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2016 (8) TMI 155 - GUJARAT HIGH COURT

2016 (8) TMI 155 - GUJARAT HIGH COURT - TMI - Deduction under Section 80 HHC cannot be permitted in case of loss or negative profit. In that view of the matter, the contention raised by the revenue is required to be accepted. - Whether net interest or gross interest should be considered while computing deduction under Section 80 HHC - Held that:- Tribunal was right in law and on facts in holding that net interest should be considered instead of gross interest while computing the deduction u/ .....

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e C.I.T. (Appeals) both have committed an error in treating the income of interest on deposits, export incentive, octroi refund and sales in India to be part of the total profits to work out total turnover and qualifying profit and treating the same as business income, and the Income Tax Appellate Tribunal was not right in allowing the assessee's claim regarding rebate under Section 80HHC of the Act by holding that the receipts such as interest on deposits, export incentive, octroi refund, and s .....

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07 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench C , Ahmedabad in ITA No.3271/Ahd/2002 & C.O. No.167/Ahd/2003, ITA No.1526/Ahd/2001 and order dated 6.2.2009 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench A , Ahmedabad in ITA No.2318/Ahd/2005 & ITA No.2608/Ahd/2005. 2. At the time of admitting present appeals, following questions of law were framed:- TAX APPEAL No.1682 of 2008 (A) Whether the ITAT was right in law and on facts in restoring the matter back to t .....

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the company for the purpose of Section 115JA of the Act without reducing the amount deductible under Section 80HHC of the Act? TAX APPEAL No.1683 of 2008 (A) Whether the ITAT was right in law and on facts in directing the Assessing Officer to determine the book profits of the company for the purpose of Section 115JA of the Act without reducing the amount deductible u/S.80HHC of the Act? (B) Whether the ITAT was right in law and on facts in holding that net interest should be considered instead o .....

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n law and on facts in restoring the matter back to the file of the Assessing Officer to consider deduction u/S.80HHC of the Act though there was negative profit ? 3. Though served, none appears for the respondent. 4. At the time of hearing of present appeals, learned advocate for the appellant submitted that the issues involved in these appeals are covered by various decisions of the Honourable Apex Court as well as different High Courts. He submitted that present appeals may be disposed of as p .....

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adiators Distributors reported in [2008] 296 ITR 440 (Guj). 5. So far as issue with regard to negative profit is concerned, with regard to said issue, it has been observed by the Supreme Court in the case of IPCA Laboratory Ltd. (supra), as under:- It was next submitted that even when the profits are to be reduced by the losses in cases where an export house has disclaimed its turn over in favour of a supporting manufacturer, the turn over of the exporter gets reduced to the extent disclaimed. I .....

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the export house and the supporting manufacturer would become entitled to deductions. The proviso to sub-section (i) of Section 80HHC enables a disclaimer only to enable the export house to pass on deductions. It in no way reduces the turnover of the export house. In computing total income, the entire turnover is taken into account even though there is a disclaimer. Thus even though the disclaimer is made the taxable income of ₹ 4.39 crores has been arrived at by the Appellants after takin .....

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oss, then the export house cannot pass on or give credit of such non-existing deduction to a supporting manufacturer. Faced with this situation, it was submitted that even a loss is a negative profit. In support of the submission, reliance was placed upon the authority of this Court in the case of Commissioner of Income-Tax(Central), Delhi vs. Harprasad & Co. P. Ltd. reported in 1975 (Vol. 99) ITR 118. In this case the meaning of loss was being considered in the context of capital gains made .....

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e". In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee." In our view, the above observations are against the Appellants. They show that in computing income profits and gains, losses must also be taken into consideration. Mr. Dastur relied on a format of Form No. 10CCAC and a Circular of the Board wherein it is stated .....

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s the disclaimed export turnover bears to the total export turnover of trading goods. The formula in such cases will now be - 80HHC concession = export profit - [export profits on trading goods x disclaimed export turnover ] total export turnover " Mr. Dastur submitted that if even both profits and losses are to be taken into account the, on a disclaimer the losses will also have to be considered as negative profits and as per the Board Circular the calculation would be as follows: "80 .....

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imed. The Board Circular nowhere provides for negative profits. The Board Circular also shows that only positive profits can be considered for purposes of deduction. We, therefore, see no substance in the Appeal. The same stands dismissed. There shall be no order as to costs. 5.1 In view of above, it is clear that deduction under Section 80 HHC cannot be permitted in case of loss or negative profit. In that view of the matter, the contention raised by the revenue is required to be accepted. Acco .....

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s observed as under:- 2. The facts of this case very briefly are that Bharat Rasayan Limited (for short the assessee') filed a return of income tax claiming a deduction of ₹ 72,76,405/- under Section 80HHC of the Act. In the assessment order, the Assessing Officer held that ninety per cent of the gross interest has to be excluded from the profits of the business Of the assessee under Explanation (baa) to Section 80HHC of the Act and deducted ninety per cent of the gross interest of  .....

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appeal of the assessee and held that the assessee was entitled to deduct the expenses from the interest received and only ninety per cent of the net amount of interest could be excluded under Explanation (baa) to Section 80HHC and remitted the matter to the Assessing Officer to examine whether there is factually an excess between the interest paid and interest received and take a fresh decision. The Revenue filed an appeal against the order of the Tribunal before the High Court, but by the impu .....

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Profession' is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. Since, the view taken by the High Court in the impugned order is consistent with our aforesaid view, we find no merit in this appeal and we accordingly dismiss the same. There shall be no order as to costs. 6.1 Accordingly, it is held that the Tribunal was right in law and on facts in holding that net interest should be considered instead of gross interest while c .....

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er hearing both sides and after going through the decisions above referred, particularly that of the Supreme Court, we feel that assessees are entitled to deduction under Section 80HHC computed in accordance with sub-section (3) and (3A) of Section 80HHC of the Act because it is expressly so provided under clause (iv) of Section 115JB (2) of the Act. All what the Supreme Court has held is that the ceiling contained in Section 80HHC (1B) is not applicable for the purpose of granting deduction und .....

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eduction under Section 80HHC" computed under clause (a) or clause (b) or clause ) of sub-section (3) or subsection (3A) of the said section. So much so, computation of export profit has to be done only in accordance with the method provided under Section 80HHC which is in fact done in the computation of business profit if the assessment was on the total income computed under the other provisions of the Act. MAT assessment is only an alternative scheme of assessment and what is clear from cl .....

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Supreme Court above referred, we feel the restriction contained in Section 80AB or Section 80B(5) could not be applied inasmuch as carry forward of business loss or depreciation should not be first set-off leaving gross total income nil, which disentitles the assessee for deduction under other provisions of Chapter VIA-C which includes Section 80HHC also. But assessees' contention that export profit has to be computed with reference to the Profit and Loss Account prepared under the Companie .....

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th direction to the assessing officer to recompute the book profit by granting deduction under Section 80HHC in terms of above findings and the decision of the Supreme Court in Ajanta Pharma Ltd's case referred above. 7.1 In view of above observations, this question is answered in favour of the assessee and against the revenue. 8. So far as question (C) of Tax Appeal No.1683 of 2008 as to whether the ITAT was right in law and on facts in directing the A.O. to include interest income in the e .....

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Guj). In the case Gasket and Radiators Distributors, this Court observed as under:- 7. Identical question came to be considered by the Hon'ble Supreme Court in Pandian Chemicals Ltd. vs. Commissioner of Income-Tax, [supra] and the question, which was posed for consideration before the Apex Court was whether the interest on deposits with Tamil Nadu Electricity Board should be treated as income derived by the industrial undertaking for the purpose of Section 80HH or not, and the Hon'ble Su .....

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ty for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the said deduction under Section 80HH. In G.T.N. Textiles Ltd., vs. Deputy Commissioner of Income-Tax (Assessment) And Another, [supra], the Kerala High Court held that interest on Bank deposits was not profit derived from export of goods. The Kerala High Court has further held that the interest earned by th .....

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ranting the assessee the deduction under Section 80HHC of the Act. 8. In Commissioner of Income-Tax vs. Sterling Foods, [supra], the assessee was engaged in processing prawns and other sea food, which it exported, and it also earned some import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee claimed the deduction of such receipt under Section 80HH of the I.T. Act by contending that the said income of import entitlements be treated as a business incom .....

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ut only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. Thereunder, the assessee was entitled to import entitlements, which it could sell. The sale consideration therefrom could not be held to constitute a profit and gain derived from the assessee's industrial undertaking. The receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the rel .....

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relief under Sec. 80HHC. Considering the aforesaid two decisions, one of the Apex Court and another of Allahabad High Court, we hold that the Tribunal as well as the C.I.T. (A) has committed an error in holding export incentive and octroi refund as business income and eligible for deduction under Section 80HHC of the I.T. Act. 9. So far as the amount received by the assessee for sales in India, and the claim of the assessee for that amount under Section 80HHC of the Income Tax Act is concerned, .....

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