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2015 (2) TMI 1159 - AT - Income TaxRecomputation of deduction under section 10B - Held that - A.O. is not justified in reducing the export turnover claimed by the appellant for the purpose of computing deduction u/s 10B of the Act. The deduction u/s 10B of the Act is, therefore, worked out at ₹ 7,30,16,357/-by considering business profit at ₹ 15,50,66,523/-, export turnover at ₹ 58,46,09,183/- and total turnover at ₹ 1,24,15,48,014/-. The addition made by the A.O. is, therefore, confirmed to the extent of ₹ 15,96,439/- (Rs.7,46,12,796/- - ₹ 7,30,16,357/-). Addition made on account of GP addition on export sales - Held that - Assessing Officer had compared the results shown by the assessee in the export sales to the results shown by the assessee in domestic sales and was of the view that the profits from export sales have been shown at high percentage as compared to the consolidated gross profit by the assessee for the year under consideration. In the first instance, we hold that the Assessing Officer is not correct in this approach as under the provisions of section 80IA(10), the comparison has to be made between the assessee and any other person; whereas in the facts of the present case; the comparison has been made between the results of export sales of manufactured items with the domestic sales of manufactured items carried on by the assessee itself. The provisions of section 80IA(7) of the Act are not attracted in such a scenario and have been incorrectly applied by the Assessing Officer while computing the deduction under section10B of the Act in the hands of the assessee. Also the profits declared by the assessee against export sales were found to be correct and no addition was suggested on account of arm s length price of such transaction of sale of manufactured goods to parties outside India. In such circumstances, where the export sales have been found by the TPO to be at arm s length price and no adjustment in this regard has been made by the Assessing Officer while completing assessment under section143(3) r.w.s.144C of the Act, we find no merit that while computing the exemption under section10B of the Act, the Assessing Officer has re-worked the profits eligible for such deduction by applying the consolidated gross profit of the year under appeal as the basis for earning the said income. We uphold the order of CIT(A) in deleting addition made on account of re-working exemption under section 10B Addition made under section 41(1) and Explanation 10 to section 43(1) of the Act on account of special capital incentive - Held that - The order of the CIT(A) in holding that the grant of ₹ 30 lakhs received by the assessee during the year under consideration was a capital receipt and not taxable in the hands of the assessee. Further, there is no merit in invoking of the provisions of either section 41(1) or section 43(1)(b) of the Act. Working of the total turnover by excluding Excise Duty paid/payable, while computing the exemption under section 10B of the Act. - Held that - As decided in assessee s own case for assessment year 2003-04 Excise Duty is to be excluded from total turnover while computing exemption under section 10B of the Act. Following the same parity of reasoning, we direct the Assessing Officer to re-compute the deduction under section 10B of the Act.
Issues Involved:
1. Re-computation of deduction under section 10B of the Act. 2. Deletion of addition made on account of GP addition on export sales. 3. Deletion of addition made under section 41(1) and Explanation 10 to section 43(1) of the Act on account of special capital incentive. 4. Computation of deduction under section 10B of the Act for the assessment year 2008-09. 5. Exclusion of Excise Duty paid/payable while computing the exemption under section 10B of the Act. Issue-wise Detailed Analysis: 1. Re-computation of deduction under section 10B of the Act: The assessee was engaged in the manufacturing of instruments and apparatus for measuring or checking variables of liquids or gases. The Assessing Officer (AO) noted that the assessee had debited the whole freight charges as expenditure in the Profit and Loss Account, enhancing the profits from export, which were exempt under section 10B. The AO disallowed 10% of the expenditure on communication, insurance, and legal and professional charges, adding Rs. 43,45,241/- as non-exempt under section 10B. The CIT(A) reworked the deduction, holding that the AO was not justified in reducing the export turnover by certain charges. The CIT(A) relied on the case of California Software Co. Ltd. Vs. ACIT and held that the AO was not justified in reducing the export turnover claimed by the assessee. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. 2. Deletion of addition made on account of GP addition on export sales: The AO observed that the assessee had claimed higher GP on export sales compared to domestic sales and reworked the GP ratio, adding Rs. 1,21,58,748/- to the total income. The CIT(A) noted that the export transactions had been referred to the Transfer Pricing Officer (TPO), who accepted the arm's length price of the export transactions. The CIT(A) held that the AO erred in not accepting the arm's length price and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the AO incorrectly applied the provisions of section 80IA(10) and that the TPO had accepted the export sales at arm's length price. The Tribunal dismissed the Revenue's appeal on this ground. 3. Deletion of addition made under section 41(1) and Explanation 10 to section 43(1) of the Act on account of special capital incentive: The assessee received a special capital incentive of Rs. 30 lakhs from SICOM Ltd. The AO treated the subsidy as income under section 41(1), citing the case of Sawhney Steel & Press Works Ltd. Vs. CIT. The CIT(A) held that the subsidy was a capital receipt and not deductible from the actual cost of the asset for calculating depreciation, relying on the Tribunal's decision in M/s. Sapna Re-rolling Industries. The Tribunal upheld the CIT(A)'s decision, noting that the subsidy was for setting up industries in backward areas and was a capital receipt, not taxable under section 41(1) or section 43(1)(b). The Tribunal dismissed the Revenue's appeal on this ground. 4. Computation of deduction under section 10B of the Act for the assessment year 2008-09: The assessee raised additional grounds before the CIT(A) regarding the computation of deduction under section 10B, which were not adjudicated by the CIT(A). The Tribunal remitted the issue back to the CIT(A) to decide the same in accordance with law after affording a reasonable opportunity of being heard to the assessee. 5. Exclusion of Excise Duty paid/payable while computing the exemption under section 10B of the Act: The AO included Excise Duty in the total turnover while computing the exemption under section 10B. The CIT(A) upheld the AO's decision. The Tribunal held that the issue was covered by the Supreme Court's decision in CIT Vs. Laxmi Machine Works, which excluded Excise Duty from total turnover. The Tribunal directed the AO to re-compute the deduction under section 10B, excluding Excise Duty from the total turnover. Conclusion: The Tribunal dismissed the Revenue's appeals and the assessee's cross-objections, partly allowed the assessee's appeals, and remitted certain issues back to the CIT(A) for fresh adjudication. The Tribunal upheld the CIT(A)'s decisions on key issues, including the re-computation of deduction under section 10B, deletion of GP addition on export sales, and treatment of special capital incentive as a capital receipt.
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