2015 (2) TMI 367 - HC - Income Tax

Claim of deduction u/s 80HH, 80HHC and 80I - inclusion of unused and left over IDEB v/s notional figure in the turnover - ITAT allowed the claim of assessee to include only unused amount - Held that - From the figure representing IDEB, the figure representing the actual availment of the import duty exemption must be deducted and it is only the remainder that would qualify for addition to the total turnover. Revenue is not able to convince us as to how the notional figure of IDEB in its entirety can be added to the export turnover. We have already extracted Clause (b) of explanation to Section 80HHC of the Act, which defines export turnover. It represents nothing more than the actual sale proceeds of exported goods. By no stretch of imagination, the incentives of duty exemption on imported goods can be treated as sale consideration for export goods much less can it become part of the export turnover. Once it cannot be added to the export turnover, the only possibility is to add it to the total turnover. There again, the proviso would govern the situation and amounts mentioned in the proviso cannot be added to the total turnover for the purpose of Section 80HHC. The IDEB partakes the character of the amounts covered by Clause (iii) of Section 28 of the Act. By operation of proviso to Clause (ba) of Explanation to Section 80HHC of the Act, it gets excluded from the total turnover.Tribunal has correctly taken the view that the balance of the unused IDEB can be added to the total turnover. - Decided in favour of assessee.

Summary

Issues:
1. Deduction under Sections 80HH, 80HHC, and 80I of the Income Tax Act for an exporter.
2. Treatment of interest earned on deposits in relation to business activities.
3. Inclusion of foreign exchange fluctuation as income eligible for deduction under Section 80HH.
4. Interpretation of provisions of Section 80HHC regarding Import Duty Entitlement Benefit (IDEB) and its impact on total turnover.

Analysis:
1. The case involved a dispute regarding the deduction claimed by the respondent under Sections 80HH, 80HHC, and 80I of the Income Tax Act for the assessment year 1994-95. The Assessing Officer initially rejected the claims, which were later accepted by the Tribunal. The main contention was whether the interest earned on deposits made in connection with business activities qualified for deduction under these provisions. The Tribunal's detailed order supported the respondent's claims, leading to the appeal by the Revenue under Section 260-A of the Act.

2. The issue of interest earned on deposits was crucial in determining eligibility for deduction under Sections 80HH and 80I of the Act. The appellant argued that the interest should not qualify for deduction as it was not related to the business activities specified in those sections. However, the respondent contended that the Tribunal's decision was based on a thorough examination of the relevant provisions and circulars issued by the CBDT. The High Court directed that if the interest was from a deposit made in connection with the business activity under Section 80I, it would qualify for deduction.

3. The judgment also addressed the treatment of foreign exchange fluctuation as income eligible for deduction under Section 80HH. Following a precedent set by the Gujarat High Court, the High Court upheld the Tribunal's decision regarding considering the fluctuation amount as profit eligible for deduction under the Act.

4. A significant issue in the case was the interpretation of Section 80HHC concerning Import Duty Entitlement Benefit (IDEB) and its impact on total turnover. The Tribunal's decision to exclude the unused portion of IDEB from the total turnover was supported by the High Court. The Court emphasized the importance of correctly applying the definitions of export turnover, total turnover, and profits of the business as per the Act to determine the amount eligible for deduction under Section 80HHC. The judgment highlighted the complexities involved in calculating the deduction amount and the need to follow the provisions and circulars issued by the CBDT for clarity.

In conclusion, the High Court dismissed the appeal by the Revenue, upholding the Tribunal's decision on the various issues related to deductions under the Income Tax Act for the respondent.