2017 (8) TMI 617 - HC - Income Tax

Entitlement to deduction under Section 80HHC - as per revenue the profit must have been derived by the assessee from the export of goods on merchandise - whether the written back provision and liabilities written back do not qualify for deduction - Held that - As rightly found by the Tribunal, the credits aggregating to ₹ 29.45 lakhs, represents the write back of expenditure debited to the profit and loss account for an earlier year/years claimed as business expenditure, and written back on being found as having been provided for (and claimed) in excess, i.e. to that extent. In other words, these are amounts which were expenditure debited from the profits earned by the assessee from the export of goods on merchandise. When such amounts are written back, it still should retain the character of profit derived by the assessee from export. If that be so, the assessee would be entitled to deduction under Section 80HHC as held by the Tribunal. Therefore, we do not find any merit in the contentions. - Decided in favour of assessee.

Issues:

1. Interpretation of deductions under Section 80HHC in income tax assessment.
2. Exclusion of written back provisions and liabilities from business income for deduction under Section 80HHC.
3. Jurisdiction of the Commissioner of Income Tax and Tribunal in considering rectification on merits.

Issue 1: Interpretation of deductions under Section 80HHC

The High Court heard an appeal filed by the Revenue against the Income Tax Appellate Tribunal's order regarding deductions under Section 80HHC for the assessment year 2000-2001. The Assessing Officer rectified the deductions after finding that certain amounts were omitted from the business income for calculating profits. The Commissioner of Income Tax held that these amounts should not be excluded from the deduction under Section 80HHC. The Tribunal upheld this decision. The main contention was whether 90% of the written back provisions and liabilities should be included in business income for the deduction. The Revenue argued that these amounts did not qualify for deduction as they were not derived from the export of goods. However, the Tribunal found that these amounts were related to expenditure debited from profits earned from export activities. The High Court agreed with the Tribunal, stating that these amounts retained the character of profit derived from export and thus qualified for deduction under Section 80HHC.

Issue 2: Exclusion of written back provisions and liabilities

The High Court examined whether the written back provisions and liabilities, which did not have a direct nexus with the current year's business profits, should be excluded from the business income for the purpose of calculating deductions under Section 80HHC. The Tribunal found that these amounts, representing the write back of earlier claimed business expenditure, were still related to profits derived from export activities. As such, the Court concluded that these amounts should not be excluded from the business income for the deduction under Section 80HHC. The Court held that the assessee was entitled to the deduction as per the Tribunal's decision.

Issue 3: Jurisdiction of the Commissioner of Income Tax and Tribunal

The High Court addressed the issue of whether the Commissioner of Income Tax and the Tribunal had the jurisdiction to consider the rectification on merits. The Court found that the Commissioner and the Tribunal were within their rights to consider the rectification on merits, especially in cases where the deductions under Section 80HHC were being recalculated. The Court upheld the decisions of the Commissioner and the Tribunal in this regard, stating that the assessee was entitled to the deduction under Section 80HHC as per the merits of the case. Consequently, the Court ruled in favor of the assessee and dismissed the appeal filed by the Revenue.

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