TMI Blog2017 (8) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that there is a separate certificate to be issued in favour of the supporting manufacturer where the exporter makes a declaration that it has not claimed a deduction under Section 80 HHC (1). There is a counter verification by the Chartered Accountant of such a certificate. It is, therefore, clear that there is no double deduction claimed in respect of the export and this is consistent with the legislative intent of extending the benefit under Section 80HHC either to the exporter or to the supporting manufacturer and not to both. Even after the period for which the renewal of the THC was sought, REIL continued to be treated as an export house and that is plain from the facts that have emerged before the CIT(A) as well as the ITAT. For the aforementioned reasons, the Court is unable to accept the contention of the Revenue in the present case that if the exporter, i.e., REIL, is not entitled to a deduction under Section 80 HHC for the AY in question then, automatically, even the supporting manufacturer, i.e., the Assessee herein, would not be entitled to a deduction under Section 80 HHC as well.- Decided in favour of assessee. - Entitlement of Supporting Manufacturer to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 80 HHC (4A) and the certificate in Form No. 10 CCAB. The total sales during the year was to the tune of ₹ 2,74,05,000. The sales had been made to Ratan Exports Industries Limited ( REIL ), which had further exported the goods received from the Assessee to foreign buyers for ₹ 3,36,69,344. 4. REIL, which was an Export Trading House ( ETH ), had issued to the Assessee a certificate in Form 10 CCAB confirming that no deduction under Section 80HHC (1) had been claimed by REIL in respect of the aforementioned export turnover of ₹ 3,36,69,344. The said certificate, which had been duly verified by the Managing Director of REIL on 29th August 1996, was enclosed with particulars relating to supporting manufacturers and particulars relating to Export House. These included the invoice number, date of invoice, shipping bill number, nature of the goods with quantities, etc. 5. In terms of the P L Account filed by the Assessee its cost of manufacturing was ₹ 1,07,21,711 and the total sales was ₹ 2,76,43,175. The Assessee, accordingly, declared a net profit of ₹ 1,66,85,289 and in the computation of income filed with the return, the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the THC was rejected. 8. The Assessee pointed out that in issuing a value based advance licence to REIL on 14th June 1995 for imports for ₹ 1,17,28,987 (USD 3,66,531) against the export of the Assessee s goods, REIL was treated by the CCI E as an ETH. It was accordingly, contended that with REIL having made exports as an ETH between 1st April, 1995 and 5th June, 1995 (i.e. during the further six month period), the Assessee was entitled to deduction under Section 80 HHC (1A) of the Act. 9. The AO in the assessment order dated 26th March, 1999 noted that against a profit of ₹ 1,66,86,349 shown by the Assessee, the profit earned by REIL worked out to ₹ 62,64,344. The AO further noted that in terms of Section 80 HHC of the Act it was obligatory on the part of the ETH (i.e. REIL) to obtain a certificate from the concerned Government authorities. The application for renewal of THC, which had to be made within six months from the date of expiry of the earlier THC. It was, however, filed on 16th October, 1995, i.e., beyond the period of six months. Accordingly, the AO held that the REIL had not fulfilled the conditions for filing the application for renewal. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Assessee on mere technicalities that the ETH in question was not holding a valid THC, although, the admitted fact was that the application for renewal was pending for about four years before the relevant authorities. When the AO had been asked to produce further evidence regarding the inquiry conducted by the DGFT, he expressed his inability to do so. The CIT (A) observed that it was nobody s case that the goods supplied by the Assessee had not been exported by REIL or that REIL had not received remittances in foreign exchange against the export of such goods. The documents placed on record also clearly established that the goods supplied by the Assessee were, in turn, exported by the REIL. 12. Accordingly, the CIT (A) while allowing the Assessee's appeal, held as under: Considering the legislative intent and the spirit of the section an keeping in view the fact that there is no loss to the revenue, since deduction under Section 80HHC of the Act was in any case admissible, whether to one or to other, I am inclined to agree with the submission made by the assessee and hold the assessee entitled to the bebnefit of deduction u/s 80HHC of the Act in the peculiar ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (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 respect of such trading goods. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overned by Section 80 HHC (1) (read with the proviso thereto), Section 80 HHC(1B) (to the extent that the said sub-section applies) and Section 80 HHC (2), (3), (4) and (4C), whereas, the legislative scheme pertaining to the deduction allowable to the supporting manufacturer is contained in Section 80 HHC (1A), (1B) (to the extent it applies), (3A), (4A) (4B), Section 80 HHC (4C) applies to both the exporter as well as the supporting manufacturer. Therefore, the legislative intent is not to conflate the deduction that is allowable to an exporter with that allowable to a supporting manufacturer. The decision in IPCA Laboratory Ltd. 20. In the present case, we are concerned with a deduction allowable to a supporting manufacturer (the Assessee herein) and not to an exporter (which in the present case would be REIL). It is pertinent to keep this in view while discussing the decision in IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax, Mumbai (supra). 21.1 In the above decision, the Assessee IPCA Laboratory Ltd. (IPCA) was itself the exporter as is plain from the facts narrated in the decision. IPCA was the holder of the export house certificate (EHC) issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is loss then those losses in export of trading goods have to be adjusted. They cannot be ignored. We, therefore, hold that a plain reading of Section 80 HHC makes it clear that in arriving at profits earned from export of both self manufactured goods and trading goods, the profits and losses in both the trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under Section 80 HHC(i). If there is a loss he will not be entitled to any deduction. 22. It is on the strength of the above observations that it is contended by Mr. Zoheb Hossain, learned Senior Standing Counsel for the Revenue that in the present case where the exporter himself is unable to avail of a deduction under Section 80 HHC, as it had no profits during the AY in question, the Assessee being a supporting manufacturer could not claim such a deduction either. In other words, the contention of the Revenue is that unless the exporter is eligible to claim a deduction under Section 80HHC, the supporting manufacturer cannot, on the strength of a certificate issued by the trading house as referred in clause (b) of sub-section (4A) of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any deduction in cases where there is a loss but because disclaimer has been made both the export house and the supporting manufacturer would become entitled to deductions. The proviso to sub-section (i) of Section 80HHC enables a disclaimer only to enable the export house to pass on deductions. It in no way reduces the turnover of the export house. In computing total income, the entire turnover is taken into account even though there is a disclaimer. Thus even though the disclaimer is made the taxable income of ₹ 4.39 crores has been arrived at by the Appellants after taking into account the entire turnover from export of trading goods. In arriving at the figure of ₹ 4.39 crores admittedly the loss of ₹ 6.86 crores has been taken into account. Even after disclaimer the turnover has remained the turnover of the Export House i.e. the Appellants. The disclaimer is only for purposes of enabling the export house to pass on the deduction which it would have got to the supporting manufacturer. It follows that if no deduction is available, because there is a loss, then the export house cannot pass on or give credit of such non-existing deduction to a supporting manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income,- (a) the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section: Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law. 28. Further, a perusal of Form 10 CCAB clearly shows that there is a separate certificate to be issued in favour of the supporting manufacturer where the exporter makes a declaration that it has not claimed a deduction under Section 80 HHC (1). There is a counter verification by the Chartered Accountant of such a certificate. It is, therefore, cle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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