Income tax – Sec 10A – Can Assessee claim deduction for miscellaneous income as derived from business of exports – YES, says ITAT
The issue before the Tribunal is – whether income shown under the head `miscellaneous income’ on account of service charges, exchange gain, overtime charges and services charges for procuring hardware, packing and clearing, can be said to be the income derived from industrial undertaking and, therefore, eligible for deduction u/s 10A of the Act. YES is the answer of the Tribunal.
Facts of the case
During the course of assessment proceedings for AY 2003-04, the AO noticed that certain income shown under the head `miscellaneous income’ on account of service charges of Rs. 1,80,800/-, exchange gain of Rs. 54,86,341/-, overtime charges of Rs. 7,38,501/- and services charges for procuring hardware, packing and clearing of Rs. 3,76,205/-, are not the income derived from industrial undertaking, therefore, he held that the said income is not eligible for deduction u/s 10A of the Act.
The CIT(A) held that service charge was received in foreign currency and derived from business only, therefore, exemption u/s 10A needs to be allowed. However, while calculating deduction u/s 80HHE 90% of the service charge needs to be reduced. As regards exchange gain of Rs. 54,86,341/-, the CIT(A) following the ITAT order in case of Prakash L. Shah (2008-TIOL-429-ITAT-MUM-SB), where it was held that foreign exchange fluctuation is part of the export turnover, directed the AO to consider the said exchange gain as a part of the export turnover and recomputed the exemption u/s 10A and deduction u/s 80HHE of the Act. In respect of overtime charges of Rs. 7,38,501/-, the CIT(A) held that the overtime charges received in foreign exchange was derived from business, therefore, he directed the AO to allow exemption u/s 10A. However, he directed the AO while calculating deduction u/s 80 HHE 90% of overtime charges is to be reduced. Similarly, with regard to service charges for procuring hardware, packing and clearing of Rs. 3,76,205/-, the CIT(A) held that the said service charges received in foreign currency and derived from business only, therefore, directed the AO to allow exemption u/s 10A, however, he held that the same is also eligible for deduction u/s 80HHE of the Act.
For AY 2004-05, the AO disallowed the claim of the assessee u/s 10A for the unit located at Prafullit Niwas in STPI on the ground that the unit has been set up by splitting of existing unit and not adhering to some of the condition imposed by the registering authority. The assessee has set up the unit in 2000 and the assessee first time made the claim u/s 10A in 2001-02 and the same was allowed. Even after reassessment proceedings u/s 147 when in AY 2001-02 i.e. the first year of claim u/s 10A, the revenue allowed. It was found that the said unit was complied with the requirements of section 10A. The similar claim made in AY 2003-04 which was allowed by the revenue. The CIT(A) directed the AO to allow the exemption u/s 10A of the Act.
On appeal by the Revenue, the ITAT held that,
• in respect of exchange gain, the CIT(A) followed the ITAT order in the case of Prakash L. Shah. The revenue has failed to point out any contrary material to the finding of CIT(A) and nature of these items explained by the assessee that these items are part and parcel and these are the incomes derived from industrial undertaking and consideration received in foreign exchange. The judgment cited by the Departmental in the case of Shah Originals (2010-TIOL-293-HC-MUM-IT) is distinguishable on facts as in that case the exchange gain and income was derived from EEFC account and not from industrial undertaking, Where as in the case under consideration, the exchange given is in respect of sale effected by the assessee and CIT(A) has followed the order of ITAT Special Bench wherein it has been held that such exchange gain is part of total turnover. As mentioned earlier there is no contrary material to the finding of the CIT(A) and the issue is covered by the decision of the Jurisdictional High Court in the case of Gem Plus Jewellery India Ltd. (2010-TIOL-456-HC-MUM-IT). In the light of above discussion, there is no substance in the grounds raised by the revenue, and the same are dismissed;
• the similar claim made in AY 2003-04 which was allowed by the revenue. This fact is supported by the appeal filed by revenue before ITAT but grounds raised were different that the assessee is not entitle to exemption under section 10A on other income and there are no ground of appeal that the assessee was not entitle at all to the exemption under section 10A of the Act. There is no substance in the submission of the Departmental that the basic date used by the assessee in the new unit as well as old unit were same because this fact was before revenue when the claim was allowed in the first year in AY 2001-2002 and in AY 2003-2004. It is pertinent to mention that on the same set of facts, the AO himself has accepted the assessee’s claim in the first year, AY 2001-02 and there are no distinguishable facts in the fourth year under consideration. The ITAT took the considered view by keeping in view the principles of consistency that the action of the AO is not in accordance with law and, ,therefore, confirmed the action of the CIT(A) in allowing the claim of the assessee on this count.
Revenue’s appeal dismissed.
