TMI Blog2016 (9) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... sale, export entitlements, discount received, fixed charges recovery, the ld. CIT(A) has directed the Assessing Officer to amend the order by including all the above receipts while computing deduction under section 10B of the Act. Reversion of excess provisions if it is allowed as deduction in earlier assessment year while computing the business income of the assessee and consequently reversing the same in the assessment year under consideration, it has to be considered as part of the business profit and thereby the assessee is entitled for deduction under section 10B of the Act. Hence, the Assessing officer is directed to verify whether the original provision was allowed as deduction in earlier assessment years and decide the issue afresh accordingly after hearing to the assessee. Thus, the ground raised by the Revenue is allowed for statistical purposes. - I.T.A.No.2269/Mds/2015 - - - Dated:- 29-7-2016 - Shri Chandra Poojari, Accountant Member and Shri Duvvuru RL Reddy, Judicial Member For The Appellant : Shri A.V. Sreekanth, JCIT For The Respondent : Shri S. Balakrishnan, C.A. ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the appeal of the assessee. 4. Aggrieved, the Revenue is in appeal before the Tribunal against the allowance of deduction under section 10B of the Act. On the other hand, the ld. Counsel for the assessee supported the order passed by the ld. CIT(A). 5. We have heard both sides, perused the materials on record and gone through the orders of authorities below. In this case, the assessee has claimed deduction under section 10B of the Act with regard to the following incomes aggregating to ₹.3,32,46,741/- from the profits of the business while computing the deduction: (i) Reversion of excess provisions of ₹.99,32,474/- (ii) Sale of scrap of ₹.33,48,471 (iii) Export entitlements of ₹.8,88,380/- (iv) Discount received of ₹.9,41,087/- (v) Fixed charges recovery of ₹.9,15,000/- (vi) Exchange gain of ₹.1,72,21,329/-. The Assessing Officer held that the above items of income cannot be said to be der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , drilling a whole, making a collar etc. This process yields scrap. It can be seen that the scrap is directly related to the production process. Therefore, the profits from sale thereof cannot be excluded from the profits of business. 5.4 With regard to (iii) export entitlements, the assessee company recognizes the Duty Entitlement Pass Book (DEPB) credits and the same was shown as Export Entitlements under other income in the profit and loss account. With regard to (iv) discount receipt, the assessee has received discounts from the supplier of materials purchased and the same has been credited to profit and loss account. With regard to (v) fixed charges recovery, it is nothing but recovery of the expenses incurred by the company on behalf of its group companies. Corresponding debits relating to these expenses are included in the respective expense head and also included in the balance sheet. Where a source of particular income on which exemption was sought must directly emerge from the running of that undertaking yielding profits. On that basis the amount received from export entitlement should be included as income earned out of the export for the purpose of deduction under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the total turnover also following the decision of the Special Bench decision of this Tribunal in the case of Sak Soft Ltd. (supra). 13. The Departmental Representative submits that only the net gain or loss on account of foreign exchange fluctuation has to be considered for the purpose of exclusion from the export turnover and such gain/loss cannot be reduced from the total turnover in computing deduction under section 10B of the Act. 14. Heard both sides. Perused the orders of lower authorities and the decisions relied on. Insofar as grounds 3.5.1 to 3.5.5 are concerned, i.e. in respect of foreign exchange gain, whether it should be taken as part of export turnover or not, we find that the Hon ble jurisdictional High Court in the case of CIT Vs. Pentasoft Technologies Ltd. (supra) has held that gains due to fluctuation in foreign exchange is directly related to export sales of the assesseeand therefore, it cannot be treated as other than part of profit from export. Similar view has been expressed by the Hon ble Bombay High Court in the case of CIT Vs. Gem Plus Jewellery India P. Ltd. (330 ITR 175) (Bom). Here in the case of the assessee the gain in foreign e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in IT A No.428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No.447/2007 is answered in favour of the assessee and against the revenue. 5.9 In the instant case, though the income of the assessee does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by import of raw materials and export of finished goods. Therefore, in view of the definition of income from Profits and gains incorporated in sub-section (4) of section 10B of the Act and in view of the decision in the case of CIT v. Motorola India Electronics (P.) Ltd. (supra), we are of the opinion that the assessee is entitled to the benefit of exemption of the said amount as contemplated under section 10B of the Act. Further, in the case of Renaissance Jewellery (P.) Ltd. v. ITO 101 ITD 380, the Mumbai Benches of ..... 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