Export Unit Turnover Excluded for Tax Deduction

The Tribunal allowed the appeal by the assessee, directing that the turnover of the 100% export-oriented unit should be excluded from the total turnover for computing the deduction under section 80-HHC of the Income Tax Act. The Tribunal emphasized that including the turnover of the export-oriented unit would distort the computation of export profits and would result in double deductions, which is prohibited under the law. The assessing officer was instructed to recompute the deduction accordingly.

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Issues Involved:
1. Initiation of proceedings under section 263 of the Income Tax Act.
2. Sustaining the addition of Rs. 32,87,203/- while computing deduction under section 80-HHC of the Income Tax Act.

Detailed Analysis:

1. Initiation of Proceedings under Section 263:
The first issue pertains to the initiation of proceedings under section 263 of the Income Tax Act. The original assessment was completed under section 143(3) on 30/01/2006. The Commissioner of Income Tax (CIT), Delhi-I, set aside this order, asserting that for the purpose of deduction under section 80-HHC, the turnover of a 100% export-oriented unit should be included in the total turnover. The assessee did not appeal against this order. Consequently, the assessing officer re-completed the assessment as per the CIT's directions under section 263. The assessee's appeal to the CIT (Appeals) on this ground was dismissed, as it was beyond the scope of section 246A. The Tribunal upheld this dismissal, stating that since the assessee did not appeal against the original section 263 order, no grounds relating to it could be raised in the subsequent appeal.

2. Sustaining the Addition of Rs. 32,87,203/- under Section 80-HHC:
The second issue involves the addition of Rs. 32,87,203/- while computing the deduction under section 80-HHC. The assessee operated two units, both involved in export business. The total turnover was Rs. 52,55,84,276/-, but the assessee computed the deduction under section 80-HHC based on a turnover of Rs. 24,26,60,362/-, excluding the turnover of the 100% export-oriented unit. The assessing officer, following the directions under section 263, included the turnover of the 100% export-oriented unit, resulting in a total turnover of Rs. 52,55,84,277/- for computing the deduction.

Before the CIT (Appeals), the assessee argued that the turnover of the 100% export-oriented unit should not be included, as it was eligible for a separate deduction under section 10-B. The CIT (Appeals) rejected this argument, stating that for section 80-HHC, the total turnover of the business, not just a particular unit, should be considered. The CIT (Appeals) upheld the computation by the assessing officer.

The Tribunal, however, disagreed with the CIT (Appeals). It noted that under section 80-HHC(3)(a), the profits derived from exports are calculated based on the proportion of export turnover to total turnover. Including the turnover of the 100% export-oriented unit would distort the computation of export profits. The Tribunal emphasized that section 80-A(4) prohibits double deductions for the same profits under different sections. Therefore, the turnover of the 100% export-oriented unit, whose profits are already exempt under section 10-B, should not be included in the total turnover for section 80-HHC purposes.

The Tribunal cited several cases to support its decision:
- CIT v. Rathore Bros.: The Madras High Court held that separate accounts for export and domestic business justify separate deductions.
- CIT v. Suresh B. Mehta: The Madras High Court upheld separate deductions for export businesses maintaining distinct accounts.
- CIT v. M. Gani & Co.: The Madras High Court allowed full deduction under section 80-HHC for export profits when separate accounts were maintained.
- Asstt. CIT v. Mahavir Spg. Mills Ltd.: The ITAT Chandigarh Bench held that turnover of an EOU should not be included in the total turnover for section 80-HHC deductions.

The Tribunal concluded that the turnover of the 100% export-oriented unit should not be included in the total turnover for computing the deduction under section 80-HHC. The assessing officer was directed to recompute the deduction accordingly.

Conclusion:
The appeal by the assessee was allowed. The Tribunal directed that the turnover of the 100% export-oriented unit should be excluded from the total turnover for the purpose of computing the deduction under section 80-HHC.

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