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TMI Blog2012 (7) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... figure the AO has reduced 90% of the commission, brokerage, etc. as also interest receipt which he has considered to be income from other sources and has arrived at a figure and thereafter applied the formula to determine the 80HHE deduction ignoring assessee’s contention that the total turnover of only the eligible business should be taken note of for the purpose of applying the formula laid down in sub-section (3) - the view canvassed on behalf of the assessee is to be preferred over the view put forth on behalf of the income tax department as it is only the profits of the eligible business which have to be split in the same proportion as the export turnover in the said business bears to the total turnover in the said business Thus, the total turnover for the purpose of section 80HHE only the turnover of the computer software both in Indian and abroad has to be considered and turnover of business not connected with software business cannot be considered to include in the total turnover. Similarly amount received towards employee’s compensation cannot form part of the total turnover - in favour of assessee. - ITA No. 882/Hyd/2006, ITA No. 883/Hyd/2006, ITA No. 884/Hyd/2006, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 143(1)(a) of the Act was sent according to the later decision of Mumbai Bench in the case of , since the facts are same in all these years, we consider the assessment year 1999-2000. In this year there was no scrutiny assessment. The return of income was processed u/s. 143(1) on 29.3.2000. Later, the Assessing Officer issued notice u/s. 147 on 31.3.2004 i.e., within four years from the end of relevant assessment year to consider the excessive deduction granted u/s. 80HHC of the Act. The contention of the assessee's counsel is that the notice u/s. 147 was issued for all these assessment years on 31.3.2004. According to the AR, the Assessing Officer had not given any reasons for issuing the notice u/s. 147 of the Act. The Assessing Officer while passing the impugned assessment order, considered the issue relating to the allowability of deduction u/s. 80HHE for these assessment years. According to the assessee's counsel all the required information regarding the allowability of deduction u/s. 80HHE was very much with the Assessing Officer and there is no fresh material came to the knowledge of the Assessing Officer to reopen the assessment. There is no mistake on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f proceedings, by way of separate and independent order unless the findings of the Assessing Officer are not pervert in any manner. 5. We have heard both the parties and considered the material available on record. In this case there is no assessment u/s. 143(3) of the Act and only the return was processed u/s. 143(1) of the Act. The reopening of the assessment is within four years from the end of the relevant assessment year. As per clause (b) of Explanation 2 to proviso to section 147 where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, the Assessing Officer is entitled to reopen the assessment. Further in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), it was held that the Assessing Officer is having jurisdiction to issue notice u/s. 148 for bringing to tax income escaping assessment on the ground that the assessee claimed excessive relief or deduction. In the present case considering the excessive claim of the assessee u/s. 80HHE, we are of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate books of account are maintained for each division. The Operations of the computer software division are statutorily required to be kept isolated and independent of the other operations of the company. The activities of the division do not dovetail, interlace or combine with the operations of the other divisions. It is brought to our notice that the income tax department has accepted the independence of the 100% EOU software division in all the years up to A.Y. 1998-99 by accepting a separate computation under the head Profits and gains from business or profession in respect of computer software division as distinct and separate from other businesses of the assessee. 9. The assessee's counsel submitted that the computer software division is continued to be recognized and approved by the STPI authorities to date, as a 100% EOU unit for the purposes of Foreign Trade Policy as it fulfils all the conditions there under, though the benefits under sec 10B of the Income Tax Act. 1961 have expired by A.Y. 1998-99. Mere claim or otherwise under sec 10A/10B or sec 80IA/80IB do not determine whether a particular unit is independent or not. The independence has to be judged on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of profit under sec. 80HHC would not apply for arriving at eligible profit under sec. 80HHF. It approved its coordinate bench decision in Datamatics Ltd v ACIT (110 ITD 24) as well as the decision of Bangalore bench in the case of Wipro GE Medical Systems v DCIT (81 TTJ 455) rendered in connection with the computation of relief under sec. 80HHE -'computer software'. The learned counsel for the assessee relied on the order of the Tribunal in the case of Datamatics, 110 ITD 24 (Mumbai) Ltd which dealt with the computation of deduction u/s. 80HHE and is directly applicable to the facts of the present case. In that case the assessee-company was exporting computer software manufactured in SEEPZ unit and keeping separate account books. The Assessing Officer held that total turnover of entire business was to be considered instead of turnover of only the unit located at SEEPZ. Before the Tribunal it was pleaded on behalf of the assessee that: Where the two separate businesses of an assessee are properly demarcated in terms of location, operations and also where separate books of account are maintained for different units, it should be considered as separate entity and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n subsection (3). It says that the profits derived from the eligible business shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee . Explanation (d) below the section defines the expression profits of the business as meaning the profits of the business as computed under the head Profits and gains of business as reduced by, inter alia, 90% of the receipts by way of brokerage, commission, etc. which are included in such profits. The working of the Assessing Officer, is premised on the assumption that the expression profits of the business appearing in sub-section (3) read with Explanation (d) means profits of all the businesses carried on by the assessee. The Assessing Officer has taken the business income as a whole. This figure of profit represents profits of the various businesses carried on by the assessee including the profits on export of computer software (eligible business). 16. From the business profits figure the Assessing Officer has reduced 90% of the commission, brokerage, etc. as also interest receipt which he has considered to be income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness . The net result of the computation in respect of any source of business, if it is a loss, can be adjusted against the income from any other business as provided in section 70(1). Therefore, when Explanation (d) provides that the expression profits of the business means the profits of the business as computed under the head Profits and gains of business , it means the profits of the eligible business as computed under the aforesaid head. In other words, Explanation (d) does not expand the meaning of the expression profits of the business to include profits of all the businesses carried on by the assessee. Having said in sub-section (3) that the profits of the business means the profits of the eligible business referred to in sub-section (1), it is inconceivable that by Explanation (d) the expression profits of the business would have been defined to include the profits of all the businesses carried on by the assessee. The Explanation can only explain the expression profits of the business appearing in sub-section (3), but it cannot expand the meaning of the expression. Explanation (d) is controlled by subsection (3) and what it says is only descriptive of what the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 (Mad). These two judgments were concerned with section 80HHC of the Act. However, there was similarity between section 80HHC and section 80HHE in the sense that while working out the eligible profits on the basis of the ratio between the export turnover and the total turnover, it was held by the Madras High Court that it is only the profits of the export business that have to be so apportioned and the profits of businesses which did not qualify for the deduction, which were also carried on by the assessee, cannot be held eligible for the deduction. The ratio laid down in these judgments was considered applicable to the provisions of section 80HHE also. 20. The result of the above discussion is that the departmental authorities were not correct in taking the profits of the eligible business as relating to whole business of the assessee. They ought to have taken the figure as contended for by the assessee, which figure represents the profits of the software division which in other words are the profits of the eligible business. 21. In view of the above discussion, we are of the opinion that for the purpose of computing deduction u/s. 80HHE the profit of 100% EOU computer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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