1997 (3) TMI 165 - AT - Income Tax

Summary

Issues Involved:

1. Computation of profits under Section 80HHC.
2. Treatment of additional sale margin as 'other income' under Explanation (baa) of Section 80HHC(4A).
3. Deduction under the proviso to Section 80HHC(3) for the entire export turnover.
4. Validity of the order under Section 154 rectifying the intimation under Section 143(1)(a).

Issue-wise Detailed Analysis:

1. Computation of Profits under Section 80HHC:

The first and second grounds of appeal concern the CIT(A)'s confirmation of the method adopted by the AO in computing the profits and gains from business under Section 80HHC by setting off the unabsorbed depreciation and unabsorbed investment allowance carried forward from earlier years. The CIT(A) referenced the Rajasthan High Court's decision in the case of CIT vs. Loonkar Tools (I) Ltd., which held that depreciation and investment allowance must be deducted before granting special deductions under Chapter VI-A. The Tribunal upheld this view, stating that according to Sections 80A, 80B(5), and 80AB, the "gross total income" must be computed before making any deductions under Chapter VI-A. Therefore, the unabsorbed depreciation and investment allowance are allowable deductions under Sections 32 and 32A and must be considered for determining the total income. As such, the Tribunal found no infirmity in the CIT(A)'s order and rejected the assessee's grounds.

2. Treatment of Additional Sale Margin as 'Other Income':

The third, fourth, and fifth grounds of appeal pertain to the CIT(A)'s confirmation that the sum of Rs. 16,25,821 shown under commission representing the additional sale margin on exports made through export houses should be treated as 'other income' for purposes of deducting 90% thereof from the profits of business under Explanation (baa) of Section 80HHC(4A). The AO and CIT(A) concluded that the service charges received by the assessee were not part of the sales but were compensation for expenses incurred up to placing the cargo on board and preparing relevant documents. The Tribunal agreed, noting that the service charges were paid to compensate for expenses such as bank charges, interest, and stamp duty, and were not part of the sale consideration. Consequently, the Tribunal confirmed the CIT(A)'s order and rejected the assessee's grounds.

3. Deduction under the Proviso to Section 80HHC(3) for Entire Export Turnover:

The last two grounds raised by the assessee argued that the CIT(A) erred in not allowing the deduction under the proviso to Section 80HHC(3) on the entire export turnover, including exports made through export houses. The Tribunal noted that this issue did not arise from the order of the CIT(A). Moreover, the proviso to Section 80HHC(3) applies to profits computed under sub-sections (3)(a), (b), and (c), which pertain to assessees exporting goods or merchandise. Since the assessee was a supporting manufacturer, the provisions of Section 80HHC(1) were applicable, not the proviso to Section 80HHC(3). Therefore, the Tribunal dismissed these grounds as not arising from the order of the first appellate authority.

4. Validity of the Order under Section 154 Rectifying the Intimation under Section 143(1)(a):

In ITA No. 1929/Mad/1996, the assessee appealed against the CIT(A)'s order, which upheld the AO's rectification under Section 154 of the intimation under Section 143(1)(a). The assessee conceded that no such claim was made in the return filed. The Tribunal found no substance in the appeal against the CIT(A)'s order and dismissed the appeal.

Conclusion:

In conclusion, both appeals by the assessee were dismissed, with the Tribunal upholding the CIT(A)'s orders on all issues involved.