2015 (1) TMI 1257 - AT - Income Tax

Deduction u/s 10B - eligibility of deemed exports - Held that - Deemed exports shall not be considered as part of the export turnover while computing deduction u/s. 10B

Summary

Issues Involved:
1. Setting off carried forward and unabsorbed depreciation against profits of the undertaking under section 10B.
2. Inclusion of deemed exports in export turnover for the purpose of deduction under section 10B.
3. Inclusion of traded goods in export turnover for the purpose of deduction under section 10B.
4. Exclusion of freight charges, shipping freight, and insurance charges from export turnover without reducing the same from total turnover.
5. Treatment of interest on fixed deposits as income from other sources versus business income.

Detailed Analysis:

1. Setting off carried forward and unabsorbed depreciation against profits of the undertaking under section 10B:
The assessee contended that brought forward unabsorbed depreciation should be allowed without factoring the same for the calculation of deductible export profit under section 10B, citing the decision in CIT v. Yokogawa India Ltd. The AO disallowed the set-off, stating no brought forward unabsorbed depreciation was available as per the records. The CIT(A) upheld this, noting the position was similar in previous years. The Tribunal agreed, dismissing the appeal as purely academic and not maintainable.

2. Inclusion of deemed exports in export turnover for the purpose of deduction under section 10B:
The assessee argued that deemed exports should be included in the export turnover, supported by earlier ITAT decisions in its favor. The AO disallowed this, referencing decisions in Granite Mart Ltd. and Tata Elxsi Ltd., stating section 10B does not cover deemed exports. The CIT(A) and Tribunal upheld the AO's decision, emphasizing that deemed exports are not eligible for deduction under section 10B as per prevailing judicial interpretations and legislative intent.

3. Inclusion of traded goods in export turnover for the purpose of deduction under section 10B:
The assessee claimed that traded goods should be included in the export turnover, citing decisions in T. Two International (P) Ltd. and Maral Overseas Ltd. The AO disallowed this due to the lack of a revised Form 56G and the CIT(A) upheld the disallowance, emphasizing that section 10B applies only to goods manufactured by the assessee. However, the Tribunal, following its decision in the assessee's own case for AY 2007-08, remitted the issue back to the AO for fresh consideration, allowing the inclusion of traded goods in the export turnover.

4. Exclusion of freight charges, shipping freight, and insurance charges from export turnover without reducing the same from total turnover:
The AO excluded these expenses from export turnover but not from total turnover. The CIT(A), following the Karnataka High Court decision in CIT v. Tata Elxsi Ltd., held that such exclusions should apply to both export turnover and total turnover. The Tribunal upheld the CIT(A)'s decision, noting the binding nature of the jurisdictional High Court's ruling despite pending appeals.

5. Treatment of interest on fixed deposits as income from other sources versus business income:
The AO treated interest on fixed deposits as income from other sources. The CIT(A) upheld this, citing lack of direct connection to the business. The Tribunal, referencing Universal Precision Screws and other decisions, remitted the issue back to the AO to reconsider the interest as business income if it was for margin money for credit facilities, thus potentially qualifying for section 10B benefits.

Conclusion:
The Tribunal's decisions reflect adherence to judicial precedents and legislative interpretations, emphasizing the specific provisions and intent of section 10B. The rulings on deemed exports and traded goods highlight the nuanced understanding of what constitutes eligible export turnover, while the treatment of interest income underscores the importance of the nature and purpose of such income in determining its tax treatment.