TMI Blog2006 (3) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be treated as capital expenditure but when the matter went before the CIT(A), the CIT(A) deleted the addition by observing in para 5.3 as under "5.3 Following the decision of the Hon ble I.T.A.T. in the case of Vadilal Dairy International Ltd. , the decision of the Hon ble Gujarat High Court in the case of Alembic Glass Works and also following my orders for the assessment years 1995-96 and 1996-97 in the appellant s own case, the Assessing Officer is directed to allow interest expenditure of Rs. 54,16,190. The disallowance in respect of remaining items made by the Assessing Officer is upheld. The Assessing Officer is directed accordingly." 3. Before us ld. DR relied on the order of the Assessing Officer. The reliance was also placed on the decision of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) and it was contended that the expenditure incurred by the assessee by way of interest was capital expenditure and, therefore, it cannot be allowed under section 36(1)( iii ) and also in view of the Explanation added thereto. 4. Ld. AR on the other hand relied on the order of Hon ble Gujarat High Court in the case of Dy. CIT v. Core Healthcare Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT v. Chloride India Ltd. [2002] 256 ITR 625. 9. No contrary decision was brought to our notice by the ld. DR. We, therefore, dismiss the issue relating to the direction given by the CIT(A) that the sales and excise duty should be excluded from the total turnover while computing the deduction under section 80HHC. 10. The second issue in the second ground taken by the revenue relate to the direction given by the CIT(A) that the service charges, commission, charges, conveyance charges, miscellaneous receipts should be excluded from the total turnover while working out the deduction under section 80HHC. 11. Ld. A.R. in this regard contended that since 90% of the other receipts has been excluded in view of clause ( baa ) under Explanation given under section 80HHC, therefore, this receipt cannot form part of the total turnover. Reliance in this regard was placed on the following decisions : (1) CIT v. Kantilal Chhotalal [2000] 246 ITR 439 (Mum.). (2) CIT v. K. Ravindranathan Nair [2004] 265 ITR 217 (Ker.). 12. The ld. DR. on the other hand relied on the order of the Assessing Officer. 13. We have carefully considered the rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. 16. The revenue has come in appeal before us. We have already confirmed the order of the CIT(A) so far it relates to the exclusion of sales tax is concerned in the preceding paragraph. The issue before us now relates only to the direction of the CIT(A) in respect of exclusion of service charges and commissions, conversion charges and miscellaneous receipts. 17. We have gone through the judgment of Mumbai High Court as relied by the ld. AR in the case of CIT v. Kantilal Chhotalal [2000] 246 ITR 439. In this case it was held "Section 80HHC of the Income-tax Act, 1961, has undergone various changes from time to time. Clause ( baa ) of the Explanation to section 80HHC inserted by the Finance (No. 2) Act, 1991, is clarifactory. The memorandum explaining the provisions has discussed this point in detail. In [1991] 190 ITR (St.) 300 it has been mentioned that the existing formula distorted the figure of export profits when receipts like interest, commission, etc., are included in the business profits and, therefore, to clarify the meaning of the business profits for the purpose of section 80HHC, the Legislature has excluded the above items from business profits in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases the profit of the business. We are of the view, if any receipt does not form part of the total turnover it should be excluded from the profit of the business also, because only the numerator and the denominator will show the correct picture. The decision of the Mumbai High Court in the case of Kantilal Chhotalal ( supra ) laid down the same preposition of law. 19. In this case, we find that the Assessing Officer has excluded 90% of the service charges commission and also miscellaneous receipts from the business profit, therefore, in our opinion, the CIT(A) was correct in law in directing the Assessing Officer to exclude from total turnover service charges commissions and miscellaneous receipts. So far as the conversion charges are concerned, the Assessing Officer has not excluded the 90% of the conversion charges while working out the business profit as per Explanation ( baa ) of section 80HHC. The profit earned through the conversion charges since already included in the profit for business, therefore, in our opinion, the conversion charges cannot be carved out of total turnover. We find that under Explanation ( ba ) of section 80HHC, total turnover has been de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export are to be worked out on the basis of the total profit of the business and, i.e., why the business profits are allocated in the ratio as the export turnover bears to the total turnover. Therefore, in our opinion the logical interpretation can be that if any receipt does not form part of the total turnover it should be excluded from the profit of the business. If the receipt is not excluded from the profit of the business, the receipt has to be considered as part of the total turnover. In view of our aforesaid discussion we set aside the order of the CIT(A) so far it direct the Assessing Officer that the conversion charges should be excluded from the total turnover because the conversion charges in the case before us form part of the business profit. We, therefore, modify the direction of the CIT(A) and direct the Assessing Officer to exclude only the service charges commissions amounting to Rs. 25,58,344 and miscellaneous receipt amount to Rs. 12,24,193 from the total turnover in addition to the sales tax for which we have already directed in the preceding paragraph. Thus, this ground of the appeal of the revenue is partly allowed. 21. In the result the appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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