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2004 (4) TMI 259 - AT - Income TaxDeduction u/s 80HHC(1) - export benefits - Non-compliance with s. 80HHC(4) as the audit report was not furnished with the return of income - Whether export incentives alone can form the basis for deduction without any positive profit - HELD THAT - In our view, the language employed in sub-s. (1) and cls. (a) to (c) of sub-s. (3) including the proviso thereto is consistently uniform, unambiguous and clear in that the applicability of the main provisions of sub-s. (1) of s. 80HHC by which the deduction is made available is restricted to the assessee's deriving profits from the export. We are, therefore, unable to ignore the specific and plain words or interpret the provisions in a manner that renders them otiose or redundant. Sub-s. (1), being the main provision by which the benefit of deduction is extended, will have primacy over the machinery and computational provisions particularly when the words used therein are also not susceptible to any other interpretation. Unless the case of the assessee falls under sub-s. (1) of s. 80HHC, the benefit of the proviso cannot be extended. The Hon'ble Supreme Court was concerned in IPCA Laboratories Ltd. 2004 (3) TMI 9 - SUPREME COURT not only with the question referred to it but also with the interpretation of the word profit occurring in sub-ss. (1) and (3) of s. 80HHC. As already mentioned earlier, sub-s. (1) is the main provision on the basis of which the deduction is made available. It is not possible to extend the benefit of deduction de hors the provisions of sub-s. (1). Therefore, the interpretation placed by the Hon'ble Supreme Court on the word profit occurring in sub-s. (1) of s. 80HHC cannot be ignored. It is binding on us. Secondly, the Hon'ble Supreme Court has also referred to the provisions of s. 80AB which control the entire s. 80HHC including the proviso to sub-s. (3) of s. 80HHC. Thirdly, the reasoning given by the Hon'ble Special Bench of the Tribunal in Lalsons Enterprises 2004 (2) TMI 294 - ITAT DELHI-E is, in our view, no longer valid in view of the judgment of the Hon'ble Supreme Court in IPCA Laboratories Ltd., We cannot, therefore, ignore the judgment of the Hon'ble Supreme Court in IPCA Laboratories Ltd. Coming as it does from the highest Court of the land, we are bound to follow the same and, respectfully following the same, we hold that the assessee would not be entitled to deduction u/s 80HHC(1) on the gross amount of export incentives without adjusting the same against the losses. Thus, we hold as under (i) Deduction u/d 80HHC(1) is available to an assessee who has derived a positive profit from the export of specified goods or merchandise. In other words, deduction u/s 80HHC is not available to an assessee who has suffered a loss from the export or, in other words, not derived a positive profit from the export. (ii) Deduction u/s 80HHC(1) is available on positive profit alone after adjusting the losses. Losses suffered by the assessee from the export of specified goods or merchandise can neither be ignored nor treated as nil for computation of the deduction u/s 80HHC. (iii) The export incentives alone are not sufficient to form the basis for deduction u/s 80HHC(1) but shall be eligible only for further increasing the profits derived from the export and computed in the manner laid down in sub-s. (3), in terms of the proviso thereto. The appeal filed by the assessee fails and is consequently dismissed.
Issues Involved:
1. Disallowance of Rs. 3,67,818 u/s 37(4) r/w s. 37(5) for Ahmedabad bungalow expenses. 2. Denial of deduction of Rs. 22,34,456 u/s 80HHC. Summary: Issue 1: Disallowance of Rs. 3,67,818 u/s 37(4) r/w s. 37(5) for Ahmedabad bungalow expenses The assessee contested the disallowance of Rs. 3,67,818 under s. 37(4) r/w s. 37(5) for Ahmedabad bungalow expenses, arguing that the accommodation was not a guest-house and thus the provisions of s. 37(4) were not applicable. However, the learned Authorised Representative conceded that this issue was covered against the assessee by previous Tribunal orders in the assessee's own case and a Special Bench decision in Eicher Tractors Ltd. vs. Dy. CIT. Respectfully following these precedents, the Tribunal decided this ground against the assessee and in favor of the Revenue. Issue 2: Denial of deduction of Rs. 22,34,456 u/s 80HHC The assessee's claim for deduction of Rs. 22,34,456 under s. 80HHC was denied by the AO on three grounds: a. Non-compliance with s. 80HHC(4) as the audit report was not furnished with the return of income. b. The assessee incurred a loss from the export of goods, failing to meet the condition of deriving profit from exports as required by s. 80HHC(1). c. Even after adjusting export incentives, the net result was a loss, disqualifying the assessee from claiming the deduction. The CIT(A) held that the procedural requirement of filing the audit report along with the return was not fatal to the claim, and considered the filing during assessment proceedings as sufficient compliance. This aspect was decided in favor of the assessee and not disputed by the Revenue. The Tribunal examined three distinct Issues: 1. Whether deduction u/s 80HHC(1) is available to an assessee who has suffered a loss from exports. 2. Whether losses from exports can be ignored or treated as nil for computing the deduction. 3. Whether export incentives alone can form the basis for deduction without any positive profit. The Tribunal referred to the Special Bench decision in Lalsons Enterprises, which held that losses should be ignored and deduction allowed with reference to export incentives alone. However, the Tribunal also considered the Supreme Court judgment in IPCA Laboratories Ltd. vs. Dy. CIT, which held that losses cannot be ignored and must be adjusted against profits, allowing deduction only on positive profits. The Tribunal concluded: 1. Deduction u/s 80HHC(1) is available only to an assessee who has derived a positive profit from exports. 2. Losses from exports cannot be ignored or treated as nil for computing the deduction. 3. Export incentives alone are not sufficient for deduction but can further increase the positive profits derived from exports. Consequently, the appeal filed by the assessee was dismissed.
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