By TIOL News Service

BANGALORE, JUNE 24, 2016: THE issue is - Whether benefit of Section 10B shall be available in respect of exports done through third party. NO is the answer.

Facts of the case

The assessee is a Company engaged in manufacturing and exporting of automotive components. It had filed its return and claimed deduction u/s 10B. TTIPL was the buyer and TTIPL, Europe, S. A, Belgium was the consignee. Thus TTIPL was a third party exporter. During assessment, AO observed that although assessee had exported goods but it had not realised export proceeds in foreign currency from TTIPL which had made payment in Indian currency. Assessee was unable to produce the FIRC for money received for the exports. Assessee contended that since it was registered as EOU with competent authority namely ACIT, Customs, which had authorized it to receive sale consideration in Indian Currency and it also produced a copy of FIRC obtained by TTIPL for justifying its claim. Assessee further contended that TTIPL had received the foreign currency only as an agent of assessee. Said party had also given a letter stating that no benefit or deduction was being claimed by it for the export consideration received for exports made by the assessee. Moreover, as per Policy Circular, if the goods were manufactured in an EOU then the exports effected through third party and foreign exchange realised in the name of third party, were eligible for all the export benefits. However, as per AO assessee had not received the export consideration in convertible foreign currency as require under sub-section (3) of Section 10B of the Act and unless and until the export proceeds were realised in foreign currency itself, it would not be possible to give exemption u/s.10B of the Act. AO also noted that the concept of third party exporter did not find a place in Section 10B of the Act, whereas benefits of Section 80HHC of the Act did allow such a claim. Accordingly, he disallowed the claim. Upon appeal, CIT(A) confirmed the same. Aggrieved assessee preferred an appeal.

After hearing the parties, the Tribunal held that,

++ section 10B did not give any leeway for a liberal interpretation suggested by the assessee for giving benefits under that section to a supporting manufacturer. No doubt substantial reliance was placed by the Tribunal on the decision of a coordinate bench in the case of Tata Elxsi Ltd. In Tata Elxsi's case also it was held by the Tribunal that the benefit u/s.10A of the Act could be given to a supporting manufacturer. Decision of coordinate bench in the case of Tata Elxsi Ltd, was assailed by the assessee concerned before the jurisdictional High Court. The jurisdictional High Court in its judgment, held as under:

".......... if a assessee wants to claim the benefit of Section 10A, firstly he must export articles or things or computer software. Secondly, the said export may be done directly by him or through other exporter after fulfilling the conditions mentioned therein. Thirdly, such an export could yield foreign exchange which should be brought into the country. If all these three conditions are fulfilled, then the object of enacting Section 10A is fulfilled and the assessee would be entitled to the benefit of exemption from payment of Income Tax Act on the profits and gains derived by the Undertaking from the export. Once the goods manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. ........."

++ benefits u/s.10A of the Act could not be denied even to a manufacturer who was supplying goods to a STP unit which had exported and received foreign exchange. Considering this judgment of jurisdictional High Court, we are of the opinion that the matter requires a fresh look by the AO. The AO has to verify whether Exim Policy cited by jurisdictional High Court, while giving a finding that benefit u/s.10A would be available even to an assessee which was not directly into exports, is applicable to an assessee preferring a claim u/s10B of the Act, as well. We therefore set aside the order of the authorities below and remit the issue regarding availability of deduction u/s10B of the Act, back to the AO for consideration afresh in accordance with law.

(See 2016-TIOL-1141-ITAT-BANG)