Case: Income Tax Officer, Bangalore Vs. M/S. Induflex Products (P) Ltd

2. The Respondent is an assessee of Income Tax. It is engaged in the business of export. It claimed benefit of Section 80HHC of the Income Tax Act, 1961 (Act). A declaration was made by it that its profits out of export of trading goods were negative i.e. it incurred loss. The said benefit having been allowed by the assessing officer while making assessment under Section 143(3) of the Act, the Commissioner of Income Tax in exercise of his power conferred upon him under Section 263 thereof issued a notice to the assessee on the premise that the said order of assessment was erroneous and prejudicial to revenue. Upon hearing the assessee, by an order dated 3.3.1999, a direction was issued to the assessing officer to withdraw the said relief. The Respondent preferred an appeal thereagainst before the Income Tax Appellate Tribunal, Bangalore. By an order dated 19.8.2002, the said appeal was allowed following a decision of Cochin Bench of the Tribunal in the case of A.M.Mossa Vs. CIT in ITA No.498/Coch/1995. The appeal was preferred by the Appellant herein before the High Court in terms of Section 260A of the Act. The substantial question of law raised in the said appeal was asunder the facts and circumstances of the case the Tribunal was justified in allowing the deduction under Section 80HHC of the Act to the assessee Company in spite of not fulfilling the precondition which is mandatory in order to obtain suchThe Appeal was dismissed in limine by the High Court. The Appellant is, thus, in appeal before us.

Court's reasoning:
4. The aforementioned provision was brought in the statute book for the purpose of providing incentive to export houses but the same would not mean that even if the assessee incurs a loss instead of profit, he would be entitled to the benefit thereof.5. From a perusal of the aforementioned provision, it is evident that the profits derived from the export of goods which would be subject-matter of exemption thereunder must be the profits out of the business carried on by the assessee. The expression "profits" used in the aforementioned provision connotes positive profit. It is a profit earned from the said business alone which can be the subject-matter of exemption. A fortiori if a profit is not earned, the question of claiming exemption would not arise.IPCA Laboratory (supra) is an authority for the proposition that adjusted profit of business would be a profit as reduced by the profit derived from business of exports out of India of trading goods. It is no doubt true that the term profit implies positive profit which has to be arrived at after taking into consideration the profit earned from export of both self-manufactured goods and the trading goods and the profits and losses in both the trades have, thus, to be taken into consideration. In the event, if it is found that a loss has occurred, sub-section (3) of Section 8-HHC will have no application.Yet again in the order dated 03.03.1999 passed under Section 263 of the Income Tax Act by the Commissioner of Income Tax, the contention of the assessee was noticed in the followinglearned Counsel for the assessee who appeared on the appointed day, contended that, though the assessee figure earned export profit, it resulted in the negative figure owing to the provisions in Sec. 80 HHC(3), that, in such a situation, the profit should be taken at Nil and relief should be allowed having regard to the export incentives (viz., advance licences); that as section 80 HHC is benefit giving section it should be liberally construed; that the Appellate Tribunal in the case of A.M. Mossa vs. CIT ITAT Cochin Bench ITA No. 498/Coch/1995, support this view, and that the assessment order is not erroneous.It may, therefore, be necessary, in our opinion, to consider this aspect of the matter as to whether the Appellant had shown any positive profit or not as such clear finding does not appear to have been arrived at by the High Court.