TMI Blog2008 (8) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 80HHC by ignoring the cost of goods sold for which payment has not been received and thus reducing the profit of export by the cost of goods deemed to be not exported and thus disallowing section 80HHC claim by Rs. 6,17,317 as against Rs. 8,52,403. Whereas the learned Assessing Officer has allowed Rs. 2,35,086 which was wrongly confirmed by the learned Commissioner of Income-tax (Appeals)." The facts of the case stated in brief are that the assessee is a 100 per cent. exporter and exported trading goods worth Rs. 75,52,841 during the year under consideration. Out of the export of Rs. 75,52,841, the assessee could not realise export proceeds of Rs. 15,84,739. The Assessing Officer for the purpose of computing deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct costs actually attributable to the sale proceeds not realised should be deducted. We have heard both parties and perused the material available on record. Section 80HHC(1) is enabling section which provides for deduction on profits earned from export of eligible goods or merchandise subject to one of the conditions that the sale proceeds are brought into India in convertible foreign exchange within the time allowed in the statute. Sub-section (3) is a machinery section under which profits from export of eligible goods or merchandise is determined. Sub-section (3) of section 80HHC reads as under : "(3) For the purposes of sub-section (1), (a) where the export out of India is of goods or merchandise manufactured or processed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportion as the export turnover bears to the total turnover of the business carried on by the assessee." From a plain reading of the provisions of section 80HHC(3) it is clear that under clause (a) the profits derived from such export shall be determined by using formula ET X PB where ET stands for export turnover ; PB ---------TT for profits of business ; and TT for total turnover whereas in clause (b) the profits derived from such export shall be determined by reducing the export turnover by the direct costs and indirect costs attributable to such exports. In cases falling in clause (c) the export profit is determined by adding profits determined in clauses (a) and (b). There is no dispute that the assessee is engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted, the assessee will get deduction under section 80HHC(1) even if it realises a fraction of sale proceeds in convertible foreign exchange. In other words in cases where the assessee incurs loss in export business, he will be eligible for deduction under section 80HHC. To put it differently let us assume that the assessee exports goods worth Rs. 100. The direct cost is Rs.60 and indirect cost at Rs. 20. If he realised entire sale proceeds, his export profit will be Rs. 20 (100-60-20). In a case where he does not realise Rs. 50, he will in fact incur a loss of Rs. 30 (50-60-20). However according to the assessee if the proportionate direct and indirect costs relating to unrealised sale proceeds are excluded, the export profits in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uage of section 80HHC(1) is plain and clear. If profits from export business as computed in section 80HHC(3) are negative no deduction under section 80HHC(1) will be available. This view is supported by the decision of the hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 wherein it has been held as under (headnote) : "A plain reading of section 80HHC makes it clear that in arriving at profits earned from export of both self manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80HHC(1). If there is a loss the assessee would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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