TaxTMI 
TaxTMI 
2010 (9) TMI 467
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.... Verna, Goa (Rs. 11,38,00,264) and exchange loss on export realisation at Rs. 35,56,768. Considering the provisions of section 80HHC(3)(a), the ld. CIT noted that where export out of India was of goods manufactured or processed by the assessee, the profits derived from such export was required to be calculated as the amount which bore to the profit of business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. It was further noticed that the total sales of Rs. 313.50 crores represented the total turnover of the business carried on by the assessee excluding that of Goa Unit in respect of which the assessee claimed deduction under section 80-IB. The incorrect adoption of the figure of the total turnover, resulted in allowing excess deduction under section 80HHC. This, in the opinion of the ld. CIT, made the assessment order erroneous and prejudicial to the interest of the revenue. In response to the show-cause notice issued by the ld. CIT, the assessee stated that the deduction under section 80HHC was computed by applying to the profits of the business, the proportion that the export turnover be....
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....oint of the ld. CIT is that the figure of the profits of the business as well as export turnover, shown by the assessee, are correct but the amount of total turnover of the business should not have been slashed down, inter alia, by the amount of turnover in respect of the Goa Unit. 4. In order to appreciate the controversy, it would be befitting to note that as per section 80-IB(13), the provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section. In turn, section 80-IA(9) stipulates that where any amount of profits and gains of an eligible undertaking or an enterprise is claimed and allowed as deduction under this section in any assessment year, then deduction to the extent of such profits and gains shall not be allowed in any other provisions of this Chapter under the heading "C- Deductions in respect of certain incomes". Some of the assessees claimed deduction under section 80-IA/80-IB but did not deduct the amount of such deduction from the profits and gains of the business for the purposes of computing relief under section 80HHC. This view point came to be negatived, firstly....
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....t of goods at the specified percentage. The modus operandi for calculating profits derived from export, which constitutes the foundation for working out the amount of relief under section 80HHC, has been enshrined in sub-section (3) through clauses (a) to (c), depending upon the assessee exporting the goods manufactured or processed; or trading goods; or a mixture of both manufacturing or processing on one hand and trading goods on the other. These three clauses assist in computing the profits derived from export in different circumstances. 7. It is imperative to note that the ld. CIT has resorted to the provisions of section 80HHC(3)(a), which is as under :- "(3) For the purposes of sub-section (1),- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of the such goods bears to the total turnover of the business carried on by the assessee:" [Emphasis supplied] 8. From the above provision it can be noticed that there are three ingredients for the computation of profi....
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....n. The ld. CIT has come to hold that such amount of turnover of Goa unit should not be so reduced from the total turnover. We are not convinced with the view taken by the ld. CIT. The reason for so holding is the very rationale of allowing deduction under section 80HHC in respect of the profits derived from export turnover. As seen above, different situations have been dealt with in sub-section (3) of section 80HHC for computing the profits derived from export viz., where the assessee is a manufacturer; or trader; or hybrid. The common fabric running through clauses (a), (b) & (c) of sub-section (3) of section 80HHC is the fair determination of the profits derived from export. The logic behind clause (a) in proportionately reducing the "profits of the business" in the ratio of export turnover to total turnover is to extract the amount of profit relatable to the export of goods, which is embedded in total profits of business comprising of export as well as domestic sales. Since the "profits of the business" include both the profit from the domestic sales as well as export turnover, the formula has been devised to segregate total profit of such business into two parts viz., as is rel....
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....e and the other figure as a fraction of the business. If such a course is adopted, that will depict the deformed picture of the 'profits derived from export'. We can approach the present issue by considering that the assessee's total business is in two parts. Firstly, the business of Goa unit and secondly, that of non-Goa unit (comprising of all other units). The business as a whole thus can be said to have two sub-businesses. When the figure of profit of one business, say Goa unit, is excluded from the 'profits of the business', naturally the figure of 'total turnover of the business' has also to be reduced accordingly. If the 'total turnover' of the business is construed as also encompassing that of Goa unit business, then it would give distorted calculation of the profits derived from export because 'profits of the business' in that case would be representing only that of non-Goa unit business. It would be like including the turnover of an alien in the total turnover of the business. Since the expression "of the business' is common to both the total turnover and profits of the business in the language of clause (a) of section 80HHC(3), naturally the 'business' has to be interpre....
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....Unit business from total turnover. It can be illustrated as under :- (All figures are supposed to be in Rs.) Export Turnover (Non-Goa unit business) 500 Domestic turnover (Non-Goa unit business) 800 Domestic Turnover of Goa unit business 200 1500 Profit from export turnover of Non-Goa unit business 50 Profit from domestic turnover of Non-Goa unit business 80 Profit from Non-Goa unit business 20 150 Calculation of 'profits derived from export' as per assessee. Rs. 130 (150 - 20) x Rs. 500 = Rs. 50 Rs. 1300 Calculation of 'profits derived from export' as per ld. CIT. Rs. 130 (150 - 20) x Rs. 500 = Rs. 43 Rs. 1500 18. It can be seen that the actual profit from export, when considered export business as disjunctive, is Rs. 50. However, if we consider it as conjunctive with domestic business, the amount of profits derived from export, as per the assessee's calculation comes at the same figure of Rs. 50. But the manner in which the ld. CIT has directed, the amount of profits derived from export would result at Rs. 43, which does not merit acceptance. We, therefore, overturn the impugned orde....
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....] 115 ITD 167 (Mum.) has held that foreign exchange gain is part of export turnover for the purposes of section 80HHC. On the same analogy, the foreign exchange loss slices away the amount of the tentative export turnover, so as to reflect the figure of export turnover with exactitude. 22. It is apparent from letter dated22-2-2008 addressed to the ld. CIT, copy of which is available on page 165 of the paper book, stating that the export loss related to the invoices raised during the financial year 2003-04 relevant to assessment year 2004-05 under consideration. With the actual inflow of export realisation at lower level than that recorded at the time of issuing invoice, the figure of export turnover stands reduced. Conversely, if there is foreign exchange fluctuation gain that eventually adds to the figure of export turnover. It can be seen with the help of an illustration. Suppose export is made in the month of September worth 100 US$, export turnover is recorded at Rs. 4,500 [presuming rate of 1$ as equal to Rs. 45 in September]. Subsequently, when realisation is made in December, the rate of foreign exchange may go up or down. Supposing, the $ has come down by Rs. 2 in Decemb....