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Issues Involved:
The judgment involves the interpretation of deduction under section 80HHC for an exporter of diamonds, specifically regarding the treatment of premium on import licences in the total turnover and the computation of profits under the said section. Interpretation of Deduction under Section 80HHC: The Assessing Officer allowed a deduction of Rs. 63,78,088 instead of Rs. 88,40,538 claimed by the assessee, citing discrepancies in the treatment of licence premium and import licence premium. The Tribunal directed the Assessing Officer to recompute the deductions under section 80HHC, excluding an amount of Rs. 51,93,829 from the total turnover and reducing business profits by 90% of the net premium of Rs. 15,47,005 as per clause (baa) of the Explanation to section 80HHC. The Department appealed under section 260A of the Income-tax Act, 1961, challenging the Tribunal's directions. Treatment of Premium on Import Licences: The key question was whether the premium received by the assessee on surrender of import licences should be included in the total turnover for calculating the deduction under section 80HHC. The premium received from the Government of India, totaling Rs. 51,93,829, was analyzed to determine if it constituted export incentives as per the provisions of the Act. Analysis and Decision: The premium received on import licences was deemed to be export incentives, as it was a compensation for exporters affected by the introduction of full convertibility of the rupee. The Government circular offering cash amount equivalent to unutilized import licences was considered an export incentive, falling under the proviso to clause (baa) of the Explanation to section 80HHC. The Tribunal differentiated between premiums received on licences obtained through exports and those purchased from the market, adjusting the calculation of export profits accordingly. The Tribunal's decision on the treatment of premiums was upheld, and the appeal was dismissed with costs.
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