2014 (1) TMI 1136 - AT - Income Tax

Deduction u/s 10BA - Held that - Following assessee s own case for A.Y. 2008-09 - As per the amended section 10B(4) - Only the profits of the business of the undertaking only is to be considered for working out the profits and gains as are derived by an undertaking from export out of India of eligible articles or things - The profits and the gains of the business of the undertaking is to be worked out as per the provisions of section 28(i) - This does not include the profits of items under sub-sections (iiia), (iiib), (iiic), (iiid) and (iiie) etc. Duty Draw Back and any profit on transfer of DEPB. The plain reading of Section 10BA which deals with export of certain articles or things will make it clear that such profits as are derived from the export out of India shall be allowed from the total income of the assessee - The sale proceeds of DEPB cannot be considered as part of turnover as it is not the sale proceeds of the articles or things manufactured and sold by the assessee, then the profits from sale of DEPB cannot apportioned on treated on profit derived by the undertaking from export out of India - The exemption provisions in 10BA have to be liberally interpreted unless the credit of DEPB and DDB is expressly taken away. Disallowance out of travelling expenses - Held that - The Assessing Officer has not pointed out any instance where the expenses in question were incurred by the assessee for non-business purposes - The appellant has stated that all the above expenses are relate to wholly and exclusively for the business purpose - The disallowance is cannot be sustained being totally based on presumption - Decided against Revenue.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 39,74,254/- made by the Assessing Officer under Section 10BA of the I.T. Act, 1961.
2. Deletion of addition of Rs. 2,50,000/- out of various expenses made by the Assessing Officer on account of personal use.

Detailed Analysis:

Issue 1: Deletion of Disallowance Under Section 10BA

Facts and Proceedings:
The assessee, engaged in the manufacture/production and export of wooden handicrafts, filed a return showing total income of Rs. 1,72,420/-. The case was selected for scrutiny, and the Assessing Officer (AO) noticed that the assessee claimed a deduction under Section 10BA amounting to Rs. 39,74,254/-. The AO observed that the assessee purchased finished goods from handicrafts dealers and concluded that the assessee was not eligible for the deduction as it did not qualify as a producer or manufacturer under Section 10BA.

Assessee's Argument:
The assessee contended that it purchased old and defective wooden items and reshaped them into new products. The deduction under Section 10BA had been allowed in previous years (2004-05 to 2008-09) after detailed examination and spot inspection.

CIT(A) Decision:
The CIT(A) allowed the claim, noting that the assessee engaged a significant number of laborers and incurred various manufacturing expenses. The AO did not dispute these expenses. The CIT(A) also referred to previous assessments where the deduction under Section 10BA was allowed and cited judicial precedents supporting the consistency of such deductions unless there were changes in facts or activities.

Tribunal's Observation:
The Tribunal upheld the CIT(A)'s decision, emphasizing that the facts for the year under consideration were similar to those in previous years where the deduction was allowed. The Tribunal also referenced its own decisions and those of other benches, confirming that the assessee was entitled to the deduction under Section 10BA, including on DEPB, DDB, and VKUY receipts.

Issue 2: Deletion of Addition of Rs. 2,50,000/- for Personal Use

Facts and Proceedings:
The AO made an addition of Rs. 2,50,000/- on the grounds that personal elements could not be ruled out in various expenses like traveling, telephone, petrol, vehicle insurance, and depreciation, totaling Rs. 11,74,779/-.

CIT(A) Decision:
The CIT(A) deleted the addition, stating that the AO did not provide any basis for the disallowance and that the expenses were wholly and exclusively for business purposes.

Tribunal's Observation:
The Tribunal agreed with the CIT(A), noting that the AO did not point out any specific instance where the expenses were for non-business purposes. The addition was deemed to be made without any basis, and thus, the CIT(A)'s deletion of the addition was upheld.

Conclusion:
The Tribunal dismissed the department's appeal, affirming the CIT(A)'s decisions on both the deletion of disallowance under Section 10BA and the deletion of the addition of Rs. 2,50,000/- for personal use. The Tribunal's judgment emphasized the importance of consistency in tax assessments and the necessity for the AO to provide concrete evidence when making disallowances or additions.