2016 (11) TMI 736 - AT - Income Tax

Short allowance of deduction under section 80HHC - requirement of reducing loss while computing deduction u/s 80HHC - Held that - Face value of export incentive will be added under first proviso to section 80HHC of the Act to the profit as face value of DEPB/DFRC would get covered under section 28(iiib) of the Act. Secondly only Profit on sale of DEPB/DFRC would be covered under section 80HHC (3) of the Act and 90% of such profit would be eligible to be added to this profit as per third proviso to section 80HHC of the Act. The assessee has submitted a working claiming deduction at Rs. 21, 53, 625/- as against submitted before the lower authorities claiming at Rs. 19, 17, 630/-. These figures need verification at the level of the AO. However the claim of assessee is allowable as the assessee has incurred a loss on sale of export incentive and hence no amount is to be excluded while calculating deduction in term of section 80HHC third proviso. Hence direct the Assessing Officer as in the present case there is a loss where there is a loss (and not profit) on sale of export incentives no loss can be reduced while computing deduction under section 80HHC of the Act. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against short allowance of deduction under section 80HHC of the Income Tax Act.

Analysis:

1. Background and Controversy:
The appellant, engaged in trading business of import and export, challenged the short allowance of deduction under section 80HHC of the Act. The controversy arose regarding the eligibility of deduction concerning DEPB/DFRC, which was previously adjudicated by the Special Bench of the Tribunal and later by the Bombay High Court and the Supreme Court.

2. Arguments and Interpretation:
The appellant argued that profit on the transfer of DEPB should be excluded for computing deduction under section 80HHC, emphasizing the distinction between cash assistance and profit under section 28 of the Act. The appellant contended that since there was a loss on the sale of export incentives, no amount should be excluded while calculating the deduction.

3. Judicial Decision:
After considering the contentions and the facts, the Tribunal observed that the AO did not follow the Supreme Court's directions correctly. The Tribunal ruled that in cases of loss, not profit, on the sale of export incentives, no reduction should be made while computing the deduction under section 80HHC. The Tribunal directed the AO to verify the appellant's claimed deduction and allowed the appeal, stating that no amount should be excluded due to the loss incurred on the sale of export incentives.

4. Conclusion:
The Tribunal allowed the appeal, emphasizing that in cases of loss on the sale of export incentives, no reduction should be made while calculating the deduction under section 80HHC. The Tribunal directed the Assessing Officer to adhere to this decision and verify the appellant's claimed deduction accordingly.

This judgment clarifies the treatment of losses on the sale of export incentives for the purpose of calculating deductions under section 80HHC of the Income Tax Act, providing guidance on the interpretation and application of relevant provisions and court decisions.