2004 (11) TMI 34 - HC - Income Tax

Deduction u/s 80HHC computing the profit rectification - In the intimation u/s 143(1) AO accepted the assessee s calculation of relief u/s 80HHC taking the adjusted business profits as nil by ignoring the loss - Held that the question of relief under section 80HHC is a debatable issue, which does not fall within the purview of prima facie adjustment u/s 143(1)(a) and that could be taken up in regular assessment u/s 143(3) and action of the Revenue invoking section 154 to rectify the intimation under section 143(1)(a) is not valid - Whether Tribunal was right in holding that the loss sustained by the assessee from its export business should be ignored and he should get the benefit of section 80HHC even though there is no export profits? - section 80HHC makes it clear that in arriving at profits earned from export, the profits and losses in the trade have to be taken into consideration and if after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80HHC(1) and if there is a loss in trade then the loss has to be taken into account for the purposes of computing the profit

Summary

Issues:
1. Rectification of intimation under section 143(1) of the Income-tax Act, 1961 regarding relief under section 80HHC.
2. Validity of rectification proceedings under section 154 of the Act.
3. Treatment of losses in the computation of deduction under section 80HHC of the Act.

Issue 1: Rectification of intimation under section 143(1) regarding relief under section 80HHC:
The case involved an appeal against the order of the Income-tax Appellate Tribunal, Madras "C" Bench, related to the assessment year 1993-94. The Assessing Officer initially accepted the assessee's calculation of relief under section 80HHC, but later sought to rectify the intimation by deducting losses from the positive figure obtained by export incentives. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal found the issue to be debatable and ruled in favor of the assessee, stating that rectification under section 154 was not appropriate for such matters.

Issue 2: Validity of rectification proceedings under section 154 of the Act:
The Tribunal held that the question of relief under section 80HHC is a debatable issue that should be addressed in regular assessment under section 143(3) of the Act, not through rectification under section 154. Citing previous decisions, it was established that the rectification proceedings were not valid for issues related to relief under section 80HHC, as it falls outside the scope of prima facie adjustment under section 143(1)(a) of the Act.

Issue 3: Treatment of losses in the computation of deduction under section 80HHC of the Act:
The Tribunal considered whether losses from the assessee's export business should be ignored for the purpose of claiming benefits under section 80HHC, even in the absence of export profits. Referring to legal precedents, it was clarified that losses should be taken into account when computing the profit available for deduction under section 80HHC. The court emphasized that the treatment of losses in such deductions is a debatable issue and should be addressed in regular assessments under section 143(3) of the Act, rather than through rectification proceedings under section 154.

In conclusion, the High Court dismissed the appeal by the Revenue, stating that there were no substantial questions of law for consideration. The court emphasized that issues related to relief under section 80HHC are debatable and should be addressed through regular assessment procedures, not rectification proceedings.