2005 (7) TMI 65

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....ng nil?" Briefly stated the facts giving rise to the present reference are as follows: The present reference relates to the assessment year 1988-89 the previous year relevant to the assessment year in question is the calendar year. The Income-tax Officer in the course of the assessment proceedings rejected the claim for deduction made by the assessee under section 80HHC primarily on the ground that the same had been claimed on the amounts received as duty drawback, cash incentive and transfer of import licence there being no export during the year under consideration and there being complete absence of any foreign exchange earning. The Income-tax Officer also noted the absence of a separate set of accounts books pertaining to such rec....

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.... relating to the income under reference. It is also stated that all the other conditions laid down under section 80HHC are fully satisfied in this case and the appellant has also filed a certificate of the chartered accountant as required by section 80HHC. It is urged that the deduction should be allowed to the appellant." The Commissioner of Income-tax (Appeals) accepted the arguments raised on behalf of the assessee and directed the Income-tax Officer to allow deduction under section 80HHC as claimed by the assessee in the following words: "I have carefully considered the submissions made before me. Having regard to the fact that export incentives received by the appellant are being subjected to tax from year to year in the case of ....

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....of both the parties confirmed the view taken by the Commissioner of Income-tax (Appeals). We have heard Sri A. N. Mahajan, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent/assessee. Learned standing counsel submitted that under section 80HHC of the Act, deduction is admissible only from the profit derived by the assessee from the export of such goods or merchandise. Cash incentive received by the assessee cannot by any stretch of imagination be taken as profit derived from the export of the goods or merchandise and, therefore, the amount of cash incentive would not qualify for special deduction under section 80HHC of the Act. He referred to clauses (a) and (b) of sub-section (1) of section 80HHC o....

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....ll not exceed the profits derived by the assessee from the export of such goods or merchandise: Provided further that an amount equal to the amount of the deduction claimed under this sub-section is debited to the profit and 1055 account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange. (b) This section does not apply to the following goods or merchandise, namely: (i) mineral oil....

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....k of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any rules made thereunder; (b)'export turnover' means the sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (c)'net foreign exchange realisation' means the total free on board value of exports out of India of goods and merchandise, to which this section applies as reduced by the aggregate of the cost, insurance and freight va....

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....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." The Delhi High Court in the case of CIT v. Ritesh Industries Ltd. [2005] 274....