2011 (2) TMI 1415 - AT - Income Tax

Deduction u/s 10B - Assessee is engaged in the business of exporting granite - AO observed from the sales invoices that the goods exported are not polished granites denied the deduction - Assessee was allowed the benefit of section 10B in AY 2005-06 therefore CIT(A) allowed the deduction HELD THAT - We are in agreement with the ld. CIT(A) that there is no change in the business of the assessee from earlier years and similar type of export is being done in this year too. Therefore assessee becomes entitled to deduction u/s 10B under identical facts and circumstances. Deduction u/s 10B - Third Party Exports - Deduction on sales to 100% Export Oriented Undertakings (EOU) where assessee is not exporter itself HELD THAT - The issue stands covered in favour of the assessee by the decision of DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11 (4) BANGALORE VERSUS INTERNATIONAL STONES INDIA PVT. LTD. 2010 (3) TMI 1106 - ITAT BANGALORE in which under similar circumstances it has been held that even the third party exports are eligible for the benefit u/s 10B. The third party exports are also considered as export when such exports are made 100% EOU which manufactures the articles or things are received or brought into in convertible foreign exchange either by the 100% EOU itself or through the third party exporter then such exports amounts to export turnover and are fully eligible for the benefit u/s 10B. The assessee has exported goods through other 100% EOU within a period of six months thus such sale made by the assessee has to be treated as deemed export. Units registered under 100% EOU Scheme are allowed to sell to another 100% EOU and such sales are known as deemed export in trade parlance. The assessee has sold only 20% of the total turnover as deemed export to other 100% EOU and evidence regarding realization of foreign exchange is duly certified by a CA. Thus the goods in question are manufactured by a 100% EOU (which is the assessee) and goods have been exported out of the country as per the Foreign Trade Policy provisions for which convertible foreign exchange has been brought into India. Hence as per the clear provisions stated above the assessee becomes entitled to deduction under section 10B - Decision in favour of Assessee

Summary

Issues:
1. Eligibility for deduction u/s 10B based on the description of exported goods.
2. Allowance of deduction u/s 10B on sales to 100% Export Oriented Undertakings (EOU) by a third party exporter.

Issue 1: Eligibility for deduction u/s 10B based on the description of exported goods
The appeal pertained to the assessment year 2007-08, where the assessee-firm, engaged in exporting granite, claimed a deduction u/s 10B of the Income-tax Act, 1961. The dispute arose from the description of the exported goods as 'rough block' or 'crude block' in sales invoices, leading the Assessing Officer to believe that the granite was not polished. The ITAT had previously allowed the deduction for the assessee in the assessment year 2005-06, noting that the granite was polished before export. The Revenue contended that the Tribunal order from 2005-06 was not final and had been appealed, but the facts for both years were similar. The CIT(A) found the facts identical and granted the deduction u/s 10B. The ITAT, concurring with the CIT(A), upheld the deduction, emphasizing the continuity of the business and the similarity in export activities between the years.

Issue 2: Allowance of deduction u/s 10B on sales to 100% EOU by a third party exporter
The second issue concerned the allowance of deduction u/s 10B on sales to 100% Export Oriented Undertakings (EOU) by a third party exporter. The ITAT referred to a decision by the Bangalore Bench in a similar case, ruling that third-party exports to 100% EOU were eligible for the benefit u/s 10B. The ITAT noted that the Trade Policy aligned with the Foreign Trade Policy, allowing sales to other 100% EOU to be considered as 'deemed export.' The assessee had exported goods to 100% EOU, which were treated as deemed export. The ITAT observed that the goods were manufactured by the 100% EOU (the assessee) and exported as per the Foreign Trade Policy, with evidence of foreign exchange realization provided. Citing the Bangalore Bench decision, the ITAT dismissed the Revenue's appeal, affirming the eligibility of the assessee for deduction u/s 10B on sales to 100% EOU by a third party exporter.

In conclusion, the ITAT upheld the CIT(A)'s decision and dismissed the Revenue's appeal, confirming the eligibility of the assessee for deduction u/s 10B based on the description of exported goods and on sales to 100% EOU by a third party exporter.