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of <h1>Appeal Dismissed, ITAT Decision Upheld on Indirect Costs Calculation</h1> <h3>B. Ahmed Hajee Mohiudeen Versus Assistant Commissioner of Income-tax, Circle-2(1), Mangalore</h3> B. Ahmed Hajee Mohiudeen Versus Assistant Commissioner of Income-tax, Circle-2(1), Mangalore - TMI Issues:1. Calculation of deduction under Section 80HHC of the Income Tax Act for the assessment year 1995-96.2. Exclusion of certain indirect expenses while computing indirect cost in trading transactions.3. Interpretation of Section 80HHC(3)(b) of the Act regarding allocation of indirect costs for export profit on trading goods.Analysis:1. The appellant filed a return for the year 1995-96, claiming a deduction under Section 80HHC of the Income Tax Act. The assessing officer found the claimed deduction excessive, leading to proceedings under Section 147 of the Act. The appellant revised the return, stating that indirect costs were not included in the initial calculation due to a trading transaction involving the purchase and export of a boat. The assessing officer rejected the cost shown by the appellant, adding the indirect costs to the assessment. The first appellate authority directed the re-computation of the deduction under Section 80HHC, considering various indirect expenses from the Profit & Loss Account. The ITAT later set aside the first appellate authority's order, directing the assessing officer to evaluate the indirect costs incurred in the trading transaction and pass orders accordingly.2. The substantial questions of law raised in the appeal focused on the justification of excluding certain indirect expenses while calculating indirect costs for trading transactions. The appellant argued that only a specific amount should be proportionately apportioned as indirect cost, while the revenue contended that all indirect costs should be included. The first appellate authority had excluded certain items from the indirect cost calculation, leading to differing interpretations between the parties.3. Section 80HHC(3)(b) of the Act governs the allocation of indirect costs for export profit on trading goods. The provision specifies that profits derived from export shall be the export turnover reduced by direct and indirect costs attributable to such export. Direct and indirect costs are defined in the Explanation to the sub-section, emphasizing the allocation of indirect costs in proportion to the export turnover in respect of trading goods to the total turnover. The court emphasized that all indirect costs must be included in the calculation, rejecting the appellant's claim of no indirect costs attributable to the export.In conclusion, the High Court dismissed the appeal, upholding the ITAT's decision to direct the assessing officer to re-calculate the indirect costs in accordance with the law. The judgment clarified the interpretation of Section 80HHC(3)(b) and emphasized the inclusion of all indirect costs in the calculation for trading transactions.
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