2016 (4) TMI 308 - AT - Income Tax

ITAT Mumbai grants partial appeal on sec 80 HHC deduction, remits case for fresh assessment

The Appellate Tribunal ITAT Mumbai partially allowed the assessee's appeal regarding the deduction under section 80 HHC of the Income Tax Act. The ... Deduction under section 80HHC - netting of export trading losses against manufacturing export profits - retrospective amendment to section 80HHC - application of Avani Exports guidelines - remand for fresh adjudicationDeduction under section 80HHC - netting of export trading losses against manufacturing export profits - retrospective amendment to section 80HHC - application of Avani Exports guidelines - Whether the claim for deduction under section 80HHC, including the question of netting export trading losses against manufacturing export profits, should be re-adjudicated in view of subsequent legislative amendment and Supreme Court guidance. - HELD THAT: - At the time of the original assessment and first appeal there was uncertainty and conflicting authority on whether losses from trading export activities could be set off against profits from manufacturing export for the purpose of computing deduction under section 80HHC. Subsequent to those orders a material retrospective amendment to section 80HHC was enacted and the Supreme Court in Avani Exports furnished guiding principles clarifying the operation of the provisos. Those developments were not available to the Assessing Officer or the First Appellate Authority when they decided the matter. In the interest of justice and because the new statutory provision and judicial guidance may materially affect entitlement to deduction and the netting question, the Tribunal found it appropriate to remit the issue to the Assessing Officer for fresh adjudication after affording the assessee a reasonable opportunity of being heard. The Tribunal therefore did not decide the substantive claim on merits but directed re-examination in light of the amendment and the Supreme Court's guidelines.Matter remitted to the Assessing Officer for fresh adjudication of the section 80HHC claim (including netting issue) after affording the assessee a reasonable opportunity of hearing; appeal allowed in part.Final Conclusion: Because the Assessing Officer and the First Appellate Authority did not have the benefit of the subsequent retrospective amendment to section 80HHC and the Supreme Court's guidance in Avani Exports, the Tribunal remitted the issue of entitlement to deduction and the question of netting of export losses and profits to the Assessing Officer for fresh adjudication after hearing the assessee; appeal allowed in part. Issues:1. Deduction/claim under section 80 HHC of the Act.Analysis:The Appellate Tribunal ITAT Mumbai addressed the issue of deduction/claim under section 80 HHC of the Income Tax Act. The Assessee, a company engaged in manufacturing and trading exports, filed its return of income, declaring total income. The Assessing Officer (AO) completed the assessment, determining the income of the assessee. The primary ground of appeal was related to the deduction under section 80 HHC. The AO found that the assessee had incurred a loss from trading export and earned a profit from manufacturing export. The AO netted off the loss from trading export against the profit from manufacturing export, resulting in a net loss figure. Consequently, the AO did not allow the deduction claimed by the assessee.The assessee appealed before the First Appellate Authority (FAA), arguing that it had total turnover from exports and claimed a deduction under section 80 HHC. The FAA upheld the AO's order, stating that there was a net loss from the export operations of the assessee and that the segregation of manufacturing or trading activities for deduction under section 80 HHC was not acceptable. The FAA concluded that the deduction did not arise as the income from the export business was negative. The FAA's decision was based on the judgment in the case of IPCA Laboratories.During the appeal before the Appellate Tribunal, the Authorized Representative (AR) highlighted the retrospective amendment to section 80 HHC, allowing netting off of export incentives against the loss. Referring to the Supreme Court's decision in Avani Exports, the AR argued for the retrospective application of the amendment. The Tribunal observed that important legislation and judgments were not available to the AO/FAA at the time of assessment, and in the interest of justice, remitted the file back to the AO for fresh adjudication. The AO was directed to decide the issue after providing a reasonable opportunity of hearing to the assessee, partially favoring the assessee on Ground No. 1.In conclusion, the appeal filed by the assessee was allowed in part, and the case was remitted back to the AO for fresh adjudication considering the retrospective amendment and relevant judicial decisions.Order pronounced in the open court on 6th April 2016.