TMI Blog2008 (10) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... as profit derived from the export of eligible articles. We, therefore, dismiss the ground raised by the revenue and allow this part of the Ground No. 1 of the assessee s appeal. Therefore, we direct the AO to recompute the deduction u/s 10A by considering the export turnover as reduced by the local sale made to M/s. Neogem India Limited and to M/s. Shankar Jewels. Profit from export of traded goods - whether eligible for deduction? - CIT(A) has not granted deduction to the assessee insofar as it relates to the profit from export of trading goods - HELD THAT:- Section 10A is akin to section 80HHC in some respects, as will be seen infra and the later section also provides for deduction in respect of profits from the export of the goods or merchandise manufactured by the assessee as well as from the export of trading goods. Since the benefit has been granted to the profits and gains derived from the export of eligible articles, without further restricting it to the articles manufactured by the assessee in its industrial undertaking, we are of the considered opinion that the ld CIT(A) was not justified in excluding the export of trading in goods from the qualifying expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the year one and the second part as relatable to the year two, more specifically, when a clear and unambiguous provision has been enshrined in this regard. If that is the position that the foreign exchange fluctuation gain as relatable to the year one realized within six months after the close of the year or with in such further period as allowed by the competent authority is to be treated as part of the export turnover for the year one and not the year two, then logically such amount would also stand excluded from the income of year two and form part of the income of year one. This view has been recently taken by the Special Bench of the Tribunal in the context of section 80HHC in the case of Asstt. CIT v. Prakash L. Shah [ 2008 (8) TMI 387 - ITAT BOMBAY-K] .Therefore, we hold that assessee is not entitled to benefit of deduction u/s 10A with reference to foreign exchange gain . The income to this extent would also be excluded and would form part of the income of the preceding year and the deduction u/s 10A on this part will be eligible in the said preceding year. We order accordingly. In the result, the appeal of the revenue is dismissed and that of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, MY-10020 USA 1,11,647.00 12. M/s. Neogem India Limited G-32, G J Complex-III, SEEPZ, Andheri (E), Mumbai - 400 096. 12,27,971.00 13. The Baith Co. Inc., New York 1,26,481.00 14. Shankar Jewels, G-15, Second Floor, G J Complex-II, SEEPZ Andheri (E), Mumbai - 400 096 90,932.00 15. Paul Gesswein Co., Bridge Port, Connecticut, USA 18,55,803.00 16. Staurt Marcus, Dallas, TX 75252, USA 96,71,861.00 Total 51,90,97,833.91 3. On the perusal of the details of total sales, the Assessing Officer noted that the assessee had made local sales of Rs. 16,06,45,406, which figure was included in the above amount of sales of Rs. 51.90 crores. Name and address of the local parties to whom the local sales were made has been reproduced at page 3 of the assessment order : Sr. No. Name of the party Amount of Sales (Rs.) 1. Tara Jewel Exports Pvt. Ltd., G-44, G J Complex-I, SEEPZ, Andheri (E), Mumbai - 400 096. 15,93,26,701.00 2. M/s. Neogem India Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding the local sales at more than twenty five per cent, but the deduction would not be available on the local sales, if it exceeded the prescribed percentage. As in this case the domestic sales were found to be more than the prescribed limit, he denied the deduction on such local sales. He however, held that the assessee can claim deduction only on the goods manufactured and exported by it and not on the export of its trading activity. He further came to hold that local sales made to the holding company, both of the raw material as well as the finished goods, did not qualify for deduction. In this light he directed to allow deduction at Rs. 1,41,99,793. Both the sides are in appeal against their respective stands. 6. We have heard the rival submissions and perused the relevant material on record. The learned A.R. has contended that the assessee is entitled to full deduction and the splitting by the ld. first appellate authority of the amount claimed made by the assessee into two parts, viz., deductible and not deductible, is erroneous. On the other hand, the learned D.R. relied on the assessment order to submit that the whole of the amount is not deductible as was rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of deduction is to be restricted to the export of the manufactured goods only for the reason that if the domestic sales exceed the prescribed percentage of the total turnover, then no deduction can be allowed to the extent of such domestic sales. The only ground of the revenue s appeal is against overturning the finding of the Assessing Officer that no deduction can be allowed if the domestic sales exceed the prescribed percentage. In the opposition the assessee is contending that if the domestic sales exceed the prescribed percentage, then the deduction on domestic sales is to be allowed by restricting it to the extent of the twenty five per cent of the total sales. 9.2 At this juncture it will be apt to note down the relevant provision. Section 10A was substituted by the Finance Act, 2001 with effect from 1-4-2001 and the assessment year under consideration is the first year of the operation of this section in the substituted form. Both the sides have admitted that some of the points involved in these appeals are virgin in as much as no precedent is available on the controversies raised. Insofar as we are concerned with this portion of dispute, the relevant portion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s can be availed and in the converse case if the amount of domestic sales is more than the prescribed percentage, then no deduction is permissible on the profits derived from the domestic sales. In our opinion, the ld. CIT(A) also failed to assign the proper meaning to the simple and plain language of the proviso as per which profits and gains derived from the domestic sales upto twenty five per cent of the total sales are available for the deduction. From the use of the expression such domestic sales as do not exceed twenty five per cent , it is clearly noticeable that the profits and gains on the domestic sales not exceeding twenty five per cent of the total sales shall also be deemed to be the profits and gains derived from the export of eligible articles qualifying for deduction under the section. It can be best illustrated by an example. If the total sale is Rs. 100 out of which export is of Rs. 80 and domestic sale is Rs. 20, then the profit from the domestic sales of Rs. 20 will also be deemed as profit derived from the export for the purposes of this section. But if domestic sale is Rs. 30 out of the total sale of Rs. 100, in that case the deduction will be restricted to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods and not whether these are manufactured or purchased by the assessee. Section 10A is akin to section 80HHC in some respects, as will be seen infra and the later section also provides for deduction in respect of profits from the export of the goods or merchandise manufactured by the assessee as well as from the export of trading goods. Thus profits from both the self manufactured as well as trading in goods have been made eligible for deduction. If the intention of the Legislature had been to restrict the deduction only from the manufacturing activity, then it would have been provided so in unambiguous terms in the section itself. Since the benefit has been granted to the profits and gains derived from the export of eligible articles, without further restricting it to the articles manufactured by the assessee in its industrial undertaking, we are of the considered opinion that the learned CIT(A) was not justified in excluding the export of trading in goods worth Rs. 3.23 crores from the qualifying exports. III. Sale of finished goods to local parties - whether qualify as export 11. The assessee made local sales of finished goods worth Rs. 4.60 crores to TJEL, Rs. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through sub-section (4) of section 10A which stipulates that the profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. From this sub-section, it is manifested that both the export turnover and total turnover are distinctly recognized. The total turnover includes both export turnover as well as domestic turnover. It cannot be conceived that any local sale made by the assessee would also assume the character of export turnover. The profits of the business as per this sub-section will include both the profit from export as well as local sales. Only the proportionate part of such profit as is relatable to the export turnover is considered as eligible for deduction, whereas the other part of the profits as relatable to the local sales stands excluded except as otherwise provided. There is no indication in the section for treating the local sales as exports. It is trite law that unintended benefit cannot be gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed then a common purchase order was made in the name of the assessee so as to avail turnover discount. And on the receipt of the goods in India, the assessee was raising invoice on its holding company immediately at no profit no loss basis of the raw material requisitioned by them and supplying the goods in no time. He took us through page Nos. 59 to 63 of the paper book to show on illustrative basis that foreign party sold gold bars to the assessee vide their invoice dated 16-10-2000 at the rate of 18972 US dollars which was received into India on 19-10-2000 and the material relatable to the holding company , that is TJEL, was sold by the assessee vide its invoice dated 5-12-2000 at the same rate of 18972 US dollars. Another similar instance was also brought to our notice by which the assessee purchased cut and polished diamonds from Sidhanshu Diamonds, UAE vide their invoice dated 6-8-2000 at the rate of 175.50 US dollars. While referring to page 67 of the paper book, it was shown that the assessee had sold some part of the raw material to TJEL on the same rate of 175.50 US dollars vide invoice dated 30-10-2000. The learned A.R. contended that the total amount of Rs. 11.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the buying rate has been made available to exhibit that if the assessee had not purchased the goods meant for its holding company, then the rate of purchase would have been higher. We further observe that if the contention of the assessee had been correct that there was an initial understanding to purchase on behalf of the holding company also then the quantity so purchased ought to have been immediately delivered to the holding company on its receipt. From the two instances brought to our notice, by the learned A.R., we find that the picture is quite different. Whereas page No. 61 of the paper book is the copy of bill of entry showing the date of receipt of goods as 19-10-2000, it means that the goods were received by the assessee on this date. However, the invoice for the sale made to TJEL from this lot is dated 5-12-2000. It, therefore, belies the assessee s contention that the goods were transferred to holding company immediately on receipt. Similar is the position in the second instance placed on record as per which the goods were received by the assessee on 18-8-2000, whereas the invoice for selling the goods to the holding company bears the date of 30-10-2000. Be that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are unable to concur with the view point raised by the learned A.R. that the sales made by the assessee to its holding company without profit be not viewed as sale and hence excluded from the total sales as well as domestic sales for the purpose of computing the amount of deduction under section 10A. It is admitted position that the assessee purchased the goods in its dominion by making the payment at his own. It has not been shown that the amount equal to the purchase price was obtained by the assessee in advance from the holding company. On making the purchase, the ownership in the goods vested in it. Transferring some part of the goods purchased by it to subsequently on invoice is an altogether different transaction. The contention that in the absence of any profit element on the transfer of such goods, the transaction cannot be regarded as sales, is not acceptable for the obvious reason that the earning or not earning of profit from the transfer of goods is not a relevant criteria for determining the nature of the transaction. The sale would not loose its character as such, if it is made at loss or at profit or at par. Adverting to the facts of the instant case we observe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores is to be excluded from the purview of export turnover but included in the total turnover. Similarly the amount of Rs. 11.32 crores representing local sales of raw material to the holding company is to be included in the total turnover but, excluded from the export turnover. Further as per the direction of the proviso to section 10A(1) (as discussed under the point I above), the profit derived from domestic sales up to twenty five per cent of total sale shall also be deemed to be profit derived from export and this profit shall also qualify for deduction under section 10A. The portion of profit derived from local sales both of raw material and of finished goods, whether made to the holding company or outside parties, in excess of twenty five per cent of the total sales, has to be denied the benefit of deduction under this section. This computation is subject to the effect of foreign exchange fluctuation gain, which is subject-matter of ground No. 2 in the appeal of the assessee. 13. The second ground raised by the assessee deals with direction of the ld. CIT(A) in holding that accrual of foreign exchange fluctuation gain on the opening balance of the debtors cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the export of eligible article for the purposes of sub-section (1). Sub-section (3) provides that the deduction is available if the sale proceeds of the eligible articles exported out of India are received in or brought into India in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. "Export turnover" has been defined in Explanation 2 below sub-section (9A) of section 10A to mean the consideration in respect of export of the eligible articles received in or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3) but does not include freight, telecommunication charges, etc. Thus, the term export turnover as referred to in sub-section (4) would mean the sale proceeds received in India in convertible foreign exchange by the assessee within a period of six months from the end of the previous year or such further period as the competent authority may allow in this behalf. Accordingly if the export is made in year one and the total realization is effected in year two, but within the statutory period of six months ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
