The Commissioner of Income Tax vs Nameel Leathers and Uppers

P.D. Dinakaran, J.—This appeal is directed against the order dated 26.5.2004 of the Income Tax Appellate Tribunal Madras ''C'' Bench made in I.T.A. No. 1438/Mds/1997, with reference to the assessment year 1993-94.

2.1. Brief facts leading to the filing of this appeal are as follows:

In the intimation u/s 143(1) of the Income Tax Act (for brevity "the Act"), the Assessing Officer accepted the assessee''s calculation of relief u/s 80HHC taking the adjusted business profits as ''Nil'' by ignoring the loss.

2.2. The Assessing Officer, by proceedings dated 7.11.1996, sought to rectify the said intimation and passed an order u/s 154 of the Act holding that the negative figure obtained on adjusted profits has to be deducted from the positive figure obtained by taking 90% of the export incentives multiplied by the export turnover and divided by the total turnover and that the net figure would constitute the deduction u/s 80HHC of the Act.

2.3. Aggrieved by the proceedings of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Madras, who by order dated 20.3.1997 upheld the order of the Assessing Officer and held that losses should be deducted from the profit available from incentives.

2.4. Against the said order dated 20.3.1997, the assessee preferred a further appeal before the Tribunal. The Tribunal, by order dated 26.5.2004, finding that the point at issue, viz., the manner of computation of deduction u/s 80HHC of the Act, is a debatable issue, held that the Assessing Officer should not have brought the same as a subject matter of rectification u/s 154 of the Act. However, on merits, the Tribunal held that the contention of the assessee has to be rejected in view of the decision of the Apex Court in IPCA Laboratory Ltd. Vs. Deputy Commissioner of Income Tax, Mumbai, . Thus, the Tribunal, finding that the issue involved is a debatable issue, which cannot be decided under a rectification u/s 154 of the Act, held in favour of the assessee and allowed the appeal.

2.5. Hence, the revenue has preferred this appeal on the following substantial questions of law:

(i) Whether in the facts and circumstances of the case, the Tribunal was right in holding that calculation of deduction u/s 80HHC of the Act cannot be adjudicated in the rectification proceedings u/s 154 of the Act as the issue is debatable?

(ii) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the loss sustained by the assessee from its export business should be ignored and he should get the benefit of Section 80HHC of the Act even though there is are no export profits?

It is a settled law that the question of relief u/s 80HHC of the Act is a debatable issue, which does not fall within the purview of prima facie adjustment u/s 143(1)(a) of the Act and that could be taken up in regular assessment u/s 143(3) of the Act, and Section 154 of the act has no application, vide Commissioner of Income Tax Vs. Richa and Co., .

A plain reading of Section 80HHC of the Act makes it clear that in arriving at profits earned from export, the profits and losses in the trade have to be taken into consideration and if after such adjustments there is a positive profit the assessee would be entitled to deduction u/s 80HHC(1) of the Act and if there is a loss in trade then the loss has to be taken into account for the purposes of computating the profits, vide IPCA Laboratory Ltd. Vs. Deputy Commissioner of Income Tax, Mumbai, .

The law enunciated from the aforesaid decisions makes it clear that even though losses should be deducted from the profit available for the purpose of computation of relief u/s 80HHC of the Act, since the question of relief u/s 80HHC of the Act is a debatable issue which does not fall within the purview of prima facie adjustment u/s 143(1)(a) of the Act and the same could be taken up in regular assessment u/s 143(3) of the Act, the action of the revenue invoking Section 154 of the Act to rectify the intimation u/s 143(1)(a) of the Act is not valid.

Finding, therefore, no substantial question of law for our consideration, this appeal is dismissed. No costs.