2018 (8) TMI 986 - HC - Income Tax

Deduction u/s 80HHC / 010A, - supporting manufacturer and the export house - Held that - The Tribunal found that since both the supporting manufacturer and export house had profits in the relevant year, there is no question of application of IPCA Laboratory Ltd. (supra) and the assessee was entitled to the deduction. We agree with the finding on principle. But, the learned Senior Counsel, Government of India (Taxes), however, would contend that nothing is seen from the first appellate authority s order or the Tribunal s order as to whether the export house had profit in the said year. The learned counsel appearing for the respondent-assessee would point out that the profit and loss accounts of both the export house and the assessee were produced before the Tribunal across the bar and only on examination of the same, the claim was allowed. We agree with the learned Senior Counsel that there is nothing in the Tribunal s order to substantiate the findings of the Tribunal, factually, evidencing the profit made by the export house. The respondent-assessee submits that they also have a valid claim under Section 10A of the Act. - It has to be noticed that for the subject year, after the amendment to Section 10A, mere processing does not entitle a claim under Section 10A. But by the proviso added on amendment by substitution, the undertakings which were entitled under the earlier provision would be so entitled even under the new provision for the unexpired period of entitlement as per the earlier provision Matter remanded back.

Summary

Issues:
1. Claim of deduction under Section 80 HHC of the Income Tax Act, 1961 as a supporting manufacturer.
2. Valid claim under Section 10A of the Act.

Analysis:

Issue 1: Claim of deduction under Section 80 HHC
The judgment revolves around the question of whether the respondent-assessee can claim a deduction under Section 80 HHC of the Income Tax Act as a supporting manufacturer. The Assessing Officer disallowed the claim, but the first appellate authority allowed it, citing a previous Supreme Court decision. The Supreme Court case of IPCA Laboratory Ltd. was discussed, emphasizing that the disclaimer of turnover by the supporting manufacturer affects the deduction claim of the exporter. It was clarified that the benefit to the supporting manufacturer is linked to the profit of the export house. The Tribunal found that both the supporting manufacturer and the export house had profits in the relevant year, leading to the allowance of the deduction claim by the assessee. However, the court noted a lack of evidence regarding the profit made by the export house in the Tribunal's order. Consequently, the matter was remanded back to the Tribunal for fresh consideration, directing the assessee to produce relevant documents for verification.

Issue 2: Valid claim under Section 10A
The respondent-assessee also raised a claim under Section 10A of the Act. Reference was made to a Supreme Court decision and a Kerala High Court ruling to determine the eligibility for this claim. It was highlighted that mere processing, such as Individual Quick Freezing (IQF), may not qualify as manufacturing or production for the purpose of Section 10A. The court pointed out that post-amendment, processing alone does not entitle a claim under Section 10A, but undertakings entitled under the earlier provision would continue to be so under the new provision for the remaining period of entitlement. The court directed the Tribunal to examine whether the assessee had claimed and received exemption in previous years before considering this claim.

In conclusion, the judgment delves into the intricacies of deduction claims under Section 80 HHC and Section 10A of the Income Tax Act, emphasizing the need for proper documentation and evidence to support such claims. The decision provides clarity on the interplay between supporting manufacturers, export houses, and the profit criteria for claiming deductions, while also highlighting the specific requirements for eligibility under Section 10A post-amendment.