2007 (6) TMI 190 - HC - Income Tax

Manufacture & export - AO found that the assessee s claim u/s 80HHC including receipts relating to job work charges, had no direct nexus with the export activities - income from job work earned by assessee is by utilisation of the entire resources or business apparatus - Tribunal also found that the job work is linked to the manufacturing hence Tribunal is right in holding that 90% of the job work charges should not have been excluded from business profits while computing deduction u/s 80HHC

Summary

Issues:
Interpretation of Section 80HHC of the Income Tax Act - Job work charges inclusion in business profits for deduction calculation.

Analysis:
The case involved a dispute regarding the inclusion of job work charges in the business profits of an assessee firm engaged in the manufacture and export of shoe uppers for the assessment year 1996-97. The Assessing Officer reopened the assessment under Section 147 of the Income Tax Act, as he believed that the job work charges had been wrongly included for deduction under Section 80HHC, stating they had no direct nexus with the export activities of the assessee.

Upon appeal, the Commissioner of Income Tax (Appeals) upheld the reopening of assessment but directed that only the profit from job work should be excluded, estimating the expenses attributable to job works based on the percentage of job work receipts to the total turnover.

The Tribunal, in the subsequent appeal by the assessee, ruled in favor of the assessee, holding that 90% of the job work charges should not have been excluded while computing the deduction under Section 80HHC. The Tribunal found that the job work was linked to the manufacturing activity of the assessee and was earned by utilizing the entire resources or business apparatus.

The court, following the precedent set in the case of Southern Sea Foods Ltd. v. Joint CIT [2007] 288 ITR 151, concluded that the job work charges formed a part of the business profits as they were earned by utilizing the entire business apparatus. Therefore, the court answered the substantial question of law in favor of the assessee and dismissed the appeal by the Revenue, with no costs awarded.