2012 (9) TMI 1224 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 10B of the Income-tax Act.
2. Definition of 'Export' for the purpose of claiming deduction u/s 10B.
3. Receipt of sale proceeds in convertible foreign exchange.

Summary:

Issue 1: Deduction u/s 10B of the Income-tax Act
The Department's appeal challenges the CIT(A)'s order allowing a deduction u/s 10B amounting to Rs.9,12,212/-. The Assessing Officer had disallowed this deduction, arguing that the assessee did not satisfy the conditions stipulated u/s 10B, as the goods were sold to a 100% EOU within India and not exported outside India.

Issue 2: Definition of 'Export' for the purpose of claiming deduction u/s 10B
The Assessing Officer cited the Rajasthan High Court decision in Laxmi Industries v. CIT and the ITAT Ahmedabad Bench decision in Neval Overseas Pvt. Ltd. vs. ITO, concluding that sales to a 100% EOU within India do not qualify as 'export' under section 10B. The CIT(A), however, found that sales made under the CT-3 scheme, with proceeds received in convertible foreign exchange, should be treated as export turnover for the purpose of section 10B.

Issue 3: Receipt of sale proceeds in convertible foreign exchange
The CIT(A) noted that the assessee received the sale proceeds in convertible foreign exchange and provided the necessary foreign inward remittance certificates. The CIT(A) relied on the Foreign Trade Policy and previous decisions, including the case of Shree Krishna Enterprise, to support the view that such sales qualify for deduction u/s 10B. The Tribunal, however, emphasized that both conditions of section 10B(3)'exporting goods out of India and receiving sale proceeds in convertible foreign exchange'must be satisfied. The Tribunal concluded that the assessee did not meet the primary condition of exporting goods out of India, thus reversing the CIT(A)'s order and restoring the Assessing Officer's decision.

Conclusion:
The Tribunal held that relief u/s 10B is not available unless the goods are physically exported out of India, even if the sale proceeds are received in convertible foreign exchange. The Department's appeal was allowed, and the CIT(A)'s order was reversed. The Assessing Officer's decision to disallow the deduction u/s 10B was restored.