- (1.) LEAVE granted.
(2.) THIS batch of civil appeals is filed by the assessee for assessment years 1994-95, 1995-96, 1996-97 and 1997-98. A short question which arises for determination in this batch of civil appeals is whether the A. O. and CIT (A) were right in disallowing the claim of the assessee for adjustment of 10% of export incentive against indirect cost of trading goods while allowing deduction under section 80hhc of the Income-tax act as it stood at the relevant time. Facts in the Civil Appeal arising out of S. L. P. (C) No. 7411/2007 (lead matter): Assessee was engaged in the business of export of "trading goods". Under section 80hhc (3) (b), an exporter of trading goods was entitled to deduction in respect of profits derived from such export (export turnover) as reduced by the direct costs and the indirect costs attributable to such export. The smaller the figure of direct and indirect costs, the larger is the profits derived from the export and, consequently, larger is the deduction under section 80hhc. By attributing a part of the indirect costs to the export incentives, interest etc. the assessee sought to reduce the indirect costs attributable to the export of trading goods so that it would be left with the larger amount of export profits which it can deduct from the gross total income. On the other hand, the attempt of the department was to prevent the aforestated claim of the assessee by holding that expenses incurred for earning incentives, commission etc. were not liable to be reduced/deducted from Indirect Costs under section 80hhc (3) (c) read with clause (e) to the Explanation. The following example will clarify the position (figures assumed): JUDGEMENT_1217_TLPRE0_2007Html1.htm Assessees working of deduction under section 80hhc: JUDGEMENT_1217_TLPRE0_2007Html2.htm A. Os. working of deduction under section 80hhc: JUDGEMENT_1217_TLPRE0_2007Html3.htm
(3.) THE analysis of the aforestated example indicates that assessee claims to reduce FOB value of exports amounting to rs. 6,50,000 by direct cost of Rs. 5,00,000 plus proportionate indirect costs of Rs. 34,000, in all amounting to Rs. 5,34,000, whereas the Department reduces the FOB value of exports of rs. 6,50,000 by the direct cost of Rs. 5,00,000 plus 100% indirect cost of Rs. 50,000, in all amounting to Rs. 5,50,000, which is sought to be reduced from FOB value of Rs. 6,50,000. In other words, according to the assessee, its export profits should be Rs. 1,16,000 whereas, according to the Department, its export profit is Rs. 1,00,000. According to the assessee, apart from export turnover, it had earned income on account of export incentives, miscellaneous income and interest income. According to the assessee, it had two incomes, namely, export income and income from export incentives. In the above example, assessee had incurred direct cost of Rs. 5,00,000 and indirect cost of rs. 50,000. According to the assessee, the Department was right in reducing Rs. 5,00,000 from FOB value of exports amounting to Rs. 6,50,000, however, according to the assessee, the Department had erred in reducing further the fob value of exports by Rs. 50,000 instead of Rs. 34,000 because, according to the assessee, although it had incurred indirect cost of Rs. 50,000, from that figure of Rs. 50,000 it was entitled to deduction of 10% of expenses attributable to export incentives, miscellaneous income and interest income amounting to Rs. 1,60,000 (10% of Rs. 1,60,000 is Rs. 16,000)as mentioned in the above example. Therefore, according to the assessee, it was entitled to total deduction of only rs. 5,34,000 and not Rs. 5,50,000 from FOB value of exports amounting to Rs. 6,50,000.;