RADIANT TEXTILES PRIVATE LIMITED,PATIALA V. ACIT, CIRCLE, PATIALA, PATIALA

ITA 444/CHANDI/2025

AI Insights

The case involves M/s Radiant Textiles Pvt. Ltd., which appealed against the decision of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, Delhi. The primary contention was the correct application of tax rates for the Assessment Year 2019-20. The assessee argued that certain components like scrap sales, duty drawbacks, and forex fluctuations should be excluded from the turnover, which would reduce it below the Rs. 250 Crores threshold, making it eligible for a lower tax rate of 25% instead of 30%. However, both the Assessing Officer and the CIT(A) upheld the application of the 30% tax rate, leading to the appeal before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 778604 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2019-2020
• Appeal Filed On: 25-03-2025
• Other Referred Cases: CIT v. Punjab Stainless Steel Industries, Liberty India v. CIT, Shah Originals vs CIT, CIT vs Universal Precision Screws, State of Tamil Nadu v. Garware Wall Ropes, CIT vs Lakshmi Machine Works
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUSUM BANSAL LD
• Assessee Lawyers: PARIKSHIT AGGARWAL LD
• Keywords: Set aside; Business income; Opportunity of being heard; Revised return; Business expenditure; Bad and doubtful debts; Rectification of order
• Section: 154; 80HHC; 10B

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH HYBRID HEARING BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.444/CHANDI/2025 (िनधाŊरण वषŊ / Assessment Year: 2019-20) M/s Radiant Textiles Pvt. Ltd. Village Chounth, Patiala Road Samana-147101 बनाम/ Vs. ACIT Circle Patiala Aaykar Bhawan Patiala 147001 ˕ायीलेखासं./जीआइआरसं./PAN/GIR No. AADCR-1175-R (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Shri Parikshit Aggarwal (CA) – Ld. AR ŮȑथŎकीओरसे/Respondent by : Smt. Kusum Bansal (CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 10-09-2025 घोषणाकीतारीख /Date of Pronouncement : 14/10/2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 13-02-2025 in the matter of a rectification order passed by Ld. Assessing Officer [AO] u/s. 154 of the Act on 28-11-2023. The only grievance of the assessee is application of correct rates of taxes. Printed from counselvise.com 2 Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. 2. The CPC, while processing assessee’s return of income, applied tax rate of 30% as against tax rate of 25% as applied by the assessee in its return of income. To know applicable rates for AY 2019-20, the assessee’s turnover during AY 2017-18 would be relevant. As per extant general rates of taxation for AY 2019-20, the corporate assessee having total turnover or gross receipts of more than Rs.250 Crores in AY 2017-18 would be subjected to higher tax rate of 30% whereas the corporate assessees having total turnover or gross receipts of less than Rs.250 Crores in AY 2017-18 would be subjected to lower tax rate of 25%. The Ld. AO, in rectification order, observed that the assessee’s revenue from operations in AY 2017-18 were Rs.253.32 Crores. As against this, the assessee sought exclusion of foreign exchange fluctuation of Rs.4.63 Crores which would reduce the turnover to Rs.248.69 Crores. The Ld. AO rejected the same and upheld application of higher rate of 30%. 3. The Ld. CIT(A) extracted relevant financials of the assessee for AY 2017-18 onwards and observed that the turnover always exceeded Rs.250 Crores during AYs 2017-18 to 2019-20. Therefore, the action of Ld. AO in applying higher rate of tax was upheld against which the assessee is in further appeal before us. 4. It is the assertion of Ld. AR that certain components viz. sale of wastage / scrap, duty drawback and forex fluctuation gains as reflected in the financial statements would not form part of assessee’s turnover Printed from counselvise.com 3 and therefore, the same are to be excluded from turnover for the purpose of application of correct tax rates. In this regard, detailed written submissions have been filed and reliance has been placed on various judicial decisions to support the same. It has also been stated that though indirect taxes which constitute part of gross turnover u/s 145A, the same would not have much impact on turnover since 92% of turnover is export turnover on which no VAT is applicable. The substantiative written submissions read as under: - Issue 1: Whether Sale of Scrap or wastage can be regarded as part of \"turnover\" fordetermining the applicability of 25% or 30% corporate tax rate? 10. It is humbly submitted that the term turnover means the receipts arising from the sale of goods or services which constitute 'A\"s core business activity. It does not extend to incidental or ancillary receipts which do not form part of the price paid by the final consumer. It is submitted that while, for accounting disclosure purposes, certain ancillary or incidental incomes may appear under the broad head of \"Total Turnover\" or \"Revenue from Operations,\" in law such items cannot be equated with turnover for the purpose of applying statutory thresholds. The term \"turnover\" must be confined to receipts which are the sale proceeds of goods or services in which 'A' is engaged, and not to incidental receipts arising independently of the sale transaction. 'A' is engaged in the business of manufacturing and trading of textiles. The sale of scrap/waste (cuttings, trimmings, defective cloth, etc.) is an inevitable by-product of the manufacturing process. Scrap arises unintentionally and is not the object of business. Its sale only represents recovery of residual value from waste and not active trading. It is not revenue generation but is to be reduced from cost of goods produced. Thus, the amount of Rs. 19.29 crores shown under scrap sales in Schedule F is only incidental income, to be considered as reduction from cost of goods manufactured though may have been disclosed in accounting at the credit side of P&L A/c and cannot be considered as part of assessee's turnover. The question as to whether Sale of Scrap or wastage is part of turnover or is to be reduced from cost of goods sold came before the Hon'ble SC in CIT v. Punjab Stainless Steel Industries (2014) 364 ITR 144 (copy appended at page 1-17 of AJC) wherein their Lordships held that turnover must consist of receipts from sale of the commodities in which 'A' is engaged and sale of scrap cannot be considered as assessee's turnover and it is to be reduced from cost of goods sold. The case pertained to the computation of profits u/s 80HHC, which involves the terms \"export turnover\" and \"total turnover.\" The term \"Total Turnover\" therein also was to include all types of turnover of 'A' and higher the Total Turnover, the lower was the benefit u/s 80HHC. Therefore, 'A' was Printed from counselvise.com 4 pressing that sale of scrap should not be made as part of its total turnover. The Hon'ble Supreme Court agreed on, that issue. Therefore, the key question was whether the sale value of scrap (generated during the manufacture of stainless-steel utensils) should form part of \"total turnover.\" The Hon'ble Apex court, after relying on the definition provided by the ICAI Guidance Note, affirmed that in normal accounting parlance, \"turnover\" means \"total sales\" of goods or services dealt in by the company. But Scrap/waste, being dissimilar to the core business product, was expressly held not to form part of \"total turnover\". The relevant extract from the judgment is reproduced as under: \"25. The word \"turnover'as per para 5.2 and 5.3 of \"Guidance Note on Tax Audit u/s 44AB of the Income Tax Act\" as published by ICAI, after due deliberation and consideration reads as under: \"5.2 In the \"Guidance Note on Terms Used in Financial Statements\" published by the ICAI, the expression \"Sales Turnover\" (Item 15.01) has been defined as under:- \"The aggregate amount for which sales are effected or services rendered by an enterprise. The term 'gross turnover' and 'net turnover' (or 'gross sales' and 'net sales') are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts\" 5.3 The Guide to Company Audit issued by the ICAI in the year 1980, while discussing \"sales\", stated as follows: \"Total turnover, that is, the aggregate amount for which sales are effected by the company, giving the amount of sales in respect of each class of goods dealt with by the company and indicating the quantities of such sales for each class separately. Note (i) The term 'turnover' would mean the total sales after deducting therefrom goods returned, price adjustments, trade discount and cancellation of bills for the period of audit, if any. Adjustments which do not relate to turnover should not be made e.g. writing off bad debts, royalty etc. Where excise duty is included in turnover, the corresponding amount should be distinctly shown as a debit item in the profit and loss account.\" The aforestated meaning given by the ICAI clearly denotes that in normal accounting parlance the word \"turnover\" would mean \"total sales\" as explained hereinabove. The said sales would definitely not include the scrap material which is either to be deducted from the cost of raw material or is to be shown separately under a different head. We do not see any reason for not accepting the meaning of the term \"turnover\" given by a body of Accountants, which is having a statutory recognition.\" It may please be appreciated that the Hon'ble Supreme Court's reasoning was not confined to s. 80HHC alone, but rested on the true and ordinary meaning of the term \"turnover.\" The Hon'ble Court did not base its decision on a specific clause of S.80HHC but on the fundamental meaning of the word \"turnover\". Scrap represents an inevitable by-product, generated without any conscious business intent, and realized incidentally. If scrap sales arc included in \"total turnover,\" it would artificially inflate the turnover base, misrepresenting the true scale of the textile operations. This is exactly the Printed from counselvise.com 5 mischief highlighted by the Supreme Court in Punjab Stainless Steel (supra).Therefore, this precedent is directly applicable to the present case for determining the correct composition of \"total turnover.\" i. Reliance is also placed on CIT vs Universal Precision Screws, ITA1454/2015 (Delhi ITAT) wherein the courts have consistently held that scrap sales are not part of total turnover if it does not arise from core business activity [copy enclosed] : \"12. AO as well as the CIT(A) has not excluded the scrap sale from turn over as well as total turnover while computing the deduction u/s 10B of the Act. This issue has also been decided in assessee's favour in its own case for AY 2009-10 by the coordinate bench of Tribunal, which has been affirmed by the Hon'ble Delhi High Court. Operative part of the decision rendered by Hon'ble High Court is extracted as under:- \"5. In allowing the Assessee's appeal by the impugned order, the ITAT held that in terms of the judgment of the Supreme Court in CIT v. Punjab Stainless Steel Industries (2014) 364 ITR 144 (SC) sale of scrap is not includable in the total turnover since the Assessee was not engaged in the business of scrap. Consequently, the impugned orders of the CIT(A) and the AO treating the scrap amount as part of the domestic turnover was set aside. 6. On the above aspect, the Court finds no error committed by the ITAT as the legal position has been madeexplicit by the decision of the Supreme Court in CIT v. Punjab Stainless Steel Industries (supra). Consequently, the Court declines to frame a question on this issue.\" 13. So following the decision rendered by the Co-ordinate bench of Tribunal affirmed by Hon'ble High Court, we are of the considered view that the amount of sale of scrap is not includible in the total turnover or heal turn over as the assessee is not into the business of scraps, so we find no illegality or perversity in the findings returned by the Id. CIT(A),hence ground no.7is determined against the assessee.\" ii. Therefore, scrap sales cannot, in law or in accounting principle, form part of the \"total turnover\" 11. Duty drawback i. Duty Drawback is a refund mechanism administered by the Central Government under the Customs and Central Excise Duty Drawback Rules. It is a statutory incentive granted to exporters to rebate the duties (customs or excise) paid on imported or indigenous inputs used in the manufacture of exported goods. The fundamental character of this receipt is: A. It is reimbursement/refund from the Government, B.It does not arise from any sale transaction with the customer, C.It is not embedded in the invoice value or sale price of the exported goods, and Hence, its character is not that of turnover or sale proceeds, but more of an incentive granted under statutory policy. ii. Reliance is placed on the landmark ruling of the Hon'ble Supreme Court on duty drawback in the case of Liberty India v. CIT (2009) 317ITR 218(copy appended at page 36-51 of AJC). The issue before the Court was whether these Incentive qualify as profits \"derived from\" an industrial undertaking so as to be eligible for deductions under sections 80-IA/80-IB. The Court held that the expression \"derived from\" requires a direct nexus between the profits and the business activity of the industrial undertaking and only the receipts directly attributable to manufacturing or sale can qualify. Duty Printed from counselvise.com 6 drawback is not generated by the business operations themselves, but by statutory/ policy measures framed under the Customs Act. Therefore, the immediate source of such receipts is not the industrial activity, jut the statutory scheme. The Court emphasized that duty drawback and similar incentives are independent of the pricing of goods or the transaction with the customer. Since turnover is essentially the aggregate sales value of goods/services supplied, Government reimbursement cannot qualify as turnover. Relevant extract from the judgement is reproduced herewith: \"In our view, DEPB/Duty drawback are incentives which flow from the schemes framed by Central Government or from s. 75 of the Customs Act, 1962, hence, incentives profits are notprofits derived from the eligible business under s. 80 IB. They belong to the category of ancillary profits of such undertakings. we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/ Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression \"profits derived from industrial undertaking\" in s. 80-IB. The cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Hence, trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. Therefore, duty drawback, rebate, etc., should not be treated as adjustment (credited) to the cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly.\" iii. Similarly, the following honorable courts have held that duty drawback is a policy- driven incentive and not part of turnover. It is not generated from the manufacturing or sale process and arises solely because of statutory schemes framed by the Government, intended to neutralize the burden of duties paid on inputs used in exported goods and the same should not be added in the total turnover: • Hon'ble Madras High Court in State of Tamil Nadu v. Garware Wall Ropes, 2011, 46 VST 470 \"18. In the decision reported in 115 STC 161 - INDIAN ALUMINIUM CABLES LTD v. COMMISSIONER OF SALES TAX, which was affirmed by the Apex Court in the decision reported in 115 STC 172 COMMISSIONER OF SALES TAX v. INDIA ALUMINIUM CABLES LTD., the Allahabad High Court considered a similar situation as regards the excise duty refund under the Central Government Scheme. Referring to the decision in the case of HINDUSTAN SUGAR MILLS LTD v. STATE OF RAJASTHAN - 43 STC 13 and RAMCO CEMENT DISTRIBUTION CO., PVT. LTD v. STATE OF TAMIL NADU - 88 STC 151, the Allahabad High Court held that excise duty, which was the subject matter of refund, would not be included as part of taxable turnover. The Apex Court affirmed the view of the Allahabad High Court reported in 115 STC 172 - COMMISSIONER OF SALES TAX v. INDIAN ALUMINIUM CABLES LTD., holding that where the excise duty was refunded to the manufacturer under a Central Government Scheme for granting assistance to exporters, the refund had no causal relationship with the sale and hence, it was not Printed from counselvise.com 7 to be included in the taxable turnover. Thus when the claim was not the result of any bargain between the assessee and purchaser, the sum received by way of duty drawback from the Central Government cannot be regarded as an amount forming part of the sale price to fall under the definition of 'turnover'. 24. There is no dispute from the Revenue that the excise duty element was only on the intermediary product and that there was no duty on the final product falling under Sub Heading No. 56.07 in terms of Notification No. 61/87 - C.E. dated 01.03.1987. A reading of the order of assessment and that of the Appellate Assistant Commissioner show the reference to the definition of'sale price', as available under the Central Sales Tax Act, to hold that the sale price in respect of the goods at the time of or before the delivery of the goods, would form part of the turnover only to treat the duty drawback a part of the consideration, forgetting for a moment that the receipt had nothing to do with the sale at all. Thus even going by the above definition of sale price, on the facts available, when the receipt of duty drawback has nothing to do with the sale between the parties and. has no relevance to the sale transaction at the time of or before the delivery of the goods, we do not find any justification in the Revenue treating the duty drawback as forming part of the turnover. When the duty drawback was as per the scheme given under the Excise and Customs Rules and that there was no agreement between the purchaser and the seller on the aspect of duty drawback and it never received any consideration and rightly so in the sale effected, the question of roping in those receipts from the Government of India long after the sale does not arise, to be included in the turnover for the purpose of assessment. In considering this issue, the difference in price charged by the assessee in respect of sale to coastal vessels and to the foreign going vessels, has no relevance at all and it is not the decisive factor in considering the question of taxability of the receipt. So long as the assessee was able to show that the receipt was as per the provisions of Central Excise and Customs Act and the Rules made thereunder with reference to export of goods manufactured from out of duty suffered goods, and the transaction thus answer the definition of 'export' as given under the Duty Drawback Rules, the State is not justified in taxing this receipt as part of the turnover\" • CIT vs Lakshmi Machine Works, 290 ITR 667 (SC) (copy appended at page 77-89 and 18-35 ofAJC) \"18. In the case of combined business of an assessee having export business and domestic business the Legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under the Excess Profits tax Act, it existed in the Business ProfiU tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of\" turnover\", excise duty and idles tax also cannot form part of the \" turnover\" Just as interest, commission etc. did not emanate from the \"turnover\", so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and, therefore, they were not includible in the \" total turnover\". Printed from counselvise.com 8 iv. Therefore, inclusion of duty drawback of Rs.6.08 cr in turnover would artificially inflate business receipts and misrepresent 'A\"s operational efficiency, contrary to both the accounting principle of \"true and fair view\" and the judicially settled interpretation. It is, therefore, most respectfully submitted that duty drawback should be excluded from the computation of turnover for all purposes under the Act. 12. Forex Fluctuation i. The forex fluctuation of Rs. 4.63 crores is not a pre-determined component of the sale price. It is not consideration paid by the buyer for the goods; it arises from currency movements between invoice and realization. It arises due to the timing difference between the point of invoicing the export customer and the point of actual realization of the payment. Thus, this gain is purely speculative and incidental and therefore, it is in the nature of \"Other Income\" and not revenue from sale of goods. ii. The essential character of \"turnover\" has been explained in several judgments to mean only the consideration received from the sale of goods or services in the ordinary course of business. Turnover, by its very nature, is confined to the invoice value of the goods/services actually sold and does not extend to ancillary or incidental receipts. Reliance in this regard is placed on the judicial precedents laid down by Hon'ble Apex Court in Shah Originals vs CIT 459 ITR 385 (SC) (copy appended at page 52-79 of AJC), wherein it was held that exchange rate fluctuations cannot be considered as part of turnover since they are not amounts charged to customers in respect of goods sold out arise due to external market forces, relevant extract of the judgment is reproduced herewith: \"8.1 The provisions of a tax statute are interpreted strictly, and the literal meaning of the expression \"derived from\" ought not to be confused with the words \"attributable to\". Interpreting literally, it is contended that the words \"derived from\" mentioned in sub- sections (1) and (3) would be the deciding factor whether the gain from the foreign exchange fluctuation forms a part of the business income of the assessee or not. We may refer to the illustration given by Mr. Arijit Prasad; the crediting of foreign exchange into an EEFC account is like transferring from one account to another, and the gain from foreign exchange appreciation is, in no way, attributable to the assessee's business of export of goods or merchandise outside India. The foreign exchange fluctuation resulting in gain, disallowed under Section 80 HHC, is looked at by tracing the origin of income or the source from which the gain is derived. The gain cannot be given the status of profits from the business of exports unless the gain is said to be derived from the business of exports of goods/merchandise.\" iii. Even in the context of export-related benefits, the Supreme Court in Liberty India v. CIT (supra) drew a clear distinction between \"profits derived from business\" and \"ancillary receipts incentives or policy-based benefits. The rationale extends equally to forex fluctuation gains: they cannot be said to have been derived from the core manufacturing or trading activity but only represent incidental receipts which do not form part of total turnover. iv. In light of the above, foreign exchange fluctuation cannot be included in turnover. The concept of turnover is limited to the price realized or realizable from the sale of goods/services in the ordinary course of business, whereas forex fluctuation is a post-sale adjustment caused by external currency market factors. Printed from counselvise.com 9 13. Further, it is submitted that the courts have consistently ruled that items not forming part of primary sales activity cannot inflate turnover for the purpose of applying concessional tax rate. If the legislative intent were to include such incidental incomes, the Finance Act would have used the term \"gross total income\" instead of \"turnover.\" Reliance in this regard is placed on the following judicial precedents (copy appended at page 1-31 of AJC: • SGJ Enterprises P. Ltd. vs ACIT, 645/Chd/2024, (Chd. IT AT) \"3. We are of the opinion that separate cause of action had arisen for the assessee i.e., first against intimation passed u/s 143(1) and secondly, against rectification intimation passed u/s 154. Both intimations are appealable before Ld. CIT(A). Therefore, the appeal could not be dismissed merely on technical ground and the appellate door could not be shut against rectification intimation. Having said so, we find that the lower rate of tax was not claimed by the assessee u/s 115BAA but the assessee has claimed general concessional rate of tax of 25% which was applicable to all corporate assessee having turnover of less than Rs.250 Crores during previous year 2016-17. The Ld. AR has placed on record financial statements for FY 2016-17 which would indicate that the turnover of the assessee, in this year, is merely Rs.2.07 Crores. Accordingly, the assessee is eligible to claim concessional basic rate of tax of 25%. Therefore, Ld. AO is directed to make correct computations of tax payable by the assessee. The basic rate of tax as applicable to the assessee would be 25%. We order so.\" • H & H Technologies Pvt. Ltd vs. ACIT, 650/Chd/2022, (Chd. ITAT) • Genesys International Corporation Ltd. VS. DCIT, 440'/Mum/2023, (Mum. ITAT) • High Volt Electricals Private Limited vs. ITO, 4663/Mum/2023, (Mumbai ITAT) • Transcreek Engineers P. Ltd. Limited vs. DCIT, 4776/Mum/2023,(Mumbai ITAT) • A R Overseas Tradecom (P) Ltd vs. DCIT, 651/Kol/2022, (Kolkata ITAT) 14. Once any of the above component agitated by us excluded, the turnover of 'A' during FY 2016-17 for above purposes would be less than Rs. 250 crores and therefore the correct applicable tax rate is 25%. Issue 2: Lack of jurisdiction u/s 143(1) 15. S. 143(1) permits only limited adjustments such as arithmetical corrections and disallowance of prima facie inadmissible claims. Alteration of tax rate on the ground of inclusion or exclusion of above items in turnover is a highly debatable issue, beyond the jurisdiction of CPC. Revenue cannot reject the profit and loss account prepared by the company or to alter the basis of allocation of amounts reflected therein. If any such adjustment is contemplated, it is incumbent upon the Officer to issue a notice u/s 143(2) of the Income-tax Act and, after affording 'A' an opportunity of being heard, decide the matter strictly in accordance with law. Reliance in this regard is placed on the following judicial precedents: • Khatau Junkar Ltd., 196 ITR 55, (Bombay HC) • Ravi Bajaj Design Pvt. Ltd. Vs ITO, 926/DEL/2012, (Delhi ITAT) 16. Hence, the very adjustment in the intimation is without authority of law and liable to be quashed. In the light of above facts, circumstances, legal position and submission, it is prayedthat the above grounds may please be allowed. Printed from counselvise.com 10 Our findings and Adjudication 5. We have carefully gone through above written submissions and various case laws as cited by Ld. AR to support the case of the assessee. However, upon perusal of assessee’s financial statements for AY 2017-18, we find that the assessee has reflected revenue from operations for Rs.253.32 Crores which clearly exceeds the threshold of Rs.250 Crores. The Ld. AR seeks exclusion of various component to make out a case for the assessee to contend that the turnover would be less than Rs.250 Crores. The Ld. AR, in specific, has sought exclusion of various components viz. sale of wastages / scrap, Export DEPB, Service Tax, Export drawback and forex fluctuation from computation of turnover of the assessee on the ground that these components could not be considered as turnover of the assessee. However, after going through the computation of income of the assessee for AY 2017-18, it could be ascertained that the only income earned by the assessee is under the head ‘Business Income’ only. Whatever is the nature of these components, the same form part of ‘business income’ and assessed as such. Secondly, it is quite apparent that the assessee is engaged in domestic and export sale of cotton yarn. All these components viz. sale of wastages / scrap, Export DEPB, Service Tax, Export drawback and forex fluctuation etc. form integral part of assessee’s business and arises only out of assessee’s regular business activities. These components are not to be considered in isolation as separate stream of business income for the assessee. Therefore, the plea of Ld. AR to exclude these components could not Printed from counselvise.com 11 be accepted. The assessee has reflected these components as revenue from operations in its audited accounts, though later on, the assessee has attempted to revise its return of income by excluding forex gains from its turnover so as to show lesser turnover to be eligible for lower rates of tax in this year. The same could not be accepted considering the nature of assessee’s business. It could clearly be seen that the forex gains arise out of export transactions which is the substantial business of the assessee. The other components viz. sale of wastages / scrap, Export DEPB, Service Tax, Export drawback also have direct nexus with business operations of the assessee and therefore, the same could not be excluded from the turnover of the assessee. Even the assessee does not seek exclusion of these other components (except forex gains) in the revised return of income which is sought to be filed later on. The various case laws as cited by the assessee in its written submission are primarily in the context of claim of deductions u/s 80HHC / 80-IB which involves computation of proportionate turnover and export profits to ascertain the quantum of deduction. 6. On the issue of sale of scrap or wastage, it has been stated that the sale of scrap is not the core business activity of the assessee and therefore, this turnover would not include this component. The wastage was inevitable by-product of the manufacturing process. Scrap arises unintentionally and it represents recovery of residual value from the waste and not active trading. It is not revenue generation but it is to be reduced from cost of goods produced. However, this argument does Printed from counselvise.com 12 not inspire any confidence in us. The sale of scrap is nothing but revenue out of sale of products arising out of manufacturing process of the assessee. The same are inevitable part of assessee’s manufacturing process and it could not be held to be a reduction in cost of production. The decision of Hon’ble Apex Court in the case of Punjab Stainless Steel Industries (supra) is in the context of computation of profits u/s 80HHC which involve determination of export turnover and total turnover in terms of provision of that section only. Therefore, this decision and subsequent decisions of Tribunal following this decision do not render any assistance to the case of the assessee. 7. On the issue of duty drawback, it is said to be a refund mechanism by the Central Government which is in the nature of statutory incentives to exporters to rebate the duties. In our considered opinion, any duties and taxes paid by the assessee constitute business expenditure and as such, any refund / reimbursement thereof at a later stage is nothing but a credit to assessee’s Profit & Loss Account. The same, by its very nature, has the character of business receipts and nothing more. The decision of Liberty India Ltd. (317 ITR 218) as referred to by Ld. AR is in the context of deduction u/s 80-IA / 80-IB wherein the expression “derived from” was the primary issue that fell for consideration of Hon’ble Apex Court. The Hon’ble Court held that “derived from” require direct / first degree nexus between the profits and the business activity of the industrial undertaking. However, there was no dispute that the impugned receipts were business income for Printed from counselvise.com 13 the assessee. This decision as well as subsequent decision following this decision, therefore, does not help the case of the assessee. 8. The forex fluctuation gains arise from currency conversion movement between issue of invoice and realization thereof. It is nothing but timing difference between the point of invoicing the export customer and the point of actual realization of the payment. The same is clearly incidental to export activities and arise in normal course of business. The same has intimate connection with export activities and accordingly part of assessee’s turnover only. The decision in Shah Originals (459 ITR 385) is in the context of deduction u/s 80HHC only and therefore, not applicable. 9. The last argument of Ld. AR is that such an adjustment could not be made u/s 143(1) which, at its face, is to be rejected. The application of correct rates of tax certainly constitutes primary adjustment which could be made by CPC while processing the return of income. The issue cannot be said to be highly debatable which is to be settled in scrutiny proceedings only. As per assessee’s return of income for AY 2017-18, its turnover exceeded the threshold limit of Rs.250 Crores and CPC being largely automated process, by relying upon assessee’s return of income for AY 2017-18, could very well make this adjustment at the time of processing of return of income u/s 143(1). There is no bar as such since the application of correct rates of tax constitutes prima- facie adjustment only. This argument stand rejected. 10. In our considered opinion, the expression used in the relevant provisions is ‘total turnover or gross receipts’ which do not envisage Printed from counselvise.com 14 any such deduction as canvassed by Ld. AR. On these facts, in our considered opinion, the orders of lower authorities do not call for any interference on our part. No other ground has been urged in the appeal. 11. In the result, the appeal stands dismissed. Order pronounced on 14/10/2025 Sd/- Sd/- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 14/10/2025 आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH Printed from counselvise.com "