TaxTMI 
TaxTMI 
2016 (8) TMI 155
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that net interest should be considered instead of gross interest while computing the deduction u/s.80HHC of the Act relying on the decision in the case of CIT v. Shri Ram Honda Power reported in 289 ITR 475? (C) Whether the ITAT was right in law and on facts in directing the Assessing Officer to determine the book profits of the company for the purpose of Section 115JA of the Act without reducing the amount deductible under Section 80HHC of the Act? TAX APPEAL No.1683 of 2008 "(A) Whether the ITAT was right in law and on facts in directing the Assessing Officer to determine the book profits of the company for the purpose of Section 115JA of the Act without reducing the amount deductible u/S.80HHC of the Act? (B) Whether the ITAT was right in law and on facts in holding that net interest should be considered instead of gross interest while computing the deduction u/S.80HHC of the Act relying on the decision in the case of CIT v. Shri Ram Honda Power reported in 289 ITR 475? (C) Whether the ITAT was right in law and on facts in directing the A.O. to include interest income in the eligible profits for computing the deduction u/S.80HH & 80IA of the Act of 1961 though there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the export house. In computing total income, the entire turnover is taken into account even though there is a disclaimer. Thus even though the disclaimer is made the taxable income of Rs. 4.39 crores has been arrived at by the Appellants after taking into account the entire turnover from export of trading goods. In arriving at the figure of Rs. 4.39 crores admittedly the loss of Rs. 6.86 crores has been taken into account. Even after disclaimer the turnover has remained the turnover of the Export House i.e. the Appellants. The disclaimer is only for purposes of enabling the export house to pass on the deduction which it would have got to the supporting manufacturer. It follows that if no deduction is available, because there is a loss, then the export house cannot pass on or give credit of such non-existing deduction to a supporting manufacturer. Faced with this situation, it was submitted that even a loss is a negative profit. In support of the submission, reliance was placed upon the authority of this Court in the case of Commissioner of Income-Tax(Central), Delhi vs. Harprasad & Co. P. Ltd. reported in 1975 (Vol. 99) ITR 118. In this case the meaning of loss was being consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion. The calculation as per the Board Circular would not be as claimed. The Board Circular nowhere provides for negative profits. The Board Circular also shows that only positive profits can be considered for purposes of deduction. We, therefore, see no substance in the Appeal. The same stands dismissed. There shall be no order as to costs." 5.1 In view of above, it is clear that deduction under Section 80 HHC cannot be permitted in case of loss or negative profit. In that view of the matter, the contention raised by the revenue is required to be accepted. Accordingly, question No. (A) in Tax Appeal No.1682 of 2008 and the question posed in Tax Appeal No.2451 of 2009 are answered in favour of the revenue and against the assessee. 6. So far as issue as to whether net interest or gross interest should be considered while computing deduction under Section 80 HHC of the Act, the same is stated to have been covered by the decision in the case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-Tax reported in [2012] 343 ITR 89 (SC), wherein it is observed as under:- "2. The facts of this case very briefly are that Bharat Rasayan Limited (for short `the assessee') fil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....80HHC of the Act. Accordingly, question no.(B) in Tax Appeal Nos.1682 and 1683 of 2008 is answered in favour of the assessee and against the revenue. 7. So far as question (C) of Tax Appeal No.1682 of 2008 and question (A) of Tax Appeal No.1683 of 2008 is concerned, the same is stated to have been covered by the decision in the case of Commissioner of Income-Tax v. Packworth Udhyog Ltd. reported in [2011] 331 ITR 416 (Ker) [FB], wherein it is observed as under:- "5. After hearing both sides and after going through the decisions above referred, particularly that of the Supreme Court, we feel that assessees are entitled to deduction under Section 80HHC computed in accordance with sub-section (3) and (3A) of Section 80HHC of the Act because it is expressly so provided under clause (iv) of Section 115JB (2) of the Act. All what the Supreme Court has held is that the ceiling contained in Section 80HHC (1B) is not applicable for the purpose of granting deduction under clause (iv) above in the computation of book profit. However, there is nothing to indicate in the Supreme Court decision that eligible deduction of export profit under clause (iv) above in the computation of book profit c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngs and the decision of the Supreme Court in Ajanta Pharma Ltd's case referred above." 7.1 In view of above observations, this question is answered in favour of the assessee and against the revenue. 8. So far as question (C) of Tax Appeal No.1683 of 2008 as to whether the ITAT was right in law and on facts in directing the A.O. to include interest income in the eligible profits for computing the deduction u/S.80HH & 80IA of the Act of 1961 though there is no immediate and direct nexus with the industrial activities of the assessee is concerned, the same is stated to have been covered by the decision of the Supreme Court in the case of Pandian Chemicals Ltd. v. Commissioner of Income Tax reported in [2003] 262 ITR 278 (SC) and a decision of this Court in Commissioner of Income Tax v. Gaskets and Radiators Distributors reported in [2008] 296 ITR 440 (Guj). In the case Gasket and Radiators Distributors, this Court observed as under:- "7. Identical question came to be considered by the Hon'ble Supreme Court in Pandian Chemicals Ltd. vs. Commissioner of Income-Tax, [supra] and the question, which was posed for consideration before the Apex Court was whether the interest on d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....motion Scheme of the Central Government whereunder the export entitlements became available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus was not direct but only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. Thereunder, the assessee was entitled to import entitlements, which it could sell. The sale consideration therefrom could not be held to constitute a profit and gain derived from the assessee's industrial undertaking. The receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80HH of the Income-tax Act, 1961". In Commissioner of Income Tax vs. Himalaya Cutlery Works, [supra], the question before the Allahabad High Court was whether the incentives received by the assessee are part of export turnover and therefore entitled to relief under Section 80HHC or not, and the Allahabad High Court has held that, amount received as duty drawback, cash incentive and on transfer of....