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TMI Blog2011 (4) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee DEPB license fee - deduction u/s.80HHC - Held that:- The DEPB scheme was not even in existence when clause (iiib) came to be enacted into Section 28 by the Finance Act of 1990. The DEPB scheme was brought into existence with effect from 1 April 1997. Clause (iiid) of Section 28 was inserted by the Amending Act of 2005 with effect from 1 April 1998. The value of the DEPB credit can by no means be regarded as a cash assistance which is received or receivable by a person against exports under any scheme of the Government of India - Decided against the assessee. Reducing 100% of DEPB license sales amount from profits of business while allowing deduction u/s.80HHC instead of at 90% - Held that:- Issue decided against assessee relying on CIT vs. Kalpataru Colour and Chemical [2010 (6) TMI 63 - BOMBAY HIGH COURT] - ITA Nos. 6011, 6012 and 6376/Mum/2007, ITA Nos. 6339, 6340 and 6697/Mum/2007 - - - Dated:- 8-4-2011 - D.K. Agarwal, T.R. Sood, JJ. Pankaj R. Toprani for the Appellant Kusum Ingle [CIT-DR] for the Respondent ORDER Bench: These cross appeals are heard together and are disposed of by this consolidated order. 2. I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that full details have not been discussed by the AO or CIT(A) in this respect. Erroneously turnover on account of cotton waste from a different unit could not have been included in the total turnover for the purpose of allowing deduction u/s.80HHC in another unit. Therefore, in the interests of justice, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO to verify whether the cotton waste has been generated from the same unit or otherwise and then decide the issue accordingly. 8. (ii) The next issue is reduction of 90% of sundry creditors written back. The Ld.counsel of the assessee submitted that this issue has been decided by the Tribunal in assessee's own case for A.Yrs. 2001-02 and 2003-04 in favour of the assessee. On the other hand, Ld.DR relied on the order of the CIT(A). 9. After considering the rival submissions, we find that identical issue came up before the Tribunal in assessee's own case in A.Y. 2001- 02 in I.T.A.Nos.5787/Mum/04 and 7281/Mum/04 and the same was decided vide para 5.1 which reads as under: "5.1 With regard to sundry debtors written back at Rs.2,34,051/- [excluding Yarn Division], during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % reduction of central sales tax refund from business profits is concerned, the same is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the A.Y 2001-02. 12. On the other hand, Ld.DR, pointed out that even the issue regarding reduction of 90% of sales tax refund is covered against the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Dresser Rand India Pvt. Ltd. [supra]. 13. We have considered the rival submissions and find that the Hon'ble Bombay High Court in the case of CIT vs. Dresser Rand India Pvt. Ltd. [supra] has observed that in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Ravindranathan Nair [295 ITR 228] has held that all the receipts of other nature which have no connection with the export activity have to be excluded from the business profits for the computation of deduction u/s.80HHC. Hon'ble Bombay High Court in the case of CIT vs. Dresser Rand India Pvt. Ltd. [supra] held as under: "Held accordingly, that 90 per cent. of recovery of freight, insurance and packing receipts amounting to Rs.49,14,076, sales tax set off/refund amounting to Rs.38,33,148 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or profession' under Sections 28 to 44D and they are thereupon to be reduced to the extent provided by clauses (1) and (2). Section 28 elucidates incomes which shall be chargeable to income tax under the head of "Profits and gains of business or profession". Clauses (iiia), (iiib) and (iiic) were inserted into the Section by the Finance Act of 1990. By the Finance Act, 2005, Parliament inserted a specific clause, namely, clause (iiid) in section 28 to the effect that profits on transfer of DEPB, i.e. the amount received on transfer of DEPB is income chargeable to tax under the head "profits and gains of business or profession". As regards the deduction under Section 80 HHC, the Legislature substituted Explanation (baa) in Section 80HHC so as to exclude 90% of the profits received on transfer of DEPB from the profits of business for the purposes of Section 80HHC and inserted the second and third provisos to Section 80HHC(3). The second proviso it was provided that in the case of an assessee having an export turnover not exceeding Rs.10 crores, the profits computed under Section 80HHC(3) shall be increased by 90% of the sum referred to in Section 28(iiid). the 3rd proviso it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst exports under any scheme of the Government of India. Following the above decision, we decide this issue against the assessee. 17. The last issue in the assessee's appeal is regarding action of the AO reducing 100% of DEPB license sales amount from profits of business while allowing deduction u/s.80HHC instead of at 90%. 18. The Ld.counsel of the assessee fairly admitted that the above issue is covered against the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kalpataru Colour and Chemical [supra]. On the other hand, Ld.DR relied on the order of the CIT(A). 19. We have adjudicated this issue in para 16 above and for the reasons given therein following the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kalpataru Colour and Chemical [supra], we decide this issue against the assessee. 20. I.T.A.No.6012/M/07 - A.Y 2002-03 [assessee's appeal]: In this appeal various grounds have been raised, out of which grounds No.1 and 2 regarding reopening of the assessments were not pressed and, therefore, same are dismissed as not pressed. 21. The next issue is regarding inclusion of sale value of cotton waste in total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical issue came up for our consideration in I.T.A.No.6011/Mum/07 for A.Y 2001- 02 and for the reasons given in para-16 we decide the same against the assessee. 30. The last issue is regarding reduction of 100% of DEPB license sale amount from profits of business while allowing deduction u/s.80HHC instead of 90%. 31. An identical issue came up for our consideration in I.T.A.No.6011/Mum/07 for A.Y 2001-02 and for the reasons given in para-18 we decide the same against the assessee. 32. I.T.A.No.6376/M/-7 A.Y 2004-05 [assessee's appeal]: In this appeal also assessee has filed a chart and submitted that the issues may be decided on the basis of the chart instead of the grounds taken before us. 33. The first issue is regarding reduction of miscellaneous receipts from the business profits for the purpose of deduction u/s.10B. 34. Before us Ld.counsel of the assessee submitted that all the miscellaneous receipts cannot be classified as receipts not emanating from the industrial undertaking. Since details have not been discussed by the lower authorities the issue may be set aside. On the other hand, Ld.DR relied on the order of the CIT(A). 35. We have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence, such a receipt would not object to a deduction of ninety per cent. under clause (1) of Explanation In determining the profits of the business for the purposes of Explanation (baa), the incomes which are susceptible to a reduction of ninety per cent. are those which are specifically prescribed by the Legislature. These are, inter alia, the incomes referred to in clauses (iiia), (iiib) and (iiic) of section 28 and receipts by way of brokerage commission, interest, rent, charges or receipts of a similar nature included in such profits. Therefore, before a receipt is liable to be excluded to the extent of ninety per cent. it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. For the reasons which we have already indicated, we have come to the conclusion that the claim on account of insurance for the stock-in-trade did not constitute a receipt of a similar nature within the meaning of Explanation (baa) and was therefore not liable to be reduced to the extent of ninety per cent." Following the above, we decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee situated outside India have also to be reduced. Since receipts by way of brokerage, commission, interest, rent, charges or other similar receipts have no nexus with the export activity, the legislature thought it fit, for the purpose of deduction under section 80 HHC to exclude such items from business profits. Parliament was, however, conscious of the fact that the expenditure incurred in earning the items which were liable to be excluded had already gone in to the computation of business profits. This was because the computation of business profits under Chapter IV is made by amalgamating the receipts as well as the expenditure incurred in carrying on the business. Since the expenditure incurred in earning the income by way of interest, brokerage, commission rent, charges or other similar receipts had also gone into the computation of business profits, Parliament thought it fit to exclude only ninety per cent. of the receipts received by the assessee in order to ensure that the expenditure which is incurred by the assessee in earning the receipts which has gone into the computation of the business profits is taken care of. In providing a simplified formula in thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, following the decision of the Hon'ble Bombay High Court in the case of CIT vs. Dresser Rand India Pvt. Ltd. [supra], we held that this decision was not noted by the Tribunal in its earlier year's order. Therefore, following this decision we hold that 90% of weight receipts, market development assistance and central sales tax refund have to be excluded from the business profits for the purpose of computing deduction u/s.80HHC. Accordingly, these issues are decided against the assessee. 47. The next issue is regarding inclusion of scrap sale in the total turnover for the purpose of deduction u/s.80HHC. An identical issue came up for our consideration in I.T.A.No.6011/M/07 for A.Y 2001-02 and for the reasons given therein we decide this issue against the assessee. 48. The next issue is regarding calculation of indirect cost of trading. After hearing both the parties, we find that during assessment proceedings AO noticed that assessee had export turnover in respect traded goods at Rs.10.17 crores against which direct cost was taken at Rs.2.90 crores and indirect cost was shown only at Rs.45,171/-. The assessee was directed to file details of indirect cost but no explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost. The Ld.counsel of the assessee submitted that this issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Hero Exports vs. CIT [295 ITR 454]. On the other hand, Ld.DR relied on the order of the AO. 52. After considering the rival submissions we find that the Hon'ble Supreme Court in the case of Hero Exports vs. CIT [supra] held that assessee is entitled to exclude 10% of the cost attributable to export incentives, commission and interest etc. in arriving at the expenses attributable to export trade. Following the above decision, we decide this issue in favour of the assessee. 53. In the result, assessee's appeals in I.T.A.Nos.6611, 6612 and 6376/Mum/07 are partly allowed. 54. I.T.A.Nos.6339 and 6340/M/[Revenue's appeal]: In both these appeals revenue has raised common grounds which are as under: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT[A] erred in directing the AO to allow deduction u/s.10B in respect of sale proceeds of cotton waste of Rs.3,39,65,795/- without appreciating the facts brought on record by the AO. 2. a. On the facts and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's own case for the A.Y 2001-02. On the other hand, Ld.DR submitted that even the issue of exclusion of 90% sales tax refund is covered against the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Dresser Rand India Pvt. Ltd. [supra]. Therefore, following the above decision, we decide this issue against the assessee and in favour of the Revenue. 58. I.T.A.No.6697/M/07 [Revenue's appeal]: In this appeal Revenue has raised the following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT[A] erred in directing the AO to allow deduction u/s.10B in respect of various incomes without appreciating the facts brought on record by the AO. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT[A] erred in directing the AO to allow deduction u/s.80HHC in respect of various incomes without appreciating the facts brought on record by the AO. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT[A] erred in deleting the disallowance made 40A(2)(b) on estimated basis on commission paid to foreign subsidiaries without appreciating the facts brought on record by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010/- also, submission of the assessee was that this was part of its business profit. Undisputedly, weigh bridge receipt has nothing to do with the export activity of the assessee and was arising out of an independent activity of giving outside parties the services of the weigh bridge. No doubt, this may be a part of its business activity but could not be deemed as profits and gains which are derived from export of articles or things. For the same reasons that we have mentioned for 'commission and brokerage income', we find that claim of deduction u/s.10B of the Act on such receipt were also rightly denied to the assessee. As aforesaid, assessee's counsel himself has not pressed the claim for considering interest for Rs.2,11,849/- as part of its business profits for computing deduction us/10B of the Act. Resultantly, ground No.1 of the assessee stands dismissed." Following the above decision, we decide this issue against the assessee and in favour of the Revenue. 63. As regards exchange gain, we find that this issue came up for our consideration for the A.Y 2003-04 in I.T.A.Nos.4792 and 5689/M/06 wherein this issue was decided vide para-49 which is as under: "49. Having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commission paid to foreign subsidy. 68. We find that identical issue came up for consideration before the Tribunal in A.Y 2005-06 in I.T.A.No.3622-M-08 and the same was considered by the Tribunal vide para-14 which reads as under: "14. We have perused the orders and heard the contentions of both the parties. Assessee had paid the commission to its foreign subsidiaries for ensuring smooth receipt of its bills, settlement of disputes, getting approvals of samples and for getting orders. Assessee's case is that it ensured a continuous business flow and was very much necessary in the nature of its business. These submissions of the assessee has never been rebutted. No defect has been pointed out in the agreements that assessee had with the subsidiaries whereby it could be concluded that the payments made were not genuine. AO has not been able to bring on record any material to show that the fair market value of the services rendered by the persons was lower than what was paid by the assessee. There is nothing on record to prove that the payments made by the assessee were excessive or unreasonable or not in accordance with the legitimate needs of its business. Learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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