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TMI Blog2015 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... nover" and "Profits" of the three units taken together. 2. BECAUSE the view taken by the authorities below in the matter of aggregation of the results of the three units for the purpose of computing relief under section 80HHC, is wholly misconceived and erroneous, as being inconsistent with the letter and spirit of the provisions contained in section 80HHC. 3. BECAUSE the A.O. has erred in law and on facts in holding that the three units viz Unit-I, Unit-II and Unit-III neither functioned independently nor there was any fair apportionment of expenses, intra units and in computing the relief admissible to the appellant under section 80HHC, by aggregating results of three units. 4. BECAUSE the three units, viz. Unit-I: engaged in the business of manufacturing of finished leather and selling the same almost wholly through domestic sales; Unit-II: engaged in the business of manufacturing of leather goods, mainly complete shoes & leather uppers and selling the leather uppers wholly through exports to the overseas markets and complete shoes almost wholly through exports to the overseas market: Unit-IIII: engaged in the manufacturing of leather upper (for shoes) and leather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) That the entire show of maintenance of separate accounts has been managed with the sole purpose of claiming higher deduction u/s 80HHC and the various units being run by the assessee are not independent units. (ii) The law clearly stipulates that deduction u/s 80HHC is "assessee specific" and not "unit specific". 5. Being aggrieved, the assessee carried the matter in appeal before CIT(A) who has granted various relief in respect of computation of deduction u/s 80HHC but regarding computing the deduction allowable to the assessee u/s 80HHC on the basis of each unit, the matter has been decided by learned CIT(A) against the assessee and therefore, the assessee is in further appeal before us. 6. Learned A.R. of the assessee placed reliance on the following judicial pronouncements: (i) ACIT vs. L.G. Electronics India (P) Ltd. 35 Taxmann.com 344 (Delhi-Trib.) (ii) CIT vs. Padmini Technologies Ltd. 33 Taxmann.com 668 (Delhi) 245 CTR 611 (Delhi) (iii) Tata Consultancy Services Ltd. vs. ACIT 26 Taxmann.com 21 (Mumbai-Trib.), 54 SOT 221 (Mumbai) (URO) (iv) Crew B.O.S. Leather Products Ltd. vs. ACIT 20 Taxmann.com 239 (Delhi-Trib.) (v) Eastern Leather Products (P) Ltd. vs. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2004] 266 ITR 521. 9. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) against the assessee as per Para 3.3.1 and 3.2.2 of his order, which is reproduced below for the sake of ready reference: "3.3.1 After having perused all the decisions cited by the Ld. A.R., I find that the mother of all these decisions is CIT vs Rathore Brothers which has been followed by the Hon'ble Madras High Court in all its subsequent decisions. While going through this decision it is seen that it has been rendered for the period prior to the F.Y.1991-92, the year when major amendments were carried out in the provisions of Sec. 80HHC. The said amendment completely changed the method of calculation for profit (derived from exports) by giving a rigid formula u/s 80HHC(3). In this view of the matter, with due respect, these decision of the Hon'ble Madras High Court cannot be taken as a yardstick for computation of deduction u/s 80HHC of the Act. 3.3.2 As far as computation of deduction u/s 80HHC under the amended (present) regime is concerned, the matter has been resolved by an elaborate decision of the Hon'ble Karnataka High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, 3a deduction to the extent of profits, referred to in sub-section (1B) derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. (1A) Where the assessee, being a supporting manufacturer, has during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see ; and (ii) in respect of trading goods, be the export turnover in respect of such trading 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 sub-section 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 licence 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 the 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 sub-section 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total turnover of the business carried on by the assessee. For the purposes of this clause, rate of credit allowable means the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government ; For the purposes of this sub-section,-- (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be,-- (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business ; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee." During the course of hearing our attention was invited to the judgment of Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not apply, would be doing violence to the language of sub-s. (3)(b). Sub-s. (3) is inserted only to determine the deductible profits out of the total profits of business which can be attributed to the export business. We are in respectful agreement with the rationale adopted by the Madras High Court in Madras Motors Ltd. (supra). As a matter of fact, there could be a circumstance where one unit is completely engaged in export and not partially as was the case in Madras Motors Ltd. (supra). In those circumstances, there would be no occasion for disallowing a portion of the export earnings by adopting formula provided in s. 80HHC of the IT Act. This view was taken by the Madras High Court not only in Rathore Brothers (supra) but also in M. Gani & Co. (supra) which in turn followed yet another judgment of the Madras High Court in the case of CIT vs. Suresh B. Mehta (2007)291 ITR 462(Mad)." 10. In Para 11 of this judgment, the Hon'ble High Court has discussed two judgments of Hon'ble Apex Court rendered in the case of IPCA Laboratory Ltd. (supra) and Synco Industries Ltd. 168 Taxman 224 (SC). For the sake of ready reference, these paras being Para no. 11 & 12 are also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 80HHC(3)(c)(2) only if there was positive profit in the export of both self-manufactured goods as well as trading goods. The Supreme Court in repelling the contention of the assessee, in addition, took recourse to the provisions of s. 80AB and s. 80B(5). As is evident, the facts of the case are quite different from those obtaining in the instant appeal before us. 12. Similarly, the facts obtaining in Simco Industries (supra) were also different. In that case, the assessee was engaged in the business of oil and chemicals. The Oil Division was located in Sirohi, while the Chemical Division was situated in Jodhpur. In respect of asst. yr. 1990-91, it had earned profits in both Divisions. However, in earlier years the assessee had earned losses in the Oil Division. The assessee claimed deductions under s. 80HH and 80-I of the IT Act. To sustain its claim for deduction, the assessee took the stand that the Divisions should be treated separately and the losses suffered in the earlier years in the Oil Division ought not to be adjusted against the profits earned by it in the Chemical Division. The AO, however, repelled this contention and denied the deduction to the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in that case, the assessee company was making two types of exports i.e. manufacturing export and trading export and under these facts, it was held that profit for both type of exports has to be calculated by taking into account both exports and that deduction was permissible u/s 80HHC of the Act if there was positive profit in the export of both self-manufactured goods as well as trading goods. In the present case and in the case before Hon'ble Delhi High Court, the issue was not regarding ignoring the profit or loss from one type of export. In both these cases, the issue was that whether the deduction allowable to the assessee can be computed on unit-wise basis where separate books of account are maintained. It is held by Hon'ble Delhi High Court that there can be a circumstance where one unit is completely engaged in the export and not partially as was the case in Madras Motors Ltd. (supra). In those circumstances, there would be no occasion for disallowing a portion of the export earnings by adopting formula provided in section 80HHC of the IT Act. Hon'ble Delhi High Court has followed the judgment of Hon'ble Madras High Court and decided the issue in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for the benefit of deductions under Chapter VI-A. The Appellate Tribunal and the High Court affirmed the view of the officer. On further appeal, the apex court held that in determining the gross total income, the assessee has to compute the income from each one of the units. When one unit suffered loss and other unit earned profit, after setting off loss, if the gross total income worked out shows profit, the assessee would be entitled to deduction under Chapter VI-A. On the other hand, if the gross total income is a negative income, then the claim of the assessee could not be considered for any benefit under Chapter VI-A. In the light of the law thus laid down by the apex court, it is clear that only in the case of gross total income being a profit, the claim of the assessee for deduction merited to be considered. 20. Coming to the facts herein, it is not disputed by the Revenue that both the units of the assessee are profitmaking units and the gross total income was computed in the manner as given under the Act and that there was a positive income of profit. Going by the decisions referred to above and the same when applied to the facts of the case herein, the assessee wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) as well as Waterfall Estates Ltd. v. CIT [1996] 219 ITR 563 (SC). The case of each of the units have to be considered independently for the purpose of working out the relief under section 80HHC. This would depend upon the facts to show that each of the unit had maintained their accounts independently and there was no interdependency or interlacing of funds to treat them as one consolidated unit. Going by the facts recorded therein, we have no hesitation in accepting the plea of the assessee that the income earned from the export goods from the Bangalore unit merited to be considered for 100 per cent. relief, as one falling under section 80HHC(3)(a) of the Act." 12. From the above paras from the judgment of Hon'ble High Court, it is seen that it is held by Hon'ble High Court in para 21 that "the case of each of the units have to be considered independently for the purpose of working out relief u/s 80HHC." 13. Now we examine and compare the facts of the present case. In the present case, the assessee is having three units. In unit No. 1, the assessee is manufacturing finished leather which is sold in domestic market or is utilized in manufacturing of leather footwear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment order, profit of the business as whole has been worked out at Rs. 1,81,06,614/- before reducing deduction allowed by him u/s 80IB and profit was computed at Rs. 1,32,82,262/- after reducing such deduction allowable u/s 80IB of the Act. Hence, it is seen that the deduction claimed by the assessee is not more than total profit worked out by the Assessing Officer suggesting loss in Unit No. 1. In our considered opinion, under these facts, the judgment of Hon'ble Delhi High Court in the case of Padmini Technologies (supra) and of Hon'ble Madras High Court as discussed above are squarely applicable and respectfully following the same, we hold that in the facts of the present case, deduction is allowable to the assessee in respect of Unit No. 2 & 3 as has been claimed by the assessee. But for the limited purpose of verifying the calculation of the assessee for claiming such deduction u/s 80HHC, we remand the matter back to the file of the Assessing Officer for the limited purpose of verifying the veracity of this computation and to determine the actual deduction allowable to the assessee by taking the profit, export turnover and total turnover of these units No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Associated Capsules (P) Ltd., Hon'ble Bombay High Court has duly considered this judgment of Hon'ble Kerala High Court cited by Learned D.R. of the Revenue having been rendered in the case of Olam Exports (India) Ltd. Since this judgment of Hon'ble Bomay High Court is after considering the judgment of Hon'ble Herala High Court, we find no reason for following the judgment of Hon'ble Kerala High Court in preference to the judgment of Hon'ble Bombay High Court. In the case of Associated Capsules (P) Ltd., it was held by Hon'ble Bombay High Court that for the purpose of computing deduction allowable u/s 80HHC of the Act, deduction allowable u/s 80IA is not required to be reduced but for the purpose of allowing deduction u/s 80HHC of the Act, the same can be allowed only to the extent after reducing the deduction allowable u/s 80IA of the Act. It means the total deduction allowable including all sections should not exceed 100% of the taxable profit and gross total of income. Hence, we decline to interfere in the order of CIT(A) on this issue. 19. In the result, the appeal of the Revenue stands dismissed. 20. Now we take up the appeal of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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