2014 (9) TMI 428 - HC - Income Tax

Computation of deduction u/s 80HHC on export profits - cash compensatory support, duty draw back and profit on sale of import entitlement licences that insurance, machinery hire charges, interest on deferred payment on export and interest on inter-corporate loans forms part of turnover or not Held that - The findings of the Tribunal is erroneous in view of Finance Act, 1991 w.e.f. 1.4.1991, where clause (ba) of Explanation to Section 80HHC was inserted and made it clear that the expression total turnover shall have its effect, as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28, on or after 1.4.1991 and not before - if the assessee is able to establish that amount is not relatable to freight or insurance attributable to the transport of the goods or merchandise beyond the customs station, then only the assessee will be entitled to move before the Assessing Authority and establish it as a matter of fact and claim the benefit thus, the matter is remitted back to the AO Decided in favour of revenue.

Summary

Issues:
1. Whether certain receipts like cash compensatory support, duty drawback, and profit on sale of import entitlement licenses should be excluded from the total turnover for the purpose of deduction under Section 80HHC.
2. Whether items like insurance claim, machinery hire charges, interest on deferred payment on export, and interest on intercorporate loans should form part of the turnover for determining deduction under Section 80HHC.

Issue 1 Analysis:
The respondent, engaged in textile machinery manufacturing for local sales and export, claimed deduction under Section 80HHC for export profits. The Assessing Officer disallowed certain receipts like cash compensatory support, duty drawback, and profit on sale of import entitlement licenses from the total turnover for deduction purposes. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Income Tax Appellate Tribunal, relying on Circular No.571 dated 1.8.1990, allowed the benefit to the assessee for these receipts. The Tribunal also considered the exclusion of insurance claim, machinery hire charges, and rent charges from the total turnover based on previous decisions. The Tribunal ruled in favor of the assessee, citing relevant case laws and interpreting Section 80HHC provisions.

Issue 2 Analysis:
Regarding the second issue, the Tribunal did not provide a specific decision. However, considering the insertion of clause (ba) of Explanation to Section 80HHC by Finance (No.2) Act, 1991, effective from 1.4.1991, the Court directed the Assessing Officer to reevaluate the items like insurance claim, machinery hire charges, and other related expenses if the assessee can provide supporting material. The Court emphasized that if the assessee can demonstrate that these expenses are not related to freight or insurance beyond the customs station, they can approach the Assessing Authority to establish the same and claim the benefit. Therefore, the matter was remanded to the Assessing Officer for further examination based on the revised provisions.

In conclusion, the High Court's judgment clarified the treatment of various receipts and expenses concerning the deduction under Section 80HHC, emphasizing the importance of relevant provisions and case laws in determining the eligibility of certain items for exclusion from the total turnover. The decision highlighted the need for proper documentation and evidence to support claims related to deductions, ensuring a fair assessment by the tax authorities.