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TMI Blog2015 (1) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by an assessee for export of trading is determined, the figure indirect costs, as defined under clause (e) of Explanation, can be derived, just by relating the direct costs to the total costs - the ratio between export turnover over and the total turnover is an important phenomenon that, cuts across the gamut of Section 80HHC of the Act. U/s 80HHC of the Act, the export profits are always determined by taking into account, the profits of the business, not only of the export activity, but also the profits of other activities of the assessee, multiplied by the resultant figure of division by the export turnover by the total turnover - the export profit is derived from the formula of profit of the business export turnover - when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed to equal to 30% of the book profit. The manner in which the book profit must be arrived at, is dealt with in the explanation to Section 115JA of the Act. For all practical purposes, the book profit is nothing but the net profit shown in the P L account for the relevant previous year, as increased by the amounts mentioned in the entries in clauses (a) to (g), or as the case may be, reduced by those mentioned in clauses (i) to (viii) of explanation to sub- section (2) of Section 115JA of the Act. Clause (viii) provides for reduction, to the extent of the profits, eligible for deduction under Section 80HHC, computed under clauses (a), (b) and (c) of sub-section 3 or sub- section (3A) of the Act, subject to certain conditions. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expected level of reduction, and thereby, the appellant is exposed to higher tax liability. Sri S.R. Ashok, learned Senior Standing Counsel for the respondent, on the other hand, submits that the method of calculation of profits derived from export is not restricted to the particulars relating to export alone, and those in relation to other activities are also liable to be taken into account. Section 80HHC of the Act itself poses almost a challenge for a proper understanding. Added to that, there is combination of Section 115JA of the Act, in this case. The complexity is not difficult to imagine. The manner in which, the returns of an assessee of this nature, are required to be processed, can be summed up as under: (a) Being a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture relatable to any income to which any of the provisions of Chapter III applies; (g) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by, (i) (ii). (iii) (iv) . (v) . (vi). (vii) .. (viii) the amount of profits eligible for deduction under Section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that section. It is in this process that the determination of profits under Section 80HHC of the Act became relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover means the export turnover as reduced by the export turnover in respect of trading goods ; (b) adjusted profits of the business means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3) ; (c) adjusted total turnover means the total turnover of the business as reduced by the export turnover in respect of trading goods ; (d) direct costs means costs directly attributable to the trading goods exported out of India including the purchase price of such goods ; (e) indirect costs means costs, not being direct costs, allocated in the ratio of the export turnover in respect of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause (e) of Explanation, can be derived, just by relating the direct costs to the total costs. It is too well known that the ratio between export turnover over and the total turnover is an important phenomenon that, cuts across the gamut of Section 80HHC of the Act. The argument that indirect costs must be only in relation to the export of trading goods and not of manufacture cannot be accepted, how so ever reasonable it may appear to be. The reason is that under Section 80HHC of the Act, the export profits are always determined by taking into account, the profits of the business, not only of the export activity, but also the profits of other activities of the assessee, multiplied by the resultant figure of division by the expor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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