The Commissioner of Income Tax vs M. Gani and Co.

K. Raviraja Pandian, J.—This appeal has been filed against the order of the Income Tax Appellate Tribunal in I.T.A. No. 942/Mds/2005

dated 30.11.2006. The relevant assessment year is 2001-02.

The assessee is a manufacturer of garments and fancy items and exporter. The assessee filed its return of income on 29.10.2001 for the relevant

assessment year 2001-2002 claiming deduction u/s 80HHC of the Income Tax Act (hereinafter referred to as the ""Act"") on export turn over

ignoring the results of domestic turn over. The Assessing Officer after going through the facts that the assessee while computing the deduction u/s

80HHC of the Act has taken into consideration only the turn over of the export division for the purpose of total turn over, has made a composite

turn over of both the export turn over as well as domestic turn over and accordingly re-computed the deduction u/s 80HHC of the Act. Aggrieved

by that order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax

(Appeals) allowed the claim of the assessee relying upon the provisions of Section 80HHC(3)(c) of the Act. The Revenue carried the matter on

further appeal before the Income Tax Appellate Tribunal, which confirmed the order of the Commissioner of Appeals and dismissed the appeal

preferred by the Department. Aggrieved by that order, the present appeal has been filed by formulating the following substantial questions of law:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the assessee is entitled

for deduction u/s 80HHC fully on export profits, even though Section 80HHC(3)(a) will applicable to the facts and in the circumstances of the

case ?

We heard the learned standing counsel appearing for the Revenue.

This question of law as to whether where the assessee has maintained the separate books of accounts in respect of domestic transaction as well

as the export transaction the clubbing of income was permissible was considered by this Court in Commissioner of Income Tax Vs. Rathore

Brothers, . In that case, it was held that where the assessee has maintained separate accounts and it had maintained its trading receipts and profit

and loss accounts separately for export sales and domestic sales and there was sufficient materials supported by all the necessary documents to

show that the deduction claimed was entirely due to export, there was no warrant for disallowing any portion of the export earnings pro rata by

invoking Clause (b) of Sub-section 3 of Section 80HHC of the Act. The purpose of the clause was to disallow a part of the allowances under the

section only when the entire claim could not be regarded as being relatable to export. That decision has been followed subsequently, in

Commissioner of Income Tax Vs. Suresh B. Mehta, in a similar set of facts, where the assessee had maintained the separate accounts for domestic

transaction as well as the export transaction. Having regard to the said fact, this Court has held that the assessee was maintaining separate accounts

independent of his other business and that there was no intermingling of expenditure or interlacing of funds of any kind whatsoever the assessee

was entitled to the relief. That decision was followed in another case in Commissioner of Income Tax v. Macmillam India Ltd. reported in 295 ITR

67, wherein also, the Court held as follows:

Where the assessee had maintained separate accounts and maintained its trading receipts and profit and loss accounts separately for export sales

and domestic sales and produced sufficient material in support of all the necessary documents to show that the deduction claimed was entirely due

to export, there is no warrant for disallowing any portion of the export earnings pro rata by invoking Clause (b) of Sub-section (3) of Section

80HHC of the Income Tax Act, 1961, as the purpose of the clause is to disallow a part of the allowance under that section only when the entire

deduction claimed could not be regarded as being relatable to exports.

Incidentally, in the latter two cases, one of us was party (CVJ). In paragraph-6 of the order, the Tribunal has categorically stated without any

ambiguity that the assessee maintaining separate set of books of accounts. Hence, the assessee is entitled for deduction u/s 80HHC of the Act fully

on export profit. In view of the fact that the assessee maintained the separate books of accounts for export business and domestic business and in

the light of the earlier decisions cited, we are of the considered view that the Tribunal has decided the issue correctly and the appeal deserves no

merit consideration. Therefore, the appeal is dismissed. No costs.