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Income Tax Appellate Tribunal, BENCH ‘A’ KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH ‘A’ KOLKATA [Before Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ] ITA No.2442/Kol/2016 Assessment Year : 2002-03
M/s Tea Promoters (India) (P)Ltd. -versus- A.C.I.T., Circle-IV, Kolkata Kolkata (PAN:AABCT 0260 H) (Respondent)
For the Appellant: Mrs. Arati Debnath, CA For the Respondent: Shri Sallong Yaden,Addl. CIT
Date of Hearing : 02.05.2018. Date of Pronouncement : 09.05.2018.
ORDER PER S.S. GODARA, JM:
This assessee’s appeal for A.Y.2002-03 arises from the CIT(A)-IV, Kolkata’s order dated 06.12.2013, passed in Appeal No.24/CIT(A)-IV/2005-06, confirming Assessing Officer’s action inter-alia disallowing its deduction claim u/s 10B of the Act on account of foreign exchange fluctuation, profits derived from sale of import license and interest income to the tune of Rs.20,95,814, Rs.7,34,634/- and Rs.23,13,606/-; respectively, in proceedings u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act).
It emerges at the outset that the assessee’s instant appeal suffers from 985 days’ delay in filing. Learned counsel takes us to assessee’s condonation petition with its supportive affidavit dated 27.12.2016 attributing the main cause thereof to be the fact that the CIT(A) had decided its other appeal in section 147/148 proceedings raising the very issues on 18.03.2013. It preferred ITA No.1841/Kol/2013 against the same well within time. A co-ordinate bench quashed the reopening under challenge therein in its order dt 18.11.2016 without deciding the three very issues on merits. There is no dispute that the CIT(A) has affirmed all the three impugned disallowances by placing reliance on his said order dated 18.03.2013 only. It ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03
therefore transpires that all three impugned issues on merits remain unadjudicated. This seems to be the main reason for the assessee to have filed the instant appeal after a lapse of 985 days. Learned Departmental Representative argued that the impugned delay is not sufficiently explained so as to be condoned. We find no merit in Revenue’s stand since the assessee had been pursuing its remedy qua the very issues before this tribunal as indicated hereinabove. We thus find it a fit case to condone the impugned delay since the same is neither intentional nor deliberate on assessee’s part. The assessee’s appeal is therefore taken up for adjudication on merits.
Heard both parties vehemently argued their respective stands against and in support of disallowance(s) . Case file perused.
The first disallowance under challenge in the instant appeal is on account of foreign exchange fluctuation gain of Rs.20,95,814/-. This assessee is having 100% export oriented business unit. The impugned foreign exchange fluctuation gain had arisen from difference in exchange rate at the time of booking of the export followed by its realisation. We note that the hon’ble Gujarat high court in case 2017(12) TMI 814 Principal CIT vs Asahi Songwon Colors Limited has deleted a similar disallowance by terming corresponding gain to be business income only by following its earlier order in CIT vs Priyanka Gems [2014] 367 ITR 575 . There is no legal or factual exception pointed during the course of hearing at the Revenue’s behest. We therefore see no merit in the impugned disallowance. The same stands deleted.
The assessee’s second grievance challenges both the lower authorities’ action disallowing its 10B deduction of Rs.7,34,634/- on account of profit on sale of import licence. Both the lower authorities are of the view that such an income cannot be held to have been derived from the export oriented unit in question. We notice herein as well that this tribunal coordinate bench in ITA Nos. 1517 to 1519/Kol/2014 DCIT vs Narendra Tea company (P) Ltd decided on 24.05.2017 has adjudicated the very issue against the Revenue with the following detailed discussion :
ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03
“8. Ground no. 3 for AY 2011-12 reads as under:
“3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Siliguri was justified in law, in treating the profit from sale of DEPB license as income from regular business and eligible for exemption u/s. 10A/10AA.” 9. The facts as noted by the Ld. CIT(A) is as under:
“4. Sale of DEPB Licences- In the AY 2011-12, the assessee had sold DEPB licences for Rs.60,75,499. The AO held that the income from sale of DEPB licences is not the income from the regular business and hence, not eligible for exemption U/S 10A/10AA. The assessee submitted that the DEPB licences are an incentive given to exporters to neutralize the incidents of custom duty on the import. Since the assessee does not import any raw material/equipment for his business of export, the DEPB licenses were sold to importers to earn profit. If the assessee had used these DEPB licences for import of certain goods, benefit would have accrued to the assessee by way of reduction in the custom duty payment. In both situations there is an increase in the Trading profit. There is no difference in situations when DEPB license is used for import or sold in the open market. Therefore, the assessee submitted that the income from the sale of DEPB licences is an integral part of the business of the assessee and the income therefrom is the regular business income of the assessee. The assessee cited the judgement of Honourable Supreme Court in the case of Topman Exports vs CIT (2012) 342 ITR 49 (Se) wherein it has been held by the Honourable Supreme Court that the income from sale of DEPB licences is the income from regular business and is eligible for exemption U/S 80HHC.
Conclusion-
5.1 Exemption U/S 10A/10AA- The Honourable ITAT has decided in the case of the assessee for the AY 2004-05 to 2007-08 that the business of blending of tea for export is eligible for exemption U/S 10A/10AA. As there are no changes in the facts of the case and legal provisions, the AO is directed to allow exemption U/S 10A/10AA for the AYs 2009-10, 2010-11 and 2011- 12.
5.2 Disallowances U/S 14A- For AYs 2009-10 & 2010-11, the AO had made disallowance U/S 14A and the assessee has not agitated these disallowances. However, for AY 2011-12, the assessee has taken it as a ground of appeal. The assessee did not press this ground in the appellate proceedings. These disallowances are, therefore, confirmed and the grounds dealing with these are dismissed.
5.3. Sale of DEPB licenses- DEPB licenses are issued to the exporters as incentive to them for import of goods by reducing custom duty to certain extent. In this case, the assessee is procuring all raw materials domestically; so he sold the licences to others to earn a profit. If these licences were utilized for import of goods by the assessee then the profit of the assessee would have increased. In that case the income would have been directly attributable to the regular business of the assessee. Therefore, the income from the sale of the DEPB licences is also essentially the income from regular business. This has been upheld by the Honourable Supreme Court also in the case cited by the assessee. The AO is directed to treat the income from sale of DEPB licences as income from regular business for calculation of exemption U/S 10A/10AA.”
ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03
Aggrieved by the aforesaid order of the Ld. CIT(A), the revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the issue in respect to the sale of DEPB licence is no longer res integra. We note that the Special Bench in the case of M/s. Maral Overseas Ltd. reported in 136 ITD 177 (Ind) (SB) has dealt with the similar issue. The Ld. AR took our attention to page 63 of the paper book wherein we note that the Special bench has answered the question raised before it in favour of the assessee. We note that in the said case the eligibility of deduction in respect of export incentive received by the assessee in terms of the provision of section 10B(1) r.w.s. 10B(4) of the Act was under challenge. The facts in brief in that case was that during the year the assessee was in receipt of export entitlement of Rs.1.65 cr. and special import licence of Rs.4.47 lacs. The AO declined the claim of deduction by holding that such income was not derived from 100% export oriented undertaking, and therefore not eligible for claim of deduction u/s. 10B(1) r.w.s. 10B(4) of the Act. The Ld. CIT(A) following the Tribunal’s order in the assessee’s own case held that the assessee was eligible for exemption in respect of export entitlement and special import licence as the income of EOU is eligible for exemption u/s. 10B of the Act. The Special Bench took note of the fact that export entitlement was allotted by the competent authority in respect of export undertaken by the assessee during the year. The Special Bench was of the view that the assessee off loaded the entitlement which was unusable and bought quota/entitlements which was required for procuring the required material necessary for its production purpose. The Special Bench also noted that special import licence was allotted to the assessee by the designated authority as per Export Import Policy and Procedure 1997-2002 and income arising out of sale of export entitlement and special import licence was assessed as income from business. The question before the Special Bench was that whether on such business income , the assessee is entitled to claim of deduction u/s. 10B of the Act. The relevant provisions of section 10B(4) reads as under: “(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.”
We take note that the words used in 10B(4) and 10A(4) of the Act are pari materia, which we are concerned in the present case before us so the issue is identical. The Special Bench answered the aforesaid question as under: “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 ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03
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. 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 undertaking from export. The formula is as under :- Profit of the business of the Undertaking X Export turnover Total turnover of business carried out by The undertaking
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. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction U/S 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the ''profits of the business 11 which is, however, conspicuous by its absence in section 10B. On the basis of the 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 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. 1 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 ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03
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 Research 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 80lA wherein no formula has been laid down for computing the eligible business profit. 80. In view of the above discussion, question no. 2 is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B(1) read with section 10B(4) of the Act."
We note that the Special Bench observed that sub-section (4) of section 10A/10B of the Act is a complete code providing mechanism for computing the “profit of the business” eligible for deduction u/s. 10B of the Act. The Ld. DR could not point out any difference in the law or facts so we are inclined to uphold the order of the Ld. CIT(A) on the reasoning given by the Special Bench, (supra). Therefore, we do not find any merit in the appeal of the revenue and the same stands dismissed.”
We therefore follow the above coordinate bench’s decision to delete this disallowance as well.
This leaves us to assessee’s third grievance and seeking to claim interest income of Rs.23,13,606/- to have been derived from the eligible export oriented unit as disallowed in assessment and affirmed in the lower appellate proceedings. There is no dispute between the parties that the impugned interest income has been derived from margin money earned on deposits made for availing credit facility from the bank purely for assessee’s business purposes. Both parties take us to the coordinate bench’s order in assessee’s case itself (supra) in A.Y.2002-03 to 2004-05 holding identical income liable to be treated under the head business income consequently eligible for section 10B deduction. We thus adopt judicial consistency to delete this disallowance as well.
ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03
This assessee’s appeal is allowed.
Order pronounced in the open Court on 09.05.2018.
Sd/- Sd/- [M.Balaganesh] [ S.S. Godara ] Accountant Member Judicial Member Dated : 09.05.2018 [RG Sr.PS] Copy of the order forwarded to: 1.M/s Tea Promoters (India) Pvt. Ltd., 17, Chowringhee Mansion, 30, J.L.Nehru Road, Kolkata-700016. 2. A.C.I.T., Circle-IV, Kolkata. 3. CIT(A)-IV, Kolkata 4. C.I.T.-II, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,
Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches
ITA No.2442/Kol/2016 M/s Tea Promoter (India) (P)Ltd. A.Y.2002-03