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TMI Blog2017 (5) TMI 1760X X X X Extracts X X X X X X X X Extracts X X X X ..... , it file the return of income declaring total income of Rs. 11,30,49,668/-, which was subject to a scrutiny assessment, whereby the total income has been assessed at Rs. 12,35,26,120/-, after making additions/ disallowances, which was carried in appeal before the CIT(A). The CIT(A) allowed partial relief and not being satisfied with the order of the CIT(A), assessee is in further appeal before us. 3. The first issue raised by the assessee is with regard to the manner in which the Assessing Officer has computed the deduction allowable to the assessee under section 10B of the Act. Notably, assessee had claimed deduction under section 10B of the Act of Rs. 3,89,39,967/- with respect to Export Oriented Unit at Panoli, against which the Assessing Officer allowed deduction of Rs. 3,19,46,548/-. The first limb of the dispute is with respect to the incomes by way of interest - Rs. 40,63,409/- and cheque bouncing charges recovered - Rs. 2,12,365/-, which have been excluded for the purposes of computing deduction under section 10B of the Act. Instead, the Assessing Officer treated the aforesaid receipts as assessable under the head 'income from other sources' and accordingly the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lubrizol Advance Materials India (P.) Ltd. (42taxmann.com.263), Gem Plus Jewellery India Ltd(233CTR240). With regard to other five items the AR argued that the AO could not make any adjustment while computing the income as per the provision of section 10B,that the income was assessed as business income,that same could not be assessed as income from other sources,that the provisions of section 10B provided straight jacket formula and same had to be applied.He referred to the order of Century Textiles and Industries Ltd. (ITA 3926/Mum/2005-AY01-02 dated 16.5.2012), Arvind Footwear (ITA 363/Luck/2010 order dt.27.8.13),Tessitura Monti India(P) Ltd. (ITA/7127/Mum/2010 AY05-06, dt.11.01. 2013).DR supported the order of the FAA.The Departmental Representative (DR) supported the order of the FAA. 5.3.We have heard the rival submissions and perused the material before us.We find that the AO had made the disallowance as he was of the opinion that the income earned by the under various heads was not derived from the activities of the industrial undertaking-though it could be attributable to the business activities of the assessee.We find that the issue of interest income accruing to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceeds of a part of its production that it could under the terms of the 100% EOU license sell in the domestic market, or the sale of other products (of the assessee's undertaking) which arise incidentally to its operations in the domestic market. In fact, the second proviso to the provision is only by Finance Act 2002, w.e.f. 01/4/2003; its earlier version, since omitted, bearing a tolerance of up to 25% of the total sales for domestic turnover. Coming to the second step afore-said, the words 'business of the undertaking' are wider in ambit than the words 'profit of the undertaking' and could only have been so provided with a purpose. In our considered view, therefore, any profit which is derived from the business of the assessee's undertaking would qualify to be the profits of the business of the undertaking, and upon suitable apportionment toward excluding as much of it as can be regarded as attributable to the domestic turnover or non-qualified exports, can be said to be the profits derived by the 100% E.O.U from exports, as contemplated in section 10B(1), and on which deduction there-under is to be allowed. All that was required, if not so, was to define the profits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of the assessee dated 01/01/2010(supra) has not been disputed. 4.2 Having considered the rival submissions, in our view, the stand of the assessee has to succeed in view of the precedent in assessee's own case, wherein the following discussion is relevant:- "2.First Ground of appeal raised by the AO deals with disallowance of Rs. 18.59 lacs made under section 40(a)(ia) of the Act with regard to deduction claimed u/s. 10(B) of the Act. During the assessment proceedings the AO found that the assessee had added expenses of Rs. 18,59,902/-inadmissible u/s. 40(a)(ia) for the year under appeal pertaining to the EOU for the purposes of computation of deduction admissible u/s.10B of the Act, that it had reduced disallowance of Rs. 17.67 lacs made in the earlier AY, which was admissible in view of the subsequent payment.As per the AO the assessee had increased deduction admissible u/s.10B, that the same expenses were to be considered for deduction in subsequent AY, that it would affect the deduction at least for one year when the assessee would no longer remain eligible for deduction, he disallowed an amount of Rs. 18.59lacs while computing the assessment. 2.1.Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Jurisdictional High Court has held in para-12 as under :- "12. By reason of the judgment of the Supreme Court in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards Provident Fund/ESIC and the only question which is canvassed on behalf of the revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under section 10A. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employee's contribution is that the business profits have to that extent been enhanced. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation as per Income Tax 2004394 Profit on Investments (taken as Rs. 3869954- by AO instead of Rs. 3809954/-) 60000 2064394 4.4 On this aspect our decision in the earlier para would hold good and the Assessing Officer is directed accordingly. 4.5 The last aspect which has been argued with respect to the computation of deduction under section 10B of the Act is in relation to the determination of total turnover for the purposes of computing the profits eligible for the benefits of section 10B of the Act. The Ld.Representative for the assessee pointed out that the total turnover adopted by the Assessing Officer is inclusive of excise duty, which is inappropriate and that the total turnover should be adopted after excluding the element of excise duty. On this aspect also we find enough merit in the plea of the assessee because in the figure of export total turnover(i.e the numerator) the element of excise duty is not present, therefore, in the denominator also i.e. in the figure of total turnover, the element of excise duty should also be excluded for reasons of parity. 4.6 In the result, in so far as, the issue relating to deduction under section 10B of the Act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submissions. Quite clearly, the CIT(A) records that disallowance of Rs. 3,08,871/- was as per the calculation furnished by the assessee. So however, it is noticeable that neither before the Assessing Officer nor before the CIT(A) assessee has taken the issue of suo-motu disallowance made out of legal and professional expenses amounting to Rs. 15,45,376/-, which has been canvassed before us. In this context, we have perused pages 59 to 60 of the Paper Book, wherein is placed the statement of computation of income, which inter-alia, includes an item of inadmissible claim of Rs. 15,45,376/- on account of 'legal and professional fees' on investment. Be that as it may, we deem it fit and proper to set-aside the matter back to the file of Assessing Officer, who shall re-examine the disallwoance under section 14A of the Act in the context of the fresh plea of the assessee that there is already a suo-motu disallowance made in the computation of income. In any case, we may clarify here that the disallowance, if any, made by the Assessing Officer in the ensuing remand shall not exceed the sum of Rs. 3,08,871/-, disallowed by the CIT(A). Needless to mention, the Assessing Officer sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and delayed payment charges. The said dispute stands on similar footing as has been decided by us in assessment year 2007-08 in the earlier paras. Since the facts and circumstances in the ITA No. 107/Mum/2013 for assessment year 2009-10 are pari-materia to those considered by us in ITA No. 4631/Mum/2011 for assessment year 2007-08, our decision therein shall apply mutatis mutandis in the appeal for assessment year 2009-10 also. 11. The only other issue in this appeal is with regard to the action of the CIT(A) in confirming an addition of Rs. 72,58,107/- under section 145A of the Act. In this context, the relevant facts are that the Assessing Officer noted from the audit report under section 44AB of the Act and the computation of income that there was deviation in the method of valuation of closing stock from that prescribed under section 145A of the Act. As per the Assessing Officer due to such deviation in the method of valuation, there was an under estimate of income by the assessee to the extent of Rs. 72,58,107/-, which was added back to the returned income. The CIT(A) followed his own decision for an earlier assessment year and directed the Assessing Officer to allow the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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