TMI Blog2004 (6) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 on p. 3 of the Tribunal order dt. 26th May, 2003. For giving such direction, this Tribunal placed its reliance on the earlier order passed by the Tribunal in the assessee s own case and also the judgment of the Orissa High Court in the case of CIT vs. Tarun Udyog (1991) 99 CTR (Ori) 181 : (1991) 191 ITR 688 (Ori). After hearing the learned counsel for the petitioner/assessee, we directed the assessee to clarify when actually the additional ground of appeal was filed and whether the additional ground raised by the assessee was admitted by this Tribunal. We also find that the apex Court in the case of Motilal Pesticides India Ltd. vs. CIT (2000) 160 CTR (SC) 389 : (2000) 243 ITR 26 (SC) held that deduction under Chapter VI-A is to be allowed only on the net income and not on the gross income. Therefore, the judgment of the Orissa High Court and the earlier order of this Tribunal may not be applicable to the facts of this case. Accordingly, we directed the assessee to show cause why the order of this Tribunal dt. 26th May, 2003 granting relief under ss. 80HH and 80-I without allowing deduction under s. 32AB should not be rectified suo motu in exercise of the power of this Tribunal u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties before the earlier Bench. In view of the above situation, we treat the additional ground raised by the assessee as admitted by the earlier Bench and it was not disposed of. Once we treat the additional ground as admitted, it has to be disposed of by this Tribunal. Admittedly, the additional ground was not dealt with in the order dt. 26th May, 2003. Therefore, in our view, the non-disposal of the additional ground is an error on the face of the record. Therefore, we dispose of the additional grounds of appeal now after hearing the same on merit. 6. Coming to the show-cause notice issued by this Tribunal regarding the grant of deduction under ss. 80HH and 80-I before allowing deduction under s. 32AB, the learned counsel for the petitioner/assessee submitted that written submission filed by the assessee may be taken as explanation to the notice issued by the Tribunal. 7. Now coming to the merit, Mr. K. Ravi, the learned counsel for the petitioner/assessee submitted that the additional ground of appeal is with respect to allocation of certain common expenses to industrial undertakings for the purpose of computing deduction under ss. 80HH and 80-I. The learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Iyer, the learned Departmental Representative submitted that the assessee is doing the business of manufacturing and sale of fuse gear, switch-gear, relay spares, control panels and electronic goods. Those goods were manufactured by the assessee at various industrial undertakings in Tamil Nadu and Pondicherry. All the goods manufactured by the assessee by various industrial undertakings were brought to Madras for the purpose of selling the same to various customers/dealers. The assessee brought the goods from industrial undertakings to Madras only for the purpose of marketing the same. Therefore, it cannot be construed as if the goods of the industrial undertaking was transferred to other business of the assessee. According to the learned Departmental Representative, sub-s. (6) of s. 80HH would come into operation only when the assessee holds any goods for the purpose of business of industrial undertaking or hotel and the same are taken to any other business of the assessee. In this case, the learned Departmental Representative submitted, there was no transfer of goods to any other business of the assessee. The industrial products manufactured by the assessee at various industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins. (sic) specified percentage as prescribed. The learned counsel invited our attention to s. 80A(1) and also the provisions of s. 80-I and submitted that s. 32AB talk of the total income and the profit and gains from the business of the assessee as a whole, whereas ss. 80HH and 80-I talk of the profits and gains of the business of the assessee to the extent derived from industrial undertaking and included in the total income of the assessee. The learned counsel placed his reliance on the decision of the Delhi Bench of this Tribunal in the case of Phonix Overseas Ltd. vs. Asstt. CIT (1996) 55 TTJ (Del) 379 : (1996) 56 ITD 274 (Del). 12. The learned counsel for the petitioner/assessee referred to s. 80A and submitted that to determine the total income, deductions specified under ss. 80C to 80U have to be first deducted. After allowing such deductions under ss. 80C to 80U, if any income chargeable to tax under profits and gains of business or profession remains, a further deduction under s. 32AB should be allowed. According to the learned counsel for the petitioner/assessee, for the purpose of deduction under s. 32AB, the profit of business of the assessee as a whole has to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras 7, 7A, 7B instead of the earlier para 7 : "7. The next issue is regarding computation of profit under ss. 80HH and 80-I after allowing deduction under s. 32AB. The objection of the learned counsel for petitioner/assessee is that s. 32AB refers to the whole income of the assessee, therefore, it should be deducted only after granting deduction under ss. 80HH and 80-I. We have carefully gone through the judgment of the apex Court in the case of Motilal Pesticides India Ltd. The Supreme Court held that for the purpose of deduction under ss. 80HH and 80-I, the income should be computed under the other provisions of the IT Act and the deduction should be allowed only from the net profit and not from the gross profit. The apex Court in the case of IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC) held that the entire Chapter VI-A is controlled by s. 80AB. Therefore, the total income shall be computed under the other provisions of the IT Act. The apex Court also held that the eligible profit for the purpose of deduction under Chapter VI-A should be computed under the other provisions of the IT Act. We have also carefully gone through the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lower authority. In our view, the order of the lower authority is in conformity with the judgment of the Supreme Court in the case of Motilal Pesticides India Ltd. and also in the case of IPCA Laboratory Ltd." The following shall be inserted as para 7C, 7D, 7E, 7F, 7G, 7H and 7-I in the Tribunal order dt. 26th May, 2003 : "7C. The assessee has taken an additional ground in respect of allocation of common expenditure while computing deduction under ss. 80HH and 80-I for the asst. yr. 1990-91. The case of the assessee is that the electrical and electronic goods manufactured by various industrial undertakings in the State of Tamil Nadu and Pondicherry were brought to Madras for the purpose of marketing the same. For the purpose of marketing the products manufactured by the various industrial undertakings, the assessee had incurred expenditure. According to the assessee, the expenditure incurred at Madras for selling the industrial products could not be segregated and identifiable with respect to each industrial unit. According to the learned counsel for the petitioner/assessee, sub-s. (6) of s. 80HH would come into operation when the goods were transferred from one industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench has not considered the judgment of the apex Court in the case of Motilal Pesticides India Ltd. and IPCA Laboratory Ltd. Therefore, the earlier order of this Tribunal may not be any assistance to the assessee. The Gujarat High Court in the case of Alembic Chemical Works Ltd. vs. Dy. CIT (2003) 185 CTR (Guj) 389 : (2004) 266 ITR 47 (Guj) had an occasion to consider a similar issue. In this case also, the Gujarat High Court examined the provisions of sub-s. (6) of s. 80HH. A similar objection as raised by the assessee before us was also raised before the Gujarat High Court regarding segregation of expenditure relating to industrial undertaking. The Gujarat High Court has observed as follows : "Therefore, it is not possible to accept the contention of the appellant that merely because the entire production of Panpharma division had been sold to the main division of the assessee, there could be no occasion for disturbing the figure of consideration. Various decisions cited on behalf of the appellant, especially those relating to apportionment of expenses, would not carry the case of the appellant any further, inasmuch as in none of the decisions the Court was called upon to speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be considered for computing the eligible profit under ss. 80HH and 80-I. The very same objection of the assessee was rejected by the Gujarat High Court in the case of Alembic Chemical Works Ltd. Therefore, there is no merit in the contention of the learned counsel for the petitioner/assessee that the expenditure could not be identified with respect to each industrial undertaking. 7G. We have also carefully gone through the judgment of the apex Court in the case of Motilal Pesticides India Ltd. and also in the case of IPCA Laboratory Ltd. The Supreme Court categorically held in the case of Motilal Pesticides India Ltd. that the assessee is entitled for deduction under ss. 80HH and 80-I from the net profit computed under the other provisions of the IT Act and not from the gross profit. Therefore, the common expenditure incurred by the assessee for marketing the industrial products should be proportionately distributed in respect of each industrial undertaking. The apex Court in the case of IPCA Laboratory Ltd. held that Chapter VI-A is controlled by s. 80AB. Therefore, the assessee has to necessarily compute the profit for the purpose of deduction under ss. 80HH and 80-I in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee." In view of the above observation, once the legislature intended to deduct the common expenditure while computing the total income, there is no reason why it should not be considered while computing the profit received from the industrial undertaking for the purpose of deduction under ss. 80HH and 80-I. In our view, if the common expenditure relating to each industrial undertaking is not allocated to respective industrial unit for the purpose of computing eligible profit under ss. 80HH and 80-I, it would not reflect the correct profit. 7-I. Let s now consider a hypothetical situation for the purpose of understanding the issue in a better way. Let us assume common expenditure is Rs. 100. I. Total net income before deducting the common expenditure Rs. 600 Profit from industrial undertaking without deducting the common expenditure Rs. 300 The net taxable income Rs. 300 So, if the common expenditure is not deducted from total income and also from the industrial undertaking, the taxable income would be Rs. 300. II. Total net income after deducting the common expenditure Rs. 500 Profit from industr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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