THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6 vs. MITESH EXPORTS

Facts

This appeal by the Revenue challenges the order of the Income Tax Appellate Tribunal (ITAT) which had partly allowed the assessee's appeal. The assessee is Mitesh Exports, and the Revenue is the Assistant Commissioner of Income Tax. The assessment year(s) are not explicitly stated. The core dispute revolves around the calculation of deduction under Section 80HHC of the Income Tax Act, 1961. Specifically, the Tribunal directed the Assessing Officer to include the sale of rejected diamonds and amounts received due to foreign exchange fluctuation for earlier year exports in the total export turnover for determining the 80HHC deduction. The High Court admitted the appeal, framing substantial questions of law.

Held

The High Court held that both substantial questions of law are answered in favour of the assessee and against the department. For the first question, concerning the inclusion of sale of rejected diamonds in export turnover for Section 80HHC deduction, the Court relied on its own previous decisions in Tax Appeal No. 759 of 2006 and Tax Appeal No. 39 of 2000, which favoured the assessee. For the second question, regarding the inclusion of foreign exchange fluctuation gains for earlier year exports in the export turnover for Section 80HHC deduction, the Court followed the decision of the Apex Court in CIT vs. Priyanka Gems, [2014] 367 ITR 575 (Guj.). This decision held that such gains are directly related to the export business and are entitled to deduction under Section 80HHC. The Court found no dispute that these decisions applied to the present case due to identical facts and questions of law, thus dispensing with elaborate reasoning. The appeal was dismissed accordingly.

Key Issues

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case and in law, the ITAT was right in directing the Assessing Officer to include the sale of rejected diamonds in the total export turnover for working out the deduction available under Section 80HHC of the Income Tax Act? 2. Whether, on the facts and in the circumstances of the case and in law, the ITAT was right in directing the Assessing Officer to include the amount received on account of foreign exchange fluctuation for exports of an earlier year for working out the deduction available under Section 80HHC of the Income Tax Act? Assessee's Contentions: For question 1, the assessee relied on this Court's decisions in Tax Appeal No. 759 of 2006 (dated 21/11/2014) and Tax Appeal No. 39 of 2000 (dated 01/07/2014), which answered the issue in favour of the assessee. For question 2, the assessee relied on the Apex Court's decision in CIT vs. Priyanka Gems, [2014] 367 ITR 575 (Guj.), which held that gains derived from foreign exchange fluctuation for exports are entitled to deduction under Section 80HHC. Revenue's Contentions: The Revenue's contentions are not explicitly recorded in the judgment, except for the fact that they had challenged the ITAT's order. The judgment notes that for question 1, this Court had previously decided an identical question in Tax Appeal No. 62 of 2006 (dated 28/09/2006) in favour of the department, but subsequently, in other appeals, ruled in favour of the assessee.