NEW DELHI: The Supreme Court has said that an Assessee cannot claim deduction under section 80-HHC of the I-T Act for losses suffered on transactions. The apex court ruled that the meaning of profits under the provision of the Act would not include losses. Even if there are losses, they have to be ignored for the beneficiary purpose of such deduction, it added.

A bench comprising justices Arijit Pasayat and DK Jain said: “The term profit in section 80-HHC both in sub-section (1) and sub-section (3) mean a positive profit worked out after taking into consideration the losses, if any.” The court said the meaning of the word profit will depend on the context in which it is used. In section 80-HHC (1), it is admittedly used to indicate positive profit. Section 80-HHC (3) provides how profits are to be worked out in computing total income. For the purpose of such computation, both profits and losses have to be taken into account. Thus the word profit in section 80-HHC (3) will mean profits after taking losses, if any, into account, the court ruled.

Appellant AM Moosa had claimed deduction under section 80-HHC of the IT Act, 1961, for the assessment year 1992-93 but the assessing officer disallowed such claim on the ground that the profits of the business computed under section 80-HHC had indicated a negative figure. The Assessee then moved the Commissioner of Income Tax (Appeals), Cochin, which dismissed the plea. The Assessee then approached the Income Tax Appellate Tribunal which affirmed the orders of the assessing officer and CIT (A). Later, on a reference of the Assessee, the tribunal referred the case to the Kerala High Court. The reference was awarded in favour of the department.

The assessee then appealed in the apex court arguing that the word profit in section 80-HHC must have the same meaning in the entire section in which it falls. As the meaning of word profit in section 80-HHC(1) means only positive profit, it will have the same meaning in section 80-HHC(3)(C) , the Assessee had said. The court, rejecting the plea, said the interpretation of the provision has to be in accordance with the words used.

The opening words under sub-section (3)(C) “profit derived from such exports” together with the word “and” clearly indicate that the profits have to be calculated by counting both the exports of manufactured goods and trading goods. A deduction is permitted only if there is a positive profit in exports of both self manufactured and trading goods. If there is a loss in either of the two, it has to be considered for the purposes of computing profits, the court said. Sub-section (3)(C) deals with the cases where the export is of both self manufactured goods and trading goods.

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October 2020