Tribunal allows deduction under section 80HHC but sets limits on offsetting losses

The Tribunal allowed the assessee to raise an additional ground regarding the computation of deduction under section 80HHC, citing no need for fresh evidence. The Tribunal held that losses from trading goods cannot be set off against 90% of export incentives under section 80HHC, following the decision in Avon Cycles Ltd. The Tribunal directed the Assessing Officer to compute the deduction by adding 90% of export incentives to profits, ensuring it does not exceed business profits. Appeals were allowed, and other grounds were rejected.

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Issues Involved:
1. Admissibility of additional ground regarding computation of deduction under section 80HHC.
2. Computation of deduction under section 80HHC, specifically whether losses should be set off against export incentives.

Issue-wise Detailed Analysis:

1. Admissibility of Additional Ground:
The assessee filed an application to raise an additional ground, arguing that the authorities had not computed the deduction under section 80HHC properly as they ignored negative income (loss). The Tribunal allowed the assessee to raise this additional ground, citing that no fresh evidence or investigation was required and that the ground was legal. This decision was supported by the precedent set in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC).

2. Computation of Deduction under Section 80HHC:
The primary issue was whether the loss from trading goods should be set off against 90% of the export incentives while computing the deduction under section 80HHC. The assessee argued that the loss computed as per section 80HHC(3) should be ignored, and the deduction should be allowed in respect of 90% of the incentive, subject to the limitation that it does not exceed the gross total income. The Tribunal examined the provisions of section 80HHC and the relevant case laws, including the decisions in Avon Cycles Ltd. and IPCA Laboratories Ltd.

The Tribunal found that the issue was covered by the decision in Avon Cycles Ltd., where it was held that the loss in respect of export of trading goods could not be set off against the 90% of the export incentives. The Tribunal emphasized that section 80HHC(3) is meant to provide a deduction for profits derived from export activities and should be interpreted in a manner beneficial to the assessee, consistent with the legislative intent to promote exports.

The Tribunal concluded that the proviso to section 80HHC(3) should be applied to increase the profit computed under section 80HHC(3) by 90% of the export incentives. It was noted that the word "profit" in the proviso refers to a positive figure and not a loss. Therefore, the loss computed under section 80HHC(3) should not be set off against the 90% of the export incentives.

Conclusion:
The Tribunal directed the Assessing Officer to ignore the loss from export computed under the main provisions of section 80HHC(3) while computing the deduction. The deduction should be computed by taking the profit as per section 80HHC(3) at nil plus 90% of the export incentive, ensuring that the deduction does not exceed the profits from business. Consequently, the appeals were allowed, and the rest of the grounds were rejected as not pressed.

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