Sales-tax refund and export profits: trader's refund counted toward section 80HHC deduction, not excluded under Explanation (baa).

A trader's sales-tax refund was treated as a reduction in purchase cost, not as detached income, because it had a direct nexus with export activity under the applicable sales tax framework. On that basis, the refund was considered part of eligible export profit for deduction under section 80HHC of the Income-tax Act, 1961. Explanation (baa) was said not to apply to exclude the receipt from business profits in the trader's computation. The reasoning was aligned with the Bombay High Court and Supreme Court authorities relied on, and the Revenue's objection was rejected.

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Issues: Whether sales-tax refund received by a trader was eligible for deduction under section 80HHC of the Income-tax Act, 1961, and whether Explanation (baa) to section 80HHC applied so as to exclude such receipt from business profits.

Analysis: The assessee was a trader and not a manufacturer. On the facts, the sales-tax refund represented a reduction in the cost of purchases and not an independent income detached from the export activity. In a trader's case, the computation under section 80HHC proceeds on the basis of export turnover reduced by direct and indirect costs, and the mechanism in Explanation (baa) was held not to govern the assessee's case. The refund was also found to have a direct nexus with exports under the applicable sales tax framework. The reasoning adopted by the first appellate authority was consistent with the binding view relied upon from the Bombay High Court and the Supreme Court.

Conclusion: The sales-tax refund was held to be eligible for deduction under section 80HHC, and the Revenue's objection was rejected.

Ratio Decidendi: Where a trader's sales-tax refund merely reduces the purchase cost and has a direct nexus with export turnover, it forms part of the eligible export profit for deduction under section 80HHC and is not to be excluded as independent income under Explanation (baa).

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