2015 (11) TMI 1190 - AT - Income Tax

Eligibility for exemption u/s 10B - Deemed Export Draw Back included in the profits and gains of the 100% EOU unit - Held that - This issue has already been adjudicated and decided in favor of the assessee by the decision in the case of Maral Overseas Ltd. vs. ACIT 2012 (4) TMI 345 - ITAT INDORE wherein held once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. - the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) read with Section 10B(4) of the Act - Decided in favor of assessee. Benefit of exemption u/s. 10B on account of interest - Held that - Interest income earned by the assesee in the asstt. years in dispute is not derived from export business and is an income from other sources. Our view is supported by the decision of the Hon ble Supreme court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT 1997 (7) TMI 4 - SUPREME Court ; CIT vs. Pandian Chemicals Ltd. 1997 (4) TMI 38 - MADRAS High Court and Pandian Chemicals Ltd. vs. CIT 2003 (4) TMI 3 - SUPREME Court . Keeping in view of the facts and circumstances of the present case, we are of the view that interest income on FDR, earned as income from other sources, on the basis of facts and judicial pronouncements, cannot be held to be admissible for deduction u/s. 10B - Decided against assessee. Benefit of exemption u/s. 10B on account of Customer Claim - Held that - In this case, the assessee has received a sum as a result of compensation for cancellation of order, to compensate for the cost of raw material and other inputs incurred by him. These receipts may be in foreign exchange but is not on account of export of articles or things and the amount received by the assessee is only to cover the expense already incurred by it. The receipt cannot be said to be such profit and gains derived by the undertaking from export of article or thing and on the basis of facts and judicial pronouncement of the ITAT, Delhi Bench in the case of Sony India Pvt. Ltd. vs. DCIT (2008 (9) TMI 420 - ITAT DELHI-H), cannot be held to be admissible for deduction u/s. 10B. Therefore, Ld. CIT(A) has rightly confirmed the addition - Decided against assessee. Benefit of exemption u/s. 10B on freight subsidy - Held that - The receipt of freight subsidy thus cannot be said to be such profit and gains derived by the undertaking, cannot be held to be admissible for deduction u/s 10B. Hence, Ld. CIT(A) has rightly confirmed the addition. In view of the above, we do not find any infirmity in the well reasoned order passed by the Ld. CIT(A) on this issue, hence, we uphold the impugned order on this issue. - Decided against assessee. Disallowance u/s 14A read with Rule 8D - expenses relating to investments - Held that - We find that the assessment order as well as the appellate order, is not clear on the quantification of the expenditure incurred by the assessee on the exempt income. Keeping in view of the facts and circumstances of the case, we are of the view that the matter requires re-consideration at the level of the AO with the direction to quantify the expenditure on the basis of exempt income, after giving adequate opportunity of being heard to the assessee and pass a fresh order on the issue. Accordingly, the Ground is remitted back to the file of the AO with the above directions. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Denial of liability to be assessed at the stated income and subsequent tax demand.
2. Non-granting of exemption under Section 10B for Deemed Duty Drawback.
3. Addition of interest income due to lack of direct nexus with export.
4. Aggregate additions/disallowances and framing of assessment.
5. Charging of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Denial of Liability to be Assessed at Stated Income and Tax Demand:
The appellant denied its liability to be assessed at the stated income and the subsequent tax demand. This issue is a general ground raised by the appellant and is not specifically adjudicated in the judgment.

2. Non-Granting of Exemption under Section 10B for Deemed Duty Drawback:
The appellant contended that the Ld. CIT(A) erred in not granting the benefit of exemption under Section 10B for Deemed Duty Drawback. The Tribunal referred to the decision of the ITAT Special Bench in the case of Maral Overseas Ltd. vs. ACIT 136 ITD 177, which held that the deduction under Section 10B should be computed as per the formula in Section 10B(4). This formula does not require a direct nexus with the business of the undertaking. Therefore, once the income forms part of the business of the undertaking, it is included in the eligible profits for deduction under Section 10B. The Tribunal followed this precedent and decided in favor of the appellant, deleting the addition for both assessment years.

3. Addition of Interest Income Due to Lack of Direct Nexus with Export:
The appellant argued that the interest earned on Fixed Deposits made for business purposes should be eligible for deduction under Section 10B. However, the Tribunal upheld the view that interest income is not derived from export business and should be treated as income from other sources. This position is supported by the Supreme Court decisions in Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT [1997] 227 ITR 172 (SC) and Pandian Chemicals Ltd. vs. CIT [2003] 262 ITR 278 (SC). Thus, the ground was decided against the appellant.

4. Aggregate Additions/Disallowances and Framing of Assessment:
The Tribunal addressed several specific additions and disallowances:
- Customer Claim: The Tribunal upheld the Ld. CIT(A)'s decision that compensation for order cancellation is not derived from export and thus not eligible for Section 10B exemption.
- Freight Subsidy: The Tribunal agreed with the Ld. CIT(A) that freight subsidy is not derived from export activities and therefore not eligible for Section 10B exemption.
- Expenses Relating to Investments (Section 14A read with Rule 8D): The Tribunal remanded this issue back to the AO for re-consideration and quantification of the expenditure on exempt income, directing the AO to provide an adequate opportunity for the appellant to be heard.

5. Charging of Interest under Sections 234A, 234B, and 234C:
The appellant contested the charging of interest under Sections 234A, 234B, and 234C. This issue was not specifically adjudicated in the judgment, as it is a consequential matter dependent on the final assessed income.

Conclusion:
The Tribunal partly allowed the appeals, granting relief on the issue of Deemed Duty Drawback under Section 10B but upholding the additions related to interest income and other specific disallowances. The issue of expenses relating to investments was remanded back for re-assessment.