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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
O R D E R Per INTURI RAMA RAO, AM : These are appeals filed by the assessee directed against different orders of the CIT(A)-III, Bengalure, for assessment years 2009-10 and 2010-11. Since common issues are involved, we dispose of the same by this consolidated order.
& 1397/B/2014 Page 2 of 8 2. The assessee raised the following grounds of appeal: Assessment year 2009-10:
Assessment year 2010-11:
Briefly facts of the case are as under: The assessee is a company duly incorporated under the provisions of the Companies Act,1956. It is engaged in the business of manufacturing and export of all types of surgical sutures like absorbable sutures and non-absorbable sutures. Return of income for the assessment year 2009-10 was filed on 30/09/2009 declaring total income of Rs.9,48,36,690/- claiming a deduction of Rs.9,48,24,379/- u/s 10B of the Income-tax Act,1961 [‘the Act’ for short]. The return of income was taken up for scrutiny assessment after issuing notice u/s 143(2) and the assessment was completed by the AO at total income of Rs.9,80,65,487/-. The disparity between returned income and assessed income was on account of restricting deduction u/s 10B to the extent of Rs.9,15,95,578/- as against Rs.9,48,24,375/- claimed by the assessee on the ground that sales of Rs.57,40,758/- were made to a domestic party which does not form part of export sales, therefore, not eligible for deduction u/s 10B and also that the & 1397/B/2014 Page 5 of 8 expenses of Rs.21,50,562/- incurred in foreign exchange towards insurance, travelling and communication were reduced from export turnover. The difference was brought to tax as addition.
On appeal before the CIT(A), the CIT(A) confirmed the addition holding that sale of products to domestic EOUs. does not entitle assessee to benefits of exemption u/s 10B. As regards deduction of expenses incurred in foreign exchange towards insurance, travelling and communication expenses, the CIT(A) confirmed the finding of the AO.
Being aggrieved, assessee is before us in the present appeal contending that the CIT(A) was not justified in not considering sales made to domestic party as deemed exports. It is the contention of the assessee that it made sales of Rs.57,40,758/- to 100% EOU i.e M/s.Suru International Pvt. Ltd., Thane, and it constitutes deemed exports within the meaning of Exim Policy issued by the Ministry of Commerce and Industry and therefore should be treated as export sales and should be exempt u/s 10B of the Act.
We considered the rival submissions and perused material on record. The issue in the appeal revolves around the applicability of the provisions of sub-section (3) of section 10B of the Act. The said section is reproduced below: & 1397/B/2014 Page 6 of 8 “10B. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
Explanation 1.—For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
Explanation 2.—The sale proceeds referred to in this sub- section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. ”
The provisions of sub-section (3) of section 10B make it mandatory that in order to invoke the beneficial provisions of section 10B, sale proceeds of an article or thing or computer software should be received in or brought into India by the assessee in convertible foreign exchange within six months from the end of the previous year or such other period as may be permitted by the Reserve Bank of India. Thus, on plain reading of the provisions, it is clear that the benefit cannot be given to an undertaking in case no foreign exchange is received or brought into India on account of exports made by it. Reference to foreign exchange policy i.e. Exim is not required when the provisions of the Act are plain and unambiguous. The grounds of appeal filed by the assessee in this regard are dismissed.
As regards portion of the expenses incurred in foreign exchange towards insurance, travelling and communication is & 1397/B/2014 Page 7 of 8 concerned, in the case of CIT vs. Tata Elxsi (349 ITR 98), the Hon’ble Jurisdictional High Court held that the same is required to be reduced from export turnover as well as total turnover. Respectfully following the ratio of the decision of the Hon'ble jurisdictional High Court we direct that expenses incurred in foreign exchange towards insurance, travelling and communication are to be reduced both from export turnover as well as total turnover. Therefore, the grounds of appeal filed by the assessee in this regard are allowed.
In the result, the appeal filed by the assessee for assessment year 2009-10 is partly allowed.
The issues raised in the grounds of appeal in assessment year 2010-11 are identical to the one raised in assessment year 2009-10. Since we have decided the issue of deemed export against the assessee in its appeal i.e. for assessment year 2009-10, for the same reasons, grounds of appeal No.2, 3, 4 5 and 6 raised for assessment year 2010-11 in are dismissed against the assessee.
In the result, the appeal filed by the assessee for assessment year 2010-11 is dismissed.