M/S. TECHNOCRAFT INDUSTRIES (INDIA) LTD, MUMBAI V. THE DCIT RG 8(3), MUMBAI

ITA 6011/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48467 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 24-03-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 21-09-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGLE
• Keywords: Business income; Fair market value
• Section: 80HHC; 10B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER. I.T.A.NOS.6011, 6012 & 6376/MUM/2007 A.YRS. 2001-02, 2002-03 & 2004-05 TECHNOCRAFT INDUSTRIES (INDIA) LTD., A 25, MIDC, MAROL INDUSTRIAL AREA STREET NO.3, OPP. ESIS HOSPITAL, ANDHERI (E), MUMBAI 400 093. PAN: AAACT 2724 P VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8 (3), MUMBAI. AND I.T.A.NOS.6339, 6340 &6697/MUM/2007 A.YRS. 2001-02, 2002-03 & 2004-05 ASST. COMMISSIONER OF I.T., RANGE 8(3), MUMBAI. VS. TECHNOCRAFT INDUSTRIES (INDIA) LTD., MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PANKAJ R. TOPRANI. REVENUE BY : SMT. KUSUM INGLE [CIT-DR] O R D E R PER BENCH: THESE CROSS APPEALS ARE HEARD TOGETHER AND ARE DISP OSED OF BY THIS CONSOLIDATED ORDER. 2. I.T.A.NO.6011/M/07 A.Y 2001-02 [ASSESSEES APP EAL] : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED OUT OF WHIC H GROUND NOS.1 & 2 WHICH ARE REGARDING REOPENING OF THE ASSESSMENTS ARE NOT PRESSED AND, THEREFORE, SAME ARE DISMISSED AS NOT PRESSED. 2 3. IN RESPECT OF THE OTHER ISSUES, LD.COUNSEL OF TH E ASSESSEE SUBMITTED THAT HE HAS FILED A CHART SHOWING VARIOUS ISSUES AND, THEREFORE, SAME MAY BE DECIDED IN TERMS OF THE CHAR T. 4. THE FIRST ISSUE IS REGARDING INCLUSION OF SALE V ALUE OF COTTON WASTE IN TOTAL TURNOVER FOR CALCULATING DEDUCTION U /S.10B. THE LD.COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THI S ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNA L IN ASSESSEES OWN CASE IN I.T.A.NOS.4792 & 5689/MUM/2006 FOR THE A.Y 2003-04. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE AO. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE A.Y 2003-04 IN I.T.A.NO.4792/MUM/06 VIDE PARAS 39 AND 4 0 WHICH ARE AS UNDER: 39. IN GROUND NO.6(C), THE GRIEVANCE OF THE ASSESS EE IS AS FOLLOWS:- 6. LD. CIT(A) FURTHER ERRED IN CONFIRMING THE FOLL OWING ACTION OF ASSESSING OFFICER IN WORKING OUT 10B DEDUCTION (B) INCLUDING COTTON WASTE SALE IN TOTAL TURNOVER. 40. LEARNED REPRESENTATIVES AGREE BEFORE US THAT TH IS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT VS K. RAVINDRANATHAN NAIR, 295 ITR 229 (SC). FOR THE REAS ONS STATED THEREIN, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND REJECT THE GROUND OF APPEAL RAISED BY THE ASSESSEE. FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 6. THE NEXT ISSUE AS PER THE CHART IS IN RESPECT OF COMPUTATION OF DEDUCTION U/S.80HHC. IN THIS ISSUE FIVE SUB-ISSUES ARE INVOLVED WHICH WE ARE DEALING AS UNDER: 3 (I) INCLUSION OF COTTON SALE IN TOTAL TURN OVER WIT HOUT APPRECIATING THAT SAME PERTAINS TO SEC.10B UNIT. THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT COTTON WASTE WAS GENERATED IN THE UN IT WHICH WAS ELIGIBLE FOR DEDUCTION U/S.10B AS A SEPARATE UNIT A ND, THEREFORE, COTTON WASTE GENERATED FROM THAT UNIT AND COULD NOT HAVE B EEN INCLUDED IN THE TOTAL TURNOVER OF THE UNIT WHERE DEDUCTION U/S. 80HHC WAS CLAIMED. ON THE OTHER HAND, LD.DR RELIED ON THE ORDERS OF TH E AO AND THE CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT FULL DETAILS HAVE NOT BEEN DISCUSSED BY THE AO OR CIT(A) IN THIS RESPECT. ERRONEOUSLY TURNOVER ON ACCOUNT OF COTTON WASTE FRO M A DIFFERENT UNIT COULD NOT HAVE BEEN INCLUDED IN THE TOTAL TURNOVER FOR THE PURPOSE OF ALLOWING DEDUCTION U/S.80HHC IN ANOTHER UNIT. THERE FORE, IN THE INTERESTS OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO VERIFY WHE THER THE COTTON WASTE HAS BEEN GENERATED FROM THE SAME UNIT OR OTHERWISE AND THEN DECIDE THE ISSUE ACCORDINGLY. 8. (II) THE NEXT ISSUE IS REDUCTION OF 90% OF SUNDR Y CREDITORS WRITTEN BACK. THE LD.COUNSEL OF THE ASSESSEE SUBMIT TED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS. 2001-02 AND 2003-04 IN FAVOUR OF THE ASSESSEE. ON T HE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y 2001- 02 IN I.T.A.NOS.5787/MUM/04 AND 7281/MUM/04 AND THE SAME WAS DECIDED VIDE PARA 5.1 WHICH READS AS UNDER: 4 5.1 WITH REGARD TO SUNDRY DEBTORS WRITTEN BACK AT ` `` ` .2,34,051/- [EXCLUDING YARN DIVISION], DURING THE COURSE OF BUS INESS THE ASSESSEE HAS WRITTEN BACK CERTAIN SUNDRY CREDITORS AND TREAT ED THE SAME AS ITS BUSINESS INCOME. THIS ISSUE IS ALSO CONSIDERED BY T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 [SU PRA]. THE TRIBUNAL HELD THAT THE INCOME BY WAY OF WRITE OFF OF SUNDRY CREDITORS IS A BUSINESS INCOME U/S.41[2] AND THEREFORE THE ASSESSI NG OFFICER IS NOT JUSTIFIED IN EXCLUDING 90% OF THE SUNDRY CREDITORS WRITTEN OFF. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE GROUN D. SIMILARLY, THIS ISSUE WAS AGAIN CONSIDERED BY THE T RIBUNAL IN A.Y 2003- 04 IN I.T.A.NO.4792/MUM/06 VIDE PARA 21 WHICH IS AS UNDER: 21. THERE ARE TWO LIMBS OF THIS GRIEVANCE FIRST, WITH REGARD TO REDUCTION OF 90% IN RESPECT OF SUNDRY CREDITORS WRI TTEN BACK, AND, SECOND, WITH REGARD TO REDUCING 90% OF WEIGH BRIDGE RECEIPTS. AS REGARDS WEIGH BRIDGE RECEIPTS, LEARNED REPRESENTATI VES AGREE THAT THE ISSUE IS NOW COVERED AGAINST THE ASSESSEE BY HONBL E SUPREME COURTS JUDGMENT IN THE CASE OF CIT VS K RAVINDRANATH NAIR (295 ITR 228). AS REGARDS THE SUNDRY CREDITORS WRITTEN BACK, LEARN ED COUNSEL FOR THE ASSESSEE CONTENDS BEFORE US THAT THE ISSUE FOR OUR ADJUDICATION IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F A CO-ORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OWN CASE, DEC IDED IN ITA NO.5787/MUM./2004, FOR ASSESSMENT YEAR 2001-02, VID E ORDER DATED 13 TH JUNE 2007. WE WERE, THUS, URGED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, COULD NOT BRING ON RECORD ANY CONTRARY DECISION TO PROVE OTHERWISE AND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. ACCO RDINGLY, AS REGARDS REDUCING 90% OF SUNDRY CREDITORS BACK, WE UPHOLD TH E GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE RESULTANT DISALLOWANCE. FOLLOWING THE ABOVE ORDERS, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 10. THE NEXT THREE ISSUES ARE REGARDING REDUCTION O F 90% OF WEIGHT BRIDGE RECEIPTS, REDUCTION OF 90% OF MARKET DEVELOP MENT ASSISTANCE AND REDUCTION OF 90% OF SALES TAX REFUND. 11. THE LD.COUNSEL OF THE ASSESSEE FAIRLY ADMITTED THAT THE ISSUES REGARDING 90% REDUCTION OF WEIGH BRIDGE RECEIPTS AN D MARKET DEVELOPMENT ASSISTANCES ARE COVERED AGAINST THE ASS ESSEE BY THE DECISION OF HE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. DRESSER RAND INDIA PVT. LTD. [323 ITR 429]. HOWEVER , AS FAR AS THE 5 DECISION REGARDING 90% REDUCTION OF CENTRAL SALES T AX REFUND FROM BUSINESS PROFITS IS CONCERNED, THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR THE A.Y 2001-02. 12. ON THE OTHER HAND, LD.DR, POINTED OUT THAT EVEN THE ISSUE REGARDING REDUCTION OF 90% OF SALES TAX REFUND IS C OVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER RAND INDIA PVT. LTD. [SUPRA]. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI ND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DR ESSER RAND INDIA PVT. LTD. [SUPRA] HAS OBSERVED THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAVIND RANATHAN NAIR [295 ITR 228] HAS HELD THAT ALL THE RECEIPTS OF OTHER NA TURE WHICH HAVE NO CONNECTION WITH THE EXPORT ACTIVITY HAVE TO BE EXCL UDED FROM THE BUSINESS PROFITS FOR THE COMPUTATION OF DEDUCTION U /S.80HHC. HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER RA ND INDIA PVT. LTD. [SUPRA] HELD AS UNDER: HELD ACCORDINGLY, THAT 90 PER CENT. OF RECOVERY OF FREIGHT, INSURANCE AND PACKING RECEIPTS AMOUNTING TO ` `` ` .49,14,076, SALES TAX SET OFF/REFUND AMOUNTING TO ` `` ` .38,33,148 AND SERVICE INCOME OF ` `` ` .2,89,17,545 HAD TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF SPECI AL DEDUCTION UNDER SECTION 80HHC. THE ABOVE CLEARLY SHOWS THAT EVEN SALES TAX REFUND WAS ALSO HELD TO BE EXCLUDED FROM THE BUSINESS PROFITS FOR THE PURPOSE OF CALCULATING DEDUCTION U/S.80HHC. THIS DECISION WAS NOT NOTED BY THE TRIBUNAL IN ITS EARLIER YEARS ORDER. THEREFORE, FOLLOWING THIS DECISION WE HOLD THAT 90% OF WEIGHT RECEIPTS, MARKET DEVELOPMENT ASSISTAN CE AND CENTRAL SALES TAX REFUND HAVE TO BE EXCLUDED FROM THE BUSIN ESS PROFITS FOR THE 6 PURPOSE OF COMPUTING DEDUCTION U/S.80HHC. ACCORDING LY, THESE ISSUES ARE DECIDED AGAINST THE ASSESSEE. 14. THE NEXT ISSUE AS PER THE CHART IS REGARDING TH E ACTION OF THE AO IN ALLOWING DEDUCTION U/S.80HHC ON THE DEPB LICENSE FEE. 15. BEFORE US LD.COUNSEL OF THE ASSESSEE FAIRLY CON CEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL 328 ITR 461. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . KALPATARU COLOUR & CHEMICAL [SUPRA] HAS HELD HAS UNDER: UNDER SUB SECTION (1) OF SECTION 80HHC, A DEDUCTIO N IS ALLOWED TO THE EXTENT OF PROFITS DERIVED BY THE ASSESSEE FRO M THE EXPORT OF GOODS TO WHICH THE SECTION APPLIES. SINCE THE DEDUCTION I S IN RESPECT OF PROFITS DERIVED FROM EXPORT, SUB SECTION (3) LAID D OWN A FORMULA ON THE BASIS OF WHICH EXPORT PROFITS HAVE TO BE COMPUTED. UNDER CLAUSE (A) OF SUB SECTION (3) THE EXPRESSION PROFITS DERIVED FRO M EXPORT ARE DEFINED TO BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE AS SESSEE. HOWEVER, WHERE AN ASSESSEE CARRIES ON THE BUSINESS OF EXPORT OF TRADING GOODS, CLAUSE (B) DEFINES EXPORT PROFITS TO BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS WHICH IS TO BE REDUCED BY THE DI RECT AND INDIRECT COSTS ATTRIBUTABLE TO THE EXPORT. IN THE APPLICATIO N OF THE FORMULA TO A MANUFACTURER EXPORTER, CLAUSE (A) REFERS TO THE PRO FITS OF THE BUSINESS. THE EXPRESSION PROFITS OF THE BUSINESS. THE EXPRESSION PROFITS OF THE BUSINESS MEANS PROF ITS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTIONS 28 TO 44D AND THEY ARE THEREUPON TO BE RED UCED TO THE EXTENT PROVIDED BY CLAUSES (1) AND (2). SECTION 28 ELUCIDA TES INCOMES WHICH SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. CLAUSES (IIIA), (IIIB) AND (IIIC) WERE INSERTED INTO THE SECTION BY THE FINANCE ACT OF 1990. BY THE FINANCE ACT, 2005, PARLIAMENT INSERTED A SPECIFIC CLAUSE, NAMELY, CLAU SE (IIID) IN SECTION 28 TO THE EFFECT THAT PROFITS ON TRANSFER OF DEPB, I.E . THE AMOUNT RECEIVED ON TRANSFER OF DEPB IS INCOME CHARGEABLE TO TAX UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 7 AS REGARDS THE DEDUCTION UNDER SECTION 80 HHC, THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO A S TO EXCLUDE 90% OF THE PROFITS RECEIVED ON TRANSFER OF DEPB FROM TH E PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80HHC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TU RNOVER NOT EXCEEDING RS.10 CRORES, THE PROFITS COMPUTED UNDER SECTION 80 HHC(3) SHALL BE INCREASED BY 90% OF THE SUM REFERRED TO IN SECTION 28(IIID). THE 3RD PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSE SSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES, THE PROFITS COMPUT ED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90% OF THE SUM REFER RED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THER EIN. WHAT CONSTITUTES APPLICATION SEEKING DEPB CREDIT WOULD MAKE NO DIFFE RENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFE R OF THE DEPB CREDIT UNDER SECTION 28(IIID). PROFITS UNDER SECTION 28(II ID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB S CHEME. IN OTHER WORDS, THE AMOUNT EQUIVALENT TO THE FACE VALUE OF D EPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTIT UTE PROFITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE, A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A G ROUND TO HOLD THAT SUCH PROFIT WAS NOT COVERED UNDER SECTION 28(IIID). WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSIN ESS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE, THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB CREDIT TOOK PLACE THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CLAUSE (II IB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE, RECEIVED OR RECEI VABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. AS THE LEGISLATI VE HISTORY OF THE PROVISION WOULD SHOW CLAUSE (IIIB) WAS ENACTED BY P ARLIAMENT AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II) CASH COMPENSATORY SUPPOR T; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT EVEN IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FI NANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WITH EFF ECT FROM 1 APRIL 1997. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY T HE AMENDING ACT OF 2005 WITH EFFECT FROM 1 APRIL 1998. THE VALUE OF TH E DEPB CREDIT CAN BY NO MEANS BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SC HEME OF THE GOVERNMENT OF INDIA. FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 8 17. THE LAST ISSUE IN THE ASSESSEES APPEAL IS REGA RDING ACTION OF THE AO REDUCING 100% OF DEPB LICENSE SALES AMOUNT FROM PROFITS OF BUSINESS WHILE ALLOWING DEDUCTION U/S.80HHC INSTEAD OF AT 90%. 18. THE LD.COUNSEL OF THE ASSESSEE FAIRLY ADMITTED THAT THE ABOVE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL [SUPRA]. ON THE OTHER HAND, LD.DR RELIED ON THE ORD ER OF THE CIT(A). 19. WE HAVE ADJUDICATED THIS ISSUE IN PARA 16 ABOVE AND FOR THE REASONS GIVEN THEREIN FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL [SUPRA], WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 20. I.T.A.NO.6012/M/07 A.Y 2002-03 [ASSESSEES AP PEAL] : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED, OUT OF WHI CH GROUNDS NO.1 & 2 REGARDING REOPENING OF THE ASSESSMENTS WERE NOT P RESSED AND, THEREFORE, SAME ARE DISMISSED AS NOT PRESSED. 21. THE NEXT ISSUE IS REGARDING INCLUSION OF SALE V ALUE OF COTTON WASTE IN TOTAL TURNOVER FOR CALCULATING DEDUCTION U /S.10B. AN IDENTICAL ISSUE CAME UP FOR OUR CONSIDERATION IN I.T.A.NO.601 1/MUM/07 FOR A.Y 2001-02 WHICH HAS BEEN ADJUDICATED BY US IN OUR ABO VE NOTED PARA-5 AND FOLLOWING THE REASONS GIVEN THEREIN, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 22. THE NEXT ISSUE RELATES TO THE ACTION OF THE AO IN INCLUDING THE SALE VALUE OF COTTON WASTE OF RS.3,39,00,108/- IN T HE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S.10B WITHOUT APPRECIATING TH E FACT THAT SAME IS IN RESPECT OF 10B UNIT AND HAS GOT NOTHING TO DO WITH DEDUCTION U/S.80HHC. 9 23. THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT C OTTON WASTE WAS GENERATED IN THE UNIT WHICH WAS ELIGIBLE FOR DEDUCT ION U/S.10B AS A SEPARATE UNIT AND, THEREFORE, COTTON WASTE GENERATE D FROM THAT UNIT COULD NOT HAVE BEEN INCLUDED IN THE TOTAL TURNOVER OF THE UNIT WHERE DEDUCTION U/S.80HHC WAS CLAIMED. ON THE OTHER HAND, LD.DR RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 24. AN IDENTICAL ISSUE CAME UP FOR OUR CONSIDERATIO N IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02 AND FOR THE REAS ONS GIVEN IN PARA- 7 WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO VERIFY WHETHER THE COTTON WASTE HAS BEEN GENERATED FROM THE SAME UNIT OR OTHERWISE AND THEN DECIDED THE ISSUE ACCORDINGLY. 25. THE NEXT ISSUE IS REGARDING REDUCTION OF RS.2,0 6,217/- BEING 90% OF OTHER BUSINESS INCOME ON ACCOUNT OF SUNDRY C REDITORS WRITTEN OFF. THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE I N ASSESSEES OWN CASE FOR A.YRS. 2001-02 AND 2003-04. ON THE OTHER H AND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 26. WE HAVE ADJUDICATED THIS ISSUE IN THE ABOVE NOT ED PARA-9 AND FOR THE REASONS GIVEN THEREIN, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 27. THE NEXT ISSUES ARE REGARDING REDUCTION OF 90% OF WEIGH BRIDGE RECEIPTS AND MARKETING DEVELOPMENT FEES. THIS ISSUE CAME UP FOR OUR CONSIDERATION IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02 AND WE HAVE ADJUDICATED THE SAME IN ABOVE NOTED PARA-13. FOR TH E DETAILED REASONS GIVEN THEREIN, WE DECIDE THESE ISSUES AGAINST THE A SSESSEE. 10 28. THE NEXT ISSUE IS REGARDING CONSIDERATION OF IN TEREST INCOME AS INCOME FROM OTHER SOURCES WAS NOT PRESSED BEFORE US , THEREFORE, SAME IS DISMISSED AS NOT PRESSED. 29. THE NEXT ISSUE IS REGARDING ACTION OF THE AO IN NOT ALLOW DEDUCTION U/S.80HHC ON ACCOUNT OF DEPB LICENSE. AN IDENTICAL ISSUE CAME UP FOR OUR CONSIDERATION IN I.T.A.NO.6011/MUM/ 07 FOR A.Y 2001- 02 AND FOR THE REASONS GIVEN IN PARA-16 WE DECIDE T HE SAME AGAINST THE ASSESSEE. 30. THE LAST ISSUE IS REGARDING REDUCTION OF 100% O F DEPB LICENSE SALE AMOUNT FROM PROFITS OF BUSINESS WHILE ALLOWING DEDUCTION U/S.80HHC INSTEAD OF 90%. 31. AN IDENTICAL ISSUE CAME UP FOR OUR CONSIDERATI ON IN I.T.A.NO.6011/MUM/07 FOR A.Y 2001-02 AND FOR THE RE ASONS GIVEN IN PARA-18 WE DECIDE THE SAME AGAINST THE ASSESSEE. 32. I.T.A.NO.6376/M/-7 A.Y 2004-05 [ASSESSEES APPE AL] : IN THIS APPEAL ALSO ASSESSEE HAS FILED A CHART AND SUBMITTE D THAT THE ISSUES MAY BE DECIDED ON THE BASIS OF THE CHART INSTEAD OF THE GROUNDS TAKEN BEFORE US. 33. THE FIRST ISSUE IS REGARDING REDUCTION OF MISCE LLANEOUS RECEIPTS FROM THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCT ION U/S.10B. 34. BEFORE US LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL THE MISCELLANEOUS RECEIPTS CANNOT BE CLASSIFIED AS RECE IPTS NOT EMANATING FROM THE INDUSTRIAL UNDERTAKING. SINCE DETAILS HAVE NOT BEEN DISCUSSED BY THE LOWER AUTHORITIES THE ISSUE MAY BE SET ASIDE . ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 11 35. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT NEITHER AO NOR LD. CIT(A) HAS DISCUSSED THE NATURE OF THE MISCELLANEOUS RECEIPTS. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DISCUSS THE NATURE OF RECEIPTS AND THEN DECIDE W HETHER SAME ARE REQUIRED TO BE REDUCED FROM THE BUSINESS PROFITS FO R THE PURPOSE OF DEDUCTION U/S.10B. 36. THE NEXT ISSUE IS REGARDING REDUCTION OF QUOTA TRANSFER PREMIUM AND WEIGH BRIDGE RECEIPTS. 37. THE LD.COUNSEL OF THE ASSESSEE FAIRLY ADMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL AGAINST THE ASSESSEE. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE AO. 38. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN I.T.A.NO.4792/MUM/06 WHEREIN THE ISSUE WAS DECIDED AGAINST THE ASSESSEE AND AS THIS FACT WAS ACCEPTED BY THE LD.CO UNSEL OF THE ASSESSEE WE DECIDE THE ISSUE AGAINST THE ASSESSEE. 39. THE NEXT ISSUE IS REGARDING REDUCTION OF INSURA NCE CLAIM FROM BUSINESS PROFITS. THE LD.COUNSEL OF THE ASSESSEE SU BMITTED THAT INSURANCE CLAIM HAS BEEN HELD TO BE ELIGIBLE AS PAR T OF THE BUSINESS INCOME BY THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. PFIZER LTD. [330 ITR 62]. ON THE OTHER H AND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 40. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT IN THE CASE OF CIT VS. PFIZER LTD. [SUPRA] THE HONBLE HIGH COU RT HELD AS UNDER: 12 HELD, (I) THAT IF THE STOCK IN TRADE OF THE ASSESS EE WERE TO BE SOLD, THE INCOME THAT WAS RECEIVED FROM THE SALE OF GOODS WOU LD CONSTITUTE THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE INCOME EMANATING FRO M THE SALE WOULD NOT BE SUSCEPTIBLE TO A REDUCTION OF NINETY PER CEN T. FOR THE SIMPLE REASON THAT IT WOULD NOT CONSTITUTE A RECEIPT OF A NATURE SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. A CONTRACT OF INSURANCE IS A CONTRACT OF INDEMNITY. THE INSURANCE CLAIM IN ESSENCE INDEMNIFIES THE ASSESSEE FOR THE LOSS OF THE STOCK- IN-TRADE. THE INDEMNIFICATION THAT IS MADE TO THE ASSESSEE MUST S TAND ON THE SAME FOOTING AS THE INCOME THAT WOULD HAVE BEEN REALIZED BY THE ASSESSEE ON THE SALE OF THE STOCK-IN-TRADE. IN THESE CIRCUMSTAN CES, WE ARE CLEARLY OF THE VIEW THAT THE INSURANCE CLAIM ON ACCOUNT OF THE STOCK-IN-TRADE DOES NOT CONSTITUTE AN INDEPENDENT INCOME OR A RECEIPT O F A NATURE SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. H ENCE, SUCH A RECEIPT WOULD NOT OBJECT TO A DEDUCTION OF NINETY PER CENT. UNDER CLAUSE (1) OF EXPLANATION IN DETERMINING THE PROFITS OF THE BUSIN ESS FOR THE PURPOSES OF EXPLANATION (BAA), THE INCOMES WHICH ARE SUSCEPT IBLE TO A REDUCTION OF NINETY PER CENT. ARE THOSE WHICH ARE SPECIFICALL Y PRESCRIBED BY THE LEGISLATURE. THESE ARE, INTER ALIA, THE INCOMES REF ERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 AND RECEIPT S BY WAY OF BROKERAGE COMMISSION, INTEREST, RENT, CHARGES OR RECEIPTS OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. THEREFORE, BEFORE A RECEI PT IS LIABLE TO BE EXCLUDED TO THE EXTENT OF NINETY PER CENT. IT MUST BE A RECEIPT OF A NATURE SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. FOR THE REASONS WHICH WE HAVE ALREADY INDICATED, WE HAV E COME TO THE CONCLUSION THAT THE CLAIM ON ACCOUNT OF INSURANCE F OR THE STOCK-IN-TRADE DID NOT CONSTITUTE A RECEIPT OF A SIMILAR NATURE WI THIN THE MEANING OF EXPLANATION (BAA) AND WAS THEREFORE NOT LIABLE TO B E REDUCED TO THE EXTENT OF NINETY PER CENT. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 41. THE NEXT ISSUE IS REGARDING REDUCTION OF GROSS INTEREST AS WELL AS NETTING OF INTEREST RECEIPTS WAS NOT PRESSED BEFORE US AND, THEREFORE, SAME IS DISMISSED AS NOT PRESSED. 42. THE NEXT ISSUE IS REGARDING INCLUSION OF COTTON WASTE SALES IN THE TOTAL TURNOVER. AN IDENTICAL ISSUE CAME UP FOR CONS IDERATION BEFORE US IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02. WE HAVE ADJUDIC ATED THIS ISSUE IN THE ABOVE NOTED PARA-5 AND FOR THE REASONS GIVEN TH EREIN WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 43. THE NEXT ISSUE IS REGARDING REDUCTION OF GROSS INTEREST FROM THE BUSINESS PROFITS FOR THE PURPOSE OF COMPUTING DEDUC TION U/S.80HHC. 13 THE LD.COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LT D., [2010] 326 ITR 56. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 44. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. [SUPRA] HELD AS UNDER: THE SPECIAL DEDUCTION UNDER SECTION 80 HHC OF THE INCOME TAX ACT, 1961, IS AVAILABLE TO AN ASSESSEE ENGAGED IN THE EX PORT OF GOODS OR MERCHANDISE OUTSIDE INDIA TO THE EXTENT OF THE PROF ITS SPECIFIED IN SUB- SECTION (1B) OF THE PROVISION. CLAUSE (A) OF SUB-SE CTION (3) OF SECTION 80 HHC PROVIDES THAT WHERE THE EXPORTED GOODS ARE M ANUFACTURED BY THE ASSESSEE, THE DEDUCTION UNDER SUB-SECTION (1) W OULD BE IN ACCORDANCE WITH THE FORMULA STATED THEREIN. THE FOR MULA IS THAT THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUN T 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 O F THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (BAA) WAS INSERTED BY THE FINANCE (NO.2) ACT OF 1991. UNDER EXPLANATION (BAA), THE EX PRESSION PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS REDUCED BY NINETY PER CENT. OF (A) ANY SUMS REFERRED TO IN CLAUSES (I IIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28; OR (B) ANY RECEIPTS BY WA Y OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSE E SITUATED OUTSIDE INDIA HAVE ALSO TO BE REDUCED. SINCE RECEIPTS BY WA Y OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR OTHER SIMILA R RECEIPTS HAVE NO NEXUS WITH THE EXPORT ACTIVITY, THE LEGISLATURE THO UGHT IT FIT, FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC TO EXCLUD E SUCH ITEMS FROM BUSINESS PROFITS. PARLIAMENT WAS, HOWEVER, CON SCIOUS OF THE FACT THAT THE EXPENDITURE INCURRED IN EARNING THE ITEMS WHICH WERE LIABLE TO BE EXCLUDED HAD ALREADY GONE IN TO THE COMPUTATION OF BUSINESS PROFITS. THIS WAS BECAUSE THE COMPUTATION OF BUSINESS PROFIT S UNDER CHAPTER IV IS MADE BY AMALGAMATING THE RECEIPTS AS WELL AS THE EXPENDITURE INCURRED IN CARRYING ON THE BUSINESS. SINCE THE EXP ENDITURE INCURRED IN EARNING THE INCOME BY WAY OF INTEREST, BROKERAGE, C OMMISSION RENT, CHARGES OR OTHER SIMILAR RECEIPTS HAD ALSO GONE INT O THE COMPUTATION OF BUSINESS PROFITS, PARLIAMENT THOUGHT IT FIT TO EXCL UDE ONLY NINETY PER CENT. OF THE RECEIPTS RECEIVED BY THE ASSESSEE IN O RDER TO ENSURE THAT THE EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE IN EA RNING THE RECEIPTS WHICH HAS GONE INTO THE COMPUTATION OF THE BUSINESS PROFITS IS TAKEN CARE OF. IN PROVIDING A SIMPLIFIED FORMULA IN THESE TERMS, PARLIAMENT EVIDENTLY ADOPTED A FAIR AND REASONABLE STATUTORY B ASIS OF WHAT MAY BE REGARDED AS EXPENDITURE INCURRED FOR THE EARNING OF THE RECEIPTS. THE DISTORTION OF THE PROFITS THAT WOULD TAKE PLACE BY EXCLUDING THE RECEIPTS 14 RECEIVED BY THE ASSESSEE WHICH WERE UNRELATED TO EX PORT TURNOVER AND NOT THE EXPENDITURE INCURRED BY THE ASSESSEE IN EAR NING THOSE RECEIPTS WAS FACTORED IN BY PARLIAMENT BY EXCLUDING ONLY NIN ETY PER CENT. OF THE RECEIPTS RECEIVED BY THE ASSESSEE. THE EXTENT OF TH E EXCLUSION WHICH IS STATUTORILY MANDATED BY PARLIAMENT IS NINETY PER CE NT OF THE TOTAL RECEIPTS. THIS IS BECAUSE THE EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE IN EARNING THESE RECEIPTS WOULD HAVE GONE INTO THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND A DISTORTION WOULD BE CAUSED IF THE ENTIRETY OF THE I NCOME GENERATED FROM THE RECEIPTS ALONE WERE TO BE EXCLUDED. IT IS IN OR DER TO OBVIATE SUCH A DISTORTION THAT PARLIAMENT MANDATED THAT NINETY PER CENT OF THE RECEIPTS WOULD BE EXCLUDED. ONCE PARLIAMENT HAS LEGISLATED B OTH IN REGARD TO THE NATURE OF THE EXCLUSION AND THE EXTENT OF THE E XCLUSION, IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE BY REWRITIN G THE LEGISLATIVE PROVISION. THE TASK OF INTERPRETATION IS TO FIND OU T THE TRUE INTENT OF A LEGISLATIVE PROVISION. HENCE FOR THE PURPOSE OF EXP LANATION (BAA) TO SECTION 80 HHC THE GROSS INTEREST ON FIXED DEPOSITS IN THE BANK RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED FOR T HE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80 HHC AND NOT THE NET INTEREST. FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 45. THE NEXT ISSUE IS REGARDING REDUCTION OF 90% RE CEIPTS FROM COMMISSION/BROKERAGE, WEIGH BRIDGE RECEIPTS, BUSINE SS SERVICE CENTER REPORT, AND MARKET DEVELOPMENT ASSISTANCE FOR THE P URPOSE OF DEDUCTION U/S.80HHC. 46. IDENTICAL ISSUES CAME UP FOR OUR CONSIDERATION IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02 AND WHILE ADJUD ICATING THE SAME WE HELD THAT THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. DRESSER RAND INDIA PVT. LTD. [SUPRA] HAS OBSERVED T HAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAVINDRANATHAN NAIR [295 ITR 228] HAS HELD THAT ALL THE RECEIPTS OF OTHER NATURE WHICH HAVE NO CONNECTION WITH THE EXPO RT ACTIVITY HAVE TO BE EXCLUDED FROM THE BUSINESS PROFITS FOR THE COMPU TATION OF DEDUCTION U/S.80HHC. THEREFORE, FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER RAND INDI A PVT. LTD. [SUPRA] , 15 WE HELD THAT THIS DECISION WAS NOT NOTED BY THE TR IBUNAL IN ITS EARLIER YEARS ORDER. THEREFORE, FOLLOWING THIS DECISION WE HOLD THAT 90% OF WEIGHT RECEIPTS, MARKET DEVELOPMENT ASSISTANCE AND CENTRAL SALES TAX REFUND HAVE TO BE EXCLUDED FROM THE BUSINESS PROFIT S FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC. ACCORDINGLY, THES E ISSUES ARE DECIDED AGAINST THE ASSESSEE. 47. THE NEXT ISSUE IS REGARDING INCLUSION OF SCRAP SALE IN THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S.80HHC. AN IDENTICAL ISSUE CAME UP FOR OUR CONSIDERATION IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02 AND FOR THE REASONS GIVEN THEREIN WE DECIDE THIS IS SUE AGAINST THE ASSESSEE. 48. THE NEXT ISSUE IS REGARDING CALCULATION OF INDI RECT COST OF TRADING. AFTER HEARING BOTH THE PARTIES, WE FIND TH AT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD EXPORT TUR NOVER IN RESPECT TRADED GOODS AT RS.10.17 CRORES AGAINST WHICH DIREC T COST WAS TAKEN AT RS.2.90 CRORES AND INDIRECT COST WAS SHOWN ONLY AT RS.45,171/-. THE ASSESSEE WAS DIRECTED TO FILE DETAILS OF INDIRECT C OST BUT NO EXPLANATION WAS GIVEN. THEREFORE, AO CALCULATED THE INDIRECT CO ST AS UNDER: DRUM CLOSURE DIVISION SELLING AND DISTRIBUTION 1. DELIVERY & TRANSPORT 1,35,69,936 2. COOLIES & CONVEYANCE 2,195 3. OCTROI DUTY 60,431 4. FREIGHT & OTHER CHARGES ON EXPORT 2,89,59,882 4, 25,92,444 ESTABLISHMENT & OTHER EXPENSES 1. CONVEYANCE REIMBURSEMENT 21,48,912 2. PRINTING & STATIONERY 2,78,600 3. INSPECTING & TESTING 89.715 4. POSTAGE & TELEGRAM 36,39.491 5. TRAVELLING EXPENSES 44,93,097 6. DIRECTORS REMUNERATION 1,85,80,000 7. ELECTRICITY CHARGES 2,03,964 2,94,22,779 16 TOTAL EXPENSES 7,20,15,223 TOTAL TURNOVER OF DRUM CLOSURE DIVISION 60,74,54,6 69 TRADING EXPORT TURNOVER 10,17,59,311 INDIRECT COST = ` `` ` .10,17,59,311 X 7,20,15,223 ` `` ` .1,20,63,812/- HEAD OFFICE THE TOTAL INDIRECT EXPENSES IN RESPECT OF HEAD OFF ICE HAVE BEEN SHOWN BY THE ASSESSEE AT ` `` ` .29,07,968/-. THE TOTAL TURNOVER OF THE ASSESSEE IS ` `` ` .151,76,202/- AND THE EXPORT TURNOVER OF THE TRADING GOODS IS ` `` ` .10,17,311/-. HENCE THE INDIRECT COST IN RESPECT OF HEAD OFFICE WILL BE: ` `` ` .29,07,968 X 10,17,59,311 ` `` ` .1,94,980/- THEREFORE, THE INDIRECT COST ATTRIBUTABLE TO THE T RADING EXPORT IS TAKEN AT ` `` ` .1,22,58,792/- [I.E. ` `` ` .1,20,63,812/- + ` `` ` .1,94,980/-] AS AGAINST ` `` ` .45,171/- TAKEN BY THE ASSESSEE. ON APPEAL, THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT(A). 49. THE LD.COUNSEL OF THE ASSESSEE ARGUED THAT THIS IS NOT FAIR METHOD OF ALLOCATION BUT HE COULD NOT SUGGEST ANY O THER METHOD WHICH COULD BE APPROPRIATE. ON THE OTHER HAND, LD.DR STRO NGLY SUPPORTED THE ORDER OF THE AO AND CIT(A). 50. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI ND THAT IN THE ABSENCE OF ANY OTHER FAIR METHOD THE INDIRECT EXPEN SES HAVE TO BE CALCULATED ONLY ON THE BASIS OF TURNOVER AND AO HAS CALCULATED THE INDIRECT COST ON THE BASIS OF TURNOVER WHICH SEEMS TO BE JUSTIFIED, THEREFORE, WE CONFIRM THE ORDER OF THE CIT(A) IN RE SPECT OF THIS ISSUE. 51. THE LAST ISSUE IS REGARDING NON REDUCTION OF 10 % EXPORT INCENTIVES FROM INDIRECT COST. THE LD.COUNSEL OF TH E ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF 17 THE HONBLE SUPREME COURT IN THE CASE OF HERO EXPO RTS VS. CIT [295 ITR 454]. ON THE OTHER HAND, LD.DR RELIED ON THE OR DER OF THE AO. 52. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF HERO EXPORTS VS. CIT [ SUPRA] HELD THAT ASSESSEE IS ENTITLED TO EXCLUDE 10% OF THE COST ATT RIBUTABLE TO EXPORT INCENTIVES, COMMISSION AND INTEREST ETC. IN ARRIVIN G AT THE EXPENSES ATTRIBUTABLE TO EXPORT TRADE. FOLLOWING THE ABOVE D ECISION, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 53. IN THE RESULT, ASSESSEES APPEALS IN I.T.A.NOS. 6611, 6612 & 6376/MUM/07 ARE PARTLY ALLOWED. 54. I.T.A.NOS.6339 & 6340/M/ [REVENUES APPEAL] : IN BOTH THESE APPEALS REVENUE HAS RAISED COMMON GROUNDS WHICH ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO TO ALLOW DEDU CTION U/S.10B IN RESPECT OF SALE PROCEEDS OF COTTON WASTE OF ` .3,39,65,795/- WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 2. A . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO NOT TO EX CLUDE 90% OF JOB CHARGES FOR COMPUTATION OF DEDUCTION U/S.80HHC OF T HE I.T.ACT, 1961 WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. B . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO NOT TO EX CLUDE 90% OF MISCELLANEOUS INCOME AND INTEREST INCOME FROM PROFI TS OF BUSINESS FOR COMPUTATION OF DEDUCTION U/S.80HHC OF THE I.T.ACT, 1961 WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. C . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO NOT TO EX CLUDE 90% OF CST REFUND FROM PROFITS OF BUSINESS FOR COMPUTATION OF DEDUCTION U/S.80HHC OF THE I.T.ACT, 1961 WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 55. GROUND NO.1: AFTER HEARING BOTH THE PARTIES, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TR IBUNAL IN 18 I.T.A.NOS.3622 & 4057/MUM/08 FOR THE A.Y. 2005-06 T HE TRIBUNAL VIDE PARA-9 HELD AS UNDER: 7. IN REPLY TO THE ABOVE, LEARNED AR SUBMITTED TH AT FOREIGN EXCHANGE GAINS RECEIVED, DISCOUNT RECEIVED, SUNDRY CREDITORS WRITT EN OFF AND COTTON WASTE SALES WERE ALL DIRECTLY RELATED TO THE EXPORT ACTIV ITIES OF THE ASSESSEE AND WERE ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT. ACCORDIN G TO HIM ASSESSEE HAD BEFORE THE ASSESSING OFFICER SUBMITTED THAT THE COM MISSION AND BROKERAGE RECEIVED OF RS.29,41,650 WERE FROM PARTIES FOR MAK ING INSPECTION OF DIFFERENT CONTAINERS OF COTTON YARN AND ANALYZING T HE QUALITY OF THE MATERIAL AND THIS WAS NEVER REBUTTED BY THE LEARNED AO OR TH E LEARNED CIT(A). HENCE, LD COUNSEL SUBMITTED THAT SUCH INCOME WAS RECEIVED DURING THE COURSE OF THE BUSINESS ACTIVITY OF THE ASSESSEE. FOLLOWING THE ABOVE ORDER, WE DECIDE THIS ISSUE AGA INST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 56. THE OTHER ISSUES RAISED IN GROUND NO.2 ARE EXCL USION OF 90% OF JOB CHARGES, MISCELLANEOUS INCOME AND SALES TAX REF UND. 57. BEFORE US, LD.COUNSEL OF THE ASSESSEE CONCEDED THAT THE FIRST TWO ISSUES I.E. 90% OF EXCLUSION OF JOB CHARGES AND MISCELLANEOUS INCOME ARE COVERED AGAINST THE ASSESSEE BY THE DECI SION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER RA ND INDIA PVT. LTD. [SUPRA]. HOWEVER, THE ISSUE REGARDING EXCLUSION OF 90% OF SALES TAX REFUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y 2001-02. ON THE OTHER HAND, LD.DR SUBMITTED THAT EVEN THE ISSUE OF EXCLUSION OF 90% S ALES TAX REFUND IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER RAND INDI A PVT. LTD. [SUPRA]. THEREFORE, FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 58. I.T.A.NO.6697/M/07 [REVENUES APPEAL ]: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 19 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO TO ALLOW DEDU CTION U/S.10B IN RESPECT OF VARIOUS INCOMES WITHOUT APPRE CIATING THE FACTS BROUGHT ON RECORD BY THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO TO ALLOW DEDU CTION U/S.80HHC IN RESPECT OF VARIOUS INCOMES WITHOUT APP RECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DELETING THE DISALLOWANCE MADE 40A(2)(B) ON ESTIMATED BASIS ON COMMISSION PAID TO FOREIGN SU BSIDIARIES WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 59. GROUND NO.1: IN THIS GROUND AS PER THE CHART TH E DISPUTES INVOLVED ARE REGARDING ALLOWANCE OF DEDUCTION U/S.1 0B IN RESPECT OF SUNDRY CREDITORS WRITTEN BACK, EXCHANGE GAIN AND CO TTON WASTE. 60. AS REGARDS SUNDRY CREDITORS AN IDENTICAL ISSUE CAME UP FOR OUR CONSIDERATION IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02 AND FOR THE REASONS GIVEN THEREIN WE DECIDE THIS ISSUE IN FAVOU R OF THE ASSESSEE. 61. AS REGARDS SALES TAX REFUND WE HAVE DISMISSED A SSESSEES GROUND FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DRESSER RAND INDIA PVT. LTD. [SUPRA ]. FOLLOWING THE SAME REASONS, WE DECIDE THE SAME AGAINST THE ASSESS EE AND IN FAVOUR OF THE REVENUE. 62. AS REGARDS COMMISSION BROKERAGE THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL FOR THE A.Y 2005- 06 IN I.T.A.NO.3622/M/08 & 4057/M/08 FOR A.Y 2005-06 AND THE TRIBUNAL WAS DECIDED BY THE TRIBUNAL VIDE PARA 8 WHICH IS AS UNDER: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. FIRST WE TAKE UP ASSESSEES GRIEVANCES ON 10B DEDUCTIONS. TH E QUESTION ARISING IN BOTH ASSESSEES APPEAL AND REVENUES APPEAL ON THIS ISSU E IS WHETHER IT IS POSSIBLE TO CONSIDER THE RECEIPTS OF THE NATURE MENTIONED AT PARA 3 ABOVE AS PART OF PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES O R THINGS. UNDISPUTEDLY, ASSESSEE IS A HUNDRED PER CENT EXPORT ORIENTED UNDE RTAKING ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT. AS REGARDS COMMISSION AND BROKERAGE RECEIPT THE IMMEDIATE SOURCE CANNOT BE CONSIDERED AS EXPORT ACTIVITY OF THE ASSESSEE. WORDS DERIVED FROM IMPLY THAT THERE SHOULD BE DIR ECT NEXUS AND SUCH NEXUS SHOULD NOT BE ONLY INCIDENTAL. THE TERMINOLOGY USED IN SECTION 10B IS 20 DERIVED FROM EXPORTS AND THIS BEING THE CASE, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAD CORRECTLY APPLIED THE DECISIO N OF THE HONBLE APEX COURT IN STERLING FOODS AND CAMBAY ELECTRICAL SUPP LY INDL.CO. LTD. (SUPRA). THE COMMISSION AND BROKERAGE EARNED BY THE ASSESSEE HAVING NO NEXUS WITH ITS EXPORT ACTIVITIES, IT COULD NOT BE TREATED AS A PART OF PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES OR THINGS. WE ARE T HEREFORE OF THE OPINION THAT, THE CLAIM OF THE ASSESSEE, VIS-A-VIS COMMISSION AND BROKERAGE RECEIPT OF RS. 29,41,650/-, FOR CALCULATING THE DEDUCTION U/S.10B OF THE ACT WAS CORRECTLY DENIED BY THE AO AND CONFIRMED BY THE LEARNED CIT(A ). VIS--VIS, RECEIPT FROM WEIGH BRIDGE RS. 10,010/- ALSO, SUBMISSION OF THE ASSESSEE WAS THAT THIS WAS PART OF ITS BUSINESS PROFIT. UNDISPUTEDLY, WEIG H BRIDGE RECEIPT HAS NOTHING TO DO WITH THE EXPORT ACTIVITY OF THE ASSES SEE AND WAS ARISING OUT OF AN INDEPENDENT ACTIVITY OF GIVING OUTSIDE PARTIES T HE SERVICES OF THE WEIGH BRIDGE. NO DOUBT, THIS MAY BE A PART OF ITS BUSINE SS ACTIVITY BUT COULD NOT BE DEEMED AS PROFITS AND GAINS WHICH ARE DERIVED FROM EXPORT OF ARTICLES OR THINGS. FOR THE SAME REASONS THAT WE HAVE MENTIONED FOR COMMISSION AND BROKERAGE INCOME, WE FIND THAT CLAIM OF DEDUCTION U/S.10B OF THE ACT ON SUCH RECEIPT WERE ALSO RIGHTLY DENIED TO THE ASSESS EE. AS AFORESAID, ASSESSEES COUNSEL HIMSELF HAS NOT PRESSED THE CLAIM FOR CONSI DERING INTEREST FOR RS.2,11,849/- AS PART OF ITS BUSINESS PROFITS FOR C OMPUTING DEDUCTION US/10B OF THE ACT. RESULTANTLY, GROUND NO.1 OF THE ASSESSE E STANDS DISMISSED. FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 63. AS REGARDS EXCHANGE GAIN, WE FIND THAT THIS ISS UE CAME UP FOR OUR CONSIDERATION FOR THE A.Y 2003-04 IN I.T.A.NOS. 4792 & 5689/M/06 WHEREIN THIS ISSUE WAS DECIDED VIDE PARA-49 WHICH I S AS UNDER: 49. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE BY A RECENT JUDGMENT DATED 23RD JUNE 2010, PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS GEM PLUS JEWELLERY INDIA LTD., 42 DTR JUDGMENTS 73 (BOM.), W HEREIN, THEIR LORDSHIPS HAVE HELD THAT THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT EXEMPTION U/S 10A ON FOR EIGN EXCHANGE GAIN EARNED ON REALIZATION OF EXPORT RECEIPTS IN TH E YEAR OF EXPORT AND TO EXCLUDE THE GAINS ON SALES OF EARLIER YEARS FROM THE PROFITS OF THE YEAR UNDER CONSIDERATION AND ALLOW IN THOSE YEARS . THE ORDER OF THE CIT(A) THUS DESERVES TO BE UPHELD ON THIS ISSUE AS WELL. RESPECTFULLY FOLLOWING HONBLE JURISDICTIONAL HIGH COURT JUDGMEN T IN THE CASE OF GEM PLUS JEWELLERY (SUPRA), WE DECLINE TO INTERFERE IN THE ORDER OF THE CIT(A) ON THIS ISSUE, AND DISMISS THIS GROUND OF AP PEAL BY THE ASSESSING OFFICER. FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE AL LOW THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 64. IN GROUND NO.2 THE ISSUES RAISED ARE REGARDING FOLLOWING ITEMS: 21 [A] DISCOUNT RECEIPTS AND SCRAP SALES [B] SALES TAX REFUND. 65. WE HAVE ADJUDICATED THIS ISSUE WHILE DEALING WI TH ASSESSEES APPEAL IN I.T.A.NO.6011/M/07 FOR A.Y 2001-02. FOR T HE REASONS GIVEN THEREIN FOLLOWING THE ORDER OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. DRESSER RAND INDIA PVT. LTD. [SUPRA ], WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. AS REGARDS THE ISSUE OF SUNDRY CREDITORS, WE FIND THAT WE FIND THAT IDENTICAL ISSUE CAME UP B EFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y 2001-02 IN I.T.A.NOS.578 7/MUM/04 AND 7281/MUM/04. FOR THE REASONS GIVEN IN I.T.A.NO.6011 /M/07 FOR A.Y 2001-02 AND FOLLOWING THE ABOVE ORDERS OF THE TRIBU NAL, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 66. AS REGARDS EXCHANGE GAIN AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE HAS BEEN RECENTLY DECIDED BY THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PRAKASH SHAH 306 I TR (AT) 1. THEREFORE, FOLLOWING THIS DECISION, WE SET ASIDE TH E ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THIS ISSUE IN THE LIGHT OF THE DECISION O F THE SPECIAL BENCH IN THE CASE OF ACIT VS. PRAKASH SHAH [SUPRA]. 67. THE LAST ISSUE IS REGARDING DELETION OF DISALLO WANCE ON ACCOUNT OF COMMISSION PAID TO FOREIGN SUBSIDY. 68. WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSID ERATION BEFORE THE TRIBUNAL IN A.Y 2005-06 IN I.T.A.NO.3622-M-08 AND T HE SAME WAS CONSIDERED BY THE TRIBUNAL VIDE PARA-14 WHICH READS AS UNDER: 14. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTE NTIONS OF BOTH THE PARTIES. ASSESSEE HAD PAID THE COMMISSION TO ITS FO REIGN SUBSIDIARIES FOR ENSURING SMOOTH RECEIPT OF ITS BILLS, SETTLEMENT OF DISPUTES, GETTING APPROVALS 22 OF SAMPLES AND FOR GETTING ORDERS. ASSESSEES CASE IS THAT IT ENSURED A CONTINUOUS BUSINESS FLOW AND WAS VERY MUCH NECESSAR Y IN THE NATURE OF ITS BUSINESS. THESE SUBMISSIONS OF THE ASSESSEE HAS NEV ER BEEN REBUTTED. NO DEFECT HAS BEEN POINTED OUT IN THE AGREEMENTS THAT ASSESSEE HAD WITH THE SUBSIDIARIES WHEREBY IT COULD BE CONCLUDED THAT THE PAYMENTS MADE WERE NOT GENUINE. AO HAS NOT BEEN ABLE TO BRING ON RECORD A NY MATERIAL TO SHOW THAT THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY T HE PERSONS WAS LOWER THAN WHAT WAS PAID BY THE ASSESSEE. THERE IS NOTHING ON RECORD TO PROVE THAT THE PAYMENTS MADE BY THE ASSESSEE WERE EXCESSIVE OR UNR EASONABLE OR NOT IN ACCORDANCE WITH THE LEGITIMATE NEEDS OF ITS BUSINES S. LEARNED CIT(A) MECHANICALLY FOLLOWED HIS PREDECESSORS ORDER IN CO NFIRMING A SIMILAR DISALLOWANCE IN THE PRECEDING YEAR. IN OUR OPINION SUCH AD HOC DISALLOWANCE IS NOT WARRANTED ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE. WE ARE FORTIFIED. FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE REVENUE. 69. IN THE RESULT, REVENUES APPEALS ARE PARTLY ALL OWED. 70. IN SUM, ASSESSEES AS WELL AS REVENUES APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 8 /4/2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 8/4/2011. P/-*