Case Law Details
RELEVANT EXTRACTS:
7.1 As per the provision of section 10A of the Act, assessee is entitled to claim the deduction in respect of the profits and gains as derived by the assessee’s undertaking from the export of the articles of the things for the period of the 10 consecutive A.Y’s. Sub-section (2) to sec. 10A has laid down certain conditions for the eligibility of the undertaking to claim the deduction. As per sub-section (3) to section 10A, the assessee can claim the deduction if the sale proceeds of the goods exported out of India are received in or brought into India in convertible foreign exchange within the period of six months or within the said further period as may be allowed by the competent authority. Sub-section (4) of section 10A prescribes a formula for computing the weighted deduction and present issue is arising under this sub-section. As per the provision of sub-section (4) to section 10A, the profits derived from export of article of thing shall be the amount which bears to the profits of the business of the undertaking in the same proportion as the export turnover bears to the total turnover. The definition of export turnover is given in clause (iv) to Explanation 2 to section 10A which reads as under:
“(iv) “export turnover” means the consideration (in respect of export by the undertaking of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but dies not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or compute software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. “
7.2 As noted by the AO, the million dollar question in this case is what amount of export turnover to be taken. In this case AO has not disputed the fact that the cost of the diamond supplied by the customer is reduced. In other words to that extent in our opinion it cannot be treated as a sale consideration for the purpose of forming part of turnover. What the assessee is entitled to claim from the customer as per the invoice is the net realisable sale consideration i.e. after reducing the cost or value of the diamond supplied which are used by the assessee in manufacturing of jewellery which are again exported to the same customers. The only reservation of the AO is that the assessee has shown FOB or gross sale value as a total turnover. In our opinion the crucial fact is not disputed that the part of the raw material is supplied by the customer which is used in the manufacturing of the jewellery and which is again exported or sold to the same customer. In our opinion sale consideration should be the net price realisable after reducing the cost of the diamond supplied. Merely because assessee has taken the FOB or gross amount of sale price before reducing the cost of the diamond supplied by the customer and at the same time also included the cost of the diamond in the raw material consumed it will not deprive the assessee in the strict commercial sense to claim that, whatever is the turnover of the export of the jewellery is only to the extent of net realizable sale proceeds from the customers. In our opinion the Commissioner (Appeals) has rightly taken view that for the purpose of computing deduction as per formula given under section 10A(4), the cost of the diamonds or other materials supplied by the customers to the assessee which are used in the manufacturing of the jewellery and exported to the same customers should be reduced from the FOB and as in this case the net realizable sale proceeds shown should be treated as export turnover. In our opinion no interference is called for in the order of the CIT (A) on this issue.
