TMI Blog1995 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: . . Rs. (i) Under s. 80HHC(3) (-) 15,26,085 (ii) Under s. 80HHC(3A) (-) 31,24,496 (iii) Under the proviso to sub-s. 80HHC(3) (+) 8,01,100 Since the net result was a minus figure, the AO held that the assessee was not eligible for deduction under s. 80HHC. On appeal, the learned CIT(A) held that the adjustments made by the AO partook of the nature of debatable issues and, therefore, deleted the disallowance. Thereupon, the case was taken up for scrutiny under s. 143(3) of the IT Act. The assessee had originally computed the deduction in the following terms: Deduction under s. 80HHC . . Rs. 1. Total turnover . 7,54,66,221 Less: freight . 54,11,239 FOB value . 7,00,54,982 2. Export turnover . . (a) Direct export—BSF . 1,39,14,089 Yempee Sea Foods . 30,37,245 . . 1,69,51,334 . Rs. . Less: Freight BSF 6,89,903 . Yempee Sea Foods 2,33,239 9,23,142 . . 1,60,28,192 (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r between the original computation and the revised computation because after the submission of the original computation the assessee had received two more disclaimer certificates from export house pertaining to s. 80HHC and the figures mentioned in these two certificates had to be included in the amount of export turnover. There is no dispute on the revised quantum of export turnover. The quantum of deduction under s. 80HHC as per the original computation was quantified at Rs. 16,98,583 though the claim was restricted to Rs. 11,29,813. However, the quantum of deduction as per the revised computation is Rs. 24,41,266 though in this case also the claim was restricted to Rs. 11,29,813 as before. The difference in the gross quantum is due to the change in the amount of export turnover used as numerator of the formula. There is no dispute on this aspect of the matter. In other words, the numerator of the formula as stated in the revised computation is not disputed by the assessing authority. The AO held that even though the assessee had manufactured and processed and had also exported through export houses as a supporting manufacturer, as there was no "profit of the business", but was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative figure of Rs. 66,70,116. To this must be added the positive figure computed under the proviso to sub-s. (3). The net resultant figure is again a negative figure and, therefore, the assessee was not entitled to get any deduction under s. 80HHC. He rejected the assessee's contention that if the profit derived from export under sub-s. (3) is a negative figure, such a negative figure should be ignored and the positive figure computed under the proviso to sub-s. (3) must be allowed as a deduction. Aggrieved, the assessee is in second appeal. 4. Sri R. Srinivasan, the learned chartered accountant, submitted that the deduction under s. 80HHC is an incentive given to the exporters who earn precious foreign exchange. Therefore, the section should receive a liberal construction in order to give effect to the benefit intended to be conferred on the exporters. That the assessee has exported goods during the relevant previous year on his own account and also through export houses are indisputed facts. Prima facie, the assessee is eligible for deduction under s. 80HHC. The first dispute in this appeal is regarding the interpretation of the term "profit" as occurring in sub-s. (3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he clauses to the Expln. (baa) to s. 80HHC was not correctly made by the assessee. He submitted that the export house premium of Rs. 44,82,654 and chitty profit should not have been deducted in arriving at the profits of the business. In fact, the error was committed by the assessee and remains uncured till this stage. In support of his stand he submitted copies of the agreements between the assessee and the export houses to say that the payments were not in the nature of receipts towards "charges" incurred by the assessee and also filed additional grounds of appeal. 5. Sri T. John George, the learned Departmental Representative, submitted that the assessee has now only filed additional ground before the Tribunal in respect of the computation of the "profits of the business" under Expln. (baa) of s. 80HHC. Though the assessee had filed the documents in support of his stand, the documents did not stand the scrutiny of the authorities. Therefore, the question of quantification of the profits of business in accordance with the Explanation should be restored to the file of the AO. The learned Departmental Representative next submitted that there was no warrant for excluding the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal can proceed to decide the issue on the basis of the available records, if no further enquiry is considered necessary in this behalf, or else it can admit the evidence and the plea raised before it and restore the issue to the file of the AO for examination and disposal in accordance with law. Further, the issue raised by the learned chartered accountant is relevant for deciding the appeal. Therefore, we admit the plea and the evidence and proceed to deal with the same. Clause (baa) of Expln. to s. 80HHC is as follows: "(baa) "Profits of the business" means the profits as computed under the head "profits and gains of business or profession" as reduced by— (1) ninety percent of any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipts of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India." The sums referred to in cls. (iiia), (iiib) and (iiic) of s. 28 are as follows: (1) profits on sale of licence granted under the Imports (Control) Order, 1955, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessor service charges at 8.70% on the FOB value of the exports on presentation of debit notes by the processor after all the shipments and negotiations of documents." In the case of the agreement with M/s Indo Java Co., cl. 7 is relevant: "7. In consideration of the processors exporting Frozen Marine Products on behalf of the Export House, the Export House hereby agree to pay to the processors an incentive 4.5% (four point five per cent only) premium on the FOB value of the said Frozen Marine Products exported by the processors. The cash assistance and import replenishment licence available as per policy will be claimed by the processors. The Export House hereby agree to issue necessary disclaimers to the processors for claiming import replenishment licence and cash compensatory support. These disclaimers will be issued promptly since processors has SPS facility." In the case of the agreement with M/s Rossel Industries Ltd., paras 10 and 11 are relevant: "10. In consideration of the processor processing the Frozen Marine Products for export by the company and rendering service in connection therewith and in consideration of the various liabilities and obligations un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the present import Trade Control Policy." In the case of the agreement with M/s MRF Ltd., cls. 6 and 7 are relevant: "6. In respect of exports made by the manufacturer/shipper under the terms of this agreement, the trading house will be entitled to claim all the benefits accruing to trading houses under the terms of the present import trade control policy. 7. The trading house hereby agree to pay the manufacturer/shipper a premium of 5.50% as premium on the FOB value of the said Frozen Marine Products exported by the manufacturer/shipper. This premium of 5.50% will be paid to the manufacturer/shipper in batches, immediately after completion of exports to a value of Rs. 25 lacs (twenty five lacs only) FOB and after submission of all copies of documents as required by the trading house." In the case of the agreement with M/s J.K. Industries Ltd., para 16 is relevant: "16. In consideration of the processor exporting Frozen Marine Products on behalf of the Export House and issuing the disclaimer certificates and other documents as required in favour of the Export House for receiving the Export House benefits, the Export House hereby agree to pay the processor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y." Certainly the service charges received by the assessee in terms of the above two agreements would form part of the receipts towards charges and will fall within the sub-cl. (1) of cl. (baa) of the Expln. to s. 80HHC. It represents receipts in reimbursement, partially or totally, of the charges incurred by the assessee falling under the second limb of sub-cl. (1) of cl. (baa) of the Explanation. In fact, it is such type of receipts towards charges that were held to be within the meaning of the Explanation in the case of G. Gangadharan Nair vs. ITO. The Tribunal in is order dt. 21st Dec., 1994 in the case cited supra held as follows: "One of the items found in this clause is receipts towards "any charge". From the agreement it is seen that the assessee has been given an incentive or subsidy sat 3.5% or 2% or whatever it is, to cover the cost of charges incurred by it. So the export premium receipts is only a subsidy received by the assessee to cover the cost. Certainly it will fall within the meaning of the term any receipt towards "charges" that entered the profits of the business." Thus, we uphold the contention of the learned Departmental Representative in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits computed under cl. (a) or cl. (b) or cl. (c) of this sub-section shall be further increased by the amount which bears to 90% of any sum referred to in cl. (iiia) (not being profits on sale of licence acquired from any other person), and cl. (iiib) and cl. (iiic), of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." Under the main provision of sub-s. (3), the computation results in loss. The AO's view is that the proviso to sub-s. (3) can come into operation only if there is profit and not loss. The view of the learned CIT(A) is that if there was any loss under the provisions of sub-s. (3) and if there was any profit under the proviso thereto, the former must be adjusted against the latter and if there remained any profit after such adjustment, the assessee would be entitled to the deduction in terms of s. 80HHC to the extent of such profit. The contention of Sri Srinivasan, the learned chartered accountant, is that sub-s. (3) of s. 80HHC envisaged relief in two stages, (i) under the main provision and (ii) under the proviso thereto. Even if the assessee is not entitled to deduction under s. 80HHC in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. In our considered view, as the exercise is only to quantify the "profits of the business" in terms of the definition given, one is not empowered to arrive at a loss in such an exercise. If loss is confronted with as a result of the exercise, the same should be ignored and should not merit consideration. In the light of the discussions we hold that the assessee did not have the statutory "profit of business" as defined in the Explanation and, therefore, in terms of the main provisions of sub-s. (3) he is not entitled to the deduction of such profit (which is nil) there being no profit. The learned Chartered Accountant concedes this point before us. However, he urges that the assessee would be entitled to the deduction of an amount as provided for in the proviso to sub-s. (3). In a case where there are no "profits of business" for deduction under sub-s. (3) of s. 80HHC, the question is whether the assessee would be entitled to the deduction in terms of the proviso under sub-s. (3)? That would depend upon the construction of the proviso in the context and setting of the enactment and the objects for which the section was enacted. We have already stated in the earlier part of our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no deduction is allowable to the assessee in terms of the s. 80HHC. Thus, we reject the contention of the Revenue. 10. Sri John George submitted that the Form 10CCAC furnished by the assessee was defective as certain columns were not filled up and, therefore, the assessee should not be allowed any deduction. In our considered opinion, if the Form has been furnished with defects therein, in the interests of substantial justice, an opportunity should be given to the assessee to cure the defects in the Form. Thus we reject the contention of the Revenue. 11. Sri Srinivasan vehemently contested the quantification of Rs. 8,01,100 under the proviso to s. 80HHC(3) as made by the AO. According to him, the correct amount should be in a sum of Rs. 24,41,266 as given in the statements furnished before the assessing authority, copies of which have been furnished before us and extracted in para 2 of our order at page 3. From the assessment order it is not clear how the AO has arrived at the sum of Rs. 8,01,100. This requires verification and proper quantification. In the light of our discussions, we restore the case to the file of the AO with a direction to quantify the amount of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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