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TMI Blog2016 (12) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has also simultaneously claimed exemption u/s.10B of the Act on following other items of income allegedly not in the nature of business income and/or not derived from the business of Exports, namely: * Interest [including tax deducted at source Rs. 34,985/- previous year Rs. 42,228/- Rs. 7,17,270/- * Insurance refund Rs.28,87,424/- * Sales Tax Refund Rs. 91,150/- * Sale of Scrap Rs.16,88,437/- * Sundry balance written off Rs.30,72,912/- 2.1. The AO discrded the claim of deduction under S.10B of the Act on the various items of income noted above, The relevant paras of the order of the AO dealing with the various items is reproduced hereunder for ready reference: "3. Interest Income: On verification of P&L A/c of the assessee, it was observed that the assessee had shown interest income of Rs. 7,17,20/-. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show caused to explain as to why interest income shown by the assessee should not e treated as income from other sources. 3.1. The assessee vide letter dtd. 21/11/2011 filed the written submission stated as under: "Interest income of Rs. 7,17,270/- is derived from the Deposit kep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance claim amount received from the insurance company was Rs. 8,87,424/- in this regard. The details and the documents in this regard were submitted before your good self vide submission dated 23rd August 2011. The refund is received by the assessee in the due course of business. Hence the said income gets within the ambit of profit of business of undertaking and there is no reason as to why such items should not be considered for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s.10IB is what forms part of the "profits of the business of undertaking" u/s.10B(4) r.w.s. 10B(1) of the Act. In view of above said submission, we most respectfully submit that all such items are to be considered while computing deduction u/s.10B. Accordingly, the deduction claimed by the assessee is correct and no disallowance is required to be made in this regard." 4.2. The assessee's reply was carefully considered and found not to be acceptable as the Insurance Refund is not the profit of the business income. Further, the Section 10B deduction is only related to the profit of the business derived by hundred percent export oriented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only related to the profit of the business derived by hundred percent export oriented undertaking from the export of the articles or things, or computer software for the period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking beings to manufacture or produce articles or things as the case may be. From the above definition it is very clear that that it should be related to the profits and gains derived from the 100% export oriented, while the sales tax refund is not the profit which is derived from the export oriented. The claim of deduction of sales tax refund u/s.10B is disallowed and added back to the income. 6 Sundry Balance written off: On verification of profit and loss account, it was seen that the assessee has shown sundry balance written off amounting to Rs. 30,72,912/- as income from other sources and the same has been claimed as deduction u/s.10B of the Act. Vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show cause to explain as to why sundry balance written off shown by the assessee should not be treated as income from other sources. 6.1. The assessee vide letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or things or computer software export outside India are received in or brought into India by the assessee in the convertible foreign exchange within the period of six months from the end of the previous year or as the competent authority is allowed. Therefore, vide annexure to the notice u/s.142(1) dtd. 14/11/2011 the assessee was show caused to explain as to why Scrap Realization shown by the assessee should not be treated as income from other sources." 2.2 Accordingly, the AO held that income credited by the Assessee towards (i) scrap sale, (ii) sundry balance written off, (iii) Insurance refund, (iv) Sales Tax Refund and (v) Interest income are not eligible for the purposes of deduction under S.10b of the Act. The AO also observed that what is eligible for deduction under S.10B of the Act is Profit and Gains 'derived' by a 100% EOU from the export of articles or things, etc. and not every income which may be attributable to its business but not derived by an undertaking from exports of articles or things, etc. The AO thus declined to accept the claim of the assessee in the aforesaid items towards deduction under S.10B of the Act. 3. Aggrieved by the order of the AO, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s.10B of the Act. 4.1.Without prejudice to above, it is submitted that the Learned CIT(A) has erred in law and on facts in considering interest income as income from other sources under Chapter-IVF of the Act in place of income from business or profession under Chapter-IVD of the Act. 5. The learned CIT(A) has erred in law and on facts in not considering Sales Tax Refund (Rs.91,150) and Sundry balances written off (Rs.30,72,912) for the purpose of exemption, especially so in view of the fact that what is intended by the legislature to exempt u/s.10B is what forms part of the 'profits of business of the undertaking' u/s.10B(4) r.w.s.10B(1) of the Act. 5.1 The learned CIT(A) as erred in stating that sundry balances writtenback (in relation to raw material purchased in the past) are not related to expenses of manufacturing despite the fact that Appellant's undertaking, eligible for deduction u/s.10B, is the only business undertaking it has through which the business is carried out on by it. 6. The learned CIT(A) has erred in not allowing deduction u/s.10B of the Act in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the "profits of the business of the undertaking" to the "export turnover" compared to the "total turnover". The Ld.AR further submitted that section 10(4) does not state that profits should be derived from the business of the undertaking but merely states that the profits to be of the business of undertaking. He, thus, submitted that reliance placed by the AO on the decision of Liberty India Pvt.Ltd. reported in 317 ITR 218(SC) is misplaced. The Ld.AR submitted that similar issues of disallowance of various claims towards various miscellaneous income for the purposes of section 10B arose in assessee's own case for AY 2007-08 where the appeal of the assessee was allowed. He therefore submitted that the CIT(A) was not justified in denying the relief claimed as per grounds of appeal and therefore order of the CIT(A) is to be set aside. The Ld.AR relied upon in its own case in ITA Nos.2665 & 2720/Ahd/2011, for AY 2007-08, order dated 01/01/2016 to support the grounds of appeal raised. 9. The Ld.DR for the Department Mr.Samir Vakil, on the other hand, supported Revenue's appeal. In support thereof, Ld.DR relied upon the order of the AO and challenged the order of the CIT(A) wherein cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 10B in respect of export incentives. 78. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Reserarch Park Laboratories v. ACIT (supra). In the assessee's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit. 11. We also find that the decision of Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) was upheld by Hon'ble Delhi High Court in the case of Hritnik Export Pvt. Ltd.(ITA No. 219/2014 & 239/2014 order dated 13.11.2014) wherein Hon'ble High Court dismissed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the ''profits of the business'' eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself, there is no dispute that both these incomes have been treated by the Assessing Officer as business income. The CBDT Circular No. 564 dated 5th July, 1990 reported in 184 ITR (St.) 137 explained the scope and ambit of section 80HHC and the mode of determination of profits derived by an assessee from the export of goods. I.T.A.T., Special Bench in the case of International Research Park Laboratories v. ACIT, 212 ITR (AT) 1, after following the aforesaid Circular, held that straight jacket formula given in sub-section (3) has to be followed to determine the eligible deduction. The Hon'ble Supreme Court in the case of P.R. Prabhakar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits derived from exports under Subsection (1), has to be determined as per the formula stipulated in Sub-Section (4), otherwise Sub-section (4) would become otise and irrelevant. The issue in question in this appeal which pertains to the Assessment Year 2009-10, relates to duty draw back in the form of DEPB benefits. As per Section 28, clause (iii-c), any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded. Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material on record to demonstrate that Assessee was having any other business other than exports and the aforesaid income were derived out of that other business. In view of the aforesaid facts, we are of the view that Assessee is eligible for deduction on the profits from subsidy, interest income, sale of scrap, sales tax refund and sundry balances written off. We thus set aside the order of ld. CIT(A). 14. In the result, the appeal of Assessee is allowed and that of Revenue is dismissed." 11. At the outset, we are inclined to agree with the contentions putforth on behalf of the assessee that the expression "profits of business of the undertaking" is wider than "profits and gains derived by an undertaking". The reasons are not far to seek. We note that sub-section 4 to S.10B explicitly explains the term "profit derived from export of articles or things etc." to mean the amount which bears to the "profit of the undertaking", the same proportion as the export turnover bears to the total turnover of the business carried on by the undertaking. Thus, what is required to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities which can be termed as business income and not interest arising on deployment of such business income. Thus, for the purpose of computation of deduction of formula provided by section 10B(4) of the Act, the "interest income" cannot be included within the pale of "business profits" which is clearly in the nature of "income from other sources" in the instant case. Therefore, order of the CIT(A) to this extent cannot be said to be erroneous in the facts of the case. It would be pertinent to notice here that in the earlier AY 2007-08, the interest income has been accepted for the purpose of deduction u/s.10B of the Act purportedly on the premise that AO has mainly relied upon the decision of the Hon'ble Apex Court in the case of Liberty India (317 ITR 218) which was distinguished by the Tribunal on facts. As against this, in the assessment year in appeal, the AO has rejected the interest claim on the ground that the income arising from Bank deposits are in the nature of "income from other sources" and not business income with which we fully agree. Hence, we find no infirmity in the order of CIT(A) for denial of deduction under S.10B of the Act towards interest income. 13. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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