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2004 (4) TMI 259 - AT - Income Tax


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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