COMMISSIONER OF INCOME TAX Vs. KAR MOBILES LTD.

JUDGEMENT

(1.) Appeal is filed by the revenue challenging the order of the Tribunal holding that in the computation of deduction of export profit under Section 80HHC(3) of the Income-tax Act, the Assessing Officer was not justified in excluding 90 per cent of the income on the sale of scrap and insurance claim received by applying Explanation (baa)(i) to Section 80HHC of the Act. We have heard standing counsel appearing for the Appellant and senior counsel Sri Joseph Markose appearing for the Respondent-Assessee.

(2.) The Assessee was engaged in manufacture and sale of automotive parts both within India and out of India. Admittedly the Assessee is entitled to deduction of export profit under Section 80HHC of the Act. However, since the Assessee has local sales as well as export sales, eligible deduction of export profit has to be determined with reference to Section 80HHC(3) of the Act. While applying the formula provided therein, the Assessee determined the proportionate export profit eligible for deduction and claimed deduction thereof. However, among other things, the Assessing Officer noticed that business profit arrived at by the Assessee includes income from sale of scrap and insurance claim received which according to the Assessing Officer fall under "any other receipt of similar nature" requiring exclusion of 90 per cent thereof by virtue of Explanation (baa)(i) to Section 80HHC. Even though disallowance in the original assessment relates to some other issues also, the dispute raised by the revenue in the appeal pertains to only two items, that is, income by way of receipt on sale of scrap and insurance claim.

(3.) Learned standing counsel appearing for the revenue relied on the decision of the Supreme Court in CIT v. K. Ravindranathan Nair,2007 295 ITR 2281 and contended that scrap sales partakes the character of processing charges referred to in the decision of the Supreme Court, and so much so, 90 per cent of the income on scrap sales should be excluded under Explanation (baa)(i) of the Act and the position in respect of insurance claim is the same. Even though no question is raised as to whether scrap sale and insurance charges received should be treated as turnover forming part of denominator in the formula provided for computation of eligible deduction of export profit, standing counsel submitted that these two items should be excluded from the turnover also.Counsel for the Assessee on the other hand contended that scrap sales and insurance claim received both form part of turnover and so much so, it should be reckoned as part of profit from business not liable to be excluded by reference to Explanation (baa)(i) to Section 80HHC of the Act. Counsel for the Assessee also relied on the Division Bench decision of this Court in William Goodcare and Sons India Ltd. v. CIT,2008 173 Taxman 298 .