Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2015 (7) TMI 3

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ₹ 2,051.83 lacs. The items manufactured in unit No. 1 is finished leather whereas in Unit No. 2 and 3, the finished leather is raw material and end products are leather uppers, complete shoes, leather bags and other leather goods. Under these facts, we find that this unit is having domestic sales and the items of production is different in unit no. 1 as compared to unit No. 2 & 3. Regarding the correctness of the profit reported in these units, we find that deduction was claimed by the assessee u/s 80IB also in respect of Unit No. 2 on the basis of profit as per profit & loss account of Unit No. 2 at ₹ 21,49,626/-. The Assessing Officer has allowed deduction to the assessee u/s 80IB for this unit on the basis of same profit although after making some adjustments in respect of interest income and export benefits. This goes to show that veracity of books of account of Unit No. 2 have been accepted by the Assessing Officer also because he has allowed deduction to the assessee u/s 80IB on the basis of separate profit & loss account of Unit No. 2. Hence, this is not the allegation of the Revenue that unit no. 2 books of account and profit & loss account are not correct and r .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... il Kumar Yadav and Shri A.K. Garodia, JJ. For the Petitioner : Shri Vikas Garg, FCA For the Respondent : Shri R. K. Ram, D.R. ORDER PER SUNIL KUMAR YADAV: There are cross appeals by the assessee and the Revenue for assessment year 2003-04 and there is one appeal of the assessee for assessment year 2004-05. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First we take up the appeal of the assessee for the assessment year 2003-04 i.e. I.T.A. No.390/Lkw/2012. 3. In this appeal, the assessee has raised the following grounds: 1. BECAUSE the authorities below have erred in law and on facts in holding that in view of the provisions of section 80HHC(3), results of the three units were liable to be aggregated with each other and the benefit under section 80HHC was available only with reference to the computation of aggregate of turnover and Profits of the three units taken together. 2. BECAUSE the view taken by the authorities below in the matter of aggregation of the results of the three units for the purpose of computing relief under section 80HHC, is wholly misconceiv .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... leather is mainly sold in the domestic market and a part is used in manufacturing leather footwear/goods in Unit-2 and Unit-3. Unit 2 is engaged in manufacturing of complete shoes shoe uppers. This unit is located at village Swaroop pur Tehsil Akhbarpur Distt. Kanpur(Dehat). Unit-2 is registered with the Central Excise department under The Central Excise Act 1944 as a separate factory, having a separate premises qua its other units. Unit-2 is mainly exporting its production. Unit 3 is located at C-3 Udyog Nagar and is registered under the Central Excise Act 1944 as a separate factory. Unit-3 is engaged in manufacturing leather uppers for domestic sales and leather bags for export. The Assessee Company claimed unit wise deduction u/s 80HHC in respect of Unit II Unit III which was claimed at ₹ 91,28,329/- and ₹ 40,42,088/- respectively. The A.O. has computed deduction u/s 80 HHC by aggregating the export and total turnover of all the units, including unit-I, on two grounds:- (i) That the entire show of maintenance of separate accounts has been managed with the sole purpose of claiming higher deduction u/s 80HHC and the various units being run by the assessee are .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nt of Hon'ble Apex Court rendered in the case of IPCA Laboratory Ltd. vs. Dy. CIT [2004] 266 ITR 521 and even thereafter, the issue was decided by Hon'ble Delhi High Court in favour of the assessee. The learned counsel for the assessee further contended that the total turnover of the assessee can only be taken with respect to those units, which are engaged in the business of export. In support of this contention, he has invited our attention to the provision of 80HHC(1) in which the Legislature has used the words business of export out of India of any goods or merchandise to which this section applies. Therefore, the turnover of those units, which are not engaged in the export activities and to which the section applied, cannot be taken as part of total turnover of the assessee in order to compute deduction u/s 80HHC of the Act. 8. As against this, Learned D.R. of the Revenue supported the order of learned CIT(A) and he placed reliance on the judgment of Hon'ble Apex Court rendered in the case of IPCA Laboratory Ltd. vs. Dy. CIT [2004] 266 ITR 521. 9. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) against the assess .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... f leather goods i.e. shoe uppers for sale in domestic market and leather bags, which are mainly exported. This unit is located at C-3, Udyog Nagar, Kanpur. According to the assessee, it has prepared separate balance sheet, profit loss account for each unit at the year end, which are later on consolidated to prepare a single balance sheet and profit loss account for the company as a whole. Now the issue arises before us is whether the assessee can claim deduction u/s 80HHC unit-wise though all the units of the assessee are engaged in similar type of business. Our attention was invited to various judicial pronouncements during the course of hearing that deduction u/s 80HHC can be claimed unit-wise where the assessee is maintaining separate books of account for each and every unit. Before dealing with the issue, we would like to reproduce the provisions of section 80HHC for the sake of reference. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this se .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... purposes of sub-section (1),-- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same propertion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee ; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export ; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,-- (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and (ii) in respect of trading goods, be the export turnover in respect of s .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... any sum referred to in clause (iiie) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme ; and(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme. Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent. of(a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be,the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... over of the export business or also that of the domestic business. 9. Before we proceed further it may be relevant to note even though provisions of s. 80HHC have been amended from time, the expression 'total turnover of the business' has not undergone a change. The expression finds mention in sub-s. (3)(c)(i) of s. 80HHC. 10. It is pertinent to note that the Revenue has not assailed before us the finding of fact returned by the Tribunal that insofar as the two businesses were concerned, they were carried on in two separate undertakings. It was also not disputed that in respect of the said undertakings, the assessee maintained separate books of accounts and also prepared separate P L a/c and balance-sheets. In the judgment of Madras Motors Ltd. (supra), the rationale given is that the word 'business' which follows the expression 'total turnover' would have to be confined to only those goods to which the section applies. Therefore, by necessary implication, the total turnover of business would only mean total turnover of business of goods to which the section applies. Inclusion of turnover of goods to which the section does not apply, would be doi .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... sessee had recorded a loss of ₹ 6.86 crores. It was also found that the assessee had issued certificates of disclaimer in favour of supporting manufacturers in respect of goods supplied by them for the purposes of export. It is in these circumstances that the AO came to the conclusion that no deduction was available to the assessee on export of goods as it had as a matter of fact recorded a net loss. Therefore, the question which came up for consideration before the Supreme Court was whether the assessee was entitled to a deduction in respect of the sum of ₹ 3.78 crores without taking into account the loss of ₹ 6.86 crores recorded by the assessee in respect of the exports carried out by it qua the goods of supporting manufacturers. The Supreme Court after a detailed consideration of the matter came to the conclusion that the expression 'profits from such exports' appearing in s. 80HHC(3)(c) could only mean profits of selfmanufactured goods plus profit of exports of trading goods (i.e., those supplied by supporting manufacturers). The Court concluded that profits had to be calculated by taking into account both exports, and that deduction was permissible u .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... oss from one head against income from another, and also provisions of s. 72 of the IT Act which provides carry forward and set off of business losses. A reference was also made to the provisions of s. 32(2) which provides for carry forward and set off of unabsorbed depreciation of a particular year. The sum and substance of the discussion of the Supreme Court in the said case was that in determining the gross total income, the business losses of earlier years of the Oil Division had to be set off before allowing any deduction under Chapter VI-A. Therefore, if as a result of this exercise, the gross total income of the assessee was nil, the assessee could not claim any deduction under Chapter VI-A. As noticed above, in our view this judgment also does not come to the aid of the Revenue. 10.1 From the above paras, it is seen that the Hon'ble High Court has duly considered two judgments of Hon'ble Apex Court and it was held that these judgments are not applicable for deciding the issue as to whether the deduction u/s 80HHC can be allowed on unit basis where separate books are maintained. Regarding the judgment of Hon ble apex court in the case of IPCA Laboratory Ltd., it .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... silk fabrics having domestic sale as well as export sale. The assessee claimed deduction u/s 80HHC for Bangalore unit i.e. 100% EOU. The Assessing Officer aggregated the turnover of both units and then computed the deduction u/s 80HHC. Learned CIT(A) and Tribunal also decided against the assessee. Under these facts, Hon'ble Madras High Court decided in favour of the assessee. The relevant paras are para 19 to 21 as reproduced below: 19. The apex court pointed out that in arriving at a figure of positive profit, both the profits and loss have to be considered. If the net figure is a positive profit, then the assessee would be entitled to a deduction, but if the net figure is a loss, then the assessee would not be entitled to a deduction. A reading of the judgment of the apex court reported in Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444 (SC) shows that the assessee therein had more than one unit. The claim of the assessee is that each unit should be treated separately and the losses suffered in the earlier years were not adjustable against the profits of the other unit. But since the gross total income was nil, the Assessing Officer rejected th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... the deduction in terms of section 80HHC(3). Quite apart from that, following the decisions of this court on the aspect of grant of relief, it is relevant to note here that section 80HHC contemplates three situations, viz., sub-section (3)(a) dealing with the case where the export is only of self-manufactured goods, sub-section (3)(b) dealing with the case where the export is only of trading goods, and sub-section (3)(c) dealing with the cases where the export is of both self-manufactured goods as well as trading goods. Apart from this, the section nowhere deals with the situation of an assessee having more than one unit of business and one of the units being purely 100 per cent. export oriented unit and the other unit, a partially export unit. Even though the Act does not provide for dealing with such a situation, yet, being a beneficial provision, we feel that, in fitness of things, the assessee is entitled to the relief in respect of 100 per cent. export oriented unit. Consequently, even in respect of the computation as given in Explanation (baa) to section 80HHC, the consideration for grant of relief must follow the decisions of the apex court reported in L. M. Chhabda and Sons .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... it no. 1 as compared to unit No. 2 3. Regarding the correctness of the profit reported in these units, we find that deduction was claimed by the assessee u/s 80IB also in respect of Unit No. 2 on the basis of profit as per profit loss account of Unit No. 2 at ₹ 21,49,626/-. The Assessing Officer has allowed deduction to the assessee u/s 80IB for this unit on the basis of same profit although after making some adjustments in respect of interest income and export benefits. This goes to show that veracity of books of account of Unit No. 2 have been accepted by the Assessing Officer also because he has allowed deduction to the assessee u/s 80IB on the basis of separate profit loss account of Unit No. 2. Hence, this is not the allegation of the Revenue that unit no. 2 books of account and profit loss account are not correct and reliable. We also find that it is noted by the Assessing Officer on page No. 5 of the assessment order that from the computation of income filed along with in return of income, it is noticed that the deduction u/s 80HHC has been claimed by the assessee of ₹ 91,28,329/- in Unit No. 2 and ₹ 4,04,200/- in Unit No. 3 totaling to ₹ 1,31 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... anpur being erroneous in law and on facts deserves to be vacated and the order of the Assessing Officer be restored. 16. Learned D.R. of the Revenue supported the assessment order. He also placed reliance on the judgment of Hon'ble Kerala High Court rendered in the case of Olam Exports (India) Ltd. vs. CIT [2009] 184 Taxman 373 (Ker.). 17. As against this, Learned A.R. of the assessee supported the order of learned CIT(A). He also placed reliance on the judgment of Hon'ble Bombay High Court in the case of Associated Capsules (P) Ltd. vs. DCIT 332 ITR 42 (Mumbai). He also placed reliance on the following three judicial pronouncements: (i) CIT vs. Millipore India Pvt. Ltd. 341 ITR 219 (Kar) (ii) SCM Creation vs. ACIT 304 ITR 319 (Mad) (iii) Gitanjali Chemicals Pvt. Ltd. vs. Income Tax Officer 10 SOT 329 (Mumbai) 18. We have considered the rival submissions. We find that it is held by learned CIT(A) in Para 3.4(iii) that for the purpose of computing deduction allowable to the assessee u/s 80HHC, deduction allowable u/s 80IB would not be reduced. In this regard, he has followed these judgments of Hon'ble Bombay High Court, Hon'ble Kerala High Court .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... er section 80HHC, by aggregating results of three units. 4. BECAUSE the three units, viz. Unit-I: engaged in the business of manufacturing of finished leather and selling the same almost wholly through domestic sales; Unit-II: engaged in the business of manufacturing of leather goods, mainly complete shoes leather uppers and selling the leather uppers wholly through exports to the overseas markets and complete shoes almost wholly through exports to the overseas market: Unit-IIII: engaged in the manufacturing of leather upper (for shoes) and leather bags and selling the leather uppers wholly in the domestic market and the bags wholly through exports to the overseas market. for which not only accounts have been maintained separately, their results were also ascertained independently and fairly; and accordingly the authorities below were obliged to uphold the appellant's claim for relief under section 80HHC based on the results disclosed in Unit No.-II and Unit No.III. 5. BECAUSE the view taken by the learned CIT, (Appeals), in the matter of computation of relief under section 80HHC, in any case stands wholly vitiated, as the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates