TMI Blog2009 (12) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... ls : "On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to reduce both from the export turnover and the total turnover the value of goods received on loan basis that has been utilized for the manufacture and consequential export by the appellant company and allow deduction to the appellant on the basis of export profits so determined taking the revised figures while giving the benefit of under section 10A. He failed to appreciate that in respect of such goods taken on loan, actual foreign exchange has not been received in India." 4. The briefly stated facts of the case are that, the assessee-company is engaged in the business of manufacturing of jewellery and its manufacturing unit is located at SEEPZ. The assessee is 100 per cent export oriented unit and assessee accordingly claimed deduction under section 10A of the Income-tax Act. In the assessment year 2002-03 before claiming the deduction under section 10A, the assessee has shown the gross total income at Rs. 3,37,84,821 and entire income is claimed as deduction under section 10A. In respect of the assessment year 2003-04 the assessee has shown the gross tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10A, Assessing Officer also reduced the export profits by a sum of Rs. 8,31,184 and at present we are not concern with said issue. 5. The assessee challenged the formula adopted by the Assessing Officer in both these assessment years before the ld. CIT(A). It was contended before the ld. CIT(A) that some of the raw materials in the form of the diamonds were supplied by the customers on loan basis and the same were deducted from the gross amount of export invoices for the purpose of receipt export proceeds. It was contended that in both these years the cost of the diamonds was reduced from the sale price of the export. It was also contended that if the cost of the diamond is not reduced from the sale price otherwise also the assessee had to pay a same in convertible foreign exchange. It was further contended that the cost of the raw material supplied by the customers cannot be treated as part of the consideration for the purpose of determining the export turnover and the total turnover as which was not the part of the sale proceeds. It was also pleaded that if the export turnover is taken to the extent of the net amount realised that the same figure may be adopted as tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 24, 32, 39, 42 etc. We find force in the arguments of the ld. counsel. On the perusal of the invoices, we find that the assessee has shown the cost of diamond supplied by the customer on loan basis and which is reduced from the FOB value and same is seen in all the invoices for example in respect of the invoice of M/s. Trans American Jewellery Co. Inc. dated 7-3-2001 (page 24 of the paper book). The FOB is shown at US dollar 10,720 and cost of diamonds supplied by the customer is reduced by US dollar 5,454 and net receivable is in US dollar 85,175. Same way the adjustment is made by showing net receivables in the invoice/sale bill itself. But now the main issue is figures appearing in profit and loss account. The assessee had declared the FOB as a sale price in both these assessment years (page 9 of the paper book) and cost of the diamonds which are claimed to be supplied by the customers on loan basis is included in the cost of raw material consumed. The argument of the ld. counsel is that for giving correct picture of the profits for the accounting purpose the FOB of the exported jewellery is shown as sale price and cost of the diamonds is included in the raw material consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the diamond supplied which are used by the assessee in manufacturing of jewellery which are again exported to the same customers. The only reservation of the Assessing Officer is that the assessee has shown FOB or gross sale value as a total turnover. In our opinion the crucial fact is not disputed that the part of the raw material is supplied by the customer which is used in the manufacturing of the jewellery and which is again exported or sold to the same customer. In our opinion sale consideration should be the net price realisable after reducing the cost of the diamond supplied. Merely because assessee has taken the FOB or gross amount of sale price before reducing the cost of the diamond supplied by the customer and at the same time also included the cost of the diamond in the raw material consumed it will not deprive the assessee in the strict commercial sense to claim that, whatever is the turnover of the export of the jewellery is only to the extent of net realisable sale proceeds from the customers. In our opinion the CIT(A) has rightly taken view that for the purpose of computing deduction as per formula given under section 10A(4), the cost of the diamonds or othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the section 32(2) of the Act in fact if the whole effect cannot be given to the depreciation allowance in any previous year, then subject to the priority of the set up of the laws as provided in section 72(2) and section 73(3) of the Act, the depreciation allowance to which the effect could not be given would be added to the amounts of the depreciation for the succeeding year and it will deem to be the depreciation allowance for the said succeeding previous year. Sub-section (2) of section 32 reads as under : "(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer reduced the profit by the said amount as in his opinion the interest income is not derived from the industrial undertaking. On appeal the ld. CIT(A) held that the Assessing Officer has rightly excluded the interest receipt as it is not derived from the industrial undertaking. But at the same time in his opinion the interest income is attributable to the industrial undertaking and hence the same is to be treated as part of the business profit but no deduction under section 10A of the Act is to be allowed. In our opinion no prejudice cause to the revenue as ld. CIT(A) directed not to consider the interest income for the purpose of deduction under section 10A. So far as the treatment of the interest income is concerned the ld. CIT(A) has given a finding that the deposit was kept in the bank on the requirement of the margin money and hence on that count he has held that, the interest receipt is on account of business requirement of the assessee-company. We do not desire to interfere with finding of the ld. CIT(A) on this ground. 14. In the result ground No. 2 in the revenue s appeal for assessment year 2002-03 is dismissed. 15. Now we will take up cross-objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w taken by the ld. CIT(A) is correct as income earned from the fixed deposits cannot be treated as income derived by the undertaking from export business. In view of the decision of the Hon ble Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. ( supra ) and Sterling Foods case ( supra ), we dismiss the ground No. 2 in assessee s cross-objection for assessment year 2002-03. 20. Third ground in the cross-objection for assessment year 2002-03 is in respect of the unabsorbed brought forward depreciation relevant to the assessment year 1996-97. 21. We have already dealt with this issue in revenue s appeal. In our opinion the reasons given for deciding the ground No. 3 in revenue s appeal are also applicable to the ground No. 3 taken by the assessee in the cross-objection. Following the reasons given in the revenue s appeal, we dismiss the ground No. 3 in the cross-objection. 22. Now we will take up the cross-objection for the assessment year 2003-04. The grievance raised by the assessee is that Assessing Officer did not considered the 10 per cent of the relatable profit in deduction under section 80HHC of the Act. The assessee has taken two ground on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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