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TMI Blog2015 (6) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... mount adjusted by the foreign customer from the eligible turnover for the purpose of computation of exemption u/s 10B - Held that:- We find that ₹ 2,61,844/- has been equal to ₹ 4,132 Euros was reduced from the amount due to the assessee and the balance of the amount was remitted into India. We are of the opinion that ₹ 2,61,844 cannot considered as receipt into India as the amount was adjusted Following the decision in the case of CIT vs. McLeod Russel (India) Ltd (2014 (2) TMI 797 - CALCUTTA HIGH COURT), we hold that the amount claimed by the assessee is to be excluded from the export turnover - Decided against assessee. Computation of deduction u/s 80IC of Baddi unit - Held that:- Once the income is assessed as business income, the corresponding expenditure is to be reduced and the balance to be excluded for the purpose of 80IC. Hence, we direct the AO to examine the nature of interest and decide this issue after giving an opportunity to the assessee. Determining the deduction claimed u/s 80IC - whether the amount derived by sale of scrap; interest income and other income were not derived by the manufacturing unit and that the same are not eligible for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deducted from the turnover - Decided against revenue. - ITA Nos. 1156 & 1157/Hyd/2013, ITA Nos. 1234 & 1235/Hyd/2013 - - - Dated:- 17-6-2015 - Shri B. Ramakotaiah And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Shri Rajat Mitra, DR For the Respondent : Shri S. Rama Rao, Advocate ORDER Per Smt. Asha Vijayaraghavan, J. M. These are cross appeals by both the assessee and the Revenue against the separate orders of the CIT(A)-IV, Hyderabad, relating to A.Ys 2009-10 2010-11. ITA No.1156/Hyd/2013 (A.Y 2009-10) Assessee s Appeal: 2. Briefly stated, the assessee is a company in which public are not substantially interested. The assessee is carrying on the activity at three different units - at (1) B- 4 B-5,;Phase-I, IDA Jeedimetla, Hyderabad; (2) D-17 D-18, Phase- I, IDA, Jeedimetla which is registered as 100% EOU manufacturing plastic containers and (3) Plot No.8I, EPIP, Phase-II, Baddi at Solan in Himachal Pradesh manufacturing shampoo products. The income derived from the 100% EOU at Hyderabad is exempt u/s l0B of the I.T. Act and the income derived at Baddi is eligible for deduction u/s 80IC of the I.T Act. Separate books of account are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrived at ₹ 19,29,860 and the same was allowed by the Assessing officer. 6. With respect to non-inclusion of ₹ 44,83,952/- being the gain on fluctuation in foreign from the eligible profits and the export turnover: (i) The Assessing officer is of the view that the forex gain or loss is not attributable to the manufacturing activity and because the money is received in Euros and kept by the company in the EEFC Current account; the withdrawal of the money converting foreign exchange into rupees is being made as per its business exigencies and, therefore, the gain derived cannot be considered as the income derived from the industrial undertaking. (ii) In this regard, it was submitted that the gain on fluctuation in foreign exchange represents the gain relating to its manufacturing activity. The manufactured goods are exported and the sale consideration is received in foreign exchange. The provisions of Sec. 10B clearly stipulate that the sale consideration should be received m convertible foreign exchange into India. There is no stipulation as to when such foreign currency is to be withdrawn from the bank. The sale price is credited based on the rate of exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case received the entire proceeds of the export transaction. The Reserve Bank of India has granted a facility to certain categories of exporters to maintain a certain proportion of the export proceeds in an EEFC account. The proceeds of the account are to be utilized for bonafide payments by the account holder subject to the limits and the conditions prescribed. An assessee who is an exporter is not under an obligation of law to maintain the export proceeds in the EEFC account, but, this is a facility which is made available by the Reserve Bank. The transaction of export is complete in all respects upon the repatriation of the proceeds. IT lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintained in convertible foreign exchange in the EEFC account. The exchange fluctuation that arises, it must be emphasized, is after the export transaction is complete and payment has been received by the exporter. Upon the completion of the export transaction, what the seller does with the proceeds, upon repatriation, is a matter of his option. The exchange fluctuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the assessee read as under: 4. The ld CIT (A) erred in confirming the action of the AO in excluding an amount of ₹ 2,61,844 being the amount adjusted by the foreign customer from the eligible turnover for the purpose of computation of exemption u/s 10B of the Act . 12. The AO reduced the amount of ₹ 2,61,844 not received into India as per section 10B(3). AO stated as follows: The assessee company shown export turnover of ₹ 9,86,66,861. Out of this, an amount of ₹ 2,61,844 (4132 Euros from Lubeckkar Ststoffwerk Gmbh, (Invoice No.E44/C39) was not received into India within the specified time, as given in the provisions of section 10B(3) of the Income Tax Act. Therefore, as per the stated provisions, since this amount is not received into India, the same is to be reduced from the export turnover . 13. It was submitted before the CIT (A) that the amount of ₹ 2,61,844/-equal to 4132 Euros was adjusted for purchase of Rotation drive unit of Duck cap from Lubecker who is the customer of the assessee. The said amount is reduced from the amount due to the appellant and the balance of amount was remitted into India. Therefore, the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein it has been held as follows: (iii) That the amount of commission or brokerage paid outside India was not received or brought into the country of the exporter. The amount spent on account of brokerage or commission was deducted from the price of the goods and the balance amount was received in the country in foreign exchange. Thus, the amount of commission or brokerage would be excludible from the export turnover . Following the decision in the case of CIT vs. McLeod Russel (India) Ltd (361 ITR 663 (Cal.), we hold that the amount claimed by the assessee is to be excluded from the export turnover and the ground is accordingly dismissed. Computation of deduction u/s 80IC of Baddi unit: 19. The Assessing Officer reduced the interest of ₹ 62,640 on the fixed deposits with the bank. According to the Assessing officer, the said amount has no nexus with the manufacturing activity and, therefore, the assessee is not entitled for deduction in the said amount. In this regard, assessee humbly submitted that the Assessing Officer ought to have considered only the net amount of such interest while deducting the interest and not the gross interest received. 20. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om scrap sales, it cannot be concluded that such receipts are derived from the business of manufacture of shampoo. Aggrieved, assessee is in appeal before us. 4. Before us, the ld Counsel submitted that the AO had computed the deduction u/s 80IC at ₹ 58,75,851 as against the claim made of ₹ 65,71,560. The AO while computing such deduction u/s 80IC reduced among other things the sale of scrap. It is submitted that an amount of ₹ 20,43,698 was derived on account of sale of scrap. 5. It was further submitted that the customer Hindustan Uniliver Ltd supplied raw material and the required chemicals in drums and corrugated bags. After use of the material so supplied, the same were to be sold. Such sale price is credited to the scrap sales account and the aggregate of such amount is ₹ 20,43,698. This amount reduced the cost of production. When scrap sale is appropriated by the assessee, the party supplying the goods reduced the sale price downwards. It can be seen from the details that the said HUL informed the assessee that it would reduce the sale price as the assessee is appropriating the sale of scrap. 6. It was further submitted that the amount of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir account and simultaneously enhanced the rate of the job work. They had also enclosed the purchasing document of HUL for all products which indicates the increase in job work rates w.e.f. 1.7.2013 i.e. The date on which the scrap sale activity was withdrawn. The ld Counsel had also given a statement for FY 2009-10 showing the decrease in job work w.e.f. 12th October, 2009. 13. Hence we are of the opinion that sale of scrap has the effect of reducing the cost of production. Further, sale of scrap is eligible for deduction u/s 80IC. The following cases support the view that 80IC deduction would be available with respect to sale of scrap. CIT v. SundaramClayton Ltd., 133 ITR 34 CIT vs. Wheels India ltd 141 ITR 745 CIT vs. Sadhu Forgings Ltd 336 ITR 444 Fenner India Ltd vs. CIT 241 ITR 803 14. In the case of CIT vs. Sadhu Forgings Ltd, it has been held as follows: The assessee's industrial undertaking was set up for the purpose of manufacture of steel, forging, transmission gears and parts, and accessories of motor vehicles. During the relevant assessment year, it claimed deduction under section 80-IB on its gross receipts which, apart from goods sales, also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king, whereas assessee had undertaken all those processes in its units. The issue was also that the assessee was doing those works on job basis for other undertakings, by getting the raw material from them. When the assessee was entitled to claim exemption in respect of income derived from such processes doing for itself, there was no reason as to why it would not be entitled to so merely because the raw material component was being supplied by other customers for whom the assessee was doing the job. In fact, deduction under section 80-IB is given on the profits derived from the manufacturing process, being undertaken by the assessee which qualifies for deduction. [Para 9] The heat treatment is one of the processes through which the forgings are given the desired temperature and then cooled in different manner which results in changing the mechanical properties desired by the customers. The heat treatment toughens the forged part for being used as automobile parts. The process of heat treatment is absolutely essential for rendering them marketable. Without the heat treatment, the material is not fit for automobile industry. [Para 10] Thus, in view of several decisions of the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulds was just a trading activity and not a manufacturing activity. AO therefore, held that the assessee was not eligible for exemption u/s 10B on the profit from its sale. 2. It was submitted by the ld AR of the assessee that the assessee is in the business of manufacture and sale of plastic products as per the specification provided by the oversees customers. To manufacture each of the specified plastic product, the assessee needs moulds for each product and the moulds are to be supplied by the foreign customers. They require the assessee herein to purchase the moulds on their behalf and utilize the same in the manufacturing activity. Accordingly, the assessee during the previous year under consideration purchased moulds of the value of ₹ 46,71,344/-. Such amount spent is not separately received but forms part of the sale price. The cost of the moulds is not separately billed to the foreign buyers and is shown as a part of the sale consideration of the goods and the invoice clearly indicates that no such amount is separately billed. Such amount was shown in the books separately by bifurcating the invoice into two different items. The income for the purpose of Sec. 10B inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce the invoices for these amounts for which foreign exchange was claimed to have been received. The assessee submitted that the sale price was inclusive of amortization which represented the cost of mould apportioned on number of pieces likely to be produced from a particular mould and that similarly the development charges pertained to the mould development. The assessee further submitted that the sale price as reflected in the invoices included amortization and development charges but these amounts were separately recorded in the books for internal presentation and control. 7. AO did not accept this explanation and held that these amounts were not on account of sale of plastic caps but related to the transaction in moulds which were not manufactured by the company and constituted only a trading activity and therefore not eligible for deduction u/s 10B. 8. Before the CIT (A) the ld AR submitted a reconciliation of the sale as per the P L a/c and the invoices with the amortization income and development charges. 9. Further, it was argued that if the Assessing officer is of the view that this amount does not form part of the turnover of the business activity, it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue relating to deduction u/s 10B pertains to freight and insurance. The AO had reduced the freight and insurance expenses of ₹ 39,15,079 debited to its P L a/c from the export turnover for the purpose of section 10B. The AR has submitted before the CIT (A) that the assessee incurred total expenses of ₹ 39,15,079 on freight and insurance and debited this sum to its P L a/c and that on the other hand, it had received a sum of ₹ 11,56,285 only on this count and that this receipt was credited to the freight expenditure a/c and did not form part of the turnover as credited to the P L a/c. 18. The ld AR also filed copies of its freight account to establish its claim before the CIT (A). The ld CIT (A) found the claim to be factually correct on an examination of the ledger account. Since the receipt towards freight and insurance do not form part of the export turnover in the first place, their deduction from the turnover is not justified. Hence, the CIT allowed this ground. 19. We find no infirmity in the order of the CIT (A). On an examination of the ledger account, the receipts towards freight and insurance charges does not form part of the export turnover and he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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