Sales tax refund qualifies for deduction under section 10B, impacting profit & loss.

The Tribunal allowed the appeal for statistical purposes, holding that the sales tax refund, constituting a reimbursement of excess sales tax paid and forming part of the cost of purchases, should be considered for deduction u/s.10B. The decision was based on the principle that such refunds impact the profit and loss account by reducing the cost of purchases, thereby increasing the eligible profit for deduction. The Tribunal emphasized that the sales tax refund was not a separate income source or export incentive but a mere reimbursement of overpaid tax, qualifying for deduction u/s.10B.

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Issues:
Disallowance of claim of deduction u/s.10B for sales tax refund.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) for the assessment year 2008-09 regarding the disallowance of the claim of deduction u/s.10B in relation to a sales tax refund. The Assessing Officer (AO) disallowed the claim stating that the Central Sales Tax (CST) refund did not pertain to profits derived from Export Oriented Unit (EOU) activities. The assessee contended that the sales tax refund should be considered as part of the cost of goods purchased for export, thus increasing the corresponding profit eligible for deduction u/s.10B. The Tribunal examined the arguments, referring to the decision of the ITAT Special Bench and the Karnataka High Court, and concluded that the sales tax refund was not a separate source of income but a refund of excess sales tax paid, which had already been included in the cost of purchases. Therefore, the Tribunal directed the AO to verify if the sales tax refund was part of the cost of purchases in the relevant years and allowed the appeal for statistical purposes.

In summary, the Tribunal held that the sales tax refund, being a reimbursement of excess sales tax paid, which formed part of the cost of purchases, should be considered for deduction u/s.10B. The decision was based on the principle that such refunds directly impact the profit and loss account by reducing the cost of purchases, leading to an increase in profit eligible for deduction. The Tribunal emphasized that the sales tax refund was not a separate income source or an export incentive but a mere reimbursement of overpaid tax, hence qualifying for deduction u/s.10B.

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