2010 (3) TMI 844 - AT - Income Tax

Computation of profit for eligible deduction under 80HHC - Export turnover 60149288- foreign exchange bought in 31868248 Total purchases 8083698- purchases in respect for exchange bought in - 3221098 - Ao took total purchases 8083698 while computing profit - where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct cost and indirect costs attributable to such export . Since in the instant case the figure of export sales is being taken at Rs. 3,18,68,248 the direct cost and the indirect cost will be taken with regard to these exports only. The words used in clause (b) of section 80HHC(3) are the direct cost and indirect costs to such export . This means the direct and indirect costs are to be taken with regard to the export sales which are eligible for deduction under section 80HHC. Use of words such export makes it very clea

Issues Involved:
1. Deduction under section 80HHC of the Income-tax Act.
2. Computation of export profit and direct costs for deduction under section 80HHC.
3. Reopening of assessment under section 147 and subsequent reassessment.
4. Admissibility of deduction based on actual realization of export sale proceeds.

Detailed Analysis:

1. Deduction under section 80HHC of the Income-tax Act:
The primary issue revolves around the deduction under section 80HHC, which the appellant claimed at Rs. 1,81,50,397. The Assessing Officer (AO) restricted this deduction to Rs. 1,34,51,904, leading to a dispute over the correct computation of the deduction amount. The Commissioner of Income-tax (Appeals) [CIT(A)] directed the AO to allow the deduction at Rs. 1,81,50,397, as computed in the original assessment order and in the order giving effect to the CIT(A)'s previous order.

2. Computation of export profit and direct costs for deduction under section 80HHC:
The dispute also involves the computation of export profit and the direct costs attributable to eligible export turnover. The AO disallowed the excess deduction claimed by the appellant by considering the entire purchases made during the year (Rs. 80,83,698) instead of the purchases attributable to the eligible export turnover (Rs. 32,21,098). The CIT(A) ruled that only the direct costs related to the eligible export turnover should be considered for deduction under section 80HHC, aligning with the appellant's claim and previous judicial decisions.

3. Reopening of assessment under section 147 and subsequent reassessment:
The assessment was reopened under section 147 by issuing a notice under section 148, leading to a reassessment. The reassessment resulted in the AO determining the appellant's total income at Rs. 22,14,556 and restricting the deduction under section 80HHC. The CIT(A) found that the reassessment and the subsequent restriction of the deduction were unjustified and not in accordance with the provisions of law.

4. Admissibility of deduction based on actual realization of export sale proceeds:
The CIT(A) and the Tribunal emphasized that the deduction under section 80HHC is applicable only to the amount of export turnover for which the sale proceeds are received in convertible foreign exchange within the prescribed timeframe. The appellant's claim was based on the remittance received within the time limit (Rs. 3,18,68,248), and the CIT(A) upheld this approach, directing the AO to allow the deduction accordingly.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, confirming that the deduction under section 80HHC should be computed based on the eligible export turnover and the direct costs attributable to it. The AO's action of restricting the deduction was found to be unjustified. The appeal of the Revenue was dismissed, and the CIT(A)'s order was confirmed, allowing the deduction at Rs. 1,81,50,397.

Final Judgment:
The appeal of the Revenue is dismissed. The order signed, dated, and pronounced in the court on March 26, 2010.

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