Severn Glocon India Pvt. Ltd., Chennai vs Assessee

M/s Severn Glocon (India) Pvt. The Assistant Commissioner of Ltd., Income Tax, v. F-96 & 97, SIPCOT Industrial Company Circle VI(2), Estate, Chennai - 600 034. Irungattukottai, Chennai - 602 117.

PAN : AAHCS 9495 H (अपीलाथ,/Appellant) (-.यथ,/Respondent)

आयकर अपील सं./ITA No.2770/Mds/2014 नधा(रण वष( / Assessment Year : 2010-11

M/s Severn Glocon (India) Pvt. The Deputy Commissioner of Ltd., v. Income Tax, F-96 & 97, SIPCOT Industrial Company Circle VI(2), Estate, Chennai - 600 034. Irungattukottai, Chennai - 602 117. (अपीलाथ,/Appellant) (-.यथ,/Respondent)

राज व/Revenue by : Sh. Joe Sebastian, CIT नधा(0रती/Assessee by : Sh. T. Banusekar, CA

सन ु वाई क3 तार ख/Date of Hearing : 26.05.2015 घोषणा क3 तार ख/Date of Pronouncement : 19.06.2015 2 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

आदे श /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both, Revenue and assessee, filed the appeals against the

order passed by the Commissioner of Income Tax (Appeals)-VI,

Chennai, dated 29.08.2014. Therefore, we heard both the appeals

together and disposing the same by this common order.

2. Let's first take Revenue's appeal in I.T.A. No.

2816/Mds/2014. The only ground raised by the Revenue is with

regard to exclusion of expenses from the export turnover and total

turnover.

3. Sh. Joe Sebastian, the Ld. Departmental Representative,

submitted that the Assessing Officer excluded the expenses from

export turnover. However, the same were not excluded from the

total turnover. The CIT(Appeals) directed the Assessing Officer to

exclude the expenses from total turnover also. According to the Ld.

D.R., export turnover is only in respect of the export of the goods,

therefore, what was excluded from the export turnover need not be

excluded from the total turnover.

4. On the contrary, Sh. T. Banusekar, the Ld. representative for

the assessee, submitted that export turnover and total turnover 3 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

should be of the same factor. What was excluded from the export

turnover has also to be excluded from the total turnover in view of

the decision of Special Bench of this Tribunal in ITO v. Sak Soft Ltd.

(2009) 30 SOT 55.

5. We have considered the rival submissions on either side and

perused the relevant material on record. As rightly argued by the

Ld. representative for the assessee, both export turnover and total

turnover shall be of the same factor. What was excluded from the

export turnover cannot form part of total turnover. Therefore, this

Tribunal is of the considered opinion that the CIT(Appeals) has

rightly directed the Assessing Officer to exclude the expenses from

total turnover also. This Tribunal do not find any infirmity in the

order of the lower authority. Accordingly, the same is confirmed.

6. Now coming to assessee's appeal in I.T.A.

No.2770/Mds/2014, the first issue arises for consideration is with

regard to deduction under Section 10B of the Income-tax Act, 1961

(in short 'the Act').

7. Sh. T. Banusekar, the Ld. representative for the assessee,

submitted that the assessee is 100% export oriented unit eligible for

exemption under Section 10B of the Act. The Assessing Officer 4 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

disallowed the claim of the assessee on the ground that Inter

Ministerial Committee constituted by the Government of India under

Section 14 of the Industries (Development & Regulation) Act, 1951

does not approve the assessee. Referring to the order of the

Development Commissioner, MEPZ Special Economic Zone, the

Ld. representative submitted that the Development Commissioner

has granted the approval. This was subsequently ratified by the

Board in its second meeting held on 25.03.2011. The approval

granted by the Board was communicated to the assessee by the

Development Commissioner, a copy of which is available at page 8

of the paper-book. Therefore, according to the Ld. representative, it

may not be correct to say that the Board's approval was not

obtained. Even otherwise, according to the Ld. representative, the

assessee is eligible for exemption under Section 10A of the Act.

Referring to the Instruction of the CBDT, a copy of which is

available at page 11 of the paper-book, the Ld. representative

submitted that the approval granted by the Development

Commissioner would be a valid approval once it is approved by the

Board of Approval for EOU Scheme. Therefore, According to the

Ld. representative, the CIT(Appeals) is not justified in confirming the

order of the Assessing Officer. The Ld. representative further

submitted that even otherwise the assessee is eligible for exemption 5 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

under Section 10A of the Act. Therefore, the issue requires to be

remitted back to the file of the Assessing Officer for reconsideration.

8. On the contrary, Sh. Joe Sebastian, the Ld. Departmental

Representative, submitted that Explanation 2(iv) to Section 10B of

the Act clearly says that 100% export oriented unit means an

undertaking which is approved by the Board appointed by the

Government of India under Section 14 of the Industries

(Development & Regulation) Act, 1951. Therefore, the Board

nominated by Government of India under the provisions of Section

14 of the Industries (Development & Regulation) Act, 1951 has to

approve the unit for the purpose of claiming deduction under

Section 10B of the Act. In this case, it is nobody's case that the

Board constituted by Government of India has accorded, under

Explanation 2(iv) to Section 10B of the Act, approval to the

assessee as 100% export oriented unit. In this case, the assessee

was approved by Development Commissioner of the Special

Economic Zone. No material is available on the record to show that

the assessee was approved by the Board constituted by

Government of India. According to the Ld. representative, the

approval granted by the Development Commissioner was

subsequently ratified by the Board nominated by Ministry of 6 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

Commerce. It is not known whether the Board of Approval

nominated by Ministry of Commerce was appointed under Section

14 of the Industries (Development & Regulation) Act, 1951.

Income-tax Act, being a special enactment, the approval has to be

accorded only by the Board nominated by the Government under

Section 14 of the Industries (Development & Regulation) Act, 1951.

The letter of the Special Economic Zone does not say anything

about the constitution of committee under the Industries

(Development & Regulation) Act, 1951. Therefore, according to the

Ld. D.R., the CIT(Appeals) has rightly confirmed the addition. The

Ld. D.R. further submitted that the assessee is also not eligible for

exemption under Section 10A of the Act.

9. We have considered the rival submissions on either side and

perused the relevant material on record. Explanation 2(iv) to

Section 10B clearly says that approval by the Board appointed by

Government of India under Section 14 of the Industries

(Development & Regulation) Act, 1951 is an essential condition. In

this case, though the assessee claims that the approval initially

granted by Development Commissioner, Special Economic Zone

was ratified by the Board, it is not clear from the material available

on record whether ratification was accorded by the Board 7 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

constituted by Government of India under Section 14 of the

Industries (Development & Regulation) Act, 1951. In the absence of

any material to show that whether the approval was accorded by the

Board constituted under Industries (Development & Regulation) Act,

1951, this Tribunal is of the considered opinion that the matter

needs to be re-examined. Moreover, Section 10A also gives

exemption to 100% export oriented unit. Therefore, this Tribunal is

of the considered opinion that the matter needs to be re-examined

by the Assessing Officer in the light of the provisions of Section 10A

of the Act, in case the assessee is not eligible under Section 10B of

the Act. Accordingly, the orders of the lower authorities are set

aside and the entire issue is remitted back to the file of the

Assessing Officer. The Assessing Officer shall re-examine the

issue afresh and find out whether the Board constituted by

Government of India under Section 14 of the Industries

(Development & Regulation) Act, 1951 has approved the assessee

as 100% export oriented unit. In case such approval was not

granted, the Assessing Officer shall also examine the claim of the

assessee under Section 10A of the Act on merit, in accordance with

law, after giving a reasonable opportunity to the assessee. 8 I.T.A. No. 2816/Mds/14

I.T.A. No.2770/Mds/14

10. The next issue arises for consideration is with regard to

determination of eligible export turnover.

11. During the course of hearing, the Ld. representative for the

assessee submitted that the assessee is not pressing this ground.

Accordingly, the ground raised by the assessee with regard to

determination of eligible export turnover is dismissed.

12. The next ground of appeal is with regard to exclusion of

foreign travel expenses, 50% of telephone charges and

communication expenses, freight outward and commission

expenses from the export turnover.

13. Sh. T. Banusekar, the Ld. representative for the assessee,

submitted that the CIT(Appeals) allowed the appeal of the assessee

partly, deleting the disallowance made under Section 40(a)(ia) of

the Act. However, the CIT(Appeals) upheld the exclusion of foreign

travel expenses, 50% of telephone charges and communication

expenses, freight outward and commission expenses from the

export turnover. The Commissioner also directed the Assessing

Officer to exclude the same from total turnover also. Referring to

Explanation 2(iv) to Section 10A of the Act, the Ld. representative

submitted that export turnover does not include freight, 9 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

telecommunication charges or insurance attributable to the delivery

of the articles, etc. These facts are not appreciated by the

Commissioner as well as the Assessing Officer. According to the

Ld. representative, the assessee has now filed copies of ledger

extract to show that the commission expenses and other expenses

were not paid outside India, hence, it was not incurred in foreign

exchange. The lower authorities had no occasion to examine the

ledger extract. Therefore, the Ld. representative submitted that the

matter may be remitted back to the file of the Assessing Officer.

14. On the contrary, Sh. Joe Sebastian, the Ld. D.R. submitted

that the Commissioner directed the Assessing Officer to exclude the

telephone charges, foreign travel expenses, commission expenses,

etc. from the export turnover as well as the total turnover.

Therefore, according to the Ld. D.R., the assessee may not have

any grievance at all.

15. We have considered the rival submissions on either side and

perused the relevant material on record. As rightly submitted by

the Ld. representative, the Commissioner upheld the exclusion of

foreign travel expenses, commission charges, communication

expenses, etc. from the export turnover and also directed the

Assessing Officer to exclude the same from total turnover. While 10 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

deciding the appeal of the Revenue, this Tribunal found that in view

of the decision of Special Bench in Sak Soft Ltd. (supra), the

expenses which were excluded from the export turnover are also to

be excluded from total turnover. Since the CIT(Appeals) excluded

the communication charges, foreign travel expenses, commission

charges, etc. from export turnover, this Tribunal is of the considered

opinion that the same are also to be excluded from total turnover.

In other words, the items which were excluded from the export

turnover have also to be excluded from total turnover. Therefore,

this Tribunal do not find any infirmity in the order of the lower

authority. Accordingly, the same is confirmed.

16. In the result, the appeal of the Revenue is dismissed and the

appeal of the assessee is partly allowed for statistical purposes.

Order pronounced on 19th June, 2015 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद य/Accountant Member या यक सद य/Judicial Member

चे नई/Chennai, th 6दनांक/Dated, the 19 June, 2015.

Kri. 11 I.T.A. No. 2816/Mds/14 I.T.A. No.2770/Mds/14

आदे श क3 - त7ल8प अ9े8षत/Copy to: 1. अपीलाथ,/Appellant 2. -.यथ,/Respondent 3. आयकर आयु:त (अपील)/CIT(A)-VI, Chennai-34 4. आयकर आयु:त/CIT-VI, Chennai 5. 8वभागीय - त न ध/DR 6. गाड( फाईल/GF.