FAIRFIELD ATLAS LTD,MUMBAI vs. DCIT (OSD) -I, MUMBAI

आयकर अपीलीय अपीलीय अिधकरण अिधकरण “डी डी” �यायपीठ �यायपीठ मुंबई मुंबई म�। म�। आयकर आयकर आयकर अपीलीय अपीलीय अिधकरण अिधकरण डी डी �यायपीठ �यायपीठ मुंबई मुंबई म�। म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI सव�ी राजे�� राजे��, लेखा लेखा सद�य सद�य एवं एवं संदीप �याियक सद�य सद�य सव�ी संदीप गोसांई गोसांई,�याियक सव�ी सव�ी राजे�� राजे�� लेखा लेखा सद�य सद�य एवं एवं संदीप संदीप गोसांई गोसांई �याियक �याियक सद�य सद�य Before S/Shri Rajendra, AM and Sandeep Gosain,JM आयकर अपील अपील संसंसंसं./ITA No.4063/Mum/2016,िनधा�र िनधा�रण वष� वष� /Assessment Year: 2010-11 आयकर आयकर आयकर अपील अपील िनधा�र िनधा�र वष� वष� Fairfield Atlas Limited DCIT ,Circle-1(1)(2) Survey No.157, Devarwadi Village, Aayakar Bhavan, M.K. Road Off, Vengurla Road, Tal-Changad, Vs. Mumbai-400 020. Dist. Koolhapur, Kolhapur-416 507 PAN: AAACA 4439 Q (अपीलाथ� /Appellant) (��यथ� / Respondent) Revenue by: Shri Rajesh Kumar Yadav Assessee by: Shri Forum Mehta सुनवाई क� तारीख / Date of Hearing: 22.01.2018 घोषणा क� तारीख / Date of Pronouncement:14.03.2018 आयकर आयकर अिधिनयम आयकर आयकर अिधिनयम अिधिनयम,1961 क� अिधिनयम क� क� धारा क� धारा धारा 254(1)के अ�तग�त आदेश धारा के अ�तग�त आदेश के अ�तग�त आदेश के अ�तग�त आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य,राजे�� के अनुसार लेखा सद�य लेखा सद�य राजे�� के अनुसार राजे�� के अनुसार -Per Rajendra,AM: राजे�� के अनुसार Challenging the order dated 21/03/2016 of the CIT(A)-2, Mumbai the assessee has filed the present appeal.Assessee-company,engaged in the business of manufacturing and sale of transmission gears and gear boxes, filed its return of income on 13/10/2010, declaring total income at Rs.NIL.The Assessing Officer (AO) completed the assessment on 18/03/2014 u/s. 143(3) r.w.s. 144C(1) of the Act, determining its total income at Rs.10.10 crores. 2.First ground of appeal is about denying the deduction, under section 10B of the Act, with respect to interest income of Rs. 9.81 lakhs. During the assessment proceedings, the AO found that the assessee had earned interest on deposits and out of the same and amount of Rs.9,81,482/-had been included in the profit from Export Oriented Unit (EOU). He directed the assessee to explain as to why the income on deposits should not be excluded while computing the deduction under section 10B of the Act.After considering the submissions, the AO referred to the case of Sterling Foods and held that there was no direct nexus between the interest income and the profit and gains of the industrial undertaking.He also referred to the case of Liberty India.Finally,he held that interest income from deposits could not be included for the purpose of computation of deduction under section 10B of the Act. 2.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA) and made detailed submissions. However, in his one line order, the FAA held that interest income was not directly derived from the business, that the AO was justified in excluding the said income for the 10B deduction purposes.

4063/M/16-(10-11) Fairfield Atlas Ltd.

2.2.During the course of hearing before us,the Authorised Representative(AR) stated that business funds of EOU were retained for subsequent business requirements,that funds were not kept idle,that financial wisdom required to earn income on such funds,that interest income was directly linked with the business of the EOU.He relied on the cases of Maral Overseas Ltd. (ITA/777 and 900/Ind/2004,dated 28/03/2012)and Hewlett Packard Global Soft Ltd.(ITA 812 of 2007 of Hon’ble Karnataka High Court).The Departmental Representa - tive(DR)supported the order of the AO and stated that income was not derived from the industrial undertaking,that the cases relied upon by the AR were not similar to the facts are case under consideration.

2.3.We have heard the rival submissions and perused the material before us. We find that in the case of Maral Overseas (supra) the Special Bench of the Tribunal had dealt with the identical issue.We are reproducing the relevant portion of the orders of the Tribunal and it reads as under:

“77. …. …It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily 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…. 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking.”

The Hon’ble Karnataka High Court in the case of Hewlett Packard Global Soft Ltd. (supra) has deliberated upon the issue in the paragraph number 35 and it reads as under: “35. The Scheme of Deductions under Chapter VIA in Sections 80-HH, 80-HHC, 80- IB, etc from the ‘Gross Total Income of the Undertaking’, which may arise from different specified activities in these provisions and other incomes may exclude 2

4063/M/16-(10-11) Fairfield Atlas Ltd.

interest income from the ambit of Deductions under these provisions, but exemption under Section 10-A and 10-B of the Act encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking of funds by such Undertakings in Banks or even Staff loans. The dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them a special category of assessees entitled to the incentive in the form of 100% Deduction under Section 10-A or 10-B of the Act, rather than it being a special character of income entitled to Deduction from Gross Total Income under Chapter VI-A under Section 80-HH, etc. The computation of income entitled to exemption under Section 10-A or 10-B of the Act is done at the prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under Part-D of Chapter IV before ‘Gross Total Income’ as defined under Section 80-B(5) is computed and after which the consideration of various Deductions under Chapter VI-A in Section 80HH etc. comes into picture. Therefore analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10-A or 10-B of the Act. The words ‘derived by an Undertaking’ in Section 10-A or 10-B are different from ‘derived from’ employed in Section 80-HH etc. Therefore all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and is therefore eligible for 100% deduction.”

Respectfully,following the above,we decide first ground of appeal in favour of the assessee holding that the AO should not have denied the deduction under section 10 B of the Act in respect of interest income of Rs. 9.81 lakhs and from business deposits pertaining to EOU of the assessee.

3.Next four grounds of appeal(G.sOA 2-5)are about direction of the FAA to verify the claims made by the assessee.During the assessment proceedings,the AO had disallowed claims regarding deduction under section 43B(Rs.2.12 crores),deduction about excise duty (Rs. 12.63 crores),other expenses(Rs. 1.77 crores)and claim for set off of unabsorbed depreciation.

3.1.The assessee agitated all the issue before the FAA. After considering the material,he directed the AO to verify the claim made by the assessee and to allow the same after verification. 3.2.Before us,the AR stated that the AO had not passed any order even though the FAA has completed the appellate proceedings in the month of March, 2016. We find that the FAA has directed the AO to allow the claim/reductions after making verification.In our opinion,his order does not suffer from any legal infirmity.The AO is directed to give effect to the order of the FAA within a period of three months of receipt of

4063/M/16-(10-11) Fairfield Atlas Ltd. our order. All the four grounds of appeal, raised by the assessee,are allowed for statistical purposes. As a result,appeal filed by the assessee stands allowed. फलतः िनधा�रती �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 14th March, 2018. आदेश क� घोषणा खुले �यायालय म� �दनांक 14 माच�, 2018 को क� गई । Sd/- Sd/- (संदीप गोसांई / Sandeep Gosain) (राजे�� / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांक/Dated : 14.03.2018. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 5.DR “ D ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, खंडपीठ,आ.अ.�याया.मुंबई 6.Guard File/गाड� फाईल स�यािपत �ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.