Total turnover for the purpose of determining corporate tax slabs includes all incidental business receipts, such as scrap sales, duty drawback, and forex fluctuations, as they form an integral part of the business operations regardless of whether they are core manufacturing products.

आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member)

1. Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 13-02-2025 in the matter of a rectification order passed by Ld. Assessing Officer [AO] u/s. 154 of the Act on 28-11-2023. The only grievance of the assessee is application of correct rates of taxes.

Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.

2. The CPC, while processing assessee’s return of income, applied tax rate of 30% as against tax rate of 25% as applied by the assessee in its return of income. To know applicable rates for AY 2019-20, the assessee’s turnover during AY 2017-18 would be relevant. As per extant general rates of taxation for AY 2019-20, the corporate assessee having total turnover or gross receipts of more than Rs.250 Crores in AY 2017-18 would be subjected to higher tax rate of 30% whereas the corporate assessees having total turnover or gross receipts of less than Rs.250 Crores in AY 2017-18 would be subjected to lower tax rate of 25%. The Ld. AO, in rectification order, observed that the assessee’s revenue from operations in AY 2017-18 were Rs.253.32 Crores. As against this, the assessee sought exclusion of foreign exchange fluctuation of Rs.4.63 Crores which would reduce the turnover to Rs.248.69 Crores. The Ld. AO rejected the same and upheld application of higher rate of 30%.

3. The Ld. CIT(A) extracted relevant financials of the assessee for AY 2017-18 onwards and observed that the turnover always exceeded Rs.250 Crores during AYs 2017-18 to 2019-20. Therefore, the action of Ld. AO in applying higher rate of tax was upheld against which the assessee is in further appeal before us.

4. It is the assertion of Ld. AR that certain components viz. sale of wastage / scrap, duty drawback and forex fluctuation gains as reflected in the financial statements would not form part of assessee’s turnover and therefore, the same are to be excluded from turnover for the purpose of application of correct tax rates. In this regard, detailed written submissions have been filed and reliance has been placed on various judicial decisions to support the same. It has also been stated that though indirect taxes which constitute part of gross turnover u/s 145A, the same would not have much impact on turnover since 92% of turnover is export turnover on which no VAT is applicable. The substantiative written submissions read as under: -

Issue 1: Whether Sale of Scrap or wastage can be regarded as part of "turnover" fordetermining the applicability of 25% or 30% corporate tax rate?

10. It is humbly submitted that the term turnover means the receipts arising from the sale of goods or services which constitute 'A"s core business activity. It does not extend to incidental or ancillary receipts which do not form part of the price paid by the final consumer. It is submitted that while, for accounting disclosure purposes, certain ancillary or incidental incomes may appear under the broad head of "Total Turnover" or "Revenue from Operations," in law such items cannot be equated with turnover for the purpose of applying statutory thresholds. The term "turnover" must be confined to receipts which are the sale proceeds of goods or services in which 'A' is engaged, and not to incidental receipts arising independently of the sale transaction.

'A' is engaged in the business of manufacturing and trading of textiles. The sale of scrap/waste (cuttings, trimmings, defective cloth, etc.) is an inevitable by-product of the manufacturing process. Scrap arises unintentionally and is no