TaxTMI 
TaxTMI 
TaxTMI 
2007 (12) TMI 236
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....3 : [2004] 266 ITR 521 (SC), the deduction under s. 80HHC was disallowed. The assessee filed an appeal before the CIT(A), which was rejected on the ground that the assessee had not fulfilled the additional conditions laid down vide Taxation Laws (Amendment) Act, 2005 which has amended the provisions of s. 80HHC. Now, the assessee is in appeal here before the Tribunal. 4. The learned counsel of the assessee, who appeared before the Tribunal argued at length. Written note as asked to file is also filed. Through the written submission, it has been stated that the assessee was an exporter of "trading goods" during the year under consideration. Thus the assessee would be entitled to deduction under cl. (3)(b) of s. 80HHC of the Act. The learned counsel then referred to cl. (3)(b) of s. 80HHC, which reads as under : (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"; 4.1 It was submitted that in the case of an exporter of trading goods, the export profits eligible for deduction shall be the export turnove....
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....ns laid down under the third proviso are not fulfilled, the denial of deduction will be only to the extent of "profit" arising on sale/transfer of DEPB and not the value of DEPB which would fall within the provisions of s. 28(iv) of the Act. 4.6 The learned counsel then referred to the definitions of 'direct cost' and 'indirect cost' as given in cls. (d) and (e) of Explanation to sub-s. (3) of sec. 80HHC which reads as under : "Direct cost" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods. "Indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover. It was submitted that the definition of direct cost includes all costs attributable to trading goods. The learned counsel emphasized on the use of the word "attributable" in the definition of direct cost. It was submitted that the term "attributable" has been considered by various Courts in the past. It was submitted that direct cost would thus only include the direct cost relatable to export of goods. 4.7 The learned counsel submitted that in the case of most of the exporte....
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....ai Bench of the Tribunal in the case of Surendra Engg. Corpn. v. Asstt. CIT [2003] 78 TTJ (Mumbai) 347 (SB) : [2003] 86 ITD 121 (Mumbai)(SB). The learned counsel of the assessee emphasized the following observations of the Tribunal: "In the instant case, the assessee was undisputedly an exporter of 'trading goods' exclusively and, therefore, cl. (b) of sub-s. (3) applied. In the case of such an exporter, the export profits shall be the export turnover on respect of such trading goods as reduced by (1) the direct cost and (2) the indirect costs. Both these costs should, however, be 'attributable to such export', which means the export of trading goods. By using these words in cl. (b) of sub-s. (3) and thereby introducing a condition that both the direct and indirect costs must be attributable to the exports of trading goods, the legislature has manifested an intention that any costs which are attributable to receipts other than export turnover of trading goods must be left out of reckoning at the threshold itself. This condition, thus, forms the substratum or bedrock of the computation of the export profits. Therefore, if any part of the direct or indirect costs are attributable no....
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.... duties paid or in other words after setting off DEPB against such taxes and duties. It was submitted that DEPB credit in actual terms reduces the cost of goods, which are exported. It was further submitted that considering the above, the direct cost would mean cost of goods attributable to exports i.e. cost of goods as arrived at after setting off or reducing the value of DEPB. Further reliance was also placed on the decision of the Tribunal in the case of M/s Amar International decided in ITA No. 613/Mum/2006 for asst. yr. 2002-03 vide order dt. 26th Sept., 2007. Copy of the order of the Tribunal is also filed. 4.13 The learned Departmental Representative on the other hand firstly placed strong reliance on the orders of the authorities below. It was further submitted that direct cost means related to the attributable goods. Therefore, the entire cost shown in the P&L a/c has to be taken into consideration and not the apportionment of the cost as stated by the learned counsel of the assessee. It was further submitted that there is no cost in respect of DEPB incentive; therefore, as per provisions of law, the cost shown in the P&L a/c has to be taken into consideration. 4.14 The ....
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....indings in paras 11 to 15 which are as under : "11. We have considered the rival submissions. It is not disputed by the Department that the assessee, in addition to the income derived from export of trading goods, also derived income from export incentives, etc. of Rs. 1,60,000 against FOB value of exports amounting to Rs. 6,50,000 in the above illustration. It is not the case of the Department that the assessee could have earned Rs. 1,60,000 without incurring any expenditure (Rs.50,000 in the above example). It is not in dispute that the case falls under s. 80HHC(3)(a). It is not the case of the Department that assessee had not income by way of incentive, interest, etc. (Rs. 1,60,000 in the example). The basic case of the Department was that the words 'indirect costs' in cl. (e) in the Explanation did not provide for exclusion of expenses incurred for earning incentives, commission, rent, etc., and, therefore, the entire amount of expenses (Rs. 50,000 in the above example) spent for earning such other incomes did not fall within the meaning of the words 'indirect cost' in cl. (e). According to the Department, s. 80HHC(3)(b) provides for a statutory formula to calculate export pro....
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....HHC(3)(b) equates export profits to export turnover less direct and indirect costs attributable to the exports of trading goods. Therefore, the principle of attribution is retained. Thirdly, keeping in mind the provisions of s. 80HHC(3)(b) r/w cls. (d) and (e) of the Explanation it is clear that legislature intended allocation of costs between export turnover and total turnover. It is urged that the apportionment would not apply to cases under s. 80HHC(3)(b). It is true that, in most cases, it may not. But in certain cases falling under s. 80HHC(3)(b), ratio still applies. For example, in the case where the assessee exports all bought out items but brings back only a part of the export proceedings into India, in such cases, the ratio will apply and, therefore, if one is to read cl. (e), it retains the words indirect costs to be allocated in the ratio of export turnover to the turnover. 13. The question, which, however, needs to be decided, is whether, in the above example, the assessee is entitled to reduction of Rs. 16,000 from Rs. 50,000 being the total indirect expenses for earning both the incomes. Department reduces the FOB value by Rs. 50,000 whereas assessee contends that i....