CIT Vs. ITC LIMITED

JUDGEMENT

(1.) The appeal is directed against a judgement and order dated 7th March, 2008 passed by the learned Income Tax Appellate Tribunal "E" Bench, Kolkata in ITA No.1527 (Kol) of 2007 pertaining to the assessment year 2004-05 by which an appeal preferred by the Revenue was dismissed. Aggrieved revenue has once again come up in appeal which was admitted on 20th Nov., 2008 and the following question of law as suggested by the revenue was admitted by the court : "Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal, "E" Bench Kolkata erred in law in allowing the assessee s appeal and directing to the Assessing Officer to exclude foreign exchange receipts taken into account for the purpose of deduction under section 80HHD of the Income Tax Act, 1961 from the total turnover for the purpose of calculation of deduction under section 80HHC of the Income Tax Act, 1961 ?"

(2.) Mr.Bhowmik, learned advocate appearing for the appellant/revenue submitted, at the very outset, that there is an inadvertent error in the question formulated, in that, the learned Tribunal by the impugned judgement had dismissed an appeal preferred by the revenue. Therefore, the question should be reformulated as below : "Whether, under the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in upholding the views of the CIT(Appeal) who had directed the assessing officer to exclude Foreign Exchange receipts taken into account for the purpose of deduction under section 80HHD of the Income Tax Act, 1961 from the total turn over for the purpose of calculation of deduction under section 80HHC of the Income Tax Act, 1961 ?"

(3.) The CIT (A) had held in favour of the assessee on the basis of an earlier order of the Tribunal passed on 25th Feb., 2005 in ITA Nos. 888 and 889 (Kol)/2004. When the matter came up before the learned Tribunal, the learned Tribunal also upheld the order of the CIT for the same reasons assigned by the learned Tribunal in its judgement and order dated 25th Feb., 2005 which to be precise are as follows : "We have heard the parties and considered their rival submissions. We have also carefully perused the orders of the lower authorities on this issue. The principle of keeping the numerator and the denominator in the same proportion is discussed at length by the Hon ble Bombay High Court in the case of C.I.T. Vs. Sudarshan Chemicals Ltd. (245 ITR 769) and by the Hon ble Calcutta High Court in the case of CIT Vs. Chloride Industries Ltd., 2002 (256) ITR 625 (Cal.) (supra). According to the said judgement of Hon ble High Courts, deduction eligible under section 80HHC would be in the following manner :- Profits arising of the business (export of goods) x Export turnover (export of goods) Total turnover of the business On reading of Sec. 80HHC, it would be evident that neither the profits contain profits of hotel business nor the export turnover contains the receipts from hotel business. In that event, if the total turnover includes the receipts from hotel business, the entire claim will be wayward and the basic intention of proportionate deduction would be redundant. As per the said judicial pronouncements, the turnover should be restricted to such receipts which have an element of profit derived from export of goods. Therefore, respectfully following the principle laid down by the Hon ble Courts, referred to above, the total turnover has to be reduced by the amount of gross receipts from such hotel business in order to keep the parity between the numerator and the denominator. In this view of the matter, we uphold the order of the Ld. C.I.T.(A) on this issue and direct the Assessing Office to recalculate the allowable deduction under section 80HHC as per guidelines mentioned herein above."