TMI Blog1982 (5) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in or outside India. Therefore the objection of the Department has to be overruled and the Commr. Order on this point is upheld. 3. In the asst. yr. 1977-78 one other objection has been taken by the Department in allowing deduction under s. 80J The industrial undertaking of the assessee has worked only for a part of the accounting year concerned In working out the deduction available under s. 80J the Department s contention is that the deduction should be reduced proportionately to the actual period for which the undertaking worked during the year. This point has been considered by the Bombay High Court in the case of Union Carbon Ltd. (IT Application 23 of 1974 dt. 18th June, 1979 A report on this decision has appeared in Bombay Charted Accountants Journal in 1979. On the basis of the Bombay High Court decision we uphold that no such deduction on proportionate basis is necessary. Hero also we will uphold the Commissioner s findings. 4. We will now take up the main issue in these appeals As we stated earlier the assessee is an exporter of garments Now the costs of manufacture of readymade garments in India is comparatively high Therefore, the Indian Exporters are unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are shipped the proceeds of the export bills should be credited to the advance The balance remaining should be adjusted as soon as the amount on account of incentives (cash assistance, duty drawback etc.) against the relative shipments are received but not later than the maximum period stipulated under the export finance Guarantee Scheme (which is at present 8 months from the date of the initial advance) and (e) the other conditions relating to packing credit advances and eligible for interest subsidy should be complied with............ 6. We may also mention that the banks which offer such credits to the exporters get reimbursed from the Government in respect of the loss they suffer in making the advances at confessional rates of interest The banks also make enquiries on behalf of the constituents, i.e.the Indian exporters, with regard to the foreign markets or the financial standing of a potential buyer or the rates prevailing in the international market. We understand that in respect of the services rendered by the bank there is no separate payment made by the assessee. In the paper book provided by the assessee instances of such correspondence are given and they are found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner s officer of the Government of India accepted that the packing credit was device for encouraging exports. He then submitted that the decision of the Special bench of the Tribunal in the case of Jhemchand Co. was silent on the quest of eligibility to s. 35B on such types of expenditure. 11. we have conceded the facts of the case. The point we have to decide has not been considered by the Special Bench in the case of J. Hemchand Co. nor has it been considered by the Bombay High Court in (1978 CTR (Bom) 296 : (1978) 114 ITR 485 (Bom) but both these authorities had laid down tests which have to be applied in deciding the issue From the facts given above it appears that the Commissioner is right in holding that this is not a expenditure which goes into the cost of the goods but that finding is not sufficient to dispose of the appeals Even if an expenditure does not go into the cost of the goods it may not be eligible for deduction under s. 35B we should give a positive finding that the expenditure involved is, wholly and exclusively, for the export market and further that it should be considered under one of the clauses given in s. 35B (1) (b). 12. The facts may be summari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly and intimately connected with the business and be laid out by the tax payer in the character of a trader. 13. Now on the facts found it is possible to hold that the expenditure was incurred only for enabling exports It is true that the expenditure is only interest paid to the bank for advances received It is also true that the assessee can use the advance for any requirement of the business. But what we have to see is this. But for the packing credit offered by the bank would the assessee have been able to win the export contract? Evidently no. But for the rebate the price quoted by him would be very high compared to the tenders of the competitors from the other countries. The exporter has to take the facility offered by the packing credit if he wants to export In accepting this facility there is an expenditure involved (how it is an expenditure we would show shortly) that expenditure is the interest at the preshipment rates in offering packing credit So that expenditure is wholly and exclusively for the purpose of business. 14. It is of course possible for an exporter who has enough funds of his own and, consequently, who does not have to pay high interest on advance to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading. 17. Now losses normally are not the result of conscious planning As explained by the Supreme Court in S.C.Kothari s case (1971) 82 ITR 794 (SC) a loss is not a thing which is expended or disbursed. That is something coming to him as extra. There is nothing voluntary about it In this case insofar as the loss is counted with eyes open voluntarily it is not a loss the ordinary sense of the term is not a loss in the ordinary sense of the term, It is an expenditure because incurring of this loss enables the exporter to get further funds at economical rate of interest by way of packing credit This is clearly an expenditure. Why was it incurred is clear it was only for the export of goods So it is an expenditure incurred wholly and exclusively for the export. 18. Now we come to the third objection Assuming this is an expenditure it is incurred for the purpose of obtaining credit at concessional rate to be used in business. So how can it be said to be expenditure for export market In answer we should refer to the distinction between the purpose of an expenditure and motive of the expenditure This distinction laid down by the Bombay High Court in Lalubhai Bai Bhuriben s case (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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