Tribunal Orders Recalculation of Deductions; DEPB Receipts Can't Be Excluded From Business Profits for Tax Purposes.

The Tribunal partially allowed the appeal, directing a recomputation of the deduction under section 80HHC of the Income-tax Act, 1961. It held that 90% of DEPB receipts assessable under section 28(iv) could not be excluded from business profits for deduction purposes. The Tribunal upheld the CIT(A)'s decision regarding award money and interest income, requiring no further interference.

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Issues involved:
Interpretation of clause (baa) of Explanation after sub-section (4B) of section 80HHC of Income-tax Act, 1961.

Summary:
The appeal involved the interpretation of clause (baa) of Explanation after sub-section (4B) of section 80HHC of the Income-tax Act, 1961. The assessee, engaged in the export of leather garments, transferred credits under the Duty Entitlement Pass Book Scheme (DEPB Scheme) to other parties instead of importing goods. The Assessing Officer excluded 90% of the transferred credits while computing the deduction under section 80HHC, resulting in a loss. The CIT(A) upheld this decision, stating that DEPB receipts were revenue receipts assessable as business receipts under section 28(iv) and not eligible for deduction under section 80HHC. The Tribunal considered whether 90% of DEPB receipts could be excluded from the profits of business under Explanation (baa) to section 80HHC(4B) for the purpose of computing the deduction under section 80HHC(3).

The Tribunal analyzed the legislative intent behind the introduction of clause (baa) and the distinction between the categories of excluded items. It noted that the deliberate omission of section 28(iv) from the first category indicated that the legislature did not intend to exclude 90% of such receipts. The Tribunal applied the rule of ejusdem generis to interpret the words "any other receipts of a similar nature," concluding that DEPB receipts falling under section 28(iv) did not fall within this category. Therefore, it held that 90% of DEPB receipts assessable under section 28(iv) could not be excluded from the profits of business for computing the deduction under section 80HHC(3.

The Tribunal also addressed the treatment of award money and interest income. It upheld the CIT(A)'s decision on these matters, stating that no interference was warranted. The appeal was partly allowed, with directions to recompute the deduction under section 80HHC in accordance with the Tribunal's findings.

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