Hon'ble Dr. Satish Chandra,J.
(Per Hon'ble Dr. Satish Chandra, J) ********* The present appeal is filed by the Department against the order dated 27.03.2002 passed by the Income Tax Appellate Tribunal in ITA No. 1054/Del/2001 for the assessment year 1998-99.
On 05.07.2007, a Coordinate Bench has admitted the appeal on the following substantial question of law :
"Whether on the facts in the circumstances of the case the Ld. ITAT is legally justified in allowing full relief U/s 80HHC on the amount of duty drawback received by the assessee directly from the Govt. on the exports made by the assessee directly to foreign buyers on orders produced by the export house M/s. Ikae Trading (India) Pvt. Ltd. New Delhi?"
The brief facts of the case are that during the assessment year under consideration, the assessee was a 100% export unit, exporting the carpets. The assessee's firm has claimed the deduction under Section 80HHC on the amount of duty drawback received by the assessee directly from the Government on the goods sent to foreign buyer in respect of orders procured by another export house M/s Ikae Trading India Limited, New Delhi, but the same was not allowed by the A.O. as well as by the CIT(A). However, the Tribunal has allowed the claim of the assessee. Being aggrieved, the Department has filed the present appeal.
With this background, we heard Shri Shambhu Chopra, the learned counsel for the Department, who has justified the order passed by the A.O. as well as the First Appellate Authority.
On the other hand, Sri P.K. Jain, the learned Senior Counsel has justified the order passed by the Tribunal.
From the record, it appears that the excess claim was for Rs. 27,60,942/-, which was disallowed by the A.O. and the dis-allowance was confirmed by the CIT(A).
It may be mentioned that in view of Clause (2)(a) of Section 80HHC, the requirement of bringing the foreign exchange in India within six months, is not applicable to supporting manufactures, as per the CBDT's Circular No. 572 dt 03.08.1990,which is reproduced as under :
"Under the existing provisions of Sec. 80HHC, the benefit of deduction is also allowed to supporting manufacturers who export goods of merchandise through recognized Export Houses or Trading House. A person who processes goods on merchandise and exports the same directly is eligible to claim the deduction under sec. 80HHC. However, if the processor of goods or merchandise sells his goods or merchandise to an Export House of Trading House for the purposes of export, he is presently denied the benefit of deduction. The benefit of deduction u/s 80HHC has now been extended to processors who sell their goods or merchandise to Export Houses or Trading Houses for export purposes. The condition for obtaining the benefit is the same as already applicable to supporting manufacturers, namely that of obtaining a disclaim certificate from the Export House or Trading House.
By an amendment in Clause (a) of sub-section (2) of Sec. 80HHC, it has been clarified that the requirement of receipt of sale proceeds in convertible foreign exchange will not apply in the case of supporting manufacturers who sell their goods or merchandise to Export Houses or Trading Houses for exports."
In the instant case, disallowance was made for the reason that the assessee's firm has exported the goods through M/s Ikae Trading Limited. But the fact remains, that the supporting manufacturers are also entitled to 100% exemption on export profit as was available to the direct exporters. The export incentives in the shape of cash assistance, duty drawback and profit earned on sale of replacements licence are income within the meaning of Section 2 (iiia), (iiib) and (iiic) of the Act.
It may be mentioned that the scheme of deduction under Section 80HHC in case of supporting manufacturer, is not properly defined in the Act. The profits derived by the supporting manufacturer are defined in sub-section 3(A) Section 80HHC and it talks of the profit of the business.
Further from the record, it appears that in the instant case, there was an arithmetical mistake. The CIT(A) has directed the A.O. to rectify the same and rework the deduction. The Tribunal, in its order, has not reworked the calculation pertaining to the deduction under Section 80HHC but has allowed the claim of the assessee, which is not desirable, as per the scheme of legislation. It was expected that the Tribunal would examine the computation and recalculate the exemption, if any. On the other hand, CIT(A) had directed the AO to rework the calculation and allow the claim, if any. The direction of CIT(A) appears to be reasonable and is hereby sustained. Therefore, we set a side the impugned order passed by the Tribunal and restore the order of CIT(A).
The answer to the substantial questions of law is in favour of the Department and against the assessee..
In the result, the appeal filed by the Department is allowed.
Order Date :- 25.08.2014 Anurag/-
(Dr. Satish Chandra, J.) (Tarun Agarwala, J.)