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2008 (7) TMI 595 - HC - Income TaxRevision - Scrutiny - Deduction u/s 80HHC - Disallowance - the assessee had disclosed gross interest on receipt of Rs.48,65,511, but after claiming deduction as contemplated under section 80HHC of the Act, according to it, the net interest worked out was Rs.45,51,207 as it was also required to spend money by way of interest to the loans obtained by it during the course of business - 90 per cent. of the interest that is deductible for the claim under section 80HHC of the Act is from the gross interest received by the assessee and that the amount of interest paid by the assessee should not be deducted there from - Decided against the assessee Delhi High Court in the matter of CIT v. Shri Ram Honda Power Equip 2007 -TMI - 2891 - HIGH COURT, DELHI - under section 80HHC(3)(b) one has to balance the principle of attribution with the concept of allocation - that was the case, wherein the direct question posed in this appeal was under consideration and has been answered as such - The reasoning and interpretation employed therein also appears to be reasonable and plausible - The appeal stands disposed of
Issues Involved:
1. Justification of the Commissioner of Income-tax invoking powers under section 263 of the Income-tax Act, 1961. 2. Interpretation of Explanation (baa) to sub-section (4A) of section 80HHC regarding whether interest, rent, commission earned by the assessee should be deducted from export profits or only net receipts should be considered. Detailed Analysis: Issue 1: Justification of the Commissioner of Income-tax invoking powers under section 263 Background: The Commissioner of Income-tax (CIT) invoked section 263 of the Income-tax Act, 1961, claiming the Assessing Officer's (AO) order was erroneous and prejudicial to the interests of the Revenue. The assessee contended that the AO's order was neither erroneous nor prejudicial. Legal Provision: Section 263 allows the CIT to revise an AO's order if it is erroneous and prejudicial to the interests of the Revenue. The CIT must provide an opportunity for the assessee to be heard and must record valid reasons for such revision. Court's Analysis: - The CIT's order did not provide cogent and valid reasons for concluding that the AO's order was erroneous and prejudicial. - Established legal precedent states that if two views are possible and the AO adopts one, it is not sufficient for the CIT to invoke section 263. - The phrase "prejudicial to the interests of the Revenue" must be read with "erroneous." Not every loss of revenue due to an AO's order qualifies as prejudicial. Conclusion: The CIT committed an error in invoking section 263. The first question was answered in favor of the assessee, dismissing the appeals I.T.A. No. 298 of 2003 and I.T.A. No. 327 of 2003. Issue 2: Interpretation of Explanation (baa) to sub-section (4A) of section 80HHC Background: The core issue was whether the interest, rent, and commission earned should be deducted from export profits or only net receipts should be considered for computing deductions under section 80HHC. Legal Provision: Section 80HHC provides deductions for profits derived from export. Explanation (baa) specifies that 90% of receipts by way of interest, rent, commission, etc., should be excluded from the profits of the business. Court's Analysis: - The Revenue argued that 90% of gross interest should be deducted, while the assessee contended that only net interest should be considered. - The court reviewed various judgments, including those from the Punjab and Haryana High Court, Madras High Court, and Delhi High Court. - The Delhi High Court in CIT v. Shri Ram Honda Power Equip held that only net interest should be deducted, emphasizing the need to avoid depressing export profits by including gross interest. Conclusion: The court found the Delhi High Court's reasoning in Shri Ram Honda Power Equip more appropriate, ruling that only net interest should be considered. The second question was answered in favor of the assessee. Final Judgment: Both substantial questions of law were answered in favor of the assessee and against the Revenue. The appeals were disposed of without any order as to costs.
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