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TMI Blog2010 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... e seller of the goods stands reimbursed in respect of certain expenses is not a consideration which would indicate that those expenses do not form part of the costs incurred by the seller. Costs do not cease to be costs because they are reimbursed to the seller as part of the sale consideration. - while computing direct cost attributable to export the freight and insurance amounting to Rs.1,71,87,614/ should be excluded for arriving at export profits while computing the deductions u/s.80HHC - decided in favor of assessee - the issue related to DEPB was also decided in favour of the Revenue and against the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee by the judgment delivered in C.I.T. vs. Kalpataru Colours and Chemicals, (Income Tax Appeal (L) No.2887 of 2009 decided by the Division Bench on 29 June 2010). In the circumstances, the first three questions shall stand answered in favour of the Revenue and against the Assessee in terms of the judgment of the Division Bench noted above. Re: Question (d): 3. Under subsection (1) of Section 80HHC, a deduction is provided to the extent of profits derived by the assessee from the export of goods. Subsection (3) provides a formula for computing profits derived from the export. In the present case, it is an admitted position that the assessee is a trader exporter. Hence, the assessee would be covered by clause (b) of subsection (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exclude freight and insurance attributable to the transport of the goods or merchandise beyond the customs station. Such freight and insurance has to be excluded from the sale proceeds received in India by the assessee in convertible foreign exchange. The object of the exclusion of freight and insurance is to ensure that the benefit of the deduction under Section 80HHC is confined to profits derived from export. Freight and insurance is, therefore, liable to be excluded in computing the export turnover in pursuance of the legislative object of ensuring that Section 80HHC is a provision for incentives to export. 7. The case of the Revenue in appeal is that though freight and insurance is excluded from the export turnover as a result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of the direct costs attributable to the trading goods. To do so, would result in a situation where freight and insurance attributable to the transport of the goods beyond the customs station, which has already been reduced from the sale proceeds received by the assessee, would, in addition, be added back as a part of the direct costs incurred by the assessee. Counsel appearing on behalf of the Revenue submitted that on the language of the Section as it stands, freight and insurance would have to be factored in twice, first while excluding this component from the sale proceeds received by the assessee and once again while reducing the direct costs from the export turnover. The language of the Section, in our view, does not warrant s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "directly" signifies that there should be a proximate connection between the costs and the purchase of the trading goods. In other words, they should not be "overhead costs." 10. The Supreme Court has taken the view that apart from the purchase price and related costs, direct costs would include costs which have been incurred either in relation to the purchase, transportation or storage of the goods prior to export. The Supreme Court also included costs incurred in relation to the movement of goods to the customs station. There has to be a proximate nexus between the costs and the purchase of the trading goods. Such a nexus cannot possibly be said to exist in relation to freight and insurance which is incurred after goods have left the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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