TaxTMI 
TaxTMI 
2019 (11) TMI 877
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....Bench of this Court had framed following two substantial question of law for being answered:- "1.Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessment order is not erroneous or prejudicial to the revenue, since 90% of the interest was excluded from the business profits in accordance with the decision of this Court in the case of Chinnapandi? 2.Whether on the facts and circumstances of the case the Tribunal was right in holding that the assessment order was not erroneous as it had been rendered following a judicial pronouncement, even though it is clear that the assessing officer had not applied his mind as to the nature of the interest received to see if it is to be taxed as income from business or income from other sources? 4.Earlier for the assessment year 1998-99, the assessment was completed on 29.3.2001. Later, the said assessment was revised under Section 154 of the Income Tax Act, 1961. This order was appealed against and the effect to the said order was given on 04.08.2004. While passing the said revision order, it was noticed that the respondent had not considered certain amounts while determining pro....
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....bsp; 3814072 Revised Total Turnover 705,29,99,833 Adjusted Total Turnover: Total Turnover 705,29,99,833 Less: Turnover of Trading goods 41675572 Less: Turnover of Trading goods 701,13,24,261 Revised Total Turnover Adjusted Export Turnover: 1352147543 Adjusted Profit of Business Business Profit computed 49,79,55,825 Less: 90% of the following: 1. Rent received 2. Interest received 3. Agency commission recd 90% of Rs. 4,91,69,545 6,26,449 3,36,97,516 38,14,072 -------------- 3,81,38,037 3,43,24,233 Profit of the Business 46,36,31,592 Less: Profit from Traded goods 77,33,896 Adjusted Profit of Business 45,58,97,696 Export Turnover of Traded Goods 41675572 Direct cost of Traded Goods 27516450 Indirect cost of Traded Goods:- Total Indirect Cost x ETO of Traded Goods ------------------....
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.... under Explanation below Section 80-HCC. 14.Aggrieved by the orders of the Commissioner of Income Tax, the respondent-assessee preferred two separate appeals vide ITA Nos. 1472 and 1473 /Mds/2008 for the two assessment years in question before the Income Tax Tribunal, Chennai (Appellate Tribunal for brevity). 15.By the impugned order the Appellate Tribunal has allowed the respective appeals. The operative portion of the impugned order of the tribunal reads as under:- We have considered the rival submissions carefully in the light of the material on record. We find that decisions are available on both sides to the effect that interest income should be assessed as income from other sources or business income. Depending upon these decisions, again there are lot of decisions available on both sides where deduction under sec . 80HHC should be available in respect of interest income or not. Netting of interest is also permissible as per the decision of the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra). However, on the date when the Assessment Order was finalised the decision of the Hon'ble Jurisdictional High Court in the case of V. ....
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....t. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." In view of the above we are of the view that the Assessment Order cannot be called er....
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....rent, commission, brokerage, charges, etc. though formed part of gross total income had to be excluded as they were "independent incomes" which had no element of export turnover. 90% of the said sum was be reduced from the gross total income to arrive at the business profits and since the said processing charge was an important component of business profits, it also had to be included in the total turnover in the said formula to arrive at business profits in terms of Clause (baa) of the said Explanation. In paragraph 18 to 28 the Court further held as under:- 18. This batch of civil appeals pertains to Assessment Year 1993-1994, therefore, we have quoted the said section as it stood on the material date. 19.Section 80-HHC of the IT Act was not a charging section. It was an incentive provision. Its object was not to ascertain real income. Section 80-HHC(3) provided for the following formula: Profits of the business X Export turnover -------------------- Total turnover 20. Section 80-HHC had a head note. That head note said "deduction in respect of profits retained for export business". The said head note was inserted by the Finance Act, 1985 w.....
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....baa) of the said Explanation which inserted the definition of "profits from business" in the said Section 80-HHC(3) of the IT Act. 22. In the present case the AO had worked out business profits of Rs. 1,94,08,220 as gross total income on the basis of income received from cashew business (see pp. 50 and 52 of the SLP paper book). Even according to the assessees, in the above formula his business profits included the abovementioned processing charges. However, according to the assessees, the said charges were not to be included in the total turnover. We are not inclined to accept the contention of the assessees. The above discussion indicates that the formula in Section 80-HHC(3) of the IT Act provided for a fraction of export turnover divided by total turnover to be applied to business profits calculated after deducting 90% of the sums mentioned in Clause (baa) of the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges, etc. though formed part of gross total income had to be excluded as they were "independent incomes" which had no element of export turnover. That, the said items distorted the figure of export profi....
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....constituting independent income having no nexus with exports were required to be reduced from business profits under Clause (baa). 26.A bare reading of Clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc. formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving at export profits Clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the IT Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula (see CIT v. Laksh....
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....goods and the same to that extent cannot be termed as profits from export business and in that context, for computing the "Export Turnover", the Supreme Court made the aforesaid observation and held on facts that processing charges received by the Assessee on export of the casual nuts and processing charges from other exporters for processing their casual nuts in his own factory will be export profit to the extent of 10% only as per Clause (baa) of the Explanation. 23. As far as the interest income is concerned, Clause (id) of Sub- section (2) of Section 56 clearly provides that income by way of interest on securities will be taxable under Section S6, ir only such interest income is not chargeable to income tax under the head "Profits and gains of business or Profession". Thus, Interest Income earned in the ordinary course of business is excluded from Section 56 of the Act. An interest income earned by the Assessee or received by the Assessee during the year in question, in the ordinary and regular course of business is an integral part of business income itself. Like hundreds of business decisions taken by the Assessee in its business, the deposit of money with the bank e....