2023 (5) TMI 408 - AT - Income Tax

Deduction u/s 10B - Interest income inclusion/exclusion - HELD THAT - Full Bench decision of Hon ble Karnataka High Court in Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT may also be relied on for the proposition that all profits and gains of hundred percent EOU including incidental income by way of interest on bank deposits or staff loans would be entitled to hundred percent exemption or deduction under section 10B of the Act. In recent decision in CIT vs. Sankhya Technologies (P) Ltd. 2020 (8) TMI 618 - MADRAS HIGH COURT held that interest on bank deposits was eligible to be included in profits of hundred percent export oriented unit for purpose of claiming deduction under section 10B of the Act. Thus Interest income would be entitled to claim exemption under section 10B of the Act. AO is directed to modify the assessment accordingly. Exclusion of other incomes, namely, receipt of subsidy and insurance claim from the profits for computing deduction under section 10B is also not sustainable in view of the decision of Riviera Home Furnishing 2015 (11) TMI 1139 - DELHI HIGH COURT and Moser Baer India Ltd. 2018 (5) TMI 581 - ITAT DELHI wherein it is held that the above receipts form part of the profit of business of the undertaking and thus eligible for deduction under section 10B of the Act. We set aside the orders of the Ld. CIT(A)/AO and direct the Ld. AO to amend the assessment order suitably. Decided in favour of the assessee. Contention of the assessee that the amount as realized on transfer of DEPB represents gross realization and the issue of deduction of the said benefit under DEPB needs to be decided in the light of the judgment of the Hon ble Supreme Court in Topman Exports 2012 (2) TMI 100 - SUPREME COURT We agree with the above contention of the assessee and restore the matter back to the file of the Ld. AO to decide the issue afresh keeping in view the judgment of the Hon ble Supreme Court in Topman Exports (supra) after allowing opportunity of hearing to the assessee.

Summary

Issues Involved:

1. Exclusion of interest income, subsidy, and insurance claims from profits for computing deduction under Section 10B of the Income Tax Act.
2. Exclusion of benefit under the Duty Entitlement Pass Book (DEPB) Scheme while computing deduction under Section 80HHC of the Income Tax Act.

Summary:

Issue 1: Exclusion of Interest Income, Subsidy, and Insurance Claims from Profits for Computing Deduction under Section 10B

The assessee, engaged in the manufacture and sale of rice, contested the exclusion of interest income, subsidy, and insurance claims from profits for computing deduction under Section 10B. The Assessing Officer (AO) and CIT(A) held that the interest income of Rs. 19,24,528/-, subsidy of Rs. 81,000/-, and insurance claims of Rs. 19,50,000/- were not derived from the industrial undertaking and thus not eligible for deduction under Section 10B. The Tribunal, however, held that all income arising during the course of running the eligible business qualifies for deduction under Section 10B, citing various judicial precedents including CIT vs. Koshika Telecom Ltd., CIT vs. Hritnik Exports Pvt. Ltd., and the Full Bench decision of the Karnataka High Court in Hewlett Packard Global Soft Ltd. The Tribunal directed the AO to include the interest income, subsidy, and insurance claims in the profits eligible for deduction under Section 10B.

Issue 2: Exclusion of Benefit under DEPB Scheme while Computing Deduction under Section 80HHC

The AO excluded the benefit under the DEPB Scheme from the profits for computing deduction under Section 80HHC, as the assessee failed to provide evidence that the rate of drawback credit attributable to customs duty was higher than the rate of credit under the DEPB scheme. The Tribunal, referencing the Supreme Court's decision in Topman Exports vs. CIT, held that only the profit earned from the sale of DEPB credits, excluding the face value of the DEPB, should be excluded for computing deduction under Section 80HHC. The matter was remanded back to the AO to decide afresh in light of this judgment.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to include the interest income, subsidy, and insurance claims in the profits for computing deduction under Section 10B and to reassess the exclusion of DEPB benefits in accordance with the Supreme Court's judgment in Topman Exports.