2017 (8) TMI 1240 - HC - Income Tax

High Court excludes scrap sale from business profits for Section 80HHC deduction, emphasizes export promotion. Remanded for fresh assessment.

The High Court upheld the exclusion of sale of scrap from 'profits of the business' for deduction under Section 80HHC. The Court referred to a Supreme ... Levy of penalty u/s 271(1)(c) - deduction under Section 80HHC disallowance - AO computed the deduction under Section 80HHC by excluding the sale of scrap from the total turnover and the proportionate profit from the profits of the business - Held that:- The issue has now been finally decided by the Hon’ble Supreme Court in Commissioner of Income Tax-VII, New Delhi Vs. Punjab Stainless Steel Industries [2014 (5) TMI 238 - SUPREME COURT] wherein held that the proceeds generated from the sale of scrap would not be included in the total turnover. It was observed that the intention behind the enactment of Section 80HHC of the Act was to encourage export so as to earn more foreign exchange. It was concluded that once the Government decides to give some benefit to someone who is helping the nation in bringing foreign exchange, the revenue should also make all possible efforts to encourage such traders or manufacturers by giving such business units more benefits as contemplated under the provisions of law. Thus the question regarding inclusion of sale of scrap in the total turnover is required to be examined afresh by the Assessing Officer in the factual matrix of the case. We set aside and the matter be remanded to the Assessing Officer for deciding the issue regarding penalty afresh after the decision in quantum proceedings in accordance with law. Issues involved:1. Challenge to addition made in assessment order relating to sale of scrap in ITA No. 3 of 2010.2. Challenge to levy of penalty under Section 271(1)(c) of the Income Tax Act in ITA No. 489 of 2010.Issue 1 - ITA No. 3 of 2010:The appellant-revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT) regarding the exclusion of the sale of scrap from the 'profits of the business' while calculating deduction under Section 80HHC of the Income Tax Act, 1961. The Tribunal upheld the Assessing Officer's decision to exclude the sale of scrap from the total turnover and the proportionate profit on the sale of scrap from the 'profits of the business' for computing the deduction under Section 80HHC. The High Court referred to a Supreme Court judgment emphasizing the need to encourage exports and held that the sale of scrap should not be included in the total turnover. Consequently, the matter was remanded to the Assessing Officer for fresh consideration.Issue 2 - ITA No. 489 of 2010:The substantial question of law in this appeal was whether the ITAT was justified in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, amounting to a specific sum, despite the assessee furnishing inaccurate particulars of income by claiming excess deduction under Section 80HHC. Since the decision in the quantum appeal (ITA No. 3 of 2010) was set aside and remanded for fresh consideration, the High Court ordered a similar course of action for the penalty issue in ITA No. 489 of 2010. The matter was directed to be reconsidered by the Assessing Officer after the decision in the quantum proceedings.In conclusion, both appeals were disposed of by setting aside the previous orders and remanding the matters to the Assessing Officer for fresh consideration in accordance with the law.