Case Law Details

Case Name : M/s. World Wide Safety Pvt. Ltd. Vs. Commissioner of Income Tax- III, Kolkata (ITAT Kolkata)
Appeal Number : I.T.A No. 679/Kol/2010
Date of Judgement/Order : 23/03/2012
Related Assessment Year : 2005- 06
Courts : All ITAT (4269) ITAT Kolkata (268)

Tribunal in assessee’s own case for A.Y.2003-04 and 2004-05 exactly on the issue of incidental expenses such as freight, octroi and sales tax whether to be included in the total turnover for the purpose of computation of deduction u/s 10B of the Act, respectfully following the same and in view of the above discussion carried out, we allow the appeal of the assessee. The revision order of the CIT u/s 263 of the Act is quashed.

INCOME TAX APPELLATE TRIBUNAL , KOLKATA

I.T.A No. 679/Kol/2010 – Assessment Year: 2005- 06

M/s. World Wide Safety Pvt. Ltd.

Vs.

Commissioner of Income Tax- III, Kolkata

Date of pronouncement: 23.03.2012

ORDER
Per Mahavir Singh, JM

This appeal by assessee is arising out of revision order of CIT, Kol-III vide No.CIT/Kol-III/263/09-10/3942-44 dated 25.02.2010. Assessment was framed by ACIT(OSD), Wd-7(2), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2005-06 vide his order dated 10.07.2007.

2. The only issue in this appeal of assessee is against the order of CIT revising the assessment u/s. 263 of the Act. For this, assessee has raised following grounds:

“1. Because that the Ld. Commissioner of Income Tax erred in law as well as in facts in initiating the proceedings u/s 263, by issue of show cause notice dated 25th February 2010, on the alleged ground that the order u/s 143(3) dated 10th July 2007 was in so far as erroneous and prejudicial to the interest of the revenue, and his such conclusions are based on his surmises and guesses and are contrary to the facts and material on record.

2. Because that the order u/s 263 dated 25th February 2010 passed by the Ld. Commissioner of Income Tax is without jurisdiction, not good in law and void, as the order u/s 143(3) dated 10th July 2007 was neither erroneous nor prejudicial to the interest of the revenue.

3. Because that the Ld. Commissioner of Income Tax erred in law as well as in facts in setting aside the order u/s 143(3) dated 10th July 2007 for making roving inquiry and directing the Income Tax Officer to modify the assessment order in light of the directions stated in his order u/s 263, and his such direction is bad in law and void and contrary to the provisions of law, as the assessment order u/s. 143(3) was neither erroneous nor prejudicial to the interest of the revenue. Without prejudice to the above,

4. The Ld. Commissioner of Income Tax erred in law as well as in facts in holding that the A.O. did not calculate export turnover as per the provisions of the act, and his such direction to exclude freight and Insurance charges, courier charges, clearing & forwarding charges from export turnover, and not to exclude the said expenses from the total turnover and to exclude exchange fluctuation loss from both Export Turnover as well as Total Turnover while computing deduction u/s. 10B of the Income Tax Act 1961, are based on his surmises and guesses and are contrary to the provisions of law.

5. That the Ld. Commissioner of Income Tax erred in law as well as in facts in directing the AO to exclude other income of Rs.5,55,258/- torn the profit of the business for the purpose of computing exemption u/s 10B of the act, and to consider the said sum as income taxable under the head other sources’, and his such conclusions are based on his surmises and guesses and are contrary to the facts and material on record and provisions of law.”

3. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that the assessee filed return of income for the relevant Assessment Year 2005-06 on 28.10.2005 disclosing ‘Nil’ total income after claiming deduction u/s. 10B of the Act of Rs.6,30,71,257/-. Assessment u/s. 143(3) of the Act was completed on 10.07.2007 accepting the returned income as the assessee company being a 100% export oriented unit and deduction claimed u/s. 10B of the Act for Rs.6,30,71,257/- was allowed in full in the original assessment. Subsequently, after examining the proposal and assessment records, CIT found that the assessment was erroneous and prejudicial to the interest of revenue, inter alia, on the following grounds:

“i) Firstly, the Assessing Officer had allowed exemption u/s. 10B where freight & Insurance charges were excluded from the Total Turn Over (TTO) while computing exemption u/s. 10B. At the same time, expenses like courier charges, clearing & forwarding charges relating to export of articles or things were not deducted from the Export Turn Over (ETO). He also didn’t consider exchange rate fluctuation loss of Rs.41,158/- while computing Total Turn Over (TTO) & Export Turn Over (ETO).

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ii) Second, the Assessing Officer didn’t consider the interest income and profit on sale of assets under the head “Other sources” & “Capital gain”, respectively. On the contrary, the other income was allowed as profits of the business of the undertaking.”

In view of the above facts, CIT issued show cause notice to explain as to why assessment framed u/s 143(3) of the Act be not revised u/s 263 of the Act in this matter. In response, the assessee submitted that there was no error in the assessment order passed by Assessing Officer u/s. 143(3) of the Act dated 10.07.2007 and hence, proceedings should be dropped. Assessee also contended that in respect of first issue i.e. exclusion of freight and insurance charges from the Total Turn Over, ITAT, Kolkata Bench in assessee’s own case in the earlier years, accepted the contention of assessee. It was contended that freight and insurance charges are to be excluded from total turnover since they are also excludable from Export Turn Over. In respect of second issue, it was submitted that the other income component of Rs.5,69,573/- consists of interest on Fixed Deposits with Bank of Rs.5,34,778/- and interest received on deposit with CESC Ltd. of Rs.20,025/-. Further, a sum of Rs.455/- is on account of profit on sale of Fixed Assets which has been considered u/s. 50 and Sundry Balances written back of Rs.14,315/-  which is on account of business transaction. It was also clarified that interest has been earned by the assessee out of business surplus fund from which Fixed Deposits were made with bank. The deposits towards FDR on account of bank guarantee required at the time of export and as such, the same is incidental to the export business of the assessee. Hence, the other income has been rightly assessed by Assessing Officer under the head “Business”. Considering the reply of assessee, CIT directed the Assessing Officer to exclude freight & insurance charges, courier charges, clearing & forwarding charges etc. which are attributable to the delivery of the articles or things outside India from the Export Turn Over and not to exclude the said expenses from the Total Turn Over while computing deduction u/s. 10B of the Act. He also directed the AO to exclude exchange rate fluctuation loss from both Export Turnover as well as Total Turnover while computing deduction u/s. 10B of the Act. Regarding second issue, he directed the Assessing Officer to exclude other income of Rs.5,55,258/- from the profits of the business for the purpose of computation of exemption u/s. 10B of the Act and to consider Rs.5,54,803/- as the income taxable under the head “Other Sources” and Rs.455/- as income under the head “Capital Gain”. Aggrieved, assessee is now in appeal before us.

4. At the time of hearing before us, Ld. Counsel for the assessee submitted that the issue is  covered in favour of the assessee by the decision of Hon’ble ITAT “A” Bench for Assessment Year 2003-04 & 2004-05 in assessee’s own case under ITA Nos. 1529 & 1540/K/2006 dated 10.11.2006. On the other hand,Ld. DR while relying on the order of CIT contended that without proper inquiry or investigation the Assessing Officer passed the assessment order, which is erroneous and prejudicial to the interest of revenue. The revisionary order in such circumstances is warranted due to lack of enquiry where such enquiry was warranted. Hence, he urged before the bench to confirm the order passed by CIT.

5. We find that the issue is covered in favour of assessee by the decision of Hon’ble ITAT “A” Bench for Assessment Year 2003-04 & 2004-05 in assessee’s own case under ITA Nos. 1529 & 1540/K/2006 dated 10.11.2006. In the said order, ITAT has held as under:

“6. We have considered the rival submissions made by both the sides, perused the orders of the AO and the ld. CIT, the paper book filed on behalf of the appellant and the various case decisions relied on by the ld. Counsel.

6.1. We find from the auditors report that the appellant company is a 100% export oriented undertaking and has made an export turnover of R.9,17,63,625/- which is also the total turnover. We further find that the auditors while calculating the deduction 10B of the I.T.Act, 1961 at Rs.2,05,61,516/- had determined the export turnover by excluding freight of Rs.59,17,681/- and insurance of Rs.2,36,510/-. We also find that in the instant case the total turnover and export turnover are same.

6.2. We find that Explanation 2 under section 10B reads as under:-

“(iii) “export turnover” means the consideration in respect of export [by the undertaking] of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India.”

6.3. We find that Explanation to (b) under Sub section (4C) of Section 80HHC reads as under:-

“(b) “export turnover” means the sale proceeds [received in, or brought into India] by the assessee in convertible foreign exchange [in accordance with clause (a) of subsection )2)] of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962);]”

6.4. We further find explanation (ba) under Sub-section (4C) of Section 80HHC reads as under:-

“(ba)”total turnover” shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962):

Provided that in relation any assessment year commencing on or after the 1st day of April 1991, the expression “total turnover” shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) [(iiic), (iiid) and (iiie)] of section 28;]

6.5. We find from the various judicial pronouncements relied on by the ld. Counsel that the definition of total turnover excludes incidental expenses such as freight, octroi insurance and sales tax etc.

6.6. We also find from the various decisions relied on by the ld. Counsel for the assessee that where there is an incentive provision provided under the law, the same should be liberally construed.

7. Considering the totality of the facts of the case and considering the fact that in the instant case the total turnover and export turnover are same, in our opinion, the ld. CIT was not justified in assuming jurisdiction u/s 263 and directing the AO not to exclude the freight and instance from the turn over while computing deduction u/s 10B of the IT Act. Therefore we set aside the order of the ld. CIT and the grounds raise by the appellant are allowed.

8. The grounds raised by the appellant are as under:-

“1. Because that the order u/s 263 appealed against is bad in law. Without jurisdiction and void as the assessment order us/ 143(3) dated 21.06.05 was neither erroneous nor was prejudicial to the interest of the revenue.

2. Because that the initiation of proceeding u/s 263 by the show cause notice dated 19.06.06 is based on misconception of law, fact and therefore void, as Section 10B does not go into the matter of total turnover and export turnover, and the exemption is available to a 100% EOU Undertaking.

3. Because the order of the Ld. Commissioner of Income Tax is unsustainable both on the facts and in law and in the circumstances of the case and as such in the order u/s 263 dated 31.07.06 the ld. CIT ought not to give any direction in respect of freight and insurance charges to be excluded from the total turnover while calculating exemption u/s 10B of the Income Tax Act, 1961.

4. The appellant crave leave to add further grounds of appeal at the time of hearing.

9. After hearing both the sides, we find that the ground raised by the appellant are identical to that of grounds of appeal in ITA No.1539/K/06 for the A.Y. 2003-04. We have already set aside the order of the ld. CIT and allowed the grounds raised by the appellant. Following the same ratio we set aside the order of the ld. CIT and the grounds raised by the appellant are allowed.

10. In the result both the appeals filed by the assessee are allowed.”

6. From the above, it is clear that the Tribunal in assessee’s own case for A.Y.2003-04 and 2004-05 exactly on the issue of incidental expenses such as freight, octroi and sales tax whether to be included in the total turnover for the purpose of computation of deduction u/s 10B of the Act, respectfully following the same and in view of the above discussion carried out, we allow the appeal of the assessee. The revision order of the CIT u/s 263 of the Act is quashed.

7. In the result, appeal of assessee is allowed.

8. Order pronounced in open court on 23.03.2012.

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Category : Income Tax (25154)
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Tags : ITAT Judgments (4449) section 10b (52)

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