2010 (9) TMI 467 - AT - Income Tax

Deduction u/s 80HHC - Assessee carried on its business from different units including one at Verna Goa. Deduction was claimed under section 80-IB at 100 per cent of the profits in respect of Goa unit - Company reduced from the profits of the business and total turnover the amounts of profits and turnover of the Goa Unit so as to make the formula under section 80HHC workable - The ld. CIT did not concur with the submissions advanced on behalf of the assessee as in his opinion section 80-IB(13) read with section 80-IA(9) restricted further deduction in respect of profit on which deduction under section 80-IA/80-IB was already allowed and it did not speak of taking the reduced turnover while computing deduction under section 80HHC - The reason for so holding is the very rationale of allowing deduction under section 80HHC in respect of the profits derived from export turnover The assessee reduced exchange loss of export realisation amounting to Rs. 35.56 lakhs from the total turnover of the business for the purposes of computing the deduction under section 80HHC - In the opinion of the ld. CIT such reduction from total turnover in respect of exchange loss of export realisation was not permissible - From the computation of deduction made by the assessee it is seen that the export turnover has been shown at realised value - It is simple and plain that with the reduced realisation of export proceeds the figure of export turnover came down with exchange loss on export realization - As the export turnover is part and parcel of total turnover it cannot have two values firstly when considered as separate from total turnover and secondly when constituting part of total turnover Decided in the favour of the assessee

Summary

Issues Involved:

1. Computation of deduction under Section 80HHC.
2. Inclusion of turnover of the Goa Unit in the total turnover.
3. Adjustment of exchange loss on export realization in the total turnover.

Detailed Analysis:

1. Computation of Deduction under Section 80HHC:

The primary issue revolves around the determination of the deduction under Section 80HHC. The assessee had several units, including one at Verna, Goa, whose income was deductible under Section 80-IB. The CIT observed that the assessee was allowed deductions under Section 80HHC and Section 80-IB, but the total turnover was calculated incorrectly by excluding the turnover of the Goa unit and exchange loss on export realization. The CIT argued that this incorrect adoption of total turnover resulted in excess deduction under Section 80HHC, making the assessment order erroneous and prejudicial to the revenue's interest. The assessee contended that the deduction was computed correctly by reducing the profits and turnover of the Goa unit to make the formula under Section 80HHC workable. The CIT disagreed, stating that Section 80-IB(13) read with Section 80-IA(9) restricted further deduction on profits already allowed under Section 80-IA/80-IB and did not permit the reduction of turnover while computing deduction under Section 80HHC.

2. Inclusion of Turnover of the Goa Unit in the Total Turnover:

The CIT's viewpoint was that the total turnover should include the turnover of the Goa unit, even if its profits were excluded. However, the assessee argued that both the profits and turnover of the Goa unit should be excluded to accurately compute the deduction under Section 80HHC. The Tribunal noted that the purpose of Section 80HHC is to allow deductions on profits derived from exports. The formula for computing these profits involves the total turnover and the export turnover. The Tribunal found that excluding the Goa unit's turnover from the total turnover was necessary to prevent a distorted calculation of export profits. This approach aligns with the Special Bench orders in Asstt. CIT v. Rogini Garments and Asstt. CIT v. Hindustan Mint & Agro Products (P.) Ltd., which mandated that deductions under Section 80HHC should be allowed on profits reduced by deductions under Section 80-IA/80-IB.

3. Adjustment of Exchange Loss on Export Realization in the Total Turnover:

The second point of contention was the adjustment of exchange loss on export realization. The assessee reduced the exchange loss from the total turnover while showing the export turnover at realized value. The CIT opined that such a reduction was not permissible. The Tribunal explained that the difference between the tentative export figure (recorded at the time of invoice) and the actual realization (at the time of payment) needs adjustment. This adjustment reflects the accurate export turnover. The Tribunal held that the exchange loss should indeed reduce the total turnover to maintain consistency and accuracy in the calculation of export turnover and total turnover. This ensures that the export turnover does not have two different values when considered separately and as part of the total turnover.

Conclusion:

The Tribunal concluded that the total turnover of the Goa unit should be excluded from the total turnover of the business for computing the deduction under Section 80HHC. Additionally, the exchange loss on export realization should be deducted from the total turnover to accurately reflect the export turnover. Consequently, the impugned order by the CIT was set aside, and the appeal was allowed.