2015 (8) TMI 699 - AT - Income Tax

Entitlement to exemption under section 10B - Held that - It has to be seen that assessee is bringing foreign exchange into India as a result of its export. The argument of the assessee is that other concerns to whom assessee has sold its product in India are bringing convertible foreign exchange in India through export of their product contained in the containers manufactured by the assessee. Thus products of the assessee in fact are exported by the other concerns and convertible foreign exchanges are brought by them into India. We are unable to subscribe to this view. It is because phrase mentioned in sub-section (3) is .....are received in........ or brought into India by the assessee in convertible foreign exchange... Thus it is the assessee who has to bring convertible foreign exchange in India out of its own export. If other parties are bringing convertible foreign exchange in India then it will not be the fulfillment of the conditions imposed by subjection (3). It is admitted position of facts that assessee is not in fact bringing convertible foreign exchange and entire of its products are sold in India in Indian rupees. Therefore, the assessee will not be entitled to exemption under section 10B. - Decided against assessee.

Summary

Issues:
1. Disallowance of deduction u/s 10B for EOU income.
2. Application of amended provisions of section 10B.
3. Rejection of claim of 100% EOU u/s 10B.
4. Non-allowance of proportionate deduction u/s 10B for actual exports.

Analysis:

Issue 1 - Disallowance of deduction u/s 10B for EOU income:
The Assessee, engaged in manufacturing, filed its return for A.Y. 2008-09 with total income declared at Rs. 24,87,78,090. The assessment under section 143(3) resulted in a total income of Rs. 29,11,96,120. The Assessee's appeal against the CIT(A)'s order disallowing deduction u/s 10B for EOU income of Rs. 3,53,93,099 was dismissed. The A.O. noted that sales between EOU and DTA units did not qualify as exports. The CIT(A) upheld this decision, emphasizing the need for convertible foreign exchange realization for deduction u/s 10B. The Tribunal, following precedent, dismissed the Assessee's appeal, stating that the Assessee failed to meet the conditions for claiming the deduction.

Issue 2 - Application of amended provisions of section 10B:
The Assessee argued that despite the amended provisions of section 10B, they were entitled to exemption for AY 2000-01. The Tribunal rejected this argument, emphasizing that conditions under the amended provisions must be satisfied for each assessment year. The Tribunal clarified that the amendment restricted exemption to the unexpired period of 10 years, requiring the Assessee to fulfill conditions laid down in the relevant AY. The Assessee's claim based on pre-amendment conditions was dismissed.

Issue 3 - Rejection of claim of 100% EOU u/s 10B:
The Assessee's claim for 100% EOU u/s 10B was rejected due to sales in the domestic market without foreign exchange realization. The Tribunal upheld this decision, emphasizing the Assessee's failure to bring convertible foreign exchange into India from its exports, a prerequisite for claiming the deduction u/s 10B.

Issue 4 - Non-allowance of proportionate deduction u/s 10B for actual exports:
The Assessee's claim for proportionate deduction of Rs. 70,24,923 for actual exports was not allowed by the A.O. However, the Assessee later withdrew this ground, stating that the A.O. had already allowed the deduction for actual exports. Consequently, this ground was dismissed as not pressed, leading to the dismissal of the Assessee's appeal in its entirety.

In conclusion, the Tribunal upheld the disallowance of deductions under section 10B for the Assessee, emphasizing the requirement for foreign exchange realization and the need to satisfy conditions under the amended provisions for each assessment year. The Assessee's appeal was ultimately dismissed based on the Tribunal's consistent interpretation of the relevant legal provisions.