2017 (1) TMI 883 - AT - Income Tax

Eligiblity to claim the benefit of deduction u/s 80HHC on the amount of sales-tax refund received - Held that - As stated that the assessee is a trader and not a manufacturer. Therefore, provisions of Explanation (baa) to section 80HHC are not applicable upon the assessee as were applied by the AO. Further, it is also noticed by us that sales-tax refund received by the assessee was nothing but reduction of cost of purchase. In substance, it does not make a difference in whatever manner the accounting has been done by the assessee. The sales-tax refund received by the assessee clearly goes to reduce the cost of purchases of the assessee. Under these circumstances, we find that the findings of Ld. CIT(A) are well reasoned and he has not erred in treating sales tax refund as eligible component for deduction under section 80HHC. See Topman Exports vs CIT (2012 (2) TMI 100 - SUPREME COURT OF INDIA). No contrary view was brought before us by the Ld. DR. Therefore, no justification to make interference in the well reasoned findings of the Ld. CIT(A). Therefore, his order is confirmed. - Decided in favour of assessee

Summary

Issues:
Whether the assessee is eligible to claim the benefit of deduction u/s 80HHC on the amount of sales-tax refund received?

Analysis:

Issue 1: Eligibility of deduction u/s 80HHC on sales-tax refund
The Revenue challenged the order of the Commissioner of Income-tax (Appeals) regarding the treatment of sales tax refund for deduction under section 80HHC. The Revenue argued that sales tax refund cannot be considered as derived from export activity due to the lack of a direct nexus. The AO upheld the reduction in the claim of Section 80HHC on account of sales tax set off. However, the CIT(A) disagreed and held that the assessee was eligible for the deduction as the sales-tax refund reduced the cost of purchases. The CIT(A) emphasized that for traders, the profit is computed based on export turnover reduced by direct and indirect costs, not as per the Explanation (baa) to Section 80HHC applicable to manufacturers.

Issue 2: Application of relevant case laws
The CIT(A) relied on the decision of the Bombay High Court in the case of Valiant Glass Works P Ltd, which held that sales tax refund is eligible for deduction under Section 80HHC. The Tribunal in the Valiant Glass Works case allowed the deduction of CENVAT incentives as export incentives, emphasizing the reduction of manufacturing costs. The CIT(A) applied this principle to the present case, stating that the sales tax refund had a direct nexus with exports and was eligible for deduction under Section 80HHC. The Tribunal concurred with the CIT(A) and dismissed the Revenue's appeal, confirming the eligibility of the assessee for the deduction.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, emphasizing that the sales tax refund reduced the cost of purchases for the assessee, making it eligible for deduction under Section 80HHC. The Tribunal's decision was supported by relevant case laws and the distinction between manufacturers and traders in computing profits for the deduction. The appeal filed by the Revenue was dismissed, affirming the eligibility of the assessee for the deduction under Section 80HHC.