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TMI Blog2012 (4) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that admitting the third question by order dtd. 19th July 2005 amounts to sitting in appeals over the order dtd. 10th June 2002. There is no merit in this contention because, order dtd. 10th June 2002 does not decide any issue on merits and if it is brought to the notice of the Court that an additional question needs to be admitted, then it is open to this Court to do so. Moreover, the assessee has not challenged the order dtd. 19th July 2005. Hence, the objection raised for entertaining the appeals cannot be entertained. 3. Thus, the substantial questions of law to be considered in these appeals are as follows:i) Whether on the facts and circumstances of the case, depreciation has to be allowed to the assessee while working out deduction under Section 80 HHC and also while working out income under the head Business" even if not claimed " by the assessee in the return of income. ii) Whether in view of the disclaimer certificate issued, the assessee is entitled to add the losses on the export of trading goods of the supporting manufacturer in computing the deduction under Section 80HHC (1). iii)Whether losses on export of trading goods is to be added to the profits of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed off by the order dtd. 20th January 1998 allowing depreciation in computation of income as well as in computation of deduction under Section 80HHC. On the issue of computation of profits derived from exportation of goods and trading goods under Section 88HHC (3)(c) of the Act, the Assessing Officer was directed to reduce the loss from the traded goods worked out under Section 80HHC (3)(c)(ii) from the proportionate adjusted profits from manufactured goods as worked out under Section 80 HHC (3)(c)(i) resulting in enhancement of the assessment. As regards the disclosure certificate issued by the assessee under the proviso to subsection 1 to Section 80 HHC, the claim was rejected. 8. Being aggrieved by the order of C.I.T.(A), the assessee preferred appeals before the Tribunal, which came to be allowed by the order dtd. 28th September 2001. The Tribunal held that depreciation should not be deducted while computing total income as well as while computing 80 HHC deduction. It further held that loss on trading goods is to be added to the profits of business for the purpose of adjusted profits of the business. As regards issuance of disclaimer certificates, the Tribunal held that sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighty per cent, thereof for an assessment year beginning on the 1st day of April 2001; (ii) seventy per cent, thereof for an assessment year beginning on the 1st day of April 2002; (iii) fifty per cent, thereof for an assessment year beginning on the 1st day of April 2003; (iv) thirty per cent, thereof for an assessment year beginning on the 1st day of April 2004; and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.] (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are [received in, or brought into India] by the assessee [(other than the supporting manufacturer)] in convertible foreign exchange [within a period of six months from the end of the previous year or, [within such further period as the competent authority may allow in this behalf ]. [Explanation.For the purposes of this clause, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this subsection shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a license acquired from any other person), and clauses (iiib) and (iiic), of section 28, the same proportion as the export turnover bears to the total turnover of business carried on by the assessee: [Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c ) of this subsection or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent, of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee: Provided also that in the case of an assessee having export turnover exceeding rupees ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee."] Explanation : For the purposes of this subsection, ( a) "Adjusted export turnover" means the export turnover as reduced by the export turnover in respect of trading goods; (b) "Adjusted profits of the business" means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of subsection (3); (c) "Adjusted total turnover" means the total turnover of the business as reduced by the export turnover in respect of trading goods; (d) "Direct costs" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) "Indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) "Trading goods" means goods which are not manufactured or processed by the assessee. (3A) For the purposes of subsection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (aa) "Export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962); (b) "Export turnover" means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of subsection (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) "Total turnover" shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med. And further that a privilege cannot be to a disadvantage and an option cannot become an obligation. The Tribunal held that the depreciation not claimed by the assessee either for the purposes of deduction under Section 80HHC or for purposes of computation of total income of the assessee should not be thrust upon the assessee. 11. Ms. Asha Desai, the learned counsel for the revenue submits that the issue of depreciation under Chapter VIA is no more resintegra, it having been considered and decided by the Full Bench of our Court in Plastiblends India Limited vs. Additional Commissioner of IncomeTax and others, reported in [2009] 318 I.T.R. 352 (Bom) [FB]. She submits that further the question under consideration has been specifically dealt with in another decision of this court in India Rayon Corporation Limited vs. C.I.T., reported in (2003) 261 I.T.R. Page 98. It has been held therein that if the assessee claimed relief under Chapter VIA of the Act, then it is not open to the assessee to disclaim depreciation allowance. The third decision relied upon by Ms. Asha Desai is of the Delhi High Court in Dabur India Limited vs. C.I.T., reported in (2008) 219 C.T.R. Page 0152 (Delhi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation into account and 20 per cent of such net profit would be deductible from the gross total income of the assessee to arrive at the total income of the assessee. It needs to be clarified that in this case, we are concerned with computation of total income of an assessee who seeks relief under Section 80HH. In this case the assessee has claimed depreciation allowance. It is important to note that in cases of computation of normal income, without seeking benefit of special deduction under Chapter VIA, an assessee is free not to claim depreciation in view of the judgment of the Supreme Court in the case of CIT v. Mahendra Mills [2000] 243 ITR 56, but if the assessee claims depreciation, then such depreciation will be set off as any other expenses against gross income. Further, if such an assessee claims deduction under Chapter VIA, then to calculate profits and gains of newly established undertaking, depreciation allowance has got to be set off against the gross income of newly established undertaking to arrive at the profits computed in accordance with the provisions of the Act, which profits would form part of the gross total income and which would be exigible to 20 per cent de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VIA. That such special incomes were required to be computed as per the provisions of the Act, viz., section 29 to section 43A, which included section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VIA. Therefore, the appellant's claim for allowance of deduction under section 80HH, without taking into consideration the current depreciation will have to be rejected." 13. According to Mr. Pardiwala, Indian Rayon's case has no application to the present issue, since in that case the assessee had not disclaimed depreciation but was merely agitating the point about stage at which deduction for depreciation was to be allowed. He concedes that there are observations in the judgment that if an assessee claims deduction under Chapter VIA of the Act then it has no option not to claim depreciation but submits that those observations, have to be confined, if they have any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailing of allowable special deduction under Chapter VIA of the IncomeTax Act, the gross total income is required to be computed by deducting allowable depreciation, even though the assessee had disclaimed the same for the purposes of regular assessment ?" 16. Ms. Asha Desai submits that though the judgment dealt with specific case under Section 80IA of the Act, the reference to the full bench was for resolving the issue regarding depreciation as allowable under Chapter VIA of the Act. She draws our attention to the conclusion arrived at by the full bench in following words: "In the result, we answer the question referred to us set out at para 1 above in the affirmative, that is, for the purposes of deduction under Chapter VI, in affirmative, that is, for the purpose of deduction under Chapter VIA, the gross total income has to be computed, inter alia, by deducting the deductions allowable under section 330 to 43D of the Act, including depreciation allowable under Section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation". 17. Mr. Pardiwala, in reply, submits that the decision of the Full Bench in Plast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had chosen not to claim current depreciation. In such a case, it was contended that the income chargeable to tax had to be computed without allowing current depreciation and, therefore, the Assessing Officer was not justified in thrusting current depreciation on the assessee while computing the income chargeable to tax. The assessee had strongly relied upon the decision in Mahendra Mills case in support of his argument. The submission was that, once the total income under Chapter IV is computed in accordance with the provisions contained in Sections 32 to 43D without deducting the allowable current depreciation, then the gross total income for the purpose of deduction under Chapter VIA would also have to be computed without deducting current depreciation. In other words, where the assesee chooses not to claim current depreciation, then the total income under Chapter IV, as well as, the total gross income under Chapter VIA, will have to be computed without deducting from the business profits the current depreciation allowable under the Act. The Full Bench did not find any merit in the contention. It found that the decision in Mahendra Mills case was rendered in the context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rayon's case. Its facts are identical to the facts of the present case, inasmuch as, they relate to deductions under Section 80HHC of the Act. The Delhi High Court has held that it is important to bear in mind the scheme of the Act which envisages that while computing normal profits which does not involve relief by way of special deduction provided for under Chapter VIA of the Act, the assessee is entitled to opt out of an claim for depreciation allowance. Under Chapter VIA of the Act, there is no option available to the assessee, but to provide for depreciation allowance while calculating eligible profits and gains on which deduction is permissible under the provisions specified in Chapter VIA. Delhi High Court, then proceeded to distinguish the decision of the Apex Court in Mahendra Mills case, in the same way as done in the earlier two decisions. Mr. Pardiwala, submits that though Dabur's case deals with a claim for deduction under Section 80HHC, unfortunately, the attention of the Delhi High Court was not invited to the specific language used in subsection 3 read with Clause (baa) which mandates that one must compute the income chargeable under the head "Profits or gains of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods amounting to Rs.41,50,59,635/is reduced by the direct and indirect costs amounting to Rs. 46,96,23,845/( Rs.35,81,34,588/+ Rs. 11,14,89,257/), the result would be loss of Rs. 5,45,64,210/. As per Section 80HHC(3)(c)(ii), the amount so determined i.e. Rs. 5,45,64,210/is liable to be treated as profits derived from export of trading goods. 27. The next step is to determine the profits arising from the export of manufactured goods as per the formula set out in Section 80HHC(3)(c)(i) of the Act. The formula in Section 80HHC(3)(c)(ii) requires determination of adjusted profits of the business. Explanation (b) below Section 80HHC(3)(c) defines the expression `adjusted profits of the business' to mean the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in Section 80HHC(3)(b). The expression `as reduced by' in explanation (b) below Section 80HHC(3)(c) makes it clear that from the composite profits of the business, one has to deduct the profits from the trading activity so as to determine the profits from the manufacturing activity. If the trading activity results in a loss, which as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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