2014 (12) TMI 806 - HC - Income Tax

Deduction u/s 80HHC - Exchange rate difference pertaining to exports made in earlier years was profits of business or not Held that - Following the decision in Commissioner of Income-tax v. Priyanka Gems 2014 (3) TMI 938 - GUJARAT HIGH COURT wherein it has been held that the source of the income of the assessee was the export - on the basis of accrual, income was already reflected in the assessee s account on the date of the export at the prevailing rate of exchange - the income was earned merely on account of foreign exchange fluctuation - such income was directly related to the assessee s export business and could not be said to have been removed beyond the first degree thus, the assessee was entitled to deduction u/s 80HHC Decided against revenue. Computation of deduction u/s 80HHC - interest received on fixed deposits should be netted or not Held that - Following the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-tax 2012 (2) TMI 101 - SUPREME COURT OF INDIA wherein it has been held that ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head profits and gains of business or profession , was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Challenge to judgment by Income Tax Appellate Tribunal for AY 2001-02.
Substantial questions of law framed by the Court regarding exchange rate difference and interest received on fixed deposits.
Appeal against assessment order, CIT(A) dismissal, and partial allowance by ITAT Ahmedabad.

Analysis:
The appellant challenged the judgment by the Income Tax Appellate Tribunal for the assessment year 2001-02. The Court framed substantial questions of law related to the treatment of exchange rate difference and interest received on fixed deposits. The appellant filed the return of income supported by audit reports and a claim for deduction under section 80HHC of the Income Tax Act. The case underwent scrutiny, and after considering the material on record, the assessment order was passed. Subsequently, the appellant appealed to the CIT(A), which was dismissed, leading to an appeal before the ITAT Ahmedabad, where the decision was partly allowed. This resulted in the Revenue filing the present Tax Appeal before the High Court.

The Court considered the submissions and referred to previous judgments to address the substantial questions of law. Question 1 regarding the exchange rate difference was answered by citing a previous decision where it was established that such income directly related to the export business and qualified for deduction under section 80HHC. Similarly, Question 2 concerning the interest received on fixed deposits was addressed by referring to another judgment, which clarified that only the net interest or rent should be deducted for determining the profits of the business under section 80HHC. Consequently, the Court agreed with the Tribunal's decision, stating that since the facts and law were similar, no elaborate reasons were needed. The appeal was dismissed, with the questions answered in favor of the assessee and against the Revenue.