ITO, New Delhi v. M/s. MKR Frozen Food Exports Pvt. Ltd., New Delhi

ITA 2/DEL/2010 | 2004-2005
Pronouncement Date: 29-02-2012 | Result: Dismissed

Appeal Details

RSA Number 220114 RSA 2010
Assessee PAN AAACM1631N
Bench Delhi
Appeal Number ITA 2/DEL/2010
Duration Of Justice 2 year(s) 1 month(s) 27 day(s)
Appellant ITO, New Delhi
Respondent M/s. MKR Frozen Food Exports Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 29-02-2012
Date Of Final Hearing 12-01-2012
Next Hearing Date 12-01-2012
Assessment Year 2004-2005
Appeal Filed On 01-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI G.D. AGRAWAL HONBLE VICE-PRESIDENT AN D SHRI RAJPAL YADAV HONBLE JUDICIAL MEMBER ITA NO. 1071/DEL/2007 ASSESSME NT YEAR: 2003-04 ITA NO. 53/DEL/2008 ASSESSMENT YEAR: 2004-05 MKR FROZEN FOOD EXPORTS PVT. LTD. VS. INCOME-TAX OF FICER 80-MM JANPATH CIRCLE 6(1) NEW DELHI. NEW DELHI (PAN:AAACM1631N) (APPELLANT) (RESPONDENT) ITA NO. 2/DEL/2010 ASSESSMENT YEAR : 2004-05 INCOME-TAX OFFICER VS. MKR FROZEN FOOD EXPORTS P VT. CIRCLE 6(1) LTD. 88-MM JANPATH NEW DELHI. NEW DELHI. (PAN: AAACM1631N) (APPELLANT) (RESPONDENT) ASSESSEE BY: S/SH. SALIL AGGARWAL ADV. & SALESH GUPTA CAS DEPARTMENT BY: SHRI RS NEGI SR. DR DATE OF HEARING : 12.01.2012 DATE OF PRONOUNCEMENT : 29.02.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER ITA NOS. 1071/DEL/2007 AND 53/DEL/2008 ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE SEPARATE ORDERS OF LEAR NED CIT(APPEALS) DATED 04.12.2006 AND 14.09.2007 PASSED FOR ASSESSMENT YEA R 2003-04 AND 2004-05 RESPECTIVELY. THESE APPEALS HAVE ARISEN FROM THE AS SESSMENT ORDERS PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT 1961 ON 30.1.2006 AND 2 28.6.2006 IN ASSESSMENT YEAR 2003-04 AND 2005-05 RE SPECTIVELY. ITA NO.2/DEL/2008 IS DIRECTED AT THE INSTANCE OF REVENUE AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 29.4.2009 PASSED IN ASSE SSMENT YEAR 2004-05. THIS APPEAL HAS ARISEN FROM A PENALTY PROCEEDINGS I NITIATED UNDER SECTION 271 (I )( C) OF THE ACT BY THE ASSESSING OFFICER. 2. FIRST WE TAKE THE APPEALS OF THE ASSESSEE. THE I SSUES INVOLVED IN BOTH THE YEARS ARE COMMON. IN GROUND NO.2 IN BOTH THE AS SESSMENT YEARS THE ASSESSEE HAS PLEADED THAT THE LEARNED CIT(APPEALS) HAS WRONGLY EXCLUDED 100% OF INTEREST INCOME EARNED ON FDR WHILE CALCULA TING THE DEDUCTION ADMISSIBLE UNDER SEC. 80-HHC OF THE ACT. ACCORDING TO THE ASSESSEE ONLY 90% OF THE INTEREST INCOME OUGHT TO BE REDUCED WHIL E COMPUTING THE ELIGIBLE PROFIT FOR THE PURPOSE OF GRANT OF DEDUCTION UNDER SEC. 80-HHC OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OU TSET SUBMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGME NT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF HONDA SIEL REPORTED I N 289 ITR 479. HE POINTED OUT THAT THE ASSESSING OFFICER HAS ASSESSED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. IN VIEW OF THE HON'BLE D ELHI HIGH COURTS DECISION IN THE CASE OF HONDA SIEL (SUPRA) THE INT EREST INCOME HAS TO BE EXCLUDED FROM THE ELIGIBLE PROFIT WHILE COMPUTING T HE DEDUCTION UNDER 3 SECTION 80-HHC OF THE ACT. IN VIEW OF THE STAND OF THE ASSESSEE BEFORE US GROUND NO.2 IN BOTH THE ASSESSMENT YEARS IS REJECTE D. 3. THE NEXT GRIEVANCE OF THE ASSESSEE IS THAT LEARN ED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFI CER WHEREBY DEDUCTION UNDER SEC. 80-HHC HAS BEEN DENIED TO THE ASSESSEE A T RS.57 06 826 AND RS.35 49 727 IN ASSESSMENT YEARS 2003-04 AND 2004-0 5 RESPECTIVELY. THE FACTS IN BOTH THE ASSESSMENT YEARS ARE COMMON THER EFORE FOR THE FACILITY OF REFERENCE WE ARE TAKING UP THE FACTS MAINLY FROM T HE ASSESSMENT YEAR 2003- 04. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE HAS FILED ITS RETURN OF INCOME ON 2.12.2003 AND 30.10.2004 DECLARING AN INC OME OF RS.52 02 650 AND RS.12 00 311 IN ASSESSMENT YEARS 2003-04 AND 20 04-05 RESPECTIVELY. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT IN BOTH THE ASSESSMENT YEARS AND NOTICES UNDER SEC. 143(2) OF T HE ACT WERE ISSUED AND SERVED UPON IT. THE ASSESSEE AT THE RELEVANT TIME W AS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF FROZEN MEAT. IT HAD TW O MANUFACTURING UNITS ONE AT SAHIBABAD (UP) AND THE OTHER AT NANDED (MAHA RASHTRA). THE ASSESSEE HAD FILED TWO SEPARATE BALANCE SHEET PROFIT AND LO SS ACCOUNT AND AUDIT REPORT FOR THE TWO MANUFACTURING UNITS. IT HAS SHOWN A TUR NOVER OF RS.21 44 69 846 AT SAHIBABAD AND DECLARED AN INCOME OF RS.2 32 83 1 08. SIMILARLY AT 4 NANDED IT HAS SHOWN A TURNOVER OF RS.7 51 20 104 A ND DECLARED A LOSS OF RS.114 45 552. IT HAS CLAIMED A DEDUCTION OF RS.82 59 080 UNDER SEC. 80- HHC OF THE INCOME-TAX ACT 1961 IN ASSESSMENT YEAR 2003-04. 4. IN ASSESSMENT YEAR 2004-05 THE TURNOVER AT SAHI BABAD WAS DECLARED AT RS.33 82 30 240.30 AND AN INCOME OF RS.158 44 504.1 1 WAS DECLARED. THE TURNOVER AT NANDED WAS SHOWN AT RS.821 86 834 AND A LOSS OF RS.120 60 465.98 WAS DECLARED. THE ASSESSEE HAD CLA IMED A DEDUCTION OF RS.35 49 727 UNDER SEC. 80-HHC OF THE ACT. 5. LEARNED ASSESSING OFFICER DIRECTED THE ASSESSEE TO FILE A DETAILED NOTE ON THE DEDUCTION CLAIMED BY IT UNDER SEC. 80-HHC OF THE ACT. IN ASSESSMENT YEAR 2003-04 ASSESSEE HAS SUBMITTED THE NOTE VIDE LETTER DATED 26.12.2005. LEARNED ASSESSING OFFICER HAS REPRODUCED THE FACTS SUBMITTED BY THE ASSESSEE ON PAGE NOS. 1 TO 3 OF THE ASSESSMENT ORDE R. WE DEEM IT APPROPRIATE TO TAKE COGNIZANCE OF THIS NOTE TO THE EXTENT IT EXHIBITS THE FACTUAL MATRIX WHICH READ AS UNDER: 'DURING THE YEAR RELEVANT TO ASSESSMENT YEAR 2003- 04 THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING & PROCESSING OF FROZEN MEAT AND WAS 5 HAVING TWO INDUSTRIAL UNDERTAKING ONE AT SAHEBABAD IN DISTT. UTTAR PRADESH AND OTHER AT NANDED IN DISTT. MAHARASHTRA. THE SAHIBABAD UNDERTAKING WAS ESTABLISHED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 1992-93 AND HAD STARTED COMMERCIAL PRODUCTION W.E.F . 25.12.91. THE SECOND UNDERTAKING AT NANDED IN DISST. MAHARASHTRA HAD STARTED COMMERCIAL PRODUCTIO N W.E.F.1.45.95 RELEVANT TO THE ASSESSMENT YEAR 1995- 96. BOTH THE INDUSTRIAL UNDERTAKING WERE HAVING THEIR SEPARATE BOOKS OF ACCOUNT THEIR ACCOUNTS WERE INDEPENDENTLY AUDITED BOTH WERE HAVI NG SEPARATE SALES TAX REGISTRATION UNDER THE SALE TAX ACT AND ALSO WERE HAVING INDEPENDENT MANAGEMENT CONTROL FOR RUNNING THE AFFA IRS OF THE BUSINESS. DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 200 3-04 THE ASSESSEE COMPANY HAD GOT ITS ACCOUNTS AUDITED INDIVIDUALLY FOR BOTH THE UNITS ON THE BASIS OF SEP ARATE BOOKS OF ACCOUNTS. SEPARATE AUDIT REPORTS UNDER SEC . 80HHC WAS OBTAINED AND WERE FILED WITH THE RETURN OF INCOME FOR THE YEAR. IN THE SAHIBABAD IND USTRIAL UNDERTAKING THE ASSESSEE COMPANY HAS DECLARED NET P ROFIT OF RS.2 41 78 570 AND IN NANDED INDUSTRIAL UNDERTA KING NET LOSS OF RS.1 14 45 552 HAS BEEN SHOWN. THE DED UCTION UNDER SEC. 80-HHC HAS BEEN CLAIMED AMOUNTING TO RS.82 59 079 ON THE PROFIT ARRIVED AT IN THE SAHIBA BAD INDUSTRIAL UNDERTAKING. NO DEDUCTION UNDER SEC. 80- HHC HAS BEEN CLAIMED IN THE NANDED UNDERTAKING ON ACCOU NT OF NET LOSS SHOWN IN ITS ACCOUNTS. THE COMPUTATION OF DEDUCTION UNDER SEC. 80-HHC IN CASE OF SAHIBABAD UN DERTAKING IS ALSO CALCULATED ON THE PROFIT DECLARED IN THAT U NDERTAKING WHICH IS RS.2 41 78 570 BECAUSE SEC. 80-HHC(3) READ WITH EXPLANATION (BAA) DEFINES THE WORD 'PROFI T OF THE BUSINESS' FOR THE PURPOSES OF SECTION TO MEAN PROFI TS AND GAINS COMPUTED ONLY IN ACCORDANCE WITH THE PROV ISIONS OF SEC. 28 TO 430 OF THE ACT WHICH FALLS UNDER CHAPTER IV -0 OF THE ACT. SEC. 70 & 71 WHICH PROVIDES FOR ADJUSTMENT OF THE LOSS UNDER ONE SOURCE OR HEAD AGAINST THE PROFITS F ROM ANOTHER SOURCE OR HEAD RESPECTIVELY DO NOT FALL UNDER THE 6 COMPUTATION PROVISIONS RELATING TO BUSINESS INCOME AND THEREFORE THE MANUAL ADJUSTMENT OF LOSS OR PROFIT CANNOT BE PERMITTED. YOUR GOOD SELF WILL ALSO APPRECIATE T HAT DEDUCTION UNDERSEC.80-HHCISSELFCONTAINED PROVISION BY ITS SEL F AND THEREFORE THE BENEFIT UNDER SUB-SECTION( 1) OF SEC. 80-HHC HAS TO BE WORKED OUT IN ACCORDANCE WITH AND SUBJECT TO PROVISION OF THAT SECTION ONLY. SECTION 8-HHC( 1)WAS AMENDED W.E.F. 10.4.2001 AND IN THE AMENDMENT [ A DEDUCTION TO EXTENT OF PRO FIT] HAS BEEN SUBSTITUTED FROM [A DEDUCTION OF PROFITS]. THIS MEANS THE DEDUCTION UNDER SECTION 80-HHC CAN BE ANY AMOUN T BUT THAT MUST BE SUBJECT TO THE PROFITS AVAILABLE FOR T AXATION AND INCLUDED IN THE GROSS TOTAL INCOME. THE NEED FOR TH IS AMENDMENT HAD ARISEN ONLY TO FACILITATE THE ALLOWABILITY OF D EDUCTION CALCULATED AS PER THE PROVISIONS OF 90HHC WITH A RIDER THAT TH E DEDUCTION CANNOT EXCEED GROSS TOTAL INCOME'. 6. THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE DEDUCTION ADMISSIBLE UNDER SEC. 80-HHC HAS TO BE CO MPUTED INDEPENDENTLY FOR BOTH THE UNITS. THE LOSSES OF ONE UNIT CANNOT B E SET OFF AGAINST THE PROFIT OF OTHER UNIT WHILE COMPUTING THE DEDUCTION ADMISSI BLE UNDER SEC. 80-HHC OF THE ACT. IT RELIED UPON THE JUDGMENT OF THE HON' BLE SUPREME COURT IN THE CASE OF CIT VS. CANARA WORKSHOP PVT. LTD. REPORTED IN 161 ITR 320. IT FURTHER RELIED UPON THE FOLLOWING JUDGMENTS: CIT VS. RATHORE BROS REPORTED IN 254 ITR 656; ENGLISH ELECTRIC CO. LTD. VS. CIT (S.C) REPORTED IN 249 ITR 793 CIT VS. VASAKHA INDS. LTD. (AP) (2001) REPORTED IN 251 ITR 471; AND 7 JCIT VS. DR. REDDYS LABORATORIES LTD. (HYD.) (2004 ) REPORTED IN 91 ITD 188. 7. LEARNED ASSESSING OFFICER CONFRONTED THE ASSESSE E ABOUT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORA TORIES REPORTED IN 266 ITR 521. THE ASSESSEE POINTED OUT THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES IS NOT APPLI CABLE ON ITS FACTS. THE DISTINGUISHING FEATURES POINTED OUT BY THE ASSESSEE HAVE BEEN NOTICED BY THE LEARNED ASSESSING OFFICER AT PAGE 3 OF THE ASSESSME NT ORDER. LEARNED ASSESSING OFFICER HAS MADE A DETAILED ANALYSIS OF A LL THE SUBMISSIONS GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE WAS RUNNING TOW INDUSTRIAL UNITS FOR THE PURPOSE OF MANUFACTURE AND EXPORTS OF FROZEN MEAT. BOTH THE UNITS WERE IN THE SAME BUSINESS MANUFACTURING SAME PRODUCTS AND HAVING COMMON BUYERS. ACCORDING TO THE ASSESSING OFFICER THE TWO UNITS WERE PART OF A COMMON BUSINESS HENCE IT IS TO BE TREATED AS ONE BUSINESS. HE EMPHASIZED THAT SEC. 80-HHC(1) OF THE ACT CONTEMPLA TES THAT WHERE AN ASSESSEE BEING AN INDEPENDENT COMPANY OR A PERSON OTHER THAN A COMPANY RESIDENT IN INDIA IS ENGAGED IN THE BUSINESS OF EX PORTS OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THE SECTION APPLIES THEIR SHALL IN ACCORDANCE WITH THE SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION TO TH E EXTENT OF PROFIT REFERRED 8 TO IN SUB-SECTION (IB) DERIVED BY THE ASSESSEE FRO M THE EXPORT OF SUCH GOODS OR MERCHANDISE. ACCORDING TO THE ASSESSING OFFICER THIS SECTION PROVIDES FOR DEDUCTION TO THE EXTENT OF PROFIT DERIVED BY AN ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE. THE ASSESSEE CANNOT DIVIDE SUCH INCOME INTO TO TWO OR MORE PARTS ON ANY BASIS I.E. EITHER ON THE T YPE OF THE GOODS PLACE OF MANUFACTURE OR ANY OTHER BASIS. THUS ACCORDING TO THE ASSESSING OFFICER THE PROFIT FROM EXPORT HAVE TO BE CONSIDERED IN THE IR ENTIRETY. FOR BUTTRESSING HIS CONCLUSION HE MADE REFERENCE TO THE DECISION O F HON'BLE SUPREME COURT REPORTED IN THE CASE OF IPCA LABORATORIES AND ARRIV ED AT A CONCLUSION THAT LOSSES OF NANDED UNIT HAVE TO BE SET OFF AGAINST TH E PROFIT OF SAHIBABAD UNIT BEFORE GRANTING DEDUCTION UNDER SECTION 80-HHC OF T HE ACT. 8. HE RESTRICTED THE DEDUCTION ADMISSIBLE TO ASSESS EE IN ASSESSMENT YEAR 2003-04 AT RS.25 52 254 AS AGAINST RS.82 59 080 MAD E BY THE ASSESSEE. SIMILAR COURSE OF ACTION HAS BEEN ADOPTED IN ASSESS MENT YEAR 2004-05. 9. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 9 10. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPU GNING THE ORDERS OF LEARNED REVENUE AUTHORITIES BELOW SUBMITTED THAT TH E JUDGMENT OF THE HON'BLE SUPREME COURT OR OF THE HON'BLE HIGH COURT HAS TO BE CONSIDERED AFTER TAKING INTO CONSIDERATION THE FACTS AND CIRCU MSTANCES ON WHICH SUCH JUDGMENT WAS RENDERED. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES IS ALTOGETHER FOR THE DIF FERENT PROPOSITION. HE TOOK US THROUGH SECTION 80-HHC OF THE ACT AND POINT ED OUT THAT SUB-SECTION (1) OF SECTION 80-HHC PROVIDES THAT WHERE AN ASSESS EE BEING AN INDIAN COMPANY OR A PERSON RESIDENT IN INDIA IS ENGAGED I N THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH T HIS SECTION APPLIES THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVIS IONS OF THIS SECTION BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE A DEDUCTION TO THE EXTENT OF PROFITS REFER TO IN SUB-SECTION (1B) DERI VED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE. ACCORDING TO T HE LEARNED COUNSEL FOR THE ASSESSEE SUB-SECTION (3) OF SECTION 80-HHC PRO VIDES THE COMPUTATION OF PROFITS DERIVED FROM SUCH EXPORT. HE POINTED OUT TH AT HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES CONSIDERED CLAUSE (C) OF SUB-SECTION (3). IN THAT CASE ASSESSEE WAS RUNNING AN EXPORT HOUSE. IT HAS EXPORTED THE GOODS WHICH WERE MANUFACTURED BY IT AND ALSO THOSE GOODS WHICH WERE PRODUCED BY SUPPORTING MANUFACTURERS. A PROFIT OF RS.3.78 CR ORES WAS SHOWN BY THE 10 ASSESSEE FROM EXPORT OF GOODS MANUFACTURED BY IT AN D A LOSS OF RS.6.86 CRORES WAS REPORTED IN RESPECT OF GOODS MANUFACTURE D BY THE SUPPORTING MANUFACTURES. THE ASSESSEE PLEADED THAT LOSS BE IGN ORED AND A DEDUCTION UNDER SEC. 80 HHC BE GRANTED QUA THE PROFIT EARNED BY IT ON THE GOODS MANUFACTURED BY IT AND EXPORTED. THIS VIEW OF THE A SSESSEE WAS JETTISONED BY THE ASSESSING OFFICER. THE DISPUTE TRAVELED UP TO H ON'BLE SUPREME COURT AND HON'BLE SUPREME COURT AFTER TAKING INTO CONSIDE RATION SECTION 80AB AND SECTION 80B(5) ARRIVED AT A CONCLUSION THAT THE EXP RESSION PROFIT FROM SUCH EXPORTS APPEARING IN SECTION 80-HHC(3)(C) COULD ON LY MEAN PROFIT OF SELF- MANUFACTURED GOODS PLUS PROFIT OF EXPORT OF TRADING GOODS. HONBLE COURT HAS HELD THAT PROFITS HAD TO BE CALCULATED BY TAKIN G IN TO ACCOUNT BOTH EXPORTS AND A DEDUCTION WAS PERMISSIBLE UNDER SEC. 80-HHC(3 )(C)(II) ONLY IF THERE WAS A POSITIVE PROFIT IN THE EXPORT OF BOTH SELF-MA NUFACTURED GOODS AS WELL AS TRADING GOODS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THAT CASE THE ASSESSEE SOUGHT TO EXCLUDE THE LOSSES SUFF ERED BY IT ON EXPORT OF GOODS MANUFACTURED BY SUPPORTING MANUFACTURER. HON' BLE SUPREME COURT HAS CONSIDERED THE APPLICABILITY OF CLAUSE (C) SUB- SECTION (3) OF SECTION 80- HHC. THUS IT WAS ALTOGETHER A DIFFERENT FACTUM SIT UATION. HE POINTED OUT THAT IN THE PRESENT CASE ASSESSEE IS HAVING TWO SE PARATE UNITS LOCATED AT DIFFERENT PLACES. IT IS MAINTAINING SEPARATE ACCOUN T IN ONE UNIT IT HAS SUFFERED 11 LOSSES AND IN OTHER UNIT IT HAS THE PROFIT. THEREFO RE ON THE BASIS OF HON'BLE SUPREME COURTS DECISION SET OFF OF LOSSES AGAINST THE PROFIT CANNOT BE DONE. 11. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT HON'BLE DELHI HIGH COURT HAS EXAMINED A SOMEWHAT SIMILAR IS SUE IN THE CASE OF CIT VS. PADMINI TECHNOLOGIES LTD. REPORTED IN 64 DTR 21 7. HE PLACED ON RECORD COPY OF THE JUDGMENT. HE POINTED OUT THAT IN THIS C ASE THE ISSUE WAS WHETHER LOCAL SALES MADE BY THE ASSESSEE IN DIFFERENT UNITS HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION AD MISSIBLE UNDER SEC. 80- HHC. HONBLE COURT HAS OBSERVED THAT EXPRESSION TO TAL TURNOVER OF THE BUSINESS EMPLOYED IN SECTION 80-HHC WOULD ONLY INC LUDE THE TURNOVER OF THE EXPORT BUSINESS. IF DOMESTIC SALES ARE THERE TH EN THOSE HAS TO BE EXCLUDED WHILE WORKING OUT THE TOTAL TURNOVER AS WELL AS EXP ORT TURNOVER. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE STRENGTH OF THIS DE CISION SUBMITTED THAT IF IN ONE UNIT PARTIALLY THERE ARE LOCAL SALES THEN SUC H LOCAL SALES DESERVE TO BE EXCLUDED FROM THE TOTAL TURNOVER THEN THE DEDUCTION ADMISSIBLE UNDER SEC. 80-HHC CAN BE COMPUTED ON THE BASIS OF THE TURNOVER OF EACH UNIT. IN OTHER WORDS THE EMPHASIZES OF LEARNED COUNSEL FOR THE AS SESSEE IS THAT A DEDUCTION ADMISSIBLE UNDER SEC. 80-HHC IS TO BE COMPUTED SEPA RATELY AT SAHEBABAD UNIT AS WELL AS NANDED UNIT. THE RESULT OF BOTH THE UNITS COULD NOT BE 12 CLUBBED AND PROFIT AND LOSSES COULD NOT BE SET OFF AGAINST EACH OTHER BEFORE FINALIZING THE PROFIT FOR THE PURPOSE OF DEDUCTION ADMISSIBLE UNDER SECTION 80-HHC. HE FURTHER RELIED UPON THE TWO ORDERS OF TH E ITAT IN THE CASE OF M/S. SYNCHEM CHEMICALS (I) PVT. LTD. VS. ACIT IN IT A NO. 619/MUM/08 AND LUPIN LTD. IN ITA NO. 2446/MUM/05. HE PLACED ON RECORD COPIES OF BOTH THE DECISIONS. 12. ON THE OTHER HAND LEARNED DR RELIED UPON THE O RDER OF THE LEARNED CIT(APPEALS). HE POINTED OUT THAT EXPRESSION TOTAL INCOME EMPLOYED IN SECTION 80-HHC SUB-SECTION (1) HAS TO BE CONSTRUED IN ACCORDANCE WITH SECTION 80-AB READ WITH SECTION 80-B(5) OF THE INCO ME-TAX ACT 1961. HE FURTHER CONTENDED THAT HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES (SUPRA) HAS CONSIDERED THIS ASPECT AND OBSERVED THAT SECTION 80- AB CONTEMPLATES THAT WHERE ANY DEDUCTION IS REQUIRE D TO BE MADE OR ALLOWED UNDER ANY SECTION OF CHAPTER VI THEN GROSS TOTAL INCOME IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE I NCOME-TAX ACT 1961. LEARNED DR FURTHER CONTENDED THAT SECTION 80-AB HAS AN OVERRIDING EFFECT OVER SECTION 80-HHC. IT PROVIDES COMPUTATION OF INC OME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND IF THE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT THEN NOT ONLY PROFIT BUT ALSO LOSSES 13 HAVE TO BE TAKEN INTO CONSIDERATION. THE ASSESSEE H AS RELIED UPON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF PADMINI TECHNOLOGIES LTD. AND IN THAT CASE RECEIPTS ARE OF DIFFERENT CHARACTER. DOMESTIC SALES CANNOT FORM PART OF TOTAL TURNOVER W ITHIN THE MEANING OF SECTION 80-HHC BECAUSE THERE IS NO LINK WITH THE EX PORT OF GOODS. THUS THERE IS A FUNDAMENTAL DIFFERENCE ABOUT THE NATURE OF THE RECEIPTS AND DUE TO THAT REASON HON'BLE HIGH COURT HAS EXCLUDED DOMESTI C SALES FROM THE TOTAL TURNOVER AS WELL AS THE EXPORT TURNOVER. HE FURTHER POINTED OUT THAT IN THIS VERY JUDGMENT HON'BLE HIGH COURT HAS CONSIDERED TH E CASE OF IPCA LABORATORIES AS WELL AS SIMCO INDUSTRIES REPORTED I N 299 ITR 444. HE POINTED OUT THAT WHILE CONSIDERING THE CASE SIMCO INDUSTEIS HONBLE COURT HAS OBSERVED THAT THE ASSESSING OFFICER HAS TO TAKE INTO CONSIDERATION ALL THE PROVISIONS I.E. SECTION 71 WHICH PROVIDES FOR SET O FF OF LOSSES FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD AND ALSO PROVISION S OF SECTION 72 WHICH PROVIDES CARRY FORWARD AND SET OFF OF BUSINESS LOSS ES. HE POINTED OUT THAT AS A RESULT OF THIS EXERCISE IF THE GROSS TOTAL INCOM E OF THE ASSESSEE WAS NIL THEN IT COULD NOT CLAIM ANY DEDUCTION UNDER CHAPTER VIA. ASSESSING OFFICER HAD ADOPTED THIS EXERCISE AND WHATEVER PROFIT REMAINED TO THE ASSESSEE ASSESSING OFFICER HAS ALLOWED THE DEDUCTION. THERE IS NO ERROR COMMITTED BY THE ASSESSING OFFICER ON THIS ASPECT. 14 13. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. SECTION 80HHC HAS A DIRECT BEARIN G ON THE CONTROVERSY THEREFORE IT IS PERTINENT TO TAKE NOTE RELEVANT PA RT OF THIS SECTION AS IT WAS IN ASSESSMENT YEARS 2003-04 AND 2004-05. IT READS AS U NDER: [ DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPOR T BUSINESS. 28 80HHC. 29 [(1) WHERE AN ASSESSEE BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA IS ENGAGED IN THE BUSIN ESS 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 SECTION BE ALLOWED IN C OMPUTING THE TOTAL INCOME OF THE ASSESSEE 30 [A DEDUCTION TO THE EXTENT OF PROFITS 31 REFERRED TO IN SUB-SECTION (1B) ] DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOO DS OR MERCHANDISE : PROVIDED THAT IF THE ASSESSEE BEING A HOLDER OF AN EXPORT HOUSE CERTIFICATE OR A TRADING HOUSE CERTIFICATE (HEREAFTER IN THIS SECTION REFERR ED TO AS AN EXPORT HOUSE OR A TRADING HOUSE AS THE CASE MAY BE ) ISSUES A CERTIFICATE RE FERRED TO IN CLAUSE ( B ) OF SUB-SECTION (4A) THAT IN RESPECT OF THE AMOUNT OF THE EXPORT T URNOVER SPECIFIED THEREIN THE DEDUCTION UNDER THIS SUB-SECTION IS TO BE ALLOWED TO A SUPPOR TING MANUFACTURER THEN THE AMOUNT OF DEDUCTION IN THE CASE OF THE ASSESSEE SHALL BE REDU CED BY SUCH AMOUNT WHICH BEARS TO THE 32 [TOTAL PROFITS DERIVED BY THE ASSESSEE FROM THE EXP ORT OF TRADING GOODS THE SAME PROPORTION AS THE AMOUNT OF EXPORT TURNOVER SPECIFI ED IN THE SAID CERTIFICATE BEARS TO THE TOTAL EXPORT TURNOVER OF THE ASSESSEE IN RESPECT OF SUCH TRADING GOODS]. 46 [(3) FOR THE PURPOSES OF SUB-SECTION (1) ( A ) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERC HANDISE MANUFACTURED 47 [OR PROCESSED] BY THE ASSESSEE THE PROFITS 48 DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS 48A THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO T HE 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 S UCH 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 MERC HANDISE MANUFACTURED 49 [OR PROCESSED] BY THE ASSESSEE AND OF TRADING GOODS TH E PROFITS DERIVED FROM SUCH EXPORT SHALL ( I ) IN RESPECT OF THE GOODS OR MERCHANDISE MANUFACTUR ED 49 [OR PROCESSED] BY THE ASSESSEE BE THE AMOUNT WHICH BEARS TO THE ADJU STED PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE ADJUSTED EXPOR T TURNOVER IN RESPECT OF 15 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 TURNOV ER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS A TTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS : 67 [( BAA ) PROFITS OF THE BUSINESS MEANS THE PROFITS OF TH E BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON AS REDUCED BY ( 1 ) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES ( IIIA ) ( IIIB ) AND ( IIIC ) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NAT URE INCLUDED IN SUCH PROFITS ; AND ( 2 ) THE PROFITS OF ANY BRANCH OFFICE WAREHOUSE OR A NY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA ;] 14. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE STR ENGTH OF THE ITATS ORDER IN THE CASE OF SYNCHEM CHEMICALS (I) PVT. LTD . VS. ACIT HAS SUBMITTED THAT WHEN ASSESSEE WAS MAINTAINING SEPARA TE BOOKS OF ACCOUNT FOR ITS TWO UNITS THEN THE LOSSES OF ONE UNIT CANNOT BE ADJUSTED AGAINST THE PROFIT OF OTHER UNIT FOR THE PURPOSE OF COMPUTING THE DEDU CTION ADMISSIBLE UNDER SEC. 80-HHC. HIS CONTENTION WAS THAT ALLOWABILITY O F DEDUCTION UNDER SEC. 80-HHC IS IN RESPECT OF TURNOVER QUA AN ASSESSEE AN D NOT QUA THE BUSINESS. THE FINDING OF THE ITAT ON THIS ISSUE READS AS UNDE R: 7. GROUND NOS. 5 6 & 7 PERTAIN TO THE DEDUCTION UN DER SECTION 80HHC. IT IS ASSESSEES CONTENTION THAT DEDUCTION IS ALLOW ABLE TO THE ASSESSEE QUA BUSINESS BUT NOT QUA ASSESSEE AS IT HAD VARIOUS BUS INESS AND SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED WITH REFERENCE TO EXPORT ACTIVITIES. IT WAS SUBMITTED THAT THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE GROUP CONCERNS CASE WHEREIN ON SIMILAR ISSUE THE I TAT HAS CONSIDERED AND ALLOWED ASSESSEES CONTENTION. THE ORDER IN GRO UP CONCERNS CASE IN 16 ITA NOS. 2447 & 2448/MUM/2005 IN THE CASE OF LUPIN LABORATORIES LTD. IS PLACED ON RECORD. IT WAS CONSIDERED AND DECIDED ON SIMILAR FACTS AS UNDER: GROUND NO.5 IS AGAINST THE SUSTENANCE OF DISALLOWA NCE OF DEDUCTION U/S.80HHC ON THE BASIS OF COMPANY AS A WH OLE AS AGAINST ON THE BASIS OF EACH BUSINESS UNIT SEPARATE LY. AT THE OUTSET THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE IS DEC IDED IN FAVOUR THE ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 1997-9 8 WHEREIN IT WAS HELD AS UNDER: - 26. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND M ERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO.3314 AND 3242/MUM/200 5 FOR ASSESSMENT YEAR 2000-01 WHEREIN VIDE PARA-11 OF THE ORDER DATED 23.9.2008 IT HAS BEEN HELD AS UNDER :- 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE L LOWER AUTHORITIES ALONG WITH THE JUDGMENTS RELIE D UPON BY THE PARTIES. FROM THE PERUSAL OF THE JUDGMENT IN THE CASE OF M. GANI & CO. (SUPRA) WE FIND THAT THE ASSESSEE IS ENTITLED TO THE ALLOWABILITY OF DED UCTION U/S.80 HHC WITH THE TURNOVER OF QUA ASSESSEE AND NOT THE QUA BUSINESS WHEN ASSESSEE HAVING MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR DIFFERENT BUSINESS WHICH IS THE CASE IN THE INSTANT CASE ALSO. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) ORDER IS SET ASIDE ON THIS ISSUE AND ASS ESSING OFFICER IS DIRECTED TO RECOMPUTE ALLOWABILITY OF DEDUCTION U/S.80 HHC QUA BUSINESS AND NOT QUA ASSESSEE AS SEPARATE BOOKS OF ACCOUNTS MAINTAINED B Y THE ASSESSEE FOR BULK DRUGS FORMULAS EXPORT DIVISIONS ETC. THE MERGER O F ACCOUNTS AT THE HEAD OF OFFICE FOR MAKING OF SINGLE PROFIT AND LOSS ACCOUNT WILL NOT COME IN THE WAY AS SUCH MERGER IS ONLY FOR THE LIMITED PURPOSE OF MA KING OF THE FINANCIAL STATEMENTS AS BOOKS OF ACCOUNTS IS ALLOWABLE. ACCOR DINGLY GROUND 3 IS ALLOWED. THE ABOVE ORDER HAS BEEN CONSISTENTLY FOLLOWED BY T HE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 1996-9 7 2001-02 AND 2002-03 SUPRA. 27. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE CONSIS TENT VIEW OF THE TRIBUNAL DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DEDUCTION U/S.80HHC IN THE LIGHT OF THE ORDER OF THE TRIBUNAL SUPRA AND ALLOW THE SAME. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH WE ALLOW THIS GROUND OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH ON PRINCIPLE WE ALLOW ASSESSEES CONTENTION THAT 80HH C QUANTIFICATION HAS TO BE DONE ON THE BASIS OF THE UNIT FOR WHICH BOOKS OF ACCOUNT ARE SEPARATELY 17 MAINTAINED. 15. THE EXACT NATURE OF FACTS ARE NOT DISCERNIBLE F ROM THE ORDER OF THE ITAT. IT APPEARS FROM THE OPENING LINES THAT DEDUCT ION IS AVAILABLE TO THE ASSESSEE QUA BUSINESS BUT NOT QUA THE ASSESSEE BEC AUSE AS AN ASSESSEE COULD HAVE VARIOUS BUSINESSES AND SEPARATE BOOKS OF ACCOU NT. THERE COULD NOT BE ANY DISPUTE ABOUT THIS PROPOSITION BECAUSE IF AN AS SESSEE IS ENGAGED IN THE BUSINESS WHERE NO EXPORT WAS MADE AND SECTION 80-HH C IS NOT APPLICABLE THEN THOSE RECEIPTS WOULD NOT FORM PART OF TOTAL TU RNOVER FOR THE PURPOSE OF DEDUCTION ADMISSIBLE UNDER SEC. 80-HHC. HON'BLE DEL HI HIGH COURT IN THE CASE OF PADMINI TECHNOLOGY LTD. HAS ALSO OBSERVED T HAT IF AN ASSESSEE RUNS AND MANAGE TWO SEPARATE UNITS ONE OF WHICH IS ENGA GED FULLY OR PARTIALLY IN EARNING INCOME THROUGH EXPORTS THEN IN THE CALCULA TION OF PROPORTIONATE DEDUCTION PROFITS FOR THE PURPOSE OF SECTION 80-HH C TOTAL TURNOVER OF THE BUSINESS WOULD ONLY INCLUDE THE TURNOVER OF THE EXP ORT BUSINESS AND NOT THAT OF DOMESTIC BUSINESS. HOWEVER THE FACTS IN THE PRE SENT CASE ARE QUITE DISTINGUISHABLE. IN THE CASE IN HAND AT BOTH UNITS ASSESSEE IS DOING EXPORT BUSINESS ON WHICH SECTION 80-HHC IS APPLICABLE. THE TURNOVER OF BOTH THE BUSINESS ARE AMENABLE TO APPLICABILITY OF SECTION 8 0-HHC OF THE ACT. IN THE CASE OF IPCA LABORATORIES HON'BLE SUPREME COURT HA S CONSIDERED SECTION 18 80-AB AND 80-B(5) AND THEREAFTER PROPOUNDED THE PRO POSITION AS TO HOW TOTAL INCOME HAS TO BE COMPUTED. IT IS WORTH TO NOT E RELEVANT OBSERVATIONS WHICH ARE AS UNDER: 11. UNDER SECTION 80HHC(1) THE DEDUCTION IS TO BE GIVE N IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE BOTH PROFITS AS WELL AS LOSSES WILL HAVE T O BE TAKEN INTO CONSIDERATION. SECTION 80AB IS RELEVANT. IT READS A S FOLLOWS : 80AB. DEDUCTIONS TO BE MADE WITH REFERENCE TO THE INCOME INCLUDED IN THE GROSS TOTAL INCOME. WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER ANY SECTION INCLUDED IN THIS CHAPTER UNDER THE HEADING C- DEDUCTIONS IN RESPECT OF CERTAIN INCOMES IN RESPECT OF ANY INCOME OF THE NATURE SPECIFIED IN THAT SECTION WHICH IS INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE THEN NOTWITHSTANDING ANYTHING CON TAINED IN THAT SECTION FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER TH AT SECTION THE AMOUNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CH APTER) SHALL ALONE BE DEEMED TO BE THE AMOUNT OF INCOME OF THAT NATURE WH ICH IS DERIVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDED IN H IS GROSS TOTAL INCOME.' SECTION 80B(5) IS ALSO RELEVANT. SECTION 80B(5) PRO VIDES THAT 'GROSS TOTAL INCOME' MEANS TOTAL INCOME COMPUTED IN ACCORDANCE W ITH THE PROVISIONS OF THE INCOME-TAX ACT. 12. SECTION 80AB IS ALSO IN CHAPTER VI-A. IT STARTS WI TH THE WORDS 'WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLO WED UNDER ANY SECTION OF THIS CHAPTER'. THIS WOULD INCLUDE SECTION 80HHC. SECTION 80AB FURTHER 19 PROVIDES THAT 'NOTWITHSTANDING ANYTHING CONTAINED I N THAT SECTION'. THUS SECTION 80AB HAS BEEN GIVEN AN OVERRIDING EFFECT OV ER ALL OTHER SECTIONS IN CHAPTER VIA. SECTION 80HHC DOES NOT PROVIDE THAT IT S PROVISIONS ARE TO PREVAIL OVER SECTION 80AB OR OVER ANY OTHER PROVISI ON OF THE ACT. SECTION 80HHC WOULD THUS BE GOVERNED BY SECTION 80AB. DECIS IONS OF THE BOMBAY HIGH COURT AND THE KERALA HIGH COURT TO THE CONTRARY CANNOT BE SAID TO BE THE CORRECT LAW. SECTION 80AB MAKES IT C LEAR THAT THE COMPUTATION OF INCOME HAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IF THE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT THEN NOT ONLY PROFITS BUT ALSO LOSSES HAVE TO BE TAKEN INTO CONSIDERATION. 16. THUS THE TOTAL INCOME OF THE ASSESSEE HAS TO B E COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 17. HON'BLE SUPREME COURT HAS AGAIN CONSIDERED THIS ASPECT THOUGH IN A DIFFERENT CONTEXTS IN THE CASE OF SIMCO INDUSTRIES VS. ASSESSING OFFICER REPORTED IN 299 ITR 444. IN THIS CASE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OIL AND CHEMICALS. IT HAD A UNIT FOR OIL DIVISIO N LOCATED AT SIROHI AND A UNIT FOR CHEMICAL DIVISION SITUATED IN JODHPUR. IN ASSES SMENT YEAR 1990-91 IT HAD EARNED PROFIT IN BOTH THE DIVISIONS. HOWEVER IN EA RLIER YEARS THE ASSESSEE HAD EARNED LOSSES IN THE OIL DIVISION. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SEC. 80-HH AND 80-I OF THE ACT. IN SUPPORT OF ITS CLAIM ASSESSEE TOOK THE STAND THAT BOTH THE DIVISIONS SHOULD BE TREATED SEPARATELY AND LOSSES 20 SUFFERED IN THE EARLIER YEARS IN THE OIL DIVISION O UGHT NOT TO BE ADJUSTED AGAINST THE PROFITS EARNED BY IT IN THE CHEMICAL DI VISION. ASSESSING OFFICER REJECTED THIS CONTENTION OF THE ASSESSEE AND DENIED THE DEDUCTION TO THE ASSESSEE UNDER CHAPTER VIA BECAUSE THE GROSS TOTAL INCOME WAS NIL. THE VIEW OF THE ASSESSING OFFICER WAS CONFIRMED UP TO T HE HON'BLE HIGH COURT AND ULTIMATELY ISSUE TRAVELED TO THE HON'BLE SUPREM E COURT. HON'BLE SUPREME COURT WAS TO DECIDE WHETHER THE LOSSES SUFF ERED IN THE EARLIER YEARS BY THE OIL DIVISION OF THE ASSESSEE COULD BE ADJUST ED AGAINST THE PROFIT OF THE TWO DIVISIONS WHILE COMPUTING THE DEDUCTION ADMISSI BLE TO THE ASSESSEE UNDER SEC. 80-I OF THE ACT. HON'BLE SUPREME COURT O N A DETAILED ANALYSIS ARRIVED AT THE CONCLUSION THAT THE DEDUCTION UNDER CHAPTER VIA COULD ONLY BE GRANTED IF THE GROSS TOTAL INCOME OF THE ASSESSE E WAS POSITIVE. HON'BLE SUPREME COURT TOOK INTO CONSIDERATION SECTION 80-B( 5) WHICH PROVIDES THE DEFINITION OF GROSS TOTAL INCOME AS WELL AS THE CLA IM OF DEDUCTION ADMISSIBLE UNDER CHAPTER VIA OF THE ACT. THE ASSESSEE RAISED A N ARGUMENT BEFORE THE HON'BLE SUPREME COURT ON THE STRENGTH OF SECTION 80 -I(6) WHICH PROVIDES;- SECTION 80-I(6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING OR A SHIP OR THE BUSINESS OF A HOTEL OR THE BUSINESS OF REPAIRS TO O CEAN-GOING VESSELS OR OTHER POWERED CRAFT TO WHICH THE PROVISIONS OF SUB-SECTIO N (1) APPLY SHALL FOR THE 21 PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UN DER SUB-SECTION (1) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INIT IAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR BE COMPUTED AS IF S UCH INDUSTRIAL UNDERTAKING OR SHIP OR THE BUSINESS OF THE HOTEL OR THE BUSINESS OF REPAIRS TO OCEAN-GOING VESSELS OR OTHER POWERED CRAFT WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEARS RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO B E MADE. 18. ON THE STRENGTH OF THIS CLAUSE IT WAS CONTENDE D THAT PROFITS DERIVED FROM ONE INDUSTRIAL UNDERTAKING CANNOT BE SET OFF A GAINST LOSSES SUFFERED FROM ANOTHER AND THE PROFIT IS REQUIRED TO BE COMPU TED AS IF PROFIT MAKING INDUSTRIAL UNDERTAKING WAS THE ONLY SOURCE OF INCOM E. HON'BLE SUPREME COURT HAS REJECTED THIS CONTENTION ON THE GROUND TH AT SECTION 80-I(1) LAYS DOWN THAT WHERE THE GROSS TOTAL INCOME OF THE ASSES SEE INCLUDES ANY PROFIT DERIVED FROM PRIORITY UNDERTAKING/DIVISION THEN IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION FROM SUCH PROFI T AT THE RATE SPECIFIED WOULD BE GRANTED. SECTION 80-I(1) LAYS DOWN THE BRO AD PARAMETER INDICATING CIRCUMSTANCES UNDER WHICH AN ASSESSEE WOULD BE ENTI TLED TO CLAIM DEDUCTION AND SECTION 80-I(6) DEALS WITH DETERMINATION OF THE QUANTUM OF DEDUCTION. 22 HONBLE COURT HAS OBSERVED THAT IT ONLY PROVIDES TH E MANNER IN WHICH THE QUANTUM OF DEDUCTION HAS TO BE WORKED OUT. HONBLE COURT HAS FURTHER EMPHASIZED THAT SECTION 80A(2) AND SECTION 80-B(5) ARE DECLARATORY IN NATURE. THEY APPLY TO ALL THE SECTIONS FALLEN IN CH APTER VIA. THEY IMPOSE A CEILING ON THE TOTAL AMOUNT OF DEDUCTION. 19. ON AN ANALYSIS OF BOTH THE DECISIONS OF HON'BLE SUPREME COURT COUPLED WITH SECTION 80-HHC WE ARE OF THE VIEW THA T THE ASSESSEE IN THE PRESENT CASE IS EXPORTING GOODS FROM BOTH THE UNITS . BASICALLY THE FIRST STEP IS TO COMPUTE THE PROFIT OF ENTIRE BUSINESS. AFTER ASC ERTAINING THE PROFIT OF ENTIRE BUSINESS THEN IT HAS TO BE APPORTIONED IN PR OPORTION THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER TO ARRIVE THE PROFIT DERIVED FROM EXPORT OF GOODS IN ORDER TO COMPUTE DEDUCTION AVAILABLE TO TH E ASSESSEE. THE DEDUCTION IS ADMISSIBLE ON THE POSITIVE INCOME. SEC TION 80-AB CONTEMPLATES THAT INCOME OF THE ASSESSEE HAS TO BE COMPUTED IN A CCORDANCE WITH THE PROVISIONS OF THE ACT. ALL THESE FACTORS SUGGEST TH AT THERE IS NO SEGREGATION OF COMPUTATION OF PROFITS UNIT WISE. LEARNED ASSESSING OFFICER HAS RIGHTLY HELD THAT THE INCOME OF BOTH THE UNITS HAS TO BE TAKEN I NTO CONSIDERATION FOR DETERMINING THE TOTAL INCOME OF THE ASSESSEE FOR TH E PURPOSE OF COMPUTING THE DEDUCTION UNDER SEC. 80-HHC. WE DO NOT FIND ANY MERIT IN THE GROUNDS 23 OF APPEAL RAISED BY THE ASSESSEE IN THIS REGARD HE NCE BOTH THE APPEALS ARE REJECTED. 20. THE REVENUE IN ITS APPEAL HAS PLEADED THAT LEAR NED CIT(APPEALS) HAS ERRED IN DELETING THE PENALTY OF RS.13 81 780 IMPOS ED UNDER SECTION 271(1) OF THE INCOME-TAX ACT 1961. 21. THE BRIEF FACTS HAVE ALREADY BEEN NOTICED IN TH E FOREGOING PARAGRAPHS OF QUANTUM APPEAL. LEARNED ASSESSING OFFICER HAS IN ITIATED THE PENALTY UNDER SEC. 271(1)(C) OF THE ACT ON THE FOLLOWING DI SALLOWANCES: A) DISALLOWANCE OF DEDUCTION CLAIMED U/S 80-HHC: I) ON A/C OF CONSOLIDATION OF A/CLOSING STOCK OF RS.21 34 687 TWO INDEPENDENT INDUSTRIAL UNDERTAKING. II) ON A/C OF TAXATION OF DEPB RECEIPTS AFTER I.TAX AMDT. ACT WHICH WAS AMENDED ON RS.14 15 040 RS.35 49 727 29.12.05. B) DISALLOWANCE OF CLAIM OF DEDUCTION U/S 24(1) RS. 1 98 000 AGAINST RENT & SERVICES CHARGES C) ADDITION U/S. 2(24)(X) RS. 1 03 931 RS.38 51 658 22. AFTER HEARING THE ASSESSEE HE ARRIVED AT A CON CLUSION THAT ASSESSEE DESERVES TO BE VISITED WITH PENALTY UNDER SEC. 271( 1)(C) OF THE ACT ON THE 24 GROUND OF CONCEALMENT OF INCOME BY FURNISHING INACC URATE PARTICULARS. ACCORDINGLY HE IMPOSED A PENALTY OF RS.18 81 783. 23. BEFORE LEARNED FIRST APPELLATE AUTHORITY IT WA S CONTENDED BY THE ASSESSEE THAT EXPLANATION (BAA) TO SECTION 80-HHC(3 ) OF THE ACT PROVIDES THE DEFINITION OF THE EXPRESSION PROFIT OF THE BUSINES S. ACCORDING TO THE DEFINITION FOR THE PURPOSE OF THIS SECTION THIS E XPRESSION MEANS PROFIT & LOSS IS TO BE COMPUTED ONLY IN ACCORDANCE WITH PROV ISIONS OF SECTIONS 28 TO 43D OF THE ACT WHICH FALLS UNDER CHAPTER IVD OF THE ACT. SECTIONS 70 & 71 WHICH PROVIDES FOR ADJUSTMENT OF THE LOSS UNDER ONE SOURCE OR HEAD AGAINST THE PROFITS FROM ANOTHER SOURCE OR HEAD RESPECTIVEL Y DO NOT FALL UNDER THE COMPUTATION OF PROVISIONS RELATING TO BUSINESS INCO ME AND THEREFORE THE MUTUAL ADJUSTMENT OF LOSS OR PROFIT OF ONE UNIT AGA INST ANOTHER UNIT CANNOT BE PERMITTED. THE ASSESSEE DID NOT SET OFF THE LOSS OF ONE UNIT AGAINST THE PROFIT OF ANOTHER UNIT UNDER THIS CONCEPTION OF LAW WHICH ALSO POINTED OUT THAT JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF IP CA LABORATORIES CAME IN THE MONTH OF MARCH 2004 THOUGH ASSESSEE HAS FIL ED THE RETURN SUBSEQUENT TO THIS DECISION BUT IT WAS A NEW CONCEPT. THE ASSE SSEE FURTHER CONTENDED THAT THERE WERE DECISIONS OF ITAT IN FAVOUR OF THE ASSESSEE. WITH REGARD TO THE ADDITION REPRESENTING DEPB RECEIPTS IT WAS CON TENDED THAT THIS ADDITION 25 MADE ON ACCOUNT OF RETROSPECTIVE AMENDMENT WHICH HA S BEEN EFFECTED IN SECTION 80-HHC ON 29.12.2005. AS FAR AS THE DISALLO WANCE OF DEDUCTION UNDER SEC. 24(1) ON SERVICE CHARGES IS CONCERNED T HE ASSESSEE CONTENDED THAT IT HAS DISCLOSED ALL THE DETAILS AND THIS WAS DISAL LOWED TO THE ASSESSEE ON A DIFFERENCE OF OPINION BETWEEN IT AND THE ASSESSING OFFICER. LEARNED CIT(APPEALS) HAS ALLOWED THE APPEAL OF ASSESSEE AND DELETED THE PENALTY. THE OBSERVATIONS OF THE LEARNED FIRST APPELLATE AUT HORITY ARE AS UNDER: 3.4 I HAVE GONE THROUGH THE FACTS AND WRITTEN SUBM ISSIONS OF THE APPELLANT ASSESSMENT ORDER AND PENALTY ORDER. IN T HE PENALTY ORDER THE ASSESSING OFFICER HIMSELF HAS ADMITTED THAT THE DISALLOWANCES WERE BASED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS DI SCUSSED IN DETAIL IN THE QUANTUM ORDER. HE HAS NOT BROUGHT ABOUT ANY MATERIAL ON RECORD HOW ANY ADDITION BASED ON JUDICIAL PRONOUNCEMENTS I S FURTHER SUBJECT TO PENAL ACTION U/S 271(1)(C) OF THE INCOME-TAX ACT 1961 AS THE FACTS OF SUCH JUDICIAL PRONOUNCEMENTS WERE NOT EXACTLY TH E SAME AS ARGUED BY THE APPELLANT AND ARE SUBJECT TO FURTHER JUDICIA L PROBE. FURTHER ANY DISALLOWANCE ON THE BASIS OF RETROSPECTIVE AMENDMEN T AND AFTER FILING OF THE RETURN OF INCOME BY THE APPELLANT CANNOT BE THE BASIS OF PENAL ACTION U/S. 271(1)(C) OF THE INCOME-TAX ACT. I THE REFORE DELETE THE PENALTY LEVIED ON THE DISALLOWANCE OF RS.35 49 727 IN THE DEDUCTION CLAIMED U/S. 80-HHC. 4.0 DISALLOWANCE OF DEDUCTION OF RS.1 98 000 U/S. 2 4(1) ON SERVICE CHARGES:- THE APPELLANT HAS EXPLAINED THAT THEY HA D RENTED OUT BOMBAY FLAT WITH AFFIXTURES. THE TENANT HAD MADE TW O AGREEMENTS 26 ONE FOR THE PREMISES AND ANOTHER FOR FIXTURES & FIT TINGS FOR HIS CONVENIENCE. THE ASSESSEE COMPANY HAD SHOWN BOTH R ECEIPTS UNDER THE HEADING INCOME FROM HOUSE PROPERTY AND CLAIME D DEDUCTION U/S. 24(1) ON BOTH THE RECEIPTS. THE ASSESSING OFFICER H AD DISALLOWED DEDUCTION U/S. 24(1) TREATING THE RECEIPTS FROM THE RENTING ON AFFIXTURES AS INCOME FROM OTHER SOURCES. 4.1 THE APPELLANT ARGUED THAT THE TOTAL AMOUNT REC EIVED FROM THE TENANT HAS BEEN CORRECTLY DISCLOSED IN THE RETURN O F INCOME AND IS NOT IN DISPUTE. IT IS ONLY THE CLAIM OF DEDUCTION U/S. 24(1) ON SERVICE CHARGES WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. THE APPELLANT HAS ALSO POINTED OUT THAT THE REASON THAT BOTH THE RENT & SERVICE CHARGES AGREEMENTS WERE OF THE SAME TENANT AND WERE SIGNED SIMULTANEOUSLY. IT IS ONLY THE DIFFERENCE OF OPINIO N AS REGARD TO SHOWING BOTH THE RECEIPTS UNDER THE INCOME FROM HOU SE PROPERTY OR INCOME FROM OTHER SOURCES. 4.2 I HAVE GONE THROUGH THE SUBMISSION OF THE APPE LLANT AND THE ASSESSMENT ORDER. I AGREE WITH THE PENALTY CANNOT B E LEVIED U/S. 271(1)(C) ON DIFFERENCE OF OPINION WITH REGARD TO C LAIM OF ANY DEDUCTION. THE APPELLANT HAS SHOWN FULL AMOUNT OF RENT AND SERVICE CHARGES UNDER THE HEADING INCOME FROM HOUSE PROPERT Y. I THEREFORE DELETE THE PENALTY LEVIED U/S. 271(1)(C) OF THE INC OME-TAX ACT ON DISALLOWANCE OF RS.1 98 000. 5.0 A REGARDS LEVYING OF PENALTY ON THE ADDITION O F A SUM OF RS.1 03 931 U/S. 2(24)(X) BY ASSESSING OFFICER IN H IS ORDER. THE APPELLANT ARGUED THAT THE ASSESSING OFFICER HAS NOT INITIATED ANY 27 PENALTY IN THE ASSESSMENT ORDER ON THIS ACCOUNT AND HE HAS ALSO FAILED TO EXPLAIN IN HIS PENALTY ORDER HOW THE ADDITION OF RS.1 03 931 U/S. 2(24)(X) IS LIABLE TO PENAL ACTION U/S. 271(1)(C) O F THE INCOME-TAX ACT. 24. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE COMPUTATION OF DEDUCTION ADMISSIBLE UNDER SEC. 80-HHC IS QUITE CUMBRANCES EXERCISE. THERE IS NO S ETTLED POSITION. ALL THE ISSUES ARE QUITE DEBATABLE ONE. THE ASSESSEE HAS DI SCLOSED ALL THE MATERIAL FACTS IN ITS RETURN AND HAS FILED THE COMPUTATION A CCORDING TO ITS UNDERSTANDING. IT WAS UNDER THE IMPRESSION THAT THE PROFIT DERIVED FROM EXPORT IS TO BE COMPUTED SEPARATELY FOR BOTH THE UN ITS AND THE LOSS OF ONE UNIT CANNOT BE ADJUSTED WITH THE PROFIT OF OTHER UNIT. T AKING INTO CONSIDERATION ALL THESE ASPECTS WE ARE OF THE VIEW THAT THERE IS NO DELIBERATE ATTEMPT AT THE END OF ASSESSEE TO CONCEAL THE PARTICULARS. ASSESSING O FFICER FAILED TO POINT OUT ANY FALSITY WITH THE DETAILS SUBMITTED BY THE ASSES SEE IN RESPECT OF COMPUTATION. AFTER TAKING INTO CONSIDERATION THE RE ASONED ORDER OF LEARNED CIT(APPEALS) WE DO NOT SEE ANY REASON TO INTERFERE IN IT. 25. IN THE RESULT ALL THE THREE APPEALS ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRUARY 2012. SD/- SD/- ( G.D. AGRAWAL ) ( RAJPAL YADAV) VICE-PRESIDENT JUDICIAL MEMBER DATED: 29 /02/2012 MOHAN LAL 28 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR:ITAT: NEW DELHI. ASSISTANT REGISTRAR