2016 (7) TMI 317 - AT - Income Tax

Deduction claimed u/s.10B denied - Held that - The tone and tenor of the judgment of Tata Elxsi Ltd 2015 (10) TMI 634 - KARNATAKA HIGH COURT says that benefits u/s.10A of the Act could not be denied even to a manufacturer who was supplying goods to a STP unit which had exported and received foreign exchange. Considering this judgment of Hon ble jurisdictional High Court, we are of the opinion that the matter requires a fresh look by the AO. The AO has to verify whether Exim Policy cited by Hon ble jurisdictional High Court, while giving a finding that benefit u/s.10A would be available even to an assessee which was not directly into exports, is applicable to an assessee preferring a claim u/s.10B of the Act, as well. We therefore set aside the order of the authorities below and remit the issue regarding availability of deduction u/s.10B of the Act, back to the AO for consideration afresh in accordance with law. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Eligibility for deduction under Section 10B of the Income-tax Act, 1961.
2. Realization of export proceeds in foreign currency.
3. Interpretation of Section 10B in light of Exim Policy.
4. Applicability of previous Tribunal decisions and High Court judgments.

Detailed Analysis:

1. Eligibility for Deduction under Section 10B of the Income-tax Act, 1961:
The primary issue in this appeal is whether the assessee is entitled to a deduction under Section 10B of the Income-tax Act, 1961. The assessee, engaged in manufacturing and exporting automotive components, claimed a deduction of ?2,91,91,134/- under Section 10B. The Assessing Officer (AO) disallowed this claim on the grounds that the assessee did not receive the export proceeds in convertible foreign currency, as required under sub-section (3) of Section 10B. The AO's stance was that the deduction under Section 10B could not be granted unless the export proceeds were realized in foreign currency.

2. Realization of Export Proceeds in Foreign Currency:
The assessee argued that it was authorized by the competent authority (ACIT, Customs) to receive the sale consideration in Indian currency from Toyota Tsusho India P. Ltd. (TTIPL). The assessee provided a Foreign Inward Remittance Certificate (FIRC) obtained by TTIPL to support its claim that TTIPL received the foreign currency as an agent of the assessee. However, the AO maintained that the export proceeds must be realized in foreign currency to qualify for the deduction under Section 10B.

3. Interpretation of Section 10B in Light of Exim Policy:
The assessee relied on Policy Circular No.19 (RE-2006) 2004-09, which stated that exports effected through a third party, with foreign exchange realized in the name of the third party, were eligible for export benefits if the goods were manufactured in an Export Oriented Unit (EOU). However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this argument, stating that Section 10B did not provide for third-party exports, unlike Section 80HHC, which allowed such claims. The CIT(A) also noted that similar claims by the assessee for previous assessment years were disallowed and upheld on appeal.

4. Applicability of Previous Tribunal Decisions and High Court Judgments:
The assessee admitted that its claims for the assessment years 2008-09 and 2009-10 were disallowed by the Tribunal. However, the assessee argued that the Tribunal's decision relied on a coordinate bench decision in Tata Elxsi Ltd. v. ACIT, which was later overturned by the Hon'ble jurisdictional High Court. The High Court ruled that benefits under Section 10A could be granted even if the assessee was not a direct exporter but exported through another STP unit that received foreign exchange. The Tribunal's earlier decision, which denied the deduction under Section 10B based on the same reasoning, was no longer applicable.

Conclusion:
The Tribunal acknowledged the High Court's judgment, which emphasized that benefits under Section 10A could be extended to manufacturers supplying goods to an STP unit that exported and received foreign exchange. The Tribunal noted that the AO needed to verify whether the Exim Policy cited by the High Court, which allowed benefits under Section 10A for indirect exports, was also applicable to claims under Section 10B. Consequently, the Tribunal set aside the orders of the lower authorities and remitted the issue back to the AO for fresh consideration in accordance with the law.

Outcome:
The appeal of the assessee was allowed for statistical purposes, and the matter was remitted back to the AO for a fresh examination of the eligibility for deduction under Section 10B, considering the applicability of the Exim Policy and the High Court's judgment.

Order Pronounced:
The order was pronounced in the open court on the 27th day of May, 2016.