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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
Out of five appeals – three by the assessee and two by Revenue are directed against the different orders of Commissioner of Income Tax
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 2 (Appeals)-IV, Kolkta dated 18.03.2013, 20.03.2013 & 06.12.2013. Assessments were framed by DCIT/ACIT,Circle-4, Kolkata u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide their orders dated 18.12.2009, 17.12.2009 & 15.12.2006 for assessment years 2002-03 to 2004-05 respectively.
Mrs. Arti Debnath, Ld Authorized Representative appeared on behalf of assessee and Shri Sital Chandra Deb, Ld. Departmental representative appeared on behalf of Revenue.
At the threshold it was noted that there is delay of 25 days in both appeals of Revenue in ITA No.2161-2162/Kol/2013. The Revenue has filed affidavits for condonation in this regard stating the reasons that the delay is occurred due to preparation of appeal files. Ld. AR for assessee submitted that considering delay he should not be having any objection to the Bench if considering the delay of condonation. Thus, in our considered opinion, on the facts and circumstances of the both the case, the delay in filing appeal deserves to be considered and is condoned. Accordingly the appeals are admitted and the hearing proceeded with.
First we take up assessee’s appeal in ITA No. 1841/Kol/2013 for A.Y.02-03.
The assessee in the first issue has challenged the assessment proceedings u/s147 of the Act which was also confirmed by the ld. (CIT). For this, assessee has raised following ground:- “1. Reassessment proceedings is bad in law. 1.1 That the Ld. CIT(A) has erred on facts and in law in confirming the reopening u/s. 148, ignoring the provisions contained in first proviso to section 147 of the Act although the appellant had fully and truly disclosed all material facts necessary for assessment for this assessment year. 1.2 That on the facts and circumstances of the case Ld. CIT(A) erred in confirming reopening u/s 147 of the Act although such action was not backed by any new facts and the reopening was a result of change of opinion.”
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 3 4. Facts in brief are that assessee in the present case is a Private Limited Company and engaged in the business of blending & export of tea. The assessee, for the year under consideration has filed its return of income dated 08.10.2002 which was processed u/s. 143(1) of the Act dated 08.12.2003. Thereafter case was selected under scrutiny and accordingly assessment was framed u/s. 143(3) of the Act on 10.03.2005 wherein the exemption claimed by the assessee u/s. 10B of the Act was allowed as per the provisions of the Act. The Assessing Officer after elapsed of four years initiated the proceedings u/s. 147 of the Act on the ground that the activity of assessee i.e., blending of tea is not manufacturing activity. Therefore, the assessee was not entitled for exemption u/s. 10B of the Act. However the assessee objected on the validity of notice issued u/s 148 of the Act by stating that the initiation of re-assessment proceedings is barred by time in terms of First proviso to Sec. 147 of the Act. The AO could not discover any new facts subsequent to the completion of assessment u/s. 143(3) of the Act and therefore, the action of AO under section 147 of the Act is merely based on “change of opinion”. However, the AO disregarded the claim of assessee by observing that no information was provided by assessee with regard to nature of activity of assessee at the time of assessment. The activity of assessee i.e. mixing and blending does not amount to ‘manufacture’. Therefore, all the materials facts necessary for assessment was not fully and truly disclosed by assessee at the time of assessment.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the order of AO by observing as under:- “4.2 I have considered the submission of the AR of the appellant as well as the assessment order. I find that even at the assessment level the appellant had taken up the issue that notice u/s. 147 was issued beyond the stipulated time of 4 years from the end of the assessment year and the AO had relied to the appellant through his letter dated 17.11.2009. In fact, Section 147 under first proviso allowes assessments which have been completed u/s. 143(3) to be reopened beyond the period of four years if the assessee fails to disclose fully and truly all material facts necessary for the assessment. In the Tax Audit Report, the appellant
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 4 had reported its income from the activity of manufacturing whereas it was only blending tea. The jurisdictional High Court in the case of Appeejay Pvt. Ltd. (206 ITR 367) had already held that blending of different kind of tea will not constitute manufacture or production of articles or tings. Therefore, on the date of filing of the return, the appellant was aware that the jurisdictional High Court has held blending of tea to be an activity which is not equitable to manufacturing. Yet, it had claimed deduction u/s. 10B and reported its activity as manufacturing. In the original assessment order us. 143(3) passed on 10.03.2005 the applicability of section 10B was not examined although the quantum of deduction was reduced. Another issue of relevance is that subsequent of the passage of the assessment order u/s.143(3) 10.03.2005 the matter of blending of tea was examined by the Hon'ble Supreme Court of India. The Hon'ble Supreme Court of India in its judgement passed on 09.07.2007 in the case of CIT vs. Tara Agencies (292 ITR 444) held that tea blending will not amount to manufacturing. Therefore, the AO on the date of reopening had clear cut information of the correct state of law as derived from the judgements of both the jurisdictional High Court as well as the Apex Court. Under these circumstances, a taxpayer cannot be allowed to take advantage of an oversight or mistake committed by the taxing Authority as has been held in the case of Kalyanji Mavji & Co vs. CIT (SC) 102 ITR 287. In the case of Simplex Concrete piles (India) Pvt. Ltd., vs. DCIT & Ors. (Cal) 255 ITR 49 reopening after four years has been held to be valid in view of subsequent decision of Supreme Court on an issue which was accepted at the time of original assessment. Given the above facts I am of the view that the appellant had failed to disclose fully and truly all materials facts necessary for the assessment and therefore, reopening beyond a period of four years with the due approval of CIT as required u/s. 151 is held to be valid. Reopening is also held to be valid in view of the Apex Court rendering its judgements subsequent to the passage of the assessment order u/s. 143(3) on 10.03.2005. On this ground the action of the AO in reopening is held to be valid and the appellant’s ground of appeal is dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR filed paper book which is running from pages 1 to 80 and submitted that notice was issued beyond four years from the end of relevant A.Y i.e. 2002-03 u/s 148 of the Act. The notice was issued dated 26.08.2008 and the return was filed us. 139(1) of the Act dated 08.10.2002. All
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 5 the material facts necessary for the assessment were furnished at the time of assessment u/s. 143(3) of the Act. Therefore the re-assessment proceedings are thus based on the “change of opinion” without finding out any corroborative material. There was no failure on the part of assessee in disclosing all material facts necessary for assessment proceedings. The Ld. CIT(A) has relied in the case of Simplex Concrete Piles (India) Pvt. Ltd. vs. DCIT & Ors 255 ITR 49 (Cal) for reopening of the case. However, the case, Simplex Concrete Piles (India) Pvt. Ltd. (supra), relied upon by Ld. CIT(A) has been overruled by the Hon'ble Supreme Court reported in 262 ITR 605 (SC). Ld. AR further submitted that the Hon’ble ITAT in assessee’s own case for the AY 2005-06 in ITA No. 1189/Kol/2008 has decided the issue in favor of assessee holding that the activity of blending tea amounts to manufacture and thus entitled for deduction under section 10B of the Act.
On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
We have heard the rival contentions of both the parties and carefully considered the materials available on record and the case laws cited before us. From the above discussion we find that the crux of the issue for our adjudication is whether the action of ld. CIT(A), holding the reopening the assessment proceedings under section 147 of the Act after the expiry of the 4 years is correct in the above stated facts & circumstances. At this juncture we would like to reproduce the provisions of section 147 of the Act which reads as under : "Sec.147: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year; concerned .
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 6 Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year" From the bare reading of the provisions we find that the reassessment proceedings under section 147 of the Act can be reopened beyond the period of 4 years if the assessee fails to disclose fully and truly all material facts necessary for the assessment. However on perusal of the records we find that the AO during the course of assessment proceedings has examined the details of the deduction under section 10B of the Act. On perusal of the reasons recorded by the AO before issuing notice u/s. 148 of the Act, it is also clear that the AO has not, in the reasons recorded, made an allegation that income chargeable to tax has escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. The reasons recorded by the AO under section 148 of the Act are as follows :- “On verification of assessment records sit is seen that the assessment was completed u/s. 143(3) on 10.3.2005 on a total income of Rs.51,43,004/-. In the assessment exemption u/s 10B was allowed to the tune of Rs.1,68,79,919/- as against claim of assessee of Rs.2,03,35,985/-.
During the assessment for the assessment year 2002-03 the question of applicability of section 10B was not examined from the point of view whether the activity of the assessee company was that of manufacturing or producing of article or thing. In view of what is stated above I have reason to believe that by allowing deduction u/s. 10B of Rs.1,68,79,919/- income to that extent has escaped assessment for the asst year 2002-03.
It may be mentioned here that notice u/s.147 was issued after prior approval from the Commissioner of Income Tax-II, Kolkata.”
It is not in dispute that for A.Y. 2002-03, an assessment u/s. 143(3) of the Act had already been made in the case of the assessee by an order of
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 7 assessment dated 10.3.2005. Admittedly notice u/s. 148 of the Act was issued and subsequently served on the assessee on 28.8.2008 which is beyond the period of four years from the end of the relevant assessment year (2002-03). Such an allegation is admittedly absent in the reasons recorded and on facts there has in fact been no such failure on the part of the Assessee, so as to attract the proviso to Sec.147 of the Act. In our considered view the AO merely opened the reassessment proceedings under section 147 on the basis of changed of opinion which is not permissible in the eyes of law. The law is well settled on this issue. As the proceedings for the AY 2002-03 have to be judged on the basis of reasons recorded by the AO and it is not possible to substitute, delete or add anything to such reasons recorded by the AO. It is also not possible to draw any inference based on the reasons not recorded. In the light of the law as laid down in the aforesaid decisions, we are of the view that initiation of reassessment proceedings by the AO in the present case is not in accordance with the law. The order of reassessment is therefore liable to be annulled.
At this juncture we also find it important to reproduce the provisions of Explanation 1 to Sec.147 of the Act which reads as follows: "Explanation 1.-- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." We are of the view that Explanation-1 only lays down that production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure. The expressions "will not necessarily" in Explanation 1 will only mean that facts and circumstances of each case will have to be seen as to whether production of books of account and other evidence before the AO will amount to full and true disclosure of material facts. In the present case, as we have already seen, evidence was produced before the AO in the course of the original assessment proceedings u/s 143(3) of the Act and the
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 8 same was perused by the AO and he had not chosen to draw any conclusion that the amount claimed as deduction by the Assessee was in fact not available to the assessee. In the given circumstances, we are of the view that Explanation 1 cannot also be resorted to by the Revenue. Explanation-1 to Sec.147 cannot be read in a manner so as to override Proviso to Sec.147 of the Act. We also find that the ld. CIT (A) has relied in the judgment of Hon’ble Calcutta High Court in the case of Simplex Concrete Piles (India) Pvt. Ltd. Vs. DCIT Ors. (Cal) 255 ITR 49. But we find the aforesaid decision was reversed by the Hon’ble Supreme Court vide order dated 2nd April 2003 reported 262 ITR 0605. The relevant extract of the order reads as under:-
“Reassessment—Full and true disclosure—Notice after expiry of four years—Proviso to s. 147 prescribes limits of four years in respect of cases other than those covered under the four contingencies and no period of limitation has been provided for cases covered under the four contingencies contained in the proviso—In respect of those contingencies, one can fall back on s. 149 for the purpose of finding out the limits within which such notices can be issued by the authority— Limitation prescribed under s. 149 cannot be implied when the case does not come within four contingencies under the proviso to s. 147— Even where the assessee is in default, unless the case comes under cls. (ii) and (iii) of s. 149(1)(a) no notice can be issued after expiry of four years—Sec. 151 may have application only in respect of s. 149, and it cannot stretch its application to s. 147, proviso, in relation to cases other than assessee’s default—In the instant case assessee had claimed certain reliefs which were allowed—Admittedly, there is no allegation that the amounts now sought to be taxed were not disclosed—On the other hand, these were disclosed but claimed to be non-taxable—Therefore, it cannot be said that there was any omission or failure to disclose fully and truly the material facts necessary for the assessments—Contention of the Revenue that the assessee’s case attracts the mischief excepted in the proviso to s. 147 as the assessee has not responded to the notices under s. 148 has no substance as the stage after the issuance of notice would not be relevant for the purpose of s. 147—Impugned notices quashed on the ground that those were issued after expiry of four years without assessee's default” Reliance was also placed on the decision in the case of 3I Infotech Ltd.-vs.- ACIT (2010) 329 ITR 257(Bom.) wherein the Hon'ble Bombay High Court has held as under:
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 9 "6.The proviso however stipulates that where an assessment has been carried out u/s 143(3), action after the expiry of four years from the end of the relevant assessment year would stand barred unless income chargeable to tax has escaped assessment inter alia by the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. Hence, where a reopening of assessment takes place beyond a period of four years from the end of the relevant assessment year, the test which the statute requires to be applied is based on the nature of the disclosure that is made by the assessee. If the assessee has made a full and true disclosure of all the material facts for his assessment, the action of reopening the assessment would stand barred. Contrariwise, where there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the reopening of the assessment would stand validated even if it takes place beyond the expiry of a period of four years. " 8.1 We are, therefore, of the view that in the given facts and circumstances of the case, initiation of reassessment proceedings u/s 147 of the Act is held to be illegal and consequently, order passed u/s. 147 of the Act is cancelled on this ground. In view of the conclusion that the initiation of reassessment proceedings is invalid we are of the view that the others issues raised by the assessee in the grounds of appeal do not require any consideration. Accordingly the appeal of the assessee is allowed.
Since we have quashed initiation of proceedings and issuance of notice u/s. 147/148 of the Act by allowing legal ground of assessee then other grounds of the assessee on merits become academic and in fructuous and we dismiss the same as having become in fructuous.
In the result, assessee’s appeal is allowed. Coming to Revenue’s appeal in ITA No.2161/Kol/2013 for A.Y.02-03 11. Since we have quashed the initiation proceedings in assessee’s appeal in ITA No.1841/Kol/2013 for A.Y. 2002-03, Hence, ground raised by Revenue become in fructuous and do not require any adjudication. Therefore, we dismiss Revenue’s appeal as in fructuous.
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 10 12. In the result, Revenue’s appeal is dismissed. Coming to assessee’s appeal in ITA No.1897/Kol/2013 for A.Y. 03-04. 13. Grounds raised by assessee per its appeal are as under:- “1. That the Ld. CIT(A) has erred in directing the AO for disallowing benefit u/s. 10B for manufacture and export of handicrafts.
That the Ld. CIT(A) has grossly erred in confirming the action of AO in treating the interest income of Rs.22,69,100/- as ‘income from other sources’ instead of ‘Business Income’ thereby denying the benefit of exemption u/s. 10B on the same.”
At the time of hearing Ld. for the assessee has stated that he has instructed by assessee not to press the ground No.1. Hence, same is dismissed as not pressed.
Next issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by treating the interest of Rs.22,69,100/- as income from other source instead of business income thereby disallowance of benefit of Sec. 10B of the Act.
Assessee in the year under consideration has declared interest income of Rs.22,69,100/- as income from other source which was accordingly allowed by AO in assessment proceedings framed u/s 147/143(3) of the Act. The assessee in its appeal filed before Ld. CIT(A) has challenged the interest income by stating that the interest income was inadvertently shown as “income from other sources” but it is income from the business only. So the said interest income was earned on the deposit of margin money with the bank for the purpose of availing credit facility from the bank. Therefore, interest income is purely in the nature of “business income” and accordingly entitle for exemption u/s. 10B of the Act. However, Ld. CIT(A) rejected the plea of assessee by observing as under:- “6.1 I have examined the arguments of the Assessing Officer as well as the submissions made by the AR of the appellant. At ground no. 5 is the issu9e of treatment of interest income of Rs.22,69,100/- as income from
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 11 other sources. The AO in his assessment order for A.Y 2002-03 had specifically pointed out the Apex Court case of M/s Pandian Chemicals reported in 262 ITR 278 that interest income is not part of business income. The AR of the appellant has tried to distinguish in the case of Pandian Chemicals from the case of the appellant as the stated judgments pertain to Section 80HH. However, I am not in agreement with the reasoning of the AR of the appellant as even for claim of deduction u/s. 10B there are specific decisions which have treated interest income as indirect profit which cannot be regarded as profit earned out of main business activity. I am referring to the following judgements:
1.Orchid Chemicals & Pharmaceuticals Ltd., vs. JCIT(ITT, Chennai) 97 ITD 277
ABI Showtech (I) Ltd., 2007-TIOL-203-ITAT, Chennai
6.1.1 In the above judgements it has been held that interest income is not eligible for deduction u/s. 10B. The expression any profits and gains derived by the assessee from a 100% export oriented undertaking used in Section 10B has a distinct but a narrow meaning. Any indirect or incidental profit cannot be regarded as profit earned out of main business activity. Even for the purpose of claim of deduction u/s. 10A it has been held that interest is not profit ‘derived from’ industrial undertaking as there is no direct nexus between income and the undertaking. Therefore, such interest is not eligible for exemption u/s. 10A. I refer to the following cases upholding the above decision:
CIT vs. Menon Impex (P) Ltd. (Mad) 259 ITR 403 2. India Comnet International vs. ITO (Mad) 304 ITR 322
6.1.2 In view of the above discussions I dismiss ground no. 5 of the appeal and confirm the assessment made by the AO.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 17. Before us Ld. AR submitted that interest income was earned on the margin money deposit in bank for the purpose of availing the credit facilities from the bank.
On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 12 18. We have heard both the parties and perused the records especially the impugned order and the case laws cited therein and also by the learned Counsel of the assessee. From the perusal of the above, we find that the assessee has claimed interest income amounting of Rs. 22,69,100/- under the head income from other sources. But before ld. CIT(A) the assessee has raised the issue by stating that the interest income was shown under the head income from other sources by mistake. The same should be treated as income from business and profession as it was earned on the deposit of margin money for availing the credit facility from the bank. Therefore the interest income is directly linked with the business of the assessee. However, the Ld CIT(A) disregarded the plea of the assessee by observing that the interest income is indirect profit to the assessee which cannot be regarded as arising out of the business of the assessee for the purpose of exemption under sec 10B of the Act. Now the crux of the controversy before us is as to whether this interest income is a business income or not. In the case on hand we find that the assessee has made fixed deposit with the bank as margin money for the purpose of availing the credit facility from the bank and interest income was earned thereon. Therefore we find that there is direct nexus of the interest income with the business of the assessee. Similarly, we also find that the assessee is claiming interest expenses on the credit facility from the bank as business expenditure which is directly linked with the interest income. As the assessee has claimed the interest expenses on credit facility as business expenses which have been allowed in the assessment and the interest income is directly connected with the credit facility, hence it should be eligible for deduction under section 10B of the Act. The ld. CIT(A) has relied in the judgment of Hon’ble Apex Court in the case of Pandian Chemical Ltd. Vs. CIT reported in 262 ITR 278 while disallowing the deduction claimed by the assessee. However the Hon’ble High Court of Karnataka in the case of CIT & ANR Vs. Motorala India Electronics Pvt. reported in ITR 265 CTR 0094 has decided the identical issue in favour of assessee considering the Pandian
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 13 Chemical Ltd. (supra) in favour of the assessee. The relevant extract of the order is reproduced below:- “In instant case, assessee was a 100% EOU, which had exported software and earned income. A portion of that income was included in EEFC account. Yet another portion of amount was invested within country by way of fixed deposits, another portion of amount was invested by way of loan to sister concern which was deriving interest or consideration received from sale of import entitlement, which was permissible in law. There was a direct nexus between this income and income of business of undertaking. Though it does not par take character of a profit and gains from sale of an article, it was income which was derived from consideration realized by export of articles. In view of definition of ‘Income from Profits and Gains’ incorporated in Subsection (4), assessee was entitled to benefit of exemption of said amount as contemplated u/s 10B of Act. Therefore, Tribunal was justified in extending benefit to aforesaid amounts also. We do not find any merit in these appeals. Therefore, first substantial question of law raised in ITA No.428/2007 was answered in favour of revenue and against assessee and first substantial question of law in ITA No.447/2007 was answered in favour of assessee and against revenue. While computing eligible deduction u/s 10B/10A of Act entire profits including interest earned from business of undertaking was to be considered.”
18.1 We also find that the aforesaid judgment Pandian Chemical Ltd. (supra) was rendered prior to the amendment in section 10B (4) of the Act in the year 2001. The amendment in section 10B (4) was brought by the Finance Act 2001, w.e.f. 1.4.2001. The section 10B (1) & (4) reads as under:
Special provisions in respect of newly established hundred per cent export -oriented undertakings:- (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 14 to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years :
Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this subsection shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software:
Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years :
Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139.
(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. ”
From the above we find that section 10(B) provides deduction of such profits and gains as derived by 100% EOU from the export of articles or things or computer software. The substituted Sub-section (4) provides the manner for the computation of deduction which says that 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 and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles are different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is important to note that similar provisions are not there while dealing with computation of income under Section 80HH of the Act. However the specific provision of Section 80HH expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is inferred while computing the deduction under section 10B of the Act, it also provides for deduction for other business income of the undertaking.
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 15 18.2 We also rely in the case of CIT Vs. Triputi Wollen Mills Limited reported in 193 ITR 0252 where the Hon’ble High Court of Kolkata has held as under :
“From the narration of facts, it will be evident that the finding of the Tribunal that the assessee in fact was carrying on business has not been challenged by the Revenue. That apart, the fact remains that although the income was earned by way of interest from the fixed deposits, the ITO allowed the expenditure incurred by the assessee to the extent of the interest income which would go to show that the ITO must consider the expenditure in connection with carrying on business, otherwise, he would have allowed only the expenditure which was incurred in connection with earning of the interest income. Thirdly, the Tribunal found as a fact that earning of the interest income arose from the utilisation of commercial assets. The Tribunal found that the funds utilised in making the fixed deposits with the bank were the business funds temporarily lying in surplus with the assessee. On these facts, the income derived from the utilisation of the commercial assets would be income from business. Where the assessee carrying on business, invests surplus cash lying with him temporarily in bank deposits, the interest earned on such deposits is out of the commercial assets of his business and, therefore, is assessable as business income and not as income from other sources. Similarly we also relied on the judgment of Hon’ble High Court of Bombay in the case of CIT Vs. Arts & Craft Exports reported in 246 CTR 0463. The relevant extract of the order is reproduced below :
“Exemption under s. 10BA—Profits derived from export of eligible goods—DEPB—Tribunal was justified in holding DEPB as a profit derived from export business for the purpose of computing deduction under s. 10BA—No question of law arises—Liberty India vs. CIT (2009) 225 CTR (SC) 233 : (2009) 28 DTR (SC) 73 : (2009) 317 ITR 218 (SC) distinguished; Arts & Crafts Exports vs. ITO (2012) 66 DTR (Mumbai)(Trib) 69 affirmed Tribunal was justified in holding DEPB as a profit derived from export business for the purpose of computing deduction under s. 10BA; no question of law arises.” In the present case the assessee is a 100% EOU and has income from exports. Besides the assessee has also earned income from the interest on
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 16 the margin money deposited with the bank in order to avail the packing credit facility. There is a direct nexus between interest income and the income of the business of the undertaking. Indeed the interest income does not par take the character of a profit and gains from the export of an article, but it is the income which is derived in the course of the business. In view of the definitions of ‘Income from Profits and Gains’ incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated u/s. 10B of the Act. Hence the ground raised by the assessee is allowed.
In the result, assessee’s appeal is partly allowed. Coming to Revenue’s appeal in ITA No.2162/Kol/2013 for A.Y.03-04. 20. Sole issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for Rs.2,53,06,790/- by disallowing the exemption u/s. 10B of the Act on the ground of holding tea blending activity as non-manufacturing.
In the course of assessment proceedings, AO observed that the activity of the assessee is blending / mixing and adding additives in the manufacturing of tea and accordingly the deduction u/s. 10B was claimed. However, the AO rejected the activity of assessee as manufacturing and accordingly deduction claimed by assessee u/s. 10B of the Act was disallowed and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “5.1 The issue of blending of tea amounting to manufacturing or not has now been duly considered by ITAT, Special Bench, Kolkata in the case of M/s Madhu Jayanti International vs. DCIT (ITA No.1463/Kol/2007) and the appellant was an intervener in the said Special Bench case. The order was passed on 20.07.2012. This is a very detailed order in course of which various earlier judicial pronouncements have been examined and then it has been held that tea blending will amount to manufacturing and therefore, the benefit of deduction u/s. 10B should be made available. Subsequent to this judgement, in the appellant’s
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 17 own case for A.Y 2005-06 the Hon'ble Kolkata Bench of ITAT has passed an order dated 23.11.2012, ITA No.1189/Kol/2008. The ITAT Kolkata in this order has held that they will uphold the decision of the Special Bench which has already held that blending of tea amounts to manufacture or production of tea for the purpose of exemption u/s. 10B.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us both parties relied on the orders of Authorities Below as favourable to them.
We have heard both the parties and perused the records especially the impugned order and the case laws cited therein and also by the learned Counsel of the assessee. From the perusal of the case, at the outset we find that this issue is already covered in favour of the assessee in its own case in ITA No. 1189/Kol/2008. The Co-ordinate Bench of this Tribunal in its Special Bench has held that the blending of tea amounts to manufacture or production of tea for the purpose of exemption u/s 10B of the Act. The decision of the Special Bench in ITA No. 1463/Kol/2007 was rendered after considering the several judgments of the Hon’ble Courts including the Hon’ble Apex Court judgment of Tara Agencies reported in 292 ITR 444. In view of above, we find no infirmity in the order of ld. CIT(A). Hence the ground raised by the Revenue is dismissed.
In the result, Revenue’s appeal is dismissed. Coming to assessee’s appeal in ITA No.623/Kol/2014 for A.Y.04-05. 26. Grounds raised by assessee per its appeal are as under:- “1. On the facts and circumstances of the case, the learned Commissioner of Income Tax(A)-IV erred in not allowing the export benefit of Rs.4,61,158/- as eligible for benefit u/s. 10B of the Income Tax ct, 1961.
On the facts and circumstances of the case, the learned Commissioner of Income Tax (A)-IV erred in not allowing the claim of
ITA No.1841. 1897, 2161-62/Kol/13 & 623/Kol/14 A.Ys 02-03 to 04-05 M/s Tea Promoters (I) Pt. Ltd. vs. DCIT Rng-4, Kol. Page 18 Rs.28,82,513/- on account of interest income as eligible for benefit u/s. 10B of the Income Tax Act, 1961.”
Since we have already discussed the same common grounds embodied in para-15 to 18 of this order, both the parties are agreed whatever view taken in the above appeal in ITA No.1897/Kol/2013 may be taken in this appeal also. We hold accordingly. 28. In the result, assessee’s appeal is allowed. 29. In combine result, assessee’s appeal No.1841/Kol/2013 and 623/Kol/2014 are allowed and ITA No.1897/Kol/2013 partly allowed. Revenue’s two appeals are dismissed. Order pronounced in the open court 18/11/2016 Sd/- Sd/- (�या�यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S �दनांकः- 18/11/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Tea Promoters (I) Pvt.Ltd. Suit No. 17 Chowringhee Mansion 30, J.L.Nehru Road, Kolkata-16 2. राज�व/Revenue-DCIT/ACIT, Circle-4,/ITO Warrd-4(4), Kolkata, P-7, Chowringhee Aayakar Bhawan, 8th Floor, Kolkata-69 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।