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2017 (2) TMI 1009 - DELHI HIGH COURTDeduction under Section 80HHC - computation of total turnover of the business carried on by the assessee - Held that:- By necessary implication, the total turnover of business would only mean total turnover of business of goods to which the section applies. Inclusion of turnover of goods to which the section does not apply, would be doing violence to the language of Sub-section (3)(b). Sub-section (3) is inserted only to determine the deductible profits out of the total profits of business which can be attributed to the export business. We are in respectful agreement with the rationale adopted by the Madras High Court in Madras Motors Ltd. (2002 (3) TMI 10 - MADRAS High Court ). As a matter of fact, there could be a circumstance where one unit is completely engaged in export and not partially as was the case in Madras Motors Ltd. (supra). In those circumstances, there would be no occasion for disallowing a portion of the export earnings by adopting formula provided in Section 80HHC of the Income Tax Act. Interpretation of the term “indirect costs” - Explanation (e) which defines “indirect costs” has to be read in conjunction with sub-section (3)(c)(ii) of Section 80HHC, which provides that the profits shall be reduced by the “direct and indirect costs attributable to export of such trading goods.” Since the word “attributable” has been used, it is clear that the indirect costs also must be attributable to the export of such goods; in other words, there must be some nexus that the “indirect costs” have to the export turnover of the assessee. Au contraire, if the term “indirect costs” is interpreted to also include such costs which are not attributable to the export of trading goods, then that would go against the language of the provision, as clarified by the Supreme Court. That being the position, in view of the declaration of the law in Hero Exports (2007 (11) TMI 13 - Supreme Court of India ), “indirect costs” computed must have some nexus (or in other words must be “attributable”) to the export of trading goods. The decision of the ITAT on this question is therefore reversed. Written back amounts would constitute “independent income” having no relation to the export profits of the assessee. They have to be excluded by virtue of Explanation (baa), to avoid distortion in the computation of export profits under Section 80HHC.
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