1998 (6) TMI 114 - AT - Income Tax

Export Business Profit, Deduction, Seperate Industrial Units, Export Incentive, Export House, Direct Exporters

Issues Involved:
1. Adjustment of loss from the engineering division against the profit from the leather garment division for the purpose of deduction under section 80HHC.
2. Non-allowance of deduction under section 80HHC on export incentives received on exports made through a trading house.
3. Presumption of entire direct export sales as trading goods by the Assessing Officer.
4. Computation of deduction under section 80HHC.

Detailed Analysis:

1. Adjustment of Loss from Engineering Division:
The primary issue was whether the loss of Rs. 17,92,200 from the engineering division could be adjusted against the profit of Rs. 94,97,000 from the leather garment division for the purpose of deduction under section 80HHC. The CIT(A) upheld the Assessing Officer's decision, stating that section 80HHC(1) requires computing the total income of the assessee, which includes all profits and losses from the entire business activity. However, the Tribunal noted that the leather and engineering divisions were separate units with distinct operations, staff, and books of accounts. It was held that the deduction under section 80HHC should be allowed on the profit derived from the export business of the leather division without adjusting the loss from the engineering division. The Tribunal relied on the Supreme Court's decisions in CIT v. Canara Workshops (P.) Ltd. and CIT v. Siddaganga Oil Extractions (P.) Ltd., which held that losses from one unit should not be set off against the profits of another unit for the purpose of specific deductions.

2. Non-Allowance of Deduction on Export Incentives:
The second issue was the non-allowance of deduction under section 80HHC on export incentives received from exports made through a trading house. The CIT(A) and the Assessing Officer denied the deduction, arguing that sub-section (3A) of section 80HHC, which pertains to supporting manufacturers, does not include a proviso for export incentives similar to sub-section (3) for direct exporters. The Tribunal, however, observed that the assessee-company exported goods directly to foreign constituents as per the orders of the trading house and received export incentives directly from the government. The Tribunal held that these exports could be considered direct exports for the purpose of section 80HHC, thus entitling the assessee to the deduction on export incentives. The Tribunal also referenced the Finance Minister's Budget Speech and notes on clauses, which indicated that supporting manufacturers should receive the same benefits as direct exporters.

3. Presumption of Entire Direct Export Sales as Trading Goods:
The Assessing Officer presumed that the entire direct export sales of Rs. 1,54,30,851 represented trading goods, affecting the computation of deduction under section 80HHC. The CIT(A) supported this presumption, stating it placed the assessee in an advantageous position. The Tribunal noted that the figures for trading export sales and manufactured goods export sales were not disputed before it. Therefore, it directed the Assessing Officer to adopt the figures as presented by the assessee for computing the deduction under section 80HHC.

4. Computation of Deduction under Section 80HHC:
The Tribunal directed the Assessing Officer to recompute the deduction under section 80HHC based on its findings. This included excluding the loss from the engineering division and allowing the deduction on export incentives received from exports made through the trading house. The Tribunal emphasized that the computation should align with the relevant provisions of section 80HHC and the Tribunal's decision in A-one Cycles Ltd., ensuring due opportunity for the assessee to be heard.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to:
- Compute the deduction under section 80HHC from the profit of the leather division without adjusting the loss from the engineering division.
- Allow the deduction on export incentives received from exports made through the trading house.
- Recompute the deduction under section 80HHC in accordance with the Tribunal's findings and relevant provisions, ensuring the assessee is given an opportunity to present its case.

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