1 RESERVED Court No. - 33 Case :- INCOME TAX APPEAL No. - 13 of 2003 ASSESSMENT YEAR 1998-199 Appellant :- Commissioner Of Income Tax & Another Respondent :- M/S Shadra Exports 219 Railway Road Meerut Counsel for Appellant :- A.N. Mahajan,R.K. Upadhyay Counsel for Respondent :- P.K. Jain,Manish Kumar Jain Hon'ble Tarun Agarwala,J. Hon'ble Dr. Satish Chandra,J. (Per Hon'ble Dr. Satish Chandra, J) ********* present appeal is filed by Department against order dated 27.03.2002 passed by Income Tax Appellate Tribunal in ITA No. 1054/Del/2001 for assessment year 1998-99. On 05.07.2007, Coordinate Bench has admitted appeal on following substantial question of law : Whether on facts in circumstances of case Ld. ITAT is legally justified in allowing full relief U/s 80HHC on amount of duty drawback received by assessee directly from Govt. on exports made by assessee directly to foreign buyers on orders produced by export house M/s. Ikae Trading (India) Pvt. Ltd. New Delhi? brief facts of case are that during assessment year under consideration, assessee was 100% export unit, exporting carpets. assessee's firm has claimed deduction under Section 80HHC on amount of duty drawback received by assessee directly from Government on goods sent to foreign buyer in respect of orders procured by 2 another export house M/s Ikae Trading India Limited, New Delhi, but same was not allowed by A.O. as well as by CIT(A). However, Tribunal has allowed claim of assessee. Being aggrieved, Department has filed present appeal. With this background, we heard Shri Shambhu Chopra, learned counsel for Department, who has justified order passed by A.O. as well as First Appellate Authority. On other hand, Sri P.K. Jain, learned Senior Counsel has justified order passed by Tribunal. From record, it appears that excess claim was for Rs. 27,60,942/-, which was disallowed by A.O. and dis- allowance was confirmed by CIT(A). It may be mentioned that in view of Clause (2)(a) of Section 80HHC, requirement of bringing foreign exchange in India within six months, is not applicable to supporting manufactures, as per CBDT's Circular No. 572 dt 03.08.1990,which is reproduced as under : Under existing provisions of Sec. 80HHC, benefit of deduction is also allowed to supporting manufacturers who export goods of merchandise through recognized Export Houses or Trading House. person who processes goods on merchandise and exports same directly is eligible to claim deduction under sec. 80HHC. However, if processor of goods or merchandise sells his goods or merchandise to Export House of Trading House for purposes of export, he is presently denied benefit of deduction. benefit of deduction u/s 80HHC has now been extended to processors who sell their goods or merchandise to Export Houses or Trading Houses for export purposes. condition for obtaining 3 benefit is same as already applicable to supporting manufacturers, namely that of obtaining disclaim certificate from Export House or Trading House. By amendment in Clause (a) of sub-section (2) of Sec. 80HHC, it has been clarified that requirement of receipt of sale proceeds in convertible foreign exchange will not apply in case of supporting manufacturers who sell their goods or merchandise to Export Houses or Trading Houses for exports. In instant case, disallowance was made for reason that assessee's firm has exported goods through M/s Ikae Trading Limited. But fact remains, that supporting manufacturers are also entitled to 100% exemption on export profit as was available to direct exporters. export incentives in shape of cash assistance, duty drawback and profit earned on sale of replacements licence are income within meaning of Section 2 (iiia), (iiib) and (iiic) of Act. It may be mentioned that scheme of deduction under Section 80HHC in case of supporting manufacturer, is not properly defined in Act. profits derived by supporting manufacturer are defined in sub-section 3(A) Section 80HHC and it talks of profit of business. Further from record, it appears that in instant case, there was arithmetical mistake. CIT(A) has directed A.O. to rectify same and rework deduction. Tribunal, in its order, has not reworked calculation pertaining to deduction under Section 80HHC but has allowed claim of assessee, which is not desirable, as per scheme of legislation. It was expected that Tribunal would examine computation and recalculate exemption, if any. On other hand, CIT(A) had directed AO to rework calculation and 4 allow claim, if any. direction of CIT(A) appears to be reasonable and is hereby sustained. Therefore, we set side impugned order passed by Tribunal and restore order of CIT(A). answer to substantial questions of law is in favour of Department and against assessee.. In result, appeal filed by Department is allowed. Order Date :- 25.08.2014 Anurag/- (Dr. Satish Chandra, J.) (Tarun Agarwala, J.) Commissioner Of Income-tax & Another v. M/S Shadra Export