NEKKANTI SEA FOODS LTD., HYDERABAD,HYDERABAD vs. DCIT, CIRCLE-16(1), HYDERABAD, HYDERABAD

Further, the assessee has also raised the following additional grounds of appeal: “The AO erred in excluding the income from the DEPB license for the purpose of deduction u/s 80HHC in view of the fact that the 4th proviso to sub-section (3) of section 80HHC is held by the Supreme Court as prospective”.

Brief Facts of the case are that the assessee company, engaged in the business of processing and export of marine products, filed its return of income for the relevant A.Ys. During the assessment proceedings u/s 143(3) of the Act, the deduction claimed by the assessee u/s 80HHC was disallowed by the AO holding that the assessee company does not have profits from the export business under clause (a), (b) or (c) of sub-section (3) of section 80HHC and therefore, the proviso to sub-section (3) of section 80HHC is not at all attracted and the assessee would not be eligible for any deduction u/s 80HHC. In the appeal filed by the assessee, the CIT (A) also confirmed the disallowance against which the assessee filed further appeal to ITAT and the Coordinate Bench of this Tribunal in ITA Nos.1665 & 1666 for the A.Y 1999-2000 and 2002-03 vide order dated 29.05.2009, by following the decision of the Hon'ble Supreme Court in the case of IPCA Laboratories Ltd vs. DCIT (2004) 266 ITR 521 held that the assessee is not eligible for such deduction i.e. u/s 80HHC when there is negative profit in the aggregate.

Further, as regards the computation of profit on sale of DEPF license is concerned, the Bench remitted the issue to the file of the AO for reconsideration as to whether the assessee has incurred any expenditure for the sale of DEPB license and if it is incurred, then to reduce it from the gross receipts on sale of DEPB license while computing the profits of the assessee. Consequent thereto, the AO considered the assessee’s submissions that the expenditure relevant to earning of income under the head sale of DEPB has two components i.e. direct and indirect cost and that the application and license fee and sales tax are the direct expenses attributable to the sale of DEPB and the indirect costs incurred on export incentives are in the form of excess payments made in procurement of raw-material and the export incentives and should also be considered. The AO, however, reduced only the direct cost and later computed the income from DEPB incentives. He observed that if 90% of income from export incentive is reduced from the profits of the business, the assessee dies not have positive profits. Thus, he invoked the 3rd proviso to sub-section (3) of section 80HHC and observed that the assessee has not explained as to how the conditions stipulated therein have been fulfilled by the assessee. He therefore, disallowed the claim of the assessee u/s 80HHC. Aggrieved, the assessee preferred an appeal before the CIT (A) seeking reduction of indirect expenses from DEPB sale receipts for further computation u/s 80HHC of the Act. The CIT (A) however, confirmed the order of the AO and the assessee is in second appeal before us.

As the additional ground raised by the assessee goes to the root of the matter and is a legal ground, we deem it fit and proper to admit the same and consider the merits of the said ground. We find that the AO has disallowed the claim of deduction u/s 80HHC mainly by invoking the proviso 3 & 4 of sub-section 3 of section 80HHC.The learned Counsel for the assessee submitted that the proviso 3 to sub-section 3 of section 80HHC has been introduced by the Finance Act of 2005 whereas the A.Ys before us are 1999-2000, 2002-03 and 2003-04 and therefore, the said conditions are not applicable to the A.Ys before us. For this proposition, he placed reliance upon the decision of the Hon'ble Gujarat High Court in the case of Avani Exports v. CIT (2012) 348 ITR 391 (Guj.) which has been confirmed by the Hon'ble Supreme Court as reported in (2015) 58 Taxmann.com 100(S.C). He submitted that the said decision has also been followed and confirmed by the Hon'ble Supreme Court in the subsequent case in the case of Union of India vs.Paliwal Overseas (P) Ltd reported in (2017) 77 Taxmann.com 35 (S.C). The learned Counsel for the assessee has filed copies of the orders before us.

The learned DR, on the other hand, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, we find that the Hon'ble Supreme Court has confirmed the decision of the Hon'ble Gujarat High Court in the case of Avani Export (Supra) that the amendment to section 80HHC(3) made by the Taxation Law 2nd Amendment of 2005 with

We find that the issue is therefore, covered by the above decisions and respectively following the same, the additional ground of appeal raised by the assessee is allowed and

In the result, assessee’s appeals are partly allowed for statistical purposes. Order pronounced in the Open Court on 31st October, 2018.