2015 (8) TMI 845 - AT - Income Tax

Entitlement to exemption u/s 10B - Held that - There is a blending of tea in the present case of assessee and assessee before AO during remand proceedings have proved the complete procedure explaining that there is blending of tea. This is exactly in line with the order of ITAT Kolkata Special Bench in the case of Madhu Jayanti International Ltd (2012 (7) TMI 531 - ITAT KOLKATA) wherein held that the assessee who are in the business of blending and processing of tea and export thereof, in 100% EOUs are manufacturer/ producer of the tea for the purpose of claiming exemption u/s. 10B. Hence, respectfully following it we feel that issue is now covered against Revenue and in favour of assessee Disallowance commission payment - CIT(A) deleted the addition - Held that - Issue is covered in favour of assessee and against Revenue exactly on identical facts and circumstances of Hon ble jurisdictional High Court in the case of CIT v. Rajarani Exports P. Ltd.(2013 (5) TMI 410 - CALCUTTA HIGH COURT) wherein considered that assessee made payment of commission in consideration of services rendered. The CIT(A) held that the commission on export activity was fully disclosed in all correspondence and activities in relation to export, the commission was paid through banking channels with the Reserve Bank approval and it was paid pursuant to an agreement approved by the Government of India and the United Nations, that the payment of commission was for business consideration and there was no illegality in it, that besides this, nothing was brought on record to show that the transaction relating to payment of commission were not genuine or that the payments were excessive or unreasonable, that the Volker Committee report had discussed the utilisation of money by the recipient of the commission and stated that neither the assessee nor the Government of India was involved in parting with some of the funds so received as commission under a pact between the Iraq Government and the United Nations. - Decided against revenue.

Issues Involved:
1. Validity of proceedings initiated under Section 147.
2. Denial of exemption under Section 10B for tea blending and export.
3. Deleting disallowance of deduction under Section 80HHC.
4. Deleting disallowance of commission payment.
5. Inclusion of surplus from valuation of foreign currency balance in taxable income.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 147:
The first issue raised by the assessee was against the order of CIT(A) in holding that the proceedings under Section 147 were validly initiated. The assessee did not press this ground during the hearing, and thus, it was dismissed as not pressed.

2. Denial of Exemption Under Section 10B for Tea Blending and Export:
The second issue was regarding the denial of exemption under Section 10B of the Income Tax Act for the assessee's tea blending and export activities. The CIT(A) denied the exemption by holding that blending of tea does not constitute manufacturing or production of an article or thing, referencing the Supreme Court's decision in CIT vs. Tara Agencies (2007). The Special Bench of ITAT Kolkata in the case of Madhu Jayanti International Ltd. v. Dy. CIT (2012) held that blending and packing of tea for export qualifies as manufacturing for the purpose of Section 10B. The ITAT followed this decision and allowed the assessee's appeal, holding that the assessee is entitled to the exemption under Section 10B.

3. Deleting Disallowance of Deduction Under Section 80HHC:
The third issue was about the CIT(A) deleting the disallowance of the deduction under Section 80HHC, which was not claimed by the assessee in the original or revised return. The assessee did not press this ground during the hearing, and thus, it was dismissed as not pressed.

4. Deleting Disallowance of Commission Payment:
The fourth issue involved the CIT(A) deleting the disallowance of commission payments. The ITAT found that the issue was covered in favor of the assessee by the jurisdictional High Court's decision in CIT v. Rajarani Exports P. Ltd. (2014), where it was held that the payment of commission was for business consideration and was fully disclosed. The ITAT confirmed the CIT(A)'s order, deleting the disallowance of commission payments.

5. Inclusion of Surplus from Valuation of Foreign Currency Balance in Taxable Income:
The fifth issue was about the CIT(A) holding that the surplus arising from the valuation of foreign currency balance in the EEFC Account as on 31.03.2003 was liable to be included in the taxable income. The assessee did not press this ground during the hearing, and thus, it was dismissed as not pressed.

Conclusion:
The ITAT allowed the assessee's appeal regarding the exemption under Section 10B for tea blending and export activities, following the Special Bench decision in Madhu Jayanti International Ltd. The other grounds raised by the assessee were dismissed as not pressed. The ITAT also dismissed the Revenue's appeals, confirming the CIT(A)'s order in favor of the assessee regarding the deletion of disallowance of commission payments. The order was pronounced in the open court on 14.08.2015.

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