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TMI Blog2014 (1) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee - The sale proceeds of DEPB cannot be considered as part of turnover as it is not the sale proceeds of the articles or things manufactured and sold by the assessee, then the profits from sale of DEPB cannot apportioned on treated on profit derived by the undertaking from export out of India - The exemption provisions in 10BA have to be liberally interpreted unless the credit of DEPB and DDB is expressly taken away – Decided in favour of assessee. Netting of interest and the method of computation u/s 80HHC of the Act – Held that:- Following Tata Sponge Iron Limited Vs. C.I.T [2007 (4) TMI 211 - ORISSA High Court] - In the case of exporters the interest paid by the assessee is liable to be reduced from interest received by it while calculating deduction u/s 80HHC(1) r.w. Explanation [baa] - Decided in favour of assessee. Brokerage on Export-Shipping-Freight – Held that:- This is not income but it is paid as part of shipping freight by the assessee, it has to be obviously, set off against such payment so as to arrive at the export profit eligible for deduction u/s 10BA of the Act – Decided in favour of assessee. Disallowance out of the telephone, travelling and coun. Expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following chart, filed before us will give a bird's eye view of the issues raised therein. The chart is being extracted below :- Asst. Year ITA No. Issues involved 2003-04 (Assessee) 40/07 80HHC DEPB Netting of Interest Exp Disl low ed 2004-05 (Department) 596/07 10BA/DEPB/DDB Trading Addition 2004-05 (Assessee) 628/07 Netting of interest Expenses Disallowed Brokerage on Shipping Freight 2005-06 (Department) 597/07 10BA/DEPB/DDB Trading Addition 2005-06 (Assessee) 629/07 629/07 Netting of interest Expenses Disallowed Brokerage on Shipping Freight 2007-08 (Assessee) 232/10 10BA/DEPB/DDB Brokerage on Shipping Freight 2008-09 (Assessee) 309/11 10BA/DEPB/DDB Brokerage on Shipping Freight 3. It is evinced from the above chart that the issues relating to (i) deduction u/s 10BA/DEPB/DDB; (ii) netting of interest; (iii) brokerage on shipping freight and trading addition are common in most of the appeals and decision taken of any issue, on principle, in any of the appeals would apply mutatis mutandis to other appeals. 4. We have heard the rival submissions as put forth by their respective authorized representatives. We have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he export-profit. It is pleaded that interest receipts, under identical circumstances, have been allowed by the revenue in assessee's own case. Apart from this, the ld. A.R. has sought support from the decision of Hon'ble Orissa High Court in the case of Tata Sponge Iron Ltd. 292 ITR 175 [Orissa] inter-alia. Against the relief allowed qua DDB/DEPB, the case of the revenue, as put forth by the ld. CIT(A), is that these receipts being not a part of export profit, are not eligible for deduction u/s 10BA of the Act. He has further cited the facts, law and relevant precedents in support of A.O's findings. In respect of this very issue we have recently taken a view while deciding the case of M/s Suraj Exports India Vs. ITO in ITA No. 336/Jodhpur/2011 for A.Y. 2008-09 decided on 31.01.2013. The following paragraphs of the above orders are being extracted for ready reference, to decide this issue, as under: "8. We have cogitated rival arguments vis-a-vis evidence on record. We have examined the decisions on which parties have placed their respective reliance. We have found that the ratio of the decision of Hon'ble Apex Court rendered in the case of Liberty India vs. CIT reported 225 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); In the light of above discussion, we find that the assessee is entitled to deduction u/s 10BA on DEPB as in accordance with section 28 of the Act these are business income." 10. This decision has been approved by Hon'ble Bombay High Court and the decision is reported in 66 DTR 85 (Bombay) I.T.A.T. Indore Special Bench in the case of M/s. Maral Overseas Limited Vs ACIT reported in 136 ITD 177 has held this issue in favour of the assessee. Similarly, the Ahmedabad Bench in the case of Kaden Exports (supra), has taken a similar view of the matter. The held portion of both these decisions have been extracted in the earlier portion of this order. The Written Submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out as per the provisions of section 28(i). This does not include the profits of items does not include the profits of items under s.s. (iiia), (iiib), (iiic), (iiid) and (iiie) etc. Duty Draw Back and any profit on transfer of DEPB. Section 28 itself makes it abundantly clear that the profit on account of Duty Draw Back or on transfer of DEPB will not form part of profit and gains of the business or profession which was carried on by the assessee as discussed above. The plain reading of Section 10BA which deals with export of certain articles or things will make it clear that 'such profits' as are derived from the export out of India shall be allowed from the total income of the assessee. Sub Section (1) of Section 10BA is subject to the provisions of S.Ss. 2, 3, 5, 6 and 7 but s.s. 4 lays down a method of computation for the purpose of sub section (1). Likewise, the sale proceeds of DEPB cannot be considered as part of turnover as it is not the sale proceeds of the articles or things manufactured and sold by the assessee, then the profits from sale of DEPB cannot apportioned on treated on profit derived by the undertaking from export out of India. The exemption provisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The interest income [interest receipts] has to be netted against the interest paid. This decision will also apply to other A.Ys. C. Brokerage on Export-Shipping-Freight Now coming to the issue of shipping brokerage, it is found that this receipt being part of shipping freight paid by the assessee. According to the ld. A.R. this amount has to be set off against such payment so as to arrive at the export profit eligible for deduction u/s 10BA. The case of the revenue is that the brokerage income is not related with the export profit, therefore, it has to be excluded for computation of deduction either u/s 80HHC or u/s 10BA. After hearing both the sides, we are unable to understand the factual matrix of this issue. On what account the brokerage income has been earned is not clearly brought out on record. In case this income is found to be not related with the export income how it can be considered u/s 80HHC. Therefore, we cannot allow this issue in favour of the assessee. In case this is not income but it is paid as part of shipping freight by the assessee, it has to be obviously, set off against such payment so as to arrive at the export profit eligible for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not need specific adjudication. 8. Ground No. 2 pertains to disallowance of expenses. The A.O. has disallowed 1/5th of the expenses claimed in the account of telephone, travelling and depreciation on cars, etc. 9. After hearing both the sides and clearly understanding the issue we are of the considered opinion that both the A.O. and the ld. CIT(A) have made adhoc disallowances. Therefore, we feel that he ends of justice shall meet if the disallowance is further reduced to 1/10th of the total claim. Accordingly, Ground No. 2 of this appeal is partly allowed. 10. Ground No. 3(a) pertains to the formula provided in section 80HHC(3)(b) regarding method of computation of direct and indirect cost. This issue stands covered by the decision of the Jodhpur Bench of the Tribunal in the case of Maharani Art Emporium in ITA No. 39/JU/2007 order dated 15.12.2009. The copy of Form No. 10CCAC dated 27.10.2003 as available at pages 11 to 14 of the assessee's paper book is as under: "1. I have examined the accounts and records of M/S SUNCITY ART EXPORTs, 5, Unsaid Bhawan Palace Road, Jodhpur [P.A.No. AACFS 6554P] relating to the business of export out of India, of the goods and merchandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds showing the goods purchased and exported or goods Modified/altered /Manufactured and exported during the year, in the absence of the above bifurcations the export sales can not be bifurcated into that of traded goods and of Manufactured goods.l, therefore, assumed for the purpose of calculation of claims u/s 80 HHC that the entire export sales is of traded goods and accordingly the calculations have been Made. Annexure A Suncity Art Exporters for year ended 31st march 2003 (ii) The profit derived by the assessee relating to export to which section 80HHC applies as referred to in column 14 above has been calculated as under; Export [Direct expenses proportion -] [90% of export turnover] Turnover [relating to + indirect + [export x ---- Export turnover expenss ] [incentives total turnover] 376799180 - [15085956 + 300658371] + 90% 5028643 x 376799180 377413292 = 61054853 + 4518414 = 655733267 = restricted to 50% Rs. 32786633 (iii) Direct cost of exports [Directly related to exports only] Rs. 1. Clearing & Forwarding expenses 15085956.63 15085956.63 (iv) Indirect cost/expenses 1. Opening stock 10,71,51,000.00 2. Purchases 22,48,94,539.15 3. Job work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived interest of Rs.6,46,137/- from FDRs and various other parties and the same is netted from the total interest of Rs. 13,59,062/- paid to sister concern and other parties. Thus, the assessee has shown net interest paid to the tune of Rs.7,12,925/-. On being asked why the interest received should not be reduced from the business profit shown for the purpose of calculating correct deduction allowable u/s. 80HHC, the assessee submitted that this interest was earned on surplus funds and the investment was compensated by raising some loans etc. It was further replied that the major borrowed funds have been less than the investment in stock of goods other than handicrafts, therefore, the entire account of interest received and paid has been maintained separately. Entire positive and negative incomes of other than business has been separately accounted for and only the resultant figures have been considered in the final accounts. Since the net result is a negative income debited to P&L account which mainly relates to the expenses on interest for the business of goods other than handicrafts, the Id. Assessing authority though accepted the contention of assessee that the interest recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. The next Ground No. 3(b) is regarding netting of interest. With the reasoning given in point (A) above of this order, we allow this ground in favour of the assessee. 13. Ground No. 3(c) and Ground No. 4 is regarding consideration of DEPB in respect of section 80HHC calculations. This issue now stands covered in favour of the assessee by the decision of the Hon'ble Apex Court rendered in the case of Topman Exports Vs. CIT reported in 342 ITR 49 [SC] wherein it has been held that : "the entire amount received on sale of DEPB entitlement is not profit chargeable u/s 28(iiid) of the Act but he face value of DEPB has to be deducted from the sale proceeds". Accordingly, we allow Ground No. 3(c) and Ground No. 4 in favour of the assessee. 14. In the result the appeal is partly allowed. 15. There is no cross appeal as informed by both the parties for A.Y. 2003-04. 16. ITA Nos. 628/JU/2007 and ITA No. 596/JU/2007 for A.Y. 2004-05 17. These are cross appeals filed against the order of the ld. CIT(A) dated 29.5.2007. 18. ITA Nos. 628/JU/2007 is the appeal of the assessee in which following grounds have been raised: "1) That the authorities below have erred in law as well as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purposes. The ld. CIT(A) has also confirmed this addition. 21. After considering the entire facts of this issue, we are of the opinion that the ends of justice would meet if the expenses are further reduced to Rs. 3 lakhs. Accordingly, we partly allow this Ground. 22. As a result this appeal in ITA No. 628/JU/2007 is partly allowed. 23. In Revenue's appeal [ITA No. 596/JU/2007 [A.Y. 2004-05], the second ground stands covered by our decision taken in the earlier part of this order. Therefore, we cannot allow Ground No. (2) of revenue's appeal. We have taken a view that deduction u/s 10BA qua DEPB/DDB receipts is allowable. Accordingly, we dismiss Ground No. (2) of the Revenue's appeal. 24. The facts of Ground No. (1) which relates to trading addition of Rs. 10 lakhs made by the A.O. on account of low gross profit rate by invoking provisions of section 145(3) of the Act are that during the A.Y. 2004-05, the assessee has declared a gross profit rate of 29.64% on a turnover of Rs. 41.90 crores as against gross profit rate of 29.92% on a turnover of Rs. 37.74 crores shown in the immediately preceding year i.e. 2003-04. The assessee did not maintain stock register. Therefore, on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds in its appeal for A.Y. 2005-06: "On the facts and in the circumstances of the case, the ld. CIT(A), Jodhpur has erred in: (1) Deleting the trading addition of Rs. 15,00,000/- made by the A.O. on account of low gross profit rate by invoking provision of section 145 of the Act. (2) Directing to allow deduction u/s 10BA on account of DEPB and DDB receipts ignoring the fact that DEPB & DDB are incentives given by Indian Government in Indian currency and are not part of export business profit from eligible articles or things." 30. After hearing both the sides we have found that the facts of Ground Nos. 1 and 2 of revenue's appeal and Ground Nos. (1) and (2) of assessee's appeal are, mutatis mutandis similar and identical as were in A.Y. 2004-05. Therefore, with the same reasoning which we have given in A.Y. 2004-05 [as above], we have to allow Ground No (1) of assessee's appeal and partly allow Ground No (2) by restricting the adhoc disallowance of Rs. 5 lakhs out of expenses debited in the profit and loss account to Rs. 3 lakhs. 31. Similarly, we dismiss Ground Nos. 1 and 2 of revenue's appeal. The trading addition is lump-sum and adhoc on account of similar reasons as giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds are to be allowed in the favour of the assessee in view of our aforesaid discussion. Therefore, we allow both these grounds and consequently allow the appeal of the assessee. 36. As a result, the appeal of the assessee in ITA No. 309/JU/2011 A.Y. 2008-09 stands allowed. 37. ITA No. 310/JU/2011 A.Y. 2008-09 M/s Maharani Arts Emporium This appeal of the assessee is directed against the order of the ld. CIT(A) dated 7.6.2011. In this appeal, the following grounds have been raised: "1. That the authorities below have erred in law as well as on facts in treating the receipt of DDB/DEPB at Rs. 2504579/- as the income not forming part of export profit of the undertaking eligible for deduction/exemption u/s 10BA." 38. The above issue stands covered in favour of the assessee, as the facts in this assessee's case and in its sister concern Suncity Art Emporium's case are exactly identical. 39. As a result, the appeal of the assessee in ITA No. 310/JU/2011 for A.Y. 2008-09 is allowed. 40. ITA Nos. 361, 362 & 393/JU/2012 and 24 & 25/JU/2011 are all appeals of the assessee, namely M/s Kumbhat Exports. These appeals pertain to A.Ys. 2004- 05, 2005-06, 2006-07, 2007-08 and 2008-09 resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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