M/S Sun Pharmaceuticals Indus Ltd, Baroda v. The Dycit Cent Cir-1, Baroda

ITA 363/AHD/2002 | 1998-1999
Pronouncement Date: 07-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 36320514 RSA 2002
Assessee PAN AADCS3124K
Bench Ahmedabad
Appeal Number ITA 363/AHD/2002
Duration Of Justice 8 year(s) 10 month(s) 17 day(s)
Appellant M/S Sun Pharmaceuticals Indus Ltd, Baroda
Respondent The Dycit Cent Cir-1, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 07-01-2011
Date Of Final Hearing 01-12-2010
Next Hearing Date 01-12-2010
Assessment Year 1998-1999
Appeal Filed On 19-02-2002
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.363/AHD/2002 (ASSESSMENT YEAR:-1998-99) SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC AKHOTA ROAD AKOTA BARODA V/S DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE- 1 BARODA PAN: AADCS 3124 K [APPELLANT] [RESPONDENT] ITA NO.692/AHD/2002 (ASSESSMENT YEAR:-1998-99) DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE- 1 BARODA V/S SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC AKHOTA ROAD AKOTA BARODA [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR & SHRI BANDISH SOPARKAR ARS REVENUE BY:- SHRI PRAVIN VARMA DR O R D E R A N PAHUJA: THESE CROSS APPEALS FILED AGAINST AN ORDER DATED 03- 12-2001 OF THE LD. CIT(APPEALS)-IV AHMEDABAD RAIS E THE FOLLOWING GROUNDS:- ITA NO.363/AHD/2002[ASSESSEE] [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREI NAFTER REFERRED TO AS 'THE LEARNED CIT(A)'] ERRED IN UPHOL DING THE REJECTION OF REVISED RETURN BY THE DY. COMMISSIONER OF INCOME TAX. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT EXCHANGE RATE FLUCTUATION/DIFFERENCE IN RESPECT OF BALANCES UNDER THE EXCHANGE EARNERS FOREIGN CURRENCY ACCOUNT (EEFC ACCOUNT) IS MISCELLANEOUS TRADING RECEIPT FORMING PART OF 'TOTA L TURNOVER' FOR THE PURPOSE OF CALCULATING THE DEDUCTION U/S. 80HHC OF THE ACT. ITA NOS.363& 692/AHD/02 2 [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT SALES OF SCRAP FORMED PART OF TOTAL TURNOVER FOR COMPUTING THE DEDUCTION U/S. 80H HC. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE REDUCTION OF UNREALIZED EXPORT TURNOVER OF RS.42 82 432/- OUT OF TOTAL EXPORT TURN OVER FOR COMPUTING THE DEDUCTION INSPITE OF THE FACT THAT APPELLANT H AD DULY FILED AN APPLICATION FOR EXTENSION OF TIME WITH THE JURISDIC TIONAL COMMISSIONER OF INCOME TAX AND THE SAME WAS NOT REJ ECTED BY THE COMMISSIONER OF INCOME TAX. [5] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE COMPUTATION C ARRIED OUT BY THE ASSESSING OFFICER OF THE AMOUNT DEDUCTIBLE U/S. 80HHC FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS UNDER EXPLAN ATION TO SEC. 115JA (1) ON THE BASIS OF TAXABLE PROFITS AS PER IN COME TAX ACT 1961 AND NOT AS PER BOOK PROFITS AS CLAIMED BY THE APPELLANT. [6] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT DECIDING THE GROUND OF THE APPELLANT RELATING TO THE COMPUTATION CARRIED OUT BY THE ASSE SSING OFFICER OF THE AMOUNT DEDUCTIBLE U/S. 80IA FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS UNDER EXPLANATION TO SEC. 115JA (1) ON THE BASIS OF TAXABLE PROFITS AS PER INCOME TAX ACT 1961 AND NOT AS PER BOOK PROFITS AS CLAIMED BY THE APPELLANT. [7] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT DECIDING ON THE GROUND OF THE APPELLANT RELATING TO ALLOCATION OF EXPENSES TO SILVASSA UNIT ELIGIBLE FOR DEDUCTION U/S 80IA ON ACCOUNT OF EXCHANGE RATE DIFF ERENCE REDUCED FROM MISCELLANEOUS EXPENSES. [8] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF REVENUE EXPENSES OF RS.9 61 284/- ON THE GROUND THAT THESE EXPENSES WERE PRE-OPERATIVE EXPENSES. [9] THE APPELLANT CRAVES LEAVE TO ADD TO ALTER AM END OR DELETE ANY GROUND OF APPEAL. ITA NO.692/AHD/2002[REVENUE] [1] THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DISALLOWING DEPRECIATION OF RS.80 13 177/- AS CALCULATED U/S 32 OF THE I.T. ACT. ITA NOS.363& 692/AHD/02 3 [2] THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING WEIGHTED DEDUCTION U/S 35(2AB) AT RS.2 22 19 455/- IN RESPEC T OF R&D EXPENSES OF RS.8 88 77 660/-. [3] THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO EXCLUDE THE INSURANCE CLAIM FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE IT ACT. [4] THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DIRECTING TO EXCLUDE SALES TAX AND EXCISE DUTY FROM THE TOTAL TURN OVER AND RE-COMPUTE THE DEDUCTION U/S 80HHC OF THE IT ACT. [5] THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DI RECTING TO RE-COMPUTE THE DEDUCTION U/S 80HHC TAKING THE NET INTEREST IN COME INTO CONSIDERATION. [6] THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN D IRECTING THAT 90% OF NET LEASE RENT SHOULD BE REDUCED FOR COMPUTING PR OFIT OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE IT ACT. [7] THE LD. CIT(A) HAS ERRED IN LAW END ON FACT IN TREATED THE ENTIRE PART OF THE OPERATIONAL CHARGES RECOVERED IS NOTHIN G BUT THE BUSINESS INCOME HENCE NOTHING IS DEDUCTIBLE FROM PROFITS OF THE BUSINESS FOR COMPUTING DEDUCTION U/S. 80HHC OF T HE IT ACT. [8] THE LD. CIT(A) HAD ERRED IN LAW AND ON FACT IN DISALLOWING THE BIFURCATION OF TOTAL OVERSEAS PROMOTIONAL EXPENSES IN THE RATIO OF TURNOVER OF TRADING EXPORT AND MANUFACTURING EXPORT AND ACCORDINGLY WORK OUT OF EXPORT TRADING PROFITS FOR THE PURPOS E DEDUCTION U/S 80HHC. [9] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OF FICER. [10] IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD GIT (A) MAY BE SET- ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICE R BE RESTORED TO THE ABOVE EXTENT. ITA NO.363/AHD/2002 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF THE ASSESSEE FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RE TURN DECLARING INCOME OF RS.2 42 77 000/- IN TERMS OF PROVISIONS O F SEC.115JA OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO A S THE ACT] FILED ON 30-11-1998 BY THE ASSESSEE MANUFACTURING PHARMA CEUTICALS WAS PROCESSED ON 7.5.1999 U/S 143(1)(A) OF THE ACT. SUBSEQUENTLY ITA NOS.363& 692/AHD/02 4 THE ASSESSEE FILED A REVISED RETURN ON 26.5.1999 CLAIMING WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT .THIS RETURN WAS A LSO REVISED ON 8.3.2000 WITHDRAWING WEIGHTED DEDUCTION ON SOME O F THE ITEMS OF EXPENDITURE. THESE REVISED RETURNS WERE NOT PROCESS ED BY THE ASSESSING OFFICER[AO IN SHORT] ON THE GROUND THAT T HESE WERE FILED AFTER PROCESSING THE ORIGINAL RETURN ON 7.5.1999. SINCE THE AO IGNORED REVISED RETURNS THE ASSESSEE PREFERRED APP EAL ON THIS ISSUE BEFORE THE LD. CIT(A).THE ASSESSEE CONTENDED IN THE APPELLATE PROCEEDINGS THAT IN TERMS OF PROVISIONS OF SECTION 139(5) OF THE ACT THE ASSESSEE IS ENTITLED TO FILE A REVISED RETURN AT ANY TIME BEFORE THE COMPLETION OF THE ASSESSMENT. SINCE THE REVISED RETURNS WERE FILED ON 26-05-1999 AND 08-03-2000 I.E. BEFORE THE END OF 31-03- 2000 THE FIRST OUTER LIMIT THE ASSESSEE PLEADED T HAT THE ASSESSMENT HAVING BEEN COMPLETED IN MARCH 2001 T HE REVISED RETURNS FILED WITHIN THE STIPULATED TIME COULD NO T BE IGNORED. 3. HOWEVER THE LD. CIT(A) DID NOT ACCEPT THE AFO RESAID SUBMISSIONS ON BEHALF OF THE ASSESSEE AND CONCLUDED AS UNDER:- 5 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD . AR ON BEHALF OF THE APPELLANT AND HAVE GONE THROUGH THE FACTS ON RE CORD. I FIND THAT THE AO HAS CONSIDERED THE ISSUE OF WEIGHTED DEDUCTION OF R &D EXPENSES CLAIMED U/S 35(2AB) IN THE REVISED RETURNS IN THE ASSESSMEN T ORDER U/S 143(3) DATED 26-03-2001 WHICH IS SUBJECT MATTER OF APPEAL. IT IS FURTHER SEEN THAT THE APPELLANT HAS FILED A SEPARATE APPEAL AGAINST T HE AOS ORDER U/S 154 REJECTING THE ASSESSEES APPLICATION FOR ENTERTAINI NG THE REVISED RETURNS. THIS APPEAL IS BEING DISPOSED OFF SEPARATELY THE G ROUND OF APPEAL TAKEN IN THE SUBJECT APPEAL IS THEREFORE REJECTED AS THERE I S NO ADVERSE IMPACT ON THE APPELLANT. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REFERRING TO PROVISIONS OF SUB-SEC. 1B OF THE SEC. 143 OF THE ACT AND AS ALSO RELYING ON THE DECISION IN THE CASE OF S. R KOSHTI VS. CIT 276 ITR 165(GUJ) CONTENDED THAT SINCE RETURNS WERE REVISED IN ORDER TO CORRECT THE CLAIM FOR WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT WITHIN THE TIME STIPULATED U/S 139(5) OF THE AC T AND THE AO ITA NOS.363& 692/AHD/02 5 COMPUTED INCOME ONLY IN TERMS OF THESE REVISED RET URNS THESE COULD NOT BE IGNORED. ON THE OTHER HAND THE LD. DR ARGUED THAT IN THE EVENT THE LD. CIT(A) HAVE ALLOWED RELIEF ON AN APPLICATION FILED U/S 154 OF THE ACT THIS GROUND BECOMES INFRUCTUOUS . TO A QUERY BY THE BENCH THE LD. AR AGREED TO SUBMIT A COPY OF OR DER PASSED BY THE LD. CIT(A) ON THEIR APPLICATION U/S 154 OF THE ACT. HOWEVER COPY OF THE SAID ORDER HAS NOT BEEN PLACED BEFORE US UNT IL THE WRITING OF THIS ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE T HROUGH THE FACTS OF THE CASE. IN TERMS OF PROVISIONS OF SEC.139(5) OF THE ACT IF ANY PERSON HAVING FURNISHED A RETURN UNDER SUB-SECTION (1) OR IN PURSUANCE OF A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 DISCOV ERS ANY OMISSION OR ANY WRONG STATEMENT THEREIN HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YE AR OR BEFORE THE COMPLETION OF THE ASSESSMENT WHICHEVER IS EARLIER. IN THE INS TANT CASE INDISPUTABLY THE ASSESSEE FILED RETURN U/S 139(1) OF THE ACT ON 30. 11.1998 AND THEREAFTER SUBMITTED REVISED RETURN ON 26.5.1999 CLAIMING WE IGHTED DEDUCTION U/S 35(2AB) OF THE ACT .THIS RETURN WAS AGAIN REVISED O N 8.3.2000. BOTH THESE RETURNS HAVE BEEN FILED BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR ON 31.3.2000 AND B EFORE THE COMPLETION OF THE ASSESSMENT. APPARENTLY THESE REVISED RETURNS COULD NOT BE IGNORED AND RIGHTLY SO THE AO BASED COMPUTATION OF INCOME ON THE BASI S OF SECOND REVISED RETURN ON THE PENULTIMATE PAGE OF THE ASSESSMENT ORDER AND HAS ALSO CONSIDERED THE CLAIM OF THE ASSESSEE FOR WEIGHTED DEDUCTION U/S 35 (2AB) OF THE ACT FOR WHICH TWO REVISED RETURNS WERE FILED. IN THE LIGHT OF THE SE FACTS THE LD. CIT(A) CONCLUDED THAT THERE WAS NO ADVERSE IMPACT ON THE ASSESSEE. THE LD. AR ON BEHALF OF THE ASSESSEE ALSO DID NOT POINT OUT ANY ADVERSE IMPACT ON THE ASSESSEE WHEN THE COMPUTATION ITSELF WAS BASED ON SECOND REVISED RETU RN AND CLAIMS MADE IN THE REVISED RETURNS HAVE BEEN CONSIDERED BY THE AO AND THE LD. CIT(A). IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE ISSU E OF REVISED RETURNS RAISED BEFORE US BECOMES PURELY ACADEMIC AND THEREFORE D OES NOT SURVIVE FOR ITA NOS.363& 692/AHD/02 6 ADJUDICATION. ACCORDINGLY GROUND NO.1 IN THE APPEA L OF THE ASSESSEE IS DISMISSED ON THAT SCORE ALONE. 6. GROUND NO.2 IN THE APPEAL OF THE ASSESSEE RELA TES TO INCLUSION OF THE AMOUNT OF EXCHANGE RATE FLUCTUATION/DIFFERENCE IN RESPECT OF BALANCES UNDER THE EXCHANGE EARNERS FOREIGN CURRENC Y[EEFC] ACCOUNT FROM THE TOTAL TURNOVER WHILE COMPUTING DE DUCTION U/S 80HHC OF THE ACT. THE AO NOTICED THAT THE ASSESSEE- COMPANY REDUCED AN AMOUNT OF RS.23 51 002/- ATTRIBUTABLE T O INCOME ON ACCOUNT OF EXCHANGE RATE DIFFERENCE FROM MISCELLANE OUS EXPENSES RESULTING IN EXCESS DEDUCTION U/S 80HHC AND 80IA OF THE ACT. ACCORDINGLY THE AO OBSERVED THAT THIS RECEIPT BEIN G MISCELLANEOUS TRADING RECEIPT WOULD FORM PART OF TOTAL TURNOVER O F THE BUSINESS AND 90% OF SAME WOULD BE REDUCED WHILE WORKING ELIGIBLE PROFITS FOR DEDUCTION U/S 80HHC OF THE ACT. 7. ON APPEAL THE ASSESSEE CONTENDED THAT RECEIPT A TTRIBUTABLE TO EXCHANGE RATE FLUCTUATION WAS DERIVED ON THE BALAN CES HELD IN EEFC BANK ACCOUNTS IN FOREIGN EXCHANGE. 50% OF THE EXPORT PRO CEEDS WERE ALLOWED BY THE GOVERNMENT / RBI TO BE KEPT IN A SEPARATE FOREIGN C URRENCY ACCOUNT DESIGNATED AS EXPORT EARNERS FOREIGN CURRENCY ACCOUNT AT THE CHOICE OF THE EXPORTER. WHEN THE EXPORT PROCEEDS WERE RECEIVED FROM CUSTOME RS AND CREDITED TO EEFC ACCOUNT IT WAS RECORDED IN THE BOOKS OF ACCOUNTS A T THE THEN PREVAILING RATE OF EXCHANGE AS ON 31ST MARCH WHEN THE ANNUAL ACCOUNT S WERE DRAWN AND THE BALANCE IN EEFC WAS REVALUED AT THE EXCHANGE RATE P REVAILING ON 31ST MARCH. THE DIFFERENCE ARISING ON THIS ACCOUNT WAS EXCHANGE RATE FLUCTUATION AND THIS WAS PART OF OTHER INCOME. IT COULD NOT BE TREATED AS TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. ALTERNAT IVELY IT WAS ARGUED THAT IF THE AMOUNT WAS ADDED TO THE TOTAL TURNOVER THEN IT HAS TO FORM PART OF EXPORT TURNOVER . 8. HOWEVER THE LD. CIT(A) DID NOT ACCEPT THE CO NTENTIONS ON BEHALF OF THE ASSESSEE AND CONCLUDED THAT THE RECEIPTS ON ACCOUN T OF EXCHANGE RATE ITA NOS.363& 692/AHD/02 7 FLUCTUATION COULD NOT FORM PART OF THE EXPORT TURNO VER SINCE THE 'BUSINESS PROFITS' FOR THE PURPOSE OF SECTION 80 HHC DO NOT INCLUDE SU CH RECEIPTS. ACCORDINGLY RELYING ON THE DECISIONS REPORTED IN 243 ITR 192 (K ER.) 245 ITR 54 (MUM) 245 ITR 849 (MUM) 71 TTJ 792 (MUM) AND 67 ITD 347 (COC H) THE LD. CIT(A) CONCLUDED THAT THE RECEIPT ON ACCUMULATION OF FOREI GN EXCHANGE KEPT IN THE EEFC ACCOUNT WAS AKIN TO INTEREST RECEIPT ON THE DEPOSIT S KEPT IN THIS ACCOUNT WHICH WAS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE A CT. THEREFORE THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO HOLDING THAT THE RE CEIPTS OF RS.23 51 802/- ON ACCOUNT OF EXCHANGE RATE FLUCTUATION ON EEFC ACCOUN T FORMED PART OF TOTAL TURNOVER FOR COMPUTING THE DEDUCTION U/S 80HHC OF A CT. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAIN ST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LOWER AUTHO RITIES WHILE THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY THE EXCHANGE FLUCTUATING G AIN AROSE FROM THE BALANCE KEPT IN THE EEFC ACCOUNT. THE RESERVE B ANK OF INDIA HAVE GRANTED A FACILITY TO FEW CATEGORIES OF EXPORTERS T O MAINTAIN A CERTAIN PROPORTION OF THE EXPORT PROCEEDS IN AN EEFC ACCOUNT. THE PROCEE DS OF THE ACCOUNT ARE TO BE UTILIZED FOR BONAFIDE PAYMENTS BY THE ACCOUNT HOLDE R SUBJECT TO THE LIMITS AND THE CONDITIONS PRESCRIBED. AN ASSESSEE WHO IS AN EXPORT ER IS NOT UNDER AN OBLIGATION OF LAW TO MAINTAIN THE EXPORT PROCEEDS IN THE EEFC ACCOUNT BUT THIS IS A FACILITY WHICH IS MADE AVAILABLE BY THE RESERVE BANK. THE TR ANSACTION OF EXPORT IS COMPLETE IN ALL RESPECTS UPON THE REPATRIATION OF T HE PROCEEDS. IT LIES WITHIN THE DISCRETION OF THE EXPORTER AS TO WHETHER THE EXPORT PROCEEDS SHOULD BE RECEIVED IN A RUPEE EQUIVALENT IN THE ENTIRETY OR WHETHER A POR TION SHOULD BE MAINTAINED IN CONVERTIBLE FOREIGN EXCHANGE IN THE EEFC ACCOUNT. T HE EXCHANGE FLUCTUATION THAT ARISES AFTER THE EXPORT TRANSACTION IS COMPLETE AND PAYMENT HAS BEEN RECEIVED BY THE EXPORTER. UPON THE COMPLETION OF THE EXPORT TR ANSACTION WHAT THE SELLER DOES WITH THE PROCEEDS UPON REPATRIATION IS A MATTER O F HIS OPTION. THUS THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFT ER THE COMPLETION OF THE ITA NOS.363& 692/AHD/02 8 EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AND D IRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION DE RIVED BY THE ASSESSEE IN SUB SECTION (1) OF SECTION 80HHC.WE FIND THAT HONBLE B OMBAY HIGH COURT IN THEIR DECISION DATED 22.4.2010 IN THE CASE OF CIT V S. SHAH ORIGINALS IN ITA NO. 431 OF 2008 WHILE ADJUDICATING A SIMILA R ISSUE AFTER ANALYZING THE PURPOSE OF EEFC ACCOUNT FOLLOWED THE VIEW TAKEN BY THE HONBLE APEX COURT IN THE CASE OF PANDIAN CHE MICALS LIMITED V. COMMISSIONER OF INCOME TAX 129 TAXMAN 539(SC) & CO MMISSIONER OF INCOME TAX V. K. RAVINDRANATHAN NAIR 295 ITR 228(SC) IN HOLDING THAT THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFTER THE C OMPLETION OF THE EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION DERIVED BY THE ASSE SSEE IN SUB SECTION (1) OF SECTION 80HHC OF THE ACT. THE EXCHANGE FLUCTUATION ARISES SUBSEQUENT TO THE TRANSACTION OF EXPORT. ACCORDINGLY THE HONBLE HIG H COURT CONCLUDED THAT THE DEPOSIT OF THE RECEIPTS IN THE EEFC ACCOUNT AND THE EXCHANGE FLUCTUATION WHICH HAS ARISEN THEREFROM CANNOT BE REGARDED AS BEING PA RT OF THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDIS E. SINCE THE FLUCTUATION IN THAT CASE WAS NOT ON ACCOUNT OF THE SALE PROCEEDS O R FOR THAT MATTER ON ACCOUNT OF A DELAYED REALIZATION OF THE SALE PROCEEDS AND I NSTEAD THE FLUCTUATION HAD ARISEN IN THE DEPOSITS MAINTAINED BY THE ASSESSEE I N THE EEFC ACCOUNT IN CONVERTIBLE FOREIGN EXCHANGE AFTER THE COMPLETION O F THE EXPORT TRANSACTION THE HONBLE HIGH COURT CONCLUDED THAT THIS WOULD NOT FO RM PART OF BUSINESS INCOME AND PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTI ON U/S 80HHC OF THE ACT. IN THE INSTANT CASE THE EXPENSES DEBITED IN PROFIT A ND LOSS ACCOUNT REVEALED THAT THE ASSESSEE REDUCED THE MISCELLANEOUS EXPENSES BY AN AMOUNT OF RS.23 51 002/- ATTRIBUTABLE TO EXCHANGE RATE DIFFER ENCE AND ACCORDINGLY THE AO TREATED THE AMOUNT AS PART OF TOTAL TURNOVER. ADMIT TEDLY THE AMOUNT OF EXCHANGE RATE FLUCTUATION IN THE EEFC WAS PART OF OTHER INC OME. THERE IS NOTHING TO SUGGEST THAT THE AMOUNT HAS ANY RELATION TO THE T URNOVER OR THE EXPORT TURNOVER AS DEFINED IN THE RELEVANT PROVISIONS OF SEC. 80HHC OF THE ACT. THE TURNOVER MEANS THE VALUE OF GOODS PURCHASED/SOLD IN THE COUR SE OF CARRYING ON OF THE BUSINESS. HONBLE APEX COURT HELD IN CIT VS. LAKSHM I MACHINE WORKS 290 ITR 667 THAT THE WORDS 'TOTAL TURNOVER' IN THE FORMULA PRESCRIBED IN SEC. 80HHC OF THE ITA NOS.363& 692/AHD/02 9 ACT CAN NOT BE INTERPRETED WITH REFERENCE TO THE DE FINITION OF THE WORD 'TURNOVER' IN OTHER LAWS LIKE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. THE LD. CIT(A) OBSERVED IN THE INSTANT CASE THAT AMOUNT IS AKIN TO INTEREST. BUT INTEREST DOES NOT HAVE AN ELEMENT OF TURNOVER. THE AMOUNT O F EXCHANGE RATE VARIATION IN THE EEFC ACCOUNT IS INDEPENDENT INCOME AND HAS NO R ELATION WITH EXPORTS. THE ASSESSEE ITSELF TREATED THE AMOUNT AS OTHER INCOM E. THEREFORE SUCH INDEPENDENT INCOME WOULD NOT FORM PART OF TOTAL TUR NOVER. IN THE LIGHT OF VIEW TAKEN BY THE HONBLE HIGH COURT IN SHAH ORIGINALS(SU PRA) AND NO CONTRARY DECISION HAVING BEEN BROUGHT TO OUR NOTICE ON BEHAL F OF THE REVENUE WE ARE OF THE OPINION THAT THE AMOUNT OF EXCHANGE RATE VARIAT ION IN THE BALANCE LYING IN THE EEFC ACCOUNT DOES NOT HAVE ANY ELEMENT OF TURNOVER AND THEREFORE WOULD NOT FORM PART OF TOTAL TURNOVER AS DEFINED IN EXPLANATI ON (BA) TO SEC. 80HHC OF THE ACT. IN VIEW THEREOF GROUND NO.2 IN THE APPEAL OF THE ASSESSEE IS ALLOWED. 11. GROUND NO.3 IN THE APPEAL RELATES TO SALE O F SCRAP AS PART OF TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80H HC OF THE ACT. THE AO NOTICED THAT THE ASSESSEE INCLUDED RECEIPT OF RS.19.71 LACS ON ACCOUNT OF SALE OF SCRAP GENERATED FROM BUSINESS UNDER THE HEAD OTHER INCOME. THOUGH THE ASSESSEE ARGUED THAT TH ESE ARE NOT TRADING RECEIPTS AND AS SUCH WOULD NOT BE CONSIDERE D AS A PART OF TURNOVER OF BUSINESS THE AO HELD THAT THESE RECEIP TS HAVING BEEN RESULTED FROM DIRECT EXERCISE OF ITS BUSINESS WOU LD BE PART OF TOTAL TURNOVER OF THE BUSINESS FOR THE PURPOSE OF DEDUCT ION U/S 80HHC OF THE ACT. 12. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO TREATING THE RECEIPTS OF RS.19 71 000/- ON ACCOUNT OF SALE OF SCRAP AS PART OF TOTAL TURNOVER FOR COMPUTING THE DEDUCTI ON U/S 80HHC OF THE ACT. 13. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHA LF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LOWER AUTHO RITIES WHILE RELYING UPON DECISION IN THE CASE OF CLAAS INDIA L TD. VS. ACIT [2008] ITA NOS.363& 692/AHD/02 10 119 TTJ 173 (DELHI).ON THE OTHER HAND THE LD. DR S UPPORTED THE FINDINGS OF THE LD. CIT(A). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE FACTS OF THE CASE. WE FIND THAT A CO-ORDINATE BENCH IN THE A FORECITED DECISION IN CLAAS INDIA LTD.(SUPRA) WHILE ADJUDICATING A SIM ILAR ISSUE HELD THAT THE SCRAP GENERATED AND WHICH IS SOLD ONLY GOES T O REDUCE THE COST OF MATERIAL CONSUMED IN THE MANUFACTURING PROCESS AND THEREFORE THE SAME CANNOT BE CONSIDERED AS PART OF TURNOVER OF THE BUSINESS CARR IED ON BY THE ASSESSEE. SIMILAR VIEW HAD BEEN ADOPTED BY CHANDIGARH BENCH 'SMC' IN THE CASE OF ITO VS. JAGRAON EXPORTS (2002) 124 TAXMAN 220 (CHD)(MAG). F OLLOWING THIS DECISION THE DELHI BENCH DIRECTED THE AO TO EXCLUDE THE AMOUNT R EALIZED ON SALE OF SCRAP FROM THE TOTAL TURNOVER ADOPTED FOR COMPUTING DEDUCTION UNDER S. 80HHC OF THE ACT. 14.1. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ASHOK LEYLAND LTD. 297 ITR 107(MAD.) WHILE FOLLOWING THEI R OWN DECISIONS IN CIT V. MADRAS MOTORS LTD./M.M. FORGINGS LTD. [20 02] 257 ITR 60 (MAD) AND CIT V. N.S.C. SHOES [2002] 258 ITR 749 (MAD) UPHELD THE FINDINGS OF THE ITAT THAT SINCE THE METALLIC SCRAP CHURNED OUT IN T HE PROCESS OF THE ASSESSEE'S MANUFACTURING ACTIVITIES DID NOT FORM PA RT OF THE TRADING GOODS OR STOCK-IN-TRADE OF THE ASSESSEE-COMPANY NOR THE ASS ESSEE CONTEMPLATED THE EXPORT OF SCRAP AS SUCH THE SCRAP SALES COULD NOT BE TAKEN AS A PART OF TURNOVER. 14.2 WE FIND THAT THE BUSINESS OF ASSESSEE IS MA NUFACTURE AND SALE OF PHARMACEUTICALS. THE SCRAP GENERATED DURING THE MAN UFACTURING PROCESS IS SOLD AS SUCH. THE ASSESSEE IS NOT ENGAGED IN THE BUSINES S OF SALE OF SCRAP. THE TURNOVER MEANS THE VALUE OF GOODS PURCHASED/SOLD IN THE COURSE OF CARRYING OF BUSINESS. THE SCRAP SOLD BY THE ASSESSEE THUS DOE S NOT HAVE ELEMENT OF TURNOVER IN THE INSTANT CASE. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS WHILE NO CONTRARY DECISION HAS BEEN BROUG HT TO OUR NOTICE ON BEHALF OF THE REVENUE WE HAVE NO HESITATION IN HOLDING THAT THE SCRAP SALES COULD NOT BE TAKEN AS A PART OF TURNOVE R FOR THE PURPOSE OF DEDUCTION ITA NOS.363& 692/AHD/02 11 U/S 80HHC OF THE ACT. THEREFORE GROUND NO.3 IN THE APPEAL OF THE ASSESSEE IS ALLOWED. 15. GROUND NO.4 IN THE APPEAL OF THE ASSESSEE REL ATES TO REDUCTION OF UNREALIZED EXPORT TURNOVER OF RS.42 82 432/- OU T OF THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. AT THE TIME OF HEARING OF THE APPEAL THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT PRESS THIS GROUND. ACCORDINGLY THIS GROUND IS DISMISSED. 16. GROUND NO.5 IN THE APPEAL OF THE ASSESSEE RE LATES TO DEDUCTION U/S 80HHC OF THE ACT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS IN TERMS OF CLAUSE (VIII) OF THE EXPLANATION APPEN DED BELOW THE EXTANT SEC. 115JA(2) OF THE ACT. THE AO WHILE COMPU TING BOOK PROFITS IN TERMS OF PROVISIONS OF SEC. 115JA OF THE ACT ALLOWED DEDUCTION U/S 80HHC OF THE ACT ON THE ELIGIBLE EXP ORT PROFITS OF THE BUSINESS COMPUTED UNDER THE NORMAL PROVISIONS AS AGAINST THE CLAIM OF THE ASSESSEE FOR COMPUTATION OF SUCH DEDUC TION ON THE BASIS OF BOOK PROFITS. 17. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO. 18. THE ASSESSEE IS NOW IN APPEAL BEFORE US AG AINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSE E CONTENDED THAT THE ISSUE IS NOW SETTLED BY THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF AJANTA PHARMA 327 ITR 305(SC) AND BY THE HONBLE MADRAS HI GH COURT IN BHARI INFORMATION TECHNOLOGY SYSTEM 328 ITR 380(MAD.).ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A) AND CONTEN DED THAT ONLY TAXABLE PROFITS COMPUTED UNDER THE NORMAL PROVISIONS HAVE TO BE C ONSIDERED WHILE DETERMINING AMOUNT OF DEDUCTION U/S 80HHC OF THE ACT FOR THE PU RPOSE OF SEC. 115JA OF THE ACT. 19. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. WE FIND THAT WHILE ADJUDICATING THE CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT FOR ITA NOS.363& 692/AHD/02 12 DETERMINING THE BOOK PROFITS U/S 115JA OF THE ACT THE MUMBAI SPECIAL BENCH OF ITAT IN THE CASE OF DCIT VS. SYNC OME FORMULATIONS (I) LTD. 106 ITD 193 HELD THAT THE DED UCTION UNDER SECTION 80HHC IN A CASE OF MAT ASSESSMENT IS TO BE WORKED O UT ON THE BASIS OF THE ADJUSTED BOOK PROFITS AND NOT ON THE BASIS OF THE P ROFIT COMPUTED UNDER THE REGULAR PROVISIONS OF LAW APPLICABLE TO THE COMPUTA TION OF PROFIT AND GAINS OF BUSINESS OR PROFESSION. HOWEVER SUBSEQUENTLY HON BLE BOMBAY HIGH COURT IN THEIR AFORESAID DECISION IN CIT VS. AJANTA PHARMA LTD. 223 CTR(BOM.)441 OVERRULED THE DECISION IN THE CASE OF SYNCOME FORMULATIONS (I) LTD.(SUPRA). ON FURTHER APPEAL BY THE ASSESSEE HONBLE APEX COURT IN THE CASE AJANTA PHARMA LTD. V S. CIT 327 ITR 305(SC) WHILE REFERRING TO THE RELEVANT PROVISIONS OF SEC. 115JB AND SEC. 80HHC OF THE ACT UPHELD THE VIEW TAKEN BY THE SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATIONS (I) LTD.(SUPRA) IN THE FOLLOWING TERMS: 7. IN RECENT TIMES THE NUMBER OF ZERO-TAX COMPAN IES AND COMPANIES PAYING MARGINAL TAX HAS GROWN HENCE VIDE THE FINANCE (NO .2) ACT 1996 LEVY OF MINIMUM TAX ON COMPANIES HAVING BOOK PROFITS STOO D INTRODUCED. THE SCHEME ENVISAGED PAYMENT OF MINIMUM TAX BY DEEMING 30% OF THE BOOK PROFITS COMPUTED UNDER THE COMPANIES ACT AS TAXABLE INCOM E IN A CASE WHERE THE TOTAL INCOME AS COMPUTED UNDER THE PROVISIONS OF TH E 1961 ACT IS LESS THAN 30% OF THE BOOK PROFIT. THE WORD BOOK PROFIT HAS BEEN DEFINED IN SECTION 115JA(2) READ WITH THE EXPLANATION THERETO TO MEAN THE NET P ROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT AS INCREASED BY THE AMOUNT(S) MENTION ED IN CLAUSES (A) TO (F) AND AS REDUCED BY AMOUNT(S) COVERED BY CLAUSES (I) TO ( IX) OF THE EXPLANATION. THESE MAY BE CALLED FOR THE SAKE OF BREVITY AS UPWARD AN D DOWNWARD ADJUSTMENTS. FROM THE ABOVE IT IS CLEAR THAT SECTION 115JA IS A SELF-CONTAINED CODE AND WILL APPLY NOTWITHSTANDING ANY PROVISIONS IN THE 1961 AC T. IN THIS CASE WE ARE CONCERNED WITH DOWNWARD ADJUSTMENT PARTICULARLY CL AUSE (VIII) WHICH REFERS TO THE AMOUNT(S) OF PROFITS ELIGIBLE FOR DEDUCTION UNDER S ECTION 80HHC COMPUTED UNDER SECTION 80HHC(3) BUT SUBJECT TO CONDITIONS SPECIFIE D IN SECTIONS 80HHC(4) AND 80HHC(4A). 8. BY THE FINANCE ACT 2000 SECTION 115JB WAS IN SERTED W.E.F. 1.4.2001 PROVIDING FOR LEVY OF MAT ON CERTAIN COMPANIES. SEC TION 115JB THOUGH STRUCTURED DIFFERENTLY STOOD INSERTED TO PROVIDE F OR PAYMENT OF ADVANCE TAX BY MAT COMPANIES. SECTION 115JB IS THE SUCCESSOR SECT ION TO SECTION 115JA. IN ESSENCE IT IS THE SAME EXCEPT THAT SECTION 115JA PROVIDED FOR MAT ON COMPANIES SO FAR AS IT DOES NOT DEEM THE BOOK PROF IT AS TOTAL INCOME. UNDER ITA NOS.363& 692/AHD/02 13 SECTION 115JB HOWEVER CLAUSE (VIII) OF SECTION 11 5JA IS RE-NUMBERED AS CLAUSE (IV). SECTION 115JB CONTINUES TO REMAIN A SELF-CONT AINED CODE. 9. ON THE OTHER HAND SECTION 80HHC(1) INTER ALIA S TATES THAT WHERE AN ASSESSEE WHO IS THE INDIAN RESIDENT IS ENGAGED IN THE BUSIN ESS OF EXPORTS OUT OF INDIA OF ANY GOODS EARNS CONVERTIBLE FOREIGN EXCHANGE THEN I N COMPUTING THE TOTAL INCOME A DEDUCTION OF THE PROFITS DERIVED FROM SUC H EXPORTS WOULD BE ADMISSIBLE. THUS SECTION 80HHC PROVIDES FOR TAX INCENTIVES. SE CTION 80HHC(1) AT ONE POINT OF TIME LAID DOWN THAT AN AMOUNT EQUAL TO THE AMOUN T OF DEDUCTION CLAIMED SHOULD BE DEBITED TO THE P&L ACCOUNT OF THE PREVIOU S YEAR IN RESPECT OF WHICH DEDUCTION IS TO BE ALLOWED AND CREDITED TO THE RESE RVE ACCOUNT TO BE UTILIZED FOR THE BUSINESS PURPOSE. SECTION 80HHC(1) CONCERNS ELI GIBILITY WHEREAS SECTION 80HHC(3) CONCERNS COMPUTATION OF THE QUANTUM OF DED UCTION/TAX RELIEF. AT ONE POINT OF TIME PRIOR TO THE FINANCE ACT 2000 EXPOR TERS WERE ALLOWED 100% DEDUCTION IN RESPECT OF PROFITS DERIVED FROM EXPORT OF GOODS. HOWEVER THAT HAS NOW BEEN REDUCED IN A PHASE-WISE MANNER UNDER SECTI ON 80HHC(1B). IT MAY BE NOTED THAT ALL ASSESSABLE ENTITIES ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. SIMILARLY ONLY ELIGIBLE GOODS ARE ENTITLED TO SUCH SPECIAL DEDUCTION UNDER SECTION 80HHC(1). A BARE READING OF SECTION 80AB SH OWS THAT COMPUTATION OF DEDUCTION IS GEARED TO THE AMOUNT OF INCOME BUT SE CTION 80HHC(3) WHICH REFERS TO QUANTIFICATION OF DEDUCTION IS GEARED TO THE EXPORTS TURNOVER AND NOT TO THE INCOME. ON THE OTHER HAND SECTION 115JB REFERS TO LEVY OF MAT ON THE DEEMED INCOME. THE ABOVE DISCUSSION IS ONLY TO SHOW THAT SECTIONS 80HHC AND 115JB OPERATE IN DIFFERENT SPHERES. THUS TWO ESSEN TIAL CONDITIONS FOR INVOKING SECTION 80HHC(1) ARE THAT ASSESSEE MUST BE IN THE B USINESS OF EXPORT AND SECONDLY THAT SALE PROCEEDS OF SUCH EXPORTS SHOULD BE RECEIVABLE IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE. HENCE SECTION 80HHC( 1) REFERS TO ELIGIBILITY WHEREAS SECTION 80HHC(3) REFERS TO COMPUTATION OF T AX INCENTIVE. COMING TO SECTION 80HHC(1B) IT IS CLEAR THAT AFTER FINANCE AC T 2000 W.E.F. ASSESSMENT YEAR 2001-02 EXPORTERS WOULD NOT GET 100% DEDUCTION IN R ESPECT OF PROFITS DERIVED FROM EXPORTS BUT THAT THEY WOULD GET DEDUCTION OF 8 0% IN THE ASSESSMENT YEAR 2001-02 70% IN THE ASSESSMENT YEAR 2002-03 AND SO ON. THUS SECTION 80HHC(1B) DEALS NOT WITH ELIGIBILITY BUT WITH THE EXTENT OF DEDUCTION. AS EARLIER STATED SECTION 115JB IS A SELF-CONTAINED CODE. IT TAXES DEEMED INCOME. IT BEGINS WITH A NON-OBSTANTE CLAUSE. SECTION 115JB RE FERS TO COMPUTATION OF BOOK PROFITS WHICH HAVE TO BE COMPUTED BY MAKING UPWARD AND DOWNWARD ADJUSTMENTS. IN THE DOWNWARD ADJUSTMENT VIDE CLAUS E (IV) IT SEEKS TO EXCLUDE ELIGIBLE PROFITS DERIVED FROM EXPORTS. ON THE OT HER HAND UNDER SECTION 80HHC(1B) IT IS THE EXTENT OF DEDUCTION WHICH MATTE RS. THE WORD THEREOF IN EACH OF THE ITEMS UNDER SECTION 80HHC(1B) IS IMPORTANT. THUS IF AN ASSESSEE EARNS RS.100 CRORES THEN FOR THE ASSESSMENT YEAR 2001-02 THE EXTENT OF DEDUCTION IS 80% THEREOF AND SO ON WHICH MEANS THAT THE PRINCIPL E OF PROPORTIONALITY IS BROUGHT IN TO SCALE DOWN THE TAX INCENTIVE IN A PHASED MAN NER. HOWEVER FOR THE PURPOSES OF COMPUTATION OF BOOK PROFITS WHICH COMPU TATION IS DIFFERENT FROM NORMAL COMPUTATION UNDER THE 1961 ACT/COMPUTATION U NDER CHAPTER VIA WE NEED TO KEEP IN MIND THE UPWARD AND DOWNWARD ADJUSTMENTS AND IF SO READ IT BECOMES CLEAR THAT CLAUSE (IV) COVERS FULL EXPORT P ROFITS OF 100% AS ELIGIBLE PROFITS AND THAT THE SAME CANNOT BE REDUCED TO 80% BY RELYING ON SECTION 80HHC(1B). THUS FOR COMPUTING BOOK PROFITS THE D OWNWARD ADJUSTMENT IN THE ITA NOS.363& 692/AHD/02 14 ABOVE EXAMPLE WOULD BE RS.100 CRORES AND NOT RS.90 CRORES. THE IDEA BEING TO EXCLUDE EXPORT PROFITS FROM COMPUTATION OF BOOK P ROFITS UNDER SECTION 115JB WHICH IMPOSES MAT ON DEEMED INCOME. THE ABOVE REASO NING ALSO GETS SUPPORT FROM THE MEMORANDUM OF EXPLANATION TO THE FINANCE B ILL 2000. 10. ONE OF THE CONTENTIONS RAISED ON BEHALF OF THE DEPARTMENT WAS THAT IF CLAUSE (IV) OF EXPLANATION TO SECTION 115JB IS READ IN ENT IRETY INCLUDING THE LAST LINE THEREOF (WHICH READS AS SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION) IT BECOMES CLEAR THAT THE AMOUNT OF PROFITS ELIGIBLE F OR DEDUCTION UNDER SECTION 80HHC COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR C LAUSE (C) OF SUB-SECTION (3) OR SUB-SECTION (3A) AS THE CASE MAY BE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION. ACCORDING TO THE DEPARTMENT THE ASSE SSEE HEREIN IS TRYING TO READ THE VARIOUS PROVISIONS OF SECTION 80HHC IN ISOLATIO N WHEREAS AS PER CLAUSE (IV) OF EXPLANATION TO SECTION 115JB IT IS CLEAR THAT BOOK PROFIT SHALL BE REDUCED BY THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECT ION 80HHC AS COMPUTED UNDER CLAUSE(A) OR CLAUSE(B) OR CLAUSE(C) OF SUBSECTION ( 3) OR SUB-SECTION (3A) AS THE CASE MAY BE OF THAT SECTION AND SUBJECT TO THE CON DITIONS SPECIFIED IN THAT SECTION THEREBY MEANING THAT THE DEDUCTION ALLOWAB LE WOULD BE ONLY TO THE EXTENT OF DEDUCTION COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80HHC. THUS ACCORDING TO THE DEPARTMENT BOTH ELI GIBILITY AS WELL AS DEDUCTIBILITY OF THE PROFIT HAVE GOT TO BE CONSID ERED TOGETHER FOR WORKING OUT THE DEDUCTION AS MENTIONED IN CLAUSE (IV) OF EXPLANATIO N TO SECTION 115JB.WE FIND NO MERIT IN THIS ARGUMENT. IF THE DICHOTOMY BETWEEN ELIGIBILITY OF PROFIT AND DEDUCTIBILITY OF PROFIT IS NOT KEPT IN MIND THEN SECTION 115JB WILL CEASE TO BE A SELF-CONTAINED CODE. IN SECTION 115JB AS IN SECTION 115JA IT HAS BEEN CLEARLY STATED THAT THE RELIEF WILL BE COMPUTED UNDER SECTI ON 80HHC(3)/(3A) SUBJECT TO THE CONDITIONS UNDER SUB-CLAUSES (4) AND (4A) OF TH AT SECTION. THE CONDITIONS ARE ONLY THAT THE RELIEF SHOULD BE CERTIFIED BY THE CHA RTERED ACCOUNTANT. SUCH CONDITION IS NOT A QUALIFYING CONDITION BUT IT IS A COMPLIANCE CONDITION. THEREFORE ONE CANNOT RELY UPON THE LAST SENTENCE IN CLAUSE (I V) OF EXPLANATION TO SECTION 115JB (SUBJECT TO THE CONDITIONS SPECIFIED IN SUB-C LAUSES (4) AND (4A) OF THAT SECTION) TO OBLITERATE THE DIFFERENCE BETWEEN ELIG IBILITY AND DEDUCTIBILITY OF PROFITS AS CONTENDED ON BEHALF OF THE DEPARTMENT. 19.1 BEFORE THIS IN THE CASE OF CIT VS. RAJNIKAN T SCHNELDER & ASSOCIATES P LTD. 302 ITR 22(MAD) THE HONBLE MADR AS HIGH COURT HELD THAT THE AO WAS NOT ENTITLED TO ALTER THE PROF IT AND LOSS ACCOUNT PREPARED BY THE ASSESSEE UNDER THE PROVISIONS OF TH E COMPANIES ACT WHILE ARRIVING AT BOOK PROFITS U/S 115JA OF THE ACT AND THE BOOK PROFITS SO ARRIVED AT SHOULD BE THE BASIS FOR TAXAT ION AND COMPUTATION U/S 80HHC SHOULD BE LIMITED TO THE CASE OF PROFITS OF ELIGIBLE CATEGORY ONLY. THIS DECISION HAS BEEN REITERATED IN CIT VS. SPEL SEMICONDUCTOR LTD. 323 ITR 488(MAD.) WHEN IT WAS H ELD THAT THE DEDUCTION U/S 80HHC OF THE ACT IN AN ASSESSMENT U/S 115JA IS TO BE ITA NOS.363& 692/AHD/02 15 WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROFITS AN D NOT ON THE BASIS OF THE PROFIT COMPUTED UNDER THE REGULAR PRO VISIONS OF LAW APPLICABLE TO THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. AN SLP FILED BY THE REVENUE AGAINST TH IS DECISION HAS BEEN DISMISSED AS REPORTED IN 320 ITR(ST.)21. FOLLO WING THE DECISION IN RAJNIKANT SCHNELDER & ASSOCIATES P LTD.(SUPRA) SIM ILAR VIEW WAS TAKEN IN BHARI INFORMATION TECHNOLOGY SYSTEM 328 ITR 380( MAD.). 19.2 IN THE LIGHT OF VIEW TAKEN BY THE HONBLE APEX COURT IN THEIR AFORESAID DECISION IN AJANTA PHARMA LTD.(SUPRA) AS ALSO BY TH E HONBLE MDRAS HIGH COURT WE HAVE NO ALTERNATIVE BUT TO VACATE T HE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW DEDUCTION U/S 80HHC OF THE ACT ON THE BASIS OF ADJUSTED BOOK PROFITS AND NOT ON TH E BASIS OF THE PROFIT COMPUTED UNDER THE REGULAR PROVISIONS OF LAW APPLICABLE TO THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR P ROFESSION. THEREFORE GROUND NO. 5 IN THE APPEAL OF THE ASS ESSEE IS ALLOWED. 20. GROUND NO.6 IN THE APPEAL OF THE ASSESSEE RELA TES TO NON- ADJUDICATION OF THE GROUND IN THE APPEAL OF THE A SSESSEE BEFORE THE LD. CIT(A) FOR DEDUCTION U/S 80IA OF THE ACT WHILE DETERMINING BOOK PROFITS IN TERMS OF CLAUSE (V) OF THE EXPLANATION B ELOW THE EXTANT SEC. 115JA(2) OF THE ACT. THE AO WHILE COMPUTING B OOK PROFITS IN TERMS OF PROVISIONS OF SEC. 115JA OF THE ACT ALLOWE D DEDUCTION U/S 80IA THE ACT ON THE ELIGIBLE PROFITS OF THE INDUST RIAL UNDERTAKING COMPUTED UNDER THE NORMAL PROVISIONS AS AGAINST T HE CLAIM OF THE ASSESSEE FOR COMPUTATION OF SUCH DEDUCTION ON THE BASIS OF BOOK PROFITS. THE LD. AR ARGUED THAT THEIR GROUND BEFO RE THE LD. CIT(A) WAS NOT ADJUDICATED. ACCORDINGLY THE LD. CIT(A) MA Y BE DIRECTED. 21. GROUND NO.7 IN THE APPEAL OF THE ASSESSE RELA TES TO REDUCTION OF AN AMOUNT OF RS.5 35 035/- ALLOCATED TOWARDS EXC HANGE RATE DIFFERENCE OUT OF MISCELLANEOUS EXPENSES WHILE WORK ING OUT DEDUCTION U/S 80IA OF THE ACT FROM THE PROFITS OF SILVASSA UNIT. THE ITA NOS.363& 692/AHD/02 16 LD. AR ARGUED THAT THEIR GROUND NO.15.1(C) BEFORE THE LD. CIT(A) WAS NOT ADJUDICATED. ACCORDINGLY THE LD. CIT(A) MA Y BE DIRECTED. 22. AFTER HEARING THE LD. AR WE FIND THAT WHILE A DJUDICATING ISSUES RAISED IN GROUND NOS. 14 & 15 OF THE APPEAL THE L D. CIT(A) DID NOT DECIDE THE ISSUES RELEVANT TO DEDUCTION U/S 80IA OF THE ACT NOW RAISED BEFORE US. CONSEQUENTLY LD. CIT(A) IS DIREC TED TO ADJUDICATE THESE ISSUES AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECTIONS GROUND NOS. 6 & 7 ARE DISP OSED OF. 23. GROUND NO.8 RELATES TO DISALLOWANCE OF EXPE NSES OF RS.9 61 284/- THE AO NOTICED THAT THE FOLLOWING EX PENSES WERE ATTRIBUTED TO THE NEW UNIT BEING SET UP ON PLOT NO. 21 SILVASA WHEREIN COMMERCIAL PRODUCTION HAD NOT COMMENCED. NATURE OF EXPENSES AMOUNT (RS.) LEASE RENT - PLANT AND MACHINERY 2 12 207/- BOILER AND FURNACE OIL EXPENSES 28 020/- INSURANCE 49 390/- REPAIRS 1 32 433/- OTHER REPAIRS 2 66 444/- MISCELLANEOUS EXPENSES 1 09 693/- OTHER WELFARE EXPENSES 41 258/- PRINTING AND STATIONERY 21 666/- TRAVELLING 64 900/- PROFESSIONAL CHARGES 10 200/- LICENCE AND FEES 23 173/- CONSUMABLE STORES 1 900/- --------------- TOTAL 9 61 284/- THE AO DISALLOWED THE AFORESAID EXPENSES BEING PR E-OPERATIVE. 24. ON APPEAL THE ASSESSEE CLAIMED THAT UNI T NO. 2 AT SILVASSA. IN THE PROCESS OF SETTING UP WAS PART OF THE OVERALL P HARMACEUTICAL BUSINESS OF THE ASSESSEE AND THERE WAS INTERDEPENDENCE INTERLACING UNITY OF CONTROL AND ONENESS WITH REGARD TO VARIOUS UNITS/DIVISIONS OF T HE ASSESSEE COMPANY. ITA NOS.363& 692/AHD/02 17 ACCORDDINGLY RELYING UPON DECISIONS IN CIT VS. HIN DUSTAN MACHINE TOOLS LTD. . 175 ITR 212 CIT VS. INDIAN TELEPHONE INDUSTRIES LT D. 175 ITR 215 AND. CIT VS. HINDUSTAN MACHINE TOOLS LTD. (NO. 2) 175 ITR 21 6 THE ASSESSEE CLAIMED THE AFORESAID EXPENSES U/S. 37(1) OF THE ACT. 25. HOWEVER THE LD. CIT(A) DID NOT ACCEPT THE AF ORESAID SUBMISSIONS ON BEHALF OF THE ASSESSEE AND CONCLUDED AS UNDER: AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF T HE CASE I FIND THAT SINCE THE EXPENSES IN QUESTION PERTAIN TO PRE OPERATIVE P ERIOD OF THE NEW UNIT AT SILVASA THE AO WAS JUSTIFIED IN NOT ALLOWING THE C LAIM OF THE ASSESSEE. IN FACT AN INDEPENDENT UNIT HAS BEEN SET UP BY THE AS SESSEE COMPANY ON NEWLY ACQUIRED PLOT NUMBERS 20 AND 21 AT SILVASA AN D AS SUCH THE DECISIONS RELIED UPON BY THE LD. AUTHORIZED REPRESE NTATIVE IN THIS REGARD ARE NOT APPLICABLE TO THE FACTS IN THE ASSESSEES C ASE THE COMMERCIAL PRODUCTION OF THE NEWLY SET UP UNIT HAS NOT STARTED IN THE YEAR UNDER APPEAL. DISMISSING A SPECIAL LEAVE PETITION IN THE CASE OF CIT VS. SPONGE IRON INDIA LTD . (1993) 204 ITR (ST.) 11-12 T HE HON'BLE SUPREME COURT HAS HELD THAT EXPENSES INCURRED PRIOR TO COMMENCEMENT O F BUSINESS ARE NOT DEDUCTIBLE. THE ASSESSING OFFICER'S ACTION IN DISAL LOWING THE EXPENSES OF RS.9 61 248/- IS THEREFORE CONSIDERED TO BE IN ORDE R AND THE ADDITION SUSTAINED. 26. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE WHILE RELYING UPON DECISIONS IN ESSAR STEEL LTD. VS. DCIT 97 ITD 125 (AHD.) CIT VS. RANE(MADRAS) LTD. 293 ITR 459(MAD.) CIT VS. USHA IRON & FERRO METAL CORPORATION LTD. 296 ITR 14 0(DEL.) AND DECISION DATED 10.8.2010 OF THE HONBLE MADRAS HIG H COURT IN CIT VS. SAKTHI SUGARS LTD. IN ITA NO.411 OF 2004 CONTEN DED THAT THE ASSESSEE WAS IN THE PROCESS OF EXPANSION OF BUSINES S AND THEREFORE THE ENTIRE EXPENDITURE WAS ALLOWABLE. 27. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 28. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BEFORE U S BY THE LD. AR ON BEHALF OF THE ASSESSEE. WE FIND THAT THE AO DISALLOWED THE CLAIM FOR THE ITA NOS.363& 692/AHD/02 18 SAID EXPENSES ON THE GROUND THAT THE EXPENSES RELA TED TO A NEW UNIT SET UP AT PLOT NO. 21 IN SILVASA WHICH HAD NOT COMMENCED C OMMERCIAL PRODUCTION. THERE IS NOT EVEN A WHISPER IN THE ORDER AS TO WHETHER OR NOT THE SAID UNIT BEING SET UP WAS EXPANSION OF THE EXISTING BUSINESS OR THAT TH ERE WAS COMPLETE INTER- CONNECTION AND INTER-LACING OF THE SAID UNIT WITH BUSINESS CARRIED ON IN THE EXISTING UNITS. ON APPEAL THE ASSESSEE CONTENDED INTER ALIA THAT SAID UNIT WAS PART OF THE OVERALL PHARMACEUTICAL BUSINESS OF THE ASSESSEE AND THAT THERE WAS INTERDEPENDENCE INTER LACING UNITY OF CONTROL AND ONENESS WITH REGARD TO VARIOUS DIVISIONS OF THE ASSESSEE. HOWEVER THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO HOLDING THAT AN INDEPENDENT UNIT WAS BEING SET UP BY THE ASSESSEE ON THE NEWLY ACQUIRED PLOT NOS.20 & 21AT SILVASA. THERE IS NO SU CH FINDING ON THE PLEA OF THE ASSESSEE THAT THE BUSINESS PROPOSED TO BE CARRIED ON IN THE NEW UNIT WAS EXPANSION OF THE EXISTING BUSINESS OR THAT THERE W AS INTERDEPENDENCE INTER LACING UNITY OF CONTROL AND ONENESS WITH REGARD TO VARIOUS DIVISIONS OF THE ASSESSEE AS CLAIMED BY THE ASSESSEE. EVEN BEFORE US NO SUCH MATERIAL HAS BEEN PLACED BY THE LD. AR ON BEHALF OF THE ASSESSEE NOR EVEN THE SPECIFIC NATURE OF BUSINESS AND PRODUCTS PROPOSED TO BE MANUFACTU RED IN THE SAID UNIT HAS BEEN STATED NOR IT IS EVIDENT FROM THE IMPUGNED OR DERS. APPARENTLY COMPLETE FACTS ARE NOT EVIDENT FROM THE IMPUGNED ORDERS NOR THESE HAVE BEEN PLACED BEFORE US ON BEHALF OF THE ASSESSEE. WE FIND THAT THE HONBLE GUJRAT HIGH COURT IN CIT V. ALEMBIC GLASS INDUSTRIES LTD. [1976] 103 ITR 715 HELD THAT COMPLETE INTER-CONNECTION AND INTER-LACING OF BOTH THE UNITS IS THE TEST LAID DOWN FOR DETERMINING WHETHER TWO LINES OF BUSINESS CONSTITUT E 'SAME BUSINESS. BUT THEN THERE SHOULD BE MATERIAL FOR CONCLUDING SO. NO SUCH FINDING IS EVIDENT FROM THE IMPUGNED ORDERS NOR THERE IS ANY MATERIAL BEFORE US TO CONCLUDE SO. WHETHER OR NOT THE ESTABLISHMENT OF A NEW UNIT CONSTITUTED EX PANSION OR EXTENSION OF THE EXISTING BUSINESS CAN BE EVIDENT FROM THE ANALYSIS OF FACTS AND FIGURES OF THE VARIOUS UNITS AND THE PRODUCTS PROPOSED TO BE MANU FACTURED IN THE NEW UNIT AND THOSE MANUFACTURED IN THE EXISTING UNITS. IN THE ABSENCE OF ANY MATERIAL BEFORE US WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASID E THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE IS SUE OF CLAIM FOR THE AFORESAID EXPENSES IN ACCORDANCE WITH LAW IN THE LIGHT OF VA RIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE AFORECITED DECISIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE ITA NOS.363& 692/AHD/02 19 PARTIES . NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AND BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE ESTABLISHMENT OF A NEW UNIT CONSTITUTED EXPANSION O R EXTENSION OF THE EXISTING BUSINESS AND THAT THERE WAS INTER-CONNECTION AND I NTER-LACING OF THE BUSINESS IN THE PROPOSED UNIT WITH THAT CARRIED ON IN THE EXIS TING UNITS.. WITH THESE DIRECTIONS GROUND NO. 8 IN THE APPEAL FILED BY THE ASSESSEE IS DISPOSED OF. ITA NO.690/AHD/2002 29. ADVERTING NOW TO GROUND NO.1 IN THE APPEAL OF T HE REVENUE RELATEING TO DISALLOWANCE OF DEPRECIATION AS CALCUL ATED U/S 32 OF THE ACT THE AO NOTICED ON PERUSAL OF COMPUTATION AND DE PRECIATION CHART ANNEXED WITH THE RETURN THAT THE ASSESSEE COMPANY DID NOT CLAIM DEPRECIATION IN RESPECT OF PLANT AND MACHINERY OF I TS SILVASSA UNIT. IN RESPECT OF ALL THE ASSETS OF OTHER UNITS AND ALL OT HER ASSETS OF SILVASSA UNIT DEPRECIATION HAD BEEN CLAIMED. THE A O ALSO OBSERVED THAT IN THE PAST THE ASSESSEE HAD CLAIMED DEPRECI ATION ON BLOCK OF PLANT AND MACHINERY ENTITLED TO DEPRECIATION @ 100% BUT IN 25% BLOCK NO DEPRECIATION WAS CLAIMED. ACCORDING TO TH E AO THIS ACTION OF THE ASSESSEE WAS WITH A PURPOSE TO RETAIN HIGHER WDV ON THE ASSETS AS UNIT AT SILVASSA ENJOYED TAX HOLIDAY U/ S 80IA OF THE ACT. THIS DEVICE ALLOWED ON ONE HAND A HIGHER DEDUCTION U/S 80IA OF THE ACT AND ON ANOTHER HIGHER WDV WOULD ENTITLE THE ASS ESSEE TO CLAIM LARGER DEPRECIATION WHEN THE TAX HOLIDAY PERIOD WAS OVER AND THE ASSESSEE HAS TAXABLE INCOME FROM THIS UNIT. THE AO ALSO NOTICED THAT IN THE EARLIER ASSESSMENT YEARS ALSO DEPRECI ATION HAD BEEN ALLOWED TO THE ASSESSEE EVEN THOUGH NOT CLAIMED BY IT. HOWEVER THE LEARNED CIT(APPEALS) AND THE ITAT HELD THAT DEPREC IATION CAN NOT BE GRANTED TO THE ASSESSEE COMPANY ONCE IT HAS NOT BEEN CLAIMED. THOUGH THE ASSESSEE RELIED UPON A NUMBER OF DECISIO NS VIZ. CIT VS. MAHENDRA MILLS 109 TAXMAN 225 (SC) CIT V. SHN SOMES HWAR SAHAKARI SAHKAR KARKHANA LTD.177 ITR 443 (BOM) CIT V. DHARAMPUR LEATHER CO. LTD 60 ITR 165 (SC) BECO ENGINEERING C O. LTD V. CIT ITA NOS.363& 692/AHD/02 20 148 ITR 478 (P&H) IT V. FRIENDS CORPORATION 180 ITR 334 (P & H) CIT V. ARUN TEXTILES 192 ITR 700 (GUJ) AND CIT V . ANDHRA COTTON MILLS LTD. 228 ITR 30 (AP) THE AO DID NOT ACCEPT T HE SUBMISSIONS OF THE ASSESSEE WHILE DISTINGUISHING THE DECISIONS OF THE ITAT FOR THE AYS..1995-96 AND 1996-97 IN VIEW OF AMENDED PROVIS IONS OF SEC. 32(2)(III)(B) OF THE ACT AND DELETION OF SEC. 34 OF THE ACT W.E.F 1.4.1988. ACCORDINGLY THE AO ALLOWED DEPRECIATION OF RS.80 13 777/- FROM THE PR OFITS OF THE BUSINESS AS ALSO WHILE COMPUTING ELIGIBLE PROFITS FOR THE PURPOSE O F DEDUCTION U/S 80IA AND 80HHC OF THE ACT. 30. ON APPEAL THE LD. CIT(A) UPHELD THE CLAIM O F THE ASSESSEE IN THE FOLLOWING TERMS: I HAVE CONSIDERED THE SUBMISSION MADE BY THE LD. A R AND HAVE GONE THROUGH THE ASSESSMENT ORDER MADE BY THE AO. I HAVE ALSO CONSIDERED THE LEGAL POSITION IN THIS REGARD. I FIND THAT THE APPE LLANT HAS A CASE TO SUCCEED. I HAVE COME ACROSS A RECENT DECISION OF THE HON. IT AT 'B' BENCH MUMBAF IN THE CASE OF NEHA TRANSMISSIONS PVT . LTD . VS. ITO IN ITA NO. 4877/MUM/1999 DATED 6.7.2001. THE ISSUE BEFORE THE HON. ITAT WAS WHETHER CLAIM FOR DEPRECIATION WAS OPTIONAL. THE AS SESSMENT YEAR INVOLVED WAS ASSESSMENT YEAR 1996-97. BEFORE THE TR IBUNAL THE REVENUE JUSTIFIED THE ORDERS OF THE LOWER AUTHORITIES AND C ONTENDED THAT AFTER THE CONCEPT OF BLOCK OF ASSETS WAS INTRODUCED SECTION 34 (1) HAS BEEN DELETED AND THE MAHENDRA MILLS CASE ON WHICH RELIANCE WAS PLACED BY THE ASSESSEE WAS FOR THE AY PRIOR TO THE SAID AMENDMENT. FURTHER AS HELD BY THE HON. SUPREME COURT IN THE CASE OF MOTHER INDIA REFRIGERATION PVT. LTD. THE CLAIM OF DEPRECIATION WAS A CHARGE ON THE PROFITS OF THE ASSESSEE. THEREFORE DEDUCTIONS U/S. 80 IA HAS TO BE ALLOWED ON THE CORRECT PROFIT WORKED OUT AS PER THE ACT I.E. AFTER ALLOWING DEPRECIATION. RELIANCE WAS ALSO PLACED ON THE SUPRE ME COURT'S DECISION IN THE CASE OF TUTICORIN ALKALI CHEM. & FERTILIZERS LT D. THE ITAT HELD THAT THE APEX COURT IN THE CASE OF MAHENDRA MILLS HAS CLEARLY LAID DOWN THAT IT WAS OPTIONAL FOR THE ASSESSEE TO CLAIM DEPRECIATION IT BRUSHED ASIDE THE OBJECTION OF THE REVENUE ON THE GROUND TH AT THE CLAIM FOR DEPRECIATION WAS ALLOWABLE U/S 32(1) AND NOT UNDER SECTION 34(1). FURTHER IT WAS NOTED THAT A SIMILAR VIEW HAD BEEN TAKEN B Y AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF CUJARAT STATE FERTILIZER CORPORATION . IN VIEW OF THE SAME IT WAS HELD THAT THE ASSESSEE CANNOT BE F ORCED TO CLAIM THE DEPRECIATION. IN YET ANOTHER RECENT DECISION THE ITAT 'A' BENCH AHMEDABAD IN THE CASE OF IMPORT METALIZERS VS. DY. CIT REPORTED IN 2001 73 TTJ 381 HAS ITA NOS.363& 692/AHD/02 21 HELD THAT THE ASSESSEE HAS AN OPTION TO CLAIM THE D EPRECIATION EVEN AFTER OMISSION OF SUB SECTION (1) OF SECTION 34 AND INTRO DUCTION OF BLOCK OF ASSETS SYSTEM W.E.F 1.4.88 THE AO CANNOT GRANT DE PRECIATION WITHOUT THE NECESSARY PARTICULARS / INFORMATION IN RESPECT OF A SSETS GIVEN BY THE ASSESSEE. THE ITAT IN THIS CASE HAS FOLLOWED THE DECISIONS OF CIT VS. MAHENDRA MILLS 2000 243 ITR 56 (SO BETA NEPTHOL (P ) LTD. VS. DCIT (ITA NO. 1000/INDORE/92 DATED 15.7.93) AND THE DECISION IN THE APPELLANT'S OWN CASE .AS REGARDS ASSESSING OFFICER' S OBSERVATION THAT THE FY 2001 PROVIDING FOR COMPULSORY ALLOWANCE OF DEPRE CIATION W.E.F. 1.4.2002 MAKING THE MANDATORY NATURE OF SECTION 32 ABUNDANTLY CLEAR IT MAY BE CLEAR THAT THE AMENDMENT ITSELF IS INDICATIV E OF THE LEGISLATIVE INTENT THAT IT IS EFFECTIVE FROM 01.04.2002 AND NOT RETROS PECTIVELY. IN VIEW OF THE ABOVE DISCUSSION I HOLD THAT THE AO WAS NOT JUSTIFIED IN COMPULSORY ALLOWANCE OF DEPRECIATION TO THE EXTENT OF RS.80 13 777/-. THE ADDITION IS DELETED. 30.1 THE LD. CIT(A) ALSO DIRECTED THE AO NOT TO RE DUCE THE DEPRECIATION OF RS.80 13 777/- WHILE DETERMINING PR OFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT . 31. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED DR SUPPORTE D THE ORDER OF THE AO WHILE RELYING UPON DECISION IN VAHID PAPER CONVERTERS & ORS. VS. ITO & ORS. (2006) 98 ITD165 (AHD)(SB) THE ASSESSEE HAVIN G CLAIMED DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF ELIGIBLE PROFITS O F THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE AT SILVASA. ON THE OTHER HAND THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION DATED 6-03-2000 OF THE ITAT AHMEDABAD BENCH-C IN THE ASSE SSEES OWN CASE FOR AYS 1995-96 & 1996-97 IN ITA NOS.2355/AHD/ 1998 & 1261/AHD./1999. INTER ALIA THE LD. AR WHILE RELYIN G UPON DECISIONS REPORTED IN CIT VS. KERALA ELECTRIC LAMP WORKS LTD . 261 ITR 721 (KER) AND MOREPEN LABORATORIES LTD. VS. JCIT 95 TT J 404(CHANDIGARH) AS ALSO DECISION DATED 22.2.2010 OF THE BANGALORE BENCH IN THE CASE OF ACIT VS. JSW STEEL LTD. IN ITA NO.848/BANG./2009 FOR THE AY 1999-2000 CONTENDED TH AT THE LD. CIT(A) SEPARATELY ADJUDICATED THE ISSUE OF DISALLOW ANCE OF ITA NOS.363& 692/AHD/02 22 DEPRECIATION RAISED BY THE ASSESSEE IN GROUND NOS. 3 & 15.1(B) OF THEIR APPEAL. THE REVENUE IS IN APPEAL BEFORE THE I TAT ONLY AGAINST THE ISSUE DECIDED IN THEIR GROUND NO.3 BEFORE THE LD. CIT(A). THE LD. AR VEHEMENTLY ARGUED THAT THE SCOPE OF THE APPEAL CAN NOT BE ENLARGED BY RAISING A PLEA ON THE ISSUE ADJUDICATED BY THE LD. CIT(A) IN THEIR GROUND NO.15.1(B) BEFORE THE LD. CIT(A). S INCE THE REVENUE DID NOT RAISE A SEPARATE GROUND FOR THE PURPOSE TH E LD. AR ARGUED THAT PLEA ON BEHALF OF THE REVENUE CAN NOT BE EN TERTAINED. IN HIS REJOINDER THE LD. DR SUBMITTED THAT THE GROUND RAI SED BY THEM IS WIDE ENOUGH TO COVER THE ISSUE IN RESPECT OF CLAI M FOR DEPRECIATION AGAINST PROFITS OF THE NEW INDUSTRIAL UNDERTAKING AT SILVASA ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THE LD. DR ARGUE D THAT COMMON GROUND HAVING BEEN TAKEN THEIR PLEA FOR RELIANCE ON THE SAID DECISION IN VAHID PAPER CONVERTERS & ORS (OTHERS)S HOULD BE ACCEPTED. IN ANY CASE NEW PLEA CAN ALWAYS BE RAISED ON THE SU BJECT MATTER OF THE APPEAL THE LD. DR ADDED. 32. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE FACTS OF THE CASE THE ASSESSEE DID NOT CLAIM ANY DEPRECIATION ON THE PLANT AND MAC HINERY INSTALLED IN THEIR INDUSTRIAL UNDERTAKING AT SILVASA EVEN WH EN DEPRECIATION WAS CLAIMED IN RESPECT OF ALL OTHER ASSETS IN THE U NIT AS ALSO ON VARIOUS ASSETS INCLUDING PLANT AND MACHINERY INSTAL LED IN THE OTHER UNITS. THE AO ALSO NOTICED THAT THE ASSESSEE IN THE EARLIER YEARS INDEED CLAIMED DEPRECIATION ON PLANT AND MACHINERY ENTITLED TO 100% DEPRECIATION BUT DID NOT CLAIM ANY DEPRECIATIO N ON THE PLANT AND MACHINERY ENTITLED TO DEPRECIATION @25%. THE AO ALSO NOTICED THAT THE ASSESSEE CLAIMED INTER ALIA DEDUCTION U/ S 80HHC & 80IA OF THE ACT. THE DEDUCTION U/S 80IA HAD BEEN CLAIMED FR OM THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING AT SILVASA AL ONE. IN VIEW OF AMENDED PROVISIONS OF THE EXTANT SEC.32(2)(III)(B) OF THE ACT STIPULATING CARRY FORWARD OF UNABSORBED DEPRECIATIO N UP TO 8 YEARS AND DELETION OF SEC. 34 OF THE ACT THE AO ALLOWED DEPRECIATION OF ITA NOS.363& 692/AHD/02 23 RS.80 13 777 WHILE COMPUTING PROFITS OF THE INDUSTR IAL UNDERTAKING@ 25 % ON THE PLANT MACHINERY AND ACCORDINGLY RESTRI CTED DEDUCTION U/S 80HHC & 80IA OF THE ACT. HOWEVER ON APPEAL TH E LD. CIT(A) WHILE FOLLOWING THE VARIOUS DECISIONS OF THE ITAT INCLUDING THAT OF THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF GUJRAT S TATE FERTILZER CORPORATION RELYING UPON DECISIONS OF THE HONBLE APEX COURT IN MAHENDRA MILLS(SUPRA) DIRECTED THE AO NOT TO THRUST THE DEPR ECIATION ON THE ASSESSEE SINCE THE ASSESSEE HAD THE OPTION NOT TO CLAIM THE DEPREC IATION EVEN WHILE CLAIMING DEDUCTION U/S 80IA OF THE ACT . THE PLEA NOW RAISED BEFORE US BY THE LD. AR IS THAT THE REVENUE HAVE MERELY DISPUTED THE FINDINGS OF THE LD. CIT(A) REGARDING THE OPTION OF THE ASSESSEE IN CLAIMING DEPRECIATION ON PLANT AND MACHINERY ENTITLED TO DEPRECIATION @ 25% INSTALLED IN THE INDUSTRIAL UNDERTAKING AT SIL VASA AND HAVE NOT SEPARATELY DISPUTED THE REITERATED FINDINGS OF THE LD. CIT(A) WHILE CONSIDERING CLAIM FOR DEDUCTION U/S 80IA OF THE ACT . SIMPLY BECAUSE THE LD. CIT(A) RECORDED HIS FINDINGS AT TWO DIFFE RENT PLACES IN THE IMPUGNED ORDER WHILE CONSIDERING TWO SEPARATE GROUN DS VIZ. GROUND NOS. 3 & 15.1(B) RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) DOES NOT IMPLY THAT THE REVENUE CAN NOT RAISE A COMMON GROUND. IN FACT WHILE ADJUDICATING GROUND NO.15.1(B) THE LD. CIT(A ) MERELY REITERATED HIS FINDINGS ON THE ISSUE RAISED IN GROU ND NO.3. WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IF THE REVENUE HAS RAISED ONLY ONE GROUND RELATING TO DISALLOWANCE OF DEPRECIATION OF RS.80 13 177 U/S 32 OF THE ACT ESPECIALLY WHEN THE SAID CLAIM OF DE PRECIATION WAS ONLY IN RESPECT OF PLANT AND MACHINERY INSTALLED IN THE INDUSTRIAL UNDERTAKING AT SILVASA THE ELIGIBLE PROFITS OF WH ICH ALONE ENTITLED THE ASSESSEE TO DEDUCTION U/S 80IA OF THE ACT. WE A RE OF THE OPINION THE GROUND NO.1 RAISED BY THE REVENUE BEFORE US IS WIDE ENOUGH TO CONSIDER THE PLEA OF THE LD. DR REGARDING ISSUE OF ALLOWANCE OF DEPRECIATION ON THE PLANT AND MACHINERY AGAINST T HE PROFITS OF THE INDUSTRIAL UNDERTAKING ENTITLED TO DEDUCTION U/S 8 0IA OF THE ACT . ITA NOS.363& 692/AHD/02 24 32.1 EVEN OTHERWISE THE POWERS OF THE TRIBUNAL ST IPULATED IN THE PROVISIONS OF SEC. 254(1) IN DEALING WITH THE APPEA LS ARE EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE WORD 'THEREON' M ENTIONED THEREIN OF COURSE RESTRICTS THE JURISDICTION OF THE TRIBUN AL TO THE SUBJECT- MATTER OF THE APPEAL. THE WORDS PASS SUCH ORDERS A S THE TRIBUNAL THINKS FIT' INCLUDE ALL THE POWERS (EXCEPT POSSIBLY THE POWER OF ENHANCEMENT) WHICH ARE CONFERRED UPON THE CIT(A) BY S. 251. THE GROUND NO.1 RAISED BY THE REVENUE CHALLENGING THE ORDER OF CIT(A) REGARDING DISALLOWANCE OF DEPRECIATION OF RS. 80 1 3 177/- U/S 32 OF THE ACT IS WIDE ENOUGH TO PERMIT THE PLEA OF THE L D. DR THAT DEPRECIATION HAS TO BE ALLOWED SINCE THE ASSESSEE INTER ALIA CLAIMED DEDUCTION U/S 80IA OF THE ACT FORM THE ELI GIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING AT SILVASA. WE ARE OF THE OP INION THAT THE PLEA PUT FORTH BY THE REVENUE IS WELL WITHIN THE PARAMET ERS OF THE GROUNDS OF APPEAL BEFORE THE TRIBUNAL [C.F.HUKUMCHA ND MILLS LTD. VS. CIT (1967) 63 ITR '232 (SC)]. 32.11 THE REVENUE IS AGGRIEVED BY THE FINDINGS OF THE LD . CIT(A) THAT THE ASSESSEE HAS THE OPTION TO CLAIM DEPRECIAT ION AND IT CAN NOT BE THRUST UPON THE ASSESSEE. THE SUBJECT-MATTER OF THE APPEAL BEFORE US IS AS TO WHETHER OR NOT THE DEPRECIATION U/S 32 OF THE ACT ON THE PLANT AND MACHINERY INSTALLED IN THE INDUSTR IAL UNDERTAKING AT SILVASA WAS ALLOWABLE. THE LD. DR POINTED OUT THAT THE ASSESSEE INTER ALIA CLAIMED DEDUCTION U/S 80IA OF THE ACT O UT OF THE ELIGIBLE PROFITS OF THE SAID INDUSTRIAL UNDERTAKING EVEN WHI LE NOT CLAIMING DEPRECIATION. THE REFERENCE TO ANY OTHER PROVISIO N OR FACT SHALL NOT ALTER THE SUBJECT-MATTER VIZ. THE ALLOWABILITY OF DEPRECIATION. IT IS WELL SETTLED THAT THE TRIBUNAL IS NOT PRECLUDED FRO M CONSIDERING A POINT WHICH ARISES OUT OF THE APPEAL MERELY BECAUSE SUCH POINT HAD NOT BEEN RAISED OR URGED BY EITHER PARTY AT THE EAR LIER STAGE OF THE PROCEEDINGS. IN THE INSTANT CASE THE POINT WAS ADM ITTEDLY RAISED BEFORE THE LOWER AUTHORITIES. EVEN IN RESPECT OF A NEW PLEA IN HUKUMCHAND MILLS LTD. VS. CIT (1967) 63 ITR 232(SC) HONBLE APEX ITA NOS.363& 692/AHD/02 25 COURT HELD THAT THIS TRIBUNAL HAS THE JURISDICTION AND POWER TO ENTERTAIN A FRESH PLEA AND DIRECT THE LOWER AUTHORITIES FOR REC ONSIDERATION OF THE MATTER IN VIEW OF THE NEW PLEA TAKEN BY THE DEPARTMENT. THE ONLY R ESTRICTION IS THAT THE PLEA ENTERTAINED AND THE DIRECTIONS GIVEN BY THE TRIBUNA L SHALL BE IN RESPECT TO THE SUBJECT-MATTER OF THE APPEAL. EVEN THOUGH THE ISSUE BEFORE US HAS BEEN ADJUDICATED BY THE LOWER AUTHORITIES AND THE LD. DR MERELY POINTED OUT THE RELEVANT FACTS IN THE CONTEXT OF GROUND RAISED BEF ORE US ASSUMING THE PLEA RAISED BY THE DEPARTMENTAL REPRESENTATIVE IS NEW EVEN THEN THE SAME HAS TO BE ACCEPTED IN THE LIGHT VIEW TAKEN B Y THE HONBLE APEX COURT ON THE POWERS OF THE TRIBUNAL IN HUKUMC HAND MILLS LTD. VS. CIT (1967) 63 ITR 232 (SC). A SIMILAR VIEW WAS TAKEN IN N.P. SARASWATHI AMMAL & ORS. VS. CIT (1982) 138 ITR 19 ( MAD) CIT VS. INDIAN EXPRESS (MADURAI) (P) LTD. (1983) 33 CTR (MA D) 314 CIT VS. A.C. PAUL (1983) 142 ITR 811 (MAD) CIT VS. ICE SU PPLIERS CORPORATION (1967) 64 ITR 195 (PUNE) AND ACIT VS. A MARNATH REDDY (CHENNAI) (TM) (2010) 132 TTJ (CHENNAI) (TM) 377. 32.2 NOW COMING TO THE MERIT OF THE ISSUE RAISED IN THE AFORESAID GROUND . THOUGH THE LD. AR RELIED UPON A NUMBER OF DECISIONS IN NONE OF THESE DECISIONS THE ISSUE OF OPTION TO CLAI M DEPRECIATION WAS EXAMINED IN THE CONTEXT OF DEDUCTION U/S 80IA OF THE ACT AS IS IN THE INSTANT CASE. IN THE CASE OF CIT VS. MAHENDRA MILLS FOLLOWED BY THE ITAT IN THE PRECEDING ASSESSMENT YEARS THE APEX CO URT HAD LAID DOWN THAT UNLESS THE ASSESSEE ASKS FOR DEPRECIATION ALLOWANCE THE ITO CANNOT GRANT SUCH DEPRECIATION ALLOWANCE. HONBLE APEX COURT WAS BAS ICALLY DEALING WITH ONLY IN THE CONTEXT OF DEPRECIATION UNDER SECTION 32 AND N OT IN THE CONTEXT OF BENEFITS UNDER CHAPTER VI-A OF THE SAID ACT. IN CIT VS. KERALA ELECTRIC LAMP WORKS LTD. (2003) 261 ITR 721 (KER) RELEVANT TO THE AY 1989 -90 IT WAS HELD THAT EXPLN. 5 INSERTED BY THE FINANCE ACT 2001 WOULD APPLY IN R ELATION TO THE ASST. YR. 2002-03 AND IN SUBSEQUENT YEARS. THIS DECISION WAS FOLLOWED IN MOREPEN LABORATORIES LTD.(SUPRA) AND JSW STEEL LTD.(SUPRA). IN NONE OF T HE DECISIONS RELIED UPON BY THE LD. AR THE ISSUE AS TO WHETHER THE DEPRECIATI ON WHICH IS THOUGH ALLOWABLE ITA NOS.363& 692/AHD/02 26 BUT NOT CLAIMED IN THE RETURN FOR NORMAL COMPUTATIO N OF INCOME HAS TO BE ALLOWED WHILE COMPUTING THE DEDUCTIONS UNDER CHAPTER VI-A T HE ACT MORE PARTICULARLY U/S 80IA OF THE ACT WAS CONSIDERED. THUS RELIANCE BY T HE LD. AR ON THE AFORESAID DECISIONS IS MISPLACED. 32.3 WE FIND THAT THE ISSUE AS TO WHETHER THE D EPRECIATION WHICH IS THOUGH ALLOWABLE BUT NOT CLAIMED IN THE RETURN FOR NORMAL COMPUTATION OF INCOME HAS TO BE ALLOWED WHILE COMPUTING THE DEDUCTIONS UNDER CHA PTER VI-A VIZ. SECTIONS 80HH 80I-A 80-IB ETC. OF AN INDUSTRIAL UNDERTAK ING WAS CONSIDERED IN VAHID PAPER CONVERTERS & ORS. VS. ITO & ORS. (2006) 98 IT D 165(AHD)(SB) WHEN IT WAS HELD THAT THE DEPRECIATION HAS TO BE ALLOWED . EVEN BEFORE THIS DECISION HON'BLE BOMBAY HIGH COURT IN INDIAN RAYON CORPO RATION LTD. V. CIT [2003] 261 ITR 98 AFTER CONSIDERING N THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS. MAHENDRA MILLS (SUPRA) RELIED UPON ON BEHALF OF THE ASSESSEE HELD THAT IF THE ASSESSEE CLAIMS DEDUCTION UNDER CH APTER-VIA OF THE ACT THEN IT IS NOT OPEN TO ASSESSEE TO DISCLAIM DEPRECIATION ALLOW ANCE. 32.4. RECENTLY HONBLE DELHI HIGH COURT IN DABUR I NDIA LTD. VS. CIT 219 CTR152(DELHI) WHILE ADJUDICATING A SIMILAR ISSUE CO NCLUDED AS UNDER: .PROFITS AND GAINS OF A NEWLY ESTABLISHED UNDERT AKING THEREFORE HAVE GOT TO BE COMPUTED AS PER THE PROVISIONS OF S. 29 TO S. 43 A AND IF THE ASSESSEE CLAIMS RELIEF UNDER CHAPTER VI-A OF THE ACT THEN IT IS NO T OPEN TO THE ASSESSEE TO DISCLAIM DEPRECIATION ALLOWANCE. THIS IS BECAUSE CH APTER VI-A IS AN INDEPENDENT CODE BY ITSELF FOR COMPUTING THESE SPECIAL TYPES OF DEDUCTIONS. IN OTHER WORDS ONE MUST FIRST CALCULATE THE GROSS TOTAL INCOME FRO M WHICH ONE MUST DEDUCT A PERCENTAGE OF INCOMES CONTEMPLATED BY CHAPTER VI-A. THAT SUCH SPECIAL INCOMES WERE REQUIRED TO BE COMPUTED AS PER THE PROVISIONS OF THE ACT VIZ. S. 29 TO S. 43A WHICH INCLUDED S. 32(2). THEREFORE ONE CANNOT EXCLUDE DEPRECIATION ALLOWANCE WHILE COMPUTING PROFITS DERIVED FROM A NE WLY ESTABLISHED UNDERTAKING FOR COMPUTING DEDUCTIONS UNDER CHAPTER VI-A. 32.5 IN THE CASE OF CIT V. GANNON DUNKERLEY AND CO. LTD. [1995] 216 ITR 708 THE HONBLE BOMBAY HIGH COURT WAS DEALING WITH THE ISSUE WHETHER TO EXCLUDE UNABSORBED DEPRECIATION AND UNABSORBED REBATE WHILE COMPUTING THE TOTAL INCOME. THE HONBLE HIGH COURT HELD AS UNDER: ITA NOS.363& 692/AHD/02 27 'THEREFORE WHILE ASCERTAINING THE PROFITS AND GAINS ATTRIBUTABLE TO A PRIORITY INDUSTRY WHICH FORMS A PART OF SUCH TOTAL INCOME NE CESSARY DEDUCTIONS REQUIRED UNDER THE INCOME-TAX ACT HAVE TO BE MADE INCLUDING DEDUCTION FOR DEPRECIATION. IN THE PRESENT CASE IT IS ONLY THE DEPRECIATION IN THE CURRENT YEAR WHICH IS BEING DEDUCTED AND WE DO NOT SEE ANY PROVISIONS IN SECTIO N 80-I UNDER WHICH SUCH DEPRECIATION REQUIRES TO BE ADDED BACK TO THE PROFI TS AND GAINS ATTRIBUTABLE TO THE PRIORITY INDUSTRY FOR THE PURPOSE OF CALCULATING TH E EIGHT PER CENT. DEDUCTION UNDER THAT SECTION.' 32.6. SIMILARLY HONBLE BOMBAY HIGH COURT IN S COOP INDUSTRIES PVT. LTD. VS. ITO 289 ITR 195(BOM.) WHILE FOLLOWING THEIR EARLI ER DECISION IN THE CASE OF INDIAN RAYON CORPORATION LTD.(SUPRA) HELD THAT THE ASSESSEE IF CLAIMING DEDUCTION UNDER CHAPTER VI-A AS A 'NEWLY ESTABLISHE D UNDERTAKING' WILL HAVE TO CLAIM DEPRECIATION FIRST AND THEREAFTER ONLY THE TO TAL INCOME CAN BE COMPUTED SO AS TO ENABLE THE SAID UNDERTAKING TO CLAIM THE BENE FIT AS A 'NEWLY ESTABLISHED UNDERTAKING' UNDER CHAPTER VI-A. IN ANOTHER DECISIO N DATED 16.10.2009 IN THE CASE OF PLASTIBLENDS INDIA LTD. IN ITA NO.1282 OF 2 007 WHILE ADJUDICATING A SIMILAR ISSUE THE HONBLE BOMBAY HIGH COURT AFTER ANALYZIN G VARIOUS DECISIONS SUMMED UP AS UNDER: 47. THUS THE COMMON THREAD PASSING THROUGH THE AB OVE DECISIONS OF THE APEX COURT AS WELL AS THE DECISIONS OF THIS COURT INCLUD ING THE DECISION IN THE CASE OF INDIAN RAYON (SUPRA) IS THAT THE DEDUCTIONS UNDER C HAPTER VI-A ARE LINKED TO PROFITS AND THE PROFITS FOR THE PURPOSES OF DEDUCTI ON UNDER CHAPTER VI-A HAVE TO BE DETERMINED AFTER CONSIDERING ALL DEDUCTIONS ALLO WABLE UNDER THE ACT (EXCEPT DEDUCTIONS ALLOWABLE UNDER CHAPTER VI-A). THEREFORE WHETHER THE ASSESSEE HAS CLAIMED CURRENT DEPRECIATION OR NOT HAS NO BEARING IN DETERMINING THE QUANTUM OF DEDUCTION ALLOWABLE UNDER SECTION 80IA OF THE ACT A ND ONCE IT IS FOUND THAT DISCLAIMING DEPRECIATION IS NOT IN THE INTEREST OF THE ASSESSEE THE AO WAS JUSTIFIED IN ALLOWING CURRENT DEPRECIATION TO THE A SSESSEE. 48. FOR ALL THE AFORESAID REASONS WE HOLD THAT THE QUANTUM OF DEDUCTION UNDER SECTION 80IA IS NOT DEPENDENT UPON THE ASSESSEE CLA IMING OR NOT CLAIMING DEPRECIATION BECAUSE UNDER SECTION 80IA THE QUANT UM OF DEDUCTION HAS TO BE DETERMINED BY COMPUTING TOTAL INCOME FROM BUSINESS AFTER DEDUCTING ALL DEDUCTIONS ALLOWABLE UNDER SECTION 30 TO 43D OF THE ACT. 49. IN THE RESULT WE ANSWER THE QUESTION REFERRED TO US SET OUT AT PARA 1 ABOVE IN THE AFFIRMATIVE THAT IS FOR THE PURPOSES OF DEDUC TION UNDER CHAPTER VIA THE GROSS TOTAL INCOME HAS TO BE COMPUTED INTER ALIA BY DEDUCTING THE DEDUCTIONS ALLOWABLE UNDER SECTION 30 TO 43D OF THE ACT INCLU DING DEPRECIATION ALLOWABLE UNDER SECTION 32 OF THE ACT EVEN THOUGH THE ASSESS EE HAS COMPUTED THE TOTAL INCOME UNDER CHAPTER IV BY DISCLAIMING THE CURRENT DEPRECIATION. ITA NOS.363& 692/AHD/02 28 32.7 HONBLE RAJASTHAN HIGH COURT IN VIJAY INDUST RIES V. CIT [2004] 270 ITR 175 DEALING WITH THE VERY SAME ISSUE OF WHETHER A 'NEWL Y ESTABLISHED UNDERTAKING' WHILE CLAIMING SPECIAL DEDUCTION UNDER SECTION 80HH AND WHERE DEPRECIATION OUGHT TO BE CLAIMED UNDER SECTION 32 OR NOT HAS HE LD THAT THE DEPRECIATION UNDER SECTION 32 WILL HAVE TO BE FIRST TAKEN IN TO ACCOUN T BEFORE GRANTING DEDUCTION UNDER CHAPTER VI-A. 32.8 HONBLE GUJARAT HIGH COURT IN CIT V. CADILA CHEMICALS P. LTD. [2003] 259 ITR 692 IN NO UNCERTAIN TERMS HELD THAT WHEN ANY DEDUCTI ON UNDER CHAPTER VI-A IS CLAIMED THEN WHILE COMPUTING THE TOTAL INCOME T HE DEPRECIATION WILL HAVE TO BE DEDUCTED BEFORE MAKING ANY DEDUCTION UNDER SECTION 80HH OF THE SAID ACT. THE RELEVANT OBSERVATIONS OF THE HONBLE JURISDICTIONA L HIGH COURT ARE AS UNDER: COMING TO QUESTION NO. 2 THE LEARNED COUNSEL F OR THE REVENUE RELIES ON THE DECISION OF THIS COURT IN PAUSHAK LTD. V. CIT [1994 ] 210 ITR 535 WHEREIN THIS COURT RELIED ON THE DECISION OF THE APEX COURT IN T HE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 AND CIT V. GAUTAM SARABHAI [1981] 129 ITR 133 (GUJ) HOLDING THAT UNABSORBED LOSSES AND UNABSORB ED DEPRECIATION HAVE TO BE DEDUCTED BEFORE ARRIVING AT THE FIGURES THAT WOULD BE QUANTIFIED FOR THE PURPOSE OF DEDUCTION UNDER SECTI ON 80HH OF THE INCOME-TAX ACT 1961. WE MAY ALSO ADD THAT WITH EFFECT FROM AP RIL 1 1989 PARLIAMENT INSERTED SECTION 80AB LAYING DOWN THAT WHERE ANY DE DUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER ANY SECTION IN CHAPTER VI-A U NDER THE HEADING 'DEDUCTIONS IN RESPECT OF CERTAIN INCOMES' THEN N OTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION FOR THE PURPOSE OF COMPU TING THE DEDUCTION UNDER THAT SECTION THE AMOUNT OF INCOME OF THAT NATURE AS COM PUTED UNDER 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 WHICH IS DERIVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDIBLE IN THE GROSS TOTAL INCOME MEANING THEREBY DEPRECIATION WILL HAVE TO BE DEDUCTED BEFORE MAKING ANY DEDUCTION UNDER SECTION 80HH. 32.8 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS BY THE SPECIAL BENCH AS ALSO BY THE VARIOUS HIGH COURTS INCLUDING JURI SDICTIONAL HIGH COURT WE HAVE NO ALTERNATIVE BUT TO VACATE THE FINDINGS OF THE L D. CIT(A) AND DIRECT THE AO TO ALLOW DEDUCTION UNDER CHAPTER VIA OF THE ACT ONL Y AFTER ALLOWING THE DEPRECIATION OF RS. 80 13 777 UNDER SECTION 32 OF THE ACT WHICH HAS NOT BEEN CLAIMED IN THE RETURN OF INCOME. THEREFORE GROUND NO.1 IN THE APPEAL OF THE REVENUE IS ALLOWED. ITA NOS.363& 692/AHD/02 29 33. GROUND NO.2 IN THE APPEAL OF THE REVENUE RELA TES TO WEIGHTED DEDUCTION U/S 32(2AB) IN RESPECT OF R&D EX PENSES. THE AO NOTICED THAT IN THE ORIGINAL RETURN THE ASSES SEE CLAIMED NORMAL DEDUCTION OF CAPITAL AND REVENUE EXPENDITURE U/S 35(1) OF THE ACT ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENSE S HOWEVER IN REVISED RETURN IT CLAIMED WEIGHTED DEDUCTION @ 12 5% U/S 35(2AB) OF THE ACT. BUT THE AO REJECTED THE CLAIM ONLY ON THE GROUND THAT THE ASSESSEE'S INHOUSE RESEARCH FACILITY WAS NOT AP PROVED U/S 35(2AB) OF THE ACT EVEN WHEN THE ASSESSEE SUBMITTED A COPY OF TH E RELEVANT ORDER DATED 07-01-2000 OF THE SECRETARY DSIR (THE PRESCR IBED AUTHORITY) VALID UNTIL 31-03-2000. INTER ALIA IT WAS POINTED OUT BY THE ASSESSEE THAT THEY HAD APPLIED FOR APPROVAL ON 12-04-1999 F OR THE FY 1997- 98 . HOWEVER THE AO REJECTED THIS SUBMISSION ON TH E GROUND THAT THE NOTIFICATION WAS NOT RETROSPECTIVELY APPLICABLE . 34. ON APPEAL ON THE BASIS OF A CLARIFICATION DATE D 13.8.2001 ISSUED BY THE PRESCRIBED AUTHORITY THE LEARNED CI T(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- I FIND THAT THE APPROVAL OF THE SECRETARY DSIR I .E. THE PRESCRIBED AUTHORITY FOR IN-HOUSE R & D ENABLING THE ASSESSEE COMPANY TO CLAIM WEIGHTED DEDUCTION U/S. 35(2 AB) IS IN ORDER. THE AO THEREFORE DOES NOT APPEAR TO BE CORRECT IN ARRIVING OF THE ADVERSE CONCLUSION ON TH E BASIS OF FACTS THAT THE APPELLANT MADE APPLICATION TO SECRETARY DSIR LATE I .E. AFTER THE CONCLUSION OF THE FY AND THAT THE ORIGINAL ORDER OF THE PRESCR IBED AUTHORITY DID NOT MENTION THE APPLICABILITY OF THE PROVISION OF LAW F OR THE AY IN QUESTION. WHAT THE PROVISIONS OF SECTION 35 (2AB)(1) INTER AL IA REQUIRE IS 'IN HOUSE RESEARCH AND DEVELOPMENT AS APPROVED BY THE PRESCRI BED AUTHORITY AND THE PRESCRIBED AUTHORITY FOR THIS PURPOSE IS SECRET ARY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH GOVERNMENT OF I NDIA IT IS IMMATERIAL AS TO HOW THE APPLICATION HAS BEEN PROCESSED AND SATIS FACTION ARRIVED AT BY THE SECRETARY DSIR ON THE SAME AS THESE ARE PROCED URAL DETAILS WHICH ARE NEITHER DIVULGED NOR OF CONCERN OF THE ASSESSIN G OFFICER. THE ADDITION OF RS.2 22 19 415/- IS THEREFORE DELETED. 35. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE ITA NOS.363& 692/AHD/02 30 AO WHILE CONTENDING THAT LETTER DATED 13.8.2001 ISS UED BY THE PRESCRIBED AUTHORITY WAS NOT BEFORE THE AO.ON THE O THER HAND THE LD. AR SUPPORTED THE FINDINGS OF THE LD. CIT(A) WHI LE RELYING UPON DECISION DATED 22-12-2006 OF THE ITAT AHMEDABAD BEN CH-C IN THE CASE OF CLARIS LIFE-SCIENCES LTD. VS. ACIT IN ITA N O. 311/AHD/2005 FOR AYS 2001-02 . THE LD. AR ADDED THAT ONLY A CLAR IFICATION WAS ISSUED BY THE PRESCRIBED AUTHORITY. 36. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US IS IN RESPECT OF CL AIM U/S 35(2AB) OF THE ACT. THE CONDITIONS SPECIFIED FOR GRANT OF DEDUCTION UNDER THE SAID SECTION ARE AS UNDER: (A) THE COMPANY MUST BE ENGAGED IN THE BUSINESS OF BIOTECHNOLOGY OR IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF DRUGS OR P HARMACEUTICALS ETC.; (B) IT SHOULD HAVE INCURRED EXPENDITURE ON SCIENTIF IC RESEARCH (BOTH REVENUE AND CAPITAL BUT EXCLUDING EXPENDITURE IN THE NATURE OF COST OF ANY LAND AND BUILDING) ON IN-HOUSE R&D FACILITY; (C) THE IN-HOUSE R&D FACILITY MUST BE APPROVED BY P RESCRIBED AUTHORITY. THE PRESCRIBED AUTHORITY FOR THE PURPOSES OF S. 35(2AB) HAS BEEN NOTIFIED AS THE SECRETARY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH MINISTRY OF SCIENCE AND TECHNOLOGY GOVERNMENT OF INDIA (DSIR); (D) THE COMPANY SHOULD ENTER INTO AN AGREEMENT WITH DSIR FOR CO-OPERATION IN R&D FACILITY AND FOR THE AUDIT OF THE ACCOUNTS MAIN TAINED FOR THAT FACILITY; (E) THE PRESCRIBED AUTHORITY SHOULD SUBMIT ITS REPO RT IN RELATION TO APPROVAL OF THE SAID FACILITY TO THE DIRECTOR GENERAL IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED. 36.1 THERE IS NO DISPUTE ABOUT THE OTHER CONDI TIONS STIPULATED ABOVE EXCEPT AS REGARDS APPROVAL OF THE PRESCRIBED AUTHORITY. T HOUGH THE ASSESSEE SUBMITTED A COPY OF THE DESIRED APPROVAL THE AO OBJECTED TO THE SAME ON THE GROUND THAT APPROVAL WAS NOT APPLICABLE FOR THE YEAR UNDER CONS IDERATION. WE FIND THAT IN PURSUANCE TO AN APPLICATION FILED BY THE ASSESSEE O N 12-04-1999 THE PRESCRIBED AUTHORITY GRANTED NECESSARY APPROVAL ON 07-01-2000 UNTIL 31-03-2000. INTER ALIA IT WAS POINTED OUT B Y THE ASSESSEE THAT THEY HAD MENTIONED THE PERIOD UNDER CONSIDERATIO N IN THEIR APPLICATION. SINCE THE PRESCRIBED AUTHORITY CLARIF IED VIDE THEIR LETTER ITA NOS.363& 692/AHD/02 31 DATED 13.8.2001 THAT APPROVAL WAS EQUALLY APPLICABL E FOR THE YEAR UNDER CONSIDERATION THE LEARNED CIT(A) ALLOWED TH E CLAIM OF THE ASSESSEE. THUS THE FACTS ON RECORD REVEAL THAT ALL THE CO NDITIONS OF GRANT OF DEDUCTION UNDER S. 35(2AB) OF THE ACT ARE SATISFIED. IN THESE CIRCUMSTANCES ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY MATE RIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A) HOLDING THAT THE ASS ESSEE IS ENTITLED TO DEDUCTION U/S 35(2AB) OF THE ACT. THIS VIEW OF OURS IS SUPPO RTED BY THE DECISION OF THE ITAT IN THE CASE OF CLARIS LIFE-SCIENCES LTD.(SUPRA). IN VIEW OF THE FOREGOING GROUND NO.2 IN THE APPEAL OF THE REVENUE IS DISMIS SED. 37. GROUND NO.3 IN THE APPEAL OF THE REVENUE RELATE S TO EXCLUSION OF INSURANCE RECEIPTS FROM THE TOTAL TURNOVER FOR T HE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THE AO INCLUDED AN AMOUNT OF RS.17.0 LACS ON ACCOUNT OF INSURANCE CLAIM IN THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 38. ON APPEAL THE LEARNED CIT(A) RELIED ON A DECIS ION OF THE ITAT MUMBAI BENCH 'D' IN THE CASE OF ITO VS. FASHION SPO RTS (I) PVT. LTD. 78 ITD 41 WHEREIN IT WAS HELD THAT THE INSURANCE CLAIM RE CEIVED IN RESPECT OF GOODS DESTROYED BY FIRE HAD NO CLOSE NEXUS WITH THE EXPOR T ACTIVITY AND ONE HAD TO ARRIVE AT 'TOTAL TURNOVER' AND NOT THE 'TOTAL RECEIPTS' OF THE BUSINESS AND NOT ALL ITEMS APPEARING IN THE PROFIT AND LOSS ACCOUNT COULD BE P ROPERLY DESCRIBED AS TOTAL TURNOVER OF THE BUSINESS. ACCORDINGLY THE LD. CIT( A) DIRECTED TO EXCLUDE THE INSURANCE CLAIM FROM THE TOTAL TURNOVER. 39. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED DR RELIED O N THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE S UPPORTED THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON AFORE SAID DECISION REPORTED IN 78 ITD 41. ITA NOS.363& 692/AHD/02 32 40. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE BUSINESS OF ASSESSEE IS MANUFACTURE AND SALE OF PHARMACEUTICALS. THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF INSURANCE. THE TURNOVER MEANS THE VALUE OF GOODS PURCHASED/SOLD IN THE COURSE OF CARRYING OF BUSINESS. THE INSURANCE CLAIM RECEIVED BY THE ASSE SSEE BY NO STRETCH OF IMAGINATION CAN BE TREATED AS TURNOVER IN THE BUSIN ESS OF MANUFACTURE AND SALE OF PHARMACEUTICALS. THE NATURE OF THE INSURANCE MONIES BEING COMPENSATION FOR THE LOSS UNDER A CONTRACT OF INDEMNITY IT IS DIFFICUL T TO VIEW IT AS ANYTHING RESEMBLING 'TURNOVER'. . IN VIEW OF DETAILED REASONS GIVEN WHI LE ADJUDICATING GROUND NOS.2 &3 IN THE APPEAL OF THE ASSESSEE AND I N THE LIGHT OF VIEW TAKEN BY A CO-ORDINATE BENCH IN THE CASE OF FA SHION SPORTS (I) PVT. LTD.(SUPRA) WE HAVE NO HESITATION IN HOLDING THAT THE INSURANCE RECEIPTS COULD NOT BE TAKEN AS A PART OF TOTAL TURNOVER FO R THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THEREFORE GROUND NO.3 IN THE APP EAL OF THE REVENUE IS DISMISSED. 41. GROUND NO.4 IN THE APPEAL OF THE REVENUE RELATE S TO EXCLUSION OF SALES-TAX AND EXCISE DUTY FROM THE TOTAL TURNOVE R. FOLLOWING THE ORDERS OF THE LD. CIT(A) FOR THE AYS 1995-96 TO 199 7-98 THE AO INCLUDED AN AMOUNT OF RS.10 53 86 143/- TOWARDS SA LES TAX AND RS.22 46 07 008/- ON ACCOUNT OF EXCISE DUTY IN THE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 42. ON APPEAL THE LEARNED CIT(A) DIRECTED TO EXCL UDE SALES TAX AND EXCISE DUTY FROM THE TOTAL TURNOVER WHILE RELYING U PON DECISIONS IN THE CASE OF SUDARSHAN CHEMICALS INDUSTRIES LTD. 163 CTR (BOM) 596 245 ITR 769 AND DY. CIT VS. ASHER TEXTILES LTD. (2001) 73 TTJ 727(MADR AS). 43. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE ORDER OF THE A O IN THE LIGHT OF PROVISIONS OF SEC. 145A OF THE ACT WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE ORDER OF THE AO IN VIEW OF JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS 290 ITR 667 (SC). ITA NOS.363& 692/AHD/02 33 44. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE. WE ARE NOT INCLINED TO ACCEPT THE PLEA OF THE LD. DR T HAT THE PROVISIONS OF SEC. 145A WERE APPLICABLE TO THE CONCEPT OF TOTAL TURNOVER EVEN WH ILE DETERMINING THE DEDUCTION U/S 80HHC OF THE ACT IN VIEW OF THE FOLLOWING OBSERV ATIONS OF THE HONBLE APEX COURT IN THE CASE OF LAXMI MACHINE WORKS(SUPRA) WHEREIN IT WAS HELD AS UNDER: WE HAVE TO READ THE WORDS 'TOTAL TURNOVER' IN SECTI ON 80HHC AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE ' EXPORT PROFITS' FROM THE 'BUSINESS PROFITS'. THEREFORE WE HAVE TO READ THE FORMULA IN ENTIRETY. IN THAT FORMULA THE ENTIRE BUSINESS PROFITS IS NOT GIVEN DE DUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCED BY THE ABOV E FRACTION/RATIO OF EXPORT TURNOVER + TOTAL TURNOVER WHICH CONSTITUTES SECTION 80HHC CONCESSION (DEDUCTION). INCOME IN THE NATURE OF 'BUSINESS PROF ITS' WAS THEREFORE APPORTIONED. THE ABOVE FORMULA FIXED A RATIO IN WHI CH 'BUSINESS PROFITS' UNDER SECTION 28 OF THE ACT HAD TO BE APPORTIONED. THEREF ORE ONE HAS TO GIVE WEIGHTAGE NOT ONLY TO THE WORDS 'TOTAL TURNOVER' BU T ALSO TO THE WORDS 'EXPORT TURNOVER' 'TOTAL EXPORT TURNOVER' AND 'BUSINESS PR OFITS'. THAT IS THE REASON WHY WE HAVE QUOTED HEREINABOVE EXTENSIVELY THE ILLUSTRA TION FROM THE DIRECT TAXES (INCOME-TAX) READY RECKONER OF THE RELEVANT WORD. I N THE CIRCUMSTANCES WE CANNOT INTERPRET THE WORDS 'TOTAL TURNOVER' IN THE ABOVE FORMULA WITH REFERENCE TO THE DEFINITION OF THE WORD 'TURNOVER' IN OTHER L AWS LIKE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. GOODS FOR EXPO RT DO NOT INCUR EXCISE DUTY LIABILITY. AS STATED ABOVE EVEN COMMISSION AND INT EREST FORMED A PART OF THE PROFIT AND LOSS ACCOUNT HOWEVER THEY WERE NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 80HHC. THEY WERE NOT ELIGIBLE EVEN WITHOUT THE CLARIFICATION INTRODUCED BY THE LEGISLATURE BY VARIOUS AMENDMENTS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF TURNOVER. FURTHER IN ALL OT HER PROVISIONS OF THE INCOME- TAX ACT PROFITS AND GAINS WERE REQUIRED TO BE COMP UTED WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER AS CAN B E SEEN FROM THE INCOME- TAX RULES AND FROM THE ABOVE FORM NO. 10CCAC IN THE CASE OF DEDUCTION UNDER SECTION 80HHC A REPORT OF THE AUDITOR CERTIFY ING DEDUCTION BASED ON EXPORT TURNOVER WAS SUFFICIENT. THIS IS BECAUSE THE VERY BASIS FOR COMPUTING SECTION 80HHC DEDUCTION WAS 'BUSINESS PROFITS' AS C OMPUTED UNDER SECTION 28 A PORTION OF WHICH HAD TO BE APPORTIONED IN TER MS OF THE ABOVE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER. SECTION 80HHC(3) WAS A BENEFICIAL SECTION. IT WAS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPOR TS. THE INCENTIVE WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINE SS THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROF ITS BY APPORTIONING THE TOTAL BUSINESS PROFITS ON THE BASIS OF TURNOVERS. APPORTI ONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIV ING AT EXPORT PROFITS. THIS METHOD EARLIER EXISTED UNDER THE EXCESS PROFITS TAX ACT IT EXISTED IN THE BUSINESS PROFITS TAX ACT. THEREFORE JUST AS COMMIS SION RECEIVED BY AN ASSESSEE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF 'TURNOVER' EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TURNOVER'. SIMILARLY 'INTEREST' EMANATES FROM EXPORTS AND YET 'INTEREST' DOES NOT INVOLVE AN ITA NOS.363& 692/AHD/02 34 ELEMENT OF TURNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80HHC OF THE ACT WAS TO CONFER A BENEFIT ON PROFITS ACCRU ING WITH REFERENCE TO EXPORT TURNOVER. THEREFORE 'TURNOVER' WAS THE REQUIREMENT . COMMISSION RENT INTEREST ETC. DID NOT INVOLVE ANY TURNOVER. THEREF ORE 90 PER CENT. OF SUCH COMMISSION INTEREST ETC. WAS EXCLUDED FROM THE PRO FITS DERIVED FROM THE EXPORT. THEREFORE EVEN WITHOUT THE CLARIFICATION S UCH ITEMS DID NOT FORM PART OF THE FORMULA IN SECTION 80HHC(3) FOR THE SIMPLE REAS ON THAT THEY DID NOT EMANATE FROM THE' EXPORT TURNOVER' MUCH LESS ANY T URNOVER. EVEN IF THE ASSESSEE WAS AN EXCLUSIVE DEALER IN EXPORTS THE SA ID COMMISSION WAS NOT INCLUDIBLE AS IT DID NOT SPRING FROM THE' TURNOVER' . JUST AS INTEREST COMMISSION ETC. DID NOT EMANATE FROM THE 'TURNOVER' SO ALSO E XCISE DUTY AND SALES TAX DID NOT EMANATE FROM SUCH TURNOVER. SINCE EXCISE DUTY A ND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVER SUCH TAXES HAD TO BE EXC LUDED. COMMISSION INTEREST RENT ETC. DO YIELD PROFITS BUT THEY DO N OT PARTAKE OF THE CHARACTER OF TURNOVER AND' THEREFORE THEY WERE NOT INCLUDIBLE I N THE 'TOTAL TURNOVER'. THE ABOVE DISCUSSION SHOWS THAT INCOME FROM RENT COMMI SSION ETC. CANNOT BE CONSIDERED AS PART OF BUSINESS PROFITS AND THEREFO RE THEY CANNOT BE HELD AS PART OF THE TURNOVER ALSO. IN FACT IN CIVIL APPEAL NO. 4409 OF 2005 THE ABOVE PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFI CER IF SO THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TO TAL TURNOVER' UNDER SECTION 80HHC(3) OTHERWISE THE FORMULA BECOMES UNWORKABLE. IN OUR VIEW SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF 'TU RNOVER' WHICH IS THE POSITION EVEN IN THE CASE OF RENT COMMISSION INTE REST ETC. IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALES TAX ARE IND IRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNME NT. THEREFORE IF THEY ARE MADE RELATABLE TO EXPORTS THE FORMULA UNDER SE CTION 80HHC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. 44.1 SECTION 80HHC OF THE INCOME-TAX ACT 1961 IS A BENE FICIAL SECTION AND WAS INTENDED TO PROVIDE INCENTIVE TO PROMOTE EXPORTS. THE INTENTION WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. AS OBSERVED BY THE HONBLE A PEX COURT ONE CANNOT INTERPRET THE WORDS TOTAL TURNOVER WITH REFERENCE TO THE DE FINITION OF THE WORD TURNOVER IN OTHER LAWS LIKE THE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. THE WORDS 'TOTAL TURNOVER' IN SECTION 80HHC HAVE TO BE READ AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE 'EXPORT PROFITS' FROM THE ' BUSINESS PROFITS . THEREFORE WE ARE OF THE OPINION THAT EXCISE DUTY AND SALES TAX CAN NOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) OF THE ACT. 44.2 IN THE CASE OF SONY INDIA PVT. LTD . VS. DCIT IN ITA NO. 1181/DEL/2005 DATED 23/9/2008 FOR THE AY 2001-02 ITAT DELHI BENC H FOLLOWING THE AFORESAID DECISION OF THE HONBLE SUPREME COURT DIRECTED TO EXCLUDE EXCISE DUTY WHILE WORKING OUT TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. ITA NOS.363& 692/AHD/02 35 44.3. IN VIEW OF AFORESAID DECISION OF THE HON BLE SUPREME COURT WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS JUSTIFIED IN DIREC TING THE AO TO EXCLUDE EXCISE DUTY & SALES TAX WHILE WORKING OUT TOTAL TURNOVER FOR TH E PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THUS GROUND NO.4 IN THE APPEAL OF THE REVENUE IS DISMISSED.. 45 GROUND NO.5 IN THE APPEAL OF THE REVENUE RELATE S TO EXCLUSION OF 90% OF THE NET INTEREST INCOME FROM THE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE AO NOTICED THAT THE ASSESSEE REDUCED ONLY 90% OF THE NET INTER EST INCOME OF RS. 1 60 06 899/- WHILE DETERMINING THE PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT WHILE THE GROSS RECEIPTS OF INTEREST AMOUNTED TO RS. 12 66 88 979/- . TO A QUERY BY THE AO THE ASSESSEE REPLIED VIDE ITS LETTER DATED 21-03-2001 THAT THE COMPANY RECEIVED GROSS INTEREST OF RS.12 66 88 979/- AND NETTED OFF THE INTEREST PAYMENT OF RS.11 06 82 080/- AGAINST THE I NTEREST EARNED AND REDUCED 90% OF NET INTEREST EARNED FROM THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC IN TERMS OF DECISION OF KERALA HIGH COURT IN CIT V. DR. V. P. GOPINATHAN 229 ITR 801.IT WAS FURTHER SUBMITTED THA T THE PHARMA BUSINESS AND FINANCING BUSINESS OF THE ASSESSEE CONSTITUTED ONE AND THE SAME BUSINESS BECAUSE OF INTER-CONNECTION INTER-LACING AND UNITY OF CONTROL. WHILE RELYING UPON DECISIONS IN ADDL. CIT V. RAM BAHADUR THAKUR & CO. 116 ITR 698 (PAT) CIT V. KOTHARI AUTO PARTS MANUFACTURERS P. LTD. 109 ITR 33 3 (BOM) MAHARAJA SHRI UMAID MILLS LTD. V. CIT 175 ITR 72 (RAJ.) AND BANSI DAR PR. LTD. V. CIT127 ITR 65 (GUJ) IT WAS CONTENDED WHEN TWO OR MORE BUSINESS CARRIED ON BY THE ASSESSEE CONSTITUTE THE 'SAME BUSINESS' THE EXPENSES IN REL ATION TO ONE BUSINESS ARE DEDUCTIBLE FROM THE INCOME OF OTHER BUSINESS OR BUS INESSES . FOR COMPUTING DEDUCTION U/S 80HHC THE ASSESSEE SUBMITTED THAT IT EMS TO BE REDUCED FROM THE 'PROFITS OF THE BUSINESS' ELIGIBLE FOR DEDUCTION U/ S 80HHC ARE NET INCOME AND NOT GROSS INCOME. IN SUPPORT THE ASSESSEE RELIED UPON THE JUDGMENTS IN PINK STAR V. DCIT 72 ITD 137 (MUM TRIB.) MANGALYA TRADE A INV. LTD. ITA 4697/M/97 KANTILAL CHHOTALAL V. DCIT 68 ITD 395 (BOM. TRIB.) AND CIT V DR. V. P. GOPINATHAN 90 TAXMAN 304 (KERALA). HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN ITA NOS.363& 692/AHD/02 36 THE INTEREST EXPENDITURE AND THE INTEREST INCOME BY SHOWING SPECIFIC RELATION BETWEEN EARNING OF INCOME WITH THAT OF INCURRING OF EXPENDITURE. ACCORDINGLY THE AO REDUCED 90% OF THE GROSS INTEREST RECEIPTS FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. 46. SIMILARLY GROUND NO.6 IN THE APPEAL OF REVENUE RELATES TO REDUCTION OF 90% OF NET LEASE RENT FOR COMPUTING PR OFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THE AO WHILE DETERMINING PROFITS OF THE BUSINESS FOR THE P URPOSE OF DEDUCTION U/S 80HHC OF THE ACT REDUCED 90% OF THE G ROSS LEASE RENT OF RS.3 11 18 382/- INSTEAD OF NET LEASE RENT OF RS .1 80 43 101/- ON THE GROUND THAT THE ASSESSEE ITSELF CLAIMED THAT L EASE EQUALISATION CHARGES WERE NOT ALLOWABLE BY WAY OF EXPENDITURE. 47. LIKEWISE GROUND NO.7 IN THE APPEAL OF THE R EVENUE RELATES TO TREATING THE ENTIRE PART OF THE OPERATIONAL CHARGES RECOVERED AS THE BUSINESS INCOME AND CONSEQUENTLY NO AMOUNT WAS REDU CED WHILE DETERMINING THE PROFITS OF THE BUSINESS FOR THE PUR POSE OF DEDUCTION U/S 80HHC OF THE ACT . THE AO WHILE DETERMINING PR OFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT REDUCED 90% OF THE GROSS OPERATIONAL CHARGES AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE ENTIRE AMOUNT WAS BUSINESS INCOME AND THEREFORE NOTHING WAS DEDUCTIBLE. 48. ON APPEAL THE LEARNED CIT(A) WHILE FOLLOWING H IS OWN DECISION DATED 10.10.2000 FOR THE AY 1997-98 DIRECTED THE AO TO CONSIDER THE NET INTEREST INCOME AND NET LEASE INCOME FOR REDUCING 90% OF THE SAME TO ARRIVE AT PROFITS OF THE BUSINESS FOR COMPUTING DEDUCTION UND ER SECTION 80HHC OF THE ACT. AS REGARDS OPERATIONAL CHARGES THE LD. CIT(A) CON CLUDED THAT ENTIRE AMOUNT WAS BUSINESS INCOME AND THEREFORE NOTHING WAS DEDUCTIB LE. 49. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR WHILE RELYIN G UPON THEIR ITA NOS.363& 692/AHD/02 37 SUBMISSIONS BEFORE THE LD. CIT(A) AS ALSO DECISION IN SHRI RAM HONDA POWER EQUIPMENT 289 ITR 485(DEL.) SUPPORTED THE FINDINGS OF THE LD. CIT(A).ON THE OTHER HAND THE LD. DR SUP PORTED THE ORDER OF THE AO.. 50. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THOUGH INITIALLY THE LD. C IT(A) IN HIS ORDER DATED 12.6.2000 FOR THE AY 1997-98 DIRECTED THE AO TO VERIFY THE EXPENSES DIRECTLY INCURRED FOR EARNING THE INTEREST INCOME LEASE INCOME AND OPERATIONAL CHARGES AND THEREAFTER EXCL UDE 90% OF NET INCOME WHILE DETERMINING PROFITS OF THE BUSINESS FO R THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT IN HIS ORDER DATED 10.10.2000 U/S154 OF THE ACT THE LD. CIT(A) DIRECTED TO EXCLU DE ONLY 90% OF THE NET INTEREST INCOME AND LEASE INCOME FROM THE PROFI TS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. AS REGARDS OPERATIONAL CHARGES THE LD. CIT(A) HELD TH AT THE ENTIRE BEING BUSINESS INCOME NOTHING WAS DEDUCTIBLE. ON FURTHER APPEAL BY THE REVENUE THE ITAT VIDE THEIR ORDER DATED 18.8.2005 FOR THE AY 1997- 98 RESTORED THE MATTER RELATING TO INTEREST AND LEA SE RENTAL INCOME TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE I SSUE IN THE LIGHT OF DECISION OF THE SPECIAL BENCH IN THE CASE OF LALSON S ENTERPRISES VS.DCIT 89 ITD 25. NEITHER THE LD. DR NOR THE LD. AR ON BEHALF OF THE ASSESSEE PLACED BEFORE US THE OUTCOME OF THE S AID DIRECTIONS OF THE ITAT. 50.1. AS IS APPARENT FROM THE IMPUGNED ORDER OF THE LD. CIT(A) THERE IS NOTHING TO SUGGEST THAT THE SAID RECEIPTS ON ACC OUNT OF INTEREST LEASE RENTAL INCOME OR OPERATIONAL CHARGES HAVE ANY NEXUS OR RELATION WITH THE EXPORTS MADE BY THE ASSESSEE . THE LD. CIT(A) DID NOT RECORD HIS SPE CIFIC FINDINGS ON THE NATURE OF THESE RECEIPTS OR THEIR RELATION WITH THE EXPORTS BUSINE SS OF THE ASSESSEE . WE FIND THAT IN THEIR DECISION ON THE INTERPRETATION OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT HONBLE SUPREME COURT IN THE CASE OF CIT V. K. RAVI NDRANATHAN NAIR 295 ITR 228(SC) HELD THAT THE FORMULA IN SECTION 80HHC(3) PROVIDED FOR A FRACTION OF EXPORT ITA NOS.363& 692/AHD/02 38 TURNOVER DIVIDED BY THE TOTAL TURNOVER TO BE APPLIE D TO BUSINESS PROFITS CALCULATED AFTER DEDUCTING 90 PER CENT OF THE SUMS MENTIONED IN CLAU SE (BAA) OF THE EXPLANATION. PROFIT INCENTIVES LIKE RENT COMMISSION BROKERAGE CHARGES ETC. THOUGH THESE FORMED PART OF THE GROSS TOTAL INCOME HAD TO BE EXCLUDED AS TH ESE WERE INDEPENDENT INCOMES WHICH HAD NO ELEMENT OF EXPORT TURNOVER. ALL THE F OUR VARIABLES IN THE SECTION ARE REQUIRED TO BE KEPT IN MIND. IF ALL THE FOUR VARIAB LES ARE KEPT IN MIND IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME W OULD NOT NECESSARILY INCLUDE THE ELEMENT OF EXPORT TURNOVER. CLAUSE (BAA) OF THE E XPLANATION STATES THAT 90 PER CENT. OF THE INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROK ERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDE D IN BUSINESS PROFITS HAVE TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 TO 44D. IN OTHER WORDS RECEIPTS CONSTITUTING INDEPENDENT INCOME HAV ING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE DEDUCTED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). HONBLE SUPREME COURT FURTHER OBSERVED THAT A BARE READING OF CLAUS E (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHA RGES ETC. FORMED PART OF THE GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSE OF WORKING OUT OF FORMULA AND IN ORDER TO AVOID DISTORTION IN ARRIVIN G AT THE EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOMES CONSTITUTED PART OF THE GROSS TOTAL INCOME THESE HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD N O NEXUS WITH THE EXPORT TURNOVER. HONBLE APEX COURT FURTHER HELD THAT PROCESSING CH ARGES WHICH ARE PART OF GROSS TOTAL INCOME FORM AN ITEM OF INDEPENDENT INC OME LIKE RENT COMMISSION BROKERAGE ETC. AND THEREFORE 90 PERCENT OF THE PROCESSING CHARGES HAVE ALSO TO BE REDUCED FROM THE GROSS TOTAL INCOME TO ARRIVE AT TH E BUSINESS PROFITS AND THEREFORE IT HAS ALSO TO BE INCLUDED IN THE TOTAL TURNOVER IN TH E FORMULA FOR ARRIVING AT THE BUSINESS PROFITS IN TERMS OF THE CLAUSE (BAA) OF THE EXPLANA TION TO SECTION 80HHC(3). IT WAS FURTHER HELD BY THE HONBLE SUPREME COURT THAT IN THE ABOVE FORMULA THERE EXISTED FOUR VARIABLES NAMELY BUSINESS PROFITS EXPORT TURNOVER TOTAL TURNOVER AND 90 PER CENT. OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANATION . IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ALL FO UR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VARIABLES WERE R EQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTION OF SECTION 80HHC(3) SEC URES PROFITS DERIVED FROM THE EXPORTS OF ELIGIBLE GOODS. THEREFO RE IF ALL THE FOUR ITA NOS.363& 692/AHD/02 39 VARIABLES ARE KEPT IN MIND IT BECOMES CLEAR THAT E VERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NECESSARILY INCLU DE ELEMENT OF EXPORT TURNOVER. THIS ASPECT NEEDS TO BE KEPT IN MI ND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 90 PER CENT. OF INCENTIVE PROFITS OR RE CEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR A NY OTHER RECEIPT OF LIKE NATURE INCLUDED IN BUSINESS PROFITS HAD TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 T O 44D OF THE INCOME-TAX ACT. IN OTHER WORDS RECEIPTS CONSTITUTI NG INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED T O BE REDUCED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE RE ADING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAG E COMMISSION INTEREST RENT CHARGES ETC. FORMED PART OF GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSES OF WORKING O UT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVING AT THE EXP ORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND 'INDEPENDENT INCOMES' CONSTITUTED PART OF GROSS TOT AL INCOME THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE I N THE ABOVE FORMULA WE HAVE TO READ ALL THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY N OT CONSTITUTE SALE PROCEEDS FROM EXPORTS. THAT EVERY RECEIPT IS NOT I NCOME UNDER THE INCOME-TAX ACT AND EVERY INCOME MAY NOT BE ATTRIBUT ABLE TO EXPORTS. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT IND IRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FO R AND ON BEHALF OF THE GOVERNMENT SHALL NOT BE INCLUDED IN THE TOT AL TURNOVER IN THE ABOVE FORMULA. BEFORE CONCLUDING WE STATE THAT THE NATURE OF EVER Y RECEIPT NEEDS TO BE ASCERTAINED IN ORDER TO FIND OUT WHETHER THE SAI D RECEIPT FORMS PART OF/OR THAT IT HAS AN ATTRIBUTE OF AN EXPORT TU RNOVER. WHEN AN INDIRECT TAX IS COLLECTED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT THE TAX RECOVERED IS FOR THE GOVERNMENT. IT MAY BE AN INCOME IN THE CONCEPTUAL SENSE OR EVEN UNDER THE INCOME-TAX ACT B UT WHILE WORKING OUT THE FORMULA UNDER SECTION 80HHC(3) OF T HE INCOME-TAX ACT AND WHILE APPLYING THE FOUR VARIABLES ONE HAS T O ASCERTAIN WHETHER THE RECEIPT HAS AN ATTRIBUTE OF EXPORT TURN OVER . 50.2 HONBLE GUJARAT HIGH COURT IN THE CASE OF A LEMBIC CHEMICAL WORKS LTD. VS. DCIT [ 266 ITR 47](GUJ) IN THE CONTEXT OF EXPLANATION (BAA) HAVE HELD THAT (D) WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDI NG THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 8 0HHC 90 PER CENT. OF THE INCOME RELATABLE TO RENT COMPUTER CHA RGES SERVICE CHARGES MISCELLANEOUS INCOME AND INSURANCE CLAIM W AS REQUIRED TO ITA NOS.363& 692/AHD/02 40 BE DEDUCTED FROM THE PROFITS UNDER EXPLANATION (BAA ) TO SECTION 8OHHC(4A) IGNORING USE OF THE WORD OR BETWEEN RE FERENCE TO CLAUSES (IIIA) (IIIB) AND (IIIC) OF SECTION 28 IN CLAUSE (1) OF THE SAID EXPLANATION AND OTHER ITEMS ABOVE REFERRED TO AND FURTHER ERRED IN READING THE WORD OR AS AND ? IV. DEDUCTION UNDER SECTION 80HHC OF THE ACT ON A PLAIN READING OF THE PROVISION AS IT STANDS IT IS APPARENT THAT WHAT THE PROVISION STIPULATES IS THAT PROFITS OF T HE BUSINESS FOR THE PURPOSE OF SECTION 80HHC OF THE ACT MEAN THE PROFIT S OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION. WHILE COMPUTING SUCH PROFITS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IF ANY SUM REF ERRED TO IN CLAUSE (IIIA) (IIIB) OR (IIIC) OF SECTION 28 OF THE ACT H AS BEEN INCLUDED IN SUCH PROFITS THE SAME HAS TO BE REDUCED BY 90 PER CENT. FROM THE PROFITS COMPUTED AS AFORESAID. SIMILARLY IF ANY RECEIPT BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER R ECEIPT OF A SIMILAR NATURE IS INCLUDED IN SUCH PROFITS I.E. PROFITS OF THE BUSINESS SUCH PROFITS HAVE TO BE REDUCED BY THE SAID FIGURE I.E. BY 90 PER CENT. WHILE COMPUTING (PROFITS OF THE BUSINESS) FOR THE P URPOSE OF SECTION 8OHHC OF THE ACT. THEREFORE ONCE THE SUMS OR THE R ECEIPTS OF THE NATURE SPECIFIED IN SUB- CLAUSE (1) OF CLAUSE (BAA) OF THE EXPLANATION ARE INCLUDED WHILE COMPUTING THE PROFITS AND GAINS OF BUSINESS THEN SUCH SUMS OR RECEIPTS ARE TO BE REDUCED TO THE EXTE NT OF 90 PER CENT. FROM THE PROFITS OF THE BUSINESS. ONCE THE LANGUAGE EMPLOYED BY THE PROVISION IS CLEAR IT IS NOT NECESSARY FOR THE COUR T TO READ ANYTHING INTO THE SAID LANGUAGE NOR GO BEHIND THE LANGUAGE E MPLOYED BY THE LEGISLATURE SO AS TO ASCERTAIN THE INTENTION OF THE LEGISLATURE. THIS WOULD BECOME NECESSARY ONLY WHEN THE LANGUAGE EMPLO YED BY THE STATUTE IS AMBIGUOUS IN ANY MANNER. IN THE PRESENT CASE THAT CANNOT BE TERMED TO BE THE SITUATION. THEREFORE THE GROUN D RAISED ON BEHALF OF THE APPELLANT AS REGARDS THE INTERPRETATION TO B E PLACED ON CLAUSE (BAA) OF THE EXPLANATION TO SECTION 8OHHC OF THE AC T DOES NOT MERIT ACCEPTANCE AND FAILS. 50.3 IN VIEW OF THE AFORESAID JUDGMENT OF THE APE X COURT IN THE CASE OF K. RAVINDRANATHAN NAIR(SUPRA) IT IS EVIDENT THAT ANY INDEPENDENT INCOME WHICH IS NOT DERIVED FROM THE EXPORT ACTIVITIES IN TERMS OF SECTION 80HHC(2) OF THE ACT BUT IS OTHERWISE ASSESSED AS BUSINESS INCOME 90% OF SUCH RECEIPTS HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS IN TERMS O F EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT. ITA NOS.363& 692/AHD/02 41 50.4 MOREOVER HONBLE PUNJAB AND HARYANA HIGH C OURT IN THE CASE OF LIBERTY FOOTWEAR COMPANY VS. CIT 283 ITR 398 HELD THAT 90 PER CENT OF RECEIPTS FROM RENT AND HIRE CHARGES BE EXCLUDED FROM THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. 50.5 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS S.G.JHAVERI CONSULTANCY LTD. 245 ITR 854 HELD THAT LABOUR CHARGES AND SERV ICE CHARGES CAN NOT BE INCLUDED IN THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT AS THESE ITEMS DO NOT HAVE ANY LINKAGE WITH TH E EXPORT ACTIVITIES. IN CIT VS. DEODHAR ELECTRO DESIGN (P) LTD. 300 ITR 103(BOM.) HONBLE HIGH COURT HELD THAT RECEIPTS BY WAY OF DEVELOPMENT & SERVICE CHARGES WO ULD NOT BE ENTITLED TO THE BENEFIT U/S 80HHC(3) OF THE ACT AND IT HAD TO BE CO MPUTED BASED ON 90% OF THEIR EXCLUSION. 50.6 IN PARRY AGRO INDUSTRIES VS. JCIT(ASSESSM ENT) 292 ITR 542 (KERALA) HONBLE HIGH COURT HELD THAT DUTY DRAWBACK SERVI CE CHARGES RECEIPTS ETC. ARE MISCELLANEOUS INCOME AND THESE HAVE NO NEXUS WITH T HE ASSESSEE'S BUSINESS OF EXPORT AND THEREFORE SUCH RECEIPTS SHOULD NOT BE INCLUDED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT . 50.7 SIMILARLY IN KRM MARINE EXPORTS LTD. VS. AC IT 288 ITR 151(MAD) HONBLE HIGH COURT HELD THAT THAT THE SERVICE CHARGES OR T HE INCENTIVE RECEIVED AT 3.5 PER CENT. OF THE INVOICE VALUE BY THE ASSESSEE CANNOT B E CONSIDERED AS EXPORT TURNOVER AS IT HAS NOT BEEN RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AS REQUIRED IN THE SECTION. HENCE THAT PART OF THE SUM IS NOT E LIGIBLE FOR THE BENEFIT GRANTED UNDER SECTION 80HHC AND REDUCTION BY 90 PER CENT. A S PROVIDED UNDER CLAUSE (BAA) IS CORRECT. 50.8 AS REGARDS INTEREST ON DEPOSITS KEPT WI TH THE BANK BY WAY OF MARGIN MONEY FROM A BARE PERUSAL OF PROVISIONS OF SEC. 80HHC OF THE ACT IT IS APPARENT THAT THE INCOME WHICH IS UNDERSTOOD TO BE COMPUTED UNDER THIS PROVISION MUST HAVE BEEN DERIVED BY THE ASSESSEE FR OM THE EXPORT OF SUCH GOODS OR MERCHANDISE. THERE IS NOTHINGTO SUGGEST THAT THE INTEREST INCOME WAS DERIVED ITA NOS.363& 692/AHD/02 42 BY EXPORT OF GOODS OR MERCHANDISE. A DIVISION BENCH OF THE HONBLE KERALA HIGH COURT IN NANJI TOPANBHAI AND CO. V. ASST. CIT [2000 ] 243 ITR 192 WAS CONSIDERING THE QUESTION AS TO WHETHER THE INTEREST EARNED ON FIXED DEPOSIT WAS INCOME ARISING OUT OF EXPORT OR INCOME FROM OTHER S OURCES. THE HONBLE HIGH COURT HELD (HEADNOTE): 'UNDER SECTION 80HHC OF THE INCOME-TAX ACT 1961 T HE ASSESSEE WHO IS ENGAGED IN EXPORT BUSINESS IS ALLOWED IN COMPUTING THE TOTAL INCOME A DEDUCTION OUT OF THE INCOME DERIVED FROM THE EXPORT OF SUCH GOODS. UNLESS THE ASSESSEE IS ABLE TO SHOW THAT THE INCOME RECEIVED B Y WAY OF INTEREST FROM THE FIXED DEPOSIT IS DERIVED FROM THE EXPORT BUSINESS IT WILL NOT BE ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80HHC IN RESPECT OF IT'. 50.81 IN ANOTHER JUDGMENT REPORTED IN CIT V. COCH IN REFINERIES LTD. [1985] 154 ITR 345 HONBLE KERALA HIGH COURT HELD: 'PROFITS AND GAINS ARE WELL UNDERSTOOD TO MEAN ONLY THE BUSINESS INCOME AND NOT ANY OTHER INCOME. SO LONG AS THE COMPANY HAS NO BUS INESS OF LENDING MONEY AND SO LONG AS THE ADMITTED CASE OF THE COMPANY IS THAT THE INCOME DERIVED IS ONLY ON ACCOUNT OF THE PECULIAR SITUATION ARISING F ROM THE TIME SCHEDULE FOR REPAYMENT OF THE LOANS IT CANNOT BE STATED THAT TH E INCOME YIELDED BY THE DEPOSITS OR INVESTMENTS WAS RECEIVED IN THE COURSE OF THE COMPANY'S BUSINESS SO AS TO BE TREATED AS A BUSINESS PROFIT' 50.82 WE FIND THAT IN URBAN STANISLAUS CO. [ 2003] 263 ITR 10 (KER) WHERE THE ASSESSEE HAD CONTENDED THAT AS A CONDITION FOR OBTAINING A LOAN FROM THE BANK 29 PER CENT. OF THE SALE RECEIPTS HAD TO BE D EPOSITED BY WAY OF SECURITY;IT WAS CLAIMED THAT THE INTEREST EARNED ON SUCH DEPOSI T WAS BUSINESS INCOME FOR THE PURPOSE OF SECTION 80HHC. THIS WAS NEGATIVED BY THE HONBLE KERALA HIGH COURT BY OBSERVING THAT: 'THE ASSESSEE CAN CLAIM DEDUCTION IN RESPECT OF THE PROFITS DERIVED FROM THE EXPORT OF GOODS ONLY WHEN IT IS ESTABLISHED THAT TH E INCOME IS SOLELY RELATED TO THE EXPORT. THE OBVIOUS INTENTION BEHIND THE PROVISION IN SECTION 80HHC IS TO PROMOTE EXPORTS. HOWEVER THE INCOME EARNED BY WAY OF INTEREST FROM FIXED DEPOSIT IS NOT AN INCOME FROM EXPORTS. THUS IT WAS RIGHTLY TAKEN INTO ACCOUNT AS INCOME FROM OTHER SOURCES'. 50.83 THIS DECISION HAS BEEN AFFIRMED BY THE HON' BLE SUPREME COURT BY THE DISMISSAL OF THE SPECIAL LEAVE PETITION. IN K. RAVI NDRANATHAN NAIR [2003] 262 ITR 669 (KER) IN DEALING WITH A SIMILAR ISSUE THE HONBL E KERALA HIGH COURT HELD: ITA NOS.363& 692/AHD/02 43 'THE INTEREST FROM SHORT-TERM DEPOSITS RECEIVED BY THE APPELLANT IS NOT THE DIRECT RESULT OF ANY EXPORT OF ANY GOODS OR MERCHANDISE. T HE FIXED DEPOSIT WAS MADE ONLY FOR THE PURPOSE OF OPENING LETTERS OF CREDIT A ND FOR GETTING OTHER BENEFITS WHICH ARE NECESSARY REQUIREMENTS TO ENABLE THE APPE LLANT TO MAKE THE EXPORT. FROM THE ABOVE IT IS CLEAR THAT THE INTEREST INCOME RECEIVED ON THE SHORT-TERM DEPOSITS THOUGH IT CAN BE ATTRIBUTED TO THE EXPORT BUSINESS CANNOT BE TREATED AS INCOME WHICH IS DERIVED FROM THE EXPORT BUSINESS. I N THE ABOVE CIRCUMSTANCES EVEN ASSUMING THAT THE BANK HAS INSISTED FOR MAKING SHORTTERM DEPOSITS FOR OPENING LETTERS OF CREDIT AND FOR OTHER FACILITIES IT CANNOT BE SAID THAT THE INCOME IS DERIVED FROM THE EXPORT BUSINESS.' 50.84 THE ABOVE DECISION IN K. RAVINDRANATHAN NAIR [2003] 262 ITR 669 (KER) HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT BY T HE DISMISSAL OF THE SPECIAL LEAVE PETITION. TO THE SAME EFFECT IS THE JUDGMENT OF THE SAME HIGH COURT IN SOUTHERN CASHEW EXPORTERS V. DEPUTY CIT [2003] 130 TAXMAN 203 (KER) WHICH HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT ON A CCOUNT OF THE DISMISSAL OF THE SPECIAL LEAVE PETITION. THE RESULTANT POSITION IS THAT ON THREE OCCASIONS THE HON'BLE SUPREME COURT HAS AFFIRMED THE JUDGMENTS OF THE KERALA HIGH COURT THAT HAS CONSISTENTLY HELD THAT INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING OF CREDIT FACILITIES FROM THE BANK DOES N OT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARI LY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. IN CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC) THE HON'BLE SUPREME COURT REITERATED THE NEXUS THEORY A ND DECLINED TO TREAT SUCH INTEREST EARNED AS BUSINESS INCOME. AN ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF EXPORTS AND INVESTS THE SURPLUS FUNDS I N FIXED DEPOSITS WILL NOT BE ABLE TO TREAT THE INTEREST EARNED THEREON AS BUSINE SS INCOME SINCE IT DOES NOT BEAR ANY DIRECT NEXUS WITH THE EXPORT BUSINESS OF T HE ASSESSEE. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GA SKETS & RADIATORS DISTRIBUTORS 296 ITR 440(GUJ) RELYING INTER ALIA ON THE DECISION OF THE HONBLE SUPREME COURT IN PANDIAN CHEMICALS LTD . V. CIT [2003] 262 ITR 278 HELD THAT RECEIPTS ON ACCOUNT OF INTEREST ON DEPO SITS IS NOT REQUIRED TO BE CONSIDERED FOR DEDUCTION U/S 80HHC O F THE ACT. HONBLE HIGH COURT HELD IN FOLLOWING TERMS: IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE HON'BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 AND THE QUESTION WHICH WAS ITA NOS.363& 692/AHD/02 44 POSED FOR CONSIDERATION BEFORE THE APEX COURT WAS W HETHER THE INTEREST ON DEPOSITS WITH THE TAMIL NADU ELECTRICITY BOARD SHOU LD BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPO SE OF SECTION 80HH OR NOT AND THE HON'BLE SUPREME COURT HAS OBSERVED THAT SECTION 80HH OF THE INCOME-TAX ACT GRANTS DEDUCTION IN RESPECT OF PROFITS AND GAIN S 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING AND THE WORDS 'DERIVED FROM' IN SECTION 80HH OF THE INCOME-TAX ACT 1961 MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A D IRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE'S INDUSTRIAL UNDERTAKING. THE SUP REME COURT HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE ON DEPOSITS MADE WITH THE TAMIL NADU ELECTRICITY BOARD FOR THE SUPPLY OF ELEC TRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTA KING FOR THE PURPOSE OF THE SAID DEDUCTION UNDER SECTION 80HH. IN G.T.N. TEXTIL ES LTD. V. DY. CIT [2005] 279 ITR 72 THE KERALA HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS NOT PROFIT DERIVED FROM EXPORT OF GOODS. THE KERALA HIGH COURT HAS FURTHER HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS COMMISSION RECEIVED ON SALE OF MACHINERY ETC. WERE NOT BUSINESS INCOME AND CO NSEQUENTLY THE ASSESSEE WAS NOT ENTITLED TO COMPUTATION OF ELIGIBLE DEDUCTI ON UNDER SECTION 80HHC OF THE ACT BY INCLUDING THOSE RECEIPTS UNDER BUSINESS INCO ME. THEREFORE CONSIDERING THE AFORESAID TWO DECISIONS WE MUST HOLD THAT THE TRIBUNAL AS WELL AS THE COMMISSIONER OF INCOME-TAX (APPEALS) BOTH COMMITTE D AN ERROR IN TREATING THE INTEREST ON DEPOSITS AS 'BUSINESS INCOME' AND GRANT ING THE ASSESSEE THE DEDUCTION UNDER SECTION 80HHC OF THE ACT . 50.85 IN CIT VS. RAKESH RAKHEJA 166 TAXMAN 50 (DELHI) HONBLE HIGH COURT HELD THAT THE INCOME EARNED BY THE ASSESSEE F ROM FDRS IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE SAID INC OME IS THEREFORE OUTSIDE THE PURVIEW OF SECTION 80HHC OF THE ACT AND 100 PER CEN T OF THE INTEREST IS REQUIRED TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION ( BAA ) TO SECTION 80HHC OF THE ACT. 50.86 IN CIT VS. KRAFT LAND INDIA 162 TAXMAN 123 (DEL) HONBLE DELHI HIGH COURT HELD THAT INTEREST RECEIVED ON FDRS PLEDGED FOR SHI PPING LOAN/DEPOSITORY LOAN WAS NOT BUSINESS INCOME AND THEREFORE INTEREST PAID BY THE ASSESSEE COULD NOT BE REDUCED FROM THE INTEREST RECEIVED WHILE CALCULATIN G DEDUCTION U/S 80HHC READ WITH EXPLANATION (BAA) THERETO. 50.87 IN CIT VS. MALWA COTTON SPINNING MILLS LTD. 166 TAXMAN 457(PB. & HARYANA) HONBLE HIGH COURT HELD THAT 6. CLAUSE (BAA) AS REFERRED TO ABOVE TALKS OF PR OCEDURES AS TO HOW PROFITS OF BUSINESS ARE TO BE COMPUTED. IT PROVIDES THAT IN CA SE INCOMES OF THE KIND ITA NOS.363& 692/AHD/02 45 INCLUDING INTEREST ARE INCLUDED IN THE PROFITS OF B USINESS 90 PER CENT THEREOF SHALL BE REDUCED THEREFROM. IT DOES NOT MAKE ANY DISTINCT ION BETWEEN THE INTEREST EARNED FROM SOURCE 'A' OR SOURCE 'B'. INTEREST FROM WHEREVER IT IS EARNED RETAINS THE CHARACTER OF INTEREST. BE IT AN INTEREST FROM T HE CUSTOMER ON DELAYED PAYMENT OF DUES. 50.9 RECENTLY HONBLE BOMBAY HIGH COURT IN THEIR DECISION DATED 8.4.2010 IN ITA NO. 2186 OF 2009 IN THE CASE OF M/S DRESSER RAN D INDIA PVT. LTD. WHILE FOLLOWING THE AFORESAID DECISION OF HONBLE APEX CO URT IN THE CASE OF K. RAVINDRANATHAN NAIR(SUPRA) AND DISTINGUISHING THE D ECISION IN BANGALORE CLOTHING(SUPRA) CONCLUDED THAT RECOVERY OF FREIGHT INSURANCE AND PACKING RECEIPTS SALES TAX REFUND AND SERVICE INCOME BEIN G INDEPENDENT INCOMES 90% OF THESE RECEIPTS HAVE TO BE REDUCED FROM THE BUSIN ESS PROFITS IN TERMS OF EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT. 50.10. AS REGARDS NETTING OFF IN A RECENT DECISION DATED 18/19/3/2010 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AS IAN STAR CO. LTD. IN ITA NO. 200 OF 2009 OBSERVED THAT EXPLANATION (BAA) TO S. 80HHC REQUIRES THAT NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE COMMISSIO N INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE HAVE TO BE RE DUCED FROM THE PROFITS. THE REASON WHY ITEMS LIKE BROKERAGE ETC HAVE TO BE EXCL UDED IS BECAUSE THEY DO NOT POSSESS ANY NEXUS WITH EXPORT TURNOVER AND THEIR IN CLUSION IN PROFITS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROFITS. HO WEVER AS SOME EXPENDITURE MIGHT HAVE BEEN INCURRED IN EARNING THESE INCOMES AN ADH OC DEDUCTION OF TEN PER CENT FROM SUCH INCOME IS ALLOWED. IT WAS FURTHER OBSERVE D BY THE HONBLE HIGH COURT THAT ONCE PARLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NATURE OF THE EXCLUSION AND THE EXTENT OF THE EXCLUSION IT WOULD NOT BE OP EN TO THE COURT TO ORDER OTHERWISE BY REWRITING THE LEGISLATIVE PROVISION. T HE TASK OF INTERPRETATION IS TO FIND OUT THE TRUE INTENT OF A LEGISLATIVE PROVISION AND IT IS CLEARLY NOT OPEN TO THE COURT TO LEGISLATE BY SUBSTITUTING A FORMULA OR PROVISION OTHER THAN WHAT HAS BEEN LEGISLATED BY PARLIAMENT. IT IS NOT OPEN TO SAY THA T SOMETHING MORE THAN THE 10% STATUTORILY PROVIDED SHOULD ALSO BE ALLOWED. HONBL E HIGH COURT FURTHER HELD THAT IN SHRI RAM HONDA POWER EQUIP 289 ITR 475 THE HONBLE DELHI HIGH COURT HAS NOT ADEQUATELY EMPHASIZED THE ENTIRE RATIONALE FOR CONFINING THE DEDUCTION ONLY TO THE EXTENT OF NINETY PER CENT OF THE EXCLUDIBLE REC EIPTS AND IT CANNOT BE FOLLOWED. ITA NOS.363& 692/AHD/02 46 AS REGARDS THE JUDGMENT OF THE SPECIAL BENCH IN LALSONS ENTERPRISES RELIED ON BY THE ITAT IN THE AY 1997-98 HONBLE HIGH COURT HELD THAT WE ARE AFFIRMATIVELY OF THE VIEW THAT IN ITS DISCU SSION ON THE ISSUE OF NETTING THE TRIBUNAL IN ITS SPECIAL BENCH DECISION IN LALSONS H AS TRANSGRESSED THE LIMITATIONS ON THE EXERCISE OF JUDICIAL POWER. THE TRIBUNAL HAS IN EFFECT LEGISLATED BY PROVIDING A DEDUCTION ON THE GROUND OF EXPENSES OTH ER THAN IN THE TERMS WHICH HAVE BEEN ALLOWED BY PARLIAMENT. THAT IS IMPERMISS IBLE. IN THE PRESENT CASE IT IS NECESSARY TO EMPHASIZE THAT THE QUESTION BEFORE THE COURT RELATES TO THE DEDUCTION UNDER SECTION 80HHC. AN ASSESSEE MAY WELL BE ENTITLED TO A DEDUCTION IN RESPECT OF THE EXPENDITURE LAID OUT WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IN THE COMPUTATION OF THE PROFI TS AND GAINS OF BUSINESS OR PROFESSION. HOWEVER FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC THE PROVISIONS WHICH HAVE BEEN ENACTED BY PA RLIAMENT WOULD HAVE TO BE COMPLIED. A DEDUCTION IN EXCESS OF WHAT IS MANDATED BY PARLIAMENT CANNOT BE ALLOWED ON THE THEORY THAT IT IS AN INCENTIVE PROVI SION INTENDED TO ENCOURAGE EXPORT. THE EXTENT OF THE DEDUCTION AND THE CONDITI ONS SUBJECT TO WHICH THE DEDUCTION SHOULD BE GRANTED ARE MATTERS FOR PARLIA MENT TO LEGISLATE UPON. PARLIAMENT HAVING LEGISLATED IT WOULD NOT BE OPEN TO THE COURT TO DEVIATE FROM THE PROVISIONS WHICH HAVE BEEN ENACTED IN SECTION 80HHC . 51.. AS ALREADY MENTIONED ABOVE SINCE THE LD. CIT(A) DID NOT RECORD HIS SPECIFIC FINDINGS AS TO HOW THE AFORESAID RECEIPTS HAVE ANY NEXUS OR RELATION WITH THE EXPORT BUSINESS OF THE ASSESSEE AND WERE NOT INDEPENDENT INCOMES NOR DID THE LD. CIT(A) HAD THE BENEFIT OF AFORESAID DECISIO NS INCLUDING THAT OF THE HONBLE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR(SU PRA) OR OF HONBLE BOMBAY HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA) & DRESSER RAND INDIA PVT. LTD. (SUPRA) WE ACCORDINGLY VACATE THE FINDINGS OF THE LD. CIT (A) AND RESTORE THE ISSUES RAISED IN GROUND NOS. 5 TO 7 IN THE APPEAL OF THE R EVENUE TO HIS FILE WITH THE DIRECTIONS TO ASCERTAIN AS TO WHETHER OR NOT THE AF ORESAID RECEIPTS ON ACCOUNT OF INTEREST LEASE RENTAL INCOME AND OPERATIONAL CHARG ES WERE INDEPENDENT INCOME OR WERE IN ANY MANNER RELATED TO EXPORT ACTIVITIES OF THE ASSESSEE AND THEREAFTER ADJUDICATE THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE IN THE LIGHT OF VARIOUS JUDICIAL PR ONOUNCEMENTS INCLUDING THOSE REFERRED TO ABOVE. INTER ALIA THE LD. CIT(A) SHALL ASCERTAIN AS TO WHETHER OR NOT THE AMOUNT TRANSFERRED TO LEASE EQUALIZATION FUND WAS EXPENDITURE INCURRED FOR EARNING THE LEASE RENT. WITH THESE DIRECTIONS GRO UND NOS. 5 6 & 7 IN THE APPEAL OF THE REVENUE ARE DISPOSED OF. ITA NOS.363& 692/AHD/02 47 52. GROUND NO.8 IN THE APPEAL OF THE REVENUE RELATE S TO DISALLOWANCE OF BIFURCATION OF TOTAL OVERSEAS PROMO TIONAL EXPENSES IN THE RATIO OF TURNOVER OF TRADING EXPORT AND MANU FACTURING EXPORT FOR COMPUTING EXPORT TRADING PROFITS FOR THE PURPOS E OF DEDUCTION U/S 80HHC OF THE ACT. THE AO NOTICED THAT THE ASSESSEE COMPANY IN ADDITION TO EXPORT OF MANUFACTURED GOODS ALSO UNDE RTOOK EXPORT OF TRADING GOODS. HOWEVER WHILE ALLOCATING DIRECT EXP ENSES TO TRADING EXPORTS IT ARBITRARILY TOOK OVERSEAS EXPORT PROMOTI ON EXPENSES OF RS.3 62 300/- OUT OF TOTAL OVERSEAS EXPORT PROMOTIO N EXPENSES OF RS.64 40 891/-. SINCE THE ASSESSEE DID NOT PROVIDE ANY BASIS THE AO ALLOCATED THE AFORESAID EXPENSES IN THE RATION O F TURNOVER. THE TOTAL EXPORT TURNOVER OF RS.36 15 56 150/- INCLUDE D TRADING EXPORT TURNOVER IS RS.10 12 26 905/- AND ACCORDINGLY THE E XPENSE OF RS.64 40 891/- WAS APPORTIONED . 53. ON APPEAL THE ASSESSEE CONTENDED THAT THE TRAD ING EXPORTS WERE OF BULK DRUGS WHILE THE MANUFACTURING EXPORTS PERTA INED TO VARIOUS FORMULATIONS. SINCE THE NATURE OF THE PRODUCTS EXPORTED WAS TOTAL LY DIFFERENT THE ASSESSEE IDENTIFIED DIRECT EXPORT PROMOTION EXPENSES ATTRIBU TABLE TO TRADING EXPORTS AT RS.3 62.300/- AS DETAILED HEREUNDER: NO. NAME OF THE PARTY NATURE OF EXPENSES AMOUNT (RS .) 1 TAX MAN WAHA TONY HK PRODUCT PROMOTION EXPENSES USD 4 000 1 40 000 2 G DAULATRAM & SONS PRODUCT PROMOTION EXPENSES USD 1 650 62 700 3 G DAULATRAM & SONS PRODUCT PROMOTION EXPENSES USD 500 19 000 4 G DAULATRAM & SONS PRODUCT PROMOTION EXPENSES USD 2 500 95 000 5 G DAULATRAM & SONS PRODUCT PROMOTION EXPENSES USD 1 200 45 600 3 62 300 53.1 WHILE REFERRING TO EXPLANATION (D) TO SECTION 80 HHC (3) OF THE ACT THE ASSESSEE CONTENDED THAT NO OTHER EXPENSES WERE ATT RIBUTING TO THE TRADING ITA NOS.363& 692/AHD/02 48 EXPORTS MADE BY THE ASSESSEE. IN THE LIGHT OF THESE SUBMISSIONS THE LD. CIT(A) CONCLUDED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND HAVE GONE THROUGH THE FACTS OF THE CASE THERE IS N O DENIAL OF THE FACT THAT THE ASSESSEE COMPANY IN ADDITION TO EXPORT OF MANU FACTURING GOODS HAS ALSO UNDERTAKEN EXPORT OF TRADING GOODS. HOWEVER T HE ASSESSING OFFICER DOES NOT APPEAR TO BE CORRECT IN STATING THAT THE A SSESSEE HAS ARBITRARILY ALLOCATED THE DIRECT EXPENSES OF OVERSEAS EXPORT PR OMOTION BETWEEN EXPORT MANUFACTURING ACTIVITY AND EXPORT TRADING AC TIVITY. THE DETAILS MAINTAINED IN THIS REGARD SHOW THAT THE EXPORT PROM OTION EXPENSES ARE DIRECTLY IDENTIFIABLE AND ATTRIBUTABLE TO DIFFERENT PRODUCTS / MARKETS. THE ASSESSEE HAS FURNISHED PRECISE DETAILS OF THE D IRECT EXPENSES ATTRIBUTABLE TO CERTAIN PRODUCTS' TURNOVER INCLUDIN G THAT OF OVERSEAS SALES PROMOTION EXPENSES WHICH ARE IDENTIFIED AND DEDUCTE D. THE AO HAS ALSO NOT CITED ANY REASON FOR ADOPTING A DIFFERENT METHO DOLOGY FOR REAPPORTIONING THE EXPENSES. THEREFORE THE OBSERVA TION OF THE AO THAT ACTUAL BIFURCATION ON THE BASIS OF IDENTIFICATION I S NOT POSSIBLE DOES NOT APPEAR TO BE FACTUALLY CORRECT. THE AO IS THEREFOR E DIRECTED NOT TO MAKE THE SAID ADJUSTMENT TO TRADING EXPORT PROFITS WHILE GIVING EFFECT TO THIS ORDER. ASSESSEES APPEAL ON THIS GROUND SUCCEEDS. 54. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED DR WHILE RE LYING ON THE ORDER OF THE AO SUBMITTED THAT DETAILS FILED BEFORE THE L D. CIT(A) WERE NOT PLACED BEFORE THE AO. ON THE OTHER HAND THE LEARN ED AR ON BEHALF OF THE ASSESSEE POINTED OUT THAT ALL THE DETAILS WE RE SUBMITTED TO THE AO AND EVEN THEN HE ALLOCATED THE EXPENSES ARBITRA RILY. 55 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) CONCLUDED O N THE BASIS OF RELEVANT DETAILS THAT THE EXPORT PROMOTION EXPENSES WERE DIRECTLY IDENTIFIABLE AND ATTRIBUTABLE TO DIFFERENT PRODUCTS AND THEREFORE REJECTED THE OBSERVATION OF THE AO THAT ACTUAL BIFURCATION ON TH E BASIS OF IDENTIFICATION WAS NOT POSSIBLE. THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LD. CIT (A) IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT ONLY AN AMOUNT OF RS. 3 62 300/- OUT OF EXPORT PROMOTION EXPENSES WAS ATTRIBUTABLE TO TRADING EXPORTS. IN TH E ABSENCE OF ANY BASIS FOR TAKING A DIFFERENT VIEW IN THE MATTER WE ARE NOT I NCLINED TO INTERFERE. THEREFORE GROUND NO.8 IN THE APPEAL OF THE REVENUE IS DISMISS ED. ITA NOS.363& 692/AHD/02 49 56. GROUND NOS. 9 & 10 IN THE APPEAL OF THE REVENU E BEING MERE PRAYER DO NOT REQUIRE ANY SEPARATE ADJUDICATION WH ILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GRO UND NO.9 IN THE APPEAL OF THE ASSESSEE ALL THESE GROUNDS ARE DISMI SSED. 57. IN THE RESULT BOTH THESE APPEALS ARE PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 7 -1-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 7 -1-2011 COPY OF THE ORDER FORWARDED TO: 1. SUN PHARMACEUTICAL INDUSTRIES LTD. SPARC AKHOTA R OAD AKOTA BARODA 2. ASSISTANT/DEPUTY COMMISSIONER OF INCOME-TAX CENTR AL CIRCLE-1 BARODA 3. CIT CONCERNED 4. CIT(A)-IV AHMEDABAD 5. DR ITAT BENCH-D AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD