2013 (7) TMI 91 - HC - Income Tax

Deduction u/s 80HHC - Exchange rate difference - Tribunal deleted the disallowance of amout being exchange rate difference pertaining to earlier years for the purpose of export turnover - Held that - The assessee is an exporter of various items like caster oil, garments etc - Assessee received a sum being the difference between the booked amount of export in the previous year and higher amount of realization in the year under question - Department had admitted that the sum belongs to the previous year and the assessment of the previous year could be rectified under the law - Decided in favour of Revenue. Addition on account of the goods - Tribunal deleted the addition on account of cost of goods estimated by the Assessing Officer - Held that - when the purchases are made together for both export and domestic sales, direct cost of the purchase need to be bifurcated on pro rata basis. Deletion of disclaimer amount - Tribunal deleted the disclaimer amount worked out by the Assessing Officer for eligible deduction under section 80HHC - Held that - Tribunal has merely followed its own order of the earlier year, which has been accepted by the Revenue - Tribunal restored the file to the Assessing Officer for working out deduction under section 80HHC considering the division-wise profitability on the basis of turnover/profit as adopted in the earlier years. Freight expenses - Tribunal directed to allow freight expenses beyond custom point - Assessee claimed freight expenses on export, Assessing Officer held that expenditure beyond custom point was eligible for reduction from direct expenses but not the freight paid upto the custom point and hence not liable for reduction from direct expenses - However, CIT(Appeals) clarified the entire issue and rendering correct decision directed Assessing Officer to work out necessary relief in favour of the assessee - Tribunal noted that the Assessing Officer out of confusion as to whether the said amount is the cost upto the custom clearance point or beyond it, was unable to adjudicate appropriately - Interpretation is made by the Tribunal keeping in mind Explanation (b) to section 80HHC(4C) and it held that any expense made on goods or merchandise beyond the custom point needs to be excluded from export turnover and not from direct cost - Decided in favour of Revenue.

Summary

Issues:
1. Disallowance of exchange rate difference for export turnover.
2. Addition on account of estimated cost of goods.
3. Eligible deduction under section 80HHC for disclaimer amount.
4. Allowance of freight expenses beyond custom point.

Issue 1: Disallowance of exchange rate difference for export turnover
The appellant challenged the Tribunal's order regarding the disallowance of Rs.6,08,326 exchange rate difference for export turnover. The Tribunal directed the Assessing Officer to rectify the assessment of the previous year under section 155(13) of the Income Tax Act and allow the deduction under section 80HHC. Both sides had no objection to this, and the Tribunal upheld the decision based on the consent of both parties. The Court found no reason to interfere as the issue was decided based on mutual consent and no perversity was pointed out.

Issue 2: Addition on account of estimated cost of goods
The issue involved the addition made by the Assessing Officer on account of estimated cost of goods. The Tribunal held that the basis adopted by the Assessing Officer was not logical as direct costs related to purchases should be a reasonable basis. The Tribunal upheld the order of the CIT(A) stating that when purchases are made together for both export and domestic sales, the direct cost of purchases should be bifurcated on a pro-rata basis. The Court agreed with the Tribunal's reasoning and found no grounds to interfere with the decision in favor of the assessee.

Issue 3: Eligible deduction under section 80HHC for disclaimer amount
Regarding the disclaimer amount of Rs.4.76 crores for eligible deduction under section 80HHC, the Tribunal followed its earlier decision and restored the matter to the Assessing Officer. The Court noted that the Tribunal's decision from the earlier year had been accepted by the Revenue, and there was no challenge made. As the Tribunal merely followed its own order, which was accepted, the Court found no reason to interfere with the decision to restore the file for working out the deduction under section 80HHC.

Issue 4: Allowance of freight expenses beyond custom point
The issue revolved around the allowance of freight expenses beyond the custom point. The Assessing Officer initially held that only the amount beyond the custom clearance point was eligible for reduction from direct expenses. However, the CIT(A) clarified the issue and directed the Assessing Officer to provide necessary relief to the assessee. The Tribunal interpreted the expenses beyond the custom point in line with the law and held that such expenses should be excluded from export turnover and not from direct costs. The Court found no discrepancy in the Tribunal's decision and dismissed the Tax Appeal, as the issue was correctly determined based on the factual matrix and application of the law.