2012 (6) TMI 502 - HC - Income Tax

Determination of export profit eligible for deduction - assessee s invoice value on exports got reduced by the value of components supplied by the foreign buyer which made payment of only the net amount - reassessment proceedings - AO adopted gross invoice value on the exports as export turnover forming part of total turnover and adopted it as the denominator in the determination of eligible export profit for deduction under Section 10B(4) of the Act Held that - total turnover is the gross turnover which comprises of the turnover of business done domestically and the export business. For numerator and denominator export turnover has to be one and the same and the Department is bound to treat only actual export turnover which is received in convertible foreign exchange by the assessee as forming part of total turnover. In other words, the export turnover should be the same amount both as numerator and forming part of total turnover being the denominator for determining export profits under Section 10B(4) of the Act. appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Depreciation calculation based on subsidies received by the industrial unit.
2. Determination of export profit eligible for deduction under Section 10B of the Income Tax Act.

Issue 1: Depreciation calculation based on subsidies received:
The appeal filed by the Revenue challenges the Tribunal's order favoring the respondent assessee regarding the depreciation calculation on assets subsidized by the State Government. The Assessing Officer reduced the actual cost of assets by the subsidy amount as per Explanation 10 to Section 43(1) of the Act. The Tribunal allowed the assessee's appeal, citing that the provision for subsidy reduction was introduced post the investment date, thus not applicable. The High Court upheld the Tribunal's decision, stating that the amendment was prospective, applying to investments made after 01/04/1999. The Court referenced the Supreme Court's decision in CIT v. P.J. Chemicals Ltd., emphasizing no retrospective application without legislative intent.

Issue 2: Determination of export profit eligible for deduction:
The dispute arose over the calculation of export profit deduction under Section 10B of the Act, specifically regarding the treatment of components supplied by the foreign buyer in export turnover determination. The Assessing Officer, in reassessment, adopted a different approach for export and total turnover calculations, including the value of components withheld by the foreign buyer in total turnover. The Tribunal, following the Chennai Tribunal's Special Bench decision and the Supreme Court's ruling in CIT v. Lakshmi Machine Works, rejected the Department's stance. The High Court concurred, emphasizing that export turnover, as both numerator and denominator, should reflect the actual amount received in convertible foreign exchange, excluding the value of components supplied. The Court upheld the Tribunal's decision, dismissing the Departmental Appeal on this issue as well.

In conclusion, the High Court dismissed the Revenue's appeal, upholding the Tribunal's decisions on both issues related to depreciation calculation based on subsidies received and the determination of export profit eligible for deduction under Section 10B of the Income Tax Act.