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Issues:
1. Interpretation of deduction under section 80HHC for gross amount vs. net amount. 2. Whether 90% deduction under Explanation (baa) of section 80HHC should be applied to gross or net amount. Issue 1: The appeal involved a dispute regarding the correct computation of deduction under section 80HHC for brokerage and commission income. The Assessing Officer reduced the deduction based on the gross amount, while the assessee argued for a deduction based on the net amount after deducting direct expenses. The key contention was whether the deduction should be applied to the gross or net amount of income. Analysis: The Tribunal examined the provisions of section 80HHC and the Explanation (baa) added to sub-section (4A) to determine the correct interpretation. It was noted that the purpose of section 80HHC is to incentivize exports by granting exemptions on export-related profits. The Tribunal emphasized that the deduction should be computed based on the net amount of income after deducting direct expenses incurred to earn that income. The Tribunal rejected the Assessing Officer's approach of applying the deduction to the gross amount, stating that the deduction should be calculated on the net amount of brokerage and commission income. Issue 2: The second issue revolved around whether the 90% deduction under Explanation (baa) of section 80HHC should be applied to the gross or net amount of import entitlement against the gross import premium. The Assessing Officer reduced the deduction based on the gross amount, while the assessee argued for a deduction based on the net amount after deducting the cost of import entitlement. Analysis: The Tribunal analyzed the provisions of section 80HHC and the Explanation (baa) to determine the correct application of the deduction. It held that the deduction should be applied to the net amount of import entitlement after deducting the direct expenses incurred. The Tribunal emphasized that the intent of the provision was to allow deductions for direct expenses necessary to earn such income, in addition to the 10% deduction for common expenses. Therefore, the Tribunal directed the Assessing Officer to recompute the benefit under section 80HHC based on the net amount of import entitlement after deducting the cost of import entitlement. In conclusion, the Tribunal allowed the appeal filed by the assessee, holding that deductions under section 80HHC should be calculated based on the net amounts of income after deducting direct expenses, rather than the gross amounts.
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