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2008 (9) TMI 621 - ITAT BANGALORELoss on account of irrecoverability of advances - ascertaining the advances paid for acquiring capital assets - CIT(A) held that, these are advances in the nature of business and revenue expenses - allowed the appeal of the assessee - ld DR submitted that such expenses are of capital nature and therefore, if the advances relatable to capital expenditure are written off, then such loss is a capital loss and is not allowable. HELD THAT:- The Hon’ble Privy Council in the case of CIT v. Motiram Nandram [1939 (11) TMI 13 - PRIVY COUNCIL] had an occasion to consider as to whether the loss of advances is a trading loss or capital loss. In that case, the assessee advanced money on interest for securing organizing agency of oil company. The Hon’ble Privy Council observed that the purpose of giving deposit was to secure an enduring benefit of a capital nature. The loss of the deposit was therefore is a loss of capital and could not be deducted from the profits of the business made by the assessee for the purpose of income-tax. Therefore, it is clear that an advance, which has been given for acquiring a capital assets or for securing an enduring benefit cannot be considered as a trading loss to be allowable when such advance becomes irrecoverable. Hence, we uphold the finding of the AO that in case advance has been given for acquiring a capital asset, then it will not be allowable as a trading loss. Free trade zone - total turnover - Expenditure incurred in foreign currency - CIT(A) has erred in working out export turnover by reducing 50 per cent of communication charges and entire expenditure under technical service charges - HELD THAT:- In the case of the assessee, there are no domestic sales and all the sales are related to exports. Hence, as per the Circular issued by the Board, the assessee is entitled to deduction of entire profit. This is possible when the total turnover is considered on the same lines as export turnover, meaning thereby, the total turnover should be sum of export turnover and domestic turnover. The Board Circular No. 717, explains the scope and effect of the newly inserted section 10A(2)(ia) by the Finance Act, 1995. This section was introduced so that industrial undertakings who exported 75 per cent of their production were made eligible for deduction u/s 10A. It made clear that the units which export less than 75 per cent of the turnover can avail themselves of the normal 100 per cent deduction u/s 80HHC to the extent of the export profits. This makes it clear that the words ‘total turnover’ should be understood in the same sense as the definition given in section 80HHC. For calculating as to whether export is less than 75 per cent or more, one cannot use the different yardstick for the total turnover for the purpose of sections 10A and 80HHC. Hence, to say that the definition of total turnover as contained in section 80HHC cannot be imported is not acceptable in view of the Circular of the Board. An item, which is not included in the export turnover has to be excluded from the total turnover. The ld CIT(A) has given the finding based on the literal interpretation of the words ‘total turnover’. The Hon’ble Apex Court in the case of Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] has already held that meaning of the words ‘total turnover’ as mentioned in other enactments cannot be imported in view of the objective for which the section has been enacted to allow deduction in respect of profits from export. It is a well-settled Rule of construction that where the plain literal interpretation of its statutory provision provides a manifestly absurd and unjust result, which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction : Luke v. IRC [1963 (2) TMI 46 - HOUSE OF LORDS]. Following this Rule of interpretation and considering the discussion, we hold that whatever is not included in the export turnover cannot be included in the total turnover as total turnover is the sum of export turnover plus domestic turnover. Since the issue before us stands covered by the decision of the Tribunal in the case of other assessee’s, therefore, respectfully following that we hold that whatever is not included in export turnover is not to be included in the total turnover. Before parting we would like to mention that judicial discipline requires that quality of wisdom should yield to the hierarchy of system. The ld CIT(A) is bound to follow the decision of the jurisdictional Tribunal as held by the MP High Court in the case of Agrawal Warehousing & Leasing Ltd. v. CIT [2002 (7) TMI 86 - MADHYA PRADESH HIGH COURT]. Telecommunication charges - HELD THAT:- It is provided that expenses relating to delivery is to be excluded from export turnover. Since no special details were provided, AO was justified in estimating at 50 per cent of the total expenses relating to telecommunication charges as expenses for delivery of goods or services. The AO was also justified in excluding the expenses relating to technical services as per the facts on record as such expenses were incurred in foreign exchange. However, these issues become academic in view of the fact that in the case of the assessee, total turnover is the same as export turnover as there is no domestic turnover. In the result, the appeal filed by the revenue for the AY 2000-01 is allowed for statistical purpose while the appeal filed by the assessee for the AY 2004-05 is partly allowed.
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