TaxTMI 
TaxTMI 
2014 (1) TMI 645
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....0HHC DEPB Netting of Interest Exp Disl low ed 2004-05 (Department) 596/07 10BA/DEPB/DDB Trading Addition 2004-05 (Assessee) 628/07 Netting of interest Expenses Disallowed Brokerage on Shipping Freight 2005-06 (Department) 597/07 10BA/DEPB/DDB Trading Addition 2005-06 (Assessee) 629/07 629/07 Netting of interest Expenses Disallowed Brokerage on Shipping Freight 2007-08 (Assessee) 232/10 10BA/DEPB/DDB Brokerage on Shipping Freight 2008-09 (Assessee) 309/11 10BA/DEPB/DDB Brokerage on Shipping Freight 3. It is evinced from the above chart that the issues relating to (i) deduction u/s 10BA/DEPB/DDB; (ii) netting of interest; (iii) brokerage on shipping freight and trading addition are common in most of the appeals and decision taken of any issue, on principle, in any of the appeals would apply mutatis mutandis to other appeals. 4. We have heard the rival submissions as put forth by their respective authorized representatives. ....
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....aded that the interest paid is more than the interest received and, therefore, the 'interest received' cannot be treated as income other than the export-profit. It is pleaded that interest receipts, under identical circumstances, have been allowed by the revenue in assessee's own case. Apart from this, the ld. A.R. has sought support from the decision of Hon'ble Orissa High Court in the case of Tata Sponge Iron Ltd. 292 ITR 175 [Orissa] inter-alia. Against the relief allowed qua DDB/DEPB, the case of the revenue, as put forth by the ld. CIT(A), is that these receipts being not a part of export profit, are not eligible for deduction u/s 10BA of the Act. He has further cited the facts, law and relevant precedents in support of A.O's findings. In respect of this very issue we have recently taken a view while deciding the case of M/s Suraj Exports India Vs. ITO in ITA No. 336/Jodhpur/2011 for A.Y. 2008-09 decided on 31.01.2013. The following paragraphs of the above orders are being extracted for ready reference, to decide this issue, as under: "8. We have cogitated rival arguments vis-a-vis evidence on record. We have examined the decisions on which parti....
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....chargeable to Income-tax under the head "profits and gains of business or profession". (iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); In the light of above discussion, we find that the assessee is entitled to deduction u/s 10BA on DEPB as in accordance with section 28 of the Act these are business income." 10. This decision has been approved by Hon'ble Bombay High Court and the decision is reported in 66 DTR 85 (Bombay....
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....or thing means the amount which bears to the profits and gains of the business of the undertaking and not from any other business carried on by the assessee. So, by this amendment only the profits of the business of the undertaking only is to be considered for working out the profits and gains as are derived by an undertaking from export out of India of eligible articles or things. The profits and the gains of the business of the undertaking is to be worked out as per the provisions of section 28(i). This does not include the profits of items does not include the profits of items under s.s. (iiia), (iiib), (iiic), (iiid) and (iiie) etc. Duty Draw Back and any profit on transfer of DEPB. Section 28 itself makes it abundantly clear that the profit on account of Duty Draw Back or on transfer of DEPB will not form part of profit and gains of the business or profession which was carried on by the assessee as discussed above. The plain reading of Section 10BA which deals with export of certain articles or things will make it clear that 'such profits' as are derived from the export out of India shall be allowed from the total income of the assessee. Sub Section (1) of Section 10BA is subj....
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....HC of the Act. After considering the rival submissions, we have found that the issue in order dated 20.5.2005 of the Tribunal [supra] was in respect of interest income qua 80HHC benefit. But the issue now before us is regarding netting of interest. After treading through the facts and the above noted decisions, we have found that this issue of netting of interest stands covered by the decisions of the Tribunal, Hon'ble Orissa High Court and of the Hon'ble Delhi High Court as has been discussed above. Therefore, we have to decide this issue in favour of the assessee. The interest income [interest receipts] has to be netted against the interest paid. This decision will also apply to other A.Ys. C. Brokerage on Export-Shipping-Freight Now coming to the issue of shipping brokerage, it is found that this receipt being part of shipping freight paid by the assessee. According to the ld. A.R. this amount has to be set off against such payment so as to arrive at the export profit eligible for deduction u/s 10BA. The case of the revenue is that the brokerage income is not related with the export profit, therefore, it has to be excluded ....
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....the interest paid at Rs. 88,84,957/-. c) computing the deduction without taking into account 90% of the claim of DEPB in working out the export profit eligible for deduction u/s 80HHC. 4. That the authorities below have erred in law as well as on facts in treating the claim of DDB & DEPB as income from other sources whereas such claims being incentives on the purchases of raw materials/packing material which subsequent to purchases were used in export turnover, should have been set off against the total cost of purchases. Further, on account of transfer of DEPB there was no profit during the year under appeal and as such, the same ought not have even been considered to be hit by the alleged amended provision allegedly amended u/s 28 r.w.s 80HHC." 7. The first ground in this appeal is general in nature and does not need specific adjudication. 8. Ground No. 2 pertains to disallowance of expenses. The A.O. has disallowed 1/5th of the expenses claimed in the account of telephone, travelling and depreciation on cars, etc. 9. After hearing both the sides and clearly understanding the issue we are of the consider....
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.... 7) Direct cost of trading goods exported RS.37,67,99,180/- 8) Indirect cost attributable to trading Goods exported Rs.1,50,85,956./- 9) Total (7+8) RS-30,06,58,371/-RS-31,57,44,327/- 10) Profit froM export of trading goods (6-9)+Export incentives, Restricted to 50t 11) Adjusted total turnover(3-6) RS. 3,27,86,633/- 12) Adjusted profits of the business(4-&) 13) Adjusted profits of the business(5~lO) N.A 14) Profit dervied by the assessee fro* export of goods or Merchandise to which section 80 HHC applies computed under sub section (3) of section 80 HHC(i) N.A 15) Export turnover, deduction in respect of which will be claimed by a supporting manufacturer in accordance with section 80 HHC (l) NIL 16) Profit from the export turnover Mentioned in ite« 15, above calculated in accordance with provision to sub section (l) of section 80 HHC. N.A 17) Deduction under section SO HHC to which the assessee is entitled (ite« 14-16) 18) Remarks if any:- RS. 3,27,86,633/- i) The assessee carries on business of handicraft items, of various designs, ....
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....p; Rs. 1. Clearing & Forwarding expenses 15085956.63 15085956.63 (iv) Indirect cost/expenses 1. Opening stock 10,71,51,000.00 2. Purchases 22,48,94,539.15 3. Job work expenses 4,74,95,672.18 4. Wages 49,22,816.21 5. Cons unable stores 2,22,80,971.60 6. Packing Expenses 1,13,96,194.11 7. Inward expenses 1,10,32,370.00 8. Depreciation 87,82,314.00 9. Salaries 7,25,305.60 10. Printing & Stationary 6,22,438.93 11. Postage & Telegram 2,19,388.25 12. Advertisement 34,610.00 13. Bank Commission & charge 9,20,234 14. insurance Expenses 7,16,819.00 15. Telephone Expenses 10,65,166.61 16. Rent Rates and Tax....
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....t of Rs.6,46,137/- from FDRs and various other parties and the same is netted from the total interest of Rs. 13,59,062/- paid to sister concern and other parties. Thus, the assessee has shown net interest paid to the tune of Rs.7,12,925/-. On being asked why the interest received should not be reduced from the business profit shown for the purpose of calculating correct deduction allowable u/s. 80HHC, the assessee submitted that this interest was earned on surplus funds and the investment was compensated by raising some loans etc. It was further replied that the major borrowed funds have been less than the investment in stock of goods other than handicrafts, therefore, the entire account of interest received and paid has been maintained separately. Entire positive and negative incomes of other than business has been separately accounted for and only the resultant figures have been considered in the final accounts. Since the net result is a negative income debited to P&L account which mainly relates to the expenses on interest for the business of goods other than handicrafts, the Id. Assessing authority though accepted the contention of assessee that the interest receipt is business....
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....f the assessee in the case of M/s Maharani Art Emporium [supra]. 12. The next Ground No. 3(b) is regarding netting of interest. With the reasoning given in point (A) above of this order, we allow this ground in favour of the assessee. 13. Ground No. 3(c) and Ground No. 4 is regarding consideration of DEPB in respect of section 80HHC calculations. This issue now stands covered in favour of the assessee by the decision of the Hon'ble Apex Court rendered in the case of Topman Exports Vs. CIT reported in 342 ITR 49 [SC] wherein it has been held that : "the entire amount received on sale of DEPB entitlement is not profit chargeable u/s 28(iiid) of the Act but he face value of DEPB has to be deducted from the sale proceeds". Accordingly, we allow Ground No. 3(c) and Ground No. 4 in favour of the assessee. 14. In the result the appeal is partly allowed. 15. There is no cross appeal as informed by both the parties for A.Y. 2003-04. 16. ITA Nos. 628/JU/2007 and ITA No. 596/JU/2007 for A.Y. 2004-05 17. These are cross appeals filed against the order of the ld. CIT(A) dated 29.5.2007. 18. ITA Nos. 628/JU/2007 is the appeal of the assessee in....
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....nal user of telephone and cars by partners and members of their families cannot be ruled out. The other expenses were also not found properly maintained. Therefore, the A.O. has disallowed a lump-sum of Rs. 5 lakhs by treating them towards non-business purposes. The ld. CIT(A) has also confirmed this addition. 21. After considering the entire facts of this issue, we are of the opinion that the ends of justice would meet if the expenses are further reduced to Rs. 3 lakhs. Accordingly, we partly allow this Ground. 22. As a result this appeal in ITA No. 628/JU/2007 is partly allowed. 23. In Revenue's appeal [ITA No. 596/JU/2007 [A.Y. 2004-05], the second ground stands covered by our decision taken in the earlier part of this order. Therefore, we cannot allow Ground No. (2) of revenue's appeal. We have taken a view that deduction u/s 10BA qua DEPB/DDB receipts is allowable. Accordingly, we dismiss Ground No. (2) of the Revenue's appeal. 24. The facts of Ground No. (1) which relates to trading addition of Rs. 10 lakhs made by the A.O. on account of low gross profit rate by invoking provisions of section 145(3) of the Act are that during the A.Y. 2004-05, the assessee has dec....
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....stified. 2) That the authorities below have erred in law as well as on facts in making/sustaining the addition of Rs. 5 lacs representing the alleged disallowances out of the expenses of profit and loss account which is illegal and bad in law." 29. The revenue has raised the following grounds in its appeal for A.Y. 2005-06: "On the facts and in the circumstances of the case, the ld. CIT(A), Jodhpur has erred in: (1) Deleting the trading addition of Rs. 15,00,000/- made by the A.O. on account of low gross profit rate by invoking provision of section 145 of the Act. (2) Directing to allow deduction u/s 10BA on account of DEPB and DDB receipts ignoring the fact that DEPB & DDB are incentives given by Indian Government in Indian currency and are not part of export business profit from eligible articles or things." 30. After hearing both the sides we have found that the facts of Ground Nos. 1 and 2 of revenue's appeal and Ground Nos. (1) and (2) of assessee's appeal are, mutatis mutandis similar and identical as were in A.Y. 2004-05. Therefore, with the same reasoning wh....
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....ing eligible for deduction/exemption u/s 10BA. 2. That the authorities below have erred in law as well as on facts in not allowing/sustaining the disallowance the claim of alleged brokerage on shipping freight of Rs. 1,35,684/for the purpose of computing the export profit eligible for deduction u/s 10BA. This being resulted in less computation of eligible export profit and thereby the less claim allowed as deduction u/s 10BA is highly unjustified." 35. As is evident, both the above grounds are to be allowed in the favour of the assessee in view of our aforesaid discussion. Therefore, we allow both these grounds and consequently allow the appeal of the assessee. 36. As a result, the appeal of the assessee in ITA No. 309/JU/2011 A.Y. 2008-09 stands allowed. 37. ITA No. 310/JU/2011 A.Y. 2008-09 M/s Maharani Arts Emporium This appeal of the assessee is directed against the order of the ld. CIT(A) dated 7.6.2011. In this appeal, the following grounds have been raised: "1. That the authorities below have erred in law as well as on facts in treating the receipt of DDB/DEPB at Rs. 2504579/- as the income not forming part o....