Case Details:

CIT vs. Tweezerman (India) Pvt. Ltd.

Appeal No.:

Tax Case Appeal No. 1192 of 2015

Order pronounced by:

Madras High Court

Date of Order:

10-08-2021

The assessee is engaged in the manufacture of certain articles which are being exported and during the manufacturing process, scrap is generated which is sold and the sale proceeds of scrap would go to reduce the amount spent on the purchase of raw materials.

The Tribunal took note of the decisions in the case of CIT vs. Madras Motors Ltd. [257 ITR 60] and CIT vs. NSC Shoes [258 ITR 749] and held that the scrap sales cannot form part of the total turnover and accordingly, the appeal filed by the revenue before the Tribunal was dismissed holding that the A.O. has taken the scrap sales as part of the total turnover, however, was not taken as an export turnover and therefore, the total turnover and the export turnover shall be of the same figure and since scrap sales did not form part of the total turnover, the same cannot form part of the export turnover.

By the impugned order, the Tribunal accepted the findings recorded by the CIT [Appeals]- VI, Chennai while reversing the assessment order. The case of the Revenue before this Court is on the short question involved in the instant case that how to compute the total turnover while considering the claim for exemption under section 10B of the Act. The case of the revenue is that the sale of scrap should also be included in the total turnover.

The Institute of Chartered Accountants of India (ICAI) has published material under the head “Guidance Note on Tax Audit under Section 44AB of the Income Tax Act”. The said material has been published so as to guide the members of the ICAI. In our opinion, when a recognized body of Accountants, after due deliberation and consideration publishes certain material for its members, one can rely upon the same.

Para 5 of the said Note deals with “Sales”, “turnover”, and “gross receipts”. Paras 5.2 and 5.3 of the said Note are reproduced herein below, which pertain to the term “turnover”.

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 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 affected 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.”

The aforesaid 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 statutory recognition. If all accountants, auditors, businessmen, manufacturers, etc. are normally interpreting the term ‘turnover’ as sale proceeds of the commodity in which the business unit is dealing, we see no reason to take a different view than the view normally taken by the persons who are concerned with the said term.”