Riviera Home Furnishing vs. ACIT (Delhi High Court)

DATE: November 19, 2015 (Date of pronouncement)
DATE: November 29, 2015 (Date of publication)
AY: 2008-09
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S. 10B: Deemed Export Drawback, Customer claims, Freight subsidy & Interest on fixed deposit receipts (under lien for LC & bank guarantee) are all derived from the undertaking & are eligible for deduction

(i) The submissions made on behalf of the Revenue proceed on the basic misconception regarding the true purport of the provisions of Chapter VIA of the Act and on an incorrect understanding of Section 80A (4) of the Act. The opening words of Section 80A (4) read “Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter…..”. What is sought to be underscored, therefore, is that Section 80A, and the other provisions in Chapter VIA, are independent of Sections 10A and 10B of the Act. It appears that the object of Section 80A (4) was to ensure that a unit which has availed of the benefit under Section 10B will not be allowed to further claim relief under Section 80IA or 80IB read with Section 80A (4). The intention does not appear to be to deny relief under Section 10B (1) read with Section 10B (4) or to whittle down the ambit of those provisions. Also, the revenue is not right in contending that the decisions of the High Courts referred to above have not noticed the decision of the Supreme Court in Liberty India v. Commissioner of Income Tax (2009) 317 ITR 218. The Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd (2014) 46 Taxmann.com 167 (Kar) makes a reference to the said decision. That decision of the Karnataka High Court has been cited with approval by this Court in Hritnik Exports (decision dated 13th November 2014 in ITA Nos. 219 and 239 of 2014) and Universal Precision Screws decision dated 6th October 2015 in ITA NO 392 of 2015. In Hritnik Exports (supra) the Court quoted with approval the observations of the Special Bench of the ITAT in Maral Overseas Ltd. (supra) that “Section 10A/10B of the Act is a complete code providing the mechanism for computing the ‘profits of the business’ eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act.”

(ii) As regards the decision of the ITAT in not accepting the Assessee’s plea in regard to ‘customer claims’ ‘freight subsidy’ and ‘interest on fixed deposit receipts’ even while it accepted the Assessee’s case as regards ‘deemed export drawback’, the contention of the Assessee as regards customer claims was that it had received the claim of Rs. 28,27,224 from a customer for cancelling the export order. Later on the cancelled order was completed and goods were exported to another customer. The sum received as claim from the customer was non-severable from the income of the business of the undertaking. The Court fails to appreciate as to how the ITAT could have held that this transaction did not arise from the business of the export of goods. Even as regards freight subsidy, the Assessee’s contention was that it had received the subsidy in respect of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the Assessee [which was placed before the AO] which clearly states that “fixed deposit receipts (including accrued interest) valuing Rs.15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities.” In terms of the ratio of the decisions of this Court both in Hritnik Exports (supra) and Universal Precision Screws (supra), the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act.

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