COMMISSIONER OF INCOME TAX Vs. PINK STAR

JUDGEMENT

(1.) THE assessee is an exporter of diamonds. While filing the assessment, the AO allowed deduction under S. 80HHC of Rs. 63,78,088 as against the claim for Rs. 88,40,538. This was mainly on the ground that in the computation of profit of the business, the licence premium was taken by the AO as nil whereas the assessee claimed the deduction under the said head at Rs. 21,34,030. Similarly, the AO treated the premium on import licence in the assessment order as local turnover whereas the assessee claimed that it was an export incentive and, therefore, was not entitled to be treated as a turnover. Being aggrieved, the assessee filed an appeal before CIT(A) who gave certain directions for verifications. Being aggrieved, the assessee preferred further appeal before the Tribunal which allowed the claim of the assessee, inter alia, directing the AO to recompute the deductions under S. 80HHC. The Tribunal directed the AO not to treat an amount of Rs. 51,93,829 as part of the total turnover. The Tribunal also directed the profits of the business to be reduced by 90 per cent of the net premium of Rs. 15,47,005 in view of cl. (baa) of the Explanation to s. 80HHC. Being aggrieved by the above directions of the Tribunal, the Department has come in appeal under S. 260A of the IT Act.

(2.) IN this appeal, we are concerned with the asst. year 1994 -95. The assessee -firm carried on the business of purchase, process and export in diamonds. During the asst. year 1994 -95, there was no local turnover. The assessee claimed deduction under S. 80HHC of Rs. 88,40,538. The assessee reduced 90 per cent of Rs. 21,34,030 towards licence premium as per provisions of the above cl. (baa) of the Explanation to the said section.

(3.) IN the light of the above facts, the question which arises for determination, therefore, is : Whether the total premium received by the assessee from the Government of India of Rs. 51,93,829 could be treated as total turnover for calculating the deduction under S. 80HHC.