Assessee manufactured gherkins pickles. It claimed deduction u/s 10B. AO held that assessee did not manufacture pickles but only did packing. He disallowed claim u/s 10B. CIT(A) confirmed AO's order. ITAT allowed the claim and held that assessee was a 100% EOU and was covered by s 10B under the definition of manufacture as given in Chapter IX of Export Import Policy 2002 to 2007, and s 2(r) of Special Economic Zones Act, 2005.-501459
1. The assessee was a manufacturer and producer of gherkins pickles. The assessee had filed its return declaring income of Rs.1,38,04,710/- after claiming deduction u/s.10B, of Rs.7,18,79,252/-. There was a survey done on the premises of the assessee. AO enquired the assessee as to how it could be considered as doing any manufacturing. According to the AO, assessee was only into processing of the gherkins obtained from the farmers through contract farming. As per the AO, assessee was having a packing unit, where gherkins obtained from farmers were washed and put into jars of various sizes with some preservatives and some spices. AO noted that the jars were steam heated for 20 minutes and labeled with prints, depending on the country of export. As per the AO such exercises could not be considered as manufacture or production for allowing a claim of deduction u/s.10B of the Act. AO had curtailed the claim of the assessee u/s.10B of the Act, by excluding from turnover, realizations after 30.09.2007.
2 . CIT (A) confirmed the finding of the AO that assessee was only packing the gherkins. Thus he upheld the order of the AO denying the deduction claimed u/s.10.
3 . On appeal, the ITAT held as under:
4. "In so far as assessee's claim for not reducing insurance and freight charges from the export turnover is concerned, we are afraid we cannot accept it in view of the definition given to export turnover in Explanation 2(iii) to Section 10B of the Act, which give room for no doubt. AO is obliged to deduct such amount from the export turnover while computing the deduction under the said section. However the alternative claim of the assessee that such amounts which are deducted from the export turnover was required to be deducted from the total turnover also, has to be accepted in view of the Hon'ble jurisdictional High Court decision in CIT v. Tata Elxsi (349 ITR 98). Accordingly, we direct the AO to reduce these amounts from the total turnover also while computing the deduction u/s.10B of the Act.26. Coming to the aspect of finding of CIT (A) and AO that assessee was not having the required recognition under CSEZ as a 100% EOU, Office Memorandum (OM), dated.18.01.2011, issued by Ministry of Commerce and Industry of Government of India, placed at paper book page 275 to 298 show that assessee was approved as an EOU. Explanation 2(iv) to Section 10B reads as under :
"hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65of 1951), and the rules made under that Act."There is no case for the Revenue that the Board which gave approval mentioned in the above OM, was not one which was appointed by Central Government under IDR Act, 1951. Assessee was therefore a hundred percent export oriented undertaking.
5. In such circumstances, we are of the opinion that assessee's claim u/s.10B of the Act, had to be allowed. Disallowance of such claim and the addition made stands deleted.
6. There is no dispute that assessee was an unit in SEZ. It being so, in our opinion assessee could not have been fastened with any time limit for bringing the sale proceeds in foreign exchange to India. No doubt assessee could never make such claims for amounts which was not realised at all. However in so far as items at sl.nos.2 and 3 of the table at para 29, viz., Rs.2,55,64,662.57 realised within one year of the exports, and Rs.28,17,17,233.95 realized after one year of the date of exports, assessee was eligible for claiming deduction. Forex gains of Rs.3,71,61.463/- earned by the assessee was on account of exchange gain arising out of the difference between date of realisation of export proceeds and date of invoicing. These were directly related to the export turnover of the assessee and also has to be considered as part of profits arising from assessee's 100% EOU. Such amount is also in our opinion eligible for deduction u/s.10B of the Act. AO is directed to grant deduction u/s.10B of the Act for all the amounts realised by it from the sales effected by it including the forex gains. Ground.5 of the assessee stands allowed.