2016 (4) TMI 124 - AT - Income Tax

Tribunal allows deduction for export income under Section 80HHC, emphasizing compliance with legal provisions.

The Tribunal concluded that the undisclosed income declared by the assessee during a search operation met the criteria for deduction under Section 80HHC. ... Deduction u/s.80HHC on the undisclosed income - Held that:- There was no dispute about the fact that the assessee is entitled to deduction u/s.80HHC on the undisclosed income and the only question was as to whether the requirements of section 80HHC are fulfilled. From the detailed discussion given above, it is clear that in the present case all the conditions and requirements of section 80HHC are fully satisfied. We therefore, direct the AO to allow claim of deduction u/s.80HHC with regard to addition on income. Before parting with the issue it is pertinent to mention that the Hon’ble Supreme Court in the case of Vegitables Products, [1973 (1) TMI 1 - SUPREME Court ] has held that when there are two view in respect of point under consideration, then the view in favour of the assessee needs to be adopted. - Decided in favour of assessee Issues Involved:1. Interpretation of ITAT's direction regarding deduction under Section 80HHC.2. Whether the undisclosed income fulfills the criteria laid down under Section 80HHC.3. Binding nature of ITAT's decisions on lower authorities.4. Examination of facts and judicial precedents regarding eligibility for deduction under Section 80HHC.Detailed Analysis:1. Interpretation of ITAT's Direction Regarding Deduction Under Section 80HHC:The revenue contended that the CIT(A) erred by holding that the ITAT had given a categorical direction to allow the deduction under Section 80HHC without leaving any room for interpretation by the lower authorities. The ITAT, in its earlier orders, directed the Assessing Officer (AO) to compute and allow the deduction as per the relevant provisions of law. The CIT(A) interpreted this as a clear directive to grant the deduction without further examination by the AO.2. Whether the Undisclosed Income Fulfills the Criteria Laid Down Under Section 80HHC:The core issue was whether the undisclosed income declared by the assessee during the search operation met the criteria for deduction under Section 80HHC. The Tribunal noted that the assessee, a 100% exporter of cut and polished diamonds, had declared additional income due to excess stock found during the search. This additional income was included in the closing stock and was derived from the export business. The Tribunal emphasized that the conditions for Section 80HHC, such as the receipt of sale proceeds in convertible foreign exchange and certification by a Chartered Accountant, were satisfied. The Tribunal concluded that the additional income was indeed eligible for deduction under Section 80HHC.3. Binding Nature of ITAT's Decisions on Lower Authorities:The CIT(A) held that the AO was bound to follow the specific directions of the ITAT, which had clearly instructed the AO to allow the deduction under Section 80HHC. The CIT(A) emphasized that not adhering to the ITAT's order would result in administrative chaos and undermine judicial discipline. The Tribunal upheld this view, reinforcing that lower authorities must comply with the ITAT's directives.4. Examination of Facts and Judicial Precedents Regarding Eligibility for Deduction Under Section 80HHC:The Tribunal examined various judicial precedents, including decisions from the Madras High Court and Gujarat High Court, which supported the view that undisclosed income, if derived from export activities, is eligible for deduction under Section 80HHC. The Tribunal distinguished the present case from other cases cited by the revenue, where the additional income was not proven to be from export activities. The Tribunal found that in the assessee's case, the additional income was directly linked to the export business, and thus, the deduction under Section 80HHC was justified.Conclusion:The Tribunal concluded that the assessee's additional income of Rs. 95 lakhs, declared during the search, fulfilled all the conditions laid down under Section 80HHC. The Tribunal directed the AO to allow the deduction under Section 80HHC for the additional income. The appeal of the revenue was dismissed, and the cross-objection of the assessee was allowed. The Tribunal's decision emphasized the importance of adhering to judicial directives and the applicability of relevant legal provisions and precedents in determining eligibility for tax deductions.