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TMI Blog2019 (7) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... e outside in India for such services then such payment to foreign parties ought not to have been considered as accrued or arisen in India by the AO which is not at par GE INDIA TECHNOLOGY CENTRE PRIVATE LTD. VERSUS CIT. [ 2010 (9) TMI 7 - SUPREME COURT] and TOSHOKU LIMITED (AND ANOTHER APPEAL) [ 1980 (8) TMI 2 - SUPREME COURT] . Respectfully following the same, we do not find any infirmity in deleting the same by the Learned CIT(A) so as to warrant interference. We thus confirm the same. Hence, Revenue s ground of appeal is dismissed. Exemption of income u/s 10AA - higher profits reported by it in comparison to the sister concern - reduction in net profit of eligible business made by the AO - HELD THAT:- No infirmity in the order passed by the Learned CIT(A) in deleting the reduction in net profit of allowable business as made by the Learned AO wrongly invoking the provision of section 10AA(9) r.w.s. 80IA(10) of the Act. We thus confirm the same. Hence, revenue s ground of appeal is found to be devoid of any merit and thus dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... g payment in foreign currency, where TDS was not deducted. Show-cause dated 24.02.2015, therefore, was issued. In reply whereof, the assessee submitted the copy of the account of M/s. Gasworld.com Ltd. where the assessee claimed total expenses of ₹ 11,92,955/- during the year under consideration. The assessee further submitted that such form 15CB being the CA Certificate determines the tax, if any on subject income. Payments made against Import Purchases constitutes Business Income of the Overseas Supplier and the same is taxable in India in the event if it is attributable to the business connection and/or permanent establishment in India in terms of section 9(1)(i) and respective Double Tax Avoidance Agreement. It was further contended that in the absence of any income chargeable to tax in India there cannot be any application of section 195 on the basis of the ratio laid down in the matter of GE India, reported in 327 ITR 456 (SC). The assessee further submitted that the RBI has revised the Form 15CB and Form 15CA w.e.f. 01.10.2013 and also exempted certain class of payments from requirement of obtaining such Certificate. Trade payments do not find any place in the said li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter of G. E. India Technology Center Pvt. Ltd. reported in 327 ITR 456 (SC) and Toshoku Ltd.-vs-CIT reported in 1981 AIR 148 (SC). Relying upon the said judgments, we find that the Learned CIT(A) deleted such disallowance with the following observation: "10.2. I have considered the appellant's submission and the AO's observations. The payment disallowed by the AO has been made by the appellant for Advertisement fee and Sponsorship fees and the payee does not have any permanent establishment in India, The services in relation to such payments have been made outside India. Accordingly, the income in relation to such payments to the foreign parties cannot be deemed to have accrued or arisen in India, The appellant has relied upon several judicial pronouncements in its submission as per which the payments to nonresident for rendering services outside India is not taxable in India in absence of any PE in India. The fact of withdrawal of Circular No.23 dated 23/07/1969 and Circular No.786 dated 07/02/2000 by issuing the Circular No.7/2009 dated 22/10/2009 has also been considered in such decisions. Hence, the action of the AO of disallowing these expenses is not corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee. In appeal, the same was deleted by the Learned CIT(A) relying upon the judgment passed by the Co-ordinate bench in the matter of Pramukh International. Hence the instant appeal before us. 9. At the time of hearing of the instant appeal, it was submitted by the Learned Counsel appearing for the assessee that the case is squarely covered by the judgment passed by the Co-ordinate bench in the matter of Pramukh International, Surat-vs-Department of Income Tax which was followed by the Learned CIT(A) while allowing the appeal preferred by the assessee. He thus, relied upon the order passed by the first appellate authority. On the contrary, the Learned DR failed to controvert the contention made by the assessee's counsel in support of his case. 10. Heard the respective parties, perused the relevant materials available on records. It appears from the records that while deleting disallowance made by the Learned AO the Learned CIT(A) observed as follows: "5.2. I have considered the appellant's submission and the AO's observations. The ground No.2 is related to the addition made by the AO as per provisions of sec.10AA(9) r.w.s 80IA(10). The AO's findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amining the first issue we observe that ld. Assessing Officer has not objected to the eligibility of assessee towards deduction u/s 10AA of the Act which undoubtedly proves that assessee has complied with all the basic conditions required for claiming deduction u/s 10AA of the Act. The issue raised is only towards the quantum of deduction u/s 10AA of the Act. We find that ld. Assessing Officer gathered information relating to gross profit rates and net profit rates of other assessees engaged in similar kind of business activities relating to manufacturing and export of cutting and polished diamonds and observed great variation in relation to GP and NP rates as well as operating expenditure. On the basis of these statistics of ld. Assessing Officer was of the belief that assessee intentionally tried to show huge profits in order to form capital as the profits are deductible @ 100% from the undertaking working under SEZ. It was for this reason that he invoked the provisions of section 10AA(9) r.w.s. 80IA(10) of the Act and accordingly estimated the NP @ 2% of the total turnover as against 18.94% declared by the assessee and calculated the deduction u/s 10AA at ₹ 16,86,590/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged as to produce more than the ordinary profits in the hands of the assessee. The Asst. Year 2007-08 assessment year under consideration is 2009-10. Neither the proviso to sub-section (10) existed at that time, nor such a proviso can be applied as we are dealing with an international transaction and not specified domestic transaction. Under these circumstances, we are of the considered opinion that the impugned order upholding the invocation of sub-sec. (10) of sec. 80-1A cannot be countenanced to this extent. Ergo, it is held that the Id. CIT(A) erred in sustaining the disallowance made by the Assessing Officer by restricting the amount of deduction u/s 10A of the Act to ₹ 2.63 crore as against ₹ 8.22 crore claimed by the assessee. The impugned order on this issue is overturned and it is directed to allow deduction as claimed. 8. Now going into the aspects raised in second ground as to whether assessee is eligible for deduction u/s 10AA for goods manufactured from outside source on job work basis by way of sending raw material for cutting and polishing and in the case of SEZ, we find that there are some practical aspects attached with the SEZ. Units of Special Eco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs were employees for purposes of section 80-1-LT. Act, 1961, s.80-1". Similarly, it is also settled position of law that outsourcing of some of the processes will not disqualify the assessee from claiming or allowing deduction if end product is otherwise eligible for deduction. So far as deduction u/s 80IB of manufacturing of card board boxes from kraft paper is concerned, it is settled law that transforming in the corrugated sheets after having transformed in the shape of a box and the box is again in a flat position for easy transportation when flat position paper corrugated boxes are the final products which is eligible for deduction and our this view can be fortified by Hon'ble Madras High Court decision in the case of CIT vs. M/s Zainab Trading Pvt. Ltd. in Tax case Appeal Nos.1204, 1205 & 1206 and AMP 1207 of 2010 dated 7th February, 2011 in which it has been held as under: "The Revenue has come forward with these appeals and seeks to raise the following question of law as substantial question of law: & quot;e : Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transportation, such boxes are kept in a folded position, one cannot say that the boxes continue to retain its original characteristics of corrugated sheets. Therefore, there is no scope to take a different view than what has been stated by the Commissioner of Income-tax (Appeals), as confirmed by the Tribunal. Such determination came to be made by both the authorities based on the facts placed before them and with reference to which, we do not find any serious legal lacuna, there is no scope to interfere with the same, inasmuch as there is no question of law, much less substantial question of law involved. " Asst. Year 2007-08 14. Since all the conditions laid down under the relevant provisions have been complied with, therefore, we are of the view that the action of the authorities below in not allowing the claim of the assessee u/s 801B is unwarranted and uncalled for. As such, while accepting the appeal of the assessee, we direct to grant deduction u/s 801B of the Act as claimed by the assessee." 9. We further observe that ld. AR has relied on the decision of Hon. Bombay High Court in the case of CIT vs. Anglo French Drug Co.(Eastern) Ltd.191 ITR 0092 (Bom), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial outside the SEZ area for getting it in a finished form on job work basis through outside labourers and further this activity of getting goods manufactured through outside sources is duly covered under the manufacturing activities. 12. We have also come across the assessment orders u/s 143(3) of the Act in the case of assessee for Asst. Years 2008-09, 2009-10 & 2010-11 and observe that no disallowance has been made in the deduction claimed u/s 10AA of the Act and GP rates of 19.92%, 17.84% and 16.46% and NP rates of 14.47%, 13.64% and 13.73% respectively have been accepted by the Assessing Officer and no proportionate disallowance has been made for profits earned from goods manufactured from outside source on job work basis. 13. Summarizing both the issues we are of the view that ld. Assessing Officer was not justified in invoking the provisions of section 10AA(9) of the Act as there was no material evidence put on record and a specific finding to work out the basis to estimate reasonable profits by vehemently applying net profit rate at 2% as Asst. Year 2007-08 against 18.94% declared by the assessee without appreciating the facts that business house having a similar type ..... X X X X Extracts X X X X X X X X Extracts X X X X
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