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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 07.10.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The assessee has taken the following grounds of appeal:
“(a) Learned CIT(A) vide order dated 07.10.2013 has erred in upholding the order passed by the AO disallowing claim u/s lOB in respect of the following incomes by reducing the claim for profits eligible for deduction u/s lOB of the Income Tax Act, 1961 without considering the facts and circumstance of the case. The same be allowed.
2 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. Particulars Amount (Rs.) Miscellaneous Income 13,72,214 Legal Expenses recovered-Depot 9,989 As per profit/loss account 4,653 -199 Less: Other Income as per lOB computation 4,852 TOTAL 13,82,004
(b) Learned CIT(A) has erred in granting deduction u/s 10B at Rs.12,23,89,669/- as compared to Rs.12,34,07,856/- as claimed by assessee without considering facts and circumstance of the case. Same be allowed. 2) (a) The Learned CIT(A) has mentioned in the CIT(A) order "From the perusal of the assessment order, it is observed that AO has not charged any interest u/s 115P of the I T Act, 1961 as claimed by the assessee, therefore the ground has became infructuous hence dismissed". The Learned CIT(A) failed to consider that even a calculation error in the computation of tax liability is a valid ground. The Learned CIT(A) erred in dismissing the ground of the interest u/s 115P of Rs 7,40,337/- on late payment of Dividend Distribution Tax of Rs55,28,898/- without considering the facts and circumstances of the case. The same be considered. (b) The Learned AO has no jurisdiction to levy the interest u/s 115P in the assessment order passed u/s 143(3) of the Income Tax Act, 1961. The same is bad in law and be deleted. The Learned CIT (A) has taken the ground no 2 related to interest u/s 115P as infructuious, as the same is not mentioned in the Assessment Order. The same be considered. Without prejudice to 2 (a) above the assessing officer has not given any opportunity for the levy of said interest and hence is bad in law. Without prejudice to 2 (a) and (b) above the assessee has delayed only for one day from the due date and hence interest be levied only on delay for one day. The same be considered The appellant craves leave to add, alter or delete to the ground of appeal of the time of or before hearing.”
The issue raised in ground No.1 is against the finding of Ld. CIT(A) upholding the order of AO disallowing the claim under section 10B in respect of the other income (miscellaneous income) comprising handling charges received (-) Rs.4996.35, sundry balances written back Rs.13,77,210.41, legal expenses recovered Rs.9,989/- and other minor adjustments (-) 199. The Ld. A.R., at the outset, submitted before the Bench that the issue is covered in favour of the assessee by the
3 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. decisions of the co-ordinate Bench of the Tribunal in assessee’s own case for A.Y. 2006-07 in ITA No.8846/M/10, for A.Y. 2007-08 in ITA No.4631/M/11 and for A.Y. 2009-10 in ITA No.107/M/13. The Ld. A.R. prayed before the Bench that in view of the issue being covered in favour of the assessee the ground raised by the assessee may kindly be allowed.
The Ld. D.R., on the other hand, objected to the argument of the Ld. A.R. by submitting that the miscellaneous income which are in the nature of sundry balances written back, legal expenses recovered etc. are not directly connected with the export activity of the assessee and therefore can not be considered as derived from the activity of the export business of the assessee. The Ld. D.R. submitted that the Ld. CIT(A) rightly disallowed the claim of the assessee by upholding the order of AO on this issue. The Ld. D.R. submitted that as per the section 10B of the Act there has been direct nexus with the export oriented activity which does not exist in the present case and therefore the appeal of the assessee should be dismissed. The Ld. D.R. in defence of his arguments relied on the decisions of CIT vs. Sterling Foods (1999) 104 taxman 204 (SC), Liberty India vs. CIT (2009) 183 taxman 349 (SC) and Pandian Chemicals Ltd. vs. CIT (2003) 129 taxman 539 (SC).
We have heard the rival submissions of both the parties and perused the material on record. We find from the perusal of the decisions of co-ordinate Benches of the Tribunal in assessee’s own case for A.Y. 2006-07 in ITA No.8846/M/10,
4 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. for A.Y. 2007-08 in ITA No.4631/M/11 and for A.Y. 2009-10 in ITA No.107/M/13 that the identical issue was involved in those years which was decided by the co-ordinate Benches in favour of the assessee. The operative part of the decision in ITA No.8846/M/10 for A.Y. 2006-07 which is reproduced below:
“5.Gr.No.2 is about deduction u/s.1013 of the Act. During the assessment proceedings, the AO found that the assessee had claimed deduction u/s. I OB in respect of EOU at Panoli amounting to Rs.5.89 crores, that it had earned interest in the EOU under the heads interest received for customers(Rs.12,648/-), lnterest on FDR with Bank of India (Rs.3 1.97 lacs) and Interest on deposits(Rs. 11.93 lacs). He directed the assessee to explain as to why deduction u/s. 10B in respect of interest income should not be disallowed. After considering the submission of the assessee, the AO held that the interest receipts were not derived from exports. He referred to the cases of Cambay Electrical Supply Industrial Company. Ltd. (113 ITR 84), Sterling Foods and Pandiyan Chemicals Ltd. (233 ITR 497),that the interest income could at best be said to have been attributable to the export, that same was not derived from the business of the assessee, that gross interest receipts were to be disallowed for calculating the deduction u/s. lOB of the Act. For the similar reasons incomes credited under the head 'CSD refund receipt(Rs.9. 31 lacs), handling charges(Rs. 1.79 lacs), cheque bouncing charges(Rs. 1 .37 lacs), miscellaneous income(Rs.50,398/-) and sundry balances written back (Rs.4,00,738/-) were held not to be eligible for deduction u/s.1OB.He was of the opinion that the incomes credited under above mentioned five heads were not derived from the EOU.As a result, he made a further addition of Rs. 16.99 lacs.
5.1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).After considering the submission of the assessee and the assess - ment order,the FAA held that the interest on deposit with bank for opening LOC was not derived from industrial undertaking and was not eligible for deduction u/s. 10B. He referred to the case of Menon impex Pvt. Ltd. 259 ITR 403.He also referred to the case of KK Doshi (245 ITR 849);CJ International( 1 3SOT 280);Orchid Chemicals and Pharmaceuticals (97 ITD 277), Sovika Infotech Ltd.(1950T412) and held that to claim deduction u/s. 10B of the Act, the income should have been derived from the export activity of the undertaking, that the AO had rightly disallowed the claim made by the assessee.
5.2. During the course of hearing before us the AR contended that section 10B was a self containing code,that no adjustment was permissible while calculating deduction u/s 10B.He referred to the cases of Advance Detergent Ltd.( 188 taxmann 15), Nirma industries Ltd (153 taxmann 550); Hritnik Exports P.Ltd.(IT Appeal No.219 and 239 of 2014);Motorola India Electronics(46 taxmann .com 167); Technocraft Industries(India)Ltd.(43 taxmann.corn.1 10); Empire Pumps Pvt.Ltd.(IT Appeal no.187 of 2003);Lubrizol Advance Materials India (P.)
5 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. 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. (1TA 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 assessee has been dealt with by the Hon'ble Courts. They have held that Interest received for customers, Interest on FDR with Banks and Interest on deposits has to be taken as part of the business income of the assessee and is entitled for 1013 deduction. We would like to refer to the cases of Advance Detergent Ltd.(supra), Nirma Industries Ltd (supra); Hritnik Exports P. Ltd. (supra);Motorola India Electronics (supra); Technocraft Industries(India)Ltd.(supra); Empire Pumps Pvt. Ltd. (supra);Lubrizol Advance Materials India (P.)Ltd.(supra) in our support. Now, coming to the other five items of income we would like to mention that the AO is not permitted to make any adjustments while computing the deduction u/s. 10 A or 10B of the Act. Here, we would like to reproduce relevant portion of the order of Tessitura Monti India(P) Ltd.(supra) and same reads as under:
"4.3 It would, thus, appear to us that the process of determination of quantum of profits derived by a 100% E.O.U. from the relevant exports would involve three steps. The section applies only to an eligible undertaking, i.e., a 100% E.O.U., receiving export proceeds in convertible foreign exchange. As such, the first step would be to ascertain if the assessee's undertaking is an eligible undertaking u/s.10B. The profits of the business of the undertaking would be required to be computed as the second step, which represents the most crucial step. This is as it provides for the profits derived by an undertaking from the export of articles or things or computer software to be the profits of the business of the undertaking in a defined ratio, i.e., that of 'ET" to 'TT'. The expression 'profit of the business of the undertaking' is not defined under the provision. One thing, however, is clear; that the third step, i.e., the adjustment by way of apportionment of such profit in the ratio of 'ET' to 'TT' is toward further limiting the profits of the business of the undertaking to that derived from exports only. This is as the eligible profits must be firstly derived by the undertaking and, secondly, from its exports (s. 10B(1)). And it is this, the third step, that sec. 1OB(4) is toward. Also, as a 100% E.O.0 is licensed to undertake only exports, the
6 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. other element of TT would normally include either the export proceeds that are not brought into India within six months (or such extended period as may be allowed) or the sale 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. 011412003; 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.0 from exports, as contemplated in section 1OB(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 business to mean the profits of the eligible business as computed under the head 'profits and gains of business or profession'. In other words, the word 'derived' would continue to control or guide the word 'profits' in the deduction provision, but the activity from which the some are derived is the economic activity that comprises the business of the eligible undertaking, rather than being restricted strictly to the eligible undertaking. As such, as long as a receipt is intimately and inextricably connected with the 'business of the undertaking', it cannot be excluded in reckoning the eligible profits u/s. 10B(1)."
Considering the above, we decide ground no.2 in favour of the assessee.”
In the subsequent year i.e. A.Y. 2007-08 and 2009-10 the co-ordinate Bench has followed the decision of the co- ordinate Bench in A.Y. 2006-07 as reproduced (supra). Since the facts of the present case are materially same as involved in ITA NO.8846/M/10 (supra) and therefore following the same, we set aside the order of Ld. CIT(A) and direct the AO to allow the claim of the assessee in respect of these incomes as stated hereinabove. We would like to mention that the decisions cited by the Ld. D.R. in support of his arguments are distinguishable on facts and not applicable to the present case
7 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. as all these decisions are rendered with reference to the section 80HH and 80IB or 80IA and therefore distinguishable. Accordingly, the ground raised by the Assessee is allowed.
The issue raised in second ground of appeal is against the charging of interest under section 115P of the Act to the tune of Rs.7,40,337/- which was dismissed by the Ld. CIT(A) by observing that AO has not charged any interest under section 115P of the Act and dismissed the ground in lumini.
The facts in brief are that at the time of framing the assessment a sum of Rs.7,40,337/- was charged as interest under section 115P of the Act for late payment of dividend distribution tax. The said interest was charged in the income tax computation form which was attached to the order under section 143(3) of the Act and was a computer generated form. In the appellate proceedings the Ld. CIT(A) dismissed the ground as infructuous by observing that AO has not charged any interest under section 115P of the Act as claimed by the assessee and thus dismissed the appeal.
The Ld. A.R. vehemently submitted before us that the Ld. CIT(A) grossly erred in dismissing the assessee’s appeal in lumini by ignoring the facts that the assessee was within its right to challenge the interest charged under section 115P of the Act on the late payment of dividend distribution tax amounting to Rs.55,28,898/-. The Ld. A.R. submitted that Ld. CIT(A) has grossly erred by holding that the AO has not charged any interest under section 115P of the Act whereas as
8 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. a matter of fact in the computation form the tax was clearly charged. The another contention of the assessee was that the AO has no jurisdiction to charge interest under section 143(3) of the Act and the same is bad in law. The assessee, without prejudice, has taken another ground that the delay in payment of dividend distribution tax was only of one day and therefore the interest should be charged at the rate of 1% which comes to Rs.55,289/- in terms of the provision of section 115O of the Act. The Ld. A.R. finally submitted that the issue be restored to the file of the AO with a direction to recalculate the interest only for the period of one month. The Ld. A.R. also took us through the notice calling AGM on 30.09.09 in which one of the ordinary business to be transacted was to declare the dividend on the equity shares.
The Ld. D.R., on the other hand, relied on the order of authorities below.
Having heard both the parties and perusing the material on record, we find that in this case the interest was charged to the tune of Rs.7,40,337/- on a late payment of dividend distribution tax of Rs.55,28,898/- which was paid late by one day only if the date of declaration is taken under section 115O of the Act. We further find from the perusal of section 115 O of the Act that under section (3) the principal officer of a domestic company and the company itself shall be liable to pay tax on distribution profit to the credit of central government within 14 days from the date of declaration of dividend or distribution of undividend or payment of
9 ITA No.22/M/2014 M/s. Sulphur Mills Ltd. undividend whichever is earliest. In the present case, the dividend was declared on 30.09.2009 and the tax was paid on 15th October 2009 whereas the due date was on or before 14.10.09 and thus there was a delay of one day. So interest has to be charged for one month or part of the month at the rate of 1% which comes to Rs.55,289/-. Considering these facts, there is a merit in the contentions of the Ld. A.R. that interest should be charged as per the provisions of section 115O of the Act and not Rs.7,40,337/- as has been charged in the income tax computation form. So we restore the issue to the file of the AO with the direction to recalculate the same in terms of section 115 O of the Act by setting aside the order of the Ld. CIT(A) on this issue.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 28.06.2018.
Sd/- Sd/- (C.N. Prasad) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: .06.2018. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.