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2015 (5) TMI 353 - ITAT BANGALORE

2015 (5) TMI 353 - ITAT BANGALORE - TMI - Computation of deduction u/s 10B - whether receipts from forward contracts can be considered as profits derived from the business for the purpose of computing deduction ? - Held that:- Decision rendered in Assessee’s own case in AY 06-07 is applicable, wherein the Tribunal took the view that deduction u/s.10B of the Act is to be allowed only on the profits of the business of the undertaking. “Profit of the business of the undertaking”, according to the T .....

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ounsel for the Assessee before us. - Decided against assessee.

Inclusion of inter unit job work charges for arriving at the total turnover of the EOU - Held that:- the present case, the Assessee has two EOU’s EOU-I and EOU II. Both the EOUs are manufacturing and exporting readymade garments. The reasoning adopted by the CIT(A) in the present case is that “Sales” and “Turnover” are not synonymous. According to him the word “Sale” and “Turnover” as used in Sec.44AB of the Act reveals th .....

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rnover”. We do not think that the above reasoning can be adopted in the context of the provisions of Sec.10B of the Act. In any event, the approach of the Hon’ble Supreme Court in the case of Punjab Stainless Steel Industries (2014 (5) TMI 238 - SUPREME COURT ), clearly suggests that the “total turnover” should be only in relation to the business of the Assessee which in this case is manufacture and sale of garments. Had garments been sold locally by either of the units than they were to be incl .....

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foresaid ground of appeal is squarely covered by the decision of Spectrum Consultants (India) Pvt.Ltd. Vs. CIT, (2013 (7) TMI 414 - KARNATAKA HIGH COURT) wherein it was held that if the employees contribution to ESI is paid on or before the due date for filing return of income u/s. 139(1), then the same cannot be disallowed. The AO is therefore directed to verify if the employees contribution to ESI has been paid by the assessee within the time limit as laid down in the aforesaid decision and al .....

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mined the question as to whether the benefit of indexation was claimed by the assessee or not. We therefore set aside the order of the AO for fresh consideration in the light of the provisions of law referred to above, after affording opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Computation of deduction u/s. 10B - CIT(A) directing the AO to compute deduction u/s. 10B on the profits of EOU Unit-II without adjusting the losses of .....

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he assessee in respect of its other business against profits of the exempt unit. Following the aforesaid decision of the Hon’ble High Court of Karnataka, we uphold the order of the CIT(Appeals) - Decided against revenue. - ITA Nos.1093/Bang/2009, 1266/Bang/2010 & 1057/Bang/2012, ITA No.1103/Bang/2012 - Dated:- 24-4-2015 - Shri N.V. Vasudevan And Shri Jason P. Boaz JJ. For the Appellant : Shri V. Srinivasan, C.A. For the Respondent : Shri P. Dhivahar, Jt. CIT(DR) ORDER Per Bench : ITA 1093/B/2009 .....

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re the Appellant s computation of deduction under Section 10B did not require interference and ought to have deleted the disallowance made by the assessing officer. 3. Without prejudice, the CIT(Appeals) ought to have appreciated that forward contracts could not be booked unless and otherwise export contracts or export bills were submitted to the bankers and could be settled only by way of delivering export proceeds. 4. Without prejudice, the CIT(Appeals) ought to have appreciated that the requi .....

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Co vs. DCIT reported in (2005) 2 SOT 769 and therefore the CIT(Appeals) ought to have followed the said order of the Mumbai Bench. 4. The issue that arises for consideration is as to whether receipts from forward contracts can be considered as profits derived from the business for the purpose of computing deduction u/s. 10B of the Income Tax Act, 1961 (Act)? The material facts that are relevant in this regard are as follows. The assessee is a company engaged in the business of manufacture and ex .....

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OU-II as under: Unit Amount DTA 4,99,370 EOU-I 61,58,900 EOU-II 44,38,846 Total 1,10,97,116 6. According to the AO deduction U/S.10B of the Act provides for a deduction of such profits and gains as are derived by a 100% Export Oriented Undertaking from the export of articles or things. Therefore, section 10B shall apply only to profits that are derived from export of article or things. The AO was also of the view that u/s.10B(3) the sale proceeds of articles or things are to be received in conve .....

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assessee s own exports, can be treated as income derived from export of goods and merchandise . It may be mentioned that only the income derived from export of goods and merchandise is eligible to exemption u/s 10B. Consequently, the income earned by way of profit on forward contracts was not included in export turnover white arriving at deduction u/s 10B. 7. Before CITA the Assessee submitted that it is engaged in the business of exports only. The Assessee enters into a contract with the banke .....

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ccounts d) On the delivery date, if the exporter is unable to deliver export documents or dollars from its EEFC account, the banker will cancel the contract and whatever is the difference between the contract rate and prevailing rate on the date of cancellation will be either paid to or received from the exporter from the exporter as the case maybe. e) Cancellation of a contract due to non delivery of the contracted amount on the due date may result in profit or loss as per the spot rate on due .....

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005) wherein it was held that income from cancellation of forward contract was part and parcel of income eligible for deduction u/s 80 HHC. The Assessee argued that since it had entered into forward contracts to cover losses arising on account of devaluation in foreign currency, the profit on forward contract is nothing but sale proceeds of goods exported out of India and are part and parcel of the business profits of the Unit. 9. The CIT(A) however found that similar issue had come up for consi .....

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n of A.O. justified. Following the said decision, the CIT(A) upheld the order of the AO. 10. Aggrieved by the order of the CITA, the assessee has raised the aforesaid grounds before the Tribunal. The ld. counsel for the assessee submitted before us that the decision rendered by the Tribunal in assessee's own case for the earlier assessment years has not been challenged by the assessee before the Hon'ble High Court of Karnataka. Nevertheless, it was submitted by him, that the decision ren .....

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han by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) to (d)….. shall not be deemed to be a speculative transaction. 11. It .....

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d Bench in Adani Enterprises Ltd. v. ACIT [2015] 55 taxman.com 375 (Ahd-Trib). In the aforesaid case, the assessee was engaged in export, import and domestic trading of various commodities. The assessee borrowed money for the purpose of its business i.e., global trading various commodities. As per terms of borrowing of foreign currency working capital loan, the assessee had to enter into a currency swap arrangement. The assessee entered into currency swap transaction in respect of outstanding fo .....

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unal are contained in para 4.10 of the order of the Tribunal. 12. According to the ld. counsel for the assessee, foreign currency swap transaction which was the transaction in the case of Adani Enterprises (supra) is akin to the foreign exchange forward contract entered into by the assessee in the present case and applying the decision of Ahmedabad Bench of the Tribunal, it has to be held that the gain received by the assessee on settlement of foreign exchange forward contract has to be consider .....

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eferred to above need not be followed as it was contrary to the decision rendered by the Hon'ble Gujarat High Court in the case of CIT v. Friends & Friends Shipping Co. [2013] 217 taxman 267 (Guj). In the case of Star Imports & Exports (supra), the question before the Tribunal was as to whether loss on account of foreign exchange contracts to hedge against foreign exchange fluctuation was a speculative loss u/s. 43(5) or a normal business loss? The Tribunal after considering the deci .....

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w of the above decision of the Hon ble Gujarat High Court we are of the opinion that the decisions relied on by the revenue which are of various Tribunal Benches pale into insignificance. Judicial discipline requires us to follow judgment of High Court unless and until a contrary judgment of jurisdictional High Court is shows by the parties to the litigation. Even if there is a conflict of opinion between various High Courts, unless and until, there is a jurisdictional High Court decision, one w .....

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amonds Pvt. Ltd. v. DCIT (supra). 16. The ld. DR, on the other hand, placed strong reliance on the decision rendered by the Tribunal in assessee s own case and submitted judicial discipline requires that the same should be followed. He drew our attention to the provisions of section 10B(4) of the Act and highlighted the fact that deduction is allowed only on profits derived from export of articles or things. According to him, gain on foreign exchange forward contracts cannot be said to be derive .....

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(a) of section 43(5) of the Act. In this regard, he submitted that only contracts in respect of raw materials or merchandise are covered under clause (a) and not foreign exchange forward contracts. He also highlighted the fact that foreign exchange contract itself was done by the assessee in a systematic manner for a period of time and there is every reason to believe that it was a separate business which itself contradicts the provisions of section 28 of the Act. 17. The ld. DR relied on the f .....

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m of exchange or valid legal tender. It could be regarded as a commodity. In this regard, our attention was drawn to the definition of commodity as given in website www.investopedia.com , wherein it has been explained that some traditional examples of commodities would be grains, gold, beef, oil and natural gas. More recently, definition was extended to include financial products such as foreign currencies and indexes. The definition in website www.investorwords.com giving identical meaning was .....

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clearly recorded the fact that foreign currency forward contracts, although pertaining to assessee s own exports, cannot be treated as income derived from export of goods and merchandise. According to him, this finding of the AO is itself enough evidence that he had not disputed the fact that foreign exchange forward contracts was in relation to the exports made by the assessee. It was also pointed out by him that the expression profits of the business u/s. 10B means profits of the business of t .....

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ters into a forward contract in foreign exchange. The RBI guidelines in regard to forward exchange contract provides that only entitles which export to other countries can book forward contracts. The contracts have to be based on actual orders on hand or based on orders in pipeline or based on past performance. The forward contract can be performed only by delivering export documents or export proceeds lying in EEFC accounts. On the delivery date, if the exporter is unable to deliver export docu .....

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e Assessee were entered into in relation to export orders which the Assessee had procured. 22. In AY 06-07, on identical facts and circumstances, this Tribunal held that the gain or loss on forward contract in foreign exchange was Speculative in character and cannot be regarded as income derived from export business on which deduction u/s.10B of the Act can be allowed. 23. The CIT(A) in AY 06-07 had allowed the claim of the Assessee by placing reliance on D. Kishore Kumar & Co. Vs. DCIT (200 .....

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costs of purchases in respect of these imports and could not be, by any logic, construed as transactions independent of Assessee s business. The Tribunal also held that even though the transactions had been settled without delivery, the conditions of Section 43(5) of the Act describing speculative transaction, were clearly fulfilled, but the requirement of Expln.-2 to Sec.28 was not fulfilled in as much as it could not be concluded that the transactions were of such a nature as to constitute a .....

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al costs, in terms of domestic currency that the assessee pays when he has to pay for imports in foreign currency does not also go up. 24. The revenue challenged the order of CIT(A) for AY 06-07 and the same was considered by the ITAT Bangalore in ITA No.113/Bang/09 for AY 05-06 by order dated 7.8.2009. The Tribunal did not agree with the decision rendered by the Mumbai Bench in the case of D.Kishore Kumar & Co. (supra) on which the CIT(A) had placed reliance in allowing the claim of the Ass .....

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r merchandise sold. (iii) In the decision rendered by the Mumbai Bench in the case of D.Kishore Kumar & Co. (supra), the effect of Expln.-2 to Sec.28 of the Act was not considered. (iv) The tribunal in para 20 of its order further held that in the case of the Assessee there are a number of transactions and the forward contracts have been taken in respect of 46% of the export turnover. Thus, it is not an isolated transaction. Hence, in view of Expln.-2 to Sec.28, the profit from the forward c .....

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t assessment year to which this appeal relates to, followed the order of the ITAT and upheld the action of the AO in excluding the gain on forward foreign exchange contracts from the profits of the business on which deduction u/s.10B of the Act has to be allowed. Though the Tribunal in the order for AY 06-07 gave several reasons why deduction u/s.10B of the Act should not be allowed on gain on foreign exchange forward contract, the only basis given by the AO in the present AY 07-08 to which this .....

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to be regarded as Income from speculative business. None of the decisions rendered are in the context of the question as to whether such gain can be said to be profits derived from the business of export on which deduction u/s.10B of the Act has to be allowed. 27. The decisions where it was held that gain on forward foreign exchange contracts is to be regarded as Income from business, which were cited on behalf of the Assessee are as follows: (i) ITA No.1320/Bang/2012 for AY 09-10 M/S.Hanuman W .....

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Vs. DCIT (2013) 54(II)ITCL 254 (Mum D - Trib ). In this decision also the ruling was that gain on forward foreign exchange contracts is to be regarded as Income from business and not income from speculative business u/s.43(5) of the Act. (iii) Star Exports & Imports Vs. ACIT ITA No.997/Bang/2012 (AY 09-10) order dated 6.2.2015. In this decision the decision of the Hon ble Gujarat High Court in the case of Friends and Friends Shipping Pvt. Ltd. (2013) 217 Taxmann 267 was followed. In the afo .....

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ed by the Tribunal in the case of Assessee K. Mohan & Co. for AY 06-07 pale into insignificance as the decision of the Hon ble High Court has to be followed. The claim of the Assessee was accordingly upheld. (iv) Adani Enterprises Ltd. Vs. ACIT (2015) 55 Taxmann.com 375 (Ahd.- Trib): In this case it was held that Sec.43(5) of the Act do not apply to currencies and therefore loss incurred by Assessee in currency swap contract cannot be denied to be set off against other heads of income taking .....

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e Act is to be allowed only on the profits of the business of the undertaking. Profit of the business of the undertaking , according to the Tribunal, would be only profit from manufacture and export of readymade garments and not from gain on forward contract, has to be followed in the present AY also. As we have already observed, the AO has assessed the said gain as Business Income and therefore the decisions referred to above relied upon by the learned counsel for the Assessee are not relevant .....

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urnover of the EOU. 6. The CIT(Appeals) failed to appreciate that the inter unit job work charges represented job works carried out by one EOU by utilizing the facility available with it to the other EOU. 31. As we have already seen the assessee is engaged in the manufacture of readymade garments for exports. The Assessee has two Export Oriented Units (EOUs) and other units which fall under Domestic Tariff Area (DTA). The manufacturing activity involves several processes which results in one EOU .....

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sc. items 1,22,54,744 21,01,187 8,03,684 1,51,59,615 Inter Unit Transfers (Tailoring/ Washing/EMB) 15,87,54,791 34,63,195 6,81,34,730 1,51,59,615 Total 32,91,04,495 194,55,37,839 146,87,338 351,30,35,956 32. The Assessee while computing deduction u/s.10B of the Act took the total turnover of EOU-I and EOU-11, at ₹ 194,20,74,644 and ₹ 140,06,11,608 respectively. The inter unit transfers were excluded from the total turnover. According to the AO the inter unit transfers were also to be .....

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s: These charges cannot be viewed separately and only the end result which is to be looked into, namely, the readymade garments which are exported which alone need to be reckoned for the purpose of arriving at Total Turnover figure. The Inter Unit charges are credited in one EOU and they are debited in another EOU. These charges are not recovered from any outsider. They do not affect the overall profit of the EOUs which remain the same. They are shown as two different EOUs as they are under diff .....

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period of ten consecutive assessment years beginning with the assessment year relevant to the pervious year in which the undertaking begins to manufacture or produce articles or things or computer, software, as the case may be, shall be allowed from the total income of the assessee: ……… ……… (4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of .....

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telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. (emphasis supplied) 35. According to the AO, from a plain reading of Section 10B it was clear that the said provision provides deduction qua undertaking and not qua company. Hence, while arriving at the deduction for an undertaking, the profits of the undertaking have .....

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he Units and has indicated the inter-unit transfer of each unit. The expense incurred for doing the job work forms part of the expenditure booked in the accounts of the unit and hence exclusion of the inter-unit charges will provide for incorrect computation of the profits and also of the deduction u/s 10B. 36. According to the AO, the very fact that the section itself provides for the Total turnover (in sub-section (4)) and Export Turnover (in subsection (4) and in Explanation quoted supra) to .....

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ssessee: 2. Assessment year: 3. Name of the undertaking 4. Location and address of the undertaking 5. Nature of business of the undertaking 6. Date of initial registration in FTZ /EPZ / SEZ 7. Date of commencement of manufacture or production 8. Number of the consecutive year for which the deduction is claimed 9. Total turnover of the business 10. Total turnover of the undertaking 11. Total profits derived by the business 12. Total profits derived by the undertaking 13. Total export turnover 38. .....

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f total turnover of the unit. The AO accordingly computed deduction u/s.10B of the Act by including inter-unit transfer as part of total turnover of the concerned unit which provided service to the other unit. 39. On appeal before the CIT(A), the assessee submitted that the word turnover is a commercial term and should be construed in the commercial sense and in accordance with the normal rules of accountancy. Accordingly, turnover means gross in-flow of cash receivables and other considerations .....

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each class of goods dealt with by the Company and indicating the quantities of such sales for each class separately. Note (i) The term Turnover would mean the total sales after deducting therefrom goods returned, price adjustments, trade discount and cancellation of bills for the period of audit, if any, adjustments which do not relate to turnover should not be made e.g. writing off bad debts, royalty, etc. 40. The CIT(A) did not agree with the submissions of the assessee and he held as follows: .....

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i, in the case of ITO Vs. Sak Soft Ltd. (2009) reported in 313 ITR 353. While deciding that case, the Learned ITAT followed the decision of the Hon ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works (2007) 290 ITR 667 (SC) wherein the Hon ble Court held that since the term turnover is in relation to business profits only, it must include the receipts which only involves elements of profit. Based on such interpretation, it was held that reimbursement of expenditure has no element of p .....

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denied and only set off of job charges done for each other is claimed against each other. The A.R. probably treats Sales as a synonym of turnover and therefore pleads that none of EOUs can be considered as seller or buyer. Section 44AB of I.T.Act puts a coma in between the word Sales and Turnover to distinguish that both terms are distinct and have different connotations. Sales does not include goods returned, price discount etc., Turnover has a wider connotation. The word or interspersed betwe .....

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e under the Act. Broadly speaking, the following items of income and/or receipts would be covered by the term gross receipts in business (i) profits on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports & Exports (Control) Act, 1947; (ii) Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India; (iii) Any duty of customs or excise re-paid or repayable as drawback to any per .....

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the turnover for the purpose of Section 44AB; (vii) The net exchange rate difference on export sales during the year on the basis of the guiding principle explained in (vi) above will have to be added; (viii) Hire charges of cold storage; (ix) Liquidated damages; (x) Insurance claims - except for fixed assets; (xi) Sale proceeds of scrap, wastage, etc. unless treated as part of sale or turnover, whether or not credited to miscellaneous in come account; (xii) Gross receipts including lease rent i .....

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misunderstanding; I visualize, has crept in because the EOUs have been considered as two units of the same business and hence the claim of set off. The law is very clear on that issue. Each 100% EOU is notified separately by the competent authority and their profit / exemption / 1oss need to be computed separately. Each is independent and separate from the other for all purposes and therefore the job work done by each of them has to be included in the total turnover of that concern only for com .....

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decision of Hon ble Supreme Court in CIT v. Punjab Stainless Steel Industries, 364 ITR 144 (SC). In the aforesaid decision, the question whether the sale of scrap should form part of the total turnover while computing deduction u/s. 80HHC of the Act came up for consideration. The assessee in that case was a manufacturer and exporter of stainless steel utensils. In the process of manufacturing of stainless steel utensils, some part of the steel which cannot be used or reused for manufacturing ute .....

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over. The Hon ble Supreme Court on the above issue observed as follows:- Normally, the term turnover would show the sales effected by a business unit. In the course of business, in addition to the normal sales, the business unit may also sell some other things. In ordinary accounting parlance, as approved by all accountants and auditors, the term sales , when reflected in the profit and loss account, would indicate sale proceeds from sale of the articles or things in which the business unit is d .....

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l have to be either sold as scrap or might have to be re-cycled of disposed of to someone who would re-cycle the scrap. When such scrap is sold, the sale proceeds of the scrap cannot be included in the term turnover . Therefore, the proceeds of such scrap would not be included in sales in the profit and loss account of the assessee. The situation would be different in the case of the buyer, who purchases scrap from the assessee and sells it to someone else. The sale proceeds for such a buyer wou .....

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o be deducted from the cost of raw material or is to be shown separately under a different head. There is no reason not to accept the meaning of the term turnover given by a body of Accountants, having a statutory recognition. If all accountants, auditors, businessmen, manufacturers etc. are normally interpreting the term turnover as sale proceeds of the commodity in which the business unit is dealing, there is no reason to take a different view. 43. According to the ld. counsel for the assessee .....

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oresaid decision, the question for consideration before the Special Bench was, as to the meaning of total turnover and export turnover for the purpose of computing deduction u/s. 10B of the Act. The Special Bench observed as follows:- To say that in the absence of any definition of total turnover for the purpose of total turnover for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance would be wrong, as there has to be an el .....

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ly in recognition of this position that in the definition of export turnover in section 10B the aforesaid two items have been directed to be excluded. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange should represent consideration in respect of the export. Any reimbursement of the two items of expenses mentioned in the definition can under no circumstances be considered to represent consideration for the export of t .....

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In the formula prescribed by section 10B(4) the figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of export turnover . 44. The ld. counsel for the assessee laid emphasis on the observations of the Special Bench wherein they have emphasized that mere reimbursement of expenses cannot have an element of turnov .....

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as also pointed out by him that the unit providing services recognizes the expenses in the debit side of the profit & loss account and also recognizes the receipt on the credit side of the profit & loss account, thereby having NIL effect on the profits as per the profit & loss account. The unit receiving the services claims the expenses incurred by the other unit as expenses and thereby profits of the unit receiving the benefit of services provided by the other unit gets reduced to t .....

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aptively consuming the services of other unit, its profit should be excluded while computing deduction u/s. 80HH of the Act. For the above proposition, ld .counsel for the assessee relied on the decision of the Hon ble Madras High Court in CIT v. Metal Powder Co. Ltd., (2012) 75 DTR 233 (Mad). 46. The ld. DR submitted that section 10B(7) of the Act provides that provisions of section 80IA(8) & (10) shall apply to the undertaking referred to in section 10B also. Section 80IA(8) of the Act pro .....

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nd the cost received by the unit rendering services should be taken as part of turnover of the unit rendering the services. In all respects, he placed reliance on the order of CIT(Appeals). 47. We have carefully considered the submissions of the learned counsel for the Assessee and the learned DR before us. As far as Grounds No.5 and 6 are concerned, they relate to the manner of computation of total turnover. The learned counsel for the Assessee placed strong reliance on the decision of the Hon .....

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20,92,763 3. Lodging expenses at London 6,263 4. Travelling expenditure 5,62,896 5. Professional charges at London office 25,462 Total 29,07,056 48. According to the AO, the aforesaid expenditure was to be excluded from the export turnover in terms of cl. (iii) of Expln. 2 below the section and accordingly he excluded the same from the export turnover and arrived at the export turnover at ₹ 8,04,57,472 (i.e., ₹ 8,33,64,528 minus ₹ 29,07,056). He further reduced the export turn .....

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#8377; 7,96,32,347. The figure of total turnover was taken at ₹ 9,26,23,216. The deduction was accordingly calculated at ₹ 2,92,18,474. The question before the Special Bench was as to whether the AO should have taken the figure of total turnover which is the denominator in the above formula at ₹ 8,97,16,160 i.e., after deducting the expenditure of ₹ 29,07,056 from the total turnover of ₹ 9,26,23,216. 50. The Special Bench held that as per cl. (iii) of Expln. 2 to s. .....

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imbursement of expenses incurred by it. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange should represent "consideration" in respect of the export. Any reimbursement of the items of expenses mentioned in the definition can under no circumstances be considered to represent "consideration" for the export. Thus, the expression total turnover should also be interpreted in the same manner and the said .....

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visions of the Act should be construed in the same manner unless it leads to contextual inconsistencies or repugnancy. Therefore, for the purpose of applying the formula under sub-s. (4) of s. 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total tu .....

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portion of steel, which could not be used or reused for manufacturing utensils, was treated as scrap. Assessee disposed of said scrap in local market and income arising from sale was also reflected in P&L account. For purpose of availing deduction u/s 80HHC, income from sale proceeds of scrap was not included in total turnover but was shown separately in P&L account. Revenue submitted that sale proceeds from scrap should have been included in total turnover as assessee was also selling s .....

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ing or commercial parlance. In simple words, word "turnover" would mean only amount of sale proceeds received in respect of the goods in which an assessee is dealing in. Sale proceeds from scrap may either be shown separately in P&L Account or may be deducted from amount spent by manufacturing unit on raw material, which was steel in case of assessee. Raw material, which was not capable of being used for manufacturing utensils would have to be either sold as scrap or might have to .....

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would not be included in sales in P&L Account of assessee. Since assessee was not primarily dealing in scrap but was a manufacturer of stainless steel utensils, only sale proceeds from sale of utensils would be treated as his "turnover". Meaning given by ICAI also clearly denotes that in normal accounting parlance the word "turnover" would mean "total sales" and said sales would definitely not include scrap material. Further intention behind enactment of s 80HHC .....

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orting readymade garments. Let us assume that the process of manufacture of readymade garments involves 4 different activities say, washing cloth, cutting cloth, stitching and packing. Depending on work load some activity will be undertaken by one EOU on behalf of the other EOU. Say EOU-I will undertake the job of washing for EOU-II. The charges attributable to the said activity are debited in EOU-I Profit and Loss account and the receipt from EOU-II by way of reimbursements are recorded in the .....

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services rendered by it to EOU-II as its turnover . The Assessee is a manufacturer of readymade garments and does not do the activity of washing. As explained by the Hon ble Supreme Court in the case of Punjab Stainless Steel Industries (supra) the term turnover has neither been defined in the Act nor has been explained by any of the CBDT circulars. One has to look at the meaning of the term turnover in ordinary accounting or commercial parlance. In ordinary accounting parlance, as approved by a .....

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ymous. According to him the word Sale and Turnover as used in Sec.44AB of the Act reveals the intention of the legislature in this regard. According to him the term Turnover would include have a wider connotation and would also include inter-unit sales. According to him there would have been an element of profit in the inter unit services to the unit providing service to the other unit. Factually it has not been demonstrated so. The CIT(A) has also proceeded to hold that even assuming that there .....

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ld locally by either of the units than they were to be included in the Total Turnover . Keeping in mind the facts and circumstances of the present case and the precedents on which the learned counsel for the Assessee has placed reliance, we are of the view that the inter unit transfer should not be treated as part of the Total Turnover while computing deduction u/s.10B of the Act. We hold accordingly and allow the relevant ground of appeal of the Assessee. 53. In the result, the appeal by the as .....

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d therein, we allow the claim of the Assessee in this regard. 56. Ground No.3 of the concise grounds is with regard to action of the CIT(Appeals) in upholding the disallowance of employees contribution to ESI payments by invoking the provisions of section 43B of the Act. The AO was of the view that the assessee company has belatedly paid the employees contribution for ESI and therefore an amount of ₹ 8,46,458 was added u/s. 2(24)(x) r.w.s. 36(1)(va) of the Act. 57. The assessee raised a sp .....

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s paid on or before the due date for filing return of income u/s. 139(1), then the same cannot be disallowed. The AO is therefore directed to verify if the employees contribution to ESI has been paid by the assessee within the time limit as laid down in the aforesaid decision of the Hon ble High Court of Karnataka and allow the claim of the assessee, if it is found to be in accordance with the said decision. 58. The ld. counsel for the assessee also made a prayer for adjudication of ground No.12 .....

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dication. We are, however, of the view that the powers of the Tribunal to entertain a ground arising out of the assessment proceedings cannot be curtailed. We therefore entertain for adjudication ground Nos.12(1) & 12(2) of the original grounds of appeal. This issue is identical to ground Nos.2, 3, 4 & 7 raised by the assessee in ITA No.1093/Bang/2009. For the reasons stated therein, the action of the revenue authorities is upheld and the relevant grounds are dismissed. 59. In the result .....

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stated therein, the action of the revenue authorities is dismissed. 62. Ground No.3 raised by the assessee reads as follows:- 3. The learned CIT(A) is not justified in upholding the taxation of long term capital gains at the rate of @0% instead of 10% under the facts and in the circumstances of the appellant s case. 63. The assessee during the previous year had sold units of mutual fund and derived long term capital gain of ₹ 43,73,000. The assessee had claimed long term capital gain as e .....

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ied by the AO. The CIT(A) did not discuss this issue, nevertheless, he upheld the order of the AO. Aggrieved by the order of CIT(A), the assessee has raised ground No.3 before the Tribunal. 64. We have heard the submissions of the ld. counsel for the assessee and the ld. DR. Section 112(1) reads as follows:- Tax on long-term capital gains. 112. (1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head .....

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otal income as reduced by such longterm capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such longterm capital gains shall be computed at the rate of twenty per cent; (b) in the case of a [domestic] company,- (i) the amount of income-tax payable on the total i .....

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question as to whether the benefit of indexation was claimed by the assessee or not. We therefore set aside the order of the AO for fresh consideration in the light of the provisions of law referred to above, after affording opportunity of being heard to the assessee. 66. In the result, the appeal by the assessee is accordingly partly allowed. ITA 1103/12 67. The only issue that arises for consideration in the revenue s appeal is as to whether the CIT(Appeals) was justified in directing the AO .....

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ts units. Quoting section 2(45) of the Act for determining the total income of the assessee and the decision of the Hon ble High Court of Karnataka in the case of CIT v. Himmatsingike Seide Ltd (286 ITR 255), the AO held that the aggregate of the income and losses of all the units of the assessee had to be taken into account for calculating the deduction u/s 10B of the Act. Besides, the AO found from the assessee s submissions during the assessment proceedings that the long-term capital gains of .....

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llate authority on the following relevant grounds of appeal:- 2(A) The learned A.O. has erred in denying the deduction u/s 10B of the Act to which the appellant is legitimately entitled to while computing the assessment of the appellant. 2(B) The denial of deduction is on the erroneous appreciation of the position of law .and on misplacing reliance on the ratio of the decision of the Karnataka High Court reported in 286 ITR 255 which is inapplicable to the facts of the case. 3. Without prejudice .....

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s issue before the CIT(Appeals):- 4 It is the submission of the appellant that the profits from the export unit, which are entitled to deduction u/s 10B of the Act, while computing the deduction as ascribed to such unit should be considered on standalone basis in terms of the provision of section 10B of the Act. The learned A.O. relied on the decision of the Karnataka High court in the case of CIT V. Himatasingike Seide Limited reported in 286 ITR 255, which is altogether on different fact, situ .....

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f the unit has to be given. In the instant case of the appellant there is positive gross total income after considering all the losses and the deduction claimed u/s 10B of the Act is far less than the gross total income and it is calculated in accordance with the provisions of the Act in fact by committing an error in favour of the revenue, as the appellant committed a mistake while calculating the deduction in excluding the income from forward contracts relating to the export unit as not export .....

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