2015 (1) TMI 52 - AT - Income Tax

Tribunal Decision on Exclusion of Expenses & Subsidy Treatment Under Section 10A

Avalon Technologies P. Ltd. Versus Assistant Commissioner of Income Tax

The Tribunal upheld the exclusion of freight expenses from both export turnover and total turnover for computing deduction under section 10A of the Act. ... Validity of direction made to AO for re-computation of deduction u/s 10A – Exclusion of freight expenses from export turnover and total turnover for computation of deduction – Held that:- Following the decision in Income-Tax Officer. Versus Sak Soft Limited [2009 (3) TMI 243 - ITAT MADRAS-D] - it has been held that freight and telecommunication charges which are required to be excluded from export turnover as defined under Explanation 2(iii) of section 10B of the Act should also be excluded from total turnover for the purpose of computing relief allowable u/s 10B – thus, the order of the CIT(A) is upheld – Decided against revenue. Treatment of subsidy received by the assessee as income – Held that:- The assessee in the course of assessment proceedings appears to have agreed for the addition in respect of subsidy received by it - assessee never denied that he has not agreed for the addition - the assessee could not establish as to why the subsidy received by it is to be treated as capital receipt and not exigible to tax - The assessee has simply stated that the subsidy is received towards electronics and women workmen subsidy and it is a general subsidy - assessee himself states that it is not received in respect of any particular asset - subsidy received by the assessee cannot be treated as capital receipt – the order of the CIT(A) is upheld on the issue of bringing to tax the subsidy received by the assessee – Decided against assessee. Denial of deduction u/s 10A - Sale proceeds in foreign exchange not brought into India within six months from the end of the financial year – Held that:- Assessee received sale proceeds to the extent of ₹ 48.28 lakhs after a period of six months from the end of the financial year in which the exports took place - the competent authority is Reserve Bank of India - assessee has not produced any evidence to show that the competent authority has granted extension for receiving sale proceeds beyond six months from the end of the previous year - the claim of the assessee u/s 10A of the Act is rightly disallowed by the lower authorities - the order of the CIT(A) is upheld on the issue of bringing to tax the subsidy received by the assessee – Decided against assessee. Interest on debtors and creditors no longer payable written back not considered – Held that:- In CIT Vs. Madras Motors Ltd. [2002 (3) TMI 10 - MADRAS High Court] it was held that interest earned by the assessee on belated payments by its customers was directly relatable to its business - There can be no doubt that this interest would however be directly relatable to the business of the assessee of forgings - If the purchasers of the forgings did not make the payments of the forgings and then agree to pay the interest on the delayed payments, the said interest would have its direct nexus with the business of forgings - contentions of the assessee cannot be accepted that this amount is forming part of business income – the order of the CIT(A) is upheld in excluding the amount while computing relief u/s 10A – Decided against assessee. Issues:1. Exclusion of freight expenses from export turnover and total turnover for computation of deduction under section 10A of the Act.2. Treatment of subsidy received by the assessee as income.3. Denial of deduction under section 10A of the Act on sale proceeds in foreign exchange not brought into India within six months.4. Consideration of interest on debtors and creditors no longer payable written back as income from business for deduction under section 10A of the Act.Analysis:Issue 1:The appeals involved a dispute regarding the exclusion of freight expenses from export turnover and total turnover for computing deduction under section 10A of the Act. The Revenue contended that only export turnover should be considered for exclusion, while the assessee argued that both export and total turnover should be considered. The Tribunal upheld the Commissioner's decision to exclude freight charges from both export turnover and total turnover, citing relevant precedents. The Tribunal found that the issue was settled by the decision of the Special Bench of the Tribunal in Sak Soft Ltd., and hence rejected the Revenue's appeal.Issue 2:Regarding the treatment of subsidy received by the assessee as income, the Tribunal noted that the assessee had agreed to add back the subsidy amount to the income during the assessment proceedings. The Commissioner upheld this addition, stating that the assessee could not challenge it in the appeal. The Tribunal concurred with the Commissioner's decision, emphasizing that the subsidy was not capital in nature and should be taxed as revenue income, based on the decision in Sahney Steel & Press Works Ltd.Issue 3:The dispute in this issue revolved around the denial of deduction under section 10A of the Act on sale proceeds in foreign exchange not brought into India within six months. The Tribunal upheld the lower authorities' decision to disallow the deduction, as the assessee failed to provide evidence of an extension granted by the competent authority for receiving sale proceeds beyond the stipulated period. The Tribunal found that the claim was rightly rejected, in line with the provisions of section 10A of the Act.Issue 4:In the matter of considering interest on debtors and creditors no longer payable written back as income from business for deduction under section 10A of the Act, the Tribunal analyzed the nature of such interest income. While the Commissioner and the Departmental Representative argued against including this interest as business income, the Tribunal referred to relevant case law, particularly the decision in CIT Vs. Madras Motors Ltd., to support the inclusion of interest on debtors as business income for computing relief under section 10A of the Act. However, the Tribunal upheld the exclusion of the amount of creditors no longer payable written back from the computation of relief under section 10A.In conclusion, the Tribunal dismissed the Revenue's appeals related to various issues and partially allowed one of the assessee's appeals.