TaxTMI 
TaxTMI 
2008 (9) TMI 621
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....er on 5-5-2006 giving effect to the order of the ITAT. The Assessing Officer has mentioned that the Hon'ble ITAT dwelled on the issue of Rs. 40,94,440 and is silent about the issues allowed or sent back to the Assessing Officer by the CIT(A). The Assessing Officer therefore was of the view that the Hon'ble ITAT has concurred with the issues referred back to the file of Assessing Officer by the learned CIT(A). The learned CIT(A) referred back the issue of allowability of advances written off to the extent of Rs. 56,96,860. Before the Assessing Officer, the assessee filed the details of Rs. 46,80,738. The Assessing Officer therefore has considered the allowability in respect of the advance written off for which the details have been filed before him. The Assessing Officer mentioned that the balance of Rs. 10,17,127 will be considered as and when the details are furnished by the assessee. On examining the details, the Assessing Officer observed that the items to the extent of Rs. 25,74,009 relate to capital expenditure and the balance of Rs. 21,06,726 relate to revenue. The Assessing Officer therefore allowed a sum of Rs. 21,06,726. 2.2 Against the above referred order, the assesse....
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....2004 in ITA No. 374/Bang./2002. The submissions as made before the Tribunal are reproduced as under for ready reference :- "3.2 Shri Sukumar, learned counsel appearing for the assessee submitted that the advances were in the normal course of business and are incidental to carrying on of business. Some of the items of advances for purchases or expenses incurred are on revenue account like advance of MS frames and grills. Advance for Brewary House work and labour charges, advance for wall painting and floor polishing, advance for supervision charges in connection with commissioning of electronic weigh bridge etc. Some of the items are replacement of parts. For instance advance for pump motor and advance for purchase of line card sets are allowable as expenditure on replacement or current repairs. Rest of the items are also allowable as trading loss in the light of the principles enunciated by the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, State of Madras v. GJ Coelho 53 ITR 186 , Bombay Steam Navigation Co. v. CIT [1965] 56 ITR 52. When the monies are spent in the course of business, there cannot be distinction between advances made for capital asset ....
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....for acquiring capital assets by the Assessing Officer :- 1. Paid for telephone connection Rs. 1,493 2. Paid for supply of materials Rs. 78,320 3. Paid for supply of materials Rs. 30,000 4. Paid for defreeze work labour Rs. 2,872 5. Paid for inspection of high power computer Rs. 5,000 6. Paid for job work contract Rs. 4,720 7. Labour charges paid for road work Rs. 47,897 8. Advances paid for labour contract Rs. 5,800 9. Paid for supply of materials Rs. 7,10,667 10. Paid for supply of materials Rs. 1,85,000 11. Paid for supply of 48 x 36 white bond Rs. 12,936 12. Paid for purchase of hardware items Rs. 2,381 From the details filed, it is not possible to give conclusive finding that such advances were for acquiring the capital asset. The Assessing Officer has not discussed such issue at length and simply treated part of the advances for acquiring the capital assets. The Assessing Officer after affording opportunity to the assessee is first required to give a finding as to which advances were for acquiring the capital assets. Hence, the issue of ascertaining the advances paid for acquiring capital assets is to b....
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.... the business? If money be lost in the first circumstance, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses." Hence, it is clear from the decision of the Hon'ble Bombay High Court that it has not allowed the loss on account of writing off of advances in case such advances have been given for acquiring capital assets. 2.9 The Hon'ble Privy Council in the case of CIT v. Motiram Nandram [1940] 8 ITR 132 had an occasion to consider as to whether the loss of advances is a trading loss or capital loss. In that case, the assessee advanced money on interest for securing organizing agency of oil company. The Hon'ble Privy Council observed that the purpose of giving deposit was to secure an enduring benefit of a capital nature. The loss of the deposit was therefore is a loss of capital and could not be deducted from the profits of the business made by the assessee for the purpose of income-tax. 2.10 From the above decision, it is clear that an advance, which has been given for acquiring a capit....
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....urnover is not defined under section 10A will not empower the Assessing Officer to exclude the amount, which has been excluded from the export turnover from the total turnover also. For the proposition that whatever has been reduced from the export turnover should be reduced from the total turnover, the learned AR relied on the decision of the Bangalore Bench in the case of Tata Elxsi Ltd. v. Asstt. CIT [2008] 155 TTJ 423 and Infosys Technology Ltd. [IT Appeal Nos. 653 & 969/Bang./2006, dated 17-10-2007]. 3.3 The learned CIT(A) observed that the total turnover has not been defined under section 10A of the Income-tax Act. Total turnover has been defined in clause (e) to Explanation to section 80HHE. As per this definition, total turnover is not to include any sum referred in clause 28(iiia), (iiib ) and (iiic), any freight, telecommunication charges or insurance attributable to the delivery of computer software outside India and expenses, if any, incurred in foreign exchange in providing technical services outside India. The words 'total turnover' has also been defined in clause (baa) of Explanation to section 80HHC. As per this definition, total turnover is not to include freigh....
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....e are other cases also to this effect. 3.If the words used are capable of one construction only, it is not open to the courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. (Kanniah Lal v. P. Sadhu Khan AIR 1957 SC 907). 4.It is contrary to all construction to read words into an Act unless it is absolutely necessary to do so. Similarly, it is wrong and dangerous to proceed by substituting some other words for words of the statute (AIR 1945 PC). 5.Where the definition of a word has not been given, it must be construed in its popular sense if it is a word of everyday use. Popular sense means that sense which people conversant with the subject matter, with which the statute is dealing, would attribute to it. (CIT v. Taj Mahal Hotel 81 ITR 44 (SC)." 3.4 Before the learned CIT(A), the learned AR also relied on the decision of the Hon'ble Apex Court in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 . The learned CIT(A) observed that the Hon'ble Apex Court held that processing charges was an important component in business profit and are therefore to be included i....
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....milarly, the Santacruz Electronics Export Processing Zone was set up near Bombay to promote rapid growth of the electronics industry as also to encourage setting up of 100 per cent export oriented industries in the electronics sector. Under the existing provisions, assessees who derive profit and gains from new industrial undertakings set up in these free trade zones are entitled to the benefit of partial tax holiday, investment allowance, export markets development allowance, additional depreciation allowance, deduction in respect of industrial undertakings set up in backward areas and other incentives available in the case of all industrial undertakings. A number of countries have set up free trade zones to attract investment for industrial growth by offering substantial tax concessions including a complete tax holiday for a specified number of years. With a view to encouraging the establishment of export oriented industries in the free trade zone, the Finance Act, 1981, has inserted a new section 10A in the Income-tax Act, which makes special provision in respect of newly established industrial undertakings in free trade zones. The new section provides for a complete tax exempti....
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..... 21). Para 21.2 of that Circular reads as under :- "The Finance Act, 2001 clarifies that in the event of conversion of free trade zone into special economic zone, the period of ten years shall be reckoned from the date the unit first taken to manufacture or produce articles or things or computer software. The Act also omits the proviso to sub-section (1) under which up to 25 per cent of the production sold in domestic tariff area was also treated as eligible for deduction. The effect of this amendment would be that the profits derived from domestic sales of articles or things or computer software would be liable to tax. The proposed amendment will take effect from the assessment year 2002-03." Thus, the intention of the Legislature is clear that in case there are domestic sales then profit derived from domestic sales should be taxed and profit from exports should be given exemption under section 10A. In the case of the assessee, there are no domestic sales and all the sales are related to exports. Hence, as per the Circular issued by the Board, the assessee is entitled to deduction of entire profit. This is possible when the total turnover is considered on the same lines as ....
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....'profits' in section 28 should be understood in normal and proper sense. However, subject to special requirements of the income-tax, profits have got to be assessed provided they are real profits. Such profits have got to be ascertained on ordinary principles of commercial trading and accounting. However, the Income-tax Act has laid down certain rules to be applied in deciding how the tax should be assessed and even if the result is to tax as profits what cannot be construed as profits, still the requirements of the Income-tax Act must be complied with. Where a deduction is necessary in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act (See page 455 of the Law and Practice of Income-tax by Kanga and Palkhivala). Therefore, schematic interpretation for making the formula in section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of section 80HHC which has undergone so many changes cannot be ruled out, particularly, when those legisl....
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.... 80HHC(3) was a beneficial section, It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the Legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under the Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of 'turnover', excise duty and sales tax also cannot form part of the 'turnover'. Similarly, 'interest' emanates from exports and yet 'interest' does not involve an element of turnover. The object of the Legislature in enacting section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, 'turnover' was the requirement. Commission, rent, interest, etc. did not involve any turnover. Therefore, 90 per cent of such commission, interest etc. w....
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....plain literal interpretation of its statutory provision provides a manifestly absurd and unjust result, which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction : vide Luke v. IRC [1964] 54 ITR 692 (HL). 3.10 Following this Rule of interpretation and considering the discussion as above, we hold that whatever is not included in the export turnover cannot be included in the total turnover as total turnover is the sum of export turnover plus domestic turnover. The above-referred issue has been considered by this Bench in a number of cases and it has been held that whatever is not included in the export turnover should not be included in the total turnover. 3.11 This Tribunal in the case of Tata Elxsi Ltd. ( supra) held as under :- "9. The formula prescribed for computing the deduction under section 10A is the same as prescribed in section 80HHE. The formula provides for a deduction of profits from the business in the ratio of export turnover as compared to the total turnover. Section 10A has i....
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...., in the context of section 80HHC whereunder a similar formula is applicable, it has been held that the components entering into export turnover and the total turnover should be the same. In other words, one should compare apples with apples and not apples with oranges. Various High Courts have held so in the following cases :- u CIT v. Sudarshan Chemicals Industries Ltd. ( 245 ITR 769) (Bom.), u CIT v. Chloride India Ltd. ( 256 ITR 625) (Cal.), u CIT v. Bharat Earth Movers Ltd. ( 268 ITR 232) (Kar.), u CIT v. Lakshmi Machine Works ( 290 ITR 667) (5C), u CIT v. Trans Lotus Travel (P.) Ltd. ( 290 ITR 1) (Delhi). 11(a). In the case of Sudarshan Chemicals Industries Ltd. reported in 245 ITR 769 at page 773 the Hon'ble Bombay High Court held as under : 'Further, the meaning of export turnover in clause (b ) of Explanation to section 80HHC, therefore, clearly shows that export turnover did not include excise duty and sales tax. The export turnover is the numerator in the above formula whereas the total turnover is the denominator. The above formula has been prescribed to arrive at the profits from exports. In the circumstances, the above two items, namely, sales tax....