2014 (8) TMI 566 - HC - Income Tax

Inclusion of CENVAT Incentives in Business Profits for Section 80HHC Deduction Upheld

The High Court upheld the decision of the Income Tax Appellate Tribunal, ruling that the deemed credit under the CENVAT Incentive Scheme should be ... Deduction u/s 80HHC - Deemed credit under CENVAT credit scheme – Part of business profit or not – Held that:- The Tribunal was rightly of the view that the CENVAT incentives are in the nature of export incentives and hence allowed for the purpose of calculating business income whilst calculating a deduction u/s 80HHC of the Act - under the provisions of section 80HHC, the Assessee would be entitled to a deduction to the extent of the profits referred to in sub-section (1-B) thereof derived by the Assessee from the export of such goods or merchandise - No other provision was brought to notice that would justify the disallowance of CENVAT incentive whilst computing the admissible deduction u/s 80HHC of the Act – no substantial question of law arises for consideration – Decided against Revenue. Issues:1. Interpretation of section 80HHC of the Income Tax Act 1961 regarding the eligibility of CENVAT credit as part of business profits for deduction.2. Determination of whether CENVAT incentives qualify as export incentives under section 28 of the Income Tax Act.3. Assessment of the impact of CENVAT incentives on the calculation of business profits and deduction under section 80HHC.Issue 1: Interpretation of section 80HHC:The High Court of Bombay heard an appeal challenging the Income Tax Appellate Tribunal's decision regarding the eligibility of deemed credit under the CENVAT Incentive Scheme as part of business profits for deduction under section 80HHC of the Income Tax Act 1961 for the Assessment Year 2003-04. The Appellant argued that CENVAT credit was not covered under section 80HHC(3) and therefore should not be considered for deduction. However, the Respondent contended that the CENVAT incentive should be reduced from the costs of manufacture of exported goods to enhance the profit of the business for calculating the deduction under section 80HHC.Issue 2: Qualification of CENVAT incentives as export incentives:The Appellant asserted that CENVAT incentives were not covered under clauses (iiia) to (iiie) of section 28 of the Act, which are essential for qualifying as export incentives under section 80HHC. The Appellant argued that since the Assessee chose CENVAT refund instead of duty drawback, the increase in business profits for deduction under section 80HHC should not apply. Conversely, the Respondent contended that the CENVAT incentive, being a refund of tax and duty on inputs for exported goods, should be considered an export incentive, thereby increasing the business profits eligible for deduction.Issue 3: Impact of CENVAT incentives on business profits calculation:The High Court examined whether the deemed credit under the CENVAT Incentive Scheme, amounting to Rs. 89,34,887, should be included in the business profits eligible for deduction under section 80HHC. The Court agreed with the Respondent that the CENVAT incentive would reduce the cost of manufacture of exported goods, thereby increasing the profit. As per section 80HHC, the Assessee would be entitled to a deduction based on the profits derived from the export of goods. The Court found that in the present case, the ITAT did not misdirect itself in considering the CENVAT credit as part of business profits eligible for deduction under section 80HHC, despite it not being explicitly mentioned in section 80HHC(3).In conclusion, the High Court dismissed the appeal, stating that the ITAT's decision was not erroneous, and no substantial question of law arose for consideration.