2017 (8) TMI 1410 - HC - Income Tax

Estimation of the gross profit - Tribunal not deducting and giving benefit of increased excise rate at 8.18% - Held that - As counsel for the respondent Mr. Mathur has supported the order of the Tribunal and contended that the view taken by the Tribunal is just and proper. The deduction is to be considered for last three years GP and for the last five years the GP will come down to more than 30%. GP rate fixed by the Tribunal at 25% is required to be accepted. Even if we take the GP rate fixed by the Tribunal, the original rate of 31% will be reduced to 28.86% therefore, for assessment year 2003-04 it will come down, as per the order of AO to 23.96%. However, the Tribunal has seriously committed an error in not deducting and giving benefit of increased excise rate at 8.18% therefore, profit will come down to 40.78%. Thus since the assessee has already disclosed 21.33% the same is required to be accepted. The order of the Tribunal and AO is modified to the aforesaid extent. The return filed by the assessee will be accepted and issue no. 1 will also answered in favour of the assessee. Interest receipt not constitute business income for the purpose of computation of deduction u/s 80HHC - Held that - It was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section 80HHC was clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an Assessee could be deducted under Clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee - Issue decided in favour of assessee - See ULTRATECH METALS INDIA VERSUS ACIT AND VICE-VERSA 2017 (5) TMI 1587 - RAJASTHAN HIGH COURT .

Summary

Issues:
1. Estimation of gross profit rate for the assessment year.
2. Classification of interest receipt as "business income" for deduction u/s 80HHC.

Estimation of Gross Profit Rate:
The appellant challenged the Tribunal's decision approving the estimation of gross profit at 32% instead of 28.86% for the assessment year. The Assessing Officer noted a significant fall in the gross profit rate, attributing it to various factors such as exchange rate differences and duty draw back ratios. The appellant's historical data showed a steep decline in the gross profit rate compared to previous years. The Tribunal upheld the GP rate at 25% considering the increase in purchase costs and turnover. The appellant argued for a higher GP rate based on previous assessments and deductions allowed by the AO. Ultimately, the Court modified the Tribunal's decision, accepting the appellant's disclosed GP rate of 20.33% and adjusting it to 40.78% after accounting for excise duty, contrary to the Tribunal's estimation.

Classification of Interest Receipt:
Regarding the interest receipt of ?9,52,067, the issue was whether it constituted "business income" for deduction u/s 80HHC. The Court referred to a previous decision where it was clarified that profits of the business must be computed under the head "Profits and Gains of Business or Profession" as per specified provisions. The Court emphasized that only receipts included in the profits of the business could be deducted under the relevant clause. The Court relied on interpretations of similar provisions and held that the interest receipt should be considered as part of the business profits for deduction purposes. Consequently, the Court ruled in favor of the appellant on this issue as well.

In conclusion, the High Court modified the Tribunal's decision on both issues, adjusting the gross profit rate and classifying the interest receipt as business income for deduction u/s 80HHC. The appellant's contentions regarding historical data and deductions allowed by the Assessing Officer played a crucial role in the Court's decision-making process.