2016 (1) TMI 1088 - AT - Income Tax

Deduction u/s 80HHC without reducing the deduction allowed u/s 80IB - Held that - Sec. 80IA(9) is very clear that where any amount of profits and gains of an undertaking is claimed and allowed, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter VI of the Act. It further says that the deduction shall not exceed the profits and gains of such eligible business as the case may. While interpreting sec. 80IA(9) of the Act, the Bombay High Court in CIT vs Nima Specific Family Trust 2000 (12) TMI 87 - BOMBAY High Court found that deduction allowed u/s 80HHC need not be reduced while computing deduction u/s 80IA of the Act. Inclusion of receipt from scrap sales in the total turnover - Held that - The sale proceeds from scrap may either be shown separately in the Profit & Loss Account or may be deducted from the amount spent by the manufacturing unit on the raw material from which goods are manufactured. The raw material which is not capable of being used for manufacturing the goods will have to be either sold as scrap or might have to be recycled. When such scrap is sold, the sale proceeds cannot be included in the total turnover. Therefore, the proceeds of the sale of such scrap would not be included in the sales in the Profit & Loss Account of the assessee. In the case before us, the assessee is admittedly a manufacturing company, therefore, the sale proceeds of the scrap cannot form part of the total turnover. Therefore, we are unable to uphold the order of the lower authority. In view of the judgment of the Apex Court in Punjab Stainless Steel Industries (2014 (5) TMI 238 - SUPREME COURT ) and for the reasons stated therein, we set aside the orders of the lower authorities and the Assessing Officer is directed to exclude the sale proceeds of scrap from the total turnover. Exclusion of freight and insurance from the total turnover - Held that - Total turnover and export turnover shall be of the same factor. In other words, the denominator and numerator shall be of the same factor while computing the deduction u/s 80HHC. Therefore, once the Assessing Officer excluded the freight and insurance charges from the export turnover the same shall also be excluded from the total turnover. Therefore, the orders of the lower authorities are set aside and the Assessing Officer is directed to exclude the insurance and freight charges from the total turnover also. Exclusion of 90% of interest, agency commission, rent and miscellaneous income from the profits of business while computing deduction u/s 80HHC - Held that - The profit of the business has to be computed under the provisions of the Income-tax Act, 1961, therefore, the expenditure incurred by the assessee has to be excluded and what is included is the net income and not the gross income. This Tribunal is of the considered opinion that what is to be excluded under Explanation (baa) of sec. 80HHC is net income included in the profit. Therefore, the orders of the lower authorities are modified and the Assessing Officer is directed to exclude 90% of the net receipt like interest, agency commission, rent etc from the profit of the assessee while computing deduction u/s 80HHC of the Act.

Summary

Issues:
1. Deduction u/s 80HHC without reducing deduction u/s 80IB
2. Inclusion of receipt from scrap sales in total turnover
3. Exclusion of freight and insurance from total turnover
4. Exclusion of 90% of interest, agency commission, rent, and miscellaneous income from business profits for deduction u/s 80HHC

Issue 1: Deduction u/s 80HHC without reducing deduction u/s 80IB
- The appeal involved both Revenue and assessee against the Commissioner's order for the assessment year 2002-03.
- The main issue was the deduction u/s 80HHC without reducing the deduction allowed u/s 80IB.
- The Departmental Representative argued for reducing the deduction u/s 80HHC as per sec. 80IA(9), while the Counsel for the assessee cited precedents from Madras High Court and Bombay High Court to support not reducing the deduction.
- The Tribunal referred to various court judgments and concluded that deduction allowed u/s 80HHC need not be reduced while computing deduction u/s 80IA, thus confirming the lower authority's decision.

Issue 2: Inclusion of receipt from scrap sales in total turnover
- The first ground of appeal in the assessee's case was regarding the inclusion of scrap sales receipt in the total turnover.
- The Counsel argued citing a Supreme Court judgment that the sale proceeds of scrap should not be included in total turnover.
- The Tribunal agreed with the Counsel's argument, following the Supreme Court's decision, and directed the exclusion of sale proceeds of scrap from the total turnover.

Issue 3: Exclusion of freight and insurance from total turnover
- The issue was whether freight and insurance charges should be excluded from the total turnover, considering they were already excluded from the export turnover.
- The Tribunal held that once these charges were excluded from export turnover, they should also be excluded from the total turnover, setting aside the lower authorities' orders.

Issue 4: Exclusion of 90% of interest, agency commission, rent, and miscellaneous income
- The contention was about excluding 90% of miscellaneous incomes from the profit of the business while computing deduction u/s 80HHC.
- The Counsel argued for excluding only net receipts as per a Supreme Court judgment, while the Departmental Representative contended that 90% of gross receipts should be reduced.
- The Tribunal agreed with the Counsel, stating that 90% of net receipts like interest, agency commission, rent, etc., should be excluded from the profit of the assessee for computing deduction u/s 80HHC, modifying the lower authorities' orders accordingly.

In conclusion, the Revenue's appeal was dismissed, and the assessee's appeal was allowed based on the detailed analysis and interpretation of the relevant legal provisions and precedents presented in the judgment.