2007 (8) TMI 470 - HC - Income Tax

Deduction under section 80HHC - Assessing Officer, disallowed the claim of the assessee pertaining to expenditure on farm, building tax, voluntary retirement scheme - restricted the depreciation claim on machinery purchased from IDBI and also recomputed the deduction under section 80HHC by excluding the cash compensatory support from the business profit - Explanation (baa) to section 80HHC of the Act, effective for the assessment year under appeal, states that 90 per cent. of the cash compensatory support would have to be deducted from the profits for working out the export profits - Held that - Explanation (baa) to section 80HHC of the Act, effective for the assessment year under appeal, states that 90 per cent. of the cash compensatory support would have to be deducted from the profits for working out the export profits - order of the Tribunal has to be set aside and the matter should be remitted back to the Tribunal for reconsideration of the issue in accordance the statutory provision which was available during the relevant assessment period

Issues:
1. Disallowance of expenditure on farm, building tax, and voluntary retirement scheme.
2. Restriction of depreciation claim on machinery purchased from IDBI.
3. Recomputation of deduction under section 80HHC by excluding cash compensatory support from business profit.

Issue 1: Disallowance of Expenditure
The case involves the disallowance of the assessee's claim for expenditure on farm, building tax, and voluntary retirement scheme by the Assessing Officer for the assessment year 1991-92. The Commissioner of Income-tax (Appeals) allowed the appeal against this disallowance, but the Revenue filed an appeal before the Tribunal, which dismissed it. The High Court found that the Tribunal erred in relying on Explanation (baa) introduced to sub-section (4C) of section 80HHC, which was inserted with effect from April 1, 1992, and could not be applied to the assessment year in question. The Court set aside the Tribunal's order and remitted the matter back to the Tribunal for reconsideration based on the statutory provision available during the relevant assessment period.

Issue 2: Restriction of Depreciation Claim
Additionally, the Assessing Officer restricted the depreciation claim on machinery purchased from IDBI. However, this issue was not the main focus of the appeal, as the primary question of law for consideration by the High Court was related to the exclusion of cash compensatory support from the business profit for the purpose of deduction under section 80HHC.

Issue 3: Recomputation of Deduction under Section 80HHC
The crucial question of law in this case revolved around whether the Tribunal was correct in excluding other receipts, apart from cash compensatory support, from the business profit for the purpose of deduction under section 80HHC. The High Court found that the Tribunal's reasoning, which relied on Explanation (baa) introduced post the relevant assessment year, was inconsistent and not applicable. Therefore, the Court set aside the Tribunal's order and directed a reconsideration based on the statutory provision available during the relevant assessment period.

In conclusion, the High Court's judgment addressed the errors in the Tribunal's decision regarding the exclusion of certain receipts from business profit for the deduction under section 80HHC. The Court emphasized the importance of applying the correct statutory provisions for the relevant assessment year and remitted the matter back to the Tribunal for reconsideration in accordance with the law applicable during the assessment period.

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