2023 (6) TMI 608 - AT - Income Tax

Computing export profit deductible u/s. 80 HHC - inclusion/exclusion of processing charges and lease rent received in the total turnover - HELD THAT - The Hon'ble Apex Court in K. Ravindranathan Nair 2007 (11) TMI 10 - SUPREME COURT explained that the processing charges constitute an important part of the cashew business and, therefore, were to be included in the TT thereof u/s. 80HHC(3) (para 23). Also, profit incentives and items like rent, commission, brokerage, etc., though form part of gross total income, had to be excluded in computing PB as they were independent incomes , which had no element of export turnover. Board Circular 621, dated 19.12.1991 ( explaining the amendments to the Act by Finance (No.2) Act, 1991, does so qua sec. 80HHC. Same sets out the rationale for deduction of independent incomes in computing profits of the business , on the basis of which, applying further filters, the export profit is determined. That is, incomes, which though stand credited to the Profit Loss Account, have no element of turnover. As some expenditure might be incurred in earning these incomes, which is generally by way of common expenses, an ad hoc deduction from such incomes is provided to account for the same, explaining thus the basis for deduction of such incomes at 90% (as against 100%) thereof. Clearly, there is a total harmony between the amendments as explained by the Board and as later elucidated by the Hon'ble Apex Court. We direct as under - (a)processing charges shall form part of the total turnover; (b) profit on processing charges shall not be excluded in computing PB; (c)processing rent an independent income, shall not form part of TT, but shall stand reduced in computing PB, at 90%; (d) discount received on purchase of tin plates, reduced in computing PB vide assessment order dated 16.02.2099, has not been similarly reduced while giving effect vide order dated 09.04.2012, so that it obtains no longer. Being an integral part of assessee s trading operations, it is not an independent income and, therefore, rightly not reduced by the AO. The same, in fact, also forms part of the third question referred to the Hon ble High Court, and which had directed thus. No other adjustment, either to TT or PB stands made by the AO per the original assessment order. He has however while giving appeal effect reduced 90% REP premium (Rs.5,77,347), i.e., Rs. 5,19,612, in computing the PB. The same is not understood . When no adjustment in its respect was made per the original assessment, either by the assessee or the AO, how could the same be regarded as in dispute and, accordingly, subject to adjudication at any stage, including before the Hon'ble High Court, for it to adjudicate thereon per it s order dated 19/2/2009? The same has not been shown as so. The AO, if he considered the same as warranted, ought to have invoked section 154 of the Act. Even assessee has credited, and only rightly so, the entire amount of REP premium to the Profit Loss Account, it is only the profit component therein that would stand to be excluded on the transfer of the REP, as the assessee claims with reference to the decision in Topman Exports 2012 (2) TMI 100 - SUPREME COURT Further still, as it appears, the same falls u/s. 28(iiie) of the Act, adjustment in respect of which stands co-opted in Explanation (baa) by Taxation Laws (Amendment) Act, 2005 w.r.e.f. 01.04.1998,i.e., AY 1998-99 onwards. As such, considered whichever way, there is no basis for the said adjustment in the instant proceedings. Appeal by the assessee is allowed.

Summary

Issues involved:
The judgment involves issues related to the computation of eligible profit for deduction under section 80HHC of the Income Tax Act, 1961. The key questions raised include the treatment of processing charges and lease rent in the total turnover, the exclusion of certain incomes in calculating profits of the business, and the treatment of rebate on the purchase of tin sheets as part of business profits for the purpose of deduction under section 80HHC.

Computation of eligible profit under section 80HHC:
The case involved an appeal by the Assessee against the Commissioner of Income Tax (Appeals) order dismissing her appeal contesting the assessment under section 143(3) of the Income Tax Act for Assessment Year 1996-97. The Assessee, engaged in processing raw cashew nuts and exporting cashew kernels, declared total income of Rs. 8,82,500, including processing income and rent. The Tribunal had earlier directed the exclusion of processing charges from the total turnover, but this decision was reversed by the Hon'ble Apex Court. The Hon'ble High Court allowed the Revenue's appeal based on the Apex Court decision, leading to a reassessment of the Assessee's income.

Treatment of processing charges and lease rent:
The Hon'ble Apex Court clarified that processing charges should be included in the total turnover, while independent incomes like rent, commission, and brokerage should be excluded from the profits of the business for the purpose of section 80HHC. The Board Circular further explained the rationale for deducting such independent incomes to determine export profits accurately. The judgment directed the inclusion of processing charges in the total turnover and the exclusion of processing rent from the turnover but reduced in computing the profits of the business.

Rebate on purchase of tin sheets and other adjustments:
The judgment also addressed the treatment of a rebate on the purchase of tin plates, which was considered an integral part of the Assessee's trading operations and not an independent income. The judgment highlighted discrepancies in the adjustment made by the Assessing Officer regarding the REP premium and emphasized the correct interpretation of the relevant provisions. The appeal by the Assessee was allowed based on the findings related to the adjustments made by the Assessing Officer.

This summary provides a detailed overview of the issues involved in the legal judgment, highlighting the key aspects of the decision and the reasoning behind the conclusions reached by the Tribunal.