M/S PALIWAL EXPORTS vs. ACIT CENTRAL CIRCLE, KARNAL

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ITA/405/2010HC Punjab & HaryanaPHHC01093336201027 August 2010Bench: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the question proposed was not a substantial question of law. The Tribunal's decision was based on the judgment of the same High Court in Rani Paliwal v. CIT [2004] 268 ITR 220 (P&H). This precedent established that for the special deduction under Section 80HHC, 90% of the interest received by the assessee is deductible from the gross interest. The assessee's counsel did not dispute that the matter was covered against them by this judgment. Therefore, the appeal was dismissed. The ratio decidendi is that for Section 80HHC calculations, only gross interest received is considered for deduction, and netting of interest is not permissible. No issue was expressly left undecided.

What were the facts?

The assessee, M/s. Paliwal Exports, engaged in exporting handloom products, filed an appeal before the High Court of Punjab and Haryana against an order of the Income Tax Appellate Tribunal (ITAT). The assessment year in question was 1999-2000. The dispute concerned the computation of deduction under Section 80HHC of the Income Tax Act, 1961. The assessee sought to include the benefit of netting interest while calculating the deduction, but this was disallowed by the Assessing Officer. While the CIT(A) had ruled in favour of the assessee, the ITAT, following a previous High Court judgment, held that netting of interest was not permissible as it was not related to export income.

What were the issues?

1. Whether, in the facts and circumstances of the case, the ITAT was justified in law to consider only the interest paid by the appellant to the bank on the loan raised for financing the export business instead of net interest while computing the export profit under Section 80HHC of the Income Tax Act, 1961? Assessee's contention: The assessee argued that the benefit of netting interest should be considered. The judgment does not explicitly record the assessee's detailed arguments before the ITAT, but it implies their claim was based on the absence of a net debit balance in the interest account, suggesting no interest income to be deducted. Revenue's contention: The revenue contended that the benefit of netting interest was not permissible as it was not related to export income. The ITAT, in its order, noted that 90% of the interest income was deducted from the business profit for calculating the deduction under Section 80HHC, implying the revenue's stance aligned with this approach.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80HHC

AI-generated summary — verify with the full judgment below

ITA No. 405 of 2010 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 405 of 2010 (O&M) Date of Decision: 27.8.2010 M/s. Paliwal Exports ....Appellant. Versus ACIT, Central Circle, Karnal ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. R.P. Sawhney, Senior Advocate with Mr. Baljinder Singh Sra, Advocate for the appellant. ADARSH KUMAR GOEL, J. 1. The assessee has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 3.4.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 3478/Del/2005 for the assessment year 1999-2000, proposing to raise following substantial questions of law:- “In the facts and circumstances of the case, the Reamed I.T.A.T. was justified in law to take into consideration only the interest paid by the appellant to the bank on the loan raised for financing the export business instead of net interest while computing the export project under section 80HHCAct 1961?”

ITA No. 405 of 2010 (O&M) -2- 2. The assessee is engaged in the business of export of handloom products . While claiming deduction under Section 80HHC of the Act, the assessee included the benefit of netting of interest which was not allowed by the Assessing Officer. Though the CIT (A) upheld the plea of the assessee, the Tribunal following the judgment of this Court in Rani Paliwal v. CIT [2004] 268 ITR 220 (P&H) held that the benefit of netting interest was not permissible as the said benefit was not related to export income. 3. We have heard learned counsel for the appellant. 4. The Tribunal held as under:- “The assessee is an exporter claimed deduction u/s 80HHC in respect of business profit but has not deducted 90% of the interest receipt from the business profit as per clause (baa) of Explanation to section 80HHC. It was claimed by the assessee that there is no net debit balance in the interest receipt from the business profit as per clause (baa) of Explanation to section 80HHC. It was claimed by the assessee that there is no net debit balance in the interest account and such there is no income. The explanation of the assessee did not find favour in view of the clause (a) of section 80HHC. Accordingly, 90% of the interest income was deducted from the business profit for calculating the deduction u/s 80HHC. However, on appeal the issue was decided in favour of the assessee. The Hon'ble

ITA No. 405 of 2010 (O&M) -3- Jurisdictional High Court in the case of Rani Paliwal (supra) uphold the stand of the Tribunal by deciding that special deduction u/s 80HHC, 90% of the interest is deductible from the gross interest received by the assessee.” 5. Learned counsel for the appellant does not dispute that the matter is covered against the assessee by judgment of this Court in Rani Paliwal's case (supra) which was also followed in CIT v. Liberty Footwear Company [2006] 287 ITR 339. 6. In view of the above, question proposed cannot be held to be a substantial question of law. 7. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE August 27, 2010 (AJAY KUMAR MITTAL) gbs JUDGE

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