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TMI Blog2006 (4) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of Assessing Officer to re-cast trading account after including cess/excise duty/sales tax in the purchases/sales and closing stock (but not in the opening stock which shall not be disturbed as discussed) and work out the addition if any, to the total income. Therefore this issue is allowed for statistical purposes only. Deduction under sections 80HHC and 80-IA together - HELD THAT:- In our considered view, and as per the language used in section 80-IA(9A), the deduction allowed u/s 80-IA will not be allowed as further deduction under other sections 80HH to 80RRA. This means that deduction u/s 80HHC will be worked out independently, without reducing the business profits by the deduction under section 80-IA. That is, effect of deduction u/s 80-IA will be given after applying the formula and working out deduction u/s 80HHC. This is clear from the language of section 80-IA(9A) that Any amount of profits and gains........ allowed as deduction u/s 80-IA, shall not be allowed as deduction under other sections (from 80HH to 80RRA). So deduction u/s 80HHC has to be calculated independently and then effect of section 80-IA(9A) has to be given. Where deduction u/s 80HHC is more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising out of sale of ammonia sulphate) from profits of the business. 2.2A The learned CIT(A) erred in observing that there does not appear (to have) any direct nexus between the receipts under the head 'Insurance Claim and Misc. Income' and the appellant's business activity. 2.2B The learned CIT(A) erred in overlooking the fact that the learned CIT(A) - VI vide para 23 in assessee's Own Appeal for assessment year 1998-99 had held that receipt under the head 'Insurance Claim' was to be included in the profits of the business and that vide para 25 of the said appeal order had held that the ammonia sulphate has to be included in the profits of the business. 2.2C Your appellant submits that these receipts arise out of appellant's regular business activity and that they cannot be excluded from the profits of the business as defined in the Act. 2.3 Your appellant, therefore, prays to hold that receipts arising under the head 'Insurance Claim' and sale of ammonia (Misc. income) constitute profits of the business. 2.4 Your appellant, therefore, prays to adopt the profit of the business as determined under section 143(3) as per clause (baa) of section 80HHC(4B) for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. 1-4-1999 and thereby introduction of section 145A, there has been a material change. He thus upheld the decision of the Assessing Officer. 3. Before us the learned counsel for the assessee submitted that the Assessing Officer is bound to account for Modvat credit in purchase, sale and inventory and not merely in closing stock. This will neutralize the addition, if any, made on account of Modvat. Learned AR further submitted that if Modvat credit is to be added to sale, purchase, and inventory, then same should be added in opening stock also. 4. Learned DR on the other hand submitted that irrespective of the fact whether any addition is called for or not, section 145A would be applicable w.e.f. assessment year 1999-2000. Further Assessing Officer has considered this aspect and addition of unutilized Modvat credit has been made by him. Learned DR further submitted that no addition to opening stock can be made on account of unutilized Modvat credit of earlier year because opening stock of this year has to be the same as closing stock of last year. He has been regularly following a system of accounting by excluding Modvat from stock. Hence opening stock this year based on method o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be included while valuing the closing stock sales and purchases. However, it is not necessary that opening stock should also be disturbed. Opening stock being closing stock of previous year has been arrived on the basis of a method of accounting, in which excise duty/Modvat credit is not included while valuing the inventory, sale and purchase. They are separately accounted for, but in a changed method of accounting imposed by section 145A, such Modvat credit has to be included. Thus, opening stock will not be disturbed whereas purchases, sales and closing stock will have to be disturbed by including Modvat credit. For this proposition we derive support from the decision of Hon'ble Bombay High Court in Melmould Corpn.'s case (supra) relied upon by the learned DR. The head notes from this decision are as under : "Under section 145 of the Income-tax Act, 1961, the assessee can adopt a method of valuation which is to be followed by it regularly. It is an accepted principle of accountancy that value of the stock can be determined at cost price or market price, whichever is lower. The two principles applicable with regard to the valuation of stock are that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll overhead expenses when the assessee had been permitted to revise the method of valuing the closing stock for that year, as the assessee had decided to adopt this new method of valuation henceforth. CIT v. Carborandum Universal Ltd. [1984] 149 ITR 759 (Mad.); CIT v. Mopeds India Ltd. [1988] 173 ITR 347 (AP) and Triveni Engg. Works Ltd. v. CIT [1987] 167 ITR 742 (All.) followed." 7. It was submitted before the Assessing Officer that purchases have also been debited in the P/L Account. Before us also it was argued that if cess/excise duty/sales tax etc. are added into purchases, sales and closing stock then net result would be nil. We, therefore, restore this issue to the file of Assessing Officer to re-cast trading account after including cess/excise duty/sales tax in the purchases/sales and closing stock (but not in the opening stock which shall not be disturbed as discussed above) and work out the addition if any, to the total income. Therefore this issue is allowed for statistical purposes only. 8. Next ground is regarding deduction under section 80HHC. In this first issue is whether sale of steam and scrap would constitute part of profit and/or turnover. The CIT(A) he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts were excluded. A reading of clauses (b) and (ba) of the Explanation clearly indicates that the Legislature has brought on par the components of export turnover and sale turnover. Both the numerator and denominator show that they refer to sale proceeds. Any receipt which does not form part of sale proceeds cannot come within the ambit of the above ratio. This is also in view of the fact that proposition applies to business profits in order to work out the export profits. Therefore, the numerator and the denominator are required to have a common element which is the sale proceeds. In fact, by the proviso in clause (ba) to the Explanation, it is further provided that the expression 'total turnover' shall have effect so as to exclude section 28(iiia), (iiib) and (iiic) which refer to, inter alia, profits on sale of a licence granted under the Imports (Control) Order, cash assistance, duty drawback, etc. This exclusion also shows that the Legislature clearly intended to exclude all receipts which have no nexus with sale proceeds from export activity. Held accordingly, that for the purposes of section 80HHC total turnover cannot include reassortment charges, labour charges, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Consolidation of unit-wise profits would give the gross total income of the assessee. (3) From this figure to reach total income of the assessee, (a) unit-wise deduction under section 80-IA would have to be computed and allowed. (b) result obtained after step (a) above, profit for each unit would have to be consolidated for the purposes of calculating total business profit. (4) Adjustments to be made in accordance with provision of section 80HHC would then have to be made to arrive at export profit eligible for deduction under section 80HHC. (5) This deduction under section 80HHC would then be allowed against the total income of all the units to be taken together calculated net of deduction under section 80-IA." 12. Against this, the contention of the Ld. AR for the assessee is that sub-section (9A) of section 80-IA does not modify the working of deduction under section 80HHC and, therefore, working of deduction under section 80HHC has to be done independent of any deduction allowed under section 80-I or 80-IA. It is only section 80A which puts the cap over all the deductions allowable under Chapter VI-A. 13. According to Ld. Counsel for the assessee Parliament h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" and further that in no case exceed the profits and gains of such industrial undertaking/hotel. Thus there are two capping in this sub-section. One is that total deduction under section 80-IA would not exceed the profits and gains of industrial undertaking/hotel and second is that deduction allowed under this section shall not be allowed under any other section, sub chapter CIT(A) under Chapter VI-A. 16. We have considered the rival submissions and material on record. Sub-section (9A) of section 80-IA reads as under : "(9A) Where any amount of profits and gains of an industrial undertaking or of a hotel in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading 'C.--Deductions in respect of certain incomes', and shall in no case exceed the profits and gains of the undertaking or the hotel, as the case may be." This sub-section was introduced by Finance (No.2) Act, 1998 w.e.f. 1-4-1999 to bar double deduction. It covers a situation where any amount of profits and gains of an industrial undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-IA then total deductions under two sections will be limited to the deduction granted under section 80HHC. In other words, after allowing one of the two deductions under one section, the balance would be allowed in other section. If higher of the two is already allowed in one section, nothing further will be allowed in other section. But in no case the total deduction under two sections will exceed the profits and gains of the industrial undertaking." 17. One question arises for consideration is whether amount of deduction allowed under section 80-IA will be reduced from the business profit while working out deduction under section 80HHC i.e., reduction would be made in the business profits applying the formula of section 80HHC as suggested by ld. CIT(A), or after applying the formula to the profits of industrial undertaking, working out the deduction under section 80HHC and then to reduce the deduction already allowed under section 80-IA. In our considered view, and as per the language used in section 80-IA(9A), the deduction allowed under section 80-IA will not be allowed as further deduction under other sections 80HH to 80RRA. This means that deduction under section 80HHC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st issue in this connection is the final capping on the deduction under Chapter VI-A. It is covered by section 80A which reads as under : "80A. Deductions to be made in computing total income.--(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U. (2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. (3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under section 80G or section 80GGA or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J or section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals." 19. Thus it is clear from sub-section (2) that total deductions under Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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