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Issues:
1. Addition under section 40A(3) 2. Computation of deduction under section 80HHC Addition under section 40A(3): The appeal involved two issues for the assessment year 1990-91. The first issue was the addition of Rs. 1,56,575 under section 40A(3). The counsel for the assessee acknowledged that the matter was decided against the assessee by the Tribunal in a previous case for the assessment year 1989-90. Following the Tribunal's decision, the disallowance under section 40A(3) was upheld. Computation of deduction under section 80HHC: The second issue pertained to the computation of deduction under section 80HHC. The Assessing Officer had granted the deduction but adjusted the unabsorbed investment allowance in calculating the profits derived from exports. The CIT(A) upheld this view. The counsel for the assessee cited a decision from the Andhra Pradesh High Court supporting the contention that the deduction under section 80HHC should be allowed before adjusting unabsorbed business loss and depreciation. In contrast, the Departmental Representative referred to a decision from the Kerala High Court favoring deduction based on profits determined as per the Act. The High Court noted the conflicting views of different High Courts on the computation of deduction under section 80HHC. In the absence of a jurisdictional High Court decision, the Court had to adopt a view. Section 80HHC allows a deduction for profits derived from exports. The Court emphasized that the unabsorbed investment allowance should not be adjusted at the stage of computing profits under section 80HHC. However, the Court also considered other provisions of the Act. The Court explained the process of computing gross total income and the adjustment of unabsorbed investment allowance under section 32A(3). It clarified that the investment allowance should be adjusted against the gross total income before allowing deductions under Chapter VI-A. The deduction under section 80HHC should not exceed the gross total income as per section 80A(2). In this case, after adjusting the unabsorbed investment allowance, the gross total income was Rs. 15,31,608, and the profits derived from exports were Rs. 14,26,306. Since the gross total income exceeded the deduction under section 80HHC, the assessee was entitled to the deduction of the entire export profits without adjusting the unabsorbed investment allowance. The Court upheld the claim of the assessee and directed the Assessing Officer to allow the deduction accordingly. In conclusion, the appeal of the assessee was partly allowed, addressing both issues raised in the case.
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