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In the case of Income-tax Officer vs. Fashion Sports (I) (P.) Ltd. (78ITD41) the assessee received insurance claim on account of loss of goods in fire, which occurred in the factory of its sister-concern to which the assessee had sent the goods for labour job and credited such sum to the profit and loss account. The assessing officer took added such sum to the “total turnover” for the purposes of section 80HHC thus resulting in reduced benefit of deduction. The Commissioner (A) held that though the amount was includible in the business income of the company, it would not go into the ‘total turnover’. The Bombay Tribunal upheld the view of the Commissioner.

However the Tribunal also remarked that insurance claim received in respect of goods destroyed by fire has no close nexus with the export activity and in their view the connection is too remote in which case under the present section 80HHC formula it would be advisable to desist from crediting any sums to the profit and loss account. Rather it is advisable to set off such sums against the corresponding expense head wherever it is possible to establish any nexus either on the basis of any contract, agreement or arrangement.

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