TaxTMI 
TaxTMI 
2003 (1) TMI 271
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....er as a sum of Rs. 3,35,26,436 was debited as import duty benefit A/c under Raw materials a/c against the credit of Rs. 3,67,25,867, which was accepted by the CIT (A) IV, Hyderabad while considering the deduction permissible under sections 80HH and 80-I at paragraphs 4.7 and 4.8 of the order. 3. Alternatively, the CIT (A) IV, Hyderabad having held that the sum of Rs. 3,67,25,867 was notional entry ought to have given a clear finding that the entry being notional was not a taxable receipt and therefore ought to have directed it's exclusion from Total Income. 4. Alternatively, the Import entitlement benefit is to be treated as falling under receipts of the nature specified under section 28(iii)(a), iii (b) or iii(c) of the Income-tax Act, 1961 and 90% of such sums should be added to profits in the same proportion as the export Turnover bears to Total Turnover as laid down in proviso to section 80HHC of the Income-tax Act, 1961. 5. The ld. CIT (A) IV, Hyderabad erred in excluding the following receipts from the profits of the Industrial undertaking while computing the deductions under sections 80HH and 80-I of the Income-tax Act, 1961 on the ground that they are not profits d....
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....that no part of excise duty rebate is to be excluded on the principle of matching debits and credits and therefore ought to have upheld the claim of the Appellant to deduction at Rs. 9,12,371 as a supporting manufacturer. 5. The ld. CIT (A) IV, Hyderabad ought to have held that the appellant was entitled to section 80HHC deduction on its direct export sales at Rs. 2,57,156 which was computed by the appellant ignoring the deficit figures of Rs. 16,67,888 (-) shown at Annexure-I to the assessment order. 6. The ld. CIT (A) IV, Hyderabad erred in holding that the following incomes were not part of profits derived from the industrial undertaking: - Rs. Interest on Deposits : 2,54,852 Interest on Loans : 2,40,616 Foreign Exchange Fluctuation &....
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....nd any duty of customs or excise re-paid or repayable as drawback and argued that if the sum of Rs. 367.25 lakhs is treated as falling under any of the aforesaid three categories, then it has to be excluded from the purview. He further argued that this sum does not fall under any of the 3 heads i.e., 28(iiia), (iiib) and (iiic) of the Act. He submitted that this credit has been prevailing since the inception of the company, from the assessment year 1991-92 and that the claim made under section 80HHC has always been allowed. He further submitted that for the assessment year 1995-96, the same receipts were treated as part of turnover, and to demonstrate the same, he drew the attention of the bench to page-32 of the paper book filed along with the appeal for the assessment year 1995-96. He took this bench through the scheme as well as the accounting policy followed by the company and submitted that the sum of Rs. 367.25 lakhs does not form part of the turnover and that it does not represent any realisation on sale of import licences. 6. He argued that the term "total turnover" as defined in Explanation (ba) to section 80HHC is not exhaustive. It merely states what items should not ....
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....over being the denominator in this formula, should also exclude sales tax and excise duty for the formula to be workable. He pleaded that the same principle should be applied to the facts of the case and submitted that customs duty exemption is on part with excise duty and sales tax. He argued that there is no profit in these entries and that the import duty benefit entitlement account gets squared up as and when imports are made. He explained that at the end of the financial year, there is a credit balance left in the account after set off of the debits and that this balance is offered as income in that year and claimed as expenses as and when imports are made of raw materials. He further relied on the judgment of the Calcutta High Court in CIT v. Chloride India Ltd. [2002] 256 ITR 625. He further referred to guidance notes on tax audit under section 44AD of the I.T. Act, 1961 which is at pages 30 and 33 of the paper book-l and submitted that total turnover is the aggregate amount for which sales are effected by the company and that the total turnover was including sale after deducting goods returned, freights etc. Thus, he submits that the sum of Rs. 3.67 crores does not form par....
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....sessee collects the same as the agent of the government and there is no element of profit in these collections. On the contrary, in the case on hand there is a positive benefit to the assessee, which he has reflected as income. He distinguished the judgment of the Bombay High Court in Pink Stars case and submitted that in that case, the assessee had received premium on surrender of licences purchased by it, from the open market. In the case on hand, he submitted, it was entirely different. He took this bench through the order of the CIT (A) and submitted that the assessee cannot claim exclusion of the notional saving in duty, which it suo motu credited in its profit and loss account, forms its turnover for the purposes of section 80HHC. He took this bench through the order of the Assessing Officer and supported the findings therein. 10. He vehemently contended that the amount also does not come within the purview of the provisions of section 28(iiia), (iiib) and (iiic) of the I.T. Act, 1961 and submitted that the credit in question is neither profit on sale of import licences nor cash assistance received against exports or any drawback of customs duty or excess duty paid. For th....
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....r the provisions of the Act irrespective of the errors or mistakes that have crept into the Audit Report. 13. Arguing on ground No.5 for the assessment year 1995-96, ld. counsel for the assessee submitted that the issue is covered in his favour by the judgment of the Ahmedabad 'A' bench of the Tribunal in the case of Pratibha Syntex Ltd. and also the judgment of the Ahmedabad 'C' bench of the Tribunal in the case of Hindustan Fashions Ltd. v. Asstt. CIT [1999] 104 Taxman 262 (Mag.). 14. On ground No.6 for the assessment year 1995-96, he reiterated the arguments advanced in ground No.5 for assessment year 1994-95. Ld. Deptl. Representative relied on the orders of the revenue authorities and submitted that on these issues, the same should be upheld. 15. Heard both sides, read all the papers on record, the orders of the authorities below and the case law cited. The first issue that is to be decided is "whether for the purposes of computation of the amount of deduction under section 80HHC by applying the formula as provided in clause (a) of sub-section (3) of the said section it is necessary to exclude the amount of export benefit received under advance Licence Scheme of Expor....
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....e in respect of the "export turnover" in Form No. 10CCAB. The term "supporting manufacturer" shall, with effect from the assessment year 1991-92, include a processor of goods. Thus, a seafood processor, for example, or any other processing unit exporting goods or merchandise through an export house/trading house, will now be eligible to claim deduction under section 80HHC on the condition that he obtains a disclaimer certificate from the export house/trading house; (iv) Under the existing provisions, deduction under section 80HHC is allowed if the sale proceeds are receivable in convertible foreign exchange. With effect from the assessment year 1991-92, the deduction under this section shall be allowed only if the sale proceeds are received in or brought into India within a period of six months from the end of the relevant previous year. However, in case of genuine hardship, the Chief Commissioner or the Commissioner may allow further time for the remittance of foreign exchange if he is satisfied that the assessee was unable to bring the foreign exchange within the period of six months for reasons beyond his control. While allowing further period in this regard, the Chief Commis....
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.... exchange. In other words, the FOB value of exports. The Finance Act, 1990, has restricted the definition of the term "export turnover" to mean FOB sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year or within such further period as the Chief Commissioner/Commissioner may allow in this regard. 7. "Total turnover" was not defined earlier. There has been lack of uniformity amongst the assessing authorities and many assessing authorities are treating export incentives to be a part of the total turnover. The Finance Act, 1900, has therefore, clarified the position by inserting a definition for the term "total turnover" in the Explanation below section 80HHC. According to this definition, "total turnover" shall exclude cash compensatory support, duty drawback and profit on sale of import entitlement licences. 8. To sum up, the deduction shall be allowed in the following manner: - Export turnover (sale proceeds actually received in foreign exchange) Profit of the business X . (including export incentives) Total turnover (excluding.export incentives) 9. Thus, in the case of an assessee who is doin....
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.... sale sale sale ----------------------------------------------------------------------- (Figures in lakhs of rupees) (i) Turnover (a) FOB exports 100 100 100 100 (b) Domestic sale - 50 100 200 (c) Total turno....
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....nbsp; stipulated period (v) Deduction under section 80HHC if only 50% of the export proceeds, i.e. Rs. 50 lakhs 50 50 50 50 is brought into 20 X --- 25 X --- 30 X --- 40 X --- India 100 150 200 300 = 10.00 8.33 =7.50 =6.67 --------------------....
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....cified and under (ii) the value of Raw Material to which we are entitled is determined on the basis of value Addition. The Company has adopted both the methods for evaluation. We may also add that right from the inception of the Business from 90-91 financial year and till date, none of the Import Entitlement have been sold. This is an Important Factor which seems to have escaped the attention of the D.C. inadvertently. As regards the accounting policy followed by the company from the inception without any change is: - (i) At the time of exports the value of import entitlement benefit is debited to "Import entitlement Benefit Account" and the Account is reflected under "Current Assets" in the Balance Sheet and the credit entered is given to "Import Entitlement Benefit Account" which is reflected as a separate item in the Schedule of Turnover. (ii) At the time of import of "Raw Material benefit received account" is debited and is credited to "Import Entitlement Benefit account". The raw material benefit received account is reflected in the accounts under "Raw Material Account" and is debited to Manufacturing Account. To illustrate what has been stated above, suppose....
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....ds, by this series of entries, the assessee company accounted for accrued benefits on account of import entitlement to the extent of Rs. 31,99,431 only. This figure is arrived at by netting off the entry both on the debit and credit side of the P&L Account, which is as follows: Credit Debit Import Entitlement Import Entitlement Benefit Account benefit A/c debited to Purchases Rs.3,67,25,867 &nb....
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....rt turnover". By adopting accrual concept of accounting, the assessee has inflated profits of the business by Rs. 31,99,431 and the Assessing Officer while accepting this, has inflated turnover by Rs. 3,67,25,867. The Notional buffer entry on both sides of the P&L Account, amounting to Rs. 3,35,26,436 has created a situation wherein the export incentive claimed by the assessee company gets reduced. Had these entries not been passed by the assessee company, then even taking accrual system of accounting into consideration, the only amount that would have, come into the credit side of the P&L Account would be Rs. 31,99,431. In other words, we can say, the entry of Rs. 3,35,26,436 has no element of profit whatsoever in it. This is a contra entry passed on both sides of the P&L A/c. 22. The principle underlying in the method of calculating the export incentive as propounded by various High Courts is, like should be compared with like and when numerator does not include an item than the denominator should not also include the same, to bring parity between the two. Even the CBDT has expressed the same in its Circular No. 621 dated 19-12-1991, at para 32.18, which is, as under: "Wher....
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....ion that though 'total turnover' may include the receipts of excise duty and sales tax etc. in its general parlance and under specific statute, because of its wider coverage in the definitions given there under, it has to be given a restrictive meaning while only that part of the receipt for sale consideration is to be taken as part of the total turnover which has an element of profit therein and, accordingly, the receipts of excise duty and sales tax which do not include an element of profit should be excluded from 'total turnover'." The submissions of the Revenue are answered in this judgment, wherein it was held that the judgment of the Hon'ble Calcutta High Court, in the case of McDowell & Co. Ltd. and the judgments of the Apex Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 (SC) are distinguishable and do not hold good for the purposes of section 80HHC. Thus, ground No.2 of the assessee for the assessment year 1994-95 is allowed. Ground Nos.1 and 3 are dismissed in view of our findings given in ground No.1. Coming to ground No.4 of the assessees that the receipt is in the natu....
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....nkar Granites (P.) Ltd. and also by the judgment of the Third Member of the Tribunal, in Asstt. CIT v. Gallium Equipment (P.) Ltd. [2001] 79 ITD 41 (Delhi) (TM) Part 2. Respectfully following the judgments of the Tribunal, the issue is decided in favour of the assessee and against the Revenue. 3. Assessment year 1994-95 : Discount received Rs. 38,960 Foreign exchange fluctuation 2,77,233 Sales tax refund Rs. 12,717 Assessment year 1995-96: Foreign Exchange fluctuation Rs.3,41,595 We find that these issues are covered in favour of the assessee by the judgment of the Delhi Bench of the Tribunal in the case of Rollatainers Ltd. v. Dy. CIT [2000] 111 Taxman 221 (Mag.), wherein the judgment of the Hon'ble Supreme Court in Ashok Leyland Ltd v. CIT [1997] 224 ITR 122 was ....