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Often the margins are found to be more in exports than in domestic business. At times the domestic business may result into a loss causing low deduction for export profits. The computing sub-section (3) in section 80HHC call for determination of eligible export profits on the pro rate basis in the ratio of export turnover to total turnover.

However it is possible to segregate the profits&/or loss in the two businesses. Nothing prevents a businessman to draw a separate trading/profit and loss account for export business and domestic business. The Madras High Court decision in CIT v. Rathore Brothers (254ITR656) is a witness to this fact. In this case the assessee succeeded in his claim for deduction on the basis of a separate accounts made for export business. The High Court held that in such cases the assessing officer cannot disallow any portion of the export earning pro rata by invoking clause (b) of sub-section (3) of section 80HHC.The Court explained that the purpose of sub-section (3) (b) of the Act is to disallow a part only when the entire deduction claimed cannot be regarded as being relatable to exports.

It may therefore be advisable for assesses to review possibility of making separate accounts for exports and other businesses for optimizing profit based deductions. It may also be possible to have such accounts made up only for the purpose of income tax assessments and not otherwise.

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