TMI Blog2008 (1) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... is of total/actual such expenses) alleging them as 'personal expenses and lamenting that 'personal use of telephones cannot be ruled out'. (2) Generator expenses by Rs. 13,869 (assuming 10 per cent on ad hoc basis of total/actual such expenses) alleging and lamenting that 'some expenditures are not supported with vouchers', without citing any cogent instance even of any unsupported expense. (3) Staff welfare expenses by Rs. 10,000 (assuming 10 per cent on ad hoc basis of total/actual such expense) alleging and lamenting that 'some expenditures are not supported with vouchers', without citing any cogent instance even of any unsupported expense. (4) Foreign travel expenses by Rs. 1,24,760 (assuming 10 per cent on ad hoc basis of total/actual such expenses in foreign exchange) alleging them as personal expenses, based on an Tribunal ruling (for another assessee) without confronting it with the appellant assessee during the assessment proceedings, disregarding the primary and undeniable fact that the appellant/assessee is a 100 per cent exporter; (5) Business promotion and trade fair expenses by Rs. 2,01,154 (assuming 5 per cent on ad hoc basis of total/actual such expenses) al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) found that most of the expenses were incurred in cash and were not properly vouched. 3. We have considered the rival contentions. Since the assessee is a non-corporate assessee, personal use of telephone cannot be ruled out, therefore, disallowance of 10 per cent of telephone expenses were justified. So far as generator expenses and staff welfare expenses are concerned, no specific instance has been quoted by the AO as to which of the expenses were not supported by vouchers, we, therefore, do not find any justification for the disallowance made by the AO. As the assessee is a 100 per cent exporter and the entire income of the assessee was subject to deduction as per s. 80HHC, we do not find any justification for disallowance of foreign travel expenses to the extent of 10 per cent on the allegation of personal use, which was incurred wholly and exclusively for the purpose of business. Keeping in view the nature of expenses, personal element cannot be ruled out, we, therefore direct the AO to restrict the disallowance to the extent of 5 per cent in place of 10 per cent made by him. 4. With regard to the expenditure incurred on business promotion and trade fair after pursuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is earned thereon it can only be categorized as income from other sources. This receipt merits separate treatment under s. 56 of the Act which is outside the ring of profits and gains from business and profession. It goes entirely out of the reckoning for the purpose of s. 80HHC. To give effect to this position, the AO while computing profits of the export business will have to remove from the debit side of the P L a/c the corresponding interest expenditure that has been 'laid out' to earn such income from other sources. Otherwise this will depress the profits by an amount which is out of the reckoning of s. 80HHC, a consequence not intended to be brought about." 6. It is quite clear from the above proposition that if the assessee has incurred any expenditure for making the FDRs, interest income of which is brought to tax under the head 'Income from other sources', such interest expenditure is to be taken out from the profits of export business, and at the same time such interest expenditure is to be deducted while arriving at net income from interest on bank deposit. Taking out such interest income and interest expenditure out of the P L a/c prepared for computing export profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any merit for disallowance of interest paid to the bank which is deductible under s. 36(1)(iii) of the Act. 8. With regard to computation of deduction under s. 80HHC on account of DEPB premium, there is an amendment by Taxation Laws (Amendment) Act, 2005. which has received the assent of the President of India on 28th Dec., 2005. The following amendment was made with retrospective effect from 1st April, 1998: "(i) in sub-s. (3)- (A) after the proviso, the following provisos shall be inserted and shall be inserted and shall be deemed to have been inserted, w.e.f. 1st day of April, 1998, namely- Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under cl. (a) or cl. (b) or cl. (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiid) or cl. (iiie), as the case may be, of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee: Provided also that in the case of an assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in cl. (iiia) or cl. (iiib) or cl. (iiic), as the case may be, or (b) any sum referred to in cl. (iiid) or cl. (iiie), as the case may be, of s. 28; as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee'. (ii) in the Explanation occurring at the end, w.e.f. the 1st day of April, 1998,- (I) in the proviso to clause (books of account), for the word, brackets, figures and letter 'and (iiic)', the brackets, figures, letters and word '(iiic), (iiid) and (iiie)' shall be substituted and shall be deemed to have been substituted; (II) in cl. (baa), in sub-cl. (I), for the word, brackets, figures and letter 'and (iiic)', the brackets, figures, letters and word '(iiic), (iiid) and (iiie)' shall be substituted and shall be deemed to have been substituted." 9. This amendment apparently was not available with the Revenue authorities while making the assessment and/or disposing of the appeal. In these circumstances, it would be in the interest of justice that the matter be set aside to the file of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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