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2017 (7) TMI 433 - AT - Income TaxDeduction u/s 80HHC - Held that - We restore the matter to the file of the AO for computing deduction allowable to the assessee u/s 80HHC of the Act in accordance with law . The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice. Addition u/s 14A - Held that - The disallowance u/s 14A should be restricted to a reasonable estimation having regards to the accounts of the assessee. The ld. CIT(A) has rightly set aside and restored the issue back to the file of the A.O. for working out reasonable disallowance u/s 14A of the Act. No infirmity in the order of the ld. CIT(A) and accordingly the said appellate order of CIT(A) is sustained and confirmed and the AO in remand proceedings shall work out reasonable disallowance of expenditure incurred in relation to earning of exempt income having regards to the accounts of the assessee in accordance with mandate of Section 14A(2) of the Act. The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice.
Issues Involved:
1. Deduction under Section 80HHC of the Income Tax Act for Supporting Manufacturers. 2. Disallowance of expenditure under Section 14A related to earning of exempt income. Issue-wise Detailed Analysis: 1. Deduction under Section 80HHC of the Income Tax Act for Supporting Manufacturers: The primary issue revolves around the eligibility of the assessee, a supporting manufacturer, for deduction under Section 80HHC of the Income Tax Act. The assessee claimed this deduction based on a disclaimer certificate from an export house, Allana Sons Limited. The Assessing Officer (AO) denied this deduction citing the Supreme Court's decision in IPCA Laboratories Ltd. (2004) 266 ITR 521 (SC), which stated that if the export house itself is not entitled to the deduction due to losses, the supporting manufacturer cannot claim it either. The assessee contended that the decision in IPCA Laboratories Ltd. is not applicable to supporting manufacturers. They argued that the fifth proviso to Section 80HHC(3), inserted retrospectively by the Taxation Laws (Amendment) Act, 2005, allows for the adjustment of export incentives against losses from trading/manufacturing exports, thereby enabling the deduction. The Tribunal agreed with the assessee, noting that the deduction was indeed allowed to Allana Sons Limited after considering the fifth proviso, and thus, the supporting manufacturer is also entitled to the deduction. The Tribunal also referenced the Bombay High Court's decision in the case of Allana Sons Ltd. v. DCIT, which upheld the eligibility for deduction under Section 80HHC, considering the retrospective amendment. Consequently, the Tribunal restored the matter to the AO for re-computation of the deduction, directing the AO to provide a reasonable opportunity to the assessee to present relevant evidence. 2. Disallowance of Expenditure under Section 14A Related to Earning of Exempt Income: The second issue pertains to the disallowance of expenditure under Section 14A of the Income Tax Act, which relates to the expenditure incurred in earning exempt income. The AO had made an ad-hoc disallowance of ?2,00,000/-, which was contested by the assessee. The CIT(A) set aside this disallowance and directed the AO to re-compute the disallowance in light of the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. v. DCIT, which ruled that Rule 8D of the Income Tax Rules, 1962, is applicable from the assessment year 2008-09 onwards. The Tribunal upheld the CIT(A)'s decision, emphasizing that the disallowance should be based on a reasonable estimation having regard to the accounts of the assessee, as per the mandate of Section 14A(2). The matter was restored to the AO for fresh adjudication, with instructions to provide the assessee a reasonable opportunity to present evidence and explanations. Conclusion: The Tribunal allowed both the assessee's and the Revenue's appeals for statistical purposes, directing the AO to re-compute the deductions and disallowances as per the detailed guidelines provided, ensuring compliance with the principles of natural justice. The decision underscores the importance of considering retrospective amendments and judicial precedents in tax assessments, ensuring that supporting manufacturers are not unfairly denied deductions due to the financial performance of export houses.
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