Ita/384/2014 Of M/S Metrix Precision Components Pvt. Limited v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.384 OF 2014 BETWEEN: M/S. METRIX PRECISION COMPONENTS PVT. LIMITED|46, KSSIDC INDUSTRIAL ESTATEKUMBALGODU, BANGALOREREPRESENTED BY ITSMANAGING DIRECTORSRI. PRADEEP KASHYAPAGED ABOUT 50 YEARS.S/O SRI. GOPINATH M. — ADPELLANT. (BY SRI. BALRAM R. RAO AND SRI. KAUSHIK M, ADVS.,) AND: THE DEPUTY COMMISSIONER OF INCOME TAXCIRCLE-12(1), BANGALORE. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.,) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,196L ARISING OUT OF ORDER DATED 11.04.2014 PASSED IN ITA]NO.248/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF:THE INCOME JAX APPELLATE TRIBUNAL DATED 11-04-2014| BEARING ITA NO.248/BANG/2013 FOR THE ASSESSMENT YEAR|2009-10. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax|Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee. The subject matterof the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court videorder dated 20.03.2015 on the following substantialquestion of law: (1)Whether the Tribunal is correct|in sustaining the order of the Respondentin denying the benefit of deduction u/s 10Bof the Act in the computation of taxabletotal income on the wrong interpretation ofas well as on the misreading of the saidprovisions especially the sub-section (3)? (il)Whether the Tribunal is correct|in sustaining the order of the Respondentin denying the benefit of deduction u/s 10B of the Act in the computation of taxabletotal Income on the misconstruction of thefacts of the case thereby establishingperversity in the impugned order? (iii) Whether the Appellate Tribunalis correct in confirming the disallowance ofthedeductionU/SJOB.oftheActoverlooking the principles laid down by theSupreme Court in the decision reported in223 ITR 271 and the principles laid qownby the Co-ordinate Bench rendered in thecase Of M/s Granite Mart P Ltd.,?.” 2 |Facts leading to filing of the appeal brieflystated are that the assessee is a company engaged inthe business, manufacture and exports of automotivecomponents. The assessee filed the return of income forthe Assessment Year 2009-10 declaring total income ofRs.4,25,531/- and an amount of Rs.1,57,69,992/- wasShown as income under the Minimum Alternative Tax(MAT) regime. The return of income was selected forscrutiny and the Assessing Officer on 30.10.2011 passed. an order determining the taxable total income ofRs.1,7/7,09,421/- upon the assessee. The AssessingOfficer also held that though the assessee had exportedthe goods but it did not realize export proceeds inconvertible foreign currency as mandated under Section10B(3) of the Act and the same was realized inconvertible foreign currency by a third party. TheAssessing Officer therefore, disallowed the claim ofdeduction of the assessee under Section 10B of the Act. 3.The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) by an orderdated 20.09.2012 inter alia held that the assessee has/not satisfied the conditions required for claimingdeduction under Section 10B of the Act, since, theexport proceeds were not received in convertible foreignexchange by the assessee and dismissed the appealpreferred by the assessee. The assessee thereupon filedan appeal before the Income Tax Appellate Tribunal 3.The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) by an orderdated 20.09.2012 inter alia held that the assessee has/not satisfied the conditions required for claimingdeduction under Section 10B of the Act, since, theexport proceeds were not received in convertible foreignexchange by the assessee and dismissed the appealpreferred by the assessee. The assessee thereupon filedan appeal before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’ for short). TheTribunal by order dated 11.04.2014inter allaheld thatassessee was only a supporting manufacturer anddeduction under Section 10B of the Act Is not available|to the supporting manufacturer. Accordingly, the appealpreferred by the assessee was dismissed. In theaforesaid factual background, this appeal has been filed.4Learned counsel for the assessee submittedthat the Tribunal failed to appreciate the fact that theclaim of the assessee for deduction under Section 10B ofthe Act in computation of total taxable income for theAssessment Year 2009-10 was legally sustainableespecially in view of disclaimer certificate issued by therecipient viz., M/s Toyota Tsusho India Pvt. Ltd. It isfurther submitted that the assessee being 100% exportoriented unit ts entitled to deduction under Section 10Bof the Act in respect of deemed export of goods made byit to a third party. It is also submitted that in order toeligible for exemption under Section 10B of the Act, it is” not necessary that undertaking should personally export.goods, manufacture /software developed by it outsidethe country and it may export the same through anyother STP unit. In support of aforesaid submissions,reliance Nas been placed on decisions of Supreme Courtin *DEPUTY COMMISSIONER OF INCOME TAX VS,|METALCLOSURESPRIVATE|LIMITED“,1Q2|TAXMAN.COM 72, ‘TATA ELXSI LIMITED VS. ACIT,BANGALORE’, ITA NO.411/2008, CIT VS. INTL.STONESINDIA(P.)LTD’,(2018)9O4TAXMANN.,.COM 28/7 KARNTAand decision of tniscourt In-‘M/S GRANITE MART LIMITED, ITANO.28/2011 DATED 19.03.2020. 5.|On the other hand, learned counsel for therevenue submitted that the manufacturing unit as wellas the exporting unit snould be eligible units in order toclaim deduction under Section 10B of the Act. It Isfurtner submitted tnat tne decision of this court In case of Tata Elxsi supra has no application to the factsituation of the case as the issue with regard toeligibility of both the units was not in dispute. It is alsosubmitted that merely having a contract with foreignenterprise and merely earning foreign exchange doesnot ipso facto make an assessee eligible for deductionunder Section 10B of the Act. It Is also submitted that.an incentive provision like Section 10B of the Act has tobe interpreted strictly and the burden of proving itsapplicability is on the assessee and in case, there is anyambiguity in the provision, the benefit has to beextended in favour of the revenue. In support ofaforesaid submission, reliance has been placed ondecision of the Supreme Court in °RAMNATH & CO. VS.COMMISSIONER OF INCOME-TAX’, (2020) 116TAXMANN.COM 885 (SC). 6.|We have considered the submissions madeby learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to takenote of relevant extract of Section 10B(1) to (3) of theAct, which read as under: ‘10B. (1) Subject to the provisions ofthis section, any profits and gains derived byan assessee from a hundred per cent export-orientedundertaking|(hereafterIn|this|section referred to as the undertaking) to|which this section applies shall not be|included in the total [Income of the assessee. (2)Thissectionappliesto.hy|undertaking which fulfils all the following|conditions, namely:—_ (i) it manufactures or produces anyarticle or thing; (ii) it is not formed by the splittingup, or the reconstruction, of abusiness already in existence: 6.|We have considered the submissions madeby learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to takenote of relevant extract of Section 10B(1) to (3) of theAct, which read as under: ‘10B. (1) Subject to the provisions ofthis section, any profits and gains derived byan assessee from a hundred per cent export-orientedundertaking|(hereafterIn|this|section referred to as the undertaking) to|which this section applies shall not be|included in the total [Income of the assessee. (2)Thissectionappliesto.hy|undertaking which fulfils all the following|conditions, namely:—_ (i) it manufactures or produces anyarticle or thing; (ii) it is not formed by the splittingup, or the reconstruction, of abusiness already in existence: Providedthat this condition shell not.apply in respect of any undertaking which Isformed as a result of the re-establishment, reconstruction or revival by tne assessee of| thebusiness|OF|dhhySUCH|industrialundertaking as is referred to in section 33B.in the circumstances and within the period|specified in that section: (iii) it is not formed by the transferto a new business of machinery orplantpreviouslyusedforqdhhDUFDOSEe. Explanation—The_ provisions ofExplanation 1 and Explanation2tosub-section (2) of section 80O-I shallapply for the purposes of clause (ili) ofthis sub-section as they apply for thepurposes of clause (li) of that sub-section. (3) ThissectionappliestOtheundertaking, if the sale proceeds of articles|or things or computer software exported out|of India are received in, or brought into,|India by the assessee in convertible foreign|excnange, within a period of six montns|from the end of the Previous year or, within SUCH|furtherperiod|dSthecompetent authority may allow in this behalf. J |Section 10A and 10B of the Act are’parlmateriaprovisions. However, difference is with regard tonature of the unit. Section 10A deals with Free TradeZone (FIZ) unit whereas, Section 10B deals with 100%export oriented unit. Section 10A of the Act coversnewly established undertaking in Free Trade Zoneswhereas, Section 10B deals with newly established100% export oriented undertakings. Section 10A of theAct was introduced to give effect to EXIM policy of theCentral Government. Paragraph 6.10 of the aforesaidpolicy deals with exchange through others and provides.tnat|EOU/EHTP/STP/BTPunitMayeXportgoods"manufactured / software developed by it throughanother exporter or any other EQU/EHTP/STP/SEZ unitsubject to the conditions mentioned in paragraph 6.19 ofHandbook. Paragraph 6.19 of the policy reads as under: 6.19 An EOU/EHTP/STP/BTP unit may|exportgoodsmanufactured/softwaredeveloped by it through other exporter or anyother EOU/EHTP/STP/SEZ/BTP unit subject to-condition that: (a).Goods|Shallbe.producedIn|EOU/SHTP/STP/BTP unit concerned. |(b) Level of NFE or any other conditionsrelating to imports and exports as prescribedSnallcontinueto.be|aischargeaDy EOU/EHTP/STP unit concerned. (c) Export orders so procured shall be|executed.withinparametersofEOU/EHTP/STP/BTP schemes and goods shallbe directly transferred from unit to port ofshipment. (a)FulfillmentofNFE|Dy EFOU/EHTP/STP/BTP units in regard to suchexports shall be reckoned on basis of price atwhicn goods are supplied by EOUs to otherFxporter or other EOU/EHTP/STP/STP/SEZ~unit. (e) Ali export entitlements, including| recognition as status Holder would accrue toexporter in whose name foreign exchangeearnings are realized. However, such export.Shallbe|countedtowardsfulfillmentofobligation under EOU/EHTP/STP/BTP scheme.only. (a).Goods|Shallbe.producedIn|EOU/SHTP/STP/BTP unit concerned. |(b) Level of NFE or any other conditionsrelating to imports and exports as prescribedSnallcontinueto.be|aischargeaDy EOU/EHTP/STP unit concerned. (c) Export orders so procured shall be|executed.withinparametersofEOU/EHTP/STP/BTP schemes and goods shallbe directly transferred from unit to port ofshipment. (a)FulfillmentofNFE|Dy EFOU/EHTP/STP/BTP units in regard to suchexports shall be reckoned on basis of price atwhicn goods are supplied by EOUs to otherFxporter or other EOU/EHTP/STP/STP/SEZ~unit. (e) Ali export entitlements, including| recognition as status Holder would accrue toexporter in whose name foreign exchangeearnings are realized. However, such export.Shallbe|countedtowardsfulfillmentofobligation under EOU/EHTP/STP/BTP scheme.only. 8.|While dealing with scope and ambit of Section10A of the Act, a bench of this court in Tata Elxsi Ltd.,supra held that when a supply is made from DIA to STP,it does not satisfy the requirements of export as definedunder the Customs Act. However, for the purposes ofEXIM policy it is treated as deemed export andtherefore, Section 10A of the Act was introduced to give.effect to EXIM policy, the supplies made from one STP toanother STP Nave to be treated as deemed export, asclause 6.19 specifically provides for export to statusnoider. Thus, in order to be eligible for exemption from.Income Tax, the exports snould earn foreign exchangeand it does not matter whether the undertaking should.personally export goods manufactured /_ software developed by it outside the country. It may export out ofIndia by itself or through any other STP unit. It hasfurther been held that once it is shown that goodsmanufactured by the assessee have been exported outof India either by the assessee or Dy another STP unitand the foreign exchange is directly attributable to suchexport, then provisions of Section 10A of the Act isattracted and such exported is entitled to the benefit ofdeduction of profits and gains derived from such exportfrom payment of tax. Even if the assessee does notdirectly export the material outside the country andSupplies the same through another STP unit, whichexports the same and receives the foreign exchange has.to be neld entitied to Denefit of deduction. Tne aforesaiddecision was followed by another division bencn inINTERNATIONAL STONES INDIA PVT. LTD. while dealingwith a claim of deduction under Section 10B of the Act!and it was held that assessee being 100% exportoriented unit would be entitled to deduction under Section 10B of the Act in respect of deemed export ofgoods made by it to the third party. 9 |In the instant case, admittedly, the assesseeis a manufacturing unit and is 100% export oriented unit.as has been found by the Tribunal in para 3 of the order.The assessee has manufactured precision componentsand has exported the same through Toyota Tsusho P.Ltd., which had received the export proceeds inconvertible foreign currency. Therefore, the assesseewas entitled to the benefit of deduction under Section|10B of the Act. In view of preceding analysis, the substantial|questions of law framed by this court are answered infavour of the assessee and against the revenue. Theorders passed by the Assessing Officer, Commissioner of.Income Tax (Appeals) and the order of the Tribunalinsoafar it deprives the assessee of the benefit underSection 10B of the Act are hereby quashed and the /..1..11�-.�148-8215�89�8,1�=141:-8�9:�515378-94�34516� �178-94�(���9:�8,1��78�� �4�8,1�61.328#�8,1�/001/2�-.�/229@15�� ..� ����������� �����������