2012 (4) TMI 357 - AT - Income Tax

Reopening - Deduction u/d 80HHC - assessee, an individual, is in the business of cashew exports as well as running a hotel - whether the processing charges has to be excluded in arriving at the figure of total turnover while computing the export profit u/s. 80HHC(3) - In fact, not only is the said case of a cashew exporter, i.e. as the assessee, as it would appear, the same is only in the assessee s own case (for A.Y. 1993-94) in-as-much as the apex court thereby decided the Revenue s appeal against the decision by the Hon ble Kerala High Court in the case of CIT v. K. Rajendranathan Nair 2007 -TMI - 2378 - Supreme Court of India - The apex court per the same has abundantly clarified that the processing charges is an independent income like brokerage, commission, rent, charges, etc. forming part of the gross total income (GTI), being business profit, though having no nexus with the export and, accordingly, is to be deducted at 90% thereof The assessee has, however, raised an alternative plea, claiming that even if so, it is only the income from the processing charges, and not the gross receipt by way of processing charges, that has to be excluded under Explanation (baa) - once processing charges has been held to be an independent income , i.e., as rent, commission, brokerage, etc., like treatment in its respect would follow - Held that The onus, however, to establish the said profit included in the GTI would only be on the assessee, so that in its absence, the statutory prescription in its respect would follow. The matter is accordingly restored back to the file of the AO - Appeal is partly allowed

Summary

Issues involved:
Cross Appeals by Assessee and Revenue, Cross Objection by Assessee against Order by CIT(A) dated 28-01-2002 for A.Y. 1995-96 under Income Tax Act, 1961.

Analysis:

Issue 1: Adjustment of 'profit' or 'loss' per different clauses of s. 80HHC(3)
The tribunal invoked IPCA Laboratory Ltd. decision to adjust profits of the business, dismissing the assessee's contention. No new arguments were raised during the hearing.

Issue 2: Adjustment for 'processing charges' in deduction u/s. 80HHC
AO included processing charges in 'total turnover' and excluded 90% of charges from 'profits of the business'. CIT(A) directed exclusion of charges from 'total turnover' and profit element from 'profits of the business'. Assessee argued that K. Ravindranathan Nair decision does not directly apply to its case. Tribunal held that processing charges are independent income and should be deducted at 90%, also included in 'total turnover'. Assessee's alternative plea for excluding only income from charges was rejected, and the matter was remanded to AO for further assessment.

Issue 3: Interpretation of 'processing charges' under Explanation (baa)
Tribunal clarified that processing charges constitute business income and should be excluded at 90%. However, if actual profit is less than 90%, it should be accurately determined. The onus is on the assessee to prove the profit included in processing charges. The matter was referred back to the AO for detailed assessment.

Conclusion:
The Revenue's appeal was partly allowed, and the assessee's appeal and Cross Objection were dismissed. The tribunal provided detailed reasoning for each issue, emphasizing the correct application of law as per relevant judgments and statutory provisions. The decision ensured a fair assessment based on the specific circumstances of the case, maintaining the integrity of the tax laws.