2019 (3) TMI 1542 - AT - Income Tax

Deduction u/s 10B computation - AO made addition in respect of duty draw back claim and not including income from typesetting and scan and exchange rate fluctuation as well as not reducing the sale of scrap from the cost of sale and setting it off from the turnover - HELD THAT - Considering assessee s submission has to be remanded back to the file of the CIT(A) for considering Duty Drawback u/s 10B in light of the decision of Topman Exports 2012 (2) TMI 100 - SUPREME COURT OF INDIA . DR does not object for the same. We, therefore, remand back this issue to the file of the CIT(A) for fresh adjudication in light of the decision of the Apex Court in case of Topman Export (Supra). Ground No. 1 of the assessee s appeal is partly allowed for statistical purpose. Inclusion of sale of scrap in computing deduction u/s 10B - HELD THAT - As relying on SADHU FORGING LTD. 2011 (6) TMI 9 - DELHI HIGH COURT receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deducting under section 80-IB. Including the constructive export computing deduction u/s 10B - HELD THAT - CIT(A) has rightly held that there is no independent counter sale by the assessee as the assessee supplied the published material to local shopkeepers who are importers of books, from the foreign publishers as per the instruction of the foreign clients (publishers) of the assessee and the sale was actually made by the assessee to the foreign buyer and only the delivery is made to the Indian importer instead of sending the published material aboard and again bringing it back to avoid two way movements of goods. This claim was also allowed by the Revenue in A.Ys. 2005-06 to 2007-08, therefore, rule of consistency also has to be applied. also see REPLIKA PRESS PRIVATE LIMITED AND ANR VERSUS ASSISTANT COMMISSIONER OF INCOME TAX. CIRCLE 15(1). NEW DELHI 2013 (1) TMI 625 - DELHI HIGH COURT - Decided against revenue

Summary

Issues Involved:
1. Taxation of duty drawback and rebate under Section 10B.
2. Reduction of sale scrap from the cost of sale and its treatment in turnover.
3. Inclusion of constructive export in total turnover for deduction under Section 10B.

Issue-wise Detailed Analysis:

1. Taxation of Duty Drawback and Rebate under Section 10B:
The assessee contested the inclusion of ?23,45,668/- pertaining to duty drawback in taxable income and the denial of rebate under Section 10B. The tribunal remanded this issue back to the CIT(A) for fresh adjudication in light of the Supreme Court's decision in Topman Exports (342 ITR 49). The decision emphasized that the CIT(A) should reconsider the duty drawback claim in accordance with the Apex Court's guidelines. Hence, this ground of the assessee’s appeal was partly allowed for statistical purposes.

2. Reduction of Sale Scrap from Cost of Sale and Its Treatment in Turnover:
The assessee argued that the sale of scrap amounting to ?53,34,092/- should be reduced from the cost of sale rather than being set off from the turnover. The tribunal agreed with the assessee, referencing the Delhi High Court's decision in CIT vs. Sadhu Forging Ltd. (336 ITR 444), which held that receipts from the sale of scrap are part and parcel of the manufacturing process and should be included in the gains derived from industrial undertakings for computing deductions under Section 80-IB. Consequently, the tribunal allowed this ground of the assessee’s appeal, directing that the sale of scrap be reduced from the cost of sale.

3. Inclusion of Constructive Export in Total Turnover for Deduction under Section 10B:
The Revenue challenged the CIT(A)'s direction to include ?4,36,65,896/- from constructive exports in the total turnover for Section 10B deduction. The Revenue argued that no physical goods were exported out of the country, and thus, such exports should not qualify for exemption under Section 10B. The tribunal, however, upheld the CIT(A)'s decision, noting that the constructive exports involved delivery to local agents of foreign buyers, with payments received in convertible foreign exchange. This practice was consistent with prior years (2005-06 to 2007-08), where such claims were allowed. The tribunal also referenced the Delhi High Court's ruling in the assessee's favor, which recognized the legitimacy of including constructive exports for Section 10B deductions. Therefore, the tribunal dismissed the Revenue's appeal on this issue.

Conclusion:
The tribunal's judgment resulted in the partial allowance of the assessee’s appeal for statistical purposes and the dismissal of the Revenue’s appeal. The tribunal emphasized adherence to precedents and consistency in the application of tax laws, particularly regarding the treatment of duty drawbacks, sale of scrap, and constructive exports under Section 10B. The order was pronounced in the Open Court on 26th March 2019.