2013 (12) TMI 408 - AT - Income Tax

Deduction u/s 80HHC Held that - Following Vijaya Silk House (Bangalore) Ltd. & Others 2012 (9) TMI 263 - BOMBAY HIGH COURT In view of retrospective amendment to Proviso to section 80HHc and section 28(iiid) - The profits computed u/s 80HHC(3) has to be further increased by the amount which bears to 90% of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee - The assessee having export turnover not exceeding Rs.10 crores during the year under consideration, is entitled for deduction u/s 80HHC in respect of DEPB profits as claimed in the return of income - Decided against Revenue.

Summary

Issues:
Appeal by Revenue against CIT(Appeals) order allowing deduction u/s 80HHC on DEPB profit despite net loss. Interpretation of second proviso to section 80HHC and clause (iiid) of section 28. Whether DEPB profit eligible for deduction u/s 80HHC.

Analysis:
The appeal was filed by the Revenue against the order of CIT(Appeals) allowing the assessee's claim for deduction u/s 80HHC on DEPB profit despite a net loss. The assessee, an individual, initially claimed a deduction of Rs. 15,46,964/- u/s 80HHC, which was allowed by the AO. However, the CIT(Appeals) noted a net loss and withdrew the deduction, leading to the appeal before the Tribunal. The Tribunal referred the matter back to the AO, where the assessee relied on an amendment to section 80HHC to claim the deduction on DEPB profit. The AO rejected this, citing a Supreme Court decision. The CIT(Appeals) reversed this decision, allowing the deduction based on the amended provisions. The Tribunal upheld the CIT(Appeals) decision, emphasizing the retrospective effect of the provisions and the benefit to the assessee.

The Tribunal analyzed the second proviso to section 80HHC and clause (iiid) of section 28, inserted with retrospective effect from 01-04-1998. These provisions allowed for an increase in profits for certain assessees, including those with export turnover not exceeding Rs.10 crores, based on DEPB profits. The Tribunal found that the assessee met the criteria and was entitled to the deduction u/s 80HHC for DEPB profits. The Tribunal also referenced a High Court decision supporting the retrospective operation of beneficial amendments, further strengthening the assessee's position.

Regarding the Revenue's argument of a net loss even after adjusting DEPB profit, the Tribunal noted that the AO acknowledged the loss before considering DEPB profit. After including DEPB profit, a profit was generated. The Tribunal found no merit in the Revenue's contention, upholding the CIT(Appeals) decision to allow the deduction u/s 80HHC for DEPB profit. Consequently, the appeal by the Revenue was dismissed, rendering the cross objection filed by the assessee moot and subsequently dismissed.

In conclusion, the Tribunal's detailed analysis of the relevant provisions, retrospective effect of amendments, and consideration of the financial impact on the assessee led to the dismissal of the Revenue's appeal and the cross objection, affirming the allowance of deduction u/s 80HHC for DEPB profit despite the initial net loss situation.