1. This is an appeal by the Revenue against the order of Commissioner of Income-tax (Appeals) for the Asst. Year 2001-02.
2. The addition disputed in this appeal is Rs. 1,44,190/- Under Section 80HHC account of direction to allow the claim of the assessee Under Section 80HHC without excluding deduction allowed Under Section 80-I and 80-G of the Act. Though the appeal was filed by the Revenue on 21.6.2005 when the when the limit for filing the appeal was prescribed by the CBDT at Rs. 1 lac, the assessee's contention is that the said limit has been increased by the subsequent Circular of the Board dated 24^th October, 2005 and therefore, the appeal should not be entertained in view of the Bombay High Court decision in the case of Pithwa Engg.
Works 276 ITR 519.
3. The department has, however, contended that the new limit applies only to appeals filed after 30^th October, 2005 and the decision in the case of Pithwa Eng. Works (supra) has no application for the increased limit under the new Circular. It was further contended by the learned Departmental Representative that the present case, in any case, is covered by the exception provided in Clause 3 of the Circular as there involved a substantial question of law as well as a question of law which will repeatedly arise in such like cases.
4. We have heard the parties and considered their rival contentions. It is true that the Bombay High Court decision was not dealing with the new limit of the Board's Circular dated 24^th October, 2005. It was with reference to the earlier Circular-where reference was required to be filed to the High Court if the tax effect was less than Rs. 2 lacs.
The contention of the Revenue in that case was that Rs. 2 lacs limit was increased by Circular dated 27^th March, 2000 and prior to that, the limit was only Rs. 50,000/- and the contention of the Revenue was that the new limit would not be applicable to the old references. The High Court rejected the said contention of the Revenue: One fails to understand how the Revenue can contend that so far as new cases are concerned, the circular issued by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than Rs. 2 lakhs. But the same approach is not adopted with respect to the old referred cases even if the tax effect is less than Rs. 2 lakhs. In our view, there is no logic behind this approach.
This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, the assessees on the file of the Departments have increased; consequently, the burden on the department also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect is less than Rs. 2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board's circular dated March 27, 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect.
5. In these circumstances, though the said High Court decision does not deal with the Circular of the Board dated 24^th October, 2005, but it has dealt with the earlier circular and the limits of that circular were applied even to the cases which were prior to the old circular.
Therefore, the ratio of this decision is applicable in the present case as well. The Board has taken a policy decision not to file appeals in such type of cases and the Circular is binding on the Revenue even to appeals filed before 31^st October, 2005 and the department would not be justified in proceeding with these appeals within the monetary limit of tax effect prescribed in the Board's Circular dated 24.10.2005.
6. The contention of the learned DR that the case of the assessee is covered by the exception has also no force inasmuch as the said exception reads as under: 3. The Board has also decided that in cases involving substantial question of law of importance as well as in cases where the same question of law will repeatedly arise, either in the case concerned or in similar cases, should be separately considered on merits without being hindered by the monetary limits.
7. In the present case, the dispute is whether 80HHC deduction is to allowed without excluding the deductions allowed Under Section 80-I and 80-G of the Act. Section 80HHC deduction is to be allowed on the income derived from exports. The income is to be computed as per the provisions of Sub-section (3) which reads as under: (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured 91-92 or processed by the assessee and of trading goods, the profits derived from such export shall (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: Provided that the profits computed under Clause (a) or Clause (b) or Clause (c) of this Sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiia) (not being profits on sale of a license acquired from any other person), and Clauses (iiib) and (iiic) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
8. The "profits of the business" which is the starting point for computing deduction under Sub-section (3) of Section 80HHC is defined in Explanation (baa) below Sub-section (4C) as under: "(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by (1) ninety per cent of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India.
9. Nowhere in these provisions is there any mention that while computing the deduction Under Section 80HHC, the profit is to be reduced by deductions Under Section 80-I and 80-G which are allowed to the assessee. Therefore, the contention of the learned DR that a substantial question of law or a question of law arises has no merits.
10. Even on merits, the assessee's case has merits and was rightly allowed by the CIT(A) as aforesaid. In view of the above discussion, the appeal is to be rejected.