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TMI Blog2005 (1) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 40,000 in respect of rags, fents, etc. was inadequate having regard to the gross turnover of the assessee, which amounts to more than Rs. 6 crores. The AO also referred to a comparable case of M/s Highland Garments (P) Ltd., where an addition of Rs. 3 lakhs was sustained by the CIT(A) vide order dt. 5th March, 1997 on the same grounds. The AO assumed that the sales of wastage in the form of rags, fents, etc., was not fully accounted by the assessee in the books of account. For these reasons, an addition of Rs. 3,60,000 was made. For similar reasons, the said addition has been confirmed by the CIT(A). 3. The learned counsel appearing for the assessee contended before us that the addition has been made on presumption and without any material or evidence to suggest that the sales of waste material were understated by the assessee. It is submitted that the case of Highland Garments (P) Ltd. is not comparable to the assessee's case as elaborately explained by the assessee before the CIT(A). The learned counsel also invited our attention to p. 140 of the paper book containing details of raw material consumed and the sale proceeds of rags, fents, etc. for the assessment year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under : "The learned CIT(A) erred in confirming the action of the AO in treating the interest receipts of Rs. 12,31,068 as income from other sources without appreciation the facts and circumstances of the case. Without prejudice to the above, the CIT(A) erred in not allowing the appellant set off of financial expenses of Rs. 13,62,713 against the interest receipts." These grounds are not pressed by the learned counsel for the assessee and, therefore, on these issues, the order of the learned CIT(A) stands confirmed. 6. The ground No. 5 is as under : "The learned CIT(A) erred in confirming the action of the AO in computing the deduction under s. 80HHC, including the quota premium of Rs. 4,50,578 and service charges of Rs. 1,02,500 in the total turnover." 7. The learned counsel for the assessee contended that the amount received by the assessee by way of quota premium and service charges are not includible in the total turnover for the purpose of s. 80HHC, as these receipts are similar to profit on sale of import entitlement, etc. The learned counsel submitted that the assessee's claim is directly covered by CBDT's Circular F.No. 133/131/97-TPL dt. 23rd Feb., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the 'total turnover'. The circular issued by the CBDT clarifies that the premium received for the transfer of export quota will be equated with the aforesaid items of receipts. It is, therefore, clear that such premium cannot be included in the turnover. However, with regard to the service charges, in our view, the situation is different. As per the definition of total turnover, service charges cannot be excluded. Accordingly, the AO is directed to exclude the amount of quota premium from the total turnover and recompute the deduction allowable under s. 80HHC. 9. The ground No. 6, which is the last ground of appeal, is as under : "The learned CIT(A) erred in confirming the action of the AO in excluding the quota premium, REP licence premium, interest, service charges, sales-tax refund from the profits eligible to deduction under s. 80-I." 10. We have heard both the parties on this issue and have gone through the facts and also the relevant provisions of law. In our view, the various receipts mentioned in the grounds of appeal cannot be said to be in the nature of profits derived from the industrial undertaking. Such receipts may be incidental to the industrial und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking then it cannot be said that such income is derived from the industrial undertaking. With regard to the issue of duty drawback, perusal of s. 75(1) of Customs Act, 1962, clearly shows that the duty drawback is given by way of incentive to boost the export of goods manufactured in India. If any imported goods on which custom duty has been levied, has been used in the manufacture of any goods of any class or description and such manufactured goods have been exported out of India, then custom duty paid on imported goods is given back to the manufacturer by way of rebate. This duty drawback is given only to manufacturers making export as is apparent from sub-s. (2) of s. 75. In other words, it is nothing but reimbursement of duty already paid. Whenever such duty is paid, it directly affects the profits of industrial undertaking inasmuch as it is debited to manufacture and P&L a/c. Such payment of custom duty increases the cost of manufacturing but when the same is received back as drawback, it nullifies the effect of aforesaid increase in the cost of manufacturing. Therefore, the duty drawback is inextricably linked with the production cost of the goods manufactured by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of alleged unaccounted sale of rags, fents, chindies, etc. This issue has already been considered by us while deciding similar ground of appeal in ITA No. 4784 above. In our view, it would be fair and reasonable to restrict the addition to a sum of Rs. 75,000 only. The AO is directed to allow consequential relief. The AO shall also recompute deduction under ss. 80HHC and 80-I in the light of observations made above in our order in ITA No. 4784. 15. The ground No. 3 is as under : "The learned CIT(A) erred in confirming the action of the AO in computing the deduction under s. 80HHC including the quota premium of Rs. 94,654 and service charges of Rs. 26,500. 16. Similar issue has also been dealt with and decided by us while disposing of ITA No. 4784. For the same reasons, the AO directed to exclude quota premium from the total turnover and recompute deduction under s. 80HHC. 17. The ground No. 4 is as under : "The learned CIT(A) erred in confirming the action of the AO excluding the quota premium, REP licence premium, interest service charges, sales-tax refund from the profits eligible to deduction under s. 80-I." 18. This issue has also been decided by us while di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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