1994 (6) TMI 34 - AT - Income Tax

Summary

Issues Involved:
1. Justification of Revenue authorities in reducing the claim under section 80HHC of the Income-tax Act, 1961.
2. Inclusion of various items in the total turnover for the purpose of calculating deduction under section 80HHC.
3. Scope and ambit of adjustments permissible under section 143(1)(a) of the Income-tax Act, 1961.
4. Interpretation of the term 'profit' used in section 80HHC.

Issue-wise Detailed Analysis:

1. Justification of Revenue authorities in reducing the claim under section 80HHC of the Income-tax Act, 1961:
The primary issue in this appeal was whether the Revenue authorities were justified in reducing the assessee's claim under section 80HHC. The assessee initially claimed a deduction of Rs. 1,30,09,312 under section 80HHC, which was significantly reduced by the Assessing Officer to Rs. 57,69,914. This reduction was based on two main adjustments: the computation of total turnover and the calculation of the profit of the business.

2. Inclusion of various items in the total turnover for the purpose of calculating deduction under section 80HHC:
The Assessing Officer included items such as steel subsidy, rubber subsidy, sale of scrap, miscellaneous income, grant in export marketing fund, rent received, and trade discount in the total turnover, which resulted in a higher total turnover figure of Rs. 1,00,31,70,771 compared to the assessee's figure of Rs. 96,17,49,925. The CIT(A) partially upheld this, excluding steel subsidy, rubber subsidy, and grant under export marketing fund from the total turnover but including sale of scrap, rent received, and trade discount. The Tribunal, however, opined that miscellaneous income, rent received, and trading discount received may also not be part of the total turnover as these are debatable issues. The Tribunal directed that only the sale of scrap should be included in the total turnover.

3. Scope and ambit of adjustments permissible under section 143(1)(a) of the Income-tax Act, 1961:
The Tribunal emphasized that adjustments under section 143(1)(a) should only be made when the error in the returned income is apparent on the face of the record. Issues that are debatable or about which there can be more than one opinion should not be subject to prima facie adjustments under section 143(1)(a). The Tribunal cited various judicial precedents and instructions from the Central Board of Direct Taxes (CBDT) to support this view. The Tribunal concluded that except for the adjustment of the sale of scrap, all other adjustments made by the Assessing Officer were debatable and hence not permissible under section 143(1)(a).

4. Interpretation of the term 'profit' used in section 80HHC:
The Tribunal acknowledged that the interpretation of the term 'profit' in section 80HHC is a debatable issue. The Revenue authorities interpreted 'profit' to include loss, thereby reducing the positive figure of export incentives by the negative figure of business profit. The Tribunal noted that there are different views on this matter, with some authorities suggesting that 'profit' does not include loss and if there is a loss, it should be ignored. The Tribunal did not adjudicate on the correct interpretation of 'profit' but recognized that the issue is controversial and cannot be resolved through prima facie adjustments under section 143(1)(a).

Conclusion:
The Tribunal held that the total turnover should include the sale of scrap but exclude other items like steel subsidy, rubber subsidy, grant under export marketing fund, miscellaneous income, rent received, and trading discount, as these are debatable issues. The Tribunal directed the Assessing Officer to re-compute the deduction under section 80HHC by including only the sale of scrap in the total turnover and ignoring other adjustments. The appeal was partly allowed, resulting in a slight diminution of the assessee's claim under section 80HHC.