2012 (11) TMI 187 - HC - Income Tax

Whether assessee would be entitled to any deduction u/s 80HHC on the mercantile basis in the year of export or in the current assessment year in respect of cash incentive and IPRS received by the assessee, even if assessee follow cash/receipt system Held that - Following the decision in case of B. Desraj (2008 (5) TMI 285) - SUPREME COURT) that assessee was maintaining his accounts under the cash system and had exported goods in the accounting year relevant to assessment year 1988-89 and 1989-90 and had received cash compensatory allowance and duty draw back therefor in the assessment year 1992-93. Though, the assessee had not done any export business during the assessment year 1992- 93, yet the assessee was held entitled to deduction u/s 80HHCin relation to those items during the assessment year 1992-93. Therefore the assessee is entitled to the deduction u/s 80HHC by taking the export turnover and the total turnover of the year in relation to which the export incentive has been received. Appeal decides in favour of assessee

Summary

Issues:
- Entitlement to statutory benefits under section 80 HHC for exports made in specific years
- Treatment of export incentives in the assessment year 1992-93

Entitlement to statutory benefits under section 80 HHC for exports made in specific years:
The case involved an appeal under Section 260A of the Income Tax Act against an order related to the entitlement of the assessee to statutory benefits under section 80 HHC for exports made during the years 1988-89 and 1989-90. The assessee was engaged in manufacturing and exporting hand tools and following the mercantile system of accounting. The dispute revolved around whether the export incentives received should be treated as part of the trading account for the relevant years. The retrospective amendment in law inserted a provision stating that cash assistance received or receivable was to be treated as income chargeable to tax. The Assessing Officer declined to exclude these amounts while framing the assessment, leading to an appeal by the assessee. The CIT(A) excluded the export incentives from the total income for the assessment year 1992-93, directing that these amounts be assessed in the hands of the assessee for the years in which they were receivable. The Tribunal, however, included the incentives in the total income for the assessment year 1992-93, prompting the appeal by the assessee.

Treatment of export incentives in the assessment year 1992-93:
The main contention was whether the assessee, following the cash system of accounting for export incentives, was entitled to a deduction under Section 80HHC of the Act for the cash incentive and IPRS received during the assessment year 1992-93. The counsel for the assessee relied on a Supreme Court judgment to argue that the deduction should be based on the export turnover and total turnover of the relevant years but could be claimed in the year of actual receipt of the export incentive. The Tribunal supported the revenue's position, but the High Court found merit in the assessee's argument. Citing the Supreme Court decision in a similar case, the High Court ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to determine the deduction admissible under Section 80HHC in line with the observations made.

In conclusion, the High Court allowed the appeal, answering the substantial question of law in favor of the assessee. The decision was based on the interpretation of the relevant provisions of the Income Tax Act and previous judicial precedents, emphasizing the entitlement of the assessee to the deduction under Section 80HHC based on the specific circumstances and accounting system followed.