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2015 (7) TMI 3 - ITAT LUCKNOW

2015 (7) TMI 3 - ITAT LUCKNOW - TMI - Eligibility of Deduction u/s 80HHC - Held that:- In the present case, the assessee is having three units. In unit No. 1, the assessee is manufacturing finished leather which is sold in domestic market or is utilized in manufacturing of leather footwear or goods by other units. In unit No. 2, the assessee is manufacturing complete shoes and leather uppers and other leather goods. In this unit, there is mainly export sales, although there is small amount of do .....

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and has not claimed any deduction u/s 80HHC in respect of unit No. 1 where domestic sale is to the extent of ₹ 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. .....

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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 .....

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the Act. Hence, it is seen that the deduction claimed by the assessee is not more than total profit worked out by the Assessing Officer suggesting loss in Unit No. 1. In our considered opinion, under these facts, the judgment of Hon'ble Delhi High Court in the case of Padmini Technologies (2011 (9) TMI 210 - DELHI HIGH COURT ) squarely applicable and respectfully following the same, we hold that in the facts of the present case, deduction is allowable to the assessee in respect of Unit No. 2 & 3 .....

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tion allowable to the assessee u/s 80HHC - deduction allowable u/s 80IB would not be reduced as per CIT(A) - Held that: - As for the purpose of computing deduction allowable u/s 80HHC of the Act, deduction allowable u/s 80IA is not required to be reduced but for the purpose of allowing deduction u/s 80HHC of the Act, the same can be allowed only to the extent after reducing the deduction allowable u/s 80IA of the Act. It means the total deduction allowable including all sections should not excee .....

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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 aggrega .....

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n 80HHC. 3. BECAUSE the A.O. has erred in law and on facts in holding that the three units viz Unit-I, Unit-II and Unit-III neither functioned independently nor there was any fair apportionment of expenses, intra units and in computing the relief admissible to the appellant under 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 .....

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en 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 same is based on nonconsideration/ non-appreciation of the voluminous s .....

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appellant has three industrial units which for sake of convenience are termed as Unit-1, Unit-2 and Unit-3. Unit 1 is engaged in manufacturing finished leather at village Swaroop Pur Tehsil Akbarpur, Distt. Kanpur(Dehat). Finished 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. K .....

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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 not independent units. (ii) The law clearly stipulates that deduc .....

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ollowing judicial pronouncements: (i) ACIT vs. L.G. Electronics India (P) Ltd. 35 Taxmann.com 344 (Delhi-Trib.) (ii) CIT vs. Padmini Technologies Ltd. 33 Taxmann.com 668 (Delhi) 245 CTR 611 (Delhi) (iii) Tata Consultancy Services Ltd. vs. ACIT 26 Taxmann.com 21 (Mumbai-Trib.), 54 SOT 221 (Mumbai) (URO) (iv) Crew B.O.S. Leather Products Ltd. vs. ACIT 20 Taxmann.com 239 (Delhi-Trib.) (v) Eastern Leather Products (P) Ltd. vs. Dy.CIT 68 ITD 358 (Delhi) (vi) ACIT vs. Mahavir Spg. Mills Ltd. 110 ITD 2 .....

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v) Union of India and Others vs. Onkar S. Kamware and Others 258 ITR 761 (SC) (xvi) Bajaj Tempo Ltd. vs. CIT [1992] 196 ITR 188 (SC) (xvii) K. P. Varghese vs. Income Tax Officer [1981] 131 ITR 597 (SC) (xviii) CIT vs. J. H. Gotla [1985] 156 ITR 323 (SC) 7. Learned A.R. of the assessee also submitted that the assessee is maintaining separate books of account for each unit and based on such separate books of account, deduction has been allowed by the Assessing Officer u/s 80IB of the Act and hence .....

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see 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, c .....

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hich is reproduced below for the sake of ready reference: 3.3.1 After having perused all the decisions cited by the Ld. A.R., I find that the mother of all these decisions is CIT vs Rathore Brothers which has been followed by the Hon'ble Madras High Court in all its subsequent decisions. While going through this decision it is seen that it has been rendered for the period prior to the F.Y.1991-92, the year when major amendments were carried out in the provisions of Sec. 80HHC. The said amend .....

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the case of G.J. Fernandez vs ACIT [ 2011] 52 DTR [Kar) 345 which is also for A.Y. 2003-04 as is the present case. Similar is the view of the Hon'ble Tribunal in the case of Tata BP Solar India Ltd. vs Addl. CIT [2011] 54 DTR (Mumbai Tribunal) 150. In this view of the matter, I am of the considered view that the contention of the appellant in this connection has to be rejected and the action of the A.O. is to upheld and it would make no difference to the computation of deduction u/s 80HHC a .....

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d in manufacturing of leather goods i.e. mainly complete shoes and shoe uppers. The production of complete shoes is mainly exported and small portion is sold in the domestic market. The aforesaid Unit No. 1 & 2 are located at Village - Swaroop Pur, Tehsil - Akharpur, District - Kanpur Dehat. The third unit is engaged in manufacturing of 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. Acc .....

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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 wit .....

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b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in .....

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on (1B) derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. (1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to (i) eighty per cent. thereof for an assessment year beginning on the 1st day of April, 2001 ; (ii) seventy per cent. thereof for an assessment year beginning on the 1st day of April, 2 .....

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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 .....

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ing goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same pro .....

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clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to nine .....

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r the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiie) of section 28, the same proportion as .....

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o 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 b .....

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e of goods or merchandise shall be,- (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business ; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion .....

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deduction can be allowed in respect of one unit ignoring the profits and loss of the other units. Some of the cases relied on by the assessee relate to the deductions claimed u/s 80I, 80IA of the Act where the deduction is allowable on independent industrial unit but some of the cases also relates to the deduction u/s 80HHC. We, therefore, prefer to refer only those cases, which relate to the deduction claimed u/s 80HHC of the Act. 9.2 In this case of Hon'ble Delhi High Court has adjudicate .....

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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 tw .....

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ss 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 doing violence to the language of sub-s. (3)(b). Sub-s. (3) is inserted only to determine the deductible profits out of the total profits of business which can be attributed to the export business. We are in respectful agreement with the rationale adopted by the Madras High Court in Madras Motors Ltd. (supra). As a matter of fact, there .....

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vs. Suresh B. Mehta (2007)291 ITR 462(Mad). 10. In Para 11 of this judgment, the Hon'ble High Court has discussed two judgments of Hon'ble Apex Court rendered in the case of IPCA Laboratory Ltd. (supra) and Synco Industries Ltd. 168 Taxman 224 (SC). For the sake of ready reference, these paras being Para no. 11 & 12 are also reproduced below: 11. Ms. Aggarwal's submission that the judgment of the Supreme Court in IPCA Laboratory Ltd. (supra) and Simco Industries Ltd. (supra) wou .....

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duction under s. 80HHC amounting to ₹ 3.78 crores. During the course of the assessment proceedings, it was found that the assessee was exporting goods which were manufactured by it but also those which were produced by supporting manufacturers. The assessment proceedings revealed that the profit of ₹ 3.78 Crores which the assessee had claimed was earned by the assessee from exports of goods manufactured by the assessee. Insofar as exports made by the assessee in respect of goods manu .....

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h 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 o .....

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f s. 80AB and s. 80B(5). As is evident, the facts of the case are quite different from those obtaining in the instant appeal before us. 12. Similarly, the facts obtaining in Simco Industries (supra) were also different. In that case, the assessee was engaged in the business of oil and chemicals. The Oil Division was located in Sirohi, while the Chemical Division was situated in Jodhpur. In respect of asst. yr. 1990-91, it had earned profits in both Divisions. However, in earlier years the assess .....

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ome was nil. The Tribunal as well as the High Court affirmed the view of the AO. It is in these circumstances, the Supreme Court was called upon to consider the question as to whether the losses suffered in the earlier years by the Oil Division of the assessee could be adjusted against the profits of the two divisions (i.e., the Chemical and Oil Division), while considering the grant of deduction under s. 80-I of the Act. The Supreme Court came to the conclusion that deductions under Chapter VI- .....

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rve that in calculating the gross total income, the AO would have to take into account the provisions of s. 71 of the IT Act which provides for set off of loss 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 .....

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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 is noted that in that case, the assessee company was making two types of exports i.e. manufacturing export and trading export and under these facts, .....

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ssee can be computed on unit-wise basis where separate books of account are maintained. It is held by Hon'ble Delhi High Court that there can be a circumstance where one unit is completely engaged in the export and not partially as was the case in Madras Motors Ltd. (supra). In those circumstances, there would be no occasion for disallowing a portion of the export earnings by adopting formula provided in section 80HHC of the IT Act. Hon'ble Delhi High Court has followed the judgment of H .....

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dia unit. The Assessing Officer was of the view that for computing deduction, total turnover of both units has to be considered as total turnover. Under these facts, Hon'ble Delhi High Court has held that unit-wise computation of deduction is allowable. 11. Now we also consider the judgment of Hon'ble Madras High Court rendered in the case of Chamundi Textiles (Silk Mill) Ltd. vs. CIT (supra). In this case also, the judgment of Hon'ble Apex Court rendered in the case of Synco Industr .....

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) 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 .....

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nder Chapter VI-A. The Appellate Tribunal and the High Court affirmed the view of the officer. On further appeal, the apex court held that in determining the gross total income, the assessee has to compute the income from each one of the units. When one unit suffered loss and other unit earned profit, after setting off loss, if the gross total income worked out shows profit, the assessee would be entitled to deduction under Chapter VI-A. On the other hand, if the gross total income is a negative .....

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d that there was a positive income of profit. Going by the decisions referred to above and the same when applied to the facts of the case herein, the assessee would be entitled to deduction under Chapter VI-A. In the light of this fact, we do not find any justification in the view of the Tribunal, rejecting the plea of the assessee for deduction under Chapter VI-A. 21. A reading of the order of the Tribunal shows that it misconstrued the decision of the apex court reported in IPCA Laboratory Ltd .....

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01 ITR 381 (Mad), as regards the grant of 100 per cent. relief to the unit engaged in export activity and the books of account maintained by the assessee for the export unit to other units are independent, we have no hesitation in holding that the assessee's unit at Bangalore, being 100 per cent. export unit, is entitled to have 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 her .....

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g 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 .....

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we have no hesitation in accepting the plea of the assessee that the income earned from the export goods from the Bangalore unit merited to be considered for 100 per cent. relief, as one falling under section 80HHC(3)(a) of the Act. 12. From the above paras from the judgment of Hon'ble High Court, it is seen that it is held by Hon'ble High Court in para 21 that the case of each of the units have to be considered independently for the purpose of working out relief u/s 80HHC. 13. Now we e .....

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see is manufacturing leather uppers and bags as well as other leather goods. In this unit also, there is small amount of domestic sale of ₹ 25.10 lacs as well as export sales of ₹ 4,217 lacs. The assessee has claimed deduction u/s 80HHC in respect of unit No. 2 & 3 where domestic sale is very small to the extent of ₹ 98.88 lacs and ₹ 25.80 lacs respectively as against export sale of ₹ 581.48 lacs and ₹ 421 lacs respectively and has not claimed any deductio .....

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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 acc .....

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n 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 ₹ 1,31,07,417/-. When as per the Assessing Officer, it can be seen in Annexure-A to the assessment order, profit of the business as whole has been worked out at ₹ 1,81,06,614/- before reducing deduction allowed by him u/s 80IB and profit was computed at ₹ 1,32,82,262/- after reducing such deduction allowable u/s 80IB of the Act. Hence, it is seen th .....

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& 3 as has been claimed by the assessee. But for the limited purpose of verifying the calculation of the assessee for claiming such deduction u/s 80HHC, we remand the matter back to the file of the Assessing Officer for the limited purpose of verifying the veracity of this computation and to determine the actual deduction allowable to the assessee by taking the profit, export turnover and total turnover of these units No. 2 & 3 only by excluding the figures of Unit No. 1. 14. In the res .....

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any amount of profits and gains of an undertaking is claimed and allowed as deduction u/s 80IA or 80IB, deduction to the extent of such profits and gains shall be not allowed any other provisions of the Act. 2. Whether on the facts and circumstances of the case, the Ld. Commissioner of Income Tax(A)-l was justified to ignore the facts of the judicial rulings relied upon by Ld. CIT(A) in his judgment are also not similar to the facts of case under consideration. 3. That the order of the Ld. Commi .....

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f 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 ded .....

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been rendered in the case of Olam Exports (India) Ltd. Since this judgment of Hon'ble Bomay High Court is after considering the judgment of Hon'ble Herala High Court, we find no reason for following the judgment of Hon'ble Kerala High Court in preference to the judgment of Hon'ble Bombay High Court. In the case of Associated Capsules (P) Ltd., it was held by Hon'ble Bombay High Court that for the purpose of computing deduction allowable u/s 80HHC of the Act, deduction allowab .....

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peal of the assessee for assessment year 2004-05 i.e. I.T.A. No.391/Lkw/2012. 21. 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 .....

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ir apportionment of expenses, intra units and in computing the relief admissible to the appellant under 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 .....

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