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TMI Blog2010 (9) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... tal turnover of the business for the purposes of computing the deduction under section 80HHC - In the opinion of the ld. CIT such reduction from total turnover in respect of exchange loss of export realisation was not permissible - From the computation of deduction made by the assessee, it is seen that the export turnover has been shown at realised value - It is simple and plain that with the reduced realisation of export proceeds, the figure of export turnover came down with exchange loss on export realization - As the export turnover is part and parcel of total turnover, it cannot have two values, firstly, when considered as separate from total turnover and secondly, when constituting part of total turnover – Decided in the favour of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80HHC(4C) as not including freight or insurance attributable to the transfer of goods beyond the customs station. In his opinion the meaning of the term "total turnover" was to be strictly construed and there was no warrant for excluding anything other than those expressly given in the scope of Explanation. He, therefore, refused to accept the view point of the assessee. In the like manner he refused to accept the assessee's contention justifying the reduction of exchange loss of export realisation from the total turnover. Eventually he set aside the assessment order with direction to the Assessing Officer for recomputing deduction under section 80HHC in accordance with the definition of the 'total turnover' specified in the section. The assessee is in appeal before us. 3. We have heard the rival submissions in the light of material placed before us and precedents relied upon. It is noticed that the assessee carried on its business from different units including one at Verna, Goa. Deduction was claimed under section 80-IB at 100 per cent of the profits in respect of Goa unit, which was allowed by the Assessing Officer and the ld. CIT has not questioned the eligibility or quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion contained in section 80-IA(9). 5. The assessee in the instant case claimed deduction under section 80-IB in respect of profits of the Goa Unit at 100 per cent of its profit and while calculating deduction under section 80HHC reduced such profits from the profits of the business as per Explanation (baa) below section 80HHC(4C). Simultaneously, the amount of sales of Goa Unit was also reduced from the total turnover of the business. It is an admitted position that the produce of Goa Unit was locally sold and no part of that was exported. Insofar as the reduction of the amount of deduction allowed under section 80-IB from the total profits of the business for calculating deduction under section 80HHC is concerned, the ld. CIT has accepted the same as correct, which is also in conformity with the view taken in the aforenoted Special Bench orders of the Tribunal. 6. It can be seen that the object of section 80HHC is to allow deduction in respect of profits derived from the export of eligible goods or merchandise. From sub-section (1) of section 80HHC, it is manifest that deduction has been provided for to the extent of profits, as referred to in sub-section (1B), derived by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib)." 10. A glance at this definition of the "total turnover" [(C) in the above formula] divulges that it shall not include freight or insurance attributable to the transportation of goods or merchandise beyond the customs station and further it shall also exclude the sums referred to in section 28(iiia) to (iiie). There is no express reference to the reduction of turnover in respect of any unit, the income from which is deductible under section 80-IB. 11. Another significant ingredient for the calculation of profits derived from export as per section 80HHC(3)(a) is the "profits of the business" [(A) in the above formula], which has been defined in Explanation (baa) below section 80HHC4(C) to mean the profits of the business as computed under the head "Profit and gains of business or profession" as reduced by the items specifically set out in sub-clauses (1) & (2) of clause (baa) of Explanation. Insofar as this aspect is concerned, the same has been decided by the Special Bench of the Tribunal in the above referred two cases by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that there is contemplated the deducing of the profits derived from export from the "profits of the business" in proportion to the export turnover vis-a-vis the "total turnover of the business". The reason behind all the three clauses including clause (a) of section 80HHC(3) is to ascertain the profits derived from export of goods or merchandise. 14. Albeit on going through the definition of 'total turnover' as per Explanation (ba), the view point of the ld. CIT in not excluding the turnover of Goa unit appears attractive, but it looses its shine, when it is seen in juxtaposition to the language of sub-section (3). Explanation below sub-section (4C) is not a substantive provision in itself. In a way it makes the prescription of sub-section (3) feasible. It has been noticed above that the idea behind all the clauses of sub-section (3) is to determine the amount of profits derived from export. Clause (a) helps in separating the amount of profits derived from export out of the total profits of the business in the case of an indivisible business. The emphasis in the language of the provision is on the expression 'of the business' as used along with profits and total turnover. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formula as discussed above. 16. This exercise done by the assessee resulted in taking out the amount of turnover and profit of Goa Unit business in respect of which deduction was claimed and allowed under section 80-IB so that the remaining amount of profit could be bifurcated into further two components viz., as relatable to export turnover and domestic turnover (other than that of Goa Unit). There could have been two ways to calculate profit derived from export for allowing the benefit under section 80HHC. Firstly by reducing profits and turnover of Goa unit from total turnover and total profits of the business and secondly by allowing profits and turnover of Goa unit to remain entered in the figures of total turnover and total profits of business. When we consider section 80-IA(9) read with section 80-IB(13) as interpreted by the aforenoted Special Benches of the Tribunal, the first method finds precedence, which has been followed by the assessee. 17. If we accept the contention of ld. CIT that the amount of turnover in respect of Goa Unit business should not be reduced from the total turnover of Goa and non-Goa businesses, while retaining the profits of the business as net o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction under section 80HHC. At the same time, the figure of export turnover was shown at realised value. In the opinion of the ld. CIT such reduction from total turnover in respect of exchange loss of export realisation was not permissible. In reaching this conclusion, the ld. CIT again relied on the definition of "total turnover" as given Explanation (ba) below section 80HHC. 21. We have heard the rival submissions and perused the relevant material on record. When sale is made outside India, the figure of export is recorded on the basis of the prevailing foreign exchange rate, which is only a tentative figure. However when the export proceeds are realized, that gives the exact figure of export. The difference between the tentative figure and actual figure needs adjustment in the figure of exports recorded initially. In other words if there is more actual realization, then the figure of export sales has to be increased and vice versa with the amount of difference in the rates of foreign exchange on the date of invoice and date of realization. Such difference is nothing but the adjustment to the figure of exports. On passing this entry at the time of realization, the estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of export turnover in itself and that included in the total turnover has become same (at Rs. 4,300 in our example). The ld. CIT desires that the amount of export turnover should remain at realised value as declared (at Rs. 4,300 in our example), but the amount of the total turnover should not be reduced with exchange loss on export realisation (representing Rs. 200 in example). It is simple and plain that with the reduced realisation of export proceeds, the figure of export turnover came down with exchange loss on export realisation. Simultaneous reduction has to be naturally effected in the figure of total turnover with the exchange loss on export realisation so that the correct amount of the export turnover as included in the total turnover is not distorted. If we accept the ld. CIT's viewpoint then the figure of export turnover for the purposes of numerator in the formula shall stand reduced by the exchange loss on export realisation but the figure of total turnover in denominator shall include the gross figure without reduction towards foreign exchange loss. In other words, the amount of export turnover in the numerator of the formula as per our above example shall be Rs. 4,30 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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