2017 (3) TMI 1850 - AT - Income Tax

Deduction u/s 10B - deduction of expenses incurred in foreign exchange towards insurance, travelling and communication expenses - HELD THAT - The provisions of sub-section (3) of section 10B make it mandatory that in order to invoke the beneficial provisions of section 10B, sale proceeds of an article or thing or computer software should be received in or brought into India by the assessee in convertible foreign exchange within six months from the end of the previous year or such other period as may be permitted by the Reserve Bank of India. On plain reading of the provisions, it is clear that the benefit cannot be given to an undertaking in case no foreign exchange is received or brought into India on account of exports made by it. Reference to foreign exchange policy i.e. Exim is not required when the provisions of the Act are plain and unambiguous. The grounds of appeal filed by the assessee in this regard are dismissed. As regards portion of the expenses incurred in foreign exchange towards insurance, travelling and communication is concerned, in the case of CIT vs. Tata Elxsi 2011 (8) TMI 782 - KARNATAKA HIGH COURT held that the same is required to be reduced from export turnover as well as total turnover. We direct that expenses incurred in foreign exchange towards insurance, travelling and communication are to be reduced both from export turnover as well as total turnover. Therefore, the grounds of appeal filed by the assessee in this regard are allowed.

Summary

Issues Involved:
- Appeal against CIT(A)'s orders for assessment years 2009-10 and 2010-11.
- Dispute over deduction u/s 10B of the Income-tax Act, 1961 for manufacturing and export of surgical sutures.
- Treatment of sales made to a domestic party as deemed exports.
- Deduction of expenses incurred in foreign exchange towards insurance, travelling, and communication.

Analysis:

Assessment Year 2009-10:
1. The appellant, a company engaged in manufacturing and export of surgical sutures, contested the CIT(A)'s decision to restrict the deduction u/s 10B. The CIT(A) upheld the addition, stating that sales to domestic parties do not qualify for the exemption. The appellant argued that sales to a 100% EOU should be considered deemed exports and eligible for the deduction.
2. The ITAT examined the provisions of sub-section (3) of section 10B, emphasizing the requirement for sale proceeds to be received in convertible foreign exchange in India. The Tribunal noted that no foreign exchange was received on account of exports, thus denying the benefit. The appeal on this ground was dismissed.
3. Regarding expenses in foreign exchange, the ITAT referred to a previous ruling (CIT vs. Tata Elxsi) where such expenses were to be reduced from export turnover. Following this precedent, the ITAT allowed the reduction of these expenses from both export and total turnover, granting partial relief to the appellant.

Assessment Year 2010-11:
1. The issues raised for this assessment year mirrored those of 2009-10. As the ITAT had already decided against the appellant on the deemed export issue for 2009-10, the grounds of appeal for 2010-11 were dismissed for the same reasons.
2. Consequently, the appeal for assessment year 2010-11 was dismissed, aligning with the decision made for the preceding year.

In conclusion, the ITAT partially allowed the appeal for the assessment year 2009-10 concerning the deduction of expenses in foreign exchange but dismissed the appeal for the assessment year 2010-11 based on the decision reached for the prior year. The judgment clarified the application of section 10B and the treatment of sales to domestic parties in the context of deemed exports, providing a comprehensive analysis of the legal provisions and precedents guiding the decision-making process.