TaxTMI 
TaxTMI 
2010 (2) TMI 893
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....7,67,779/-. The Assessing Officer discussed the above issue under the heading Staple Fibre Division-Nagda, Section-Q in para Q-9 at page-97 of the assessment order. According to the Assessing Officer as per section 80HHC(2)(a), the deduction is admissible only in the case of sale proceeds receivable and not the processing charges as shown by the assessee. The fact that the assessee credited the amount received as processing charges and not to sales, shows that the receipts do not represent sale price. He further pointed out that the word "processed" has been incorporated in section 80HHC(3)(a) with effect from 1.4.1992 and, therefore, for the Assessment Year 1990-91 the deduction cannot be allowed. On appeal, the ld. CIT(A) confirmed the action of the Assessing Officer. On further appeal to the Tribunal, the Tribunal, in ITA No.7593/M/97 vide para-149 of order dated 17.3.2004 while observing that the ld. CIT(A) in para-34 of his order has noted the submissions of the assessee in this regard but has not given any finding, restored back the issue to the file of the ld. CIT(A) to decide the same. 3. Pursuant to the order of the Tribunal, it was submitted by the assessee, bef....
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....ssee is not processing but manufacturing and accordingly the receipt is export sales proceeds and not processing charges. In this regard, the assessee placed reliance on the decision in the case of Abdulgafar A. Nadiadwala vs. ACIT (267 ITR 488)(Bom.). In view of above and referring to CBDT circular No.572 dated 03.08.1990, the assessee has contended that deduction u/s.80-HHC should be allowed on the export proceeds. 4. The ld. CIT(A) after considering the assessee's submissions and agreement dated 26.11.1988 with PTIBRI observed that the appellant has received wood pulp which has been converted to VSF, as per agreement 500 MT of wood pulp was to be supplied by PTIBRI to the appellant company free of cost for manufacture of VSF for which the appellant has charged USD 600 per MT. The facts clearly show that ownership of the wood-pulp and VSF remained with PTIBRI and not with the appellant. He further observed that to claim deduction u/s.80HHC the assessee should own goods and merchandise in respect of which export receipts are received. He accordingly held that since the appellant was not the owner of the wood-pulp and VSF, the appellant is not eligible for deduction u/s.8....
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....s exported the goods, and sale proceeds were received in convertible foreign exchange, hence, the ld. CIT(A) was not justified in holding that the assessee is not the owner of wood pulp and VSF. The ld. Counsel for the assessee after giving an example that if someone after taking the raw material on credit basis manufactures the goods and exports the same, does it mean that the assessee is not engaged in the business of manufacturing and exports? According to him the person is engaged in the business of export of goods or merchandise eligible to deduction u/s.80-HHC. He further submits that u/s.80-HHC there is no such provision to disallow the claim of the assessee on the ground that if the assessee is not the owner, he is not entitled to deduction u/s.80-HHC. The ld. Counsel for the assessee further submits that "trading goods" have been defined to mean goods not manufactured by the assessee. Thus, even where the goods are processed by the tax payer, they are treated as trading goods. To remove this anomaly, the Finance Act, 1992 has amended the definition of "trading goods" to mean "goods not manufactured or processed by the assessee". Thus, in effect, where goods processed by th....
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....e present case. 10. We have carefully considered the submissions of the rival parties and perused the material available on record. From the relevant para of the assessment order we find that there is no dispute that the assessee has received an amount of Rs.47,67,779/- (after reducing expenses of Rs.43,84,649/-) from M/s. M/s. P.T. Indo Bharat Rayon, Indonesia. According to the AO the said amount represented charges received for converting wood-pulp into Viscose Staple Fibre (VSF) which has been shown as processing charges under the head "other income". It has been further observed by the AO that since the amount has been shown by the assessee, as processing charges and not as sales and the word "processed" has been inserted under the provisions of section 80-HHC (3)(a) by the Finance Act, 1992 w.e.f. 1.4.1992, therefore, the assessee is not entitled to the deduction u/s.80-HHC for the year under consideration i.e. Assessment Year 1990-91. On appeal, the ld. CIT(A) observed that since the assessee is not owner of the wood pulp and VSF hence, he is not entitled for deduction u/s.80-HHC on the processing charges received on export of VSF. 11. We may first conside....
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....bsp; 15. In CIT vs. Emptee Poly-Yarn P. Ltd. (2008)305 ITR 309(Bom.) at placitum 9 appearing at page 314 it has been noted: "Manufacturing" activity was also explained in Deputy CST (law), Board of Revenue (Taxes) vs. Pio Food Packers (1980) Supp SCC 174; [1980] 46 STC 63, 65(SC). The court notes as under: "The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass . . . But is only when the change, or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place." Their Lordships after considering various judgments of the Hon'ble Supreme Court as to the meaning of the expression "manufacture" have held (at placitum 27 page-319 of ITR): "Held, dismissing the appeal, that partially oriented yard (POY) has different physical and chemical prop....
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....venue that the VSF was not exported out of India or the assessee has not received sale proceeds in convertible foreign exchange or the assessee has not furnished report of an accountant in the prescribed Form No.10CCAC. 18. Further it is now settled law that book entries are not determinative factor to deal with the income/expenditure whether taxable or deductible. The provisions of law have to be taken into consideration. 19. In CIT vs. K.K. Doshi and Co. (245 ITR 849)(supra), the assessee firm offered its services on job work basis to outsiders to polish rough diamonds for which the assessee received service charges. It has been held that the profits earned by the assessee on account of service charges could not be said to have a direct nexus with the export activities of the assessee, and, therefore, the service charges could not be considered as part of the business profits while working out deduction u/s.80-HHC. Whereas in the case before us it is not the case of the revenue that the profits earned by the assessee is not connected with export activity. Therefore, the decision relied on by the ld. DR is distinguishable and not applicable to the facts of the ....