TaxTMI 
TaxTMI 
2010 (9) TMI 906
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed grounds of appeal. The first ground is that the CIT(A) erred in directing the Assessing Officer to treat the interest received on margin deposits amounting to Rs.2,09,709/- as income eligible for deduction under section 10B. The assessee received the aforesaid interest from margin monies deposited with the banks. According to the assessee the deposits having been made in the course of the assessee's business, the interest therefrom was eligible for the exemption under section 10B. This section made special provisions for newly established 100% export oriented undertakings. According to sub-section (1), a deduction of such profits and gains as are derived by such an undertaking from the export of articles was to be given from the total ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....port of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking". According to the learned counsel, what would constitute the profits derived from export of articles has been statutorily defined in subsection (4) and once the interest income has been assessed as profits of the business of the undertaking, as it has been done in the present case, all that has to be done further is to bifurcate those profits in the same proportion as the export turnover of the articles bears to the total turnover of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest was received from margin monies kept as deposits with the banks for the purpose of borrowing monies for the business. The assessee's business is in the export of jewellery and in the first page of the assessment order it has been stated by the Assessing Officer that the assessee is a 100% export oriented undertaking within the meaning of section 10B. If that is the factual position, the interest has to be considered as having been derived from the export of the articles. Even if it is argued that the immediate source of the interest is the deposits with the banks and not the export of articles, in view of sub-section (4) of section 10B the assessee is entitled to succeed. The Assessing Officer has not assessed the interest under the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....section similar to Explanation (baa) of section 80HHC. In Liberty India (supra), the Supreme Court was concerned with sections 80-I, 80-IA and 80-IB. In these sections also there is no statutory formula to prescribe as to what are the profits eligible for the deduction. There is no statutory prescription of such profits as in sub-section (4) of section 10B. Sub-section (5) of section 80-IA, which also has to be read as part of section 80-IB provides that the profits of an eligible business shall be computed as if such eligible business is the only source of income of the assessee. This is not similar to the statutory formula prescribed in sub-section (4) of section 10B. It cannot also be stated that the assessee was adopting a device to inf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d later to be unfit for being embedded in the gold jewellery. These unfit roughs will have to be exported back to the suppliers. In the meantime, however, the payment for the imports has already been made and the amount has been included as purchases. Therefore, it is not possible to treat the export of unfit diamonds as purchase returns. According to the EOU regulations all materials leaving the assessee's factory have to be accompanied by proper invoices and are subjected to customs appraisals. They are thus treated as regular exports whereas they are nothing but purchase returns and not export sales. It was further pointed out before the Assessing Officer that the goods were returned to the suppliers only at cost and there was no profit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d cannot be considered as independent sale. He accordingly held that what was shown as sale of raw materials cannot be included in the total turnover of the assessee, which is the denominator in the formula prescribed by sub-section (4) of section 10B. 11. The Revenue contests the aforesaid decision of the CIT(A) and strong reliance is placed on the accounting treatment given by the assessee and disclosed in Schedule "L" to the Profit and Loss Account. On the other hand, the learned counsel for the assessee reiterated the assessee's submissions made before the Assessing Officer which were rejected by him but accepted by the CIT(A). He also submitted that if necessary the Assessing Officer may be directed to verify whether the import of dia....