M/S. ZENITH EXPORTS LIMITED,KOLKATA vs. ACIT, CIRCLE-5, KOLKATA, KOLKATA

The issue involved in Ground No. 1 relates to the disallowance of assessee’s claim for exemption under section 10B in respect of the following incomes:- Provision for bad and doubtful Rs.5,16,789/- debts written back Excess provision written back Rs.7,59,417/- Rs.5,05,375/- Miscellaneous receipts (Sale of Scrap) Sundry balances written back Rs. 70,249/- Profit on sale of assets Rs. 23,315/- ./2016 Assessment year: 2006-2007 Page 2 of 5

The assessee in the present case is a Company, which is engaged in the business of export of leather Hand Gloves, silk fabrics and made-ups, manufacture of yarns and 100% natural silk fabrics. The return of income for the year under consideration was filed by it on 30.11.2006 declaring total income at ‘nil’ after claiming exemption under section 10B. During the course of assessment proceedings, the claim of the assessee for exemption under section 10B was examined by the Assessing Officer and on such examination, he disallowed the claim of the assessee for exemption under section 10B in respect of certain receipts aggregating to Rs.18,75,145/- on the ground that the exemption under section 10B was allowed only in respect of receipts, which are directly linked to the export. On appeal, the ld. CIT(Appeals) upheld the action of the Assessing Officer on this issue by observing that for claiming exemption/deduction under section 10B, the assessee should show that the amount was received from export. He held that the relevant receipts were not directly linked to the export business of the assessee and, therefore, the assessee was not entitled for exemption/deduction thereof.

I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue in the assessee’s claim for deduction under section 10B in the context of interest income had come up for consideration before the Bangalore Bench of this Tribunal in the case of ACIT –vs.- Motorola India Electronics (P) Limited [114 ITD 387] and after taking into consideration the methodology provided in sub-section (4) for arriving at the export profits of the business of the Undertaking, it was held by the Tribunal that the entire profits derived from the business of Undertaking should be taken into consideration while computing profit eligible for deduction under section 10B by applying the mandatory formula given in sub-section 4. In my opinion, the ratio laid down by the Coordinate Bench of this Tribunal is squarely applicable in the present case and since the receipts or income on account of provision for bad and doubtful debts written back, excess provision written back, sale of scrap and sundry balances written ./2016 Assessment year: 2006-2007 Page 3 of 5 back clearly formed part of the business income of the assessee, I am of the view that the same should be taken into consideration while computing the profit of the assessee eligible for deduction under section 10B, I accordingly direct the Assessing Officer to recall the deduction under section 10B after taking into consideration the said receipts and partly allow Ground No. 1 of the assessee’s appeal.

The issue involved in Ground No. 2 relates to the disallowance of Rs.8,92,230/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of prior period expenses.

The prior period expenses of Rs.8,92,230/- debited by the assessee to the Profit & Loss Account were disallowed by the Assessing Officer in the assessment completed under section 143(3) as the assessee failed to establish on evidence the allowability as well as crystallisation of the said expenses in the year under consideration. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer on the ground that only those prior period expenses could be allowed which had been crystallized during the relevant year. He held that the assessee neither during the course of assessment proceedings nor even during the course of appellate proceedings had produced any evidence to show that the liability for the relevant prior period expenses was crystallized in the year under consideration.

I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the prior period expenses of Rs.8,92,230/- claimed by the assessee in the year under consideration are disallowed by the Assessing Officer as well as by the ld. CIT(Appeals) as the assessee failed to establish on evidence that the same had crystallized during the year under consideration. Even at the time of hearing before me, the ld. counsel for the assessee has not been able to do so. I, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the ./2016 Assessment year: 2006-2007 Page 4 of 5 Assessing Officer on account of prior period expenses and upholding the same, I dismiss the Ground No. 2 of the assessee’s appeal.

As regards the issue raised in Ground No. 3 relating to the addition of Rs.18,75,145/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of disallowance made under section 10B while computing the book profit under section 115JB, it is observed that such adjustment to the book profit on account of disallowance under section 10B is not permissible as per Explanation to section 115JB as rightly pointed out by the ld. counsel for the assessee. Even the ld. D.R. has not been able to dispute this position. Moreover, I have already deleted the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of disallowance of deduction under section 10B substantially while deciding Ground No.1 raised by the assessee in this appeal. I accordingly direct the Assessing Officer to delete the addition made on account of disallowance of deduction under section 10B while computing book profit under section 115JB and allow Ground No. 3 of the assessee’s appeal.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on February 03, 2017.