TMI Blog2010 (6) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... HC of the Act worked out by the Assessing Officer based on the export turnover (FOB) minus direct cost minus indirect cost cannot be taken into account, as corresponding deduction in the profit and loss account had to be allowed ? (2) Whether the appellate authorities were correct in holding that the value of exports (FOB) should be Rs. 70,29,959 as worked out by them and not as admitted in the audit report submitted by the assessee which was Rs. 70,25,959 ? (3) Whether the appellate authorities were correct in holding that the provision of section 80HHC of the Act does not contemplate exclusion of freight and insurance expenditure from both export turnover and total turnover ?" The facts leading to filing of this appeal are that the assessee, which is a company, carrying on business of export of granite, for the assessment year 1995-96 filed its return of income along with the requisite certificate and claimed deduction under section 80HHC of the Income-tax Act, 1961 (in short "the Act"). The same was taken up for scrutiny by the Assessing Officer and, according to him, the export turnover of Rs. 79,71,201 claimed by the assessee was not correct and that the FOB value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order of the Assessing Officer has to be restored. Per contra, the learned counsel for the respondent-assessee has submitted that the substantial questions of law raised in this appeal are identical to the questions raised in the decision of the Calcutta High Court in the case of CIT v. H. M. Exports Ltd. [2005] 276 ITR 299 (Cal). He further contends that keeping in mind the definitions of "export turnover" and "total turnover" in Explanations (b) and (ba) to section 80HHC, the substantial questions of law have to be answered against the Revenue, inasmuch as the freight and insurance charges have to be excluded from the purview of "export turnover" and in which case the same cannot be brought within the scope of direct costs while deducting the said amount from the export turnover. He further submits that on a reading of the definitions, the Commissioner of Income-tax (Appeals) rightly held that the freight and insurance charges cannot come within the scope of direct costs and after deducting the same from "export turnover" has rightly directed the Assessing Officer to recompute the profits for the purpose of deduction under section 80HHC of the Act, which order has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose section 80HHC of the Act the Explanations gives definition of "export turnover" and "total turnover", which read as follows : "For the purposes of this section,- . . . (b) 'export turnover' means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) ; (ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression 'total turnover' shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 ;" On a conspectus reading of the aforesaid provisions it becomes clear that while determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. In other words, they should not be "overhead costs" and while discussing "total turnover", it was held that from the turnover (as per books of account) the freight/insurance charges attributable to the transport of goods or merchandise beyond customs station in India (i.e., export of goods) and export incentives should be deducted. In this context, it would also be of relevance to refer to the decision of the Calcutta High Court in the case of H. M. Exports [2005] 276 ITR 299 (Cal), referred to above, wherein it has been held that the provisions are clear if read together and in order to compute profit out of the exports, the export turnover is to be reduced by direct and indirect costs. Since freight and insurance charges are not part of export turnover the same would be excluded while arriving at the export turnover. In the said decision, the Calcutta High Court confirmed the order of the Tribunal, which had also excluded the freight and insurance charges from the export turnover and held that the same cannot come within the scope of direct costs, since it is already excluded from the scope of export turnover. The said decision is squarely applicable to the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance charges have to be deducted from export turnover while computing the profit under section 80HHC(3)(b) of the Act. In the instant case, no doubt the Commissioner of Income-tax (Appeals) has at para 4.1 of his order rightly excluded the freight and insurance charges from the export turnover and has not taken the same into consideration while deducting the direct and indirect costs and has rightly deducted the same. However, at para 4.2 reference made to profit and loss account has perhaps led the Revenue to believe that the said expenses are removed from the profit and loss account totally. We clarify that computation for the purpose of section 80HHC of the Act is a specific computation within the entire profit and loss account and the balance-sheet and, therefore, there can be no apprehension in the mind of the Revenue that the freight and insurance charges are totally removed from the profit and loss account. Hence, by clarifying that portion of the order of the Commissioner of Income-tax (Appeals) which has been approved by the Tribunal, we hold that the said authorities rightly did not exclude the freight and insurance charges within the computation of export ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
