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TMI Blog1998 (6) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The assessee-company claimed deduction under section 80HHC of Rs. 94,97,000 and in support the audit report in Form No. 10CCAC had been filed. The Assessing Officer, however, allowed the claim under section 80HHC to the extent of Rs. 17,54,465 only. The Assessing Officer curtailed the claim made under section 80HHC mainly on the following grounds : (a) The assessee declared profit from export of leather garments at Rs. 94,97,000 and in the engineering division the assessee declared a loss of Rs. 17,92,000. The Assessing Officer adjusted the loss claimed in the engineering division against profits shown in leather garment division from export sales for the purposes of allowing deduction under section 80HHC. (b) The Assessing Officer noted that sub-section (3A) which prescribes computation of profits derived by supporting manufacturers does not have any clause or proviso thereunder to allow deduction for export incentives earned on the sale of goods made through the trading house. He differentiated the provisions of sub-section (3) and sub-section (3A) to the effect that whereas the former through the proviso allow deduction on account of export incentive but latter does not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration. 2.4 The next objection raised by the assessee was against not allowing the benefit of export incentives on the export made through the trading house. According to the assessee-company deduction was allowable in respect of export incentives as per the proviso to sub-section (3) of section 80HHC in respect of the entire exports including the deemed exports. The CIT(Appeals) noted that this objection has been duly dealt within the booklet brought out by the Bombay Chartered Accountants Society wherein they undertook a study of the provisions of section 80HHC published in 1993. The relevant extract from the booklet is contained in para 16.9 reproduced by the CIT(Appeals). The CIT(Appeals) observed that it is clear therefrom that whereas for direct export there is specific provision in sub-section (3) to exempt a part of export incentive, no such provision exists for supporting manufacturer. The objection thus raised in this behalf was also not found valid. 2.5 The assessee also objected to the Assessing Officer's presuming the entire direct export of Rs. 1,54,30,851 to represent the trading goods only as there was no basis for such presumption. It was also claimed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were distinct with different names and situated at different places with different staff and maintaining separate books of account. The assessee-company had claimed deduction under section 80HHC at Rs. 94,97,000 as per the calculation given in Form No. 10 CCAC by the auditors. The Assessing Officer has, however, allowed deduction at only Rs. 17,54,465 and the same has been confirmed by the CIT(Appeals). The claim made has not been fully allowed on account of various reasons as discussed by the lower authorities. The first reason given for inadequate disallowance under section 80HHC is the action of the Assessing Officer for adjusting the loss of Rs. 17,92,200 of the engineering unit against the export profit of the leather garment unit. Such loss could not legally be adjusted against the export profits of the leather garment unit while allowing deduction under section 80HHC in view of the plain reading of section 80HHC and also placing reliance on the ratio of decision in the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320/27 Taxman 262 (SC)and CIT v. Siddaganga Oil Extractions (P) Ltd [1993] 201 ITR 968/67 Taxman 426 (Kar.). The learned counsel has further pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deduction under section 80HHC on such export turnover and it is also not in dispute that the above incentives constituted export business profit under section 28(iiia) i.e. sale of replenishment licence; (iiib) ie. cash assistance and (iiic) ie. duty drawback. (e) Attention has also been invited by the learned counsel to item 99 of the budget speech by the Finance Minister in 1988-89 and notes on clauses given at page 157 thereof where it is clearly mentioned that if an assessee being a supporting manufacturer has sold goods to any export house, he will be allowed deduction on the whole of the income earned on the sale of goods to the export house in respect of which a certificate has been issued under proviso to sub-section (1). Learned counsel has also pointed out that the assessee-company exported the goods as per the orders of the export house directly to foreign constituents and had received the incentive also directly from the Government and the same are duly credited in the bank account of the assessee company; (f) If deduction under section 80HHC in respect of such incentives is not allowed to the assessee-company and which has also not been allowed to the export hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer despite the repeated requests made. Such apparent mistakes need to be rectified. 4.3 The learned counsel has, therefore, pleaded that the lower authorities have not appreciated the f acts as well as provision of section 80HHC while granting deduction under section 80HHC and he further prayed that the deduction as claimed may be allowed. 4.4 The learned D.R. on the other hand strongly relied upon the orders of the lower authorities and has further submitted that the lower authorities have correctly applied the provisions of the section to the facts of the present case and deduction under section 80HHC as per the working given has been correctly allowed and sustained. The learned D.R., therefore, submitted that the order of the CIT(Appeals) deserves to be upheld. 5. We have carefully considered the facts, material evidence on record and the submissions made by the learned representatives of the assessee as well as the Revenue. Before we go into the allowance of the claim of the assessee-company we would state and examine the correct facts as borne out from the records. 5.1 As mentioned above, the assessee-company was running two industrial units. One unit called East ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account were of Rs. 7,50,81,509 and there against the assessee claimed total outgoings of Rs. 6,52,51,793. The assessee thus earned a net profit in the leather division of Rs. 98,99,716. 5.2 The assessee-company has also filed a report from the auditors in Form No. 10CCAC as required in sub-section (4) of section 80HHC and the same is placed at page 6 of the paper book. In this report export turnover in respect of trading goods has been shown at Rs. 2,52,02,300 and the balance export relating to manufactured and processed goods are of Rs. 3,97,46,700. There being no details the Assessing Officer adopted the entire direct exports (FOB), as of trading goods only. This leaves the trading goods export sales at Rs. 97,41,449 and manufactured goods export sales at Rs. 3,97,46,700 through the export house. Though the objection was raised before the lower authorities about the figures so adopted but before us no objection has been raised for adopting the above figures for trading export sales and manufactured goods export sales directly as well as through the export house and the same figures are therefore to be adopted in computing the deduction under section 80HHC. 5.3 The first iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an taken for higher education. The Hon'ble Apex Court held that in computing the profits for the purpose of deduction under section 80E the loss incurred by the assessee in the manufacture of alloy steels (a priority industry) could not be set-off against the profits of the manufacture of automobile ancillaries (another priority industry). The assessee was entitled to a deduction on the entire profit of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture. (b) Siddaganga Oil Extractions (P.) Ltd's case - The claim involved in this case was under section 80HH. The Hon'ble High Court held that the loss in another unit cannot be set-off against income from new industrial undertaking in backward area. Headnotes of the decision on the issue are extracted below :--- "Section 80HH of the Income-tax Act, 1961 provides for the deduction of 20 per cent, from the 'profits and gains' derived from the industrial undertaking. The gross total income of the assessee would include the income derived from several sources or units. The profits and gains of one unit is only one of the constituents of the gross total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out the deduction under section 80HHC. The Assessing Officer is, therefore, directed to compute the deduction under section 80HHC from the profit computed of leather division without reducing the loss suffered in engineering division. 5.6 The second issue raised by the assessee is against not allowing the deduction under section 80HHC on incentive benefits received from export of goods through export house. We find that the assessee-company exported leather garments through the trading house during the current year to the extent of Rs. 4,94,18,989. The export house M/s. Fortune International Ltd. has given a certificate in Form No. 10CCAB that they had during the period relevant to A.Y. 1992-93 exported goods or merchandise manufactured and sold to them by the assessee-company amounting to Rs. 5,48,32,883 and they have further confirmed that they have not claimed deduction under sub-section (1) of section 80HHC of the I.T. Act in respect of such export turnover. A certificate so given is placed at page 8 of the paper book. Further, details of the export made are placed at pages 10 to 13 of the paper book according to which 60023 pieces of leather garments were exported toRussia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same were passed on to the assessee-company for execution. The assessee-company exported goods directly to the foreign constituents and also received not only the payments for such exports but also the export incentives directly from the Government. The assessee-company though exported goods as per orders of the export house but for all practical purposes these exports could be termed as direct export by the assessee-company and accordingly the assessee-company would be entitled to deduction under section 80HHC on all the export benefits received including that received on exports made as per orders of the export house. 5.7 We also note that the Finance Minister in his Budget Speech presented on 29th February, 1988 for the A.Y. 1988-89 made it clear in para 99 thereof that to increase exports he proposes to enhance the existing tax concession under section 80HHC for export profits so as to exempt hundred per cent of export profit from income-tax. It was also proposed to extend the benefit to supporting manufacturers exporting through trading or export houses. The notes on clauses relating to sub-section (1A) and sub-section (3A) given on page 157 of the report reads as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvantage of the tax payers. This was the view taken by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. Further, it is settled law that while interpreting the statutory provision, harmonious view be taken so as to achieve the obvious intention of the Legislature. The Hon'ble Supreme Court in the case of K.P. Varghese observed as under : "A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction." The Hon'ble Supreme Court further observed at page 599 of the report that : "...the speech made by the mover of the bill explaining the reason for its introduction can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in jus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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