1999 (12) TMI 880 - AT - Income Tax

Summary

Issues Involved:
1. Whether the gross labour receipt of Rs. 52,17,920 forms part of the total turnover for computing deduction under section 80HHC.
2. Validity of the rectificatory order passed by the assessing officer under section 154.
3. Interpretation and application of Explanation (baa) to section 80HHC and Circular No. 621 dated 19-12-1991.

Issue-wise Detailed Analysis:

1. Whether the gross labour receipt of Rs. 52,17,920 forms part of the total turnover for computing deduction under section 80HHC:

The assessee firm, engaged in importing, cutting, polishing, and exporting diamonds, claimed a deduction under section 80HHC excluding Rs. 52,17,920 received as labour charges from the total turnover. The assessing officer, in a rectificatory order, included this amount in the total turnover, which was upheld by the Commissioner (Appeals). The Tribunal examined whether the gross labour receipt should be part of the total turnover for section 80HHC deduction. The Tribunal noted that the term "total turnover" was not explicitly defined but referred to the aggregate amount of money taken in a business. The Tribunal concluded that the entire amount of Rs. 52,17,920, including reimbursement of labour charges and commission, should form part of the total turnover, as the receipts were for work done and billed to the principals. The Tribunal emphasized that the entire gross receipts on account of labour charges must be included in the total turnover as per the definition and explanation of "total turnover" under section 80HHC.

2. Validity of the rectificatory order passed by the assessing officer under section 154:

The assessee argued that the rectificatory order was invalid as there was no mistake apparent from the record, citing the Supreme Court decision in TS. Balram, Income Tax Officer v. Volkart Bros. The Tribunal, however, found that the assessing officer correctly invoked section 154 to rectify the apparent error in the original assessment. The Tribunal held that the inclusion of the aggregate amount of labour charges in the total turnover was not debatable and was justified by the clear definition of "total turnover" in section 80HHC. The Tribunal concluded that the rectificatory order was valid and correctly amended the deduction under section 80HHC.

3. Interpretation and application of Explanation (baa) to section 80HHC and Circular No. 621 dated 19-12-1991:

The assessee contended that the inclusion of labour charges in the total turnover distorted the export profit and referred to Explanation (baa) to section 80HHC and Circular No. 621. The Tribunal examined the explanation and circular, noting that they clarified what items should not form part of the total turnover, such as freight, insurance, and export incentives. The Tribunal found that the explanation did not define "total turnover" but indicated that the aggregate amount of work done should be included. The Tribunal concluded that the inclusion of labour charges did not distort the export profit and was consistent with the statutory provisions and circular. The Tribunal also reviewed various decisions cited by the assessee, including Salgaocar Mining Industries Ltd., International Research Park Laboratories Ltd., and Smt. Suman Goyal, but found them not directly applicable or supportive of the assessee's position.

Conclusion:

The Tribunal upheld the orders of the revenue authorities, confirming that the gross labour receipt of Rs. 52,17,920 should be included in the total turnover for computing the deduction under section 80HHC. The rectificatory order passed by the assessing officer under section 154 was deemed valid, and the interpretation and application of Explanation (baa) to section 80HHC and Circular No. 621 were found to support the revenue's position. The appeal by the assessee was dismissed.