2013 (4) TMI 516 - HC - Income Tax

Whether The Appellate Tribunal is right in law and on facts in Directing the assessing officer to exclude excise duty and sales tax for the purpose of calculating deduction u/s.80HHC and (ii) Whether The Appellate Tribunal is right in law and on facts in holding that excise duty refund falls within the purview of provisions of Explanation (baa) to section 80HHC Held that - The observations and the consequential remand of the matter restoring it to the files of Appellate Commissioner. The appellate authority would be reconsidering the issue on the basis of the directions and observations of the Tribunal and would pass a reasoned in accordance with law. Such order does not raise any substantial question of law. Accordingly, the appeal fails on both the questions proposed as substantial questions of law by the Revenue.

Summary

Issues:
1. Whether excise duty and sales tax should be excluded for calculating deduction u/s.80HHC?
2. Whether excise duty refund falls within the purview of provisions of Explanation (baa) to section 80HHC?

Analysis:
1. The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal regarding the calculation of deduction under section 80HHC. The Assessing Officer had included Sales Tax and Excise Duty while computing the total turnover for the assessee. However, the Central Excise set-off/refund and interest income were excluded partially by the Assessing Officer. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Appellate Tribunal deleted it based on the judgment in Laxmi Machine Works Vs. CIT [290 ITR 667]. The High Court observed that the formula in section 80HHC aims to disallow a part of the concession when not entirely related to exports. It was clarified that excise duty and sales tax cannot be part of the "total turnover" under section 80HHC(3) as they do not have a nexus with export activities. The Court referred to the legislative intent to benefit profits from export turnover, excluding items like commission, interest, etc., which do not involve turnover. Thus, excise duty and sales tax were held to be excluded from the turnover calculation.

2. Regarding the second issue, the Tribunal remanded the matter to the Commissioner of Income-tax (Appeals) as the latter rejected the claim without a speaking order. The Tribunal emphasized the need for a reasoned decision as per the requirements of the IT Act. The Court found the remand appropriate, directing the Appellate Commissioner to reconsider the issue based on the submissions and previous decisions. It was concluded that no substantial question of law arose in this matter. Consequently, the appeal was dismissed as no legal issue was found to be present in the case.

In summary, the High Court dismissed the appeal by the Revenue as the exclusion of excise duty and sales tax for deduction u/s.80HHC was upheld based on legislative intent and judicial precedents. Additionally, the remand of the second issue to the Appellate Commissioner was deemed proper, with no substantial legal question arising from the matter.