Court rules scrap sales excluded from turnover, FDR interest relevant for deduction under Section 10B. The Court upheld the ITAT's decision, ruling that scrap sales should not be included in total turnover and exchange rate fluctuations are part of export ...
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Court rules scrap sales excluded from turnover, FDR interest relevant for deduction under Section 10B.
The Court upheld the ITAT's decision, ruling that scrap sales should not be included in total turnover and exchange rate fluctuations are part of export proceeds. Interest from FDRs was considered in computing eligible deduction under Section 10B, as it was deemed business income related to export activities. The appeal was dismissed, with the Court finding no substantial question of law on any aspect.
Issues: Appeal against ITAT order on deduction under Section 10B for AY 2009-10 - Inclusion of scrap sales, exchange rate difference, and interest on FDRs in income calculation.
Analysis: 1. The appellant, an export-oriented unit engaged in manufacturing fasteners, filed a return for AY 2009-10 claiming deduction under Section 10B. The AO included scrap sales, exchange rate difference, and interest on FDRs in the income calculation.
2. The AO held that only profits directly related to EOU activities are exempt under Section 10B. He excluded interest from FDRs and included exchange rate difference in domestic sales. Scrap sales were treated as part of domestic turnover, impacting the deduction under Section 10B.
3. The CIT(A) concurred with the AO's computation. However, the ITAT, citing a Supreme Court judgment, ruled that scrap sales should not be included in total turnover. It referred to a Bombay High Court decision on exchange rate fluctuations, considering them part of export proceeds. The ITAT also referred to a Madras High Court decision supporting this view.
4. The Court found no error in the ITAT's decision on scrap sales and exchange rate fluctuations, aligning with legal precedents. It declined to frame a question on this issue.
5. Regarding interest on FDRs, the ITAT applied Section 10B(4) formula to determine export profits. Citing a Karnataka High Court decision, it held that interest from FDRs should be considered in computing eligible deduction under Section 10B.
6. The Assessee argued that FDR interest was related to business activities, forming part of business profits. The Court agreed, stating that such interest qualifies as business income and should be included in the profits derived from export, as per the Section 10B(4) formula.
7. Consequently, the Court dismissed the appeal, finding no substantial question of law on any aspect.
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