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2005 (6) TMI 252 - AT - Income TaxDeductions u/s 80HHC - Conversion charges receipts - Export Profits - Whether conversion charges are part of total turnover for the purpose of computation of deduction u/s 80HHC - HELD THAT - From the facts, it becomes clear that wherever there is a composite business and profits of export have to be included for the purpose of deduction under section 80HHC, then the formula given u/s 80HHC(3) has to be applied and whenever profit element from domestic turnover of specified or non-specified goods is included, then domestic turnover of such goods has to be included in the total turnover. In fact, it becomes clear from the two decisions rendered by the Hon'ble Madras High Court in case of Madras Motors Ltd. 2002 (3) TMI 10 - MADRAS HIGH COURT and Sundaram Fasteners Ltd. 2004 (10) TMI 33 - MADRAS HIGH COURT , that it has been clearly laid down that wherever there is a domestic turnover and that involves element of profit, then such turnover is to be included in the total turnover for determining the proportionate export profit u/s 80HHC(3) for the purpose of allowing deduction u/s 80HHC(1). It is clear from the records that the assessee had generated profit on sale of cotton as well as sale of condemned material and it also generated profits from process charges which is included in the business profit and, therefore, these elements have to be included in the total turnover. In the result, the revenue's appeal is allowed and the Cross Objection of the assessee is rejected.
Issues Involved:
1. Whether conversion charges should be considered part of the total turnover for the purpose of computing deduction under section 80HHC. 2. Whether the sale of yarn and condemned material should be included in the total turnover under section 80HHC. Detailed Analysis: 1. Conversion Charges as Part of Total Turnover: The revenue contended that the Commissioner (Appeals) should have considered conversion charges as part of the total turnover for computing the deduction under section 80HHC. They argued that since the profit derived from conversion charges is included in the business profits, these charges should be part of the turnover. The assessee, on the other hand, argued that the issue is covered in their favor by previous Tribunal orders and the jurisdictional High Court's decision in CIT v. Madras Motors Ltd./M.M. Forgings Ltd. [2002] 257 ITR 60 (Mad.). The Tribunal noted that the doctrine of precedent, as observed by the Hon'ble Supreme Court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297, must be adhered to, and the judgment must be read as a whole. The Tribunal emphasized the ratio decidendi or principles laid down in higher judiciary cases. Section 80HHC(1) provides deductions for profits derived from the export of goods or merchandise. Sub-section (3)(a) lays down a formula for calculating export profits in cases of composite business involving both export and local turnover. The Tribunal illustrated this with examples, showing that if the business profits include domestic turnover, the total turnover must also include domestic sales to maintain comparability and avoid inflating profits. The Tribunal referred to the Hon'ble Madras High Court's observation in CIT v. Sundaram Fasteners Ltd. [2005] 272 ITR 652, which stated that only receipts with an element of profit should be included in the total turnover. The Tribunal concluded that since the assessee generated profits from conversion charges, these must be included in the total turnover. 2. Sale of Yarn and Condemned Material: The assessee raised a cross-objection, arguing that the Commissioner of Income-tax (Appeals) erred in including the sale of yarn (Rs. 42,64,575) and condemned material (Rs. 6,32,125) in the total turnover under section 80HHC. The Tribunal discussed the principles laid down in previous judgments, including CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769, which held that the total turnover should not include amounts like sales tax and excise duty, as they do not involve any profit element. The Tribunal reiterated that the formula provided in section 80HHC(3) must be applied to determine the proportionate export profit, ensuring that the numerator and denominator remain comparable. The Tribunal referred to the Hon'ble Calcutta High Court's decision in CIT v. Chloride India Ltd. [2002] 256 ITR 625, which emphasized that only receipts with a profit element should be included in the total turnover. The Tribunal concluded that since the assessee generated profits from the sale of yarn and condemned material, these should be included in the total turnover. Conclusion: The Tribunal allowed the revenue's appeal, holding that conversion charges, as well as the sale of yarn and condemned material, should be included in the total turnover for the purpose of computing deduction under section 80HHC. The assessee's cross-objection was rejected.
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