2021 (10) TMI 749 - HC - Income Tax

Court upholds deduction eligibility under Section 80HHC, dismisses disallowance under Section 69A, no legal questions raised.

Pr. Commissioner of Income Tax – 21 Versus M/s. Looms India

The court upheld the respondent's eligibility for deduction under Section 80HHC despite initial negative profits, dismissed the disallowance under Section ... Deduction claimed u/s 80HHC - AO held that the assessee had no positive income from the export if 90% of incentives and other income are reduced from profit of the business and disallowed the deduction claimed - AO disallowed a sum and brought to tax the said amount under Section 69A (Unexplained money, etc.) after giving a finding that respondent has not been able to satisfactorily explain the acquisition/purchase of goods of this value - HELD THAT:- Question no.1 is no more res-integra in view of the judgment of the Apex Court in the case of ACG Associates Capsules (P.) Ltd. V/s. Commissioner of Income Tax, Central- IV, Mumbai [2012 (2) TMI 101 - SUPREME COURT] Whether on the facts and circumstances of the case, when the export income is Nil then whether the assessee is entitled to claim deduction u/s. 80HHC on export incentive? - Calculation by CIT (A) was not correct, still pursuant to this amendment coming into force with retrospective effect, respondent will be entitled to deduction under Section 80HHC even where profits derived from the export of goods was a negative figure, i.e., even where there was a loss. Addition u/s. 69A which is stand alone addition having no connection with the allowance or other wise of deduction u/s. 80HHC - It is not denied anywhere that any purchases were ever made or the entries for cash payments made were bogus entries. The only basis we find, when we read the entire order, for the Assessing Officer to come to the conclusion that he has arrived at that the explanation was unsatisfactory is because in his belief, based on a presumption, in cash purchases full consideration has to be paid before taking delivery. He has also stated that some of the suppliers had stated that they have not supplied to respondent but can that be a substantial question of law whether such supplies were made or otherwise? In our opinion, these are questions of fact. We also have to note that there is a finding that the Assessing Officer has accepted as genuine the payment made to the same suspect parties before the date of purchase. ITAT has not erred in confirming the order of the Ld. CIT (A) wherein it was held that the assessee is liable for disallowance u/s. 40A(3) of the IT Act instead of addition u/s. 69A made by the AO - No substantial question of law. Issues:1. Deduction under Section 80HHC for profits retained for export business.2. Disallowance under Section 69A for unexplained money.3. Eligibility for deduction under Section 80HHC on netting of interest income.4. Claiming deduction under Section 80HHC on export incentives.5. Disallowance under Section 40A(3) versus addition under Section 69A.Analysis:Issue 1: Deduction under Section 80HHC for profits retained for export businessThe respondent filed its income return declaring a deduction under Section 80HHC, which the Assessing Officer disallowed due to lack of positive income from exports. The CIT (A) partly allowed the appeal, stating the respondent was eligible for the deduction. The ITAT confirmed this view. The appellant challenged this decision, questioning the computation of income under Section 80HHC. The court noted that a retrospective amendment allowed deduction even in cases of loss from export business. Therefore, the respondent was entitled to the deduction despite negative profits initially claimed.Issue 2: Disallowance under Section 69A for unexplained moneyThe Assessing Officer disallowed a sum under Section 69A due to unexplained cash purchases. The court found the Assessing Officer's conclusions based on presumptions and lack of evidence. The Tribunal did not find any perversity in the decision and upheld the CIT (A)'s view that the addition under Section 69A lacked a basis. The court dismissed the appeal on this issue.Issue 3: Eligibility for deduction under Section 80HHC on netting of interest incomeThe court noted that the issue of netting interest income for Section 80HHC deduction was settled by a previous Supreme Court judgment. Therefore, this question was no longer a matter of contention.Issue 4: Claiming deduction under Section 80HHC on export incentivesThe court clarified that the respondent's eligibility for deduction under Section 80HHC was not in question, as the deduction was allowed based on the profits derived from export business, even if initially claimed as a loss.Issue 5: Disallowance under Section 40A(3) versus addition under Section 69AThe court considered the issue raised as a question of fact rather than law. The Assessing Officer's conclusions regarding cash purchases were found to lack substantial evidence. The court upheld the Tribunal's decision, stating that no substantial legal question was raised. The appeal was dismissed on this ground.In conclusion, the court upheld the respondent's eligibility for deduction under Section 80HHC despite initial negative profits, dismissed the disallowance under Section 69A, and found no substantial legal question in the issues raised.