2008 (2) TMI 129 - HC - Income Tax

Whether where the assessee has maintained the separate books of accounts in respect of domestic transaction as well as the export transaction the clubbing of income was permissible Held no AO is not justified in considering the composite turnover comprised of both export turnover & domestic turnover for calculation of deduction u/s 80HHC - Tribunal is right in law in holding that the assessee is entitled for deduction under Section 80HHC fully on export profits

Summary

Issues:

1. Interpretation of Section 80HHC of the Income Tax Act for deduction on export turnover.
2. Clubbing of income when separate accounts are maintained for domestic and export transactions.

Analysis:

1. The case involved an appeal against the Income Tax Appellate Tribunal's order regarding the deduction under Section 80HHC of the Income Tax Act for the assessment year 2001-02. The assessee, a manufacturer and exporter of garments, claimed deduction on export turnover only, excluding domestic turnover. The Assessing Officer combined both turnovers to re-compute the deduction. The Commissioner of Income-tax (Appeals) allowed the claim, citing Section 80HHC(3)(c) of the Act. The Income-tax Appellate Tribunal upheld this decision, leading to the present appeal questioning the entitlement to full deduction on export profits under Section 80HHC.

2. The High Court referred to previous judgments on similar issues, emphasizing the importance of maintaining separate accounts for domestic and export transactions. In cases where separate accounts were maintained, and the deduction claimed was entirely due to exports, the courts ruled against disallowing any portion of the export earnings. The court highlighted that the purpose of the relevant clause was to disallow deductions only when they could not be entirely attributed to exports. The Tribunal's observation that the assessee maintained separate accounts was crucial in determining the entitlement to the deduction under Section 80HHC. Given the precedents and the separate accounting maintained by the assessee, the court concluded that the Tribunal's decision was correct, dismissing the appeal.

This detailed analysis of the judgment showcases the court's interpretation of the relevant provisions of the Income Tax Act and the significance of maintaining separate accounts for different types of transactions to determine the eligibility for deductions under Section 80HHC.