M/s. Jhawar International, Surat V. The Income tax Officer, Ward-2(1), Surat

ITA 252/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0198 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-10-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 15-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R K MALPANI
• Keywords: Capital asset; Business income; Cost of acquisition; Competent authority; Set aside; Capital Gains
• Section: 80HHC; 80IB; 251; 54; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGARWAL, A.M.) I.T.A. NO. 251/AHD./2007 ASSESSMENT YEAR : 2003-2004 M/S. SUPREME INDIA OVERSEAS CORPORATION, SURAT VS. - INCOME TAX OFFICER, WARD-2(1), SURAT (P.A. NO. AAJFS 5561 K) (APPELLANT) (R ESPONDENT) & I.T.A. NO. 252/AHD./2007 ASSESSMENT YEAR : 2003-2004 M/S. JHAWAR INTERNATIONAL, SURAT VS. - INCOME TAX OFFICER, WARD-2(1), SURAT (P.A. NO. AACFJ 2540 E) (APPELLANT) (R ESPONDENT) ASSESSEES BY : SHRI R.K. MALP ANI DEPARTMENT BY : SHRI ANIL KUMAR, CIT (D.R.) O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- BOTH THE APPEALS BEING ITA NOS. 251 & 252/AHD./2007 FILED BY THE DIFFERENT ASSESSEES ARE AGAINST SEPARATE ORDERS DATED 13.11.2006 AND 14.11.2006 RESPECTIVELY OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) -II, SURAT FOR THE SAME ASSESSMENT YEAR 2003-2004 ON THE FOLLOWING GRO UNDS :- ITA NO. 251/AHD./2007 (1) THAT THE HON'BLE C.I.T.(A) HAS ERRED IN UPHOLDING T HE DISALLOWANCE/REJECTION OF DEDUCTION U/S 80HHC OF THE I.T. ACT, 1961 ('THE ACT') BY WRONGLY INTERPRETING THE AMENDMENTS MADE BY THE TAXATION LA WS (AMENDMENT) ACT, 2005 ('THE AMENDMENT ACT'). (2) THAT THE HON'BLE C.I.T. (A) HAS ERRED IN UPHOLD ING THE WORKING OF DEDUCTION U/S 80HHC DONE BY THE LEARNED A.O. AT RS. NIL AS PE R THE AMENDMENT ACT BY WRONGLY INTERPRETING THE PROVISIONS OF SAID AMENDME NT ACT. (3)(A) THAT THE HON'BLE C.I.T. (A) HAS ERRED IN HOL DING THAT THE ENTIRE SALE PROCEEDS OF DEPB CREDIT IS THE 'PROFIT ON TRANSFER OF DEPB' WITHIN THE MEANING OF SECTION 28(IIID) OF THE I.T. ACT, 1961 I NSTEAD OF THE 'SALE PROCEEDS MINUS ORIGINAL DUTY CREDIT AMOUNT OF DEPB' AS CONTE NDED BY THE APPELLANT AND THEREBY ERRED IN SUSTAINING THE WORKING OF DEDU CTION U/S 80HHC AT RS. NIL AS PER THE AMENDMENT ACT. B) THE APPELLANT PRAYS FOR ALLOWING THE LEGITIMATE CLAIM OF DEDUCTION U/S 80HHC BY CORRECTLY INTERPRETING THE PROVISIONS OF THE AME NDMENT ACT. 2 (4) THAT THE HON'BLE C.I.T.(A) HAS ERRED IN SUSTAIN ING THE DISALLOWANCE OF RS.6,920/- OUT OF OFFICE EXPENSES, RS.48,648/- OUT OF TELEPHONE AND MOBILE EXPENSES. WITHOUT PREJUDICE TO THIS, THE LEA RNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN NOT DIRECTING T O ENHANCE TO PROFITS OF BUSINESS BY THESE DISALLOWANCES WHILE COMPUTING THE AMOUNT OF DEDUCTION U/S, 80HHC, ITA NO. 252/AHD./2007 (1) THAT THE HON'BLE C.I.T.(A) HAS ERRED IN UPHOLDING T HE DISALLOWANCE/REJECTION OF DEDUCTION U/S 80HHC OF THE I.T. ACT, 1961 ('THE ACT') BY WRONGLY INTERPRETING THE AMENDMENTS MADE BY THE TAXATION LA WS (AMENDMENT) ACT, 2005 ('THE AMENDMENT ACT'). (2) THAT THE HON'BLE C.I.T. (A) HAS ERRED IN UPHOLD ING THE WORKING OF DEDUCTION U/S 80HHC DONE BY THE LEARNED A.O. AT RS. NIL AS PE R THE AMENDMENT ACT BY WRONGLY INTERPRETING THE PROVISIONS OF SAID AMENDME NT ACT. (3)(A) THAT THE HON'BLE C.I.T. (A) HAS ERRED IN HOL DING THAT THE ENTIRE SALE PROCEEDS OF DEPB CREDIT IS THE 'PROFIT ON TRANSFER OF DEPB' WITHIN THE MEANING OF SECTION 28(IIID) OF THE I.T. ACT, 1961 I NSTEAD OF THE 'SALE PROCEEDS MINUS ORIGINAL DUTY CREDIT AMOUNT OF DEPB' AS CONTE NDED BY THE APPELLANT AND THEREBY ERRED IN SUSTAINING THE WORKING OF DEDU CTION U/S 80HHC AT RS. NIL AS PER THE AMENDMENT ACT. B) THE APPELLANT PRAYS FOR ALLOWING THE LEGITIMATE CLAIM OF DEDUCTION U/S 80HHC BY CORRECTLY INTERPRETING THE PROVISIONS OF THE AME NDMENT ACT. (4) THAT THE HON'BLE C.I.T.(A) HAS ERRED IN SUSTAIN ING THE DISALLOWANCE OF RS.2,592/- OUT OF OFFICE EXPENSES, RS.1,594/- OUT O F OFFICE EXPENSES, RS.4,429/- OUT OF TELEPHONE EXPENSES AND RS.1,981/- OUT OF VEHICLE EXPENSES. WITHOUT PREJUDICE TO THIS, THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN NOT DIRECTING TO ENHANCE TO PROFITS OF BUSINESS BY THESE DISALLOWANCES WHILE COMPUTING THE AMOUNT OF D EDUCTION U/S, 80HHC 2. AT THE TIME OF HEARING ON BEHALF OF BOTH THE ASS ESSEES, LD. COUNSEL SHRI R.K. MALPANI APPEARED AND CONTENDED THAT CONTROVERSY INVOLVED IN GROUNDS NO. 1 TO 3 IN BOTH THE APPEALS IS REQUIRED TO BE RESTORED TO THE FILE OF A.O. WITH TH E DIRECTION THAT A.O. WILL RE-COMPUTE THE DEDUCTION UNDER SECTION 80HHC KEEPING IN VIEW THE L ATEST DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF TOPMAN EXPORTS VS.- ITO REPO RTED IN (2009) 318 ITR (A.T.) 87 (MUM. SPECIAL BENCH). 3. ON THE OTHER HAND, SHRI ANIL KUMAR APPEARED FOR THE REVENUE AND COULD NOT CONTROVERT THE AFORESAID SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. 3 4. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AS WEL L AS THE DECISION OF ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF TOPMAN EXPORTS (SUPRA). IN OU R CONSIDERED VIEW, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI SPECIAL BENC H IN THE CASE OF M/S.TOPMAN EXPORTS(SUPRA). FOR THE SAKE OF CONVENIENCE, WE RE PRODUCE THE OPERATED PART OF THE JUDGEMENT AS UNDER:- 43. THE MAJOR CONTROVERSY BEFORE US IS TO INTERPR ET SECTION 28 (IIID) IN WHICH THE EXPRESSION 'ANY PROFIT ON THE TRANSFER DUTY ENTITLEMENT PASS BOOK S CHEME' HAS BEEN USED. FROM THE FACTS OF THE CASES UNDER CONSIDERATION IT IS NOTED THAT THE AO TREATED THE ENTIRE SALE PROCEEDS AS COVERED UNDER SECTION 28(IIID), AS AGAINST THE CASE OF THE ASSESSEE THAT ONLY THE PREMIUM OR THE PROFIT ELEMENT ON THE TRANS FER OF DEPB BE CONSIDERED. TO PUT THE CONTROVERSY IN SIMPL E WORDS, IF, FOR EXAMPLE, THE ASSESSEE RECEIVED DEPB WORTH THE FACE VALUE OF RS.100/- AND THEN SOLD IT FOR RS.110/-, THE ASSESSEE IS CONTENDING THAT O NLY A SUM OF RS.10/- IS TO BE INCLUDED UNDER CLAUSE (II ID), WHEREAS, THE REVENUE'S CONTENTION IS THAT THE ENTIRE AMOUNT OF RS.110/- BE CONSIDERED. 44. THUS WE HAVE TO INTERPRET THE WORD 'PROFIT' AS FIELDED IN SECTION 28(IIID). AS NOTED SUPRA SECTIO N 28 HAS CLAUSES (I) TO (VI). ON A CAREFUL CIRCUMSPECTIO N OF THE LANGUAGE OF CLAUSE (IIIB) AND (IIIE), IT I S NOTED THAT THE REFERENCE IS TO THE GROSS SUM OF CASH ASSI STANCE AND DUTY DRAWBACK ETC. ON THE CONTRARY CLAUS ES (IIIA), (IIID) AND (IIIE) USE THE WORD 'PROFIT' ON SALE/TRANSFER OF LICENCE/DEPB/DFRC. FROM HERE, IT C AN BE EASILY INFERRED THAT THE EMPLOYMENT OF THE WORDS 'A NY PROFIT OF TRANSFER' IN CLAUSES (IIID) AND (IIIE) OF SECTION 28 IN CONTRADISTINCTION TO THE OMISSION OF SUCH WORD PROFIT IN CLAUSES (IIIB AND IIIE) IS NOT WITHOUT ANY OBJECT. 45. THE PRINCIPLE RULE OF INTERPRETATION IS THAT ME ANING IS TO BE GIVEN TO EACH AND EVERY WORD IN THE LANGUAGE OF SECTION. NO WORD CAN BE CLAIMED AS SUPE RFLUOUS. EACH COMMA, FULL STOP OR EVERY SIGN OF PUNCTUATION HAS SIGNIFICANCE. IN OUR CONSIDERED OPI NION THE NEED FOR INTERPRETATION WITH THE AID OF SO ME EXTERNAL AIDS OF CONSTRUCTION OF A SECTION ARISES O NLY WHEN THERE IS SOME AMBIGUITY IN THE LANGUAGE OF SECTION AND THE INTENTION OF THE LEGISLATURE IS NOT PROPERLY CONVEYED WITH THE WORDS SO USED. IT HAS B EEN HELD BY THE HON'BLE SUPREME COURT IN NUMEROUS JUDGM ENTS INCLUDING THE CASE OF FEDERATION OF ANDHRA PRADESH CHAMBERS OF COMMERCE & INDUSTRY & ORS ETC. VS STATE OF ANDHRA PRADESH & ORS. ETC. ETC. (2001) 165 CTR (SC) 672 (2001) 247 ITR 36 (SC) THAT THE TAXING STATUTE HAS TO BE STRICTLY CONSTRUED AN D NOTHING CAN BE READ IN IT. IDENTICAL VIEW HAS BEEN TAKEN IN THE CASE OF PADMASUNDARA RAO (DECD.) & ORS . VS. STATE OF TAMIL NADU & ORS (2002) 176 CTR (SC) 1 04 : (2002) 255 ITR 147 (SC) HOLDING THAT 'WHILE INTERPRETING A STATUTE LEGISLATIVE INTENTION MUST B E FOUND IN THE WORDS USED BY THE LEGISLATURE'. IN T HE LIKE MANNER IT HAS BEEN REITERATED IN THE CASE OF COMMR. OF AGRL, IT VS. PLANTATION CORPORATION OF KERALA L TD. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC) T HAT : 'SO LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PR OCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE'. 46. COMING BACK TO THE ISSUE UNDER CONSIDERATION WE NOTE THAT THE LANGUAGE OF CLAUSE (IIID) AND (IIIE) OF SECTION 28 IS CRYSTAL CLEAR WHICH TALKS OF 'ANY PROFIT ON THE TRANSFER OF DEPB/DFRC. THE REFERENCE IS NOT TO THE SALE PROCEEDS BUT TO THE PROFIT ON THE T RANSFER OF DEPB/DFRC. A LINE OF DEMARCATION NEEDS T O BE DRAWN BETWEEN THE PROVISIONS IN WHICH GROSS AMOU NT IS CONSIDERED AND THE PROVISIONS IN WHICH ONLY THE PROFIT DEMERIT HAS BEEN THE SUBJECT MATTER OF C ONSIDERATION. WE NEED NOT WANDER HERE AND THERE IN SEARCH OF SUCH DISTINCTION, WHICH IS HIGHLIGHTED FR OM SECTION 28 ITSELF . APART FROM CLAUSES (IIIB) AN D (IIIC) 4 TO SECTION 28, CLAUSES (IV) AND (VI) ALSO REFER TO THE INCLUSION OF THE GROSS AMOUNT, AND NOT THE PROF IT ELEMENT THEREON, FURTHER THE LEGISLATURE IS NOT OBL IVIOUS TO SUCH DISTINCTION BETWEEN THE GROSS AMOUNT AND THE PROFIT ELEMENT INASMUCH AS IT HAS USED THE APPR OPRIATE WORDS WHEREVER IT INTENDED SO. IT IS AMPLY DEMONSTRATED FROM THE LANGUAGE OF SECTION 54 WHICH GRANTS DEDUCTION FROM THE CAPITAL GAINS BY PROVIDIN G THAT IT THE AMOUNT OF CAPITAL GAIN' IS GREATER THAN THE COST OF THE RESIDENTIAL HOUSE SO PURCHASED OR CONSTRUCTED, THE DIFFERENTIAL AMOUNT SHALL BE CHARG ED UNDER SECTION 45; AS AGAINST SECTION 54E WHICH PROVIDES DEDUCTION IN RESPECT OF LONG TERM CAPITAL ASSETS BY PROVIDING THAT IF THE COST OF THE NEW ASS ET, IS NOT LESS THAN THE NET CONSIDERATION' IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45. IF WE CAREFULLY PE RUSE THE LANGUAGE OF SECTION 54 IN JUXTAPOSITION TO SECTION 54E IT CAN BE SEEN THAT WHEREAS THE FORMER SECTION PROVIDES DEDUCTION WITH REFERENCE TO THE INVESTMENT OF THE AMOUNT OF CAPITAL GAIN, THE LATER SECTION GRANTS DEDUCTION WITH REFERENCE TO THE EXT ENT OF INVESTMENT OF THE NET CONSIDERATION AND NOT THE CAP ITAL GAIN. THUS, IT CAN BE VISUALIZED THAT THE LEGI SLATURE IS NOT UNMINDFUL OF THE DISTINCTION BETWEEN 'SALE C ONSIDERATION AND 'PROFIT' AND HAS USED THE APPROPRI ATE EXPRESSION TO EXHIBIT ITS INTENDMENT. REVERTING TO THE LANGUAGE OF (IIID) OF SECTION 28 WE OBSERVE THA T IT REFERS TO ANY PROFIT ON THE TRANSFER OF DEPB. THE W ORDS USED IN THE PROVISION INDICATE THAT ONLY THE P ROFIT ELEMENT ON THE TRANSFER OF DEPB IS TO BE CONSIDERED UNDER THIS CLAUSE AND NOT THE SALE PROCEEDS ITSELF . THUS IN ORDER TO FEE COVERED WITH THE SCOPE OF THIS CLAUSE, TWO THINGS ARE ESSENTIAL. FIRST, THERE SHO ULD BE TRANSFER OF THE DEPB AND SECOND, SUCH TRANSFER SHOU LD RESULT INTO ANY PROFIT. UNLESS BOTH THE CONDITIO NS ARE CUMULATIVELY SATISFIED, THE TRANSACTION CANNOT FORM PART OF SECTION 28 (IIID). 47. THIS LEAVES US WITH THE DETERMINATION OF THE M EANING OF THE WORD 'PROFIT'. IN COMMON DIALECT THE WORD PROFIT' REFERS TO EXCESS OF SALE PROCEEDS OVER THE COST OF GOODS. THE WORD PROFIT' HAS ANOTHER SH ADE ALSO, WHICH INVOLVES A COMPARISON BETWEEN THE STATE OF BUSINESS AT TWO SPECIFIC DATES AND THE EXCESS O F THE VALUE OF ASSET ON ONE DATE OVER THE OTHER, CONSTITU TES PROFIT. THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT IN E.D. SASSOON & COMPANY (SUPRA) HAS LAID DO WN TO THIS EFFECT. 'THE WORD 'PROFITS' HAS IN MY OPINION A WELL DEFINE D LEGAL MEANING, AND THIS MEANING CONSIDERS WITH TH E FUNDAMENTAL CONCEPTION OF PROFITS IN GENERAL PARLAN CE ALTHOUGH IN MERCANTILE PHRASEOLOGY THE WORD MAY AT LIME BEAR MEANINGS INDICATED BY THE SPECIAL CONT EXT WHICH DEVIATE IN SOME RESPECTS FROM THIS FUNDAMENTAL SIGNIFICATION. 'PROFITS' IMPLIES A COMP ARISON BETWEEN THE STATE OF A BUSINESS AT TWO SPECI FIC DATES USUALLY SEPARATED BY AN INTERVAL YEAR. THE FU NDAMENTAL MEANING IS THE AMOUNT OF GAIN MADE BY THE BUSINESS DURING THE YEAR. THIS CAN ONLY BE ASCERTAI NED BY A COMPARISON OF THE ASSETS OF THE BUSINESS A T THE TWO DATES'. 48. GOING BY THE CONCEPT OF COMPARISON OF THE ASSET S OF BUSINESS ON TWO DATES, IT CAN BE SEEN THAT AT THE STAGE OF RECEIPT OF DEPB ON ITS ACCRUAL THE FAC E VALUE OF RS.100/- CONSTITUTED AN ASSET IN THE HAN DS OF THE EXPORTER WHICH COULD BE UTILIZED BY HIM IN ANY OF THE WAYS OPEN TO HIM. IF THE EXPORTER CHOOSES TO SELL THE DEPB FOR RS. 110 AT A SUBSEQUENT DATE, THEN THE PREVAILING MARKET RATE AT THE TIME OF SALE, THAT I S RS. 110 SHALL REPRESENT THE VALUE OF ASSET ON SUCH DATE OF SALE. ACCORDINGLY, THE DIFFERENCE OF RS 10 BETW EEN THE VALUE OF TWO DATES, VIZ, ON THE DATE OF ITS SAL E (RS.110/-) AND THE DATE WHEN IT WAS ACQUIRED ON A CCRUAL (RS.100/-), WILL CONSTITUTE PROFIT. EVEN GOING BY T HE MEANING OF 'PROFIT' AS COMMONLY UNDERSTOOD REPRESENTING EXCESS OF SALE PROCEEDS OVER COST, WE FIND THAT SIMILAR RESULT WILL FOLLOW. NO DOUBT THE EXPORTER DOES NOT DIRECTLY PURCHASE THE DEPB FROM T HE MARKET BY INCURRING ANY COST, BUT WHEN WE SEE TH E SCHEME OF SECTION 28 IN WHICH THE FACE VALUE OF DEP B, AT THE TIME OF MAKING APPLICATION, RESULTS INTO THE ACCRUAL OF INCOME AS INCLUDIBLE U/S 28(IIIB) AND TH E CORRESPONDING AMOUNT REPRESENTS THE VALUE OF DEPB , SUCH VALUE, WHICH IS IN THE NATURE OF AN ASSET, SHA LL CONSTITUTE ITS COST WHEN DEPB IS MADE THE SUBJEC T MATTER OF SALE AT A LATER DATE. THE FOLLOWING ACCOU NTING ENTRY SHALL BE PASSED IN THIS SITUATION. CASH/BANK DR RS. 110 TO DEPB RS. 100 5 TO PROFIT ON SALE OF DEPB RS. 10 [AT THE TIME OF SALE, THE INCOME OF RS. 10 SHALL AR ISE TO THE ASSESSEE U/S 28(IIID) AS INCOME OF RS. 1 00 HAD ALREADY ACCRUED U/S 28(IIIB) AT TIME OF APPLICATION ] 49. THE ABSURDITY IN THE RESULT CAN BE SEEN FROM TH E CONSEQUENCES FOLLOWING THE REASONING OF THE DEPARTMENT, THAT THE ENTIRE SALE PROCEEDS SHALL BE TAXABLE U/S 28(IIID) AT THE TIME OF SALE. IN SUCH A SITUATION THERE WILL BE DOUBLE TAXATION OF THE FACE VALUE OF DEPB, FIRSTLY, WHEN APPLICATION FOR DEPB IS MADE RESULTING IN TO ACCRUAL OF INCOME U/S 28(IIIB) IF THE EXTENT OF US FACE VALUE AT RS. 100 AND SUBSEQUENTLY WHEN DEPB IS SOLD FOR RS. 110, THE ENT IRE SALE CONSIDERATION OF RS. 110 SHALL STAND INCLU DED U/S 28(IIID) RESULTING INTO TOTAL INCOME OF RS. 210 ON ACCOUNT OF THE TRANSACTION OF DEPB, AS AGAINST, THE REAL INCOME ONLY TO THE TUNE OF RS.110. .. .. 53. FROM THE ABOVE IT CAN BE NOTED THAT DEPB CREDIT SALE IS DIFFERENT FROM THE PREMIUM ON THE DEPB AND SUCH PROFIT OR THE PREMIUM, IS NOT EXPORT PROFIT SI NCE IT DOES NOT ARISE OUT OF EXPORT ACTIVITY OR IMP ORT ACTIVITY AND ARISES BECAUSE OF TRADING IN A 'LICENS E' WHICH HAS A PREMIUM IN THE MARKER SUCH PREMIUM O R PROFIT CANNOT TO BE COUNTED AS EXEMPTED EXPORT PROF IT AND SHOULD BE ADDED BACK AS TAXABLE PROFIT. THE SPEECH OF THE FINANCE MINISTER, AS EXTRACTED ABOVE, DIVULGES THE INTENTION OF THE SCOPE OF SECTION 28( IIID) AS COVERING ONLY THE PREMIUM ON SALE OF DEPB AND NO T THE FACE VALUE. . . 72. REVERTING TO THE MAIN QUESTION POSTED BEFORE TH IS SPECIAL BENCH FOR CONSIDERATION AS TO WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEM ENTS REPRESENTS PROFIT CHARGEABLE U/S 28 (IIID) OR SOME ARTIFICIAL COST IS TO BE INTERPOLATED, WE FIND THAT THE RELEVANCE OF THIS QUESTION IS ONLY IN THE CONTEXT OF THE COMPUTATION OF DEDUCTION U/S 80HHC. WE HAVE HELD ABOVE THAT SUB-SECTION (3) DEALING WITH THE COMPUTATION OF THE PROFITS DERIVED FROM EXPORT OF G OODS OR MERCHANDIZE IS A COMPLETE CODE IN ITSELF, T HUS THE COMPUTATION OF ELIGIBLE PROFITS IS TO BE MADE F IRMLY AS PER THIS SUB-SECTION WITH THE AID OF EXPLA NATION AS INTERPRETED BY THE HON'BLE SUPREME COURT IN THE CASE OF HERO EXPORTS (SUPRA) AND K. RAVINDRANATHAN (SUPRA). THE AO HAS DENIED THE DEDUCTION U/S 80HHC BY HOLDING THAT THE ENTIRE SALE PROCEEDS OF DEPB FALL UNDER SECTION 28(IIID) AND SINCE IN THAT VIEW OF THE MATTER, THERE IS NO POSITIVE INCOME, THE DED UCTION IS IMPERMISSIBLE. ON THE CONTRARY THE VIEW POINT OF THE ASSESSEE IS THAT THE FACE VALUE OF DEPB SHOULD BE REDUCED FROM THE COST OF PURCHASES AS IT IS GIVEN B Y THE GOVERNMENT OF INDIA ONLY TO NEUTRALIZE THE INCIDENCE OF CUSTOM DUTY. ON THE IMPORT CONTENT OF THE EXPORTS. WE HAVE EXAMINED THE FORMAT OF DEPB SCHEME AND COME TO THE CONCLUSION THAT THE FACE VAL UE OF DEPB IS NOTHING BUT PARTIAL REIMBURSEMENT OF THE PURCHASE PRICE OF GOODS. OUR THIS VIEW IS BASED ON THE UNDERSTANDING OF THE SCHEME OF DEPB IN COMMERCIAL SENSE AND IN THE TIGHT OF THE FOREIGN TR ADE POLICY OF THE GOVERNMENT OF INDIA. BUT WHEN WE COME TO THE COMPUTATION OF DEDUCTION AND THE PLACEM ENT OF THE FACE VALUE OF DEPB IN THE SCHEME OF SECTION 80HHC, THE GENERAL VIEW BASED ON THE FOREIG N TRADE POLICY ABOUT THE REDUCTION OF SUCH AMOUNT FROM THE PURCHASE COST, FAILS. WE HAVE SEEN ABOVE T HE SUB-SECTION (3) OF SECTION 80HHC IS COMPLETE COD E IN ITSELF IN SO FAR AS THE COMPUTATION OF THE ELIGI BLE PROFITS DERIVED FROM EXPORT ARE CONCERNED. THE MANDATE OF SUB-SECTION (3) HAS TO BE RELIGIOUSLY FO LLOWED FOR DETERMINING THE AMOUNT OF ELIGIBLE PROFI TS FOR DEDUCTION AND AS SUCH THE GENERAL VIEW ABOUT TH E UNDERSTANDING OF THE NATURE OF DEPB WILL BE SUBDUED AND THE ONE BASED ON THE PRESCRIPTION OF TH IS PROVISION WILL COME TO FORE. IN THAT VIEW OF THE MATTER WE HOLD THAT THE FACE VALUE OF DEPB CANNOT B E REDUCED FROM THE COST OF PURCHASES AND HAS TO BE CONSIDERED AS A SEPARATE SPECIES OF' BUSINESS 'INCO ME'. THUS ALL THE CONTENTIONS PUT FORWARD ON BEHALF OF THE ASSESSES AND THE INTERVENERS ABOUT THE REDUCTIO N OF THE FACE VALUE OF DEPB HAVE BECOME ACADEMIC IN THE CONTEXT OF SECTION 80HHC. SIMILARLY THE COMPARI SON OF DEPB WITH MODVAT, WHICH IS AN OFF-SHOOT OF 6 THE BASIC CONTENTION OF REDUCTION OF THE DEPB VALUE FROM THE PURCHASES AND ALSO THE ARGUMENTS BY THE L D. AR TOWARDS THE REDUCTION OF THE FACE VALUE OF DEPB FROM THE PURCHASE COST ON THE STRENGTH OF CERTAIN DECISIONS RENDERED IN THE FRAMEWORK OF SECTION 80IB , LOSE THEIR RELEVANCE IN THE PRESENT CONTEXT OF SE CTION 80HHC AND HENCE NEED NOT BE EXAMINED. 73. IF THE INTENTION OF THE LEGISLATURE HAD BEEN TO ALLOW THE REDUCTION OF THE FACE VALUE OF DEPB FROM THE COST OF PURCHASES, AS HAS BEEN, CONTENDED BEFOR E US, THEN THERE WAS NO NEED TO HAVE CLAUSES (IIIA) TO (IIIE) OF SECTION 28 AND ALSO THE FIRST TO FIFTH PR OVISOS TO SECTION 80HHC(3) ALONG WITH THE NECESSARY INGREDIENTS OF EXPLANATION BELOW SECTION 80HHC(4C). WE HAVE HELD THAT THE FACE VALUE OF DEPB UNDER THE SCHEME OF THE INCOME-TAX ACT, 1961 FALLS UNDER SECTION 28(IIIB) AND THE PROFIT ELEMENT T ON THE SA LE OF DEPB, THAT IS THE EXCESS OF SALE PROCEEDS OVER THE FACE VALUE OF DEPB FALLS U/S 28(IIID). 'PROFITS OF BUSINESS' AS PER EXPLANATION (BAA) PROVIDES FOR THE EXCLUSION OF NINETY PER CENT OF ANY SUM REFERRED T O IN SECTION 28(IIIA TO IIIE). THEN FIRST PROVISO TO SUB -SECTION (3) STATES THAT THE PROFITS COMPUTED UNDER CLAUSES (A) OR (B) OR (C) SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO THE NINETY PER CENT OF ANY S UM REFERRED TO IN SECTION 28(IIIA, IIIB AND IIIE). IT MEANS THAT THE NINETY CENT OF THE FACE VALUE OF DEPB WHICH WAS REDUCED WHILE COMPUTING THE 'PROFITS OF THE BUSINESS' SHALL STAND INCLUDED WHEN EFFECT IS G IVEN TO FIRST PROVISO. IF WE GO WITH THIS ARGUMENT THAT THE FACT VALUE OF DEPB IS TO BE REDUCED FROM THE COST O F PURCHASE THEN IN THE CASE OF MERCHANT EXPORTER WI TH TURNOVER OF LESS THAN RS.10 CRORES, AN ANOMALOUS SI TUATION WILL CROP UP INASMUCH AS THE AMOUNT OF ELIGIBLE PROFIT WILL FAR EXCEED THE ACTUAL PROFIT A S DEMONSTRATED BELOW. EXPORT TURNOVER RS. 1,000 COST OF GOODS SOLD - DIRECT COSTS (WITHOUT DEPB) - NO INDIRECT COSTS RS. 800 FACE VALUE OF DEPB RS 100 74. GOING BY SUB-SECTION (3)(B) THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE EXPORT TURNOVER MINUS THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT. GOING BY THE CONTENTION OF THE LD. AR, THE DIRECT COST WILL COME AL RS.700 (800 - 100) AS AGAINST THE EXPORT TURNOVER AT RS.1,000 RESULTING INTO PROFITS DERIVED FROM EXPORT AS PER CLAUSE (B) OF SUB-SECTIO N (3) COMING, TO RS.300 I.E. RS.1,000 MINUS RS.700. WHEN WE FURTHER GIVE EFFECT TO THE FIRST PROVISO TO SUB-SECTION (3), THE PROFIT OF RS.300 AS COMPUTED ABOVE WOULD REQUIRE TO BE FURTHER INCREASED BY THE NINETY PER CENT OF THE FACE VALUE OF DEPB. THE AMOUNT OF RS.90 (I.E. 90% OF RS.100 I.E FACE VALUE OF DEPB CO ULD, THEREFORE, BE ADDED AND THE PROFIT AS DETERMIN ED IN CLAUSE (B) OF 80HHC(3) WILL COME AT RS.390. AS A GAINST THAT WE FIND THE REAL PROFIT FROM EXPORT AFT ER GIVING EFFECT TO THE DEPB BENEFIT IS ONLY RS.300 [1 000 700 (800 - 100)]. THUS IT CAN BE EASILY ASCERTA INED THAT WHEREAS THE TOTAL BUSINESS FROM EXPORT IS RS.3 00 BUT IF WE ACCEPT THE CONTENTION THAT THE FACE VA LUE OF DEPB BE REDUCED FROM THE COST OF PURCHASES THEN THE AMOUNT OF PROFITS DERIVED FROM EXPORT AS PER SECTION 80HHC(3)(B) WILL COME AT RS.390. OBVIOUSLY THIS CALCULATION DEFIES ALL LOGICS AND IS INCAPABLE OF ACCEPTANCE DUE TO AWKWARD SITUATION CREATED BY DETE RMINING THE PROFITS DERIVED FROM EXPORT AT A FIGURE HIGHER THAN THE ACTUAL BUSINESS PROFIT, THE FORMER AMOUNT, IN NO CASE CAN BE HIGHER THAN THE LATER. WE FIND THAT THE LOGIC BEHIND INTRODUCING CLAUSES (IIIA) TO (IIIE) TO SECTION 28 IS TO DE LINK THE EXPORT INCE NTIVES FROM THE BUSINESS PROFITS WHILE CONTINUING THEM TO BE GOVERNED BY CHAPTER IV-D AT THE SAME TIME. THE NATURAL OUTCOME FOLLOWING THE PRESCRIPTION OF CLAUS ES (IIIA) TO (IIIC) OF SECTION 28 ALONG WITH SECTIO N 80HHC(3) IS THAT ALL THE EXPORT INCENTIVES INCLUDIN G THE DEPB AND DFRC ETC. BE CONSIDERED AS SEPARATE BUSINESS INCOME AND NOT TO REDUCE THEM FROM THE COS T OF PURCHASES. 75. WE WILL NOW ENDEAVOR TO EVALUATE THE STAND POIN T OF THE AO FROM ANOTHER ANGLE THAT THE ENTIRE AMOUNT OF SALE PROCEEDS IS COVERED UNDER CLAUSE (II ID) AND; NOT ONLY THE PROFIT ELEMENT. CONTINUING WI TH 7 THE ABOVE EXAMPLE, WHERE WE SUPPOSED THAT THE EXPOR TER MADE EXPORT TURNOVER OF RS. 1000/- AND HE EARNED RS.200/- FROM THE EXPORT TRANSACTION IN ADDI TION TO RS.100/- TOWARDS THE FACE VALUE OF DEPB. TH E AMOUNT OF PROFITS DERIVED FROM EXPORTS SHALL COME A T RS.300 AS PER CLAUSE (BAA) OF EXPLANATION BELOW 80HHC(4C) READ WITH SUB-SECTION (3) INCLUDING THE F IRST PROVISO. FURTHER SUPPOSE THAT THE SAID DEPB IS HELD AS SUCH AT THE CLOSE OF THE YEAR AND IS THEN S OLD IN THE SUCCEEDING YEAR FOR RS. 110. IF WE AGREE WITH THE VIEW POINT OF THE DEPARTMENT THAT AT THE TIME O F SALE OF DEPB, THE ENTIRE AMOUNT OF RS . 110/- IS INCLUDIBLE IN SECTION 28 (IIID) THEN IT WOULD MEAN THAT IN ORDER TO GIVE EFFECT TO SUB-SECTION (3), FI RSTLY THE SUM OF RS.100/- WILL REQUIRE INCLUSION IN THE PROFI TS AND GAINS OF BUSINESS OR PROFESSION' IN THE YEAR OF SALE, BECAUSE THE QUESTION OF 90% EXCLUSION SHALL A RISE ONLY IF 100% IS INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS OR PROFESSION'. THAT OBVIOUSLY CANNO T BE THE DONE BECAUSE THE SUM OF RS.100/- HAD ALREADY BEEN INCLUDED IN THE PROFITS AND GAINS OF BUSINESS OR PROFESSION' FOR THE LAST YEAR WHEN SUCH INCOME ACCR UED TO THE ASSESSEE U/S 28(IIIB). THE FURTHER INCLU SION OF RS.110/- IN SUCCEEDING YEAR AT THE TIME OF SALE IN THE 'PROFITS AND GAINS OF BUSINESS OR PROFESSION ' WOULD LEAD TO OBVIOUS INCONGRUITY AND AN IMPOSSIBLE SITUATION BECAUSE THE INCLUSION OF FACE VALUE OF RS.100/- IN THE PROFITS OF THE SECOND YEAR ALSO WIL L AMOUNT TO DOUBLE TAXATION OF RS.100/- FIRSTLY IN THE YEAR ONE WHEN THE INCOME ON ACCOUNT OF THE FACE VALUE OF DEPB ACCRUED U/S 28(IIIB) AND THERE IN THE YEAR TW O AT THE TIME OF SALE U/S 28(IIID). . . 79. THE SECOND PROVISO TO SECTION 80HHC PROVIDES T HAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCEEDING RS. 10 CRORES DURING THE PRE VIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A) O R CLAUSE (B) OR CLAUSE (E) OF THIS SUB-SECTION OR AFT ER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEAR S TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAU SE (IIID) OR CLAUSE (IIIC) OF SECTION 28, THE SAME PRO PORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL T URNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN OTHE R WORDS, IN THE CASE OF AN ASSESSEE WITH EXPORT TUR NOVER NOT EXCEEDING RS. 10 CRORES, EVEN THE PROFIT ELEMEN T OF RS.10/- IN THE ABOVE EXAMPLE ON THE SALE OF DE PB FOR RS.110/- WILL ALSO BE CONSIDERED AS ELIGIBLE FO R DEDUCTION DESPITE THE FACT THAT IT IS OUT OF THE TRADING OF DEPB ENTITLEMENT IN INDIA ONLY. BUT FOR THIS PROVIS O NO PROFIT ON SALE OF DEPB OR DFRC COULD HAVE BEEN CONSIDERED FOR DEDUCTION UNDER THIS SECTION. IN CON TRAST TO IT THE THIRD AND FOURTH PROVISOS ARE APPLI CABLE TO THE CASE OF THE ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES IN WHICH CASE THE PROFI T COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE ( C) OF SUB SECTION (3) OR AFTER GIVING EFFECT TO THE FIRST PROVISO, SHALL BE FURTHER INCREASED BY THE AMOUNT W HICH BEARS 90% OF ANY SUM REFERRED TO IN SECTION 28(IIID) OR (IIIE) IN PROPORTION TO THE EXPORT TURN OVER TO THE TOTAL TURNOVER ONLY IF THE FURTHER TWO CONDITIONS STIPULATED THEREIN ARE FULFILLED AND ALS O THE ASSESSEE HAS SUFFERED EVIDENCE TO PROVE THE FULFILLMENT OF SUCH CONDITIONS. IT IS THIS CATEGORY OF EXPORTERS WHICH HAS BEEN STATUTORILY DISCRIMINA TED VIS A VIS THE SMALL EXPORTERS HAVING TURNOVER NOT EXCEE DING RS.10 CRORES. THEY SHALL NOT BE ENTITLED TO INCREASE IN THE QUANTUM OF DEDUCTION BY PROFIT AT T RANSFER OF DEPB/DFRS WHICH IS OTHERWISE AVAILABLE T O SMALL EXPORTERS, UNLESS THE TWO CONDITIONS AS SET O UT IN THESE PROVISOS ARE FULFILLED. IN THE CASES UN DER CONSIDERATION IT IS AN ADMITTED POSITION THAT THE T WO CONDITIONS AS SO SPECIFIED IN THIRD AND, FOURTH PROVISOS ARE NOT CAPABLE OF COMPLIANCE AND HENCE TH E FURTHER INCREASE AS SUGGESTED IN THESE TWO PROVIS OS CANNOT BE MADE TO THE COMPUTATION OF DEDUCTION U/S. 80HHC. THUS, IT IS APPARENT THAT THE STATUTORY DISCRIMINATION IS BETWEEN THE EXPORTERS HAVING EXPO RT TURNOVER NOT EXCEEDING RS. 10 CRORES AND THOSE HAVING EXCEEDING RS. 10 CRORES. WHEREAS THE BENEFIT OF DEDUCTION IN RESPECT OF THE PROFIT OF SALE OF D EPB REALIZED FROM THE INDIAN MARKET IS ALSO AVAILABLE T O SMALL EXPORTERS HAVING EXPORT TURNOVER, IT IS NOT SO IN THE CASE OF THE LARGE EXPORTERS HAVING EXPORT TURNO VER EXCEEDING RS. 10 CRORES. THIS APPEARS TO BE THE ONLY REASON FOR INSERTING CLAUSES (IIID) AND (IIIE) TO SECTION 28 BY THE TAXATION, LAWS (AMENDMENT ACT , 2005), SIMULTANEOUS WITH THE INSERTION OF SECTION 3 RD AND 4TH PROVISOS. .. .. 8 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH H AS TWO PARTS. IN SO FAR AS THE FIRST PART: 'WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEM ENTS REPRESENTS PROFIT CHARGEABLE UNDER SECTION 28(IIID) OF THE INCOME TAX ACT, IS CONCERNED, WE AN SWER IT IN NEGATIVE AND THE SECOND PART OF THE QUES TION OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTI FICIAL COST TO BE INTERPOLATED IS REPLIED IN AFFIRM ATIVE TO THE EXTENT THAT THE FACE VALUE OF DEPB SHALL BE DED UCTED FROM THE SALE PROCEEDS. AS REGARDS THE GROUND S BASED IN THESE APPEALS AGAINST THE DENIAL OF DEDUCT ION U/S 80HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATION OF PROFITS DERIVED FROM EXPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SECTION C AN BE MADE ONLY WHEN THE DECISION IS TAKEN ON THE AMOU NT AND THE TIMING OF TAXABILITY OF THE FACE VALUE O F DEPB AND THE PROFIT ON ITS SALE. ON THIS ISSUE WE H OLD THAT THE FACE VALUE OF DEPB IS CHARGEABLE TO TA X U/S 28(IIIB) AT THE TIME OF ACCRUAL OF INCOME, THAT IS, WHEN THE APPLICATION FOR DEPB IS FILED WITH TH E COMPETENT AUTHORITY PURSUANT TO EXPORTS AND PROFIT ON SALE OF DEPB REPRESENTING THE EXCESS OF SALE PROCEEDS OF DEPB OVER ITS FACE VALUE IS LIABLE TO B E CONSIDERED U/S 28(IIID) AT THE TIME OF ITS SALE. WHATEVER IS SAID ABOUT DEPB SHALL ALSO HOLD GOOD FO R DFRC, ON BOTH ITS COMPONENTS, VIZ THE FACE VALUE OF DFRC AND PROFIT ON ITS TRANSFER, EXCEPT FOR THE FACT THAT THE PROFIT ON SALE OF DFRC SHALL BE CHARG ED TO TAX U/S 28(IIIE). THERE IS NO DISPUTE ABOUT THE DUT Y DRAWBACK, WHICH SHALL BE CHARGEABLE TO TAX AT TIM E OF ACCRUAL OF INCOME U/S 28(IIIC) WHEN APPLICATION IS FILED WITH THE COMPETENT AUTHORITY AFTER MAKING EXP ORTS. SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTUM OF DEDUCTION U/S 80HHC, AS DISCUSSED ABOVE, ARE NOT AVAILABLE ON RECORD, WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS AND DIRECT THE AO TO COMPUTE THE AMOUNT OF RELIEF IN ACCORDANCE WITH THE VIEW EXPRESSED BY US HERE IN ABOVE. 5. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE TRIBUNAL, WE HOLD THAT PROFIT ELEMENT ON DEPB LICENCE WILL BE COVERED BY SECTION 28(IIID) AND, AC CORDINGLY, BY THIRD PROVISO TO SECTION 80HHC(3) OF THE I.T. ACT, 1961 AS THE TURNOVER OF THE ASSESSEE EXCE EDS RS.10 CRORES THIS AMOUNT SHALL BE EXCLUDED FO R THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC OF THE I. T. ACT, 1961, IF CONDITION LAID DOWN IN THAT PROVIS O ARE NOT SATISFIED . THE FACE VALUE OF THE DEPB LIC ENCE WILL BE COVERED U/S.28(IIIB) OF THE I.T. ACT, 1961 AND, THEREFORE, 90% THEREOF WOULD BE ADDED TO THE E XPORT PROFITS AS PER FIRST PROVISO TO SECTION 80HHC (3) OF THE I.T. ACT, 1961. 6. IN ORDER TO COMPUTE DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961 IN ACCORDANCE WITH THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF M/S.TOPMAN EXP ORTS(SUPRA), WE RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER. 7. WITH REGARD TO GROUND NO. 4 FOR BOTH THE ASSESSM ENT YEARS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THE FIRS T PORTION OF GROUND NO. 4 IN RESPECT OF BOTH THE ASSESSEES REGARDING DISALLOWANCE OF EXPENSES. HOWEV ER, HE SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN NOT DI RECTING TO ENHANCE TO PROFIT OF BUSINESS BY THESE DISALLOWANCES WHILE COMPUTING THE AMOUNT OF D EDUCTION UNDER SECTION 80HHC. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC DEFINES PROFIT OF THE BUSINESS DEFINES THE PROFIT OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE ROUTINE DISAL LOWANCE MADE BY THE A.O. WILL INCREASE THE 9 PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC. HE ACCORDINGLY SUBMITTED THAT THIS WAS AN OBVIOUS MISTAKE COMMITTED BY A.O. WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THEREFORE, THE A.O. BE DIRECTED TO E NHANCE THE PROFIT OF BUSINESS BY DISALLOWANCES MENTIONED IN GROUND NO. 4 IN BOTH THE APPEALS IN RESPECT OF DIFFERENT ASSESSEES FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80 HHC OF THE INCOME TAX ACT, 1961. 8. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE COULD NOT CONTROVERT THE AFORESAID SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AS PER PROVISIONS CONTAINED IN CLAUSE (BAA) TO EXPLANATION OF SECTION 80HHC, PROFIT OF THE BUSINESS DEFINES THE PROFIT OF THE BUSINESS AS COMPUTED UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ACCORDINGLY, WHATEVER DISALLOWANCES MA DE BY THE A.O. IN THE ASSESSMENT ORDER OUT OF OFFICE EXPENSES, TELEPHONE EXPENSES AND VEHICLE EXPENSES WERE REQUIRED TO BE INCLUDED IN THE PROFIT OF BUSINESS FOR THE PURPOSE OF COMPUTING DED UCTION UNDER SECTION 80HHC OF THE I.T. ACT. SINCE DISALLOWANCE OF THESE EXPENSES IS NOT PRESSED , SAME IS REJECTED. HOWEVER, WE DIRECT THE A.O. TO INCLUDE THESE DISALLOWANCES IN PROFIT OF BU SINESS WHILE RE-COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE I.T. ACT, 1961. THIS GROUND OF APPEALS IN RESPECT OF BOTH THE ASSESSEES IS PARTLY ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE S ARE PARTLY ALLOWED AS INDICATED ABOVE. . THE ORDER PRONOUNCED IN THE COURT ON 30.10.2 009 SD/- SD/- (D.C. AGARWAL) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 / 10 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.