TMI Blog2007 (8) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such processing that some diamonds were found unsuitable for further processing with the result that they were taken out of the manufacturing process and were accordingly sold as rough and rejected diamonds in the international markets. The assessee claimed to have exported rough and rejected diamonds amounting to Rs. 12,23,32,074 during the previous year relevant to the assessment year under appeal which it sought to exclude from the "total turnover" and also from the cost of the materials for computing the deduction under section 80HHC. The Assessing Officer examined the claim of the assessee and rejected the same for the detailed reasons given by him at pages 6-8 of the assessment order. 3. On appeal, the ld. CIT(A) has decided the issue in favour of the assessee with the following observations : "3. Second ground of appeal is against inclusion of re-export of rough and rejected diamonds of Rs. 12,23,32,074 in the total turnover of the appellant for computing the allowable deduction under section 80HHC of the Act. This issue has also been discussed in detail in para 4 of the impugned order. The appellant has reduced the cost of re-export of rough and rejected diamonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold by the assessee, i.e., the same are being sold in unfinished form. Hence, we are of the view that the same is to be reduced from the cost of purchases of rough diamonds. Accordingly, we direct the Assessing Officer to exclude the same from the total turnover as well i.e. to maintain parity between numerator and denominator in view of the decision of the jurisdictional High Court in the case of Kantilal Chhotalal reported in 246 ITR 439." 6. We have heard the parties and considered their submissions. There is no dispute that the assessee is engaged in the business of export of diamonds, which involves export of polished diamonds to which section 80HHC is applicable and export of rough and rejected diamonds to which section 80HHC is not applicable. It is also not in dispute that the assessee has exported rough and rejected diamonds for a sum of Rs. 12,23,32,074 during the previous year relevant to the assessment year under appeal. The Department seeks to include the aforesaid export proceeds of rough and rejected diamonds in the "total turnover" in order to arrive at the profits derived from the business of export of eligible goods and merchandise, which alone is elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HHC does not apply, the business profits of the business as a whole are required to be allocated in terms of the formula given in sub-section (3) of section 80HHC in order to arrive at the correct figure of export profits by excluding the element of profits relatable to the export of rough and rejected diamonds. In taking this view, we are supported by the following observations made by the Hon ble Supreme Court in CIT v. Lakshmi Machine Works [2007] 290 ITR 667 , 683-684 : "The principal reason for enacting the above formula was to disallow a part of section 80HHC concession when the entire deduction claimed could not be regarded as relatable to exports. Therefore, while interpreting the words "total turnover" in the above formula in section 80HHC one has to give a schematic interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to section 80HHC show that receipts by way of brokerage, commission, interest, rent etc. do not form part of business profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the Legislature as business profits, the question of treating the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take another example. The assessee may export eligible goods or merchandise but may not receive the export proceeds within the statutorily stipulated period. In such a case also, the export so made will not form part of "export turnover" but may form part of "total turnover". These examples can be multiplied. What is important to note here is that the expression "total turnover" includes "export turnover" but is not limited or restricted to the "export turnover". This is for the simple reason that "total turnover" is the total of the entire turnover of the business. 11. The assessee contends that the export of rough and rejected diamonds made by it do not constitute turnover and hence cannot be part of "total turnover". The Income-tax Act does not define "turnover". Therefore, the expression "turnover" is required to be interpreted with reference to its normally accepted commercial meaning. In commercial parlance, "turnover" signifies the sales made by an enterprise to another entity. At page 2843 in the Stroud s Judicial Dictionary (Fourth Edition), the term "turnover" has been defined as "the aggregate amount of sales effected, or work done, by a business during a stated p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as parties, raised export invoices on them, exported the goods to them and received the export proceeds from them. We find it difficult on the facts of the case to hold that the export sales of rough and rejected diamonds made by the assessee do not constitute "total turnover" in the formula under section 80HHC(3). In our view, the sales of rough and rejected diamonds effected by the assessee cannot be excluded from the purview of its "total turnover". We hold accordingly. 14. Next submission of the assessee, as stated earlier, is that the export proceeds of rough and rejected diamonds should be excluded from the purchase price so as to arrive at cost of purchases in order to maintain the parity between numerator and denominator in the formula given under section 80HHC(3). We have already held earlier in this order that export sales of rough and rejected diamonds are part of total turnover. For this reason alone, such export proceeds cannot be excluded from the purchase price of rough diamonds imported by the assessee. This by itself will maintain parity between numerator and denominator in the formula given in section 80HHC(3). Nevertheless we shall now deal with the merit of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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