INDO GERMAN CARBONS LIMITED,ERNAKULAM vs. ACIT CIRCLE 1(2), KOCHI

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order of NFAC for the assessment year 2008-09 dated 19.1.2023. The only issue in this appeal is as follows: “2. The Ld.ClT(A)/ Ld. AO erred in not allowing the deduction u/s.10B on the exported steam activated carbon amounting to Rs.2,88,14,020/- which was purchased from its sister concerns. The Ld. ClT(A)/ Ld.AO ought to have noted that the deduction u/s. 10B can be claimed on all exports made by the appellant and is not restricted export of manufactured goods alone. The condition of manufacture is to be considered only for the purpose of determining the first year of claim of deduction.”

ITA No.141/Bang/2023 Indo German Carbons Ltd., Ernakulam Page 2 of 4 2. Facts of the case are that the ld. AO while granting the deduction u/s 10B of the Income Tax Act, 1961 (in short “The Act”) reduced an amount of Rs.2,88,14,020/- from the export turnover, being purchase from group companies meant for re-sale. According to the ld. AO, the exemption u/s 10B of the Act can be granted only for those products with the assessee undertaking manufacturers/producers. 3. The ld. A.R. submitted before us that assessee fulfilled all the conditions necessary for availing benefit u/s 10B of the Act and the assessee produced steam activity carbon amounting to Rs.2,88,14,020/- and exported the same and this shall be entitled for exemption u/s 10B of the Act. 4. The ld. D.R. submitted that assessee is an export-oriented undertaking and it is entitled for deduction u/s 10B of the Act only on the export of articles or things or computer software for 10 assessment years beginning from assessment year in which undertaking begins to manufacture or produce articles or things or computer software. Further, he submitted that the word “Manufacturing” or “production” of the articles by the assessee itself and it is not entitled for deduction u/s 10B of the Act on export items purchased from any other undertaking or sister concern. Thus, he relied on the order of lower authorities. 5. We have heard the rival submissions and perused the materials available on record. The ld. A.R. relied on the following orders of Tribunal: 1. In the case of GTP Granites Ltd. Vs. ACIT in ITA No.68/Chny/2013 2. In the Case of T Two International (P) Ltd. Vs. ITO in ITA Nos.6203 & 7196/Mum/2004. 5.1 However, we find that in the case of PCIT Vs. International Stones India Pvt. Ltd. reported in 304 CTR 0492 (Karn.), the Hon’ble High Court of Karnataka decided the issue as under:

ITA No.141/Bang/2023 Indo German Carbons Ltd., Ernakulam Page 3 of 4

“The provisions in the l.T. Act, 1961, in Chapter-Ill providing for "Incomes which do not form part of total income", in the series of Sec. IOA (Special provision in respect of newly established undertakings in free trade zone) Sec. IOAA (Special provisions in respect of newly established units in Special Economic Zones), Sec. 10B (Special provisions in respect of newly established 100% EOU), Sec. 10BA (Special provisions in respect of export of certain articles or things), Sec. 10BB (Meaning of computer programmes in certain cases), Sec. IOC (Special provision in respect of certain industrial undertakings in North-Eastern Region). All the said provisions were intended to provide for incentive or benefit of exemption or deduction from the total income in respect of profit and gain earned by the undertaking of the specified nature falling in the specified category as specified in these provisions. The substantive terms of these provisions are in pari materia defining the criteria for specification of the units or nature of assessee, who will be entitled to such deduction viz. SEZ, 100% EOU, North-East India Territory, subject to fulfillment of certain other conditions as well;

Sec. 10(2) only determines the eligibility of the unit in question, while Sec. 10B(1) is the main provision which grants the deduction in respect of profit and gains to the assessee-unit in question. It is true that the assessee unit in question in order to be entitled to avail the benefit of Sec. 10B has to be a manufacturing unit and it cannot be merely a trading house, but on a plain reading of sub-section(l) the deduction u/s 10B cannot be restricted to the goods manufactured or produced by the assessee-unit himself or itself. There is no restriction imposed u/s 10B(2) on the quantum of deduction eligible u/s 1 OB(I ) with reference to export of goods manufactured by unit itself. The purpose of sub- section (2) is only to ensure that the conditions of unit not formed by splitting up of a new industrial unit and which is engaged in manufacturing of goods and articles is satisfied by the assessee in question. We do not see any restriction of export of goods purchased from the domestic units also by the assessee to be included for the purpose of deduction u/s 10B(1);

In the present case, according to the Revenue, the entity through whom the export has been made by the assessee is not 100% EOLI and therefore, the benefit of Sec. 10B should be denied to the assessee before this Court. We do not find any good reason to take a narrow and pedantic approach in construing the words "by an Undertaking" and restricting the benefit u/s 10B only in respect of the direct export of such goods manufactured by such Unit as contended by the Counsel for the Revenue. If the Parliament intended to put any restrictive meaning for curtailing the said deduction, such words could be employed in sub-section(l) itself, which could have excluded 'Deemed Export' from the ambit and scope of word 'export' employed in Sec. IOB(I). The Explanation defining 'Export Turnover' both these provisions does not make any such distinction between the 'Direct Export' and 'Deemed Export':

ITA No.141/Bang/2023 Indo German Carbons Ltd., Ernakulam Page 4 of 4

For a harmonious reading of these provisions of the Act which are undoubtedly beneficial provisions, the word 'export' read with the background of Exim Policy of Union of India would certainly include 'Deemed Export’ also within the ambit and scope of the 'Export Turnover' as explained in Explanation-2 of sub-section (9A) of the said Sec. 10B. Therefore, the contentions raised by the Counsel for the Revenue to restrict the deduction in the hands of the assessee by excluding the 'Deemed Exports', does not have any merit and the said contention deserves to be rejected and the same is accordingly rejected. The Revenue before us was unable to establish that both the assessees before us and the entity through whom such export was made by the assessee for the period in question, have claimed any double or repetitive benefit u/s 10B for the same transaction of export.”

5.2 Thus, the benefit u/s 10B of the Act cannot be restricted merely because the third party, manufactured the goods or articles though that export has been made by the assessee. Hence, we remit the issue in dispute to the file of ld. AO to decide the same in the light of above judgement of Hon’ble Karnataka High Court cited (supra). However, we make it clear that there cannot be any double claim one by assessee and another by sister concern u/s 10B of the Act. 6. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 2nd July, 2024

Sd/- Sd/- (Soundararajan K.) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 2nd July, 2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.