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TMI Blog2000 (12) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... empo Ltd. ( 196 ITR 188 ) as to the manner in which the incentive provisions are to be interpreted. 3. The CIT(A) also erred in not considering the fact that provisions of section 80HHC as they apply to holder of Export House Certificate or Trading House Certificate are different from those that apply to assessee having neither of these certificates. In case of assessee having Export House Certificate section 80HHC would apply only in respect of profit from the export of trading goods in respect of which the assessee company has not given disclaimer certificates to the supporting manufacturer under proviso to sub-section (1) of section 80HHC. 4. The appellant further submits that profit from export in respect of trading goods for the purpose of sub-clause (ii) of clause (c) of sub-section (3) would be in respect of goods for which the manufacturer has not issued certificate to supporting manufacturer under proviso to sub-section (1) of section 80HHC. The turnover for which such certificates are issued does not come within the purview of deduction for section 80HHC in accordance with the said proviso. 5. The appellant submits that the appellant being a holder of Export House Cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the profit eligible for deduction will be the sum of: 1. Profit from export of self-manufactured goods. 2. Profit from the export of goods manufactured by others. 3. Profit from export incentives as per the proviso to the section 80HHC(3)(c). As per the Form No. 10CCAC filed along with the return of income, there is net loss from the export of goods. The break up of profit/loss was as under: Loss from the export of goods manufactured by others Loss from the export of goods manufactured by others Rs. (-) 6,86,65,804 Profit from the export of self- manufactured goods ₹ 3,78,80,936 The profit from the export incentives is included in the profit from the export of self-manufactured goods. It was noted by the Assessing Officer that there was net loss from the exports of the goods. As per the provision of section 80HHC(3)(c), the profit from the exports, which is allowable as deduction from the taxable income, is the composite profit from export of own manufactured goods and the goods manufactured by others. If the composite profit is a loss, the Assessing Officer observed that there is no question of deduction under section 80HHC. The Assessing Officer, therefore, disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as manufacturing, but the net effect is loss from the export of goods.' 3. Aggrieved, the assessee filed appeal before CIT(A). Apart from other arguments, the following contentions were raised by the assessee before the CIT(A): "It is argued that if the Assessing Officer's view is accepted that the proviso to section 80HHC(1) can only be invoked if the assessee is showing positive profit in exports and not in case of loss i.e., negative profit, then also the same should be applied for the purpose of interpretation of clause (c) of section 80HHC(3). But the Assessing Officer has considered the negative profit (loss) of the export of trading goods activity for the purpose of clause (c)(ii ) of section 80HHC(3) and adjusted, out of the positive profit. As already submitted earlier, the various Supreme Court decisions support the view that profit includes 'positive profits' as well as 'negative profits'. If the negative profit from export of trading goods is taken for the computation of deduction under section 80HHC(3)(c)( ii) then on the similar count, negative profit from the entire trading export activity disclaimed in accordance with the provisions of section 80HHC( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be ignored, but only to be aggregated/adjusted to profit of the other activity with a view to arrive at the net profit or loss for the purpose of clause (c) of section 80HHC(3) from export of manufacturing goods and trading goods. At the cost of repetition, I should emphasise that the loss worked out under either of the said sub-clauses cannot be ignored; even though the provisions of section 80HHC is interpreted liberally being an incentive provision. Looking to this aspect from a different angle, I am of the considered opinion that the appellant Co. should not stand to gain being an Export House compared to a mixed exporter coming within the purview of clause (c) of sub-section (3) of section 80HHC or in that matter; any exporter coming within the scope of clause (a) or (b) or (c) thereunder. A plain reading of sub-section (1) clearly indicates that while an exporter other than the holder of Export House or Trading House Certificate would be entitled to the deduction of the entire profit derived from export as computed under clause (a), ( b) or (c) of sub-section (3) of section 80HHC, the appellant Co. being a mixed exporter as well as having the export house status and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is clear and according to the plain natural meaning thereof the assessee is not entitled to any rebate, relief of allowance, it is not for the Court to strain and stretch the language of the statutory provision to enable the assessee to get such relief. Such an approach will be against all accepted principles of interpretation." 6. The learned CIT(A) then summed his observations as under: "Following the principles laid by the Hon'ble Courts, I am of the view that this section is self-explanatory and there is no ambiguity either in the computation section 80HHC (3) or in the enabling section 80HHC (1). The language used in clause(c) is also very clear and though, the individual profit or loss from each activity is to be computed under sub-clause (i) and sub-clause (ii) separately in accordance with the formula provided in the said respective sub-clauses, the same are to be clubbed together to ascertain the profit or loss for the purpose of clause(c) of section 80HHC(3) in case of a mixed exporter. The profit of loss cannot be ignored at this stage while computing the profit or loss under sub-clauses (i) and (ii) of clause (c) of section 80HHC(3). That will tantamount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 80HHC does not mean erroneous interpretation. The learned DR further contended that proviso to section 80HHC (1) will not apply if case is not covered under section 80HHC (1). It was pointed out that section 80HHC (1) is a charging or enabling section, whereas section 80HHC(3) is a machinery section which lays down formula for working out profit from each of the activities of the assessee. It was argued that word 'profit' in the context in which it is mentioned in sub-section (1) of section 80HHC does not include loss. It was pleaded that if the export profit under section 80HHC (3) is a negative one, no deduction is allowable under section 80HHC (1). The learned DR further referred to section 80AB and contended that no deduction under Chapter VI A is admissible (including deduction under section 80HHC) if gross total income results in a loss. In this regard, the learned DR relied upon decision of Kerala High Court, reported at CIT v. Joseph (V.T.) [1997] 225 ITR 731 and that of Gujarat High Court, reported at Ahmedabad Mfg. & Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616. The reliance was also placed on Synco Industries Ltd. v. Dy. CIT [2000] 73 ITD 339 (ITAT Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess are required to be set off. In other words, intra-head adjustments have to be done. In this regard, the learned DR placed reliance on the decision of ITAT Delhi Bench 'D' (SB) in the case of International Research Park Laboratories Ltd. v. Asstt. CIT [1995] 212 ITR 1 (AT) as well as on decision Bombay High Court reported at CIT v. Jagannath Narsingdas [1965] 55 ITR 128 and of Hon'ble Supreme Court reported at CIT v. Muthuraman Chettiar (P.M.) [1962] 44 ITR 710. Relying upon decision of Hon'ble Apex Court reported at CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC), the learned DR contended that for the purpose of sub-section (3) of section 80HHC, profit includes loss. It was stated that loss is a negative profit and it cannot be ignored. Relying upon CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320 (SC), the learned DR further stated that Chapter VIA has undergone a thorough change when sections 80HH and 80AB were introduced with effect from 1-4-1968. It was stated that in the assessee's case, it is section 80HHC(3)(c) which is applicable and not 80HHC(3)(a). The learned DR further stated that decisions relied upon by the learned counsel of the assessee are distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the assessee's gross total income and even business income are much more and hence the aforesaid decision of Kerala High Court is not relevant. Similarly, it is stated that decision of Gujarat High Court in Ahmedabad Mfg. & Calico Printing Co. Ltd.'s case (supra) relied upon by the learned DR is not relevant as section 80HHC and disclaimer were not there in that case. 10.4 The learned counsel referred to para 40.1 of Explanatory Notes of Circular of CBDT No. 636 dated 31-8-1992 and stated that the Finance Act had amended section 80HHC in order to provide that where the Export of Trading House disclaims the tax concession in favour of the support manufacturer, the concession to the Export or Trading House will be reduced by the amount which bears to the total export profits of trading goods the same proportion as the disclaimed export turnover bears to the total export turnover of trading goods. By applying this formula, the learned counsel of the assessee gave the computation, on a separate sheet of paper, of deduction under section 80HHC which worked out to ₹ 3,78,80,937. 10.5 In the end, the learned counsel contended that in view of decision of Hon'ble Supreme Court r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage. The learned CIT(A) has rightly held that only in such cases where there is any ambiguity of language, the benefit of ambiguity must be given to the assessee in accordance with the ratio laid down by Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. (supra). The learned CIT(A) has rightly placed reliance on the decision of Hon'ble Bombay High Court in the case of M.H. Daryani (supra). (iii) The assessee being exporter of goods that are self-manufactured as well as the goods manufactured by others, we hold that the provisions of clause (c) of section 80HHC (3) have been rightly applied by Revenue authorities. We find that language adopted in clause (c) is very clear and, by its plain reading, it appears that for ascertaining the net profit derived from export business of goods manufactured by the assessee and of trading goods (manufactured by supporting manufacturers), the individual profit from both the activities of the assessee is to be computed in accordance with the formula applicable to the respective activities, though it may be negative or positive, and clubbed with each other for arriving at the resultant profits contemplated in clause (c) of section 80HHC(3). Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28,29,355. The appellant submits that deduction under section 80-IA has to be calculated on profit before the said deduction. In any event, the apportionment of capital expenditure of R&D between the Bulk Drug and the Formulation Division is arbitrary and ad hoc." "The CIT(A) also erred in confirming the order of the Assessing Officer in reducing from the claim of the appellant for Formulation Unit sum of ₹ 4,14,932 being the Miscellaneous Income derived from the said undertaking as detailed below: Cash discount ₹ 83,498 Miscellaneous Income (Insurance claim, Transporters claim, Sales-Tax Refund, etc.) ₹ 3,31,434 ₹ 4,14,932" 14. The assessee had claimed deduction under section 80-IA to the tune of ₹ 85,81,700 in respect of liquid formulations manufactured at Ratlam Unit. As done in the preceding years, the Assessing Officer held that for working out deduction under section 80-IA, the eligible profit had to be reduced by reducing R&D Capital Expenditure of ₹ 28,29,355 from the profits of Industrial Undertaking. It was stated that Assessing Officer's action was confirmed by the first appellate authority in the past. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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