AJAY KUMAR MITTAL, J. - (1.) THIS reference under s. 256(1) of the IT Act, 1961 (for short "the Act") has been made to this Court at the instance of the Revenue by the Income -tax Appellate Tribunal, Amritsar Bench, Amritsar, (for brevity "the Tribunal") arising out of question of law :
(2.) "Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in dismissing the appeal of the Revenue against the order of the learned CIT(A), holding that the assessee is justified in claiming deduction under s. 80HHC of the IT Act, 1961, of such profits as determined by the AO and that there is no infirmity in the order of the learned CIT(A) in directing to allow such deduction, with regard to the amount of addition of Rs. 2,50,000 made in the trading account while finalising the assessment for the asst. yr. 1989 -90 - accompanied by a report of the chartered accountant within the meaning of s. 80HHC of the Act claiming deduction at Rs. 54,091 in relation to the exports made during the year under reference. The assessee has declared the gross profits at Rs. 2,44,24,055 including duty draw back of Rs. 14,52,622 on sales/exports of Rs. 19,51,51,000 (including exports of Rs. 5,71,06,630), GP rate works out to a little less than 12 per cent against 9.37 per cent during the last year. The assessee was requested to file a separate trading account for purchase and sale of leather and shoe uppers to know the prepare separate trading account as it was maintaining one set of books of account for all these transactions. The assessee also failed to furnish the details of value of the grinders used on each pair of shoe uppers and the details of consumable stores. The accounts of the assessee firm were rejected under s. 145 of the Act. Accordingly, on the basis of trading account of the assessee was made, the Dy. CIT, Special Range, Jalandhar served a notice of demand upon the deduction under s. 80HHC of the Act in relation to the addition of Rs. 2,50,000 made in the trading account. Accordingly, the total income of the assessee firm stood reduced to Rs. 6,50,394 after allowing further deduction under s. 80HHC of affirmed the order passed by the CIT(A).
(3.) WE have heard learned counsel for the Revenue. As noticed above, the CIT(A) while deciding the appeal held that the addition of Rs. 2,50,000 which had been made by the AO to the trading account would be entitled to deduction under s. 80HHC of the Act. On appeal by the Revenue, the Tribunal affirmed the view of the CIT(A) and held that the addition to the trading account forms part of the profit of the concern and if the profits determined by the AO are related to the business of the assessee which is engaged in the export out of India of any goods or merchandise to which the provisions of s. 80HHC of the Act are applicable, then the assessee was entitled to claim deduction under s. 80HHC of the Act out of the profits as determined by the AO. The observations of the Tribunal in para 10 which are relevant reads thus : "The AO made an addition of Rs. 2,50,000 to the trading account and this amount of Rs. 2,50,000 forms part of the profits of the concern. Rs.80HHC. (1) where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the 'profits' derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate, (hereafter in this section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred to in cl. (b) of sub -s. (4A) that in respect of the amount of the export turnover specified therein, the deduction under this sub - section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits of the export business of the assessee the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee.' The relevant ingredients of the section are that at the time of computing the total income of the assessee, the AO has to allow a deduction of the profit derived by the assessee from the export of such goods or s. 80HHC provides that the assessee may arrive at his own profits relatable to the relief under s. 80HHC and duly certified by accredited auditor. Nevertheless, the AO will also arrive at the profits earned by the appellant. If the profits so arrived at by the AO are related to the business of the assessee which is engaged in the business of export out of India of any goods or merchandise to which s. 80HHC is applicable, then the appellant is completely justified to make the claim of deduction of such profits as determined by the AO. We, therefore, find no infirmity in the order of the CIT(A) and the appeal of the Revenue is dismissed.";