Commissioner Of Income Tax,Pondicherry v. M/S.tweezerman (India) Pvt. Ltd.,No.c24, Industrial Estate,Thattanchavady,Pondicherry – 605 003

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 10.08.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAMandThe Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP Tax Case Appeal No.1192 of 2015 Commissioner of Income Tax,Pondicherry. ...Appellant/Appellant Vs M/s.Tweezerman (India) Pvt. Ltd.,No.C24, Industrial Estate,Thattanchavady,Pondicherry – 605 003. ...Respondent/Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 24.04.2015 made in ITA.No.2400/Mds/2014on the file of the Income Tax Appellate Tribunal, 'B' Bench,Chennai for the assessment year 2007-2008. And against the O/o Commissioner of Income-Tax (Appeals)-VI,121, Mahatma Gandhi Road, Chennai and made in OTA.No.770/13-14/A-VI dated 30/06/2014 and against the O/o AssistantCommissioner of Income-Tax, Circle-1, Pondicherry and made inP.A./G.I.No.AABCT3599F/T-1014dated28/03/2013fortheassessment year 2007-08. For Appellant : Mr.J.Narayansasamy Senior Standing Counsel For Respondent : Mr.Srinath Sridevan Assisted by M/s.Jyotsna Sivakumar JUDGMENT This appeal by the revenue under Section 260A of the IncomeTax Act, 1961 ['the Act' for brevity] is directed against theorder dated 24.04.2015 passed by the Income Tax AppellateTribunal [hereinafter referred to as “the Tribunal”], 'B' Benchin I.T.A.No.2400/Mds/2014 for the assessment year 2007-2008. https://hcservices.ecourts.gov.in/hcservices/ 2.The appeal was admitted on 04.01.2016 on the followingsubstantial question of law: “Whether, on the facts and in the circumstancesof the case, the Tribunal was right in holding thatthe scrap sales had to be excluded from the totalturnover as well as the export turnover whilecomputing the exemption under Section 10B?” 3.We have heard Mr.J.Narayanasamy, learned senior standingcounsel appearing for the appellant/revenue and Mr.SrinathSridevan, learned counsel assisted by M/s.Jyotsna Sivakumar,learned counsel appearing for the respondent/assessee. 4.The short question involved in the instant case is as howto compute the total turnover while considering the claim forexemption under Section 10B of the Act. 5.The case of the revenue is that the sale of scrap shouldalso be included. Admittedly the assessee is engaged in themanufacture of certain articles which are being exported andduring the manufacturing process, scrap is generated which issold and the sale proceeds would go to reduce the amount spenton the purchase of raw materials. The Tribunal took note of thedecisions in the case of CIT vs. Madras Motors Ltd. [257 ITR 60]and CIT vs. NSC Shoes [258 ITR 749] and held that scrap salescannot form part of total turnover. Accordingly, the appealfiled by the revenue before the Tribunal was dismissed holdingthat the Assessing Officer has taken the scrap sales as part ofthe total turnover, however was not taken as an export turnoverand therefore, the total turnover and the export turnover shallof the same figure and since scrap sales did not form part ofthe total turnover, the same cannot form part of the exportturnover. By the impugned order, the Tribunal accepted thefinding recorded by the Commissioner of Income Tax [Appeals]-VI[CIT(A)], Chennai while reversing the assessment order. 6.The learned senior standing counsel for the revenue seeksto draw a distinction with regard to the deduction claim underSection 80HHC and would point out that the case on hand is aclaim made under Section 10B of the Act. However, the legalprinciple which is required to be considered is as to what isthe meaning of the word 'turnover'. The Hon'ble Supreme Courtin the case of Commissioner of Income Tax-VII, New Delhi vs.Punjab Stainless Steel Industries [(2014) 46 Taxman 68 (SC)]considered this issue and held as follows: “17.To ascertain whether the turnover would also include sale proceeds from scrap, one has toknow the meaning of the term ‘turnover’. The term 6.The learned senior standing counsel for the revenue seeksto draw a distinction with regard to the deduction claim underSection 80HHC and would point out that the case on hand is aclaim made under Section 10B of the Act. However, the legalprinciple which is required to be considered is as to what isthe meaning of the word 'turnover'. The Hon'ble Supreme Courtin the case of Commissioner of Income Tax-VII, New Delhi vs.Punjab Stainless Steel Industries [(2014) 46 Taxman 68 (SC)]considered this issue and held as follows: “17.To ascertain whether the turnover would also include sale proceeds from scrap, one has toknow the meaning of the term ‘turnover’. The term ‘turnover’ has neither been defined in the Act norhas been explained by any of the CBDT circulars. 18.In the aforestated circumstances, one has tolook at the meaning of the term ‘turnover’ inordinary accounting or commercial parlance. 19.Normally, the term ‘turnover’ would show thesale effected by a business unit. It may happen thatin the course of the business, in addition to thenormal sales, the business unit may also sell someother things. For example, an assessee who ismanufacturing and selling stainless steel utensils,in addition to steel utensils, the assessee mightalso sell some other things like an old airconditioner or old furniture or something which hasoutlived its utility. When such things are disposedof, the question would be whether the sale proceedsof such things would be included in the ‘turnover’.Similarly in the process of manufacturing utensils,there would be some scrap of stainless steelmaterial, which cannot be used for manufacturingutensils. Such small pieces of stainless steel wouldbe sold as scrap. Here also, the question is whethersale proceeds of such scrap can be included in theterm ‘sales’ when it is to be reflected in theProfit and Loss Account. 20.In ordinary accounting parlance, as approvedby all accountants and auditors, the term ‘sales’,when reflected in the Profit and Loss Account, wouldindicate sale proceeds from sale of the articles orthings in which the business unit is dealing. Whensome other things like old furniture or a capitalasset, in which the business unit is not dealing aresold, the sale proceeds therefrom would not beincluded in ‘sales’ but it would be shownseparately. 21.In simple words, the word “turnover” wouldmean only the amount of sale proceeds received inrespect of the goods in which an assessee is dealingin. For example- If a manufacturer and seller ofair-conditioners is asked to declare his ‘turnover’,the answer given by him would show the sale proceedsof air-conditioners during a particular accountingyear. He would not include the amount received, ifany, from the sale of scrap of metal pieces or saleproceeds of old or useless things sold during thataccounting year. This clearly denotes that ordinarily a businessman by word “turnover” wouldmean the sale proceeds of the goods (the things inwhich he is dealing) sold by him. 22.So far as the scrap is concerned, the saleproceeds from the scrap may either be shownseparately in the Profit and Loss Account or may bededucted from the amount spent by the manufacturingunit on the raw material, which is steel in the caseof the respondent-assessee, as the respondentassessee is using stainless steel as raw material,from which utensils are manufactured. The rawmaterial, which is not capable of being used formanufacturing utensils will have to be either soldas scrap or might have to be re-cycled in the formof sheets of stainless steel, if the manufacturingunit is also having its re-rolling plant. If it isnot having such a plant, the manufacturer woulddispose of the scrap of steel to someone who wouldre-cycle the said scrap into steel so that the saidsteel can be re-used. 23.When such scrap is sold, in our opinion, thesale proceeds of the scrap cannot be included in theterm ‘turnover’ for the reason that the respondent-unit is engaged primarily in the manufacturing andselling of steel utensils and not scrap of steel.Therefore, the proceeds of such scrap would not beincluded in ‘sales’ in the Profit and Loss Accountof the respondent-assessee. 24.The situation would be different in the caseof the buyer, who purchases scrap from therespondent-assessee and sells it to someone else.The sale proceeds for such a buyer would be treatedas “turnover” for a simple reason that the buyer ofthe scrap is a person who is primarily dealing inscrap. In the case on hand, as the respondent-assessee is not primarily dealing in scrap but is amanufacturer of stainless steel utensils, only saleproceeds from sale of utensils would be treated ashis “turnover”. 25.So as to be more accurate about the word“turnover”, one can either refer to dictionaries orto materials which are published by bodies ofAccountants. The Institute of Chartered Accountantsof India ( hereinafter referred to as the ‘ICAI’)has published some material under the head “GuidanceNote on Tax Audit Under Section 44AB of the Income Tax Act”. The said material has been published so asto guide the members of the ICAI. In our opinion,when a recognized body of Accountants, after duedeliberation and consideration publishes certainmaterial for its members, one can rely upon thesame. Para 5 of the said Note deals with “Sales”,“turnover” and “gross receipts”. Paras 5.2 and 5.3of the said Note are reproduced hereinbelow, whichpertain to the term “turnover”. “5.2 In the “Guidance Note on Terms Used inFinancial Statements” published by the ICAI,the expression “Sales Turnover” (Item 15.01)has been defined as under:- “The aggregate amount for which sales areeffected or services rendered by an enterprise.The term `gross turnover’ and `net turnover’(or `gross sales’ and `net sales’) aresometimes used to distinguish the salesaggregate before and after deduction of returnsand trade discounts”. 5.3 The Guide to Company Audit issued by theICAI in the year 1980, while discussing“sales”, stated as follows: “Total turnover, that is, the aggregate amountfor which sales are effected by the company,giving the amount of sales in respect of eachclass of goods dealt with by the company andindicating the quantities of such sales foreach class separately. Note (i) The term‘turnover’ would mean the total sales afterdeducting therefrom goods returned, priceadjustments, trade discount and cancellation ofbills for the period of audit, if any.Adjustments which do not relate to turnovershould not be made e.g. writing off bad debts,royalty etc. Where excise duty is included inturnover, the corresponding amount should bedistinctly shown as a debit item in the profitand loss account.” (emphasis supplied) The aforestated meaning given by the ICAIclearly denotes that in normal accounting parlancethe word “turnover” would mean “total sales” asexplained hereinabove. The said sales woulddefinitely not include the scrap material which iseither to be deducted from the cost of raw material The aforestated meaning given by the ICAIclearly denotes that in normal accounting parlancethe word “turnover” would mean “total sales” asexplained hereinabove. The said sales woulddefinitely not include the scrap material which iseither 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 themeaning of the term “turnover” given by a body ofAccountants, which is having a statutoryrecognition. 26.If all accountants, auditors, businessmen,manufacturers etc. are normally interpreting theterm ‘turnover’ as sale proceeds of the commodity inwhich the business unit is dealing, we see no reasonto take a different view than the view normallytaken by the persons who are concerned with the saidterm.”7.Thus, by taking note of the above legal position as wellas the findings recorded by the Tribunal we find that there isno error in the conclusion arrived at by the Tribunal.8.For the reasons stated above, the tax case appeal isdismissed and the substantial question of law is answeredagainst the revenue. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// cseTo Sub Assistant Registrar 1. The Income Tax Appellate Tribunal, 'B' Bench, Chennai. 2. The Commissioner of Income-Tax, (Appeals-VI), 121, Mahatma Gandhi Road, Nungambakkam, Chennai-34. 3. The Assistant Commissioner, Income Tax Circle-I, Pondicherry. 4. The Commissioner of Income Tax, Pondicherry. +1cc to Mr.J.Narayana Samy, Advocate, S.R.No.39589+1cc to Mr.Srinath Sridevan, Advocate, S.R.No.39716 RR[co]NSK 07/09/2021 TCA.No.1192 of 2015 https://hcservices.ecourts.gov.in/hcservices/