M.M. Cherian, A.M. - (1.) THIS is an appeal by the Revenue against the order of the CIT(A), Trivandrum in the case of Smt. Subhadra Ravi Karunakaran, Alleppey for the asst. yr. 1989-90. The assessee is carrying on business in the export of coir products, commission agency, steamer agency, etc. For the asst. yr. 1989-90 the assessee filed the return declaring a total income of Rs. 10,82,070. Deduction was claimed under s. 80HHC to the extent of Rs. 2,57,488 in the export business. THIS claim was not allowed by the AO on the ground that there was no profit derived from the export of coir products. In the assessee's appeal, the CIT(A) allowed the claim on the view that the assessee's computation was in accordance with the provisions in sub-s. (3)(b) of s. 80HHC. Aggrieved with the order of the CIT(A) the Revenue has filed this appeal before the Tribunal.
(2.) On behalf of the Revenue Shri Sudhakaran Pillai, the Departmental Representative submitted before us that the CIT(A) was not justified in holding that the assessee was entitled to get by way of deduction under s. 80HHC an amount in excess of the actual profit derived from the export of coir products. The learned Departmental Representative pointed out that the export sale during the year was only Rs. 5,36,485 on the purchases of Rs. 5,31,680 and even without considering the overhead expenses the result was a gross profit of only Rs. 4,805 and that the net result in the export business was only loss after taking into account all the overhead and incidental expenses. According to Shri Sudhakaran Pillai, when there was no profit derived from the export, the CIT(A) was not justified in allowing deduction for the sum of Rs. 2,57,488 as profit derived from the export business computed in accordance with sub-s. (3)(b) of s. 80HHC. Drawing our attention to s. 80HHC(1), the learned Departmental Representative stated that the intention of the legislature was to allow deduction of the profits derived by the assessee from the export of specified goods and merchandise and by no stretch of imagination it could be presumed that the legislature intended to allow a deduction of an amount exceeding the actual profit derived from the export business. In the present case it was not the assessee's claim was that they had made a profit in the export of coir products, but the claim was that the profit for the purpose of s. 80HHC should be computed in accordance with the provisions of sub-s. (3)(b) and in that computation the assessee would become eligible for deduction of the sum of Rs. 2,57,488. Shri Sudhakaran Pillai contended that the confusion arose in this case by the wrong application of sub-s. (3)(b) to include in the total turnover of the business, the turnover in all the activities including agency commission, handling charges, xerox copying collection, etc. It was pointed out that in the assessee's computation the total turnover was taken at Rs. 25,69,969 which is the total credit in the P&L a/c including sundry creditors written back. The learned Departmental Representative further stated that in s. 80HHC(1) deduction is allowed to an assessee being an Indian company or a person resident in India who is engaged in the business of export out of India of any goods or merchandise to which the section applies and that in sub-s. (3)(b) the expression "the business carried on by the assessee" should be given the same meaning as in s. 80HHC. According to Shri Sudhakaran Pillai, sub-s. (3)(b) applies in a case where the export business carried on by the assessee does not consist exclusively of the export of specified goods or merchandise and only in that case the apportionment on the basis of the export turnover to the total turnover is required to be made. It was strongly contended that where the business carried on by the assessee (as in the present case) consists of export business and non-export business it would not be correct to make the computation in accordance with sub-s. (3)(b). Shri Sudhakaran Pillai extended his argument by stating that unless the assessee is having income from the specified business, the corresponding deduction under s. 80HHC would not be allowable. For that contention he placed reliance on the decision of the Karnataka High Court in the case of CIT vs. HMT Ltd. (1993) 203 ITR 811 (Kar). For computing the relief under s. 80HC, it is necessary to first find out whether any profit is derived by the assessee from the export business and included in the gross total income under s. 80AB. He also relied on the decision of the Kerala High Court in the case of CIT vs. V. T. Joseph (1997) 225 ITR 731 (Ker) to contend that education under s. 80HHC is to be allowed only to the extent of the income from export business included in the gross total income. Reference was also made to the decision of the Kerala High Court in CIT vs. Kil Kotagiri Tea & Coffee Estate Ltd. (1991) 191 ITR 283 (Ker) wherein on p. 287 the Court observed that whatever has not been included in the assessment cannot be excluded and only the amount which has been included can be excluded. Shri Sudhakaran Pillai contended that when no export profit was included in the total income, there was no amount which could be allowed as a deduction under s. 80HHC as profit derived from the export business which is otherwise included in the gross total income within the meaning of s. 80B(5). Per contra, Shri J. Krishnan, Chartered Accountant, appearing on behalf of the assessee, strongly supported the order of the CIT(A) and admitted that when the business of the assessee did not consist exclusively of export of goods, the profit derived from export activity could not be easily ascertained and so separate provisions were introduced in s. 80HHC to compute the profit derived from the export activity, and the deduction allowed by the CIT(A) was in accordance with the computation as provided in s. 80HHC(3)(b). According to the learned representative, the scope of the provisions of sub-s. (3)(b) is very clear from a plain reading. Under cl. (b) when the business carried on by the assessee does not consist exclusively of export, the export profit would have to be calculated by working out the profit on the basis of the export turnover to the total turnover. Shri Krishnan referred to the Circular No. 421 issued by the CBDT on 12th June, 1985, to contend that the Central Board had accepted the view that the profit derived from export business should be computed in the proportion of the export turnover to the total turnover. Reference was also made to the subsequent Circular No. 572, dt. 3rd August, 1990. It was submitted that the assessee had computed the relief on export profit in accordance with cl. (b) of sub-s. (3) and the same was upheld by the CIT(A) for justifiable reasons. Shri Krishnan contended that the actual computation as provided in sub-s. (3)(b) could not be varied merely because the AO felt that the assessee was getting deduction for a higher amount than the actual profit of the business. It was strongly contended that the AO had no choice but to allow the deduction in strict compliance with the provisions of sub-s. 3(b) and so the direction given by the CIT(A) was perfectly in order requiring no interference at this stage.
(3.) THE assessee is an exporter of coir products. Admittedly, the profit derived from the export of coir product is entitled to the deduction under s. 80HHC. But the assessee is having other business activities, even though the export business is confined to coir products only. THE assessee is deriving income from commission agency, steamer agency, etc., which are not connected with the export business. From the P&L a/c for the year ending 31st March, 1989, it can be seen that the export sales came to only Rs. 5,36,485 on the purchases of Rs. 5,31,680 giving a gross profit of only Rs. 4,805. If the overhead and other incidental expenses are also taken into account, the result in the export business would be loss only. As a matter of fact, the AO rejected the assessee's claim for deduction under s. 80HHC for the reason that there was no profit derived from the export of specified goods or merchandise, which could be deducted under s. 80HHC. But the assessee claimed deduction of Rs. 2,57,488 under s. 80HHC as under : Rs. Profit from business as per the computation of total income 12,33,464 FOB value of the exports 5,36,485 Total credit in the P&L a/c 25,69,969 Export profit : 12,33,464x5,36,485 2,57,488 ------------------ = 25,69,969 (THE total credit of Rs. 25,69,969 in the P&L a/c includes the following items in addition to export sales : Rs. Interest 47,250 Agency commission 15,78,066 Handling charges of containers 52,767 De-stuffing charges 87,018 Xerox charges 3,465 Sundry credits written back 2,63,634 THE CIT(A) upheld the assessee's claim for deduction on the basis of the above computation.;