2016 (4) TMI 824 - AT - Income Tax

Deduction u/s 10B - Export sales made through the sister concern - Held that - Export sales directly made to the consignee through the sister concern was the deemed export of the assessee and deduction u/s 10B of the Act was available. We direct the AO to allow the deduction u/s 10B of the Act to the assessee on the export sales made through the sister concern M/s Stone World and accordingly the disallowance made by the AO is deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Definition of Export Turnover under Section 10B of the Income Tax Act.
2. Disallowance of deduction claimed under Section 10B.
3. Eligibility for deduction under Section 10B for deemed exports through a third party.

Detailed Analysis:

1. Definition of Export Turnover under Section 10B of the Income Tax Act:
The primary issue was whether the definition of Export Turnover under Section 10B includes deemed exports. The assessee argued that the definition should include deemed exports, i.e., exports made through a third party. The AO and CIT(A) held that Section 10B does not recognize foreign exchange received by a third party on behalf of the assessee and that the conditions laid down under Section 10B were not fulfilled since the sale proceeds were not brought into India by the assessee in convertible foreign exchange.

2. Disallowance of deduction claimed under Section 10B:
The AO disallowed the deduction claimed by the assessee under Section 10B amounting to ?1,52,51,935/-. The AO observed that the assessee had made local sales to its sister concern, M/s Stone World, and argued that the foreign exchange was received by M/s Stone World and not by the assessee. The AO recalculated the allowable deduction under Section 10B to ?8,12,12,066/- instead of ?9,64,64,001/-, leading to the disallowance of ?1,52,51,935/-. The CIT(A) upheld the AO's decision, stating that the assessee firm and the partner (proprietor of M/s Stone World) are separate assessable entities and that Section 10B does not recognize foreign exchange receipt by a third party allegedly on behalf of the assessee.

3. Eligibility for deduction under Section 10B for deemed exports through a third party:
The assessee contended that it exported goods through its partner's proprietorship firm, M/s Stone World, and that such exports should be considered as deemed exports of the assessee, eligible for deduction under Section 10B. The assessee provided evidence that the goods were directly exported to overseas buyers through M/s Stone World, and no deduction under Section 10B was claimed by M/s Stone World. The Tribunal referred to the judgment of the Hon’ble Karnataka High Court in the case of M/s Tata Elxsi Ltd. vs. ACIT, which clarified that an assessee is entitled to the benefit of Section 10A (similar to Section 10B) if the export is done directly or through another exporter, provided the foreign exchange is brought into the country. The Tribunal concluded that the assessee fulfilled all conditions for deduction under Section 10B, as the goods were manufactured by a 100% EOU, exported out of the country, and convertible foreign exchange was brought into India.

Conclusion:
The Tribunal set aside the impugned order of the CIT(A) and directed the AO to allow the deduction under Section 10B to the assessee on the export sales made through the sister concern, M/s Stone World. The appeal of the assessee was allowed, and the disallowance made by the AO was deleted.