Case Law Details

Case Name : M/s Earth Stone Group Vs Additional CIT (ITAT Delhi)
Appeal Number : ITA No. 2188/Del/2012
Date of Judgement/Order : 18/04/2016
Related Assessment Year : 2008-09
Courts : All ITAT (6566) ITAT Delhi (1509)

Brief of the case:

The ITAT New Delhi in the above cited case held even export made by assessee through third parties are also to be considered while working out deductions allowable u/s 10B as such exports are deemed exports and recognized by Foreign trade policy for extending export benefits. Therefore, the only other thing to be checked is whether assessee has received export proceeds in convertible forex.

Facts of the case:

  • The assessee is 100%Export Oriented Unit (EOU), dealing in manufacturing and processing of Marble, sand stone, slate stone, tiles, limestone, quartzite etc. and filed the return of income on 27.09.2008 declaring Nil income after claiming the deduction u/s 10B of the Act amounting to Rs.9,64,64,001/-.
  • During the course of assessment proceedings, the AO found that it had made local sale to its sister concern M/s Stone World which is the proprietary concern of one of the partners Sh. Lokesh Arora. The assessee was asked to justify the deduction/exemption claim made u/s 10B of the I.T. Act, 1961 as relatable to such sale to sister concern.
  • The AO after considering the assessee’s submissions concluded that there is no provision of deemed export in Section10B of the Act and deduction can also not be allowed as the sale proceeds of such indirect export not directly received by the assessee in convertible foreign exchange. Therefore, AO excluded the export made through sister concern from export sales amounting to Rs. 4.04 crores.
  • AO worked out allowable deduction in respect of profits in proportion to recomputed export sale after making adjustment of sale to sister concern (which was treated as local sale). The AO recomputed the deduction allowable u/s 10B as Rs. 8.12 crores against of 9.64 crores made by assessee.
  • CIT(A) also upheld the re-computation made by AO. The CIT(A) held that the AO has correctly applied the provisions of Section 10B of the Act to compute the deduction equal to the profits derived from the export of articles or things, in the same proportion as the export turnover bears to the total turnover. Accordingly, disallowance of the alleged excess deduction claimed at Rs.1,52,51,935/- was upheld.
  • Aggrieved assessee is in appeal before tribunal.

Contention of the Assessee:

  • It was submitted that the assessee exported the goods through M/s Stone World, proprietorship firm of one of the partners Sh. Lokesh Arora. It was submitted that in the application for removal of acceptable goods for export in Form A.R.E.1., the name of the assessee was appearing. Accordingly, it was submitted that the goods were directly exported on behalf of M/s Stone World by the assessee.
  • Assessee also emphasized that the sister concern did not claim the deduction u/s 10B of the Act, assessee submitted copy of Income Tax Return acknowledgment of Sh. Lokesh Arora, proprietor of M/s Stone World  along with income computation statement.

Held by ITAT New Delhi:

  • The assessee is100% Export Oriented Unit and exporting the goods directly and also through a sister concern, namely, M/s Stone World,proprietorship concern of the partner Sh. Lokesh Arora.The goods which were exported through Sh. Lokesh Arora were directly sent for shipment by the assessee which is evident from the copy of the shipping bill for export in which the name of exporter is mentioned as “Earth Stone Group” i.e. the assessee sent to the consignee M/s Fitex Trade Networks Road, USA through the sister concern M/sStone World.
  • In Form ARE 1 filed under central excise rules declaration has been given by the assessee that the goods were removed for the purpose of export to USA through M/s Stone World, New Delhi, shipping bill number is mentioned as 01723123.
  • The same controversy has been settled by the Hon’ble Karnataka High Court in ITA No. 411/2008 in the case of M/s Tata Elxsi Ltd., Bangalore Vs ACIT. In that case , the Hon’ble high court held that if a assessee wants to claim the benefit of Section 10B he must satisfy the three conditions as follows:

1. He must export articles or things other than excluded items.

2.The said export maybe done directly by him or through other exporter after fulfilling the conditions mentioned therein. It is because there is no such restriction contained in Sec 10B prescribing the manner in which export to be made.

3. Suchan export should yield foreign exchange which should be brought into the country.

  • Therefore, it can be said that the export sales directly made to the consignee through the sister concern was the deemed export of the assessee and deduction u/s 10B of the Act was available.
  • In result the appeal of assessee was allowed.
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