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TMI Blog2015 (10) TMI 2557X X X X Extracts X X X X X X X X Extracts X X X X ..... verse the order of ld. CIT (A) to that extent. Hon’ble Supreme Court in the case of Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA ) held that entire sale proceeds not to be treated as profits but only difference between sale value and face value of credit – DEPB credit chargeable as income under section 28(iiib) in year in which applied for against exports. Further, profit on transfer of credit chargeable under section 28(iiid) in year in which transferred. Thus Assessing Officer is directed to recalculate the income accordingly. - ITA No. 763/JP/2012, C.O. NO. 66/JP/2012 - - - Dated:- 30-10-2015 - SHRI R.P. TOLANI, JM AND SHRI T.R. MEENA, AM For The Revenue : Shri Kailash Mangal JCIT) For The Assessee : Shri Vikas Rajvanshi (C.A.) ORDER PER: T.R. MEENA, A.M. This is an appeal by the Revenue and the Cross Objection is by the assessee against the order dated 06.06.2012 passed by the learned CIT (A)-II, Jaipur for A.Y. 2009-10. The effective grounds of appeal are as under :- On the facts and in the circumstances of the case the ld. CIT (Appeals) has erred in (1) allowing exemption u/s 10BA to a trading and export firm which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is a landmark decision. In this decision it has been held that mere mining of limestone and marble and cutting the same before it was sold in the market cannot be called manufacturing. There must be transformation of the item which is distinguishable from the original material. Assembly of different parts and polishing them is not manufacturing. 3.1. The assessee has claimed that ₹ 98,15,615/- were paid as job work charges to disprove that assessee was not simply in the trading. Here it may be stated that labour charges were ₹ 13,33,214/- which is far less than the job work charges. That is to say that the said manufacturing was through job worker. In this connection it may be stated that this also is not manufacturing. In the case of Liberty Group Marketing Division vs. ACIT (ITAT, Del) 61 TTJ 566 it has been held that shoes got manufactured from cobbler on piece rate basis is not manufacturing since they are not employee of the assessee. Same view has been upheld by the Hon ble Madras High Court in the case of CIT vs. AR Balraman, 242 ITR 470. 3.2. The Assessing Officer, in view of the above and considering the history of the case held that the assessee does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s aspect has also been examined by ld. CIT (A) and found that the assessee has incurred substantial expenditure on its manufacturing activity. Statements of 12 persons were recorded by Assessing Officer during remand proceedings and those persons have categorically stated that they sold unfinished goods to the assessee and major portion of work on those goods have been done by the assessee itself in their premises. Neither the facts narrated by the supplier were found incorrect nor there was any other evidence to hold that the assessee is only doing manufacturing process. On similar facts, the Tribunal in case of Mangalam Arts in ITA No.815/JP/2007 dated 20.06.2008 has held that the assessee is entitled for deduction under section 10BA. The ld. CIT (A) has also taken this case into considered view and in view of rule of consistency, the ld. CIT (A) was justified in holding that the assessee is entitled for deduction under section 10BA of the Act. Neither any fresh material was brought on record by ld. CIT DR nor the findings of ld. CIT (A) could be controverter by placing positive material therefore for this reason also, we are of the view that order of ld. CIT (A) is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econstruction, of a business already in the existence. c) It is not formed by the transfer to a new business of Machinery or Plant previously used for any purpose. Since assessee has started a new undertaking as described above and the assessee had purchased all new Plant Machinery for manufacturing process. Therefore this condition is also fulfilled. The main machinery was hand tool, grinder, sanding machine drill machine required for wooden handicraft artistic work. d) Ninety percent r more of its sale during the previous year relevant to the assessment year are by way of exports of the eligible articles or thing; During the year also, the assessee has exported 99.85% of eligible articles or things. Hence the above said condition of section 10BA is fulfilled by the assessee. e) It employs twenty or more workers during the previous year in the process of manufacture or production. Section 10BA of the Income Tax Act specifies that the assessee employs twenty or more workers during the previous year in the process of manufacture or production. As per the wages register so produced before the Assessing Officer, total workers employed by the assessee during the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value addition was made after production activities and goods were not exported as such. Only on the basis of purchases being made against Form 17B, it could not be said that the assessee had not done any manufacturing activity because as per Rule 23(1)(b) of RST Act, There was no prohibition on the buyer exporter from making changes in the products to be exported and there was nothing which could warrant adverse inference on the ground that purchases were made against Sale Tax 17B Form. In view of above facts, I direct the Assessing Officer to allow exemption U/s 10BA to the appellant subject to other conditions as discussed in para 4.1 of this appellate order. This ground of appeal is allowed. 5. Now the revenue is before us. The ld. D/R supported the order of the AO. The ld. A/R of the assessee argued that the assessee s case is covered by the decision of ITAT in assessee s own case for A.Ys. 2004-05, 05-06, 06-07 and recently on 27.02.2015 for A.Y. 2008-09 in ITA No. 222/JP/2012 in favour of the assessee. Therefore, he requested that the issue has already been considered by the Hon ble Bench, therefore, the same may be allowed. 6. We have heard rival contentions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sub sections are read together, it becomes clear that the profit which is eligible for deduction is that which is derived from export of items manufactured or produced by it. No other profit is eligible. The assessee has relied on provisions of section 80HHC wherein the proper method of working of deduction has been given. In that working, they separately dealt the export incentives. The separate treatment itself indicates that even in that section the incentives were not treated at par with the profit from export of goods etc. The assessee has relied upon the case of Govind Prasad Singhal of ITAT. The argument was considered and not found acceptable. The ITAT had not stated how the decision of Hon ble Supreme Court is not applicable. They had only stated how the working has to be done for deduction. Moreover, the decision had not been accepted by the department. Thus the AO calculated the deduction under section 10BA at ₹ 17,69,034/-. 9. Being aggrieved by the order of AO, assessee carried the matter before ld. CIT (A), who had partly allowed the appeal by observing as under :- 4.1 I have duly considered the submissions of the appellant. The issue under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 80HHC in a case where the income is being taxed under section 115JB is to be allowed for the purpose of deduction mentioned in section 80HHC(3) or is to be restricted under section 80HHC(1)(B) of the IT Act. The Hon ble Apex Court held that section 80HHC(1) and 1(B) refers to the eligibility while section 80HHC(3) refers to the deductibility. Considering the distinction drawn between the words eligibility and deductibility by the Hon ble Apex Court in the case of Ajanta Pharma Ltd., one will have to consider the deductibility under section 10BA(4). The provisions similar to section 10BA(4) and 10BA(1) are there in section 10B of the IT Act. Similar provisions are in section 10B has been substituted by the Finance Act, 2001 with effect from 1.04.2001. While interpreting the section 10BA(1) and section 10BA(4), the Bangalore Bench in the case of ACIT vs. Motorola India Pvt. Ltd. 114 ITD 387 held that entire profit including the interest income assessed as business income of the assessee is entitled for deduction. The provisions similar to provisions of section 10BA(1) and 10BA(4) are contained in section 10A of the IT Act. The Mumbai Bench of the Tribunal in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness for computing the deduction under section 80HHC. The issue is further clarified by the Hon ble Supreme Court in the case of B. Desraj vs. CIT (2008) 171 Taxman 481 (SC) 301 ITR 439 (2008) by rejecting the department s stand that cash compensatory support and duty draw back would not be an eligible income for the purpose of deduction under section 80HHC even if part of income chargeable to tax as business profit under section 28(iiib). As per ld. A/R s submission, section 10BA is akin to section 80HHC not similar to 80IB so as the same footing the assessee is also eligible for deduction under section 10BA of the IT Act. The Hon ble Supreme Court decision in the case of Liberty India (supra) is distinguishable. 11.1 The ld. A/R further submitted that the amount of duty draw back/DEPB was intended to neutralize the incidence of duty on inputs consumed/utilized in the manufacture of exported goods resulting into increased profits derived from the business of the industrial undertaking which profits qualified for deduction under section 10BA. Since no excise duty/customs duty was payable on raw materials consumed/utilized in manufacturing goods exported out of India, the duty pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Hon ble Jurisdictional High Court of Rajasthan in the landmark case of Saraf Seasoning Udyog vs. ITO, 219 CTR 461 (Raj.) 317 ITR 202 wherein it has been held that on a combined reading of sec. 80IB(4) and sec. 28(iiid), as introduced, does make clear, that the profit derived on transfer of DEPB licenses, does very much fall within four corners of profits and gains, derived from such industrial undertaking, being assessee, and is capable of being taxed only under sec. 28, subject to exemption, as provided in sec. 80IB, and/or other eligible provisions . Hence the amount of duty draw back and sale of license is related to export of eligible goods which is prime condition of sec. 10BA and eligible for deduction u/s 10BA. 11.3. In view of the above landmark cases and fact of the case and as per Income Tax Act, 1961 the export incentives are part of business profit of the assessee and eligible for 10BA deduction. 11.4. The ld. A/R of the assessee further submitted that from the above it is clear that sub-section (1) defines the eligibility for allowing the deduction u/s 10BA while sub-section (4) specifies as to how the quantum of deduction is to be calculated. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erived from export out of India of the eligible article or thing is eligible for deduction. Since, Duty Drawback and sale of license is derived from export out of India hence eligible for deduction u/s 10BA. 11.5. The ld. A/R, hence submitted that from the above it is amply clear that 10BA is allowed on the profit derived by an undertaking from export out of India and duty drawback and cash incentives are profit derived due to export out of India. It was also held by the ITAT Jaipur Bench in the case of Goverdhan Prasad Singhal vs. ACIT, Circle-6, Jaipur vide ITA No. 415/JP/2010 submitted also copy of ITA No. 200/JP/2008, 964/JP/2007, 797/JP/2008 and 1000/JP/2008 enclosed vide page no. 129 to 162 which is fully similar to our case and same issue was decided by ITAT that We, therefore hold that the computation of deduction u/s 10A is to be drawn in accordance with section 10BA(4). The credit of duty drawback and profit from DEPB is to be included in the total turnover for computing deduction u/s 10BA as per section 10BA(4). The AO will re-compute the deduction u/s 10BA on the duty drawback after including in the profit of the business and also including the same as part of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80IB deduction is allowed to certain industrial undertaking other than infrastructure development undertaking from the profit and gains derived from any business referred to in sub section (3) to (11), (11A) and 11B) as such business being referred to as the eligible business on certain percentage basis and for such number of assessment years specified under the law. Section 10BA also provides special deduction of such profit of eligible article or things. This section applies to any undertaking which fulfill the following conditions, namely, (a) It manufactures or produces the eligible articles or things without the use of imported raw materials ; (d) Ninety per cent or more of its sales during the previous year relevant to the assessment year are by way of exports of the eligible articles or things. Besides these, other conditions provided in clause (b), (c) and (e) are to be fulfilled for claiming deduction. The sub section (4) of section 10BA reads as under :- Sub Section (4) : For the purposes of sub-section (1), the profits derived from export out of India of the eligible articles or things shall be the amount which bears to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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