2006 (11) TMI 161 - HC - Income Tax

Court rules: No deduction under section 80HHC without actual export.

Commissioner of Income-Tax Versus B. Desraj.

Commissioner of Income-Tax Versus B. Desraj. - [2007] 293 ITR 214, 207 CTR 81, 164 TAXMANN 498 Issues Involved:1. Entitlement to deduction u/s 80HHC for duty drawback and cash compensatory support without actual export during the year.Summary:Issue 1: Entitlement to Deduction u/s 80HHC for Duty Drawback and Cash Compensatory Support Without Actual Export During the YearThe appeal was filed u/s 260A of the Income-tax Act, 1961, by the Revenue against the order of the Income-tax Appellate Tribunal, Madras, 'A' Bench. The substantial question of law formulated was whether the Tribunal was right in holding that the deduction u/s 80HHC in respect of duty drawback and cash compensatory support is allowable even though no export was done by the assessee.The assessee, a 100% export-oriented unit, filed a return for the assessment year 1991-92, which was processed u/s 143(1)(a) and later scrutinized u/s 143(3). The Assessing Officer denied the deduction u/s 80HHC on the grounds of no export during the year. The Commissioner of Income-tax (Appeals) allowed the appeal, which was confirmed by the Tribunal.The Revenue argued that without actual export, the assessee is not entitled to the deduction, citing the Supreme Court judgment in CIT v. Sterling Foods [1999] 237 ITR 579. The assessee contended that the incentives received were connected to prior exports and should be considered as profits derived from export, relying on the Supreme Court judgment in P. R. Prabhakar v. CIT [2006] 284 ITR 548.The court noted that the assessee received cash compensatory support and duty drawback for exports made in the previous year, but no export was made during the relevant assessment year. The amendment of section 28 by the Finance Act, 1990, with retrospective effect, clarified that such incentives are taxable under 'Profits and gains of business or profession' and not as export profits.Section 80HHC requires actual export for deduction, and the formula for computing export profits involves the export turnover and total turnover, both of which were nil for the assessee during the year. The expression 'derived from' in the section implies a direct nexus between profit and export, which was absent in this case.The court distinguished the present case from P. R. Prabhakar, where there was actual export, and aligned with the Delhi High Court's view in Sanjeev Malhotra v. CIT [2006] 286 ITR 364, which required actual export for claiming deduction u/s 80HHC.In conclusion, the court held that mere receipt of duty drawback and cash compensatory support without actual export does not entitle the assessee to deduction u/s 80HHC. The question was answered in favor of the Revenue and against the assessee. No costs.