TaxTMI 
TaxTMI 
2015 (11) TMI 1139
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....mstances of the case, ITAT is correct in law in not allowing the exemption of Rs. 29,24,405/- on account of freight subsidy, ignoring the express provision of section l0B(4) of the Act, whereby profit of business of the undertaking are eligible for deduction. (iii) Whether in the facts and circumstances of the case, ITAT is correct in law in not allowing the exemption of Rs. 43,287/-, on account of interest on FDR, ignoring the express provision of section 10B (4) of the Act, whereby profit of business of the undertaking are eligible for deduction." 4. The Assessee is a private limited company engaged in the business of manufacture and sale of home furnishings such as rugs, bath mats, blankets etc. The Assessee set up a 100% Export Oriented Undertaking ('EOU') which was an 'eligible unit' for the purposes of deductions under Section 10B of the Act. The Assessee commenced operations on 1st October 2002. The Assessee filed its return of income for AY 2008-09 on 27th September 2008 declaring an income of Rs. 10,34,24,340. Inter alia, the Assessee claimed deduction in respect of the income earned from the following receipts: (a) Deemed Export Drawback (Ex....
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....This made the Assessee temporarily park the balance funds as deposits or with various sister concerns as inter corporate deposits until the date of repayment. The Assessee contended that the interest derived from the business of the industrial undertaking was eligible for exemption within the meaning of Section 10B and applied the formula under Section 10B (4) of the Act for determining the profits from exports. The Assessee's contention that the expression "profits of the business of the undertaking" in Section 10B (4) was wider than the expression "profits and gains derived by" the Assessee from a 100% EOU occurring in Section 10 B (1) was accepted by the ITAT. The ITAT noticed that unlike Section 80 HHC, where there was an express exclusion of the interest earned from the 'profits of business of undertaking', there was no similar provision as far as Sections 10A and 10B were concerned. 10. In CIT v. Motorola India Electronics Pvt. Ltd. (supra) reference was made to the decision of the Supreme Court in Pandian Chemicals Ltd. v. Commissioner of Income Tax (2003) 262 ITR 278 which dealt with Section 80HH and Liberty India v. Commissioner of Income Tax (2009) 317 ITR 218, which i....
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....ms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the business" eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computati....
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....the formula would read thus: Profits derived = profits of the business x export turnover from export of the undertaking total turnover 9A. In terms of the above formula, the question that would arise is whether the interest on the FDRs could form part of the 'profits of the business of the undertaking'. The attention of the Court has been drawn to the decision of the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (2014) 46 Taxmann.com 167 (Kar.) which held that there was a direct nexus between the interest received from the FDRs created by a similarly placed Assessee from the amounts borrowed by it. The High Court approved the order of the ITAT in that case which held that the entire profits of the business of the undertaking should be taken into consideration while computing the eligible deduction under Section 10B of the Act by ITA 392/2015 applying the mandatory formula. 10. In the present case, the Assessee has stated that the interest on FDRs was received on "margin kept in the bank for utilization of letter of credit and bank guarantee limits". In those circumstances, the decision of the ITAT that such interest bears th....
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.... the ITAT in the present case to the extent it has allowed the plea of the Assessee as regards 'deemed export drawback', Mr. Manchanda stated that the Revenue ought to have challenged the above decisions as well as the impugned order of the ITAT in the present case and perhaps he would advise it to do so hereafter. He has also handed over a written note of submissions, reiterating the above submissions. 15. In the considered view of the Court, the submissions made on behalf of the Revenue proceed on the basic misconception regarding the true purport of the provisions of Chapter VIA of the Act and on an incorrect understanding of Section 80A (4) of the Act. The opening words of Section 80A (4) read "Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter.....". What is sought to be underscored, therefore, is that Section 80A, and the other provisions in Chapter VIA, are independent of Sections 10A and 10B of the Act. It appears that the object of Section 80A (4) was to ensure that a unit which has availed of the benefit under Section 10B will not be allowed to further claim relief under ....