EOU-Export Sales Profit.

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anckoora (Querist)
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29 January 2011 DEAR SIR,
A 100% EOU OF GOLD JEWELLERY STUDDED WITH DIAMOND , STONES ETC., ENJOYING 100% INCOME TAX EXEMPTION U/S 10B. ITS EXPORT INVOICE SHOWS FOUR VALUES i.e., (1) value of gold, (2)VALUE OF STUDDING ITEMS i.e.,diamond stones etc. (3) value of wastage and (4) value of making charges (labour charge).WE HAVE TO SHOW THIS BYFURCATION AS PER FEMA RULES. AT THE TIME OF ASSESSMENT, CAN I.T.O. DEMAND TAX ON VALUE OF WASTAGE & MAKING CHARGES SAYING THAT THESE TWO ITEMS DO NOT COME UNDER MAIN BUSINESS OF EXPORT OF GOLD STUDDED JEWELLERY. HE CAN SAY THAT ONLY PROFIT FROM GOLD & STUDDING ITEMS ARE ELIGIBLE FOR 10B EXEMPTION. REST ALL OTHER INCOMES ARE TO BE TAXED.
CAN HIS THIS ARGUMENT O.K.? ANY JUDGEMENT, CIRCULAR, NOTIFICATION MAY PL. BE PROVIDED IN SUPPORT / OR / AGAINST THIS ISSUE.
REGARDS
ANCKOORA.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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30 January 2011 Dear Ankur,

The bifurcation in 4 values is limited to FEMA purposes only.
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AO requires to allow exemption in respect of profits arising on Export Turnover by you on the basis of realisation in convertible foreign exchange within the stipulated or extended time limit.
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In case, wastage fethes money in domestic
market, it will not form part of the Export Turnover. In such case exemption will be calculated on the basis of following fourmula-
Export Profit=Total Profit x (ET/TT)
So your exemption may marginally be reduced.
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He can not tax in any other imaginary manner, as the calculation manner has been provided clearly in the section itself.

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