HIGH COURT OF KARNATAKA
CIT v/s. Tyco Electronics Corpn. India (P.) Ltd.
IT Appeal No. 383 of 2009
February 21, 2012.
JUDGMENT
N. Kumar, J. –
The revenue has preferred this appeal challenging the order passed by the Tribunal granting relief to the assessee.
2. On 14.12.2010 this appeal was admitted to consider the following substantial questions of law:
1. Whether the Tribunal was correct in holding that though the assessee has brought export proceeds into the country after expiry of time stipulated under section 10A(3) of the Act, in view of the subsequent ratification the assessee is entitled for deduction under section 10A of the Act, when the provisions of section 10A(3) does not provide for subsequent ratification?
2. Whether the Tribunal was correct in holding that, the assessee is entitled to claim expenses of a sum of Rs. 58,83,717/- as forfeited by the KIADB during April 2002 for the assessment year 2002-03 on the ground that, the assessee has booked loss in the financial year relevant to assessment year 2002-03?
3. Whether the Tribunal committed an error in holding that, the assessee is entitled to claim expenses of Rs. 58,83,717/- in the assessment year 2002-03 when the liability was crystallized during the financial year relevant to assessment year 2003-04?
4. Whether the Tribunal was correct in holding that, brought forward business loss and unabsorbed depreciation should not be adjusted before computing deduction under Section 10A of the Act?
3. The assessee company is in the business of manufacturing and trading in electrical and electronic interconnection devices. For the assessment year 2002-03, the assessee filed return of income on October 29, 2002 declaring a book profit of Rs. 4,30,34,505/-. The return was processed under Section 143(1) and refund of Rs. 18,17,829/- was granted on 31.03.2003. The case was selected for scrutiny under Section 143(2). On 13.10.2003, a notice under Section 143(2) was issued. The assessee was heard.
4. First Substantial Question of Law:
An amount of Rs. 23,65.207/-, out of export proceeds has not been brought into the country within the stipulated time under Section 10(A)(3) i.e. within six months. By a letter dated 29.09.2004, the assessee stated that they had made an application to the Reserve Bank of India seeking extension of time to receive the proceeds but no approval had been granted. Since the entire proceeds has been subsequently realized, they contended that they would be entitled to the full benefit of Section 10A. The Assessing Authority did not extend the benefit of Section 10A of the Act on the ground that the export proceeds was brought in after the stipulated time. The Appellate Commissioner upheld the said order. However, the Tribunal took note of the relevant letters in the paper compilation filed before them, at pages 1 to 17. They also noticed a letter issued by the Reserve Bank of India dated 19.11.2002, which showed that the assessee was directed to approach the authorised dealer HSBC. Thereafter by a letter dated 05.05.2006, the assessee requested for renewal. The authorised dealer informed the assessee as under:-
“Realisation of Export Proceeds
With reference to your letter dated 22nd October 2002 and 10th April 2006, we confirm that you have our approval for extension of time for realization of export proceeds for the bills mentioned in the annexure amounting to INR 2365209. This is in accordance with AP ‘DIR Series Circular No. 20 dated 28th January 2002.
We also confirm that the bills have been realized within such extended time.”
5. However, the Tribunal took note of the fact that the assessee had filed the details of realisation as found in page Nos. 21 to 23. These details would indicate that the assessee is certainly eligible for relief and the amount of Rs. 23,65,207/- cannot be reduced from the export turnover of the assessee. Therefore, it proceeded to grant relief to the assessee. Aggrieved by the said order, the revenue is in appeal.
6. The learned Counsel for the revenue assailing the impugned order contends that when admittedly the convertible foreign exchange was not brought within six months as contemplated under Section 10A(3) of the Act, the assessee is net entitled to the benefit of exemption. Further, he submitted that the assessee did not even make an application for extension of time within 6 months period. Even before such an exemption was granted, he has availed the benefit. Therefore, he submits that the Tribunal committed a serious error in interfering with the well-considered orders passed by the lower authorities.
7. Per contra, the learned Senior Counsel appearing for the assessee supported the impugned order.
8. Section 10A(3) reads as under:-
“(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported cut of India are received in or brought into India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
Explanation 1 – For the purposes of this sub-section, the expression “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.”
9. A reading of the aforesaid provision makes it clear that the assessee to be entitled to the benefit of Section 10A, the sale proceeds would have to be brought into the country within a period of six months from the end of the previous year. However, the legislature has consciously in express words has vested the power to extend the time-limit for the said benefit, if the competent authority chooses to allow the said benefit. Therefore, the six months’ period prescribed is not mandatory.: A discretion is vested with the competent authority to extend the said benefit of the Section even in cases where the sale proceeds are received beyond the period of time prescribed under the said provision. The only condition is that the sale proceeds would have to be received. If the sale proceeds are not received within 6 months period, all that the assessee has to do is to make a request to the competent authority for extension of time. Of course, he has to make all efforts to receive the sale proceeds from the foreign buyer expeditiously. Granting of extension of time is the discretion of the competent authority. But once such a discretion is exercised and the time is extended, the assessee would be entitled to the benefit of the same.
9a. The statute does not prescribe any time-limit within which the application is to be made for such an extension of time and the period within which the competent authority has to pass an order. The object behind this provision appears to be that once the sale proceeds are received in India though late and the authority vested with the power to extend the time, exercises the discretion, the assessee should be entitled to the benefit. In that view of the matter, the Tribunal was justified in setting aside the order of the Appellate Commissioner as well as the Assessing Officer and in extending the said benefit. It is in consonance with the express words used in the statute. Therefore, we do not find any substance in the said contention. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue.
10. Second and Third Substantial Questions of Law:
The assessee company was allotted a plot of land on lease-cum-sale basis by the KIADB on 18.09.1996. The assessee company could not construct within the stipulated time and hence, the amount deposited towards allotment of site was forfeited on April, 18, 2002. The assessee claimed an expense of Rs. 58,83,717/- (including. the forfeiture of deposit of Rs. 29,40,000/- and penalty paid of Rs. 29,43,717/-). As the forfeiture was done in April 2002, the Income-tax Officer disallowed the aforesaid amount as expenses for the financial year 2001-02. Accordingly, a sum of Rs. 58,83,717/- shown as loss on KIADB project is added back to the total income of the assessee. Aggrieved by the same, the assessee preferred an appeal to the Appellate Commissioner, who confirmed the said order. In an appeal against the said order, the Tribunal held that the assessee booked the loss in the financial year 2001-02 as required under the Accounting Standards issued under Section 145(2) of the Act. As the said claim for loss is in accordance with the Accounting Standards, the Tribunal allowed the same. Aggrieved by the same, the revenue is in appeal.
11. The learned Counsel for the revenue assailing the impugned order contends that when admittedly forfeiture took place on 18.04.2002, the assessee can claim loss only for the accounting year 2002-03 and not for 2001-02. When the assessee was following the mercantile practice, the assessee was not justified in booking the loss for the financial year 2001-02. In support of his contention, he relied on two judgments of the Apex Court.
12. Per contra, the learned Senior Counsel appearing for the assessee relied on the accounting standards, which is extracted in the order of the Appellate Tribunal and supported the impugned order.
13. The Apex Court in the case of Morvi Industries Ltd. v. Commissioner of Income-tax reported in [1971] 82 ITR 835 (SC) has held at Para 11 as under:-
