TMI Blog2005 (1) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of rags, fents, etc. was inadequate having regard to the gross turnover of the assessee, which amounts to more than ₹ 6 crores. The AO also referred to a comparable case of M/s Highland Garments (P) Ltd., where an addition of ₹ 3 lakhs was sustained by the CIT(A) vide order dt. 5th March, 1997 on the same grounds. The AO assumed that the sales of wastage in the form of rags, fents, etc., was not fully accounted by the assessee in the books of account. For these reasons, an addition of ₹ 3,60,000 was made. For similar reasons, the said addition has been confirmed by the CIT(A). 3. The learned counsel appearing for the assessee contended before us that the addition has been made on presumption and without any material or evidence to suggest that the sales of waste material were understated by the assessee. It is submitted that the case of Highland Garments (P) Ltd. is not comparable to the assessee's case as elaborately explained by the assessee before the CIT(A). The learned counsel also invited our attention to p. 140 of the paper book containing details of raw material consumed and the sale proceeds of rags, fents, etc. for the assessment year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly, the waste generated during the manufacturing process will be sold only locally and cannot be exported. However, it is in the nature of income derived from the industrial undertaking and, therefore, the assessee will be entitled to deduction under s. 80-I. For the purposes of s. 80HHC, the addition will be treated as business profits and the same will also be included in the total turnover while computing deduction under s. 80HHC. The AO is accordingly, directed to recompute the deduction under ss. 80HHC and 80-I. 5. The ground Nos. 3 and 4 are as under : The learned CIT(A) erred in confirming the action of the AO in treating the interest receipts of ₹ 12,31,068 as income from other sources without appreciation the facts and circumstances of the case. Without prejudice to the above, the CIT(A) erred in not allowing the appellant set off of financial expenses of ₹ 13,62,713 against the interest receipts. These grounds are not pressed by the learned counsel for the assessee and, therefore, on these issues, the order of the learned CIT(A) stands confirmed. 6. The ground No. 5 is as under : The learned CIT(A) erred in confirming the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 April, 1991, the expression 'total turnover, shall have effect as if it also excluded any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28. From the above, it is seen that for the asst. yr. 1991-92 and subsequent assessment years, any receipt referred to under cls. (iiia), (iiib) and (iiic) of s. 28 shall be excluded from the 'total turnover'. The circular issued by the CBDT clarifies that the premium received for the transfer of export quota will be equated with the aforesaid items of receipts. It is, therefore, clear that such premium cannot be included in the turnover. However, with regard to the service charges, in our view, the situation is different. As per the definition of total turnover, service charges cannot be excluded. Accordingly, the AO is directed to exclude the amount of quota premium from the total turnover and recompute the deduction allowable under s. 80HHC. 9. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case. It is submitted that this issue is squarely covered in assessee's favour by the following Tribunal decisions : (i) Dy. CIT vs. Metro Tyres Ltd. (2001) 79 ITD 557 (Del) (ii) Andhra Pradesh Industrial Components Ltd. vs. Dy. CIT (2002) 74 TTJ (Hyd) 272 The learned counsel invited our attention to the ratio of the case of Metro Tyres Ltd. (supra) relevant portion of which is reproduced below from the headnote : There must be direct nexus between the income and the industrial undertaking meaning thereby, the source of income must be the industrial undertaking. If the source of the income is other than the industrial undertaking then it cannot be said that such income is derived from the industrial undertaking. With regard to the issue of duty drawback, perusal of s. 75(1) of Customs Act, 1962, clearly shows that the duty drawback is given by way of incentive to boost the export of goods manufactured in India. If any imported goods on which custom duty has been levied, has been used in the manufacture of any goods of any class or description and such manufactured goods have been exported out of India, then custom duty paid on imported goods is given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titlement cannot be considered as applicable to the receipts in the nature of duty drawback, insurance, recovery of export freight, etc. These items have direct nexus with the industrial undertaking and Tribunal decisions relied upon by the learned counsel for the assessee are clearly applicable. Therefore, the order of the learned CIT(A) on this issue is confirmed. 14. This appeal has been filed by the assessee against the order dt. 25th May, 1998, of CIT(A), Central-II, Mumbai. The assessee has filed revised grounds of appeal as the original grounds were narrative and argumentative. The ground Nos. 1 and 2 pertain to estimated addition of ₹ 1,20,000 on account of alleged unaccounted sale of rags, fents, chindies, etc. This issue has already been considered by us while deciding similar ground of appeal in ITA No. 4784 above. In our view, it would be fair and reasonable to restrict the addition to a sum of ₹ 75,000 only. The AO is directed to allow consequential relief. The AO shall also recompute deduction under ss. 80HHC and 80-I in the light of observations made above in our order in ITA No. 4784. 15. The ground No. 3 is as under : The learned CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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