IN HIGH COURT OF JUDICATURE AT MADRAS DATE : 04.03.2015 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MRS. JUSTICE S.VIMALA T.C.A. NO. 541 OF 2008 M/s.Lucas TVS Ltd. 11, Pattulos Road Chennai 600 002. .. Appellant - Vs - Asst. Commmissioner of Income Tax Company circle II (4) Chennai 600 034. .. Respondent Appeal filed under Section 260-A of Income Tax Act against order dated 16.11.07 passed by Income Tax Appellate Tribunal, 'B' Bench, Chennai, made in ITA No.2130/Mds/2006. For Appellant : Mr. R.Venkatanarayanan for M/s.Subbaraya Aiyar Padmanabhan For Respondents : Mr.T.R.Senthil Kumar JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Aggrieved by order of Tribunal in allowing appeal filed by Revenue, assessee is before this Court by filing present appeal. 2. This Court, vide common order dated 3.7.08, following 2 substantial question of law has been framed in both appeals, viz., TCA Nos.541 and 542/08 :- Whether on facts and in circumstances of case, Tribunal was right in law in holding that relief under Section 80IA should be deducted from profits and gains of business before computing relief u/s 80HHC? 3. However, it is seen from records, that in both cases, question of law raised is different. However, due to inadvertence, same substantial question of law has been framed in both appeals, though said question of law framed vide order dated 3.7.08 relates only to TCA No.542/08. Accordingly, this tax case (appeal) filed by assessee is ADMITTED on following substantial question of law :- Whether on facts and in circumstances of case, Tribunal was right in law in holding that scrap sales should be included in Total Turnover while computing deduction under 80HHC? 4. short facts, in nutshell, are as hereunder :- appellant is engaged in business of manufacture of Auto Electrical Components. For assessment year 2002-2003, appellant filed its return of income on 25.10.02 admitting income of 3 Rs.26,65,95,389/=. return was processed u/s 143 (1) of Income Tax Act on 8.3.03 raising demand of Rs.5,52,311/=. Subsequently, on completion of scrutiny assessment u/s 143 (3) on 17.3.05, total income was determined at Rs.27,24,80,740/=. However, while computing deduction u/s 80HHC, assessing officer excluded 90% of scrap sales from profits of business, but included same in total turnover. 5. Aggrieved against said assessment, appellant preferred appeal to CIT (Appeals). On consideration of submissions as made by assessee, following Tribunal's order for earlier years, CIT (Appeals) held that scrap should not be excluded from profits of business and also scrap sales should not be included in total turnover for purpose of computing deduction u/s 80HHC and, thereby, allowed in part appeal filed by appellant/assessee. 6. Revenue, aggrieved by said order, preferred appeal to Tribunal, while assessee did not choose to prefer any appeal. Tribunal, on second ground raised before it, passed following order :- 5. As regards second ground, after hearing rival parties, we find that this issue is squarely covered against assessee by decision of Chennai Bench of Tribunal in case of JCIT Vs Virudhunagar Textile Mills Ltd. (97 ITD 306) wherein it was held that wherever there is element of profit, then such items has to be included in 4 total turnover. Following that decision, we set aside order of CIT (Appeals) and direct Assessing Officer to include scrap sales in total turnover for purpose of determining deduction under Sec. 80HHC of Act. Aggrieved by said order of Tribunal in allowing appeal filed by Revenue, appellant/assessee is before this Court by filing present appeal raising above question of law. 7. learned counsel for parties were put on notice and were heard on above substantial question of law. Heard Mr.Venkatnarayanan, learned counsel appearing for appellant/assessee and Mr.Senthil Kumar, learned standing counsel appearing for respondent. 8. It is brought to notice of this Court by learned counsel appearing on either side that issue in present case stands resolved by judgment of Supreme Court in Commissioner of Income Tax- VII Vs Punjab Stainless Industries (2014 (364) ITR 144 (SC)). In said case, contention of rival parties before Supreme Court, is extracted hereunder for better clarity :- 7. For purpose of availing of deduction under section 80HHC of Act for relevant assessment year, assessee was not including sale proceeds of scrap in total turnover but was showing same separately in profit and loss account. 8. According to Revenue, sale proceeds from 5 scrap should have been included in "total turnover" as respondent-assessee was also selling scrap and that was also part of sale proceeds. 9. Insofar as scope of provision, viz., Section 80HHC, same was dealt with by Supreme Court in para-10 of said judgment, wherein it was held as follows :- 10. One can very well see that if total turnover increases, advantage which assessee would get under section 80HHC would decrease because amount deductible substantially depends upon ratio between export turnover and total turnover. If export turnover is higher, comparatively amount deductible under section 80HHC would be more ; or, in other words, if compared to total turnover, export turnover is less, amount deductible from income under section 80HHC would be reduced. By virtue of impugned judgment delivered by High Court, accounting method followed by respondent-assessee has been approved and, therefore, this appeal is filed by Revenue. 10. Accordingly, Supreme Court, while interpreting abovesaid provision, held as hereinbelow :- 26. If all accountants, auditors, businessmen, manufacturers, etc., are normally interpreting term "turnover" as sale proceeds of commodity in which business unit is dealing, we see no reason to take different view than view normally taken by persons who are concerned with said term. 6 27. In addition to above factors, which we have considered for understanding meaning of term "turnover", we should not miss purpose with which said term has been incorporated in section 80HHC of Act. 28. intention behind enactment of section 80HHC of Act was to encourage export so as to earn more foreign exchange. For said purpose, Government wanted to encourage businessmen, traders and manufacturers to increase export so as to bring more foreign exchange in our country. If purpose is to bring more foreign exchange and to encourage export, we are of view that Legislature would surely like to give more benefit to persons who are making effort to help our nation in process of bringing more foreign exchange. If trader or manufacturer is trying his best to increase his exports, even at cost of his business in local market, we are sure that Government would like to encourage such person. In our opinion, once Government decides to give some benefit to someone who is helping nation in bringing foreign exchange, Revenue should also make all possible efforts to encourage such traders or manufacturers by giving such business units more benefits as contemplated under provisions of law. 29. For aforesaid reasons, we are of view that view expressed by High Court is in conformity with normal accounting practice followed by traders, including respondent-assessee and it was justified in coming to conclusion that proceeds generated from sale of scrap would not be included in "total turnover". 11. Accordingly, following judgment of Supreme Court stated 7 above, substantial question of law is answered in favour of appellant/assessee and against Revenue. 12. In result, appeal is allowed. However, in circumstances of case, there shall be no order as to costs. (R.S.J.) (S.V.J.) 04.03.2015 Index : Yes/No Internet : Yes/No GLN To 1. Asst. Commmissioner of Income Tax Company circle II (4) Chennai 600 034. 2. Income Tax Appellate Tribunal 'B' Bench, Chennai. 8 R.SUDHAKAR, J. AND S.VIMALA, J. GLN T.C.A. NO. 541 OF 2008 04.03.2015 M/s. Lucas TVS Ltd. v. Asst. Commissioner of Income-tax, Company circle-II(4), Chennai