2014 (12) TMI 171 - HC - Income Tax

Adjustment of interest - Entitlement for claim of deduction on interest income u/s 80HH and 80I Whether the Tribunal was right in not permitting adjustment of interest debited to the P&L Account - Held that - The assessee received additional income towards discount of the sales of raw materials which the assessee purchased - assessee claimed such amount as part of deduction u/s 80IA/80HH - If on the basis of the discounts given by the sellers, the total profit of the assessee from the activity which was otherwise eligible for deduction 80I/80HH of the Act was to that extent increased, there is no reason why such larger sum should qualify for deduction. Transport income Netting of the income for the exclusion from deduction - What should be excluded is net income and net gross received - Assessee contended that it would not qualify for deduction u/s 80-I/80HH of the Act - Held that - M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) & Others Versus The Commissioner of Income Tax, Central-IV, Mumbai & Others 2012 (2) TMI 101 - SUPREME COURT OF INDIA it has been held that for the purpose section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit, but the sale value of less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee - even other amounts, such as, interest or rent when are to be excluded for the purpose of explanation (baa) to section 80HHC of the Act - Ninety per cent of not the gross rent or gross interest, but the net thereof shall have be excluded. SC has already laid down the foundation for the logic for excluding the net profit and not the gross profit from the claim of deduction when it is found that the source of income does not quality for such deduction u/s 80HHC - section 80HHC represents vastly different scheme of deduction and also provides for complex formula for deriving for the eligible profit for deduction under different situations depending on whether the exporter is also engaged in the local business or not thus, it would be the net and not the gross income which would be excluded Decided against revenue.

Summary

Issues:
1. Disallowance of discount and transport income for deduction under Sections 80I & 80HH of the IT Act.
2. Netting aspect for exclusion of certain incomes from deduction provisions under sections 80I and 80HH.
3. Applicability of netting concept to deductions under sections 80HH and 80-I of the Act.

Analysis:
1. The appeal concerned the disallowance of discount and transport income for deduction under Sections 80I & 80HH of the IT Act. The Tribunal upheld the assessee's contention that the increased profit due to discounts received should not qualify for deduction. The transport income, however, was not eligible for deduction. The key issue was whether gross income or net income should be excluded for deduction purposes under the Act.

2. The question of netting certain incomes for exclusion from deduction provisions under sections 80I and 80HH was examined. The Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. v. CIT was referenced, emphasizing the exclusion of net income rather than gross income for deductions. The judgment clarified that for determining profits, the net income after deducting expenses should be considered for exclusion, aligning with the netting principle.

3. The applicability of the netting concept to deductions under sections 80HH and 80-I of the Act was deliberated. The Revenue argued against applying the netting principle to these sections, citing differences in language and provisions. However, the Court relied on precedents and upheld the netting concept for exclusion of certain profits not eligible for deduction. The decision emphasized excluding net profit, not gross profit, from deduction claims, aligning with previous judgments and the logic of netting income for deduction purposes.

In conclusion, the Court dismissed the appeal, clarifying that net income should be excluded for transport income, reversing the Tribunal's decision. The judgment reinforced the principle of excluding net profit, not gross profit, for deductions under sections 80I and 80HH of the IT Act, aligning with established legal interpretations and precedents.