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2014 (9) TMI 1028 - AT - Income TaxDeduction under section 10B - Held that - No doubt the AO has curtailed the claim of deduction under section 10B substantially vis- -vis the claim of the assessee. However set off of depreciation has been done after computing the total income and not vice versa. It is also not clear from where the figure of 2, 29, 70, 688/- has been taken by the AO since set off done by the assessee was 1, 85, 17, 875/-. We are therefore of the opinion that the issue requires a fresh look by the AO in the case of CIT Vs Yokogawa 2011 (8) TMI 845 - Karnataka High Court and CIT Vs Tata Elxsi Ltd., (2011 (8) TMI 782 - KARNATAKA HIGH COURT ). Order of the lower authorities on this issue is set aside and remitted back to the AO for consideration afresh in accordance with law. Eligibility for claim of deduction under section 10B - Held that - There was amendment to the definition of export turnover with effect from 01-04-2002 we are unable to find any that has a bearing on the issue before us. Second proviso to section 10B(1) as it earlier stood was no doubt omitted by Finance Act 2001 with effect from 01-04-2002. But the earlier proviso was only for fixing a limit of 25% on domestic sales for computing profits and gains derived from exports. Here on the other hand claim of the assessee is not on domestic sale but on export sales of goods purchased as such by it. Sections 10A(i) and 10B(i) are no different since these are similarly worded. Learned CIT(A) in our opinion fell in error in not following the decision of Co-ordinate Bench. Assessee had already preferred a claim before AO for deduction under section 10B though only on manufactured goods. The claim made on trading goods exported was also under same section. It cannot be considered as a claim of different genie. It is also a fact that the AO never had an opportunity to verify this claim. In all fairness we are of the opinion that the claim can be looked afresh by the AO. We therefore set aside the order of learned CIT(A) on this issue and remit it to the AO for consideration afresh in accordance with law. Expenditure on freight and insurance was excluded from export turnover - Held that - Definition of export turnover in explanation(iii) to 10B(2) specifically require exclusion of freight telecommunication and insurance attributable to delivery of things outside India. Assessee has no case that such expenses were not attributable to its export sales. Hence exclusion of such expenses from export turnover cannot be faulted. However its claim that such amounts should be also be excluded from total turnover while working out eligible deduction under section 10B is on strong wicket in view of decision of Hon ble jurisdictional High Court in the case of CIT Vs Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT . We therefore direct the AO to exclude the items excluded from export turnover also from total turnover while working out the deduction under section 10B.
Issues Involved:
1. Set-off of unabsorbed depreciation before allowing deduction under section 10B. 2. Inclusion of traded goods in export turnover for deduction under section 10B. 3. Inclusion of deemed exports in export turnover for deduction under section 10B. 4. Exclusion of freight and insurance from export turnover and total turnover for deduction under section 10B. Issue-wise Detailed Analysis: 1. Set-off of Unabsorbed Depreciation Before Allowing Deduction Under Section 10B: The assessee was aggrieved that unabsorbed depreciation of Rs. 2,40,56,524 was set off against the profits of its undertaking claiming deduction under section 10B before allowing such deduction. The assessee relied on judgments from the Hon'ble jurisdictional High Court in the cases of CIT Vs Yokogawa India Ltd. and CIT Vs Tata Elxsi Ltd. The Tribunal noted that the AO had curtailed the claim of deduction under section 10B substantially and set off depreciation after computing the total income. The Tribunal found the issue required a fresh look by the AO in light of the cited judgments and remitted the matter back to the AO for reconsideration. Ground 1 of the assessee was allowed for statistical purposes. 2. Inclusion of Traded Goods in Export Turnover for Deduction Under Section 10B: The assessee claimed that export turnover of traded goods should be considered while working out the deduction under section 10B, which was first made before the CIT(A). The CIT(A) rejected this claim, stating that only manufactured goods were eligible for deduction under section 10B. The assessee cited decisions from the Mumbai Bench and a Special Bench in support of its claim. The Tribunal noted that the claim was based on a decision from the Mumbai Bench, which allowed deduction on traded goods. The Tribunal found no amendment affecting the issue post-2002 and remitted the matter back to the AO for fresh consideration. Grounds 2 & 3 of the assessee were allowed for statistical purposes. 3. Inclusion of Deemed Exports in Export Turnover for Deduction Under Section 10B: The revenue was aggrieved that the CIT(A) included deemed exports of Rs. 13,20,96,953 as part of export turnover for computing eligible deduction under section 10B. The CIT(A) had followed a previous decision in the assessee's favor for AY 2006-07. However, the Tribunal noted conflicting decisions, including a Co-ordinate Bench decision in the case of Granite Mart Ltd., which held that deemed exports were not eligible for deduction under section 10B. The Tribunal also referred to a judgment from the Hon'ble Kerala High Court, which held that inter-unit sales within SEZs are not treated as exports under section 10A/10B. Following the Kerala High Court's judgment, the Tribunal set aside the CIT(A)'s order and restored the AO's order, directing that deemed exports not be considered part of export turnover. The revenue's appeal was allowed. 4. Exclusion of Freight and Insurance from Export Turnover and Total Turnover for Deduction Under Section 10B: The assessee contended that if freight and insurance were excluded from export turnover, they should also be excluded from total turnover. The Tribunal noted that the definition of 'export turnover' in explanation (iii) to section 10B(2) required exclusion of such expenses. However, the Tribunal agreed with the assessee's claim, citing the jurisdictional High Court's decision in CIT Vs Tata Elxsi Ltd., directing the AO to exclude these items from both export turnover and total turnover while computing the deduction under section 10B. Ground 3(b) of the assessee was allowed for statistical purposes. Summary of Results: The appeals of the assessee for AY 2007-08 were allowed pro-tanto, while the appeal for AY 2008-09 was partly allowed for statistical purposes. The appeal of the revenue for AY 2007-08 was allowed.
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