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2015 (10) TMI 2557 - AT - Income TaxExemption under section 10BA to a trading and export firm which was not involved in manufacturing or production of eligible artistic articles - Held that - As per sub-section (6) of section 10BA, the sub-section (8) and sub-section (1) of section 80IA also applicable in relation to the undertaking referred to in this section as they apply for the purpose of undertaking referred to in section 80IA. Section 10BA was inserted by the Finance Act, 2003 with effect from 1.4.2004 whereas section 80IA was inserted by the Finance Act, 1999 with effect from 1.4.2000. Originally section 80IA was inserted by the Finance Act, 1991 with effect from 1.4.1991. The languages of both the sections are same but the effective dates are different. Therefore, findings of Hon ble Supreme Court in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT squarely are applicable in case of deduction claimed by the assessee under section 10BA and credited duty draw back and DEPB in the Profit & Loss Account, but is not derived income from undertaking. Therefore, we reverse the order of ld. CIT (A) to that extent. Hon ble Supreme Court in the case of Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA ) held that entire sale proceeds not to be treated as profits but only difference between sale value and face value of credit DEPB credit chargeable as income under section 28(iiib) in year in which applied for against exports. Further, profit on transfer of credit chargeable under section 28(iiid) in year in which transferred. Thus Assessing Officer is directed to recalculate the income accordingly.
Issues Involved:
1. Allowing exemption under section 10BA to a trading and export firm not involved in manufacturing or production of "eligible artistic articles." 2. Treating duty drawback and export license sale as profit derived by an undertaking from the export out of India of eligible articles or things. Issue-wise Detailed Analysis: 1. Exemption under Section 10BA: The first issue is whether the assessee, a trading and export firm, qualifies for exemption under section 10BA of the Income Tax Act, which is intended for manufacturers or producers of "eligible artistic articles." Findings: - The Assessing Officer (AO) contended that the assessee was primarily engaged in purchasing readymade furniture and exporting it after minor polishing and packing, which does not qualify as "manufacturing" under section 10BA. - The AO referenced previous disallowances in A.Ys. 2004-05 to 2008-09 and cited decisions such as Liberty Group Marketing Division vs. ACIT and CIT vs. AR Balraman, arguing that job work does not constitute manufacturing. - The assessee countered with ITAT decisions from earlier years (2004-05 to 2006-07) where the exemption was allowed, asserting substantial manufacturing activities were carried out. - The CIT (A) upheld the assessee's claim, noting that the ITAT had previously found the assessee engaged in substantial manufacturing activities, meeting all conditions under section 10BA. - The Tribunal confirmed the CIT (A)'s decision, emphasizing consistency with earlier findings that the assessee performed significant manufacturing activities and thus qualified for the exemption. 2. Duty Drawback and Export License Sale as Profit: The second issue is whether duty drawback and export license sales can be treated as profits derived from the export of eligible articles or things under section 10BA. Findings: - The AO argued that duty drawback and export license sales are export incentives, not profits derived directly from the undertaking's export activities, referencing the Supreme Court decision in Liberty India. - The CIT (A) partially agreed with the AO but allowed the inclusion of duty drawback and export license sales in the total turnover for computing the deduction under section 10BA, following the ITAT decision in Goverdhan Prasad Singhal vs. ACIT. - The Tribunal noted the Supreme Court's ruling in Liberty India, which held that DEPB/duty drawback benefits are not profits derived from industrial undertakings. However, it also considered the Supreme Court decision in Topman Exports, which clarified the treatment of DEPB credits. - The Tribunal directed the AO to recalculate the income, considering the Supreme Court's decision in Topman Exports and relevant ITAT decisions, to determine the correct deduction under section 10BA. Conclusion: The Tribunal upheld the CIT (A)'s decision on the first issue, confirming that the assessee qualifies for the exemption under section 10BA due to substantial manufacturing activities. On the second issue, the Tribunal set aside the matter to the AO for recalculating the income, considering the Supreme Court's decision in Topman Exports and relevant ITAT decisions, to accurately determine the deduction under section 10BA. Both the Revenue's appeal and the assessee's cross-objection were allowed for statistical purposes.
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