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Income Tax Appellate Tribunal, “ C ” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI RAJESH KUMAR, AM
PER RAJESH KUMAR, AM : This appeal by the assessee is directed against the order dated 27.08.2013 of Commissioner of Income Tax (Appeals)-17, Mumbai (Hereinafter called as the CIT(A) for assessment year 2007-08. 2. At the outset, the ld.AR submitted that the assessee has filed revised grounds of appeal vide application dated 9.6.2015, which are reproduced below : “Sales Tax refund of Rs.35,32,788/- eligible for deduction u/s 10B- Original ground Nos. 1 and 2
2
The ld. CIT(A) failed to appreciate that sales tax refund represents profits derived from 100% EOU, and hence, eligible for deduction u/s 10B of the Act. Sales Tax Refund represents recovery of cost-Original ground Nos. 3-5
Without prejudice, the CIT(A) failed to appreciate that the sales tax refund is nothing but recovery of cost of purchase, and hence, eligible for deduction u/s 10B of the Act as the same is derived from 100% EOU”. The ld. AR requested the Bench to admit and adjudicate the said grounds of appeal as against the original grounds of appeal filed by it through Memorandum of Appeal. The ld. AR also requested the Bench that the additional grounds raised vide application dated 9.6.2015 are not being pressed, therefore be dismissed.
The sole issue raised in the revised grounds of appeal relates to the confirmation by ld. CIT(A) of AO’s order that the sale tax refund did not form part of the profit derived from 100% EOU and thus held that the same was not eligible for deduction u/s 10B of the Act.
The assessee filed its return of income on 31.10.2007 declaring total income at a loss of Rs.66,47,815/-. The case was selected for scrutiny and assessment was completed u/s 143(3) of the Act vide order dated 24.12.2009 determining a total income at Rs.10,60,57,750/- by making various additions. The only issue before us is whether the sale tax refund received by the assessee formed the part of the profit from undertaking for the purposes of deduction u/s 10IB of the Act.
At the outset, the ld. AR of the assessee pointed out that the issue involved in the present appeal was covered in favour of the assessee by the order of Mumbai Bench of the Tribunal in the case of M/s Bright Engineering Works V/s JIT (ITA No.7699/Mum/2012) (AY-2008-09) dated
3 19.9.2014 and therefore, in view of the said decision, the appeal of the assessee be allowed by setting aside the order of ld.CIT(A).
The ld. DR, per contra opposed to the submissions of the ld.AR, however, appeared to be reasonably agreed to the contention of the assessee that the similar issue was decided in the above stated Tribunal’s order.
We have considered the rival contentions and perused the material available before us. We find that during the year the assessee received sale tax refund which was claimed as part of the Net Profit for the purpose of deduction u/s 10B and the issue which was considered by the AO for the purpose of calculating the deduction u/s 10B of the Act for the reasons that the same was not derived from export of articles and things and hence, were not eligible for deduction for the purpose of section 10B of the Act. The ld. CIT(A) also upheld the addition made by the AO that sales tax could not be said to be recovery of cost and the assessee failed to establish that sales tax was included in the purchase cost. We find that the similar issue has been decided by the co-ordinate bench of the Tribunal in the case of M/s Bright Engineering Works (supra) vide order dated 19.9.2014 in favour of the assessee by holding that the sales tax refund received by the assessee would not go to the reduce of purchase cost of the assessee as originally it was included in the cost of purchase. The relevant para 4 of the said order is reproduced below :
“4. We have considered rival contentions, carefully gone through the orders of the authorities below and found that the AO has declined claim of deduction u/s.10B in respect of sales tax refund credited in the profit and loss account. Such sales tax refund is not a separate source of income, it is the amount which the assessee got back on its sales tax assessment when it was found that assessee has paid excess sales tax on its purchases. Such payment of sales tax on the cost of goods so purchased and debited to the profit and 4 loss account go to reduce the profit. In case of assessee gets refund of certain amount on such sale tax which is a part of purchase cost, the corresponding profit of assessee will go to increase. In the instant case as per contention of Ld. AR, it appears that assessee has already debited the amount paid under sales tax as its expenses forming part of cost of goods purchased for export, however, subsequently part of such sales tax was refunded which go to reduce the cost of purchases. The corresponding increase in profit due to such refund is eligible for claim of deduction u/s.10B. The sales tax refund is not a separate source of income nor it is the due to any Government policy for paying any incentive. Neither it is export incentive nor any payment under scheme of Government. Therefore, the source of receipt cannot be attributed to such scheme. It is simply refund of excess sales tax paid which has already formed part of cost of purchases. We accordingly, direct the AO to verify as to whether the sales tax refund received by the assessee already formed part of its cost of purchaseseither during the year under consideration or in earlier years. Accordingly, assessee is directed to furnish details of such payment of sales tax and the year in which it has formed part of its cost of purchase in trading/P&L account. If the AO finds that such sales tax have already been debited in the trading/profit and loss account as a cost of purchases, assessee should be given benefit of deduction u/s.10B with respect to such amount of sales tax refund. We direct accordingly.”
We therefore, respectfully following the decision of the Co-ordinate Bench decide the issue in favour of the assessee by allowing the appeal of the assessee.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 14th March, 2016. . आदेश की घोषणा खुरे न्मामारम भें ददनांकः 14th March, 2016 को की गई । (अममत श क्ऱा/AMIT SHUKLA) (राजेशक मार/RAJESH KUMAR) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 14/03/2016 व.यन.स./ SRL , Sr. PS
5 आदेश की प्रनतमऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- 3. आमकय आमुक्त / CIT 4. ववबागीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR,
ITAT, Mumbai गार्ड पाईर / Guard file. 6. आदेशान सार/ BY ORDER,उऩ/सहायक ऩुंजीकार (Dy./Asstt.