2018 (2) TMI 305 - HC - Income Tax

Computing the deduction u/s 80HHC - inclusion of loss incurred in the export business - business profits - Held that - The computation of profits derived from export, for an assessee doing both export and domestic business, has to be made by resorting to the said formula as available under sub-section (3C) of Section 80HHC. The proportion, which the export turnover bears to the total turnover, has to be applied to the business profits to elicit the exact amount eligible for exemption under Section 80HHC, as profits derived from export. As rightly held by the first appellate authority, the business profits include those derived in the domestic market; that of high sea sales of imported goods, the turnover of which has to be included in the total turnover. This is the incentive permitted by the legislature, for earnings in foreign exchange, whether the export business generated profit or not. We, hence, answer the first question against the Revenue and hold that in computing the deduction under Section 80HHC, the loss incurred in the export business would be of no consequence, since the formula as applied above, would take in the total turnover, the export turnover and the total business profit. Reliance placed on Parry Agro Industries Ltd. 2002 (3) TMI 9 - KERALA High Court by the Tribunal, is perfectly in order and we answer the said question also in favour of the assessee and against the Revenue.

Summary

Issues:
1. Eligibility for deduction under section 80HHC for assessees incurring a loss in export business.
2. Justification of relying on previous judgments by the Tribunal.

Issue 1 - Eligibility for deduction under section 80HHC:
The case involved two cashew exporters engaged in both export and domestic business, claiming deduction under Section 80HHC. The Assessing Officer disallowed the claim, citing substantial profits from high sea sales not included in business profits for the deduction. The first appellate authority directed inclusion of high sea sales profit in total business profits for deduction. The Tribunal upheld this decision. The Revenue argued profits from high sea sales should not be included, relying on precedent. However, the respondents argued for inclusion based on the law. The High Court held that the loss in export business does not affect eligibility for deduction under Section 80HHC, emphasizing the formula for computing profits derived from export.

Issue 2 - Justification of relying on previous judgments:
The Revenue contested the Tribunal's reliance on a previous judgment, arguing it was not applicable. They referred to a Supreme Court case to support their stance. Conversely, the respondents justified the reliance on the previous judgment, emphasizing the computation method under Section 80HHC. The High Court supported the Tribunal's reliance on the precedent, stating that the formula for deduction calculation includes total turnover and export turnover, irrespective of profit or loss in export business. The judgment favored the respondents, rejecting the Revenue's appeal.

In conclusion, the High Court upheld the eligibility of assessees for deduction under Section 80HHC, even in cases of losses in export business. The judgment emphasized the formula for computing profits derived from export and supported the Tribunal's reliance on previous judgments. The decision favored the respondents, rejecting the Revenue's appeals and leaving the parties to bear their respective costs.