2015 (11) TMI 851 - AT - Income Tax

Exclusion of expenses from the export turnover and total turnover - Held that - As rightly argued by the learned representative for the assessee, both export turnover and total turnover shall be of the same factor. What was excluded from the export turnover cannot form part of total turnover. Therefore, this Tribunal is of the considered opinion that the Commissioner of Income-tax (Appeals) has rightly directed the Assessing Officer to exclude the expenses from the total turnover also. This Tribunal does not find any infirmity in the order of the lower authority. Deduction under section 10B - Held that - xplanation 2(iv) to section 10B clearly says that approval by the Board appointed by the Government of India under section 14 of the Industries (Development and Regulation) Act, 1951 is an essential condition. In this case, though the assessee claims that the approval initially granted by the Development Commissioner, Special Economic Zone was ratified by the Board, it is not clear from the material available on record whether ratification was accorded by the Board constituted by the Government of India under section 14 of the Industries (Development and Regulation) Act, 1951. In the absence of any material to show that whether the approval was accorded by the Board constituted under the Industries (Development abd Regulation) Act, 1951, this Tribunal is of the considered opinion that the matter needs to be re-examined. Moreover, section 10A also gives exemption to 100 per cent. export oriented unit. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer in the light of the provisions of section 10A of the Act, in case the assessee is not eligible under section 10B of the Act. Exclusion of foreign travel expenses, 50 per cent. of telephone charges and communication expenses, freight outward and commission expenses from the export turnover. - Held that - in view of the decision of the Special Bench in ITO v. Sak Soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D the expenses which were excluded from the export turnover are also to be excluded from the total turnover. Since the Commissioner of Income-tax (Appeals) excluded the communication charges, foreign travel expenses, commission charges, etc., from export turnover, this Tribunal is of the considered opinion that the same are also to be excluded from the total turnover. In other words, the items which were excluded from the export turnover have also to be excluded from the total turnover. Therefore, this Tribunal do not find any infirmity in the order of the lower authority.

Summary

Issues:
1. Exclusion of expenses from export turnover and total turnover.
2. Deduction under section 10B of the Income-tax Act, 1961.
3. Determination of eligible export turnover.
4. Exclusion of specific expenses from export turnover and total turnover.

Issue 1: Exclusion of expenses from export turnover and total turnover:

The Revenue appealed against the exclusion of expenses from the export turnover and total turnover. The Revenue argued that expenses excluded from export turnover need not be excluded from total turnover. On the contrary, the assessee contended that both turnovers should exclude the same expenses. The Tribunal held that both turnovers should be of the same factor, thus expenses excluded from export turnover cannot be part of total turnover. The Tribunal confirmed the Commissioner's decision to exclude expenses from total turnover as well.

Issue 2: Deduction under section 10B of the Income-tax Act, 1961:

The assessee, a 100% export-oriented unit, claimed exemption under section 10B. The Assessing Officer disallowed the claim citing lack of approval from the Board appointed under the Industries (Development and Regulation) Act, 1951. The Tribunal noted that approval by the Board under section 14 of the Act is essential for claiming deduction under section 10B. As the approval process was unclear, the matter was remitted back to the Assessing Officer for re-examination, also considering eligibility under section 10A if necessary.

Issue 3: Determination of eligible export turnover:

The assessee did not press this ground during the hearing, leading to the dismissal of the issue regarding the determination of eligible export turnover.

Issue 4: Exclusion of specific expenses from export turnover and total turnover:

The dispute arose over the exclusion of foreign travel expenses, telephone charges, communication expenses, freight outward, and commission expenses from export turnover. The Tribunal upheld the exclusion of these expenses from both export and total turnover, in line with a previous Special Bench decision. The Tribunal confirmed the Commissioner's decision to exclude these expenses from both turnovers, as they were excluded from export turnover.

In conclusion, the Revenue's appeal was dismissed, while the assessee's appeal was partly allowed for statistical purposes. The Tribunal's decision emphasized consistency in excluding expenses from both export and total turnover, as per legal requirements.