RAKESH KUMAR GARG, J. - (1.) BENCH 'B', Chandigarh in ITA No. 596/Chd/2005 for the asst. yr. 2003 -04 proposing following substantial questions of law : "1. Whether on the facts and in law, the Tribunal was correct in upholding that the Central sales -tax and sales -tax be not formed the part of total turnover while computing of deduction under s. 80HHC ? 2. Whether on facts and in law, the Tribunal was right to uphold the order of the CIT(A) that the premium on sale of export quota, as incentive, which is not covered under ss. 28(iiia), 28(iiib) and 28(iiic) of the IT Act, be treated as 'business income' instead of 'income from other sources' in computation of deduction under s. 80HHC ? . Whether on the facts and in law, the Tribunal was legally right in dismissing Revenue's appeal on exclusion of 90 per cent of interest income assessable under the head 'Income from other sources' from the business profit -
(2.) THE brief facts of the case are that the assessee/respondent is a manufacturer and exporter of hosiery items. The notices, the assessment proceedings were attended by the representative of the assessee from time to time and requisite information was also furnished. The AO found the following discrepancies in the return. (a) The assessee has not included sales -tax and central sales -tax as part of total turnover. (b) The assessee has treated the interest income of Rs. 59,03,694 as business income and treated it for reducing by 90 per cent while computing 'profit of the business' under Expln. (baa) below sub -s. (4B) of s. 80HHC. It was found by the AO that the interest was on deposits of surplus funds available with the assessee and the income of such interest according to AO is income under the head other sources. (c) While computing deduction under s. 80HHC, the assessee has taken the negative figure of "the profit from export of manufacturing business" as zero. assessment under s. 143(4) of the IT Act as under : " During the assessment proceedings under s. 143(3) of the IT Act, 1961, the AO has noticed that the assessee has not included sales -tax and Central sales -tax in the total turnover for the purposes of deduction under s. 80HHC. The AO finalized the assessment by including the sales -tax and Central sales -tax at Rs. 34,331 in the total turnover for computation of deduction under s. 80HHC. The AO held that the premium on sale of export quota is not treated as export incentive as it is not covered in any of the ss. 28(iiia) to 28(iiic) of the IT Act, 1961. The AO treated the amount as 'any other receipt of similar nature', while computing the profit of the business as per Expln. (baa) below s. 80HHC as these receipts cannot be treated as export incentives. The AO observed that, in the computation of deduction under s. 80HHC, while computing profit of the business, 90 per cent of premium on sale of quota was reduced and thereafter deduction was claimed on this amount as per proviso to s. 80HHC(3) of the IT Act, 1961. The AO rejected the claim of the assessee and held that 90 per cent of the receipts from sale of export quota will be reduced while computing the profit of the business, but while computing deduction as per proviso to s. 80HHC(3) deduction on 90 per cent of these receipts will not be allowed."
(3.) Aggrieved by the order of the AO, the respondent went in appeal before the CIT(A), Ludhiana, who vide his order dt. IT/CIT(A) -1/2003 -04 decided the issue in favour of the assessee.;