Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR & SHRI MAHAVIR PRASAD
आदेश / O R D E R
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 2 - PER MAHAVIR PRASAD, JUDICIAL MEMBER :
These are two appeals by the revenue alongwith two Cross Objections by the assessee against the order of the Commissioner of Income Tax(Appeals)-Valsad, dated 10/06/2013 for the Assessment Years (AYs) 2009-10 & 2010-11.
Since issues are common, only figures and assessment years are different therefore for the sake of convenience, we would dispose all these appeals by way of a common order. Following Grounds has taken by the department in both the appeals:
i. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the inclusion of excise duty, sales tax, insurance and freight charges from its total turnover to quantify the deduction u/s.10B. ii. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the inclusion of transfer value of goods transferred from one EOU to another in total turnover to quantify the deduction. 3. The relevant facts as culled out from the materials on record are as under:- The assessee company engaged in the business of manufacturing and sales of Hair Dye Intermediaries, Fluorescent Dye, 2:5 Diamino Toluene Sulphate dyes and Fule Marker dyes. The Hair Dye intermediaries are used for manufacturing hair dyes, Colours Developer is a chemical used for development of negative of the photographs and Fluorescent is the chemical which provides glowing attributes to items such as marker pens, life vests etc.
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 3 - 3.2 On perusal of the Form No.56G filed with the return of income revealed that assessee has computed deduction u/s.10B, without including the sales-tax and excise in the total turnover.
3.4 When being asked to explain, the assessee reiterated the contentions made and deliberated in the earlier years also. According to the assessee, it is now an accepted principle that excise duty and sales tax should not be included in the total turnover while calculating deduction under section 80HHC of the Income-Tax Act, 1961. It is further contended that even though Section 10B does not define “total turnover”. This was introduced for providing fiscal benefits to the export oriented undertakings and further stated that deduction u/s.10B, thus requires to be calculated based on the amount of total turnover as per audited accounts of the assessee and the deduction amount has to be certified in the form of specified in Income-Tax Rules, 1962.
3.5 The arguments of the assessee were considered by the ld. AO and held that inclusion of sales tax, excise duty in total turnover were therefore rejected and held that sales tax and excise duty to be added in total turnover for the purpose of 10B of the I.T. Act.
3.6 Further, the perusal of the form No.56G revealed that assessee has excluded the freight and insurance from the total turnover while working out the deduction u/s.10B of the Act. During the course of the assessment proceedings, assessee was asked to explain as to why not the turnover
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 4 - should be taken without deduction the insurance and freight,, as there is no definition of total turnover in the provision of section 10B. The AR of the assessee only explained that the total turnover should be exclusive of insurance and freight as like provisions of section 80HHC of the Act. But arguments of the assessee were not acceptable to the ld. AR and held that sales tax, excise duty, insurance and freight expenses incurred by it are to be included in the turnover for the purposes of computation of deduction u/s.10B of the Act.
3.7 During the course of scrutiny proceedings it was noticed that there has been a transfer of goods worth Rs.5,56,53,920/- from ‘Fluorescent undertaking’ and EOU unit to another EOU unit namely ‘Fuel marker undertaking’. For the purpose of computation of income the same has been separately shown outside the sum total of sales. A perusal of the working of the deduction u/s.10B for the Fluorescent undertaking revealed that this amount has also not been included in the turnover of the said undertaking for the purposes of arriving at the deduction allowable on this unit u/s.10B. In view of the same, assessee was given following show-cause notice as under:
a. “Give detailed breakup of the items transferred. b. Value adopted-manufacturing cost/market value for the accounting purposes. c. Show cause as to why the same should not be included in the turnover of “Fluorescent Undertaking” for computing deduction u/s.10B of the IT Act.”
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 5 - 3.8 Assessee’s reply as follows: “i. The assessee-company runs four manufacturing units, including three EOUs which are as under: a. The old industrial undertaking is engaged in manufacturing of Colour Developer. b. The industrial undertaking which is engaged in the manufacturing of Fluorescent Dyes is a 100% EOU unit and enjoys deduction U/s.10B of the Act. c. The industrial undertaking which is engaged in the manufacturing of 2:5 Diamino Toluene Sulphate Dyes is a 100% EOU unit and enjoys deduction U/s.10B of the Act. d. The industrial undertaking which is engaged in the manufacturing of Fuel Marker Dyes is a 100% EOU unit and enjoys deduction U/s.10B of the Act. ii. The fluorescent undertaking is into the production of "Acid Yellow250, SY44, FYAA223, SY43, SY131 AND SY124Inter”. All are reportedly produced as result of separate manufacturing activity and distinct raw materials. No product in turn is an intermediate or raw material for any other product being produced within this undertaking. iii. The total value of goods sold during the year under consideration by fluorescent undertaking is Rs.9,00,06,301/- of which exports & other local sales account for 38.16% while 'SY124 inter' alone accounts for 61.84%. This product is transferred to its other undertaking namely 'Fuel Marker Undertaking' for further manufacturing activity and finally being exported. iv. The fuel marker undertaking produces FM460, FM500HF, FM500LF, FM500, FM512, FM913, FM890, FM882, FM456, FM515, FM560, FM459 and SY INTER. All have distinct raw materials and separate processes of manufacturing activity. 'SY124 INTER' is the raw material for the manufacture of 'FM 456' only. 'FM 456' is the brand name given by the assessee to SY124 a fuel marker.” 3.9 But AO was not convinced with the plea of the assessee and an addition of Rs.5,56,53,920/- to the total turnover of the ‘Fluorescent undertaking’ for 10B purposes.
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 6 - 3.10 On perusal of the computation of the deduction u/s.10B as submitted through form No.56G reveal that certain incomes that have not been derived from Export activity have also been included in the profits of the eligible undertakings for the purpose of computation of deduction u/s.10B of the I.T. Act.
Particulars Fluorescent TDS Fuel marker undertaking understanding Miscellaneous 92557 196017 906880 income Service charges --- --- 370320 Total 92557 196017 1277200 Total 1565774
3.11 Ld. AO held that Rs.15,65,774/- excluded from the profits of the eligible undertakings for the computation of deduction u/s.10B of the I.T. Act.
3.12 During the course of proceeding, it was noticed that the assessee has treated goods in-transit amounting to value Rs.36,999,737/- as sales for the year under consideration even through the other party has not accepted the same. The contra confirmation of the said parties is differing from the assessee’s account to the extent. The statutory auditor also made an observation in this connection vide 5(f) of his report dated 25.09.2009. Relevant portion reproduced below for ready reference: "Sales include Rs.36,999,737/- being revenues accounted by the Company in respect of exports made on CIF terms but pending delivery to the overseas buyer. Value of such dispatches having been excluded by the buyer while confirming the balance due to the Company as of the year end, the transfer of property in such consignments to the buyer as
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 7 - required under Accounting Standard 9 'Revenue Recognition' is, in our opinion not complete as of the year end. Accordingly, sales are overstated by like amount, inventories are understated by Rs.30,855,065/- and profit before tax is overstated by Rs.6,144,672/-."
3.13 Thereafter a show cause notice as follows was issued by the AO and assessee’s reply as under: "During the course of discussion on the issue of recognition of exports as per AS-9 his attention was drawn to the fact that the accounting standards are equally applicable even for preparation B/s & P &L A/c as per Companies Act. he was required to explain & justify the correctness of the book profit adopted by him for the purposes of 115JB and also substantiate his claim of the same being not available to the A.O. for modification. Assessee's submission in this regard to be submitted by 12.02.2013." (vide order sheet entry dated 30.01.2013).
"1) the company has consistently accounted for export sales transaction during the year and also in earlier years on the basis of date of Bill of Landing for each consignment. The Statutory Auditors have qualified their report on the account of the company for the reason that the overseas customer of the company has not accounted for the corresponding purchases based on the date of Bill of lading. However, the company has correctly accounted for its export sales transactions and thus the question of regrouping/revision to these amounts does not arise. The details of such export sales transaction were submitted alongwith other details as per submissions dated December 5, 2012. Further, as pronounced by the Honourable Supreme Court in Apollo Tyres Ltd Vs Commissioner of Income Tax (2002) 255 ITR 273 (SC). While assessing a company for income tax under section 115] of the Income Tax Act, 1961, the correctness of the Profit and Loss account prepared by the company and certified by the Statutory Auditors of the company as having been prepared in accordance with the requirements of Parts I! and III of Schedule VI of the Companies Act cannot be examined by the AO; AO does not have the jurisdiction to go behind the net profit shown in Profit and Loss Account except to the extent provided in the Explanation to section 115] of the Income Tax Act, 1961. Copy of the judgment of Honourable Supreme Court is enclosed herewith. The Honourable Bombay High court has held the same
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 8 - relying on the aforesaid decision of Honourable Supreme Court in CIT vs Adbhut Trading Co. Pvt. Ltd (2011) 338ITR 94 (Bom.)." 3.14 Ld. AO held that net consequence for tax purposes is that the deduction u/s.10B for the assessee are claimed one year ahead of their actual eligibility and the same are brought to tax under MAT one year early. However, it is pertinent to note that the rate of MAT for A.Y.2009- 10 is 10% while that for A.Y.2010-11 is 15%. Consequently, these receipts have been subject to lesser rates of MAT.
3.15 As per assessing officer the claim of the assessee that the treatment is revenue neutral is not correct and finally ld. AO computed the income as follows: 1. Tax u/s. 115JB in A.Y. 2008-09 Rs.19,49,291/- 2. Tax under normal provision of the Act in A.Y. 2008-09 Rs.5,58,186/- 3. Amount of MAT liability in respect of A.Y. 2008-09 Rs.13,91,105/- available for credit in subsequent years (1-2) 4. Tax u/s.115JB in A.Y. 2009-10 Rs.36,35,776/- 5. Tax under normal provision of the Act in A.Y. 2009-10 Rs.48,40,368/- 6. Amount of tax against which credit in respect of 3 is Rs.12,04,592/- available (5-4) 7. Amount of tax credit u/s.115JAA (lower of 3 & 6) Rs.12,04,592/- 8. Balance MAT liability in respect of A.Y. 2008-09 Rs.1,86,513/- available for credit in subsequent A.Y.s 4. Against the said order assessee preferred first statutory appeal before the ld. CIT(A) who allow the appeal of the assessee.
We have gone through the relevant record and impugned order. So far as inclusion of excise duty, sales tax, insurance and freight charges from its total turnover to qualify the deduction u/s.10B of the Act are
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 9 - concerned. The ld. AO has dealt the issues on Page No.2-5, Para 4.1/4.2 and CIT(A) has dealt the issue in Page No.4-5 in Para 6. In this case, ld. CIT(A) held that issue was decided in favour of the appellant in his own case vide appeal no.CIT(A)/VLS/287/08-09 dated 24/02/2011 following the precedent ld. CIT(A) allowed this ground of appeal in favour of the assessee.
5.2 Ld. AR has submitted a copy of an order of coordinate bench in ITA No.2239/Ahd/2012 for Asst. Year 2008-09. Similar matter came before the Hon’ble bench and it was held that issue in the present case is as together. Excise duty, sales tax, insurance and freight charges are to be included in the total turnover for the purpose of computation of deduction u/s.10B of the Act. It was held that sales tax, excise duty, insurance and freight are to be included in the total turnover for the purpose of computation of deduction u/s.10B of the Act. Therefore, respectfully following the decision of our coordinate bench, we allow this ground of appeal in favour of the assessee. Ground No.1 is thus, dismissed.
So far as Ground deleting inclusion of transfer value of goods transferred from on EOU to another in total turnover to quantify the deduction is concerned. Ld. AO has dealt the issue on Page No.5-18, Para 4.3. In the instant case of the appellant, both the EOUs involved are entitled from 10B benefits. Supply of manufactured goods from one EOU to another EOU/STP/EHTP or SEZ units are counted towards fulfillment of NFE for the supplying EOU/EHTP/STP units under paragraph 6.9(c)
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 10 - of Foreign Trade Policy. However, such supplies are considered to be imported goods or the recipient unit and value of such goods are taken into consideration for computation of NFE of the recipient unit. This clearly indicates that the eligible units enjoys deem export benefits on the value of the transferred goods. The natural corollary is the proceeds out of such transferred goods is deemed to be export proceeds and should be included in the export turnover for the purpose of computation of eligible profit u/s.10B of the Act. Therefore, in our considered opinion this ground of appeal is dismissed.
So far as Cross Objections are concerned. Since we have dismissed the appeals of the department and we do not find any merit in the Cross Objections of the assessee therefore we also dismiss these Cross Objections.
In the result, both the appeals and cross objections filed by the department and assessee are dismissed. This Order pronounced in Open Court on 29/11/2017
Sd/- Sd/- ¼izeksn dqekj izeksn dqekj izeksn dqekj½ izeksn dqekj ¼egkohj izlkn½ ¼egkohj izlkn½ ¼egkohj izlkn½ ¼egkohj izlkn½ Yks[kk ln Yks[kk ln Yks[kk lnL; Yks[kk ln L; L; L; U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; (PRAMOD KUMAR) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 29/11/2017
ITA Nos. 2128 & 2129/Ahd2013 Cross Objection Nos.26 & 27/Ahd/2014 Asst.Year – 2009-10 & 2010-11 - 11 -
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Valsad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy