The Supreme Court has issued a notice to Moser Baer India Ltd on why it should not be asked to pay income tax to the tune of Rs 2,978 crore.
A Bench headed by Justice S H Kapadia sought the reply from the manufacturer of computer-related products, including floppies and compact discs, on the income tax department’s plea alleging that the company had evaded tax in 2000-01.
The department said the company was not entitled to deduction even though the value of export of CDs was less than 75 per cent of the total sales made during 2000-01.
It said the Delhi High Court should have appreciated that the assessing officer was right in observing that Moser Baer under its export obligations under the EXIM policy was treating the stock transfer as export and FOB invoice value as sales, whereas the stock transferred to its Rotterdam branch remained part of its closing stock, thus increasing its gross profit.
Additional Solicitor General Mohan Parasaran and Gaurav Dhingra said the High Court was wrong in holding that the stock transfer to the company’s Rotterdam unit was to be treated as deemed export sales out of India.
According to both, there was no actual sale and no realisation in convertible foreign exchange during the year took place.
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Citing Moser Baer’s profit and loss statement account, the government said if there was a sale to a foreign branch, then why was the stock transferred entry reversed in the books of account at the end of the financial year. “This doubt was supported by the fact that the assessee had deliberately furnished the information regarding the amount of remittance received in foreign exchange.
“This logically leads to the conclusion that no actual sales have been made by the company to its Rotterdam unit and the assessee was wrongly claiming exemption under Section 10A/10B merely on the basis of entries of stock transfer,” the petition stated.
Moser Baer had claimed deduction under Section 10B of the Income Tax Act in all its three units.
Out of total sales of Rs 148.75 crore, the assessee had claimed export sales amounting to Rs 73.45 crore and the entries in respect of stocks export transferred to Rotterdam office were shown reversed in its books.
Thus, Moser’s direct export sales were only Rs 73.45 crore and the remaining sales of the exempted units were only on account of stock transfer to a foreign unit.
While the assessing officer had disallowed the claim of the transfer of the stock from one branch to another on the ground that no actual sales were made for this amount, the Commissioner of Income Tax (Appeals) had held in favour of the assessee, holding that deduction should be given if the stock transfer was made by one branch to another and should be treated as export sales.
The Income Tax Appellate Tribunal had upheld the Commissioner’s order holding that the goods transferred by the Indian branch to its foreign branch was a transfer to a separate entity and hence eligible for exemption.