2020 (5) TMI 238 - HC - Income Tax

Deduction u/s 10B / 10A - transactions through third parties and inter-unit transfers - Duplication of claim of exemption - HELD THAT - From perusal of Section 10A of the Act, it is evident that the intention of the legislature is to encourage establishment of export oriented industries with the object of receiving convertible foreign exchange. In order to claim deduction under Section 10A of the Act, the conditions laid down under Section 10A(2) have to be complied with. It is pertinent to mention here that in INTERNATIONAL STONES INDIA P. LTD. 2018 (6) TMI 1478 - KARNATAKA HIGH COURT a division bench of this court has held that a narrow and pedantic approach cannot be applied in construing the words by an undertaking and restricting the benefit under Section 10B of the Act only in respect of direct export of such goods manufactured by such units. The deemed export by the assessee undertaking even through third party who has exported such goods to foreign country and has fetched foreign currency for India still remains a deemed export in the hands of the assessee undertaking also. It is evident that the appellant is entitled to benefit of deduction under Section 10B of the Act in respect of export made to third parties and inter unit transfers. So far as submission made by learned counsel for the revenue that the matter requires factual adjudication and therefore, should be remitted is concerned, suffice it to say that there were in all approximately 40 parties with whom the appellant had entered into 398 transactions. The report of an accountant which is required to be furnished by the assessee along with the return of income, under sub-section (5) of section 10B shall be in Form No. 56G. The aforesaid report has been furnished by the appellants and it is not the case of the revenue the appellants have not furnished the aforesaid report. Besides this, it is pertinent to mention here that the question of duplications in the fact situation of the case does not arise as each person can claim only on the value addition by him and the presumption that there can be duplication is contrary to the principle of computation of the income under the Act.

Summary

Issues Involved:
1. Entitlement for deduction under Section 10B of the Income Tax Act for exports made to third parties and inter-unit transfers.
2. Treatment of sales made to third parties and other export-oriented units as deemed exports under EXIM policy.
3. Charging of interest under Sections 234B and 234C of the Act.

Issue-wise Detailed Analysis:

1. Entitlement for deduction under Section 10B of the Income Tax Act for exports made to third parties and inter-unit transfers:
The appellant, a 100% export-oriented unit, claimed deductions under Section 10B for exports made to third parties and inter-unit transfers. The Assessing Officer allowed deductions only for direct exports, disallowing claims for third-party and inter-unit transfers. The Tribunal upheld this decision by relying on the case of Tata Elxi Ltd. However, this decision was reversed by the High Court in Tata Elxi Ltd. vs. CIT, which held that deemed exports through third parties should also be eligible for deductions. The court emphasized that the legislature's intent was to encourage export-oriented industries and that a narrow interpretation should not be applied. The court concluded that the appellant is entitled to deductions under Section 10B for exports made to third parties and inter-unit transfers.

2. Treatment of sales made to third parties and other export-oriented units as deemed exports under EXIM policy:
The appellant argued that sales to third parties and other export-oriented units should be treated as deemed exports under the EXIM policy and thus qualify for deductions under Section 10B. The Tribunal initially denied this claim, but the High Court referred to previous judgments, including International Stones India P. Ltd. and Metal Closures Steel Ltd., which supported the appellant's position. The court held that deemed exports through third parties, which bring foreign currency into India, should be considered as exports by the assessee undertaking, thus qualifying for deductions under Section 10B.

3. Charging of interest under Sections 234B and 234C of the Act:
The issue of charging interest under Sections 234B and 234C was also raised. However, the court's primary focus was on the eligibility for deductions under Section 10B. The court did not provide a detailed analysis of this issue, as the main contention revolved around the deductions for deemed exports.

Conclusion:
The High Court quashed the orders of the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) that disallowed the appellant's claims for deductions under Section 10B for third-party and inter-unit transfers. The court held that the appellant is entitled to these deductions, aligning with the legislative intent to promote export-oriented units. The appeals were allowed in favor of the assessee.