2013 (3) TMI 246 - HC - Income Tax

Eligibility for deduction u/s 80-HHC(3C) - two separate Divisions of same business - setting off of loss in Unit III against the profit of Unit No.1 - Whether the turn over and profits/losses of the two Units being Unit No.1 and 3 could be clubbed together to determine the average profit/proportionate profits for the purpose of computing the deductions u/s. 80 HHC? - Held that - The words assessee being an Indian company or a person (other than a company) resident of India is used in Section 80HHC. The different units of the same assessee company engaged in manufacturing of different goods viz. Granite slabs and tiles in Unit-I and Marble slabs and tiles in Unit-III does not make separate Units of the same assessee company as separate and different assessable units for the purposes of Section 80-HHC of the Act. Merely because for the purpose of its accounting politices or describing different units for the different goods manufactured and exports by it, the assessee has described the same as Unit, I, II and III in the present case, it does not mean that benefit of Section 80HHC can be given for Unit-I separately on its profit earned by exports while the loss of Unit-III remains unadjusted against such profit of Unit-I. The purpose of giving benefit of deduction under Section 80-HHC is to encourage the exports and profits derived by the assessee as such during the relevant year would form the basis for determining the extent of such deduction. As decided in IPCA Laboratory Ltd. case (2004 (3) TMI 9 - SUPREME COURT) deduction u/s 80HHC (3) (c) can be allowed only if there is a positive profit income in trading goods and if there is a loss in either of the two, then that loss has to be taken into account for the purposes of computing the profits. Deduction u/s 80HHC (3) (c) can be allowed only if there is a positive profit income in trading goods and if there is a loss in either of the two, then that loss has to be taken into account for the purposes of computing the profits - in favour of Revenue.

Summary

Issues Involved:

1. Applicability of the Supreme Court's decision in IPCA Laboratory Ltd. to the present case.
2. Whether the turnover and profits/losses of two separate units can be clubbed together for computing deductions under Section 80HHC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of the Supreme Court's decision in IPCA Laboratory Ltd. to the present case:

The appellant-assessee challenged the order of the Income Tax Appellate Tribunal (ITAT), which followed the Supreme Court's decision in IPCA Laboratory Ltd. v. Deputy Commissioner of Income-Tax, Mumbai. The ITAT held that the deduction under Section 80HHC (3C) can only be allowed if there is a positive profit or income. If there is a loss in one division, it must be adjusted against the profit of another division for computing the deduction under Section 80HHC. The appellant contended that the facts of IPCA Laboratory Ltd. were different as it involved only one unit, whereas the present case involved multiple units. However, the High Court found that the Supreme Court's decision in IPCA Laboratory Ltd. was applicable and binding. The Supreme Court had clarified that the profit for determining the deduction under Section 80HHC must be a positive profit, and losses from one unit must be adjusted against the profits of another unit. The High Court concluded that the ITAT was justified in following the Supreme Court's decision, and the appellant's reliance on the ITAT Delhi Bench decision in Easter Leather Products Pvt. Ltd. was misplaced as it was not good law in light of the Supreme Court's ruling.

2. Whether the turnover and profits/losses of two separate units can be clubbed together for computing deductions under Section 80HHC:

The appellant, a manufacturer of granite and marble slabs and tiles, had three units. For the assessment year 2003-04, the appellant claimed deductions under Section 80HHC for Unit-I while ignoring the loss in Unit-III. The Assessing Authority disallowed this claim, holding that the loss from Unit-III must be adjusted against the profit of Unit-I. The Commissioner of Income Tax (Appeals) initially allowed the appellant's claim, but the ITAT reversed this decision, aligning with the Supreme Court's judgment in IPCA Laboratory Ltd. The High Court upheld the ITAT's decision, stating that different units of the same assessee company cannot be treated as separate assessable units for income tax purposes. The purpose of Section 80HHC is to encourage exports, and the net profit derived by the assessee from all units must be considered. The High Court emphasized that the Supreme Court's ruling clearly indicated that both profits and losses from different units must be taken into account to compute the net positive profit for deduction under Section 80HHC. Therefore, the High Court concluded that the ITAT was correct in clubbing the turnover and profits/losses of Unit-I and Unit-III to determine the deduction under Section 80HHC.

Conclusion:

The High Court dismissed the appellant-assessee's appeal, affirming that the ITAT correctly applied the Supreme Court's decision in IPCA Laboratory Ltd. and was justified in clubbing the profits and losses of different units for computing the deduction under Section 80HHC. The substantial questions of law were answered against the appellant-assessee and in favor of the Revenue.