions in which this court has held as under :-
"Deduction under Section 10B of the Income Tax Act, 1961 (Act, in short) is to be made as per the formula prescribed by Sub-Section (4), which reads as under:
"10B. Special provision in respect of newly established hundred per cent export- oriented undertakings-
...........
...........
(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking".
Sub-section (4), therefore, is the special provision which enables the assessee to compute the profits derived from the export of articles or things or computer software. We do not see any conflict between Sub- section (1) and Sub-section (4) to Section 10B, as Sub-section (1) states that deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or software would be eligible under the said Section. Sub- section (1) is a general provision and identifies the income which is exempt and has to be read in harmony with Sub-section (4) which is the formula for finding out or computing what is eligible for deduction under Sub-section (1). Neither of the two provisions should be made irrelevant and both have to be applied without negating the other. In other words, the manner of computing profits derived from exports under Sub- section (1), has to be determined as per the formula stipulated in Sub-Section (4), otherwise Sub-section (4) would become otise and irrelevant.
The issue in question in this appeal which pertains to the Assessment Year 2009-10, relates to duty draw back in the form of DEPB benefits. As per Section 28, clause (iii-c), any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded.
Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports.
In view of the aforesaid, we do not find any merit in the present appeal and the same is dismissed."
ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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Karnataka High Court in Commissioner of Income Tax, Central Circle versus Motorola India Electronics (P) Ltd., ITA No. 428/2007, decided on 11.12.2013, reported as [2014] 46 taxmann.com 167 (Karnataka) has also taken a similar view, wherein it has been held:-
"By Finance, Act, 2001, with effect from 01.04.2001, the present Sub- section (4) is substituted in the place of old Sub-section (4). No doubt Sub-section 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 Sub-section (4) explains what is says that profits derived from export of articles or things or computer software shall be the account which bares 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 view of the aforesaid position, the appeals have to be dismissed. We order accordingly.
12. We thus find that the decision of Special Bench of Tribunal in the case of Maral Overseas (supra) wherein the ratio that once on income forms part of the business of the income of the eligible undertaking of the Assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s. 10B of the Act, has been upheld by Hon'ble Delhi & Karnataka High Courts in the case of Hritnik Exports Pvt. Ltd. & Motorola India Electronics Pvt. Ltd.
13. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material on record to demonstrate ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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that Assessee was having any other business other than exports and the aforesaid income were derived out of that other business. In view of the aforesaid facts, we are of the view that Assessee is eligible for deduction on the profits from subsidy, interest income, sale of scrap, sales tax refund and sundry balances written off. We thus set aside the order of ld. CIT(A).
14. In the result, the appeal of Assessee is allowed and that of Revenue is dismissed."
11. At the outset, we are inclined to agree with the contentions put- forth on behalf of the assessee that the expression "profits of business of the undertaking" is wider than "profits and gains derived by an undertaking". The reasons are not far to seek. We note that sub-section 4 to S.10B explicitly explains the term "profit derived from export of articles or things etc." to mean the amount which bears to the "profit of the undertaking", the same proportion as the export turnover bears to the total turnover of the business carried on by the undertaking. Thus, what is required to be determined is whether the receipts of various other/miscellaneous income in question qualifies as "the profits of business of undertaking" and not whether it is "profit derived from the business". In other words, for determining the scope of section 10B(4), the reference to the expression "derived from" is not material.
Hence, drawing parallel with the findings of the Coordinate Bench of the Tribunal, we hold that the assessee is eligible for deduction ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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u/s.10B of the Act on miscellaneous items of income which are in the nature of "business income" attributable to exports of articles or things, etc. As a corollary, we find that receipts towards "sales tax refund" and amount of "sundry balance written off" are in the nature of business income in the earlier year and the Assessee is eligible for relief contemplated under S.10B(1) read with section 10B(4) of the Act. For the parity of reasoning, we direct the AO to admit the claim of the assessee towards sales tax refund and sundry balance written off for the purpose of computation of deduction under S.10B of the Act.
12. We however note that the relief claimed towards interest income on bank deposits amounting to Rs.7,17,270/- cannot be termed as "business income" at the first place as discernible from the letter dated 21/11/2011 of the Assessee extracted by the AO in para-3.1 of the assessment order. In its own averment of Assessee, the interest income were derived from the deposits kept with the Bank out of surplus funds generated from the Undertaking. The surplus fund so generated is, thus, undoubtedly unrelated to business activities of Export undertaking. We fail to comprehend as to how "interest income" earned on idle funds towards surplus money can be termed as "business income" of the assessee. In our view, having regard to the facts of the case as admitted by the assessee itself, the interest income on surplus money albeit generated from the export activity is incidental to surplus money and not a business ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue) Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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activity per se and therefore does not pass the test of business income. It is apparent that there is no direct or indirect relationship between the interest income and the business of the Undertaking. The interest income on Fixed Deposits derived from surplus money emanating from export activity cannot be said to be springing out of export business in any manner. It is the profits from business activities which can be termed as business income and not interest arising on deployment of such business income. Thus, for the purpose of computation of deduction of formula provided by section 10B(4) of the Act, the "interest income" cannot be included within the pale of "business profits" which is clearly in the nature of "income from other sources" in the instant case. Therefore, order of the CIT(A) to this extent cannot be said to be erroneous in the facts of the case. It would be pertinent to notice here that in the earlier AY 2007-08, the interest income has been accepted for the purpose of deduction u/s.10B of the Act purportedly on the premise that AO has mainly relied upon the decision of the Hon'ble Apex Court in the case of Liberty India (317 ITR 218) which was distinguished by the Tribunal on facts. As against this, in the assessment year in appeal, the AO has rejected the interest claim on the ground that the income arising from Bank deposits are in the nature of "income from other sources" and not business income with which we fully agree. Hence, we find no infirmity in the order of CIT(A) for denial of deduction under S.10B of the Act towards interest income.
ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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13. As regards insurance refund of Rs.28,87,424/- we note that CIT(A) has granted partial relief to the extent of 75% of the insurance claim received holding the same to be akin to business income and rejected balance 25% of the insurance claim so received towards capital loss. At the time of hearing, on being asked to advert to the factual details towards items, such as replenishment of loss, insurance policy, etc., Ld.AR submitted that these aspects are factual and may be verified by AO. Simultaneously, we note that the CIT(A) has also not provided definite basis for estimation of 75% of the insurance claim received to be towards reimbursement of loss in the profits of eligible Unit. Thus, relevant factual details are not available before us to appreciate the nature of receipt and determine the issue. Both assessee as well as Revenue are aggrieved by the action of the CIT(A). Relevant facts are necessary to understand as to whether the impugned "insurance receipts" are in the name of "business income" or not. Therefore, it would be in the fitness of things to restore the issue back to the file of AO for ascertaining the relevant facts and determine the issue afresh in accordance law. Needless to say that AO shall grant adequate opportunity of hearing to the assessee while determining the issue of eligibility of deduction on this score.
ITA No.1150/Ahd/2013 (By Assessee) & ITA No.1444/Ahd/2013 (By Revenue)Sonic Technology (India) Inc. vs. ITO Asst.Year - 2008-09
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14. In the result, appeal of both Assessee as well as Revenue are partly allowed.
This Order pronounced in Open Court on 17 /11/2016
Sd/- Sd/-
(आर.पी.तोलानी) ( द प कुमार के डया)
या यक सद य लेखा सद य
( R.P. TOLANI ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 17/ 11 /2016
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ( / The Appellant
2. )यथ( / The Respondent.
3. संबं4धत आयकर आयु6त / Concerned CIT
4. आयकर आयु6त(अपील) / The CIT(A)-Gandhinagar
5. 7वभागीय त न4ध, आयकर अपील य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स)या7पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 4.11.16 (dictation-pad 23-pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...4.11.16/8.11.16
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......17.11.16
7. Date on which the file goes to the Bench Clerk.....................17.11.16
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................