In a recent ruling, the Delhi High Court held that the written back amount must be excluded while computing export profits under Section 80HHC of the Income Tax Act.
The bench comprising of Justice Ravindra Bhatt and Justice Najmi Waziri was hearing an appeal filed by the Rollatainers Ltd against the order of the ITAT.
In the appeal, the assessee challenged the order of the Tribunal wherein the assessment order was confirmed and held that the write back of liabilities is squarely covered by the expression “any other receipt of similar nature” and consequently 90% thereof was to be excluded from profits of the business in terms of explanation (baa) of Section 80HHC of the Income Tax Act. The Tribunal was of the view that the written back amount was squarely covered by the expression “any other receipt of similar nature” used in Explanation (baa) of Section 80HHC of the Income Tax Act.
The division bench noted that written back liabilities are considered as profits and gains of business or profession under Section 41(1) of the Act, and thus would be relevant for computation of the “profits of the business” under Explanation (baa).
Relying upon the decision in ACG Associated Capsules, the bench said that since amounts written back would fall within the “profits and gains of business or profession” as computed under Section 41(1), and considering that such amounts do not have any nexus with the export activity of the assessee, keeping the view adopted by K. Ravindranathan (supra) in mind, they would have to be excluded from the “profits of the business” under Explanation (baa).In other words, such written back amounts would constitute “independent income” having no relation to the export profits of the assessee. They have to be excluded by virtue of Explanation (baa), to avoid distortion in the computation of export profits under Section 80HHC of the Income Tax Act. This Court, therefore, finds that on this question, the ITAT’s decision does not call for any interference.”
Read the full text of the Judgment below.
