TaxTMI 
TaxTMI 
2018 (12) TMI 819
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....essee's duty drawback and interest subsidy of Rs.3,97,78,960/- and Rs.66,888/-; respectively to be eligible for sec. 10B of the Act deduction as follows:- "4.2 I have considered the oral & written submissions of the AJR I have also examined the reasons put forth by the AO in the impugned order for denying the benefit of exemption u/s 10~ of the Income Tax Act in respect of receipts by way of duty draw back and interest subsidy. I have also taken into account the judgments rendered by the judicial forums and which were referred by the parties in support of their respective pleadings. On careful analysis of assessment order, I find that there is no dispute between the assessee and the AO with regard to the basic facts which are in narrow compass. The assessee in the present case carried on business of manufacture & export of leather goods. The assessee's manufacturing undertaking was registered with the competent authority as 100% export oriented undertaking (EOU). Accordingly in terms of Section 10B(1) of the Act profits derived by the 100% EOU from the export of articles were deductible from the total income for the period of 10 consecutive assessment years. The AO per....
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....income by way of duty draw back & interest subsidy. 4.4 Per contra the A/R of the assessee however placed heavy reliance on the decisions of the ITAT Benches in the case of Maral Overseas Ltd Vs ACIT (136 ITD 177) and Hritnik Exports Pvt. Ltd Vs DCIT (ITA No.2111/DEL/2013). The A/R pointed out that the decision of the ITAT Delhi in the case of Hritnik Exports Pvt. Ltd was upheld by the Hon'ble Delhi High Court in its judgment dated 13.11.2014. The copies of these judgments were filed in the course of hearing of the appeal. 4.5 On examination of the decision rendered by the Special Bench of the ITAT, Indore in the case of Maral Overseas Ltd Vs ACIT, it was noted that one of the issue which was for consideration by the Special Bench of the IT AT was whether the assessee who derived income from 100% EOU was eligible for deduction u/s 10B in relation to export incentives received On scrutiny of the said decision it was noted that in paragraph Nos. 18 & 19 the Special Bench had taken specific note of the fact that the CIT (D/R) relying on the decisions of the Supreme Court in the case of Liberty India (317 ITR 218) and Sterling Foods (237 ITR 579) had argued that t....
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....st be determined & these were to be multiplied by the ratio of export turnover to the total turnover of the business. The ITAT further took note of the fact that in the case of Liberty India the Supreme Court was concerned with interpretation of Section 80lA of the Act wherein no formula was laid down for computing the profit derived by the undertaking whereas it was specifically so provided in Section 10B(4) for the purposes of computing profit derived by the undertaking from the exports. In view of the material difference in the language employed in Section 10B(4) & Section 80lA of the Act the Special Bench of Tribunal ultimately held that the decisions of the Supreme Court relied upon by the Revenue were of no help in adjudicating the claim of deduction u/s 10B in respect of export incentives. The Tribunal accordingly held that provisions of Section 10B of the Act were materially different from the provisions of Section 80lA and in view of the specific formula prescribed for computing the qualifying amount of deduction u/s 10B of the Act deduction u/s 1 OB was permissible even in respect of export incentives which were admittedly assessed by the AO as business income of that ass....
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.....com 167) wherein the High Court held that for the purpose of Section 108 of the Income Tax Act profits of the business of the undertaking interalia included all incidental incomes derived from the business of the undertaking. 4.8 Applying the ratio laid down in these judgments to the facts of the present case. I find that 100% turnover of the EOU was derived from export of manufactured leather goods. In the Circumstances, export turnover and total turnover of the assessee's EOU was derived only from exports and therefore as per the formula prescribed in Section 108(4) 100% of the income assessed under the head "business" & which was derived from the undertaking was eligible for deduction under Section10B of the Act. The AO was therefore not justified in rejecting the assessee's claim for deduction u/s 10B of the I T Act with respect to duty draw back receipts of Rs. 3,97,78,960/- of the Act & which were assessed under the head "business" in terms of Section 28(iiic) of the Act. The AO is accordingly directed to allow the deduction u/s 10B of the Act by treating the income of Rs. 3,97,78,960/- being duty draw back as eligible for the purposes of allowing deduction ....
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....299/-. The ld. AO had gone through the profit and loss account of the said EOU unit and observed that the income of the assessee includes a sum of Rs. 86,85,103/- representing other income as under: Heads Amount(Rs.) Rent 5,907/- Claims realized 4,99,626/- Suppliers Balance Written back 18/- Miscellaneous Income & Receipts 7,882/- Duty Drawback 81,71,670/- Total 86,85,103/- The ld. AO observed that this other income cannot be construed as profit derived from the manufacture of eligible article from the eligible undertaking of the assessee and accordingly denied deduction u/s 10B to that extent. The Ld. CIT(A) granted relief to the assessee by placing reliance on the decision of this Tribunal in assessee's own case for assessment years 2003-04 to 2007-08. Aggrieved, the revenue is in appeal before us on the following grounds : 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in fact and in law in accepting assessee's contention regarding applicability of exemption u/s 10B of the Act on incomes from other sources. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) ....
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....uarely covered in favour of the revenue by the decision of the Hon'ble Supreme Court in the case of Liberty India vs CIT reported in 317 ITR 218 (SC) wherein it was held that duty drawback receipts and DEPB benefits do not form part of the net profits eligible industrial undertakings for the purpose of deduction u/s 80IA / 80IB of the Act as they are not derived from the industrial undertaking. In respect of excess liabilities written back, he argued that it is not known whether the liabilities were originally created in this 100% EOU or for other units as admittedly the assessee is having both taxable unit as well as exempt unit. In response to this, the ld AR argued that the provisions of section 10B(1) of the Act starts with 'subject to the provisions of this section'. The provisions of section 10B(4) of the Act clearly specifies that the profit derived from the 100% EOU should be as follows:- Profits of the business of the undertaking * Export Turnover / Total Turnover Hence, the entire income of the 100% EOU shall be eligible for exemption u/s 10B of the Act. He further stated that the assessee maintains separate profit and loss account and balance sheet for ....
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.... the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years" "10B(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or....
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.... the total turnover. Then one has to find out the total profit of the business of the undertaking. Suppose the total profit of the business of the undertaking is Rs. 100, in that case, deduction available to the assessee under Section 10 sub-section (1) of Section 10B shall be 10% of Rs. 100, i.e. to say Rs. 10/-. This is the formula which has been provided by subsection (4) for the purpose of working out the benefit or deduction under subsection (1). Total turnover shall naturally include receipt on account of 5 interest. The legislature does not appear to have provided for excluding the amount of interest from the total turn over as has been done in the case of 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under Section 80HHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned from interest was not intended to be taken into account for the purpose of giving benefit under subsection (1) of Section 10B may be correct. B....
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....owing view was taken : "In the light of the above said decision, we are of the firm view that the interest earned from deposits with Corporation Bank, Electricity Board and on staff advances does not have direct or immediate nexus with the business of the assessee's undertaking and, consequently, they are not eligible for grant of deduction under Section 10B of the Act, which is akin to Section 80HH of the Act dealt with in the decision referred supra." Mr. R.N.Bajoria, Learned senior advocate rightly pointed out that the judgment of the Madras High Court is of no relevance for the simple reason that sub-section (4) of Section 10B was not taken into account by the Hon'ble Madras High Court. Therefore, this judgment is of no assistance in deciding the issue. The learned Tribunal has passed the following order: "There is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100% EOU will be the "profits of the business of the undertaking". It has been held above that the interest earned on temporarily surplus business funds of the 100% EOU deposited with ba....