TaxTMI 
TaxTMI 
2010 (9) TMI 780
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....n (of Rs. 1,35,422 and Rs. 1,16,897 being 10% of the export incentives and interest income respectively) being "indirect costs attributable to incomes other than exports" from the total indirect expenses debited in the profit and loss account for computing "indirect costs attributable to export" of trading goods by the assessee?" 3. With the consent of the learned counsel for the parties, we have taken up the matter for final arguments at this stage itself. 4. The facts in brief may first be stated before taking note of the arguments advanced by the counsel for the parties. The appellant/assessee is a public limited company and enjoying the status of 100% trader exporter for last several years. It is, therefore, not in dispute that as....
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....ank FDRs Rs. 7,92,204 Rs. 5,91,630 Depreciation Rs. 2,58,048 Total indirect expenses as Per Profit and Loss Account Rs. 38,65,447 Less: Expenses attributable to other income @10% of such income Export Incentives (10% of Rs. 13,54,219) Dividend Income (10% of Rs. 74,790) Interest Income (10% of Rs. 11,68,973) Rs. 1,35,422 Rs. 7,497 Rs. 1,16,897 Rs. 2,59,798 Indirect cost attributable to exports Rs. 36,05,649" 6. The AO further was of the opinion that the indirect cost attributable to the turnover would be higher at Rs. 45,99,046 which was calculated as under: "Indirect cost as shown by the assessee Rs. 38,65,447 Less: Ex....
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....rtion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) Where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) Where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits, derived from such export shall, - (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted exp....
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....erusal of the aforesaid provisions would make it evident that in cases falling under Section 80HHC(3)(b), direct and indirect costs attributable to such exports have to be deducted from the export turnover to arrive at export profits. Clause (e) of the Explanation defines 'indirect costs' and stipulates that it is the cost which is not direct cost as defined in clause (d). Moreover, clause (d) defines 'direct costs' to mean cost attributable to trading cost. The word 'attributable' in Section 80HHC(3)(b) of the Act in the main Section itself indicates that apportionment (principle of attribution) is not omitted from the said provision of Section 80HHC(3)(b) of the Act, as such appellant is entitled to reduce from the export turnover the est....
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.... 80HHC, instead of going into lengthy exercise of dividing such Common Expenses, the assessee has estimated the reduction of export turnover by 10% of the other income of Rs. 1,60,000 (in the above example). Ultimately, Clause (baa) to the Explanation is itself based on the assumption that 10% of the income would be an expense. We make it clear that we are not reading Explanation (baa) into Section 80HHC(3)(b). What we say is as a Guidance Value/Factor, 10% of the total. Other income of Rs. 1,60,000 would be fair estimate. This guidance value is not flowing from Clause (baa) but from the scheme of Section 80HHC read with the Memorandum to the Finance Act of 1991. Take a reverse case, if allocation of expenses is to be done on Actual Basi....