2016 (2) TMI 189 - AT - Income Tax

Deduction u/s 80HHC without reducing the deduction allowed u/s 80IB - Held that - The material available on record. Sec. 80IA(9) is very clear that where any amount of profits and gains of an undertaking is claimed and allowed, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter VI of the Act. It further says that the deduction shall not exceed the profits and gains of such eligible business as the case may. While interpreting sec. 80IA(9) of the Act, the Bombay High Court in CIT vs Nima Specific Family Trust 2000 (12) TMI 87 - BOMBAY High Court , J.P. Tobacco Products P. Ltd vs CIT 1996 (8) TMI 29 - MADHYA PRADESH High Court and Apex Court in Jt. CIT vs Mandideep Engineering and Packaging Industries P. Ltd 2006 (4) TMI 75 - SUPREME Court found that deduction allowed u/s 80HHC need not be reduced while computing deduction u/s 80IA of the Act. In view of the judgment of Bombay High Court in Nima Specific Family Trust(supra) which was followed by the jurisdictional High court in MRF Ltd. (supra), this Tribunal do not find any reason to interfere with the order of the lower authority. Sale proceeds of scrap - whether has to be included in the business profit as well as total turnover while computing deduction u/s 80HHC? - Held that - The raw material which is not capable of being used for manufacturing the goods will have to be either sold as scrap or might have to be recycled. When such scrap is sold, the sale proceeds cannot be included in the total turnover. Therefore, the proceeds of the sale of such scrap would not be included in the sales in the Profit & Loss Account of the assessee. In the case before us, the assessee is admittedly a manufacturing company, therefore, the sale proceeds of the scrap cannot form part of the total turnover. Therefore, we are unable to uphold the order of the lower authority. In view of the judgment of the Apex Court in Punjab Stainless Steel Industries (2014 (5) TMI 238 - SUPREME COURT ) and for the reasons stated therein, we set aside the orders of the lower authorities and the Assessing Officer is directed to exclude the sale proceeds of scrap from the total turnover. Exclusion of freight and insurance from the total turnover - Held that - Total turnover and export turnover shall be of the same factor. In other words, the denominator and numerator shall be of the same factor while computing the deduction u/s 80HHC. Therefore, once the Assessing Officer excluded the freight and insurance charges from the export turnover the same shall also be excluded from the total turnover. Therefore, the orders of the lower authorities are set aside and the Assessing Officer is directed to exclude the insurance and freight charges from the total turnover also. Exclusion of 90% of interest, agency commission, rent and miscellaneous income from the profits of business while computing deduction u/s 80HHC - Held that - As rightly submitted by the ld. Counsel, 90% the miscellaneous incomes like, interest, agency commission, rent etc. which are included in the profit of the assessee has to be excluded while computing deduction u/s 80HHC of the Act. The profit of the business has to be computed under the provisions of the Income-tax Act, 1961, therefore, the expenditure incurred by the assessee has to be excluded and what is included is the net income and not the gross income. This Tribunal is of the considered opinion that what is to be excluded under Explanation (baa) of sec. 80HHC is net income included in the profit. Therefore, the orders of the lower authorities are modified and the Assessing Officer is directed to exclude 90% of the net receipt like interest, agency commission, rent etc from the profit of the assessee while computing deduction u/s 80HHC of the Act.

Summary

Issues:
1. Deduction u/s 80HHC without reducing the deduction u/s 80IB.
2. Inclusion of receipt from scrap sales in total turnover.
3. Exclusion of freight and insurance from total turnover.
4. Exclusion of 90% of interest, agency commission, rent, and miscellaneous income from profits of business while computing deduction u/s 80HHC.

Analysis:
1. The first issue involved the deduction u/s 80HHC without reducing the deduction u/s 80IB. The Tribunal considered the conflicting interpretations of sec. 80IA(9) of the Act. The Department argued for reducing deductions under different sections of Chapter VI, while the Assessee relied on judgments from the Madras High Court and Bombay High Court to support their claim. The Tribunal referred to various precedents and ultimately upheld the decision of the lower authority based on the judgment of the Bombay High Court, confirming the deduction u/s 80HHC without reducing it under sec. 80IA.

2. Regarding the inclusion of receipt from scrap sales in total turnover, the Assessee contested the decision of the lower authorities based on a judgment from the Apex Court. The Tribunal referred to the judgment in Punjab Stainless Steel Industries and ruled in favor of the Assessee, directing the exclusion of sale proceeds of scrap from the total turnover based on the nature of the business and the judgment's principles.

3. The issue of excluding freight and insurance from total turnover was raised, with the Assessee arguing for exclusion based on the treatment of such charges in export turnover. The Tribunal referred to the factor of total turnover and export turnover being the same while computing deduction u/s 80HHC. Following this principle, the Tribunal directed the exclusion of insurance and freight charges from the total turnover.

4. The final issue involved the exclusion of 90% of interest, agency commission, rent, and miscellaneous income from profits of business while computing deduction u/s 80HHC. The Assessee argued for the exclusion of net receipts based on a judgment of the Apex Court. The Tribunal agreed with the Assessee, emphasizing the need to exclude net income as per Explanation (baa) of sec. 80HHC, directing the Assessing Officer to exclude 90% of such net receipts while computing the deduction.

In conclusion, the Tribunal dismissed the appeal of the Revenue and allowed that of the Assessee based on the detailed analysis and interpretation of the relevant provisions and judicial precedents.