TMI Blog2010 (9) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... proportionate profits attributable to the export turnover vis-a-vis total turnover. The provisions of section 80HHC(3)(a) also refer to the total turnover of the business carried on by the assessee. Therefore, total turnover should include all sales where there is an element of profit embedded therein. Inclusion of the turnover of the 10B unit in the export turnover for allowing deduction u/s 80HHC, we find that the decisions in the context of freight insurance, sales tax and excise duty, where there is no element of profit embedded. This aspect has been made very clear in the decision of the Special Bench of ITAT in the case of SAK Soft Ltd.[ 2009 (3) TMI 243 - ITAT MADRAS-D] . The Special Bench referred to the decision of the Hon ble Supreme Court in the case Lakshmi Machine Works [ 2007 (4) TMI 202 - SUPREME COURT] , wherein the issue was with regard to excise duty and sales tax, whether should form part of the turnover. The Court has specifically held excise duty and sales tax do not have an element of turnover as they were recovered by the assessee on behalf of the Government. The principle of parity between export turnover and total turnover was accepted in the aforesaid c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Hemant Lal ORDER Per N.V. Vasudevan, Judicial Member. This is an appeal by the assessee against the order dated 9-3-2009 of CIT-VII, Mumbai, passed under section 263 of the Income-tax Act, 1961 ( the Act ). 2. The facts and circumstances under which the CIT passed order under section 263 of the Act are as follows: 3. The assessee is engaged in the business of manufacture and sale including export of Solar Cells, Phtovoltaic Modules and Systems. It has manufacturing facilities situated at Survey Nos. 43(P), 44(P), Electronic City Phase II, Electronic City, Bangalore. Further, it has a 100 per cent Export-Oriented Unit ( EOU ) situated at the aforesaid manufacturing facility. The return of income for the assessment year under consideration was filed on 29-10-2004 declaring a total income of ₹ 285,628,902 and claiming deduction under section 10B of the Act in respect of its profits from EOU unit and under section 80HHC of the Act amounting to ₹ 41,930,669 in respect of the profits of non-EOU business. Subsequently, the assessee filed revised return of income on 12-1-2005 declaring total income of ₹ 254,119,786 and revising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation, where the export out of India is of goods or merchandise manufactured or processed by the assessee and also exported out of India by an assessee in his capacity as a trader. 6. In the present case, the assessee is a Manufacturer exporter and therefore clause (a) of sub-section (3) of section 80HHC alone is relevant. It reads as follows : (a)Where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. 7. Another section which is relevant for the present case is section 10B of the Act. We have already seen that the assessee is engaged in the business of manufacture and sale of solar cells, photovoltaic modules and systems. It has a 100 per cent Export-Oriented Unit (EOU) manufacturing solar cells, photovoltaic modules and systems. Section 10B makes special provisions in respect of newly established 100 per cent EOUs. Sub-section (1) of section 10B provides that a deduction of such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead Profits and gains of business or profession and reduced by (1) 90 per cent of any sum referred to in clauses (iiia), ( iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, chargers or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside of India. Export Turnover has been defined by Explanation (b) to section 80HHC to mean 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 exportered 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). Total Turnover has been defined by Explanation (ba) to section 80HHC not to include freight or insurance attributable to transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962). 9. The Total Turnover of N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore issued a show-cause notice dated 26-6-2008 under section 263 of the Act. According to the CIT, the Assessing Officer ought to have taken the total turnover for the purpose of allowing deduction under section 80HHC of the Act as per Profit and Loss Account which was ₹ 351,16,73,574. From the above Total turnover the assessee ought not to have reduced ₹ 134,19,91,724 which was export turnover of the EOU. By the said action of the Assessing Officer there was a loss to the revenue inasmuch as deduction under section 80HHC had been allowed at a higher figure. 13. In reply to the above show-cause notice, the assessee by its letter dated 21-7-2008 submitted that profits and turnover of the EOU unit were excluded while computing the deduction under section 80HHC of the Act since the deduction under section 80HHC of the Act was claimed only with respect of profits derived from export of goods pertaining to non-EOU business and deduction under section 10B of the Act was claimed with respect to profits derived from EOU business. It was further submitted that formula for computing deduction under section 80HHC of the Act has to be read in its entirety and accordingly th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, Profit of the EOU unit also needs to be included in profits of the business considering the entirety principle laid down by the Hon ble Supreme Court in the case of Lakshmi Machine Works (supra). The total turnover has been defined in a broader sense so as to exclude freight and insurance attributable to the transport of the goods or merchandise beyond the customs station of India. Thus, if the turnover of EOU unit is included in total turnover , then correspondingly, the amount of EOU turnover would be also be required to be included in the amount of export turnover . Further profits of the EOU unit would also be required to be added to profits of the business for the purpose of computation of deduction under section 80HHC of the Act. Without prejudice to above, it was submitted that if the turnover of EOU unit is included in total turnover then at least the said amount needs to be included in the export turnover while computing deduction under section 80HHC of the Act. Attention was invited to the decision wherein in the context of deduction under section 80HHC of the Act it has been held that if a particular item is to be included in denominator (total turnover) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... renewable energy devices being Solar water heaters and systems and Solar-photovoltaic modules and panels for water pumping and other applications qualifies for depreciation at the rate of 80 per cent. Further clause (r) to entry No. III(8)(xiii) provides that any machinery and plant used in manufacture of any of the items referred at clause (a) to (q) of entry No. III(8)( xiii) would also qualify for depreciation rate of 80 per cent. Accordingly, any plant and machinery used in the manufacture of Solar Water Heater Systems and Solar Photovoltaic Modules would also qualify for depreciation rate of 80 per cent. The assessee submitted that plant and machineries under consideration i.e., welding machines and Airconditioning for Photovoltaic Modulation plant were an integral part of the manufacturing process and the usage of each of the said plant and machinery in the manufacturing process was also explained by the assessee. 16. The CIT passed the impugned order dealing with both the issues viz., total turnover for computing deduction under section 80HHC and incorrect claim for depreciation on renewable energy saving devices. On the issue of total turnover, he held as follows :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of jurisdiction under section 263 of the Act was proper. In this regard the assessee had submitted that the claim for deduction under section 80HHC was examined in detail by the Assessing Officer and the Assessing Officer had taken one view. The fact that the CIT did not agree with the view will not give rise exercise of jurisdiction under section 263 of the Act. In this regard the assessee had relied on the decision of the Hon ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 1 and the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 832. On the above submission the CIT held that the Assessing Officer had wrongly applied the provisions of law and, therefore, the same has to be corrected under section 263 of the Act. 19. Aggrieved by the order of the CIT the assessee has preferred the present appeal before the Tribunal. 20. The ld. counsel for the assessee submitted that the learned CIT was not correct either in law or on facts in holding that turnover of the Export-Oriented Unit ( EOU ) be included while computing Total Turnover for the purpose of deduction under section 80HHC of the Act. Without p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act the assessee was getting a double benefit in respect of the very same income. The assessee submitted that section 10B and section 80HHC are two different sections intended to given different benefit to the eligible assessee. It was also submitted that there is nothing in section 10B which restricted the deduction being allowed on the income claimed as exempt under section 10B to a deduction under section 80HHC also. In other words it was submitted by the assessee that the deduction under section 10B was an additional advantage given to 100 per cent EOU. The assessee had placed reliance on the provisions of section 10B(6)(iii) of the Act which provided that notwithstanding anything contained in any other provisions of the Act, in computing the total income of the assessee, no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or 80-IB in relation to the profits and gains of the undertaking. The assessee submitted that since provisions of section 80HHC are not referred to in the above provisions, the assessee could make a claim for deduction in respect of the turnover of EOU both under section 10B as well as under section 80HHC of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the units claiming exemption under section 10B because the profits of the unit claiming deduction under section 10B are not to be included with the profits eligible for deduction under section 80HHC and since in such type of industrial undertaking no eligible profits can be derived without having export turnover, therefore, export turnover which earned profit eligible for deduction under section 10B should also not be included in the turnover to claim deduction under section 80HHC. 22. The ld. counsel for the assessee placed very strong reliance on the above decision in support of his contention that turnover of 10B unit should not form part of the total turnover while computing deduction under section 80HHC of the Act and in the event of the total turnover is considered by adding the turnover of the 10B unit then the export turnover should also increase by the turnover of the 10B unit while computing deduction under section 80HHC of the Act. Further reliance was placed on the following decisions in the case of (1) Samtex Fashions Ltd. v. Asstt. CIT [2005] 92 ITD 535 (Delhi) and (2) VXL Instruments Ltd. v. Jt. CIT [2006] 6 SOT 371 (Bang.) for identical proposition as was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. It was not open to the assessee to submit the turnover of the 10B unit should also be excluded from the export turnover or that the profits of the 10B unit should also be included in the profits of business. These issues according to the ld. D.R. are beyond the scope of the present proceedings. With regard to the decision of the Special Bench, Chennai in the case of SAK Soft Ltd. (supra) and the other decisions relied upon by the ld. counsel for the assessee it was submitted by him that those decisions were rendered in the context of whether excise duty and sale tax forms part of the total turnover for the purpose of section 80HHC of the Act. It was submitted by him that excise duty and sales tax does not have an element of profit and, therefore, they were not considered as part of either the total turnover or export turnover. According to him said analogy cannot be extended to turnover which has an element of profit embedded in it. It was submitted by him that the Special Bench of ITAT Chennai in the case of SAK Soft Ltd. (supra) was concerned with the computation of total turnover under section 10B of the Act. As per clause (iii) of Explanation 2 to section 10B freight, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proportionate profits attributable to the export turnover vis-a-vis total turnover. The provisions of section 80HHC(3)(a) also refer to the total turnover of the business carried on by the assessee. Therefore, total turnover should include all sales where there is an element of profit embedded therein. 28. With regard to inclusion of the turnover of the 10B unit in the export turnover for allowing deduction under section 80HHC of the Act, we find that the decisions relied upon by the ld. counsel for the assessee are in the context of freight insurance, sales tax and excise duty, where there is no element of profit embedded. This aspect has been made very clear in the decision of the Special Bench of ITAT in the case of SAK Soft Ltd. (supra). The Special Bench referred to the decision of the Hon ble Supreme Court in the case Lakshmi Machine Works (supra), wherein the issue was with regard to excise duty and sales tax, whether should form part of the turnover. The Court has specifically held excise duty and sales tax do not have an element of turnover as they were recovered by the assessee on behalf of the Govern- ment. The principle of parity between export turnover and total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 263 on the ground of lack of proper enquiry should further point out and show as to how lack of enquiry has caused prejudice to the revenue. In this regard assessee placed reliance on the following decisions : (1)CIT v. George Williamson (Assam) Ltd. [2001] 250 ITR 7471 (Gau.). (2)CIT v. Chawla Trunk House [1983] 139 ITR 182 2 (Punj. Har.). (3)Girdharilal B. Rohra v. CIT [2004] 86 TTJ (Mum.) 177. (4)Salora International Ltd. v. Addl. CIT [2005] 2 SOT 705 (Delhi). (5)Saw Pipes Ltd. v. Addl. CIT [2005] 3 SOT 237 (Delhi). (6)CIT v. Shantilal Agarwalla [1983] 142 ITR 778 3 (Pat.). (7)CIT v. R.K. Metal Works [1978] 112 ITR 445 (Punj. Har.). (8)Russell Properties (P.) Ltd. v. Addl. CIT [1977] 109 ITR 229 (Cal.). (9)Usha Martin Industries Ltd. v. Dy. CIT [2003] 86 ITD 261 (Cal.). (10)Orient (Goa) Ltd. v. Dy. CIT [1988] 66 ITD 479 (Pune). 31. The ld. D.R., on the other hand, relied on the decision of the Mumbai Tribunal in the case of Arvee International v. Addl. CIT [2006] 101 ITD 495, wherein the Mumbai Bench of the Tribunal after considering the decision of the Hon ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as was contained in the erstwhile provision of section 143(1) of the Act. In the case of Chawla Trunk House ( supra) the finding of fact was that the Assessing Officer made proper enquiries. In the case of Girdharilal B. Rohra (supra) again the finding of fact was that there were proper enquiries made before completing the assessment by the Assessing Officer. Same is the position in the case of Salora International Ltd. (supra), where the facts were such that no further enquiry was called for by the Assessing Officer. The decision in the case of Saw Pipes Ltd. (supra) it has been held that even where there is a failure to make enquiry by the Assessing Officer the CIT has to assess the reply to the show-cause notice under section 263 of the Act and come to the conclusion that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. This decision in our view is contrary to the decision of the Hon ble Supreme Court in the case of Smt. Tara Devi Aggarwal (supra). Moreover, the CIT in the present case has held that the question as to whether the items of machineries on which depreciation was claimed at 80 per cent was renewable energy d ..... 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