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2006 (6) TMI 261 - AT - Income TaxDeductions - computation of business profit for the purpose of section 80HHC - whether deeming profit brought down by the assessee under section 41(1) cannot form part of the business profits for the purpose of section 80HHC? - HELD THAT:- The "profits of the business" means the profit and gains computed under the provisions of sections 28 to 43C of the Income-tax Act, 1961. Section 41(1), comes therefore, among the provisions relating to the computation of business profits/gains. Section 41(1) provides for treating the assessment (sic : cessation) of liability as income, provided those liabilities were claimed as deductions in computing the taxable income for earlier assessment years. It shows that section 41(1) is not creating any income as such independently without any basis. The profits and gains of the assessee were reduced to that extent in the earlier assessment years. When those liabilities ceased to exist, it is very necessary to write back the liabilities as a result of which the amount needs to be offered as income in the accounts under section 41(1). Therefore, there is no force in the argument of the revenue that the income deemed under section 41(1) stands alone differently and distinctly from the computation of business income of an assessee provided under the provisions of law contained in sections 28 to 43C. More particularly speaking with reference to section 80HHC, the law does not differentiate the profits and gains of business on the basis of the colour of segments which contributed such business profits and gains. The exclusion provided in the Act with reference to section 80HHC is provided under Explanation (baa) where the law directs to exclude 90% of certain receipts - The write back provided under section 41(1) for the purpose of nullifying the effect of earlier deductions claimed towards central excise liability is not a receipt similar to brokerage, commission, interest or rent charges. Therefore, Explanation (baa) has no application either. Thus, any amount of profit construed under section 41(1) is nothing but business profits in its texture, colour and character. Therefore, the Assessing Officer is not justified in excluding the amount of Rs. 1,71,35,268 in computing the business profits for the purpose of section 80HC - the Assessing Officer is directed to accept the computation of deduction under section 80HHC rendered by the assessee by including the income of Rs. 1,71,35,268. This appeal filed by the assessee is allowed.
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