2017 (2) TMI 1186 - AT - Income Tax

Computing exemption profit u/s. 10B - Held that - On identical issue hon ble high court of Karnataka in the CIT vs. Tata Elexi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT held that while computing deduction u/s. 10A if export turnover numerator is to be arrived at after excluding certain expenses, such expenses are also to be excluded in computing export turnover as a component of total turnover in denominator. The components of the export turnover in the numerator and the denominator cannot be different. After considering the legal findings supra, we find that on principle of parity if export freight excluded from export turn-over and the same also ought to be excluded from total turnover while computing exempted profit u/s. 10B of the act therefore, we allow the appeal of the assessee.

Summary

Issues:
1. Recomputation of exempted profit under section 10B of the Income Tax Act.
2. Exclusion of export freight from export turnover for computing exempted profit.
3. Applicability of the principle of parity in excluding export freight from total turnover.
4. Justification of penalty proceedings under section 271(1)(c).

Issue 1: Recomputation of exempted profit under section 10B of the Income Tax Act:
The case involved an appeal for the assessment year 2005-06 regarding the recomputation of exempted profit under section 10B of the Income Tax Act. The assessing officer initiated proceedings under section 154, contending that the assessee had not deducted the export freight amount from the export turnover. The reworked deduction was restricted after excluding the export freight. The CIT(A) confirmed this decision, stating that the export freight charges needed to be excluded from the export turnover. The Appellate Tribunal, after considering the legal findings, allowed the appeal of the assessee, emphasizing that the components of the export turnover in the numerator and the denominator cannot be different.

Issue 2: Exclusion of export freight from export turnover for computing exempted profit:
The assessee contended that if export freight was excluded from the export turnover, it should also be excluded from the total turnover while computing exempted profit under section 10B. The CIT(A) dismissed the appeal, stating that freight and insurance charges attributable to the delivery of goods outside India should be excluded from the export turnover but not from the total turnover. However, the Appellate Tribunal referred to a judgment by the Karnataka High Court, which emphasized uniformity in the ingredients of both the numerator and the denominator of the formula. The Tribunal concluded that if certain expenses were excluded from the export turnover, they should also be excluded from the total turnover. Therefore, the appeal of the assessee was allowed based on this principle of parity.

Issue 3: Applicability of the principle of parity in excluding export freight from total turnover:
The principle of parity was a crucial aspect of the case as the assessee argued that if export freight was excluded from the export turnover, it should also be excluded from the total turnover while computing exempted profit under section 10B. The Appellate Tribunal, after analyzing a judgment by the Karnataka High Court, agreed with the assessee's contention. The Tribunal emphasized that there should be uniformity in the components of both the numerator and the denominator of the formula, leading to the decision to allow the appeal based on the principle of parity.

Issue 4: Justification of penalty proceedings under section 271(1)(c):
The initiation of penalty proceedings under section 271(1)(c) was also raised as an issue in the case. However, detailed analysis or resolution regarding the justification of these penalty proceedings was not explicitly mentioned in the summary provided.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by the parties, the legal interpretations applied, and the ultimate decision rendered by the Appellate Tribunal.