1998 (6) TMI 99 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80HHC and computation of loss.
2. Treatment of duty-free import benefits as profits under s. 28(iiib).

Summary:

Issue 1: Deduction u/s 80HHC and Computation of Loss
The primary dispute in the appeals pertains to the deduction permissible to the assessee u/s 80HHC. The assessee, engaged in the manufacture and export of art-silk sarees, filed returns for the assessment years 1992-93 and 1993-94, claiming deductions under s. 80HHC. The AO restricted the deduction to Rs. 58,37,786, arguing that the loss at the first stage of computation must be adjusted against the deduction computed as per the proviso to s. 80HHC(3). The CIT(A) directed the AO to allow the claim in full, stating that the loss at the first stage should be taken as 'Nil'. The Tribunal upheld the CIT(A)'s order, stating that s. 80HHC is an incentive provision and should be interpreted liberally. The Tribunal noted that the computation at different stages is not inter-linked in a strict sense and does not contemplate any reduction in the benefit on account of loss. The Tribunal dismissed the Revenue's appeal, emphasizing that the negative profit worked out under s. 80HHC(3)(a), (b), and (c) should be ignored, and 90% of export incentives should be considered for the deduction.

Issue 2: Treatment of Duty-Free Import Benefits as Profits under s. 28(iiib)
For the assessment year 1993-94, the AO contended that the duty benefit derived from duty-free imports cannot be treated as cash assistance under s. 28(iiib). The CIT(A) held that the duty benefit derived by the assessee falls within the ambit of s. 28(iiib) under the head 'Cash Assistance'. The Tribunal agreed with the CIT(A), stating that the duty benefit on imports is directly related to export and is a form of export incentive. The Tribunal noted that the words "cash assistance (by whatever name called)" in s. 28(iiib) expand the meaning of the term and include the duty benefit derived by the assessee. The Tribunal dismissed the Revenue's appeal, affirming that the duty benefit falls under s. 28(iiib) and s. 80HHC, making the exporter eligible for the necessary deduction.

Conclusion:
Both appeals by the Revenue were dismissed, and the Tribunal upheld the CIT(A)'s orders, allowing the full deduction under s. 80HHC and recognizing the duty-free import benefits as profits under s. 28(iiib).