AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 645
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.... (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. We have also gone through the records of the cases as well as written submissions filed by them. For the sake of convenience, we would narrate the facts obtaining in the cross appeals in ITA....
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....r 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 parties have placed their respective reliance. We have found that the ratio of the decision of Hon'ble Apex Court rendered in the case of Liberty India vs. CIT reported 225 CTR 233 (Hon'ble Supreme Court) is not a....
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....der 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) I.T.A.T. Indore Special Bench in the case of M/s. Maral Overseas Limited Vs ACIT reported in 136 ITD 177 has held this issue in favour of the assessee. Similarly, the Ahmedabad Bench in the case of Kaden Exports (supra), has....
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....g 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 subject to the provisions of S.Ss. 2, 3, 5, 6 and 7 but s.s. 4 lays down a method of computation for the purpose of sub section (1). Likewise, the sale proceeds of DEPB cannot be considered as part of turnover as it is not the sale pr....
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.... 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 for computation of deduction either u/s 80HHC or u/s 10BA. After hearing both the sides, we are unable to understand the factual matrix of this issue. On what account the brokerage income has been earned is not clearly brought out on record. ....
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....he 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 considered opinion that both the A.O. and the ld. CIT(A) have made adhoc disallowances. Therefore, we feel that he ends of justice shall meet if the disallowance is further reduced to 1/10th of the total claim. Accordingly, Ground No. 2 of this appeal is partly allowed. 10. ....
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....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, specifications, sizes; shapes and dimensions, it is not practically possible for the assessee to Maintain separate records showing the goods purchased and exported or goods Modified/altered /Manufactured and exported during the year, in the absence of the above bifurcations the export sales can not be bifurcated into that of traded goods and of Manufactured goods.l, therefo....
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....nbsp; 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 Taxes 7,16,702.00 17. Travelling expenses 3,34,874.70 18. Legal I Professional fees 99,488.00 19. General Expenses 2,32,736,30 20. Staff welfare 8,20,812.47 21. Conveyance & Vehicles Expenses 27,03,954.55 22. Audit Fees 15,OOO.OO 23. Electricity Expenses 65,74,316.85 24. Sales Promotion Expenses 96,855.44 25. Machinery Hire Charges 3,00,OOO.OO 26. water Expenses 2,03,596.00 27. Bonus Expenses 8,28,160.00 28. E.S.I. Expenses 52,360.55 29. R....
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....k 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 income, but holding that the interest income and income from other than export is not eligible for deduction u/s. 80HHC of the Act. The Assessing Officer relied upon the decision of Madras High Court rendered in the case of K.S. Subbiah Pillai (India) Pvt. Ltd. vs. CIT (2004) 134 Taxman 735 (Mad.) and CIT vs. Nizzar Ahmed & Co. (2003) 133 Taxman 322 (Mad.). Thus, the total sum of Rs. 13,51,829/- credited in Profit and loss account was held to have not related to export business having been not received in India in convertible foreign exchange as per section 80HHC. He accordingly reduced the deduction claimed u/s. 80HHC. The....
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.... 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 which following grounds have been raised: "1) 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. 4,23,028/- and interest receipts of Rs. 24,22,643/- without deducting payment thereof at Rs. 66,85,573/- 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. 2) That the authorities below have erred in law as well as on....
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....en 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 declared a gross profit rate of 29.64% on a turnover of Rs. 41.90 crores as against gross profit rate of 29.92% on a turnover of Rs. 37.74 crores shown in the immediately preceding year i.e. 2003-04. The assessee did not maintain stock register. Therefore, on account of slight fall in the gross profit rate and for non-maintenance of the sale register, the A.O. has invoked section 145(3) and has made a trading addition of Rs. 10 lakhs. The ld. CIT(A) has deleted this addition by holding that there is no valid reason even for rejecting the books of account. 25. After hearing both the sides, we have found it for a fact that the A.O. has not pin-pointed any defect much less any material defect in the books of....
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....ccount 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 which we have given in A.Y. 2004-05 [as above], we have to allow Ground No (1) of assessee's appeal and partly allow Ground No (2) by restricting the adhoc disallowance of Rs. 5 lakhs out of expenses debited in the profit and loss account to Rs. 3 lakhs. 31. Similarly, we dismiss Ground Nos. 1 and 2 of revenue's appeal. The trading addition is lump-sum and adhoc on account of similar reasons as given in A.Y. 2004-05. Therefore, with the help of the reasons given to confirm the impugned deletion in A.Y. 2004-05, that there is slight fall in the gross profit rate and increase in the turnover and no defect has been pointed out in the books, we dismiss Ground No. (1) and by following our view taken in respect of allowance of dedu....
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..../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 of export profit of the undertaking eligible for deduction/exemption u/s 10BA." 38. The above issue stands covered in favour of the assessee, as the facts in this assessee's case and in its sister concern Suncity Art Emporium's case are exactly identical. 39. As a result, the appeal of the assessee in ITA No. 310/JU/2011 for A.Y. 2008-09 is allowed. 40. ITA Nos. 361, 362 & 393/JU/2012 and 24 & 25/JU/2011 are all appeals of the assessee, namely M/s Kumbhat Exports. These appeals pertain to A.Ys. 2004- 05, 2005-06, 2006-07, 2007-08 and 2008-09 respectively. In all these appeals, the main issue on merits is regards eligibility of DDB/DEPB receipts for exemption u/s 10BA of the Act. 41. Since we have already taken a view in favour of allowability while decidi....