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2016 (7) TMI 1322 - AT - Income TaxDenial of deduction u/s 80HHC - deduction u/s 80HHC was denied to the main exporter also, to whom the assessee (a supporting manufacturer) had sold its goods - Held that - As it has been held by Hon ble Gujarat High Court in the case of Avani Exports Others 2012 (7) TMI 190 - GUJARAT HIGH COURT that the amendment made by Taxation Laws (Amendment) Act 2005 in section 80HHC to curtail the benefit of u/s 80HHC on the amount of incentive received by the main exporters would not operate retrospective. Thus, if we consider on facts the case of ASL on merits also, it is noted that after including amount of incentives there would arise positive amount of profit. Thus, viewed from any angle, and keeping in view the fact that when deduction u/s 80HHC has been actually allowed in the hands of ASL i.e. export house, therefore, the whole premises of the AO based upon which the deduction was denied to the assessee, ceases to exist. Under these facts and circumstances, we find that Ld. CIT(A) has rightly allowed the benefit of deduction u/s 80HHC to the assessee and therefore, we find nothing wrong in the order of Ld. CIT(A) and therefore, the same is upheld. If the assessee is allowed u/s 80HHC then it cannot be allowed deduction u/s 80IB - Held that - We send this issue back to the file of the AO who shall examine the facts and allow the deduction to the assessee u/s 80HHC as well as u/s 80IB so long as the aggregate amount of deduction does not exceed the amount of profits. Thus, the total amount of deduction allowable to the assessee under both of these sections should be restricted to the amount of profits. Thus, this ground may be treated as partly allowed for statistical purposes.
Issues Involved:
1. Denial of deduction under Section 80HHC. 2. Deduction under Section 80HHC and Section 80IB. 3. Disallowance under Section 14A. Detailed Analysis: 1. Denial of Deduction under Section 80HHC: Ground Nos 1 & 2 of the assessee’s appeal and Ground No.2 of the Revenue’s appeal involved the denial of deduction under Section 80HHC. The assessee, a supporting manufacturer, claimed the deduction based on a disclaimer certificate issued by the export house, M/s. Allana Sons Ltd. (ASL). The AO denied the deduction to the assessee, following the denial to ASL due to incurred losses when incentives were excluded from export profits. The CIT(A) allowed the deduction to the assessee, stating that the deduction was independent of the export house's eligibility and that ASL had actually been allowed the deduction. The Revenue appealed, citing the Supreme Court judgment in CIT v. IPCA Laboratories Ltd. 266 ITR 521 (SC), which held that a loss-making export house cannot pass on the deduction benefit. The Tribunal upheld the CIT(A)’s decision, noting that the Bombay High Court had validated the deduction for ASL and quashed the reopening of ASL’s assessment. The Tribunal also referenced the Karnataka High Court’s decision in Shamanur Kallappa & Sons vs. ACIT, supporting the independent entitlement of the supporting manufacturer to the deduction. 2. Deduction under Section 80HHC and Section 80IB:Ground No.3.1 of the assessee’s appeal addressed the issue of combined deductions under Sections 80HHC and 80IB. The assessee contended that the total deductions should not exceed the profits earned, citing the Bombay High Court judgment in Associated Capsules Pvt Ltd vs. DCIT 322 ITR 42. The Tribunal remanded the issue to the AO to ensure that the aggregate deductions under both sections did not exceed the profits, thus partly allowing the assessee’s appeal for statistical purposes. 3. Disallowance under Section 14A:In the appeal for A.Y. 2004-05, Ground No.2 of the Revenue’s appeal contested the CIT(A)’s decision to remand the disallowance of ?5,000 under Section 14A as per Rule 8D to the AO. The Tribunal upheld the CIT(A)’s decision, finding no error in the remand for re-adjudication. Summary of Outcomes:- For A.Y. 2000-01, the Tribunal upheld the CIT(A)’s decision to allow the deduction under Section 80HHC to the assessee and remanded the combined deduction issue under Sections 80HHC and 80IB to the AO. - For subsequent years (A.Y. 2001-02 to 2004-05), the Tribunal directed the AO to follow the order for A.Y. 2000-01, allowing the assessee’s grounds and dismissing the Revenue’s grounds. - The Tribunal upheld the CIT(A)’s remand of the Section 14A disallowance issue to the AO for A.Y. 2004-05. Conclusion: The Tribunal consistently upheld the CIT(A)’s decisions favoring the assessee regarding the Section 80HHC deduction and the combined deductions under Sections 80HHC and 80IB, while remanding specific issues for further examination by the AO. The Revenue’s appeals were dismissed across all assessment years.
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