Law:

Section:

Section 80HHC of the Income-tax Act, 1961 - Deduction - Exporters - Whether where income from sale of scrap is part of business profit and its sales turnover forms part of total turnover which would constitute denominator for determination of eligible deduction of export profit, exclusion of 90 per cent of such income is not called for by operation of Explanation (baa)(i) to section 80HHC - Held, yes - Whether insurance claim received prima facie falls under exclusion clause of Explanation (baa)(i) to section 80HHC but where claim received is on account of loss of goods which forms part of total turnover, then it has to be treated as business profit and corresponding turnover will form part of total turnover in computation of export profit for deduction under section 80HHC - Held, yes FACTS The assessee was engaged in manufacture and sale of automotive parts, both within India and out of India. It claimed deduction of export profit under section 80HHC. During the assessment proceedings, the Assessing Officer noticed that business profit arrived at by the assessee included income from sale of scrap and insurance claim received which fell under 'any other receipt of similar nature' requiring exclusion of 90 per cent thereof by virtue of theExplanation (baa )(i) to section 80HHC. On appeal, the Tribunal, however, held that in the computation of deduction of export profit under section 80HHC(3), the Assessing Of ficer was not justified in excluding 90 per cent of the income on the sale of scrap and insurance claim received by applying theExplanation (baa )(i) to section 80HHC. On the revenue's appeal : HELD The whole exercise of sub-section (3) of section 80HHC is to determine the proportionate profit attributable to export business. Section provides for a formula to determine the export profit by dividing business profits by total turnover and by multiplying the same with export turnover. Obviously, the formula will work out realistically only if the business profit adopted is attributable to the turnover wherefrom it is derived. In fact, exclusions under theExplanation (baa)( i) to section 80HHC are items of income referred to in section 28(iiia), (iiib) and…

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