2012 (4) TMI 623 - AT - Income Tax

Summary

Issues Involved:
1. Characterization of interest income for exemption u/s 10A.
2. Writing back of sundry balances for exemption u/s 10B.
3. Exclusion of delayed export proceeds for exemption u/s 10A.
4. Setoff of unabsorbed business loss and depreciation.
5. Inclusion of job work income for exemption u/s 10A.

Summary:

1. Characterization of Interest Income for Exemption u/s 10A:
The issue was whether interest earned on fixed deposits kept as margin money and on advances to employees should be considered as business income or income from other sources. The ITAT held that since the interest earned had a direct nexus with the business activities, it should be treated as business income. The AO was directed to include the interest income in the profits of the business and compute the exemption as per law.

2. Writing Back of Sundry Balances for Exemption u/s 10B:
The revenue authorities excluded Rs. 15,29,771/- from the exemption calculation, arguing it did not derive from business activities. The ITAT agreed with the assessee that the character of provisions made in earlier years, which were business-related, remained unchanged. The AO was directed to include this amount as business income and compute the exemption accordingly.

3. Exclusion of Delayed Export Proceeds for Exemption u/s 10A:
The AO excluded Rs. 2,23,46,705/- from the export proceeds due to delayed receipt. The ITAT noted that the RBI, the competent authority, had removed the time limit for realization of export proceeds for SEZ units. Citing the Bombay High Court's decision in CIT V/s Morgan Stanley Advantage Services Pvt. Ltd., the ITAT held that the benefit of section 10A should be allowed, and the AO was directed to include the amount in the export turnover.

4. Setoff of Unabsorbed Business Loss and Depreciation:
The AR argued that section 10A(6) does not apply to losses brought forward from years prior to the first exemption claim. The ITAT directed the AO to compute the exemption in accordance with the law, allowing the setoff.

5. Inclusion of Job Work Income for Exemption u/s 10A:
The revenue challenged the inclusion of Rs. 14,87,872/- from job work in the exemption calculation. The ITAT upheld the CIT(A)'s decision, agreeing that job work is part of the business activity. The ITAT dismissed the revenue's appeal, affirming that job work income should be included in the total turnover for exemption purposes.

Conclusion:
- ITA No. 1209/Mum/2008 is partly allowed.
- ITA No. 1615/Mum/2008 is dismissed.
- Order pronounced on 24/04/2012.