2016 (1) TMI 1523 - AT - Income Tax

EOU miscellaneous income from scrap paper sale qualifies for Section 10B exemption but furniture sales excluded

ITAT Delhi ruled on Section 10B exemption eligibility for Export Oriented Units (EOUs). The tribunal held that miscellaneous income from scrap paper sale ... Computation of exemption u/s. 10B - eligibility of miscellaneous income and compensation for deduction - assessee submitted that misc. income and compensation was received in ordinary course of export business. The misc. income and compensation is related to export turnover only. Both the units are export oriented Units (EOUs) eligible for deduction u/s. 10B and total sales are made as export sales HELD THAT:- The compensation received is clear from ledger account submitted that it has been received from his employees either as unpaid salary or leave with wages payable, which has been surrendered by the employees. As far as the Misc. income received as a result of sale of scrap paper, we find that the issue regarding Misc. income derived from sale of scrap stood decided in favour of the assessee in the identical facts of the case in the case of Universal Precision Screws [2015 (10) TMI 951 - DELHI HIGH COURT] after following the decision of Punjab Stainless Steel Industries [2014 (5) TMI 238 - SUPREME COURT] Besides, the scrap paper is an integral part of production which stood exported by the EOUs of assessee. Therefore, we direct the AO to treat the Misc. income received from the sale of scrap as eligible for deduction u/s. 10B of the Act. However, the Misc. income received by EOUs out of sale of wooden furniture or waste coolers, to our mind, being not integrally connected with the export business, shall not be eligible for deduction u/s. 10B of the Act. Similar is not position with respect to compensation alleged to have been received as a result of unpaid salary or leave with wages, surrendered by the employees, as such receipts could not be established to have any relation with the export business of the assessee undertaking. We, therefore, confirm the order of the ld. CIT (A) on this count. The AO is, therefore, directed to work out the deduction u/s. 10B - Appeal of the assessee is partly allowed. The appeal in this case was filed by the assessee against the order of CIT(A)-XIX, New Delhi for the assessment year 2007-08. The core legal questions considered in this case include the eligibility of miscellaneous income and compensation for deduction under section 10B of the Income-tax Act. The main issues revolved around the calculation of profits derived from the export of articles or things and the treatment of various types of income in relation to the claim for exemption under section 10B.The Tribunal analyzed the provisions of section 10B of the Income-tax Act, which allows a deduction for profits and gains derived by a hundred per cent export-oriented undertaking from the export of articles or things. The Tribunal considered the relevant legal framework, precedents such as CIT vs. Punjab Stainless Steel Industries, and the interpretation of the law in light of the facts of the case.The Tribunal examined the details of the deduction claimed and allowed under section 10B for the two units maintained by the assessee. It reviewed the profits derived by the export-oriented undertaking and the total turnover and export turnover of the units. The Tribunal also considered the exclusion of miscellaneous income, fluctuation gain on foreign exchange, and compensation by the Assessing Officer while calculating the deduction under section 10B.The Tribunal noted the submissions of the assessee that the miscellaneous income and compensation were received in the ordinary course of export business and were related to export turnover. The assessee argued that both units were export-oriented and eligible for deduction under section 10B. The Tribunal reviewed the certificates issued by the Chartered Accountant and the details of miscellaneous income and compensation from previous years.After considering the arguments of both parties, the Tribunal examined the ledger accounts of the miscellaneous income and compensation. It found that the miscellaneous income derived from the sale of scrap paper was integrally connected with the export business and hence eligible for deduction under section 10B. However, income from the sale of wooden furniture or waste coolers was deemed ineligible for the deduction. The compensation received from employees was also considered unrelated to the export business and therefore not eligible for deduction under section 10B.In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the Assessing Officer to work out the deduction under section 10B accordingly. The core principles established include the requirement for income to be directly related to the export business to be eligible for deduction under section 10B. The final determination was to allow the deduction for certain types of income while disallowing others based on their connection to the export activities of the assessee.