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TMI Blog2014 (10) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... th year. During scrutiny assessment proceeding, AO on examining the facts and materials on record, noticed that assessee has claimed deduction u/s 10B of Rs. 1,42,65,614 on export turnover of Rs. 11,04,52,037. On verification of details submitted by the assessee relating to its export turnover, AO noticed that out of the total amount claimed as export turnover, an amount of Rs. 3,37,14,685 was received in Indian currency towards sales made within the country. When the AO asked the assessee to explain why local sales have been included in the export turnover, assessee explained that the same represents merchant exports. In other words, sales were made to two companies M/s Medtec Products ltd., Chennai, which is also a 100% EOU project for condoms, and M/s Synmedic Labs, New Delhi, both of 100% EOU and who who ultimately exported them out of the country. Assessee further claimed as per the provisions of exim policy, a sale transaction from one 100% EOU project to another 100% EOU project is considered as merchant export and has to be treated as export sales. The AO on interpreting provisions contained u/s 10B of the Act, however, was of the view that deduction u/s 10B is allowed only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d issue relates to the action of the Assessing Officer in restricting the claim of deduction u/s 10B of the IT Act to Rs. 36,28,536/- instead of Rs. 1,42,65,614/- claimed by the appellant. For the said restriction, the Assessing Officer has made 5 adjustments, the merits of which are discussed as under: 7B(i) This issue relates to export turnover, where sales are made from one 100% EOU to another 100% EOU, involving an amount of Rs. 3,37,14,685. It may be noted here that the appellant has sold part of the merchandise to two of 100% EOUs and claimed that in respect of this turnover also, the profits derived was eligible for deduction u/s 10B, but whereas, the Assessing Officer has negative it on the ground that as only Indian rupees were received from both the 100% EOUs, disentitled the income proportionately, which is under protest. It may be noted here that as per proviso to sub-section (1) of section 10B further provides that profits on domestic sales to the extent of 25% of total sales shall be deemed to be the profits and gains derived from export of articles or things or computer software. In course of the appellate proceedings, the AR has explained that "EOU" means an export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the exim policy. Learned AR placing strong reliance on the exim policy submitted that as per the exim policy since sale to another 100% EOU is also treated as export sales, assessee should not be denied exemption u/s 10B of the Act on that part of the turnover, which was sold to 100% EOU. Learned AR submitted that ITAT Ahmedabad Bench in case of ITO Vs. Anita Synthetics (P) Ltd., 100 TTJ 277 while dealing with the issue has considered exim policy and held that sales made to another 100% EOU which in turn exports to foreign country is also eligible for exemption u/s 10B. Learned AR submitted that AO while coming to his conclusion has relied on the provisions contained u/s 10BA of the Act, which uses the expression "export out of India", whereas no such expression has been used u/s 10B of the Act. Further, distinguishing the decision of the Hon'ble AP High Court, learned AR submitted that ratio laid therein will not apply to the facts of the present case as the 100% EOU to whom assessee has sold the products are not the agents of the assessee. Learned AR, therefore, urged that assessee's claim of exemption u/s 10B should be allowed. 5. Learned DR, on the other hand, strongly rely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or things for a period of 10 years. Sec. 80HHC of the Act is to the effect that an assessee, being an Indian company engaged in the business of 'export out of India', may be allowed deduction of the profits to the extent specified in s. 80HHC(1B) of the Act. The Explanations to all these provisions has a definite bearing in understanding s. 10B(3) of the Act on which the petitioner's counsel placed considerable emphasis. For ready reference, we quote the same hereunder. "Sec. 10B(3). This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf." 8. The language of s. 10B(3) of the Act is plain. It does not admit any other meaning than what is conveyed by the language used therein. The benefit under s. 10B(1) of the Act is available to 100 per cent EOUs only if the sale proceeds of articles or things exported out of India are received in convertible foreign exchange. Two conditions sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Supreme Court which reads as under : "The Allahabad High Court specifically considered the effect of introduction of Expln. (aa) to s. 80HHC of the Act and had taken view in Ram Babu & Sons & Anr. vs. Union of India & Anr. (1997) 141 CTR (All) 310 : (1996) 222 ITR 606 (All) that this Explanation means that, for the purpose of this section, there will be no export out of India if two conditions are cumulatively fulfilled viz., (a) it is a transaction by way of sale or otherwise in a shop, emporium or establishment situate in India, and (b) that it does not involve clearance in any customs station as defined in the Customs Act. This view of the Allahabad High Court had been consistently followed by several other High Courts, including the Rajasthan High Court itself in ITO vs. Vaibhav Textiles (2002) 177 CTR (Raj) 593 : (2002) 258 ITR 346 (Raj)." 11. It is the admitted position herein that initially Proteco agreed to take delivery of wire/cable drawing machines at Hyderabad ex-factory, subsequently Proteco sent a communication advising the appellant to deliver the machinery to their agent at Silvasa which is also a 100 per cent EOU, the payment was received in conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r packing its product by purchasing it from outside parties. Accordingly, he treated the turnover of Rs. 18,54,969 as not eligible for deduction u/s 10B of the Act. CIT(A) also confirmed the view of the AO by holding that since the assessee has not manufactured packing material but has purchased it from third parties and exported to foreign country it will not come within the purview of export turnover as envisaged u/s 10B of the Act. 8. We have considered the submissions of the parties and perused the materials on record. As can be seen from the orders of the revenue authorities, the only reason on which they have held that the amount of Rs. 18,54,969 would not be eligible for exemption u/s 10B is packing materials were not manufactured by assessee. In this context, however, we have to observe that the products manufactured by assessee could not have been exported without packing materials, hence, the observation by the lower authorities that it cannot be considered as part of the export turnover, in our view, is not correct. When a particular article or thing cannot be exported without its container/packing, same has also to be considered as part of the product and consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X
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