Income Tax Appellate Tribunal - Ahmedabad
Pratibha Syntex Ltd. vs Joint Commissioner Of Income Tax on 1 June, 2001
Equivalent citations: [2002]81ITD118(AHD)
JUDGMENT
T.N. Chopra, A.M.
1. This appeal filed by the assessee and the cross-objection filed by the Revenue are directed against the order of the learned CIT(A), dt. 25th Jan., 2001, for asst. yr. 1996-97. Since the issues involved are common, these have been heard together and are disposed of by a single order for the sake of convenience.
2. Girish Dave, the learned CIT-Departmental Representative argued the matter on behalf of the Revenue. S.N. Soparkar, the learned counsel for the assessee appeared on behalf of the assessee-company. The Revenue has filed a paper book running into 162 pages which includes, inter alia, detailed particulars of Customs Duty Exemption Scheme as well as the correspondence exchanged by the AO with the assessee-company during the course of assessment proceedings. The learned counsel for the assessee submitted paper books in two volumes; Volume 1 running into 100 pages including inter alia, earlier orders of the Tribunal for asst. yrs. 1992-93 and 1993-94. Written submissions have been filed by the learned counsel placed in the paper book pp. 1 to 17. Volume n of the paper book running into 166 pages contains particulars of Advance Import Licences utilised by the assessee-company for the import of polyester yarn as well as dyes and chemicals. Written submissions made by the learned representatives before us have been duly considered and oral arguments made during the course of hearing held from time to time have also been considered by us.
3. The main issues arising before us relate to the accounting of export benefits as well as computation of deduction under Section 80HHC.
4. First, we take up the assessee's appeal ITA No. 463/Ahd/2001. Ground Nos. 1 to 4, challenging the addition of Rs. 6,22,41,119 on account of notional debit of customs duty on the imported goods read as under :
(1) On the facts and circumstances of the appellant's case, the learned AO and the CIT(A) has grossly erred :
in not accepting the method of realizing and accounting the export incentives as upheld by the CIT(A) himself and the Honourable Tribunal in the case of the appellant itself for the earlier assessment years, by accepting the credit entry of cash assistance as income but not accepting the corresponding debit of customs duty as expenditure, by misinterpreting that the debit of customs duty in DEEC/Pass Book does not amount to payment and thereby disallowing the same.
(2) On the facts and circumstances of the appellant's case, the learned AO and the CIT(A) has grossly erred in taxing the export incentives twice and not allowing corresponding debit which is rightfully due to the assessee.
(3) On facts and circumstances of the appellant's case the CIT(A) has grievously erred in upholding the order of the AO who has disallowed the customs duty under Section 43B r/w s. 37 of the IT Act. In fact Section 43B is not applicable at all in the facts and circumstances of the case and the appellant is entitled to the deduction under Section 37 of the IT Act.
(4) On facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the order of the AO making an addition under the head 'notional debit inadmissible having effect of reducing the income of the assessee as discussed" for Rs. 6,22,41,119. The same may be deleted.
5. The factual matrix, germane to the controversy before us may be briefly set out at the. outset. The assessee-company is a manufacturer exporter of synthetic fabrics and printed and dyed sarees. The assessee has sold its products in the domestic market also. As a recognised export house, the assessee was entitled to certain benefits and incentives under the DEEC Scheme (Duty Exemption Entitlement Certificate) of the Government of India. Under the said Scheme, a DEEC book similar to a pass book was issued to the assessee governed by Notification No. 104/95-CUS dt. 20th May,1995. The relevant portion of the Notification is extracted below :
"In exercise of the powers conferred by Sub-section (1) of Section 25 of the Customs Act, 1962 (62 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods imported into India from : (i) the whole of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975, (51 of 1975); and
(ii) the whole of the addition all duty leviable under Section 3 of the said Customs Tariff Act where specifically claimed by the importer, subject to the following conditions, namely :
(1) That the importer has been issued a pass book by the designated authority under para. 54 of the Export and Import Policy (hereinafter referred to as said Pass Book) (2) The importer has been permitted credit entries of the amounts equal to basic/customs duties on the inputs used in the products exported by the importer as verified by an Asstt. Commissioner of Customs :"
6. Thus, under the Exim Policy 1992 to 1997, the assessee was entitled to import specified raw material without payment of customs duty on the basis of exports. The salient features of the DEEC Scheme are as below :
(1) The object of the Scheme is to neutralise the incidence of customs duty on import contents of an export product. This neutralisation has to be provided by way of grant of duty credit against the export of a product. Under the Scheme, an exporter is eligible to claim duty credit as specified percentage of the FOB value of the exports made in freely convertible currency. Any item shall then be allowed to be imported without payment of customs duty against the credit under the DEEC Scheme. The DEEC shall be valid for a period of 12 months from the date of its issuance.
(2) The Advance Licence under the DEEC may be issued on the post-export basis i.e., on exports already made or pre-export basis with a view to provide the facility for duty-free imported inputs which are required for production. The import licence on a post-export basis is freely transferable. The transfer shall however be for imports at the ports specified in the licence. These shall be the ports from where the exports have been made.
7. The relevant entries regarding the export benefit made by the assessee and the entitlement for duty-free imports as well as imports made and the duty-free benefit utilised are duly made in the DEEC book which is maintained in the following format :
Sr. No Shipping Bill/Bill of Entry No. and date Credit available (based on exports made as per details in Parts A&B) Debit (or credit utilised) imports made as per Part C) Balance duty available along with the signature, seal of the designated authority (3-4) 1 2 3 4 6 7.1. In the aforesaid pass book, the credit entries represent recognition of incentive on exports and debit entries represent realisation of the same in the form of payment of customs duty of imports. According to the assessee, the DEEC book represents current account with respect to customs duty maintained by the Government of India reflecting the cross-payments on the same pattern as in a bank pass book.
8. Regarding the entries made by the assesses in its books of account in respect of export benefits, duty benefit on exports has been accounted for by passing an entry as under:
Debit : Duty Benefit Receivable Account Credit : Customs Duty Benefit Account
8.1. The above amount is transferred to the P&L a/c by debiting the Customs Duty Benefit Account. When the goods are imported pursuant to the above scheme, the assessee is not required to make payment of customs duty to the extent of customs duty benefit that has already accrued to him or that may accrue to him as and when he makes export pursuant to the export obligation undertaking by him. When the goods are imported, the following entry is passed in the books : Debit : Raw Material Purchase Account Credit: Customs Duty Payable Account 8.2. Since cross-payment of duty payable on imports and duty benefit received on exports are to be settled by way of adjustment under the DEEC book maintained by the Government, the following entry is passed in the books : Debit : Customs Duty Payable Account Credit : Customs Duty Benefit Receivable Account 8.3. Thus, the method of accounting as followed by the assessee involves crediting Customs Duty Benefit Receivable Account in respect of the exports made and transferring this amount to the P&L a/c. With regard to utilisation of the duty benefit while making imports without payment of customs duty, the customs duty benefit actually utilised is debited to the Purchase Account Since the customs duty benefit to the extent of exports has been utilised by the assessee by way of adjustment against the customs duty on the import of goods, such benefit, therefore, constitutes a debit in the Purchase Account. According to the assessee, a similar method of accounting the exports benefit has been followed in the books of account right since asst. yr. 1992-93 involving credit to the P&L a/c on account of export benefit when the exports are made and debit to the purchase account with regard to the customs duty benefit utilised while importing the duty-free raw material like yarn, dyes and chemicals, etc. The relevant entries representing credit to the P&L a/c on account of export benefit and debit to the purchase account on account of utilisation of imported material in various assessment years are reflected as under :
Polyster Filament Yarn Asst yr.
Dyed Cl.
Printed Cr.
Sarees exported Dr. 1992-93 26.54 616.82 590.28 1993-94 174.62 596.20 421.50 BF 26.54 1994-96 9866 77018 671.52 1995-96 221 98 12373 1.009.75 1996-57 7784 70025 98 66 622.41 221.98 8.4. From the above chart, it would be seen that for asst. yr. 1996-97 a sum of Rs. 700.25 crores has been credited to the P&L a/c and included under the head "other income" as per p. 74 of assessee's paper book Volume I. At p. 80 of the paper book, Schedule M details various items of income aggregated under the head "other income" which includes an amount of Rs. 7,00,24,935 on account of duty benefit against export. The assessee-company has accounted for the duty benefit on the basis of customs duty of rates as per the entries made in the DEEC Book as Under:
Rs A. On import of dyes 5,93,30,763 B. On import of yam 1,06,94,172 7,00,24,935
9. As per the details available in the assessee's petition appearing at p. 67 of the paper book filed by the Revenue, the utilisation of duty benefit on imports made during the year is as under :
Rs.
Rs.
(1) Purchase of yarn Dr. 6,38,84,600 Purchase of dyes Dr. 83,56,619 To Duty Benefit Cr. 6,22,41,119 Thus, as per DEEC Book pending import entitlement involve customs duty benefit available to the assessee as on 31st March ,1996, is as under:
(2) Entitlement receivable--yarn Dr. 54,46,163 Entitlement receivable--dyes Dr. 23,37,653 To Duty Benefit Cr. 77,83,816
(Being the entries passed for accrual of benefits as per mercantile system of accounting i.e., exports made during the year but imports could not be made.
Amount of benefit receivable on pending import entitlement and realisable during coming year.) It will be seen from the above that the duty benefit account has been credited with the following amounts on the basis of the duty benefit available to the assessee as per DEEC Book on the exports made during the year :
6,22,41,119 77,83,816 7,00,24,935'
10. We may at this stage refer to Schedule V to the printed balance sheet indicating notes on accounts placed at p. 84 of the assessee's paper book Volume I which indicates that the company follows mercantile system of accounting and recognise income and expenditure on accrual basis. The revenue/income and cost/expenditure are accounted for on accrual basis. The liability on account of customs duty on imported materials in transit or in bonded warehouses is accounted for only in the year in which the goods are cleared from the customs. All inventories other than finished products are valued at cost and finished products are valued at market price. Further, export benefits/incentives are accounted for on accrual basis. Accordingly, the estimated import duty benefit against exports effected during the year are accounted as incentives accruing by way of duty-free imports of raw materials yet to be made against the exports.
11. The AO while making the impugned assessment for asst. yr. 1996-97, in the backdrop of the aforesaid facts and features of the case, proceeded to disallow the amount of Rs. 6,22,41,119 on account of utilisation of duty benefit debited to the purchase account. According to the AO, the debit represents contingent liability of customs duty which does not represent admissible business expenditure. The AO placed reliance on the following decisions in support of his conclusion :
(1) Tuticorin Alkali Chemicals & Fertilizers v. CIT (1997) 227 ITR 172 (SC);
(2) Indian Molasses Co. (P) Ltd v. CIT (1959) 37 ITR 66 (SC);
(3) Shree Sajjan Mills Ltd. v. CIT (1985) 49 ITR (SC) 193 : (1985) 156 ITR 585 (SC); and (4) CIT v. Shree Digvijay Cement Co. Ltd. (1983) 144 ITR 532 (Guj) 11.1 The AO further held that the claim of deduction is in any case hit by the mischief of Section 43B since the payment has not actually been made by the assessee during the year. With regard to the credit of Rs. 7,00,24,935 on account of export duty benefit appearing in the P&L a/c, the AO observed vide para. 14 of the assessment order that since the credit amount has been held as income falling within the purview of Section 29(iiib) by the Tribunal in the earlier years, he would proceed on the basis that the amount of Rs. 7,00,24,935 is covered under Section 28(iiib). Even while computing the deduction under Section 80HHC the AO proceeded on the basis that this amount of income falls under Section 28(iiib).
12. The assessee carried the matter in appeal challenging the addition of Rs. 6,22,41,119. The learned CIT(A) vide the impugned order upheld the reasoning and conclusion of the AO and held that the liability in question is a contingent liability and that the deduction in any case is hit by the provisions of Section 43B. The learned CIT(A) accordingly upheld the addition.
13. Aggrieved, the assessee is in appeal before us. S.N. Soparkar, the learned counsel, assailing the impugned addition, strongly urged that the assessee-company is consistently following the mercantile system of accounting recognising the liability of accrued customs duty on the basis of quantum of duty assessed by the customs authorities on the bill of entry and in the DEEC Book when the imports of raw material like yarn, dyes and chemicals are made by the assessee. According to the learned counsel, the assessee has been wrongly subjected to double taxation by the AO inasmuch as the credit entry of customs duty benefit credited to the P&L a/c has been accepted as income whereas a corresponding debit entry of customs duty made to the purchase, account, duly supported by the customs duty liability as quantified and recorded in the DEEC pass book, has been disallowed. The learned counsel further submitted that the IT authorities have not correctly appreciated the method of accounting the export benefits adopted by the assessee and made the impugned addition in violation of the accepted principles of accounting as well as the provisions of the statutory law. The learned counsel assiduously took us through the Duty Exemption Scheme and urged that the customs duty liability debited to the purchase account is the actual liability debited to the books as per the quantification and determination made by the customs authorities by making entries in the bill of entry and DEEC Book. The liability has been satisfied through the utilisation of credit entry of exports incentives in the DEEC pass book. So once the Revenue has accepted the customs duty benefit credited to the P&L a/c as tangible and taxable income of the assessee, it does not stand to reason that the customs duty liability relatable to imports made by the assessee during the year, which is settled by adjustment against the credit entry is treated as a notional and fictional entry and disallowed as contingent expenditure. The learned counsel submitted that the method of accounting the export incentives whereunder customs duty has been debited on imports and customs duty benefit has been separately credited on exports, has been regularly followed by the assessee and accepted by the IT authorities for asst. yrs. 1992-93, 1993-94 and 1994-95. The method of accounting regularly followed, which is in accordance with the accepted principles of accounting, cannot be, according to the learned counsel, rejected by the Revenue authorities. With regard to the invocation of provision of Section 43B, the learned counsel argued that the liability in question has been liquidated by way of adjustment entries in the DEEC pass book and, therefore, the essential requirement contained in Section 43B involving "actual payment" has been duly fulfilled." In support of his contentions, the learned counsel placed reliance on the following decisions :
(1) CIT v. Nainital Bank Ltd. (1966) 62 ITR 638 (SC);
(2) J.B. Boda & Co. (P) Ltd. v. CBDT (1997) 223 ITR 271 (SC);
(3) CIT v. Kaira Dist Co-op. Milk Producers' Union Ltd. (2001) 247 ITR 314 (Guj); and (4) Asstt. CIT v. Shanti Dyeing & Finishing Works (2000) 68 TTJ (Ahd) 214, (2001) 114 Taxman 31 (Ahd).
Relying upon the Legal Thesaurus/dictionary (A resource for the writer and the computer researcher) by William Ptatsky, the learned counsel argued that the payment includes discharge of a debt by way of adjustment or settlement, physical handing over of money is not the only mode of actual payment as envisaged in the provisions of Section 43B. The learned counsel argued that Section 43B should be interpreted in consonance with the purpose and object of the legislature in enacting the provisions.
13.1. Concluding his arguments, the learned counsel strongly urged that the deduction of Rs. 6,22,41,119 deserves to be allowed under Section 37(1) and the payment is not hit by the mischief of Section 43B.
14. Girish Dave, the learned CIT-Departmental Representative, on the other hand, referring to various clauses of the Duty Exemption Scheme formulated under the Exim Policy 1992 to 1997 argued that the assessee is entitled to import raw material without payment of customs duty subject to the fulfilment of a time-bound export obligation as specified under the scheme. According to the learned Departmental Representative since the assessee is entitled to exemption from customs duty on the imports, there is no occasion for claiming any expenditure as accrued business liability under Section 37(1). Dave heavily relied on the decision of the Gujarat High Court in the case of CIT v. Shree Digvijay Cement Co. Ltd. (supra) in support of his contention that since the liability in question is a contingent liability, deduction has been rightly denied by the Revenue authorities. With regard to the credit on account of export duty benefit of Rs. 7,00,24,935 included in the income and brought to tax by the Revenue authorities, the learned CIT argued that the point in issue is the admissibility of deduction of a fictional liability debited to the purchase account by the assessee and, therefore, the credit entry of Rs. 7,00,24,935 is not the subject-matter of any discussion or debate and such a credit entry would not by itself support the assessee's case for deduction of fictional and contingent liability of Rs. 6,22,41,119. The learned Departmental Representative further argued that even if the customs duty liability debited to the purchase account is to be treated as accrued liability, yet, the same would be hit by the mischief of Section 43B inasmuch as actual payment In respect of the aforesaid sum of Rs. 7,00,24,935 has not been made by the assessee to the Government of India. The learned Departmental Representative very emphatically asserted that Section 43B starts with a non obstante clause which reads "notwithstanding anything contained in any other provisions of this Act" and it would, therefore, have an overriding effect over the other provisions of the statute superseding the definition of the word "paid" contained in Section 43(2). The learned Departmental Representative further added that any payment by way of adjustment or settlement of accounts which may be treated as constructive payment would be, in view of the non obstante clause, outside the purview of Section 43B. Dave referred to the decisions of the Supreme Court in the cases of CIT v. Ajax Products Ltd, (1965) 55 ITR 741 (SC). CED v. Silesh Kumai R. Mehta (1990) 181 ITR 10 (Mad) and (1985) 156 ITR 585 (SC) (supra) and argued that the rule of literal interpretation would have to be adopted with a view to affectuate legislative intent as expressed in the unambiguous language of Section 43B. The learned Departmental Representative further relied upon the following decisions :
(1) Ginwartal Shrichand v. CIT, (1967) 63 ITR 248 (All);
(2) CIT v. V.E.L. Properties Ltd., (2000) 248 ITR 140 (Cal);
(3) CIT v. Gujarat Polycrete (P) Ltd., (2001) 114 Taxman 58 (SC);
(4) Etcher Motors Ltd. v. Dy. CIT (1999) 63 TTJ (lad) 640 : (1999) 69 ITD 177 (Ind);
(5) D.M. Wadhwa v. CIT (1966) 61 ITR 154 (Cal);
(6) CIT v. Chemical & Metallurgical Design Co. Ltd. (2001) 114 Taxman 463 (Del);
(7) Lakhanpal National Ltd. v. ITO (1985) 163 ITR 240 (Guj);
(8) Shri Sayan Mills Ltd. v. CIT (supra); and (9) ITO v. Abdul Razzak (1990) 181 ITR 414 (AP).
15. We have given our thoughtful consideration to the facts and circumstances of the case as well as the rival submissions made by the learned representatives of both the sides before us. Various judicial pronouncements of the Hon'ble Supreme Court as well as High Courts cited at the Bar have also been carefully gone through by us. With a view to delineate the contours of the controversy arising before us we feel that it would be necessary to consider the following questions emerging from the rival submissions : .
(1) Whether the claim of deduction of Rs. 6,22,41,119 debited to the purchase account is an isolated and single transaction unconnected with the system and method of accounting of the assessee or in other words, the debit entry of Rs. 6,22,41,119 is an integral part of accounting treatment of export incentives adopted by the assessee in the books of account ?
(2) Whether the method of accounting followed by the assessee is in consonance with accepted principles of accounting as enshrined in the accounting standards formulated by the Institute of Chartered Accountants of India ?
(3) Whether the debit entry of Rs. 6,22,41,119 is hit by the mischief of Section 43B.
We have referred hereinbefore to the entries with regard to the customs duty benefit under the DEEC Scheme recorded in the books of account by the assessee whereby the entitlement of customs duty benefit accruing to the assessee as a result of exports of synthetic fabrics made during the year has been credited to the P&L a/c amounting to Rs. 7,00,24,935 under the head "Duty benefit against exports". This amount has been credited on the basis of duty benefit quantified and determined as per the DEEC Book and credited as payable to the assessee. Further, when the imports of yarn, dyes and chemicals are made, the customs duty calculated on such exports is debited to the accounts of the assessee in the DEEC Book as well as in the bill of entry. In case, the import duty so payable exceeds the duty benefit credit available to the assessee, the assessee is liable to pay the excess duty to the Government of India. If the customs duty calculated on the imported raw material is less than the customs duty benefit available to the assessee, the duty would be debited to the accounts of the assessee in the DEEC Book and on the basis thereof the assessee would also make debit entries in the books of account. In this view of the matter the debit entry regarding the customs duty on the imported raw material as well as the credit entry on account of duty benefit on exports constitute in a composite manner the methodology adopted by the assessee for accounting for the customs duty benefit in the books of account. The debit of Rs. 6,22,41,119 is therefore, an integral and indivisible part of the method of accounting followed by the assessee and cannot be considered as an insolated and single transaction. It is manifestly clear that the debit to the purchase account is intimately and inextricably linked with the credit entry on account of export benefit credited to the duty benefit account and ultimately taken to the P&L a/c. In this view of the matter our answer to the first question is that the question of allowability of deduction of Rs. 6,22,41,119 is to be adjudicated on the basis of acceptability of the method of accounting followed by the assessee. We are not impressed by the agreement of the learned representative of the Revenue that the question of deduction of Rs. 6,22,41,119 is not in any manner connected or linked with the credit entry of Rs. 7,00,24,935 credited to the P&L a/c on account of customs duty benefit on exports made by the assessee. In the facts of the present case the entire system of accounting the customs duty benefit as well as utilisation of the duty benefit for the purpose of making imports has to be considered in a composite manner as method of accounting of the assessee.
16. Now coming to question No. (2) we may point out at the outset that the system of accounting of the export benefits followed by the assessee has been accepted by the AO with the observation that the Tribunal in its earlier orders for asst. yrs. 1992-93, 1993-94 and 1994-95 have accepted the method of accounting as correct. Once the method of accounting followed by the assessee has been accepted as correct, we feel that there is absolutely no justification for the AO to disallow the deduction of Rs. 6,22,41,119. In the instant case, the method of accounting of the export benefits adopted by the assessee appears to be in conformity with the accounting standards formulated by the Institute of Chartered Accountants of India which is a body of professional experts in the field of accountancy. The Institute has issued accounting standard and made it mandatory for the members of the Institute to comply with the standards while conducting audit work. Such accounting standards have been formulated in conformity with the laws, customs, usages and business environment of the country. The Hon'ble Supreme Court has endorsed and approved the authoritative nature of the accounting standards formulated by the Institute. Reference in this connection may be made to the decisions of the Supreme Court in the cases reported in Chatiapalli Sugars Ltd. and Ors. v. CIT (1975)98 ITR 167 (SC) and (1997) 227 ITR 172 (SC) (supra). For our present purpose the Accounting Standard 9 dealing with the basis for recognition of revenue is relevant. This standard, inter alia, provides that the revenue should be recognised when there is no significant uncertainty regarding the amount of consideration that will be derived and when there is no uncertainty as to its ultimate collection. The customs duty benefit accrues to the assessee under the DEEC Scheme when the exports are made by the assessee. The recognition of revenue by way of credit to the P&L a/c is, therefore, in consonance with the accounting standard. As regards the debit to the purchase account on account of customs duty, the full duty payable on such imports is paid by the assessee by way of adjustment of DEEC credit and, therefore, the amount has been debited to the purchase account and claimed as accrued business expenditure. The liability for payment of customs duty accrues and arises when the import of raw material is made by the assessee. The contention of the Revenue that under the Duty Exemption Scheme the payment of customs duty is exempted, has to be viewed in the context of method of accounting followed by the assessee in conformity with the accepted principles under which customs duty benefit is credited on accrual and debited when the benefit is utilised for imports. Utilisation of customs duty benefit for exports of raw material by the assessee has to be booked by way of debit entry to the purchase account inasmuch as the duty benefit has already been credited to the P&L a/c income. The treatment accorded by the assessee in respect of the accounting for of export benefits is thus consistent and in accordance with the Accounting Standards. It is further to be noted that the debit on account of customs duty to the purchase account has been duly taken note of by the assessee while valuing the closing stock inventory in accordance with the Accounting Standard 2. In the circumstances we see no, justification for the AO to disallow the amount of Rs. 6,22,41,119 on the specious ground that it represents contingent expenditure. We specifically put it across to the learned Departmental Representative during the course of hearing whether an expenditure debited to the purchase account and loaded on the closing stock valuation should be treated as fictional and contingent expenditure without disturbing the valuation of closing stock adopted by the assessee. The learned Departmental Representative responded to the query by observing that the focus of the entire controversy is the fictional and contingent debit to the purchase account and not the other unrelated issue like valuation of closing stock or inclusion of a similar credit entry on account of customs duty benefit. We are not pursuaded to accept the contention of the learned Departmental Representative since in our opinion the entire question of deduction of Rs. 6,22,41,119 hinges on the system of accounting of the export benefits adopted by the assessee. Since the system of accounting is in our opinion in conformity with the accepted principles of commercial accounting as well as the provisions of law, we are not inclined to sustain the disallowance of Rs. 6,22,41,119. The recent decision of the Gujarat High Court in CIT v. Kaira District Co-operative Milk Products Union Ltd. (supra) quoted by the learned counsel renders direct support to the view taken by us. The facts in the case before the Hon'ble Gujarat High Court are as under:
"The assessee was a co-operative society engaged in the business of marketing milk and milk products. The assessee received raw material and spares through the Government from the UNICEF free of cost. As against the 'supply of the raw material free of cost, the assessee entered into an agreement with the Government, to supply free of cost, as a matching contribution, a specified quantity of weaning food to a price not exceeding 10 per cent profit over the cost of production. The assessee claimed the value of raw material and spares deductible as cost in the computation of its total income on the ground that the cost of such raw material was required to be reflected when it was put in the business by the assessee even if the raw material was acquired free of cost."
The Hon'ble Gujarat High Court upheld the claim.
17. Now coming to the third question regarding the applicability of the provisions of Section 43B we are afraid that the entire approach adopted by the Revenue is on the face of it illogical and unreasonable. The liability debited to the purchase account on account of customs duty in relation to the imports of raw material has been liquidated by way of adjustment against the credit entry of Rs. 7,00,24,935 which accrued to the assessee on account of exports made during the year. The assessee has in fact virtually a running account with the customs department involving accrual of customs duty benefit on exports receivable by the assessee and customs duty liability on imports of raw material payable by the assessee. The DEEC Book records the credit of export duty benefit available to the assessee and utilisation of the duty benefit by the assessee through instrumentality of imports of raw material. The entries in the books of account of the assessee essentially represent a mirror account reflecting the account maintained by the customs department in the DEEC Book. Thus, the statement of account involving adjustment of debit entry against the duty benefit receivable by the assessee would constitute, in the scheme of things, actual payment in terms of provisions of Section 43B. "Actual payment" does not in any case involve physical tender of cash by the debtor. Any such interpretation would be unrealistic and contrary to the object and purpose of the legislature in inserting the provisions of Section 43B. Section 43B has been enacted into the statute by the legislature for curbing the mischief of withholding of tax payments by the taxpayers while claiming deduction in respect thereof in the income-tax assessment. A literal interpretation de hors the object and purpose of the provision would be violative of the accepted rules of interpretation. Admittedly the non obstante clause with which the section begins restricts the meaning of the word "payment" in supersession of the definition as contained under Section 43(2). However, it would be unreasonable to contend that the word "actual payment" as used in Section 43B envisages physical tender of cash as the only mode of payment. It is a cardinal rule of interpretation of statute that while interpreting a provision, textual as well as contexual perspective both should be given equal primacy and attempt should be made to synchronise textual meaning with the object and purpose of the statute. The learned Departmental Representative has cited the decision of the apex Court in the case of Shri Sajjan Mills Ltd. v. CIT (supra) in support of his plea for adopting literal meaning of "actual payment". However, their Lordships in the said decision while endorsing the strict interpretation of the statutes have held that the principle of strict interpretation does not exclude reasonable construction to give effect to the purpose or intention of any particular provision as apparent from the Act. In our opinion the assessee has made the payment of the, customs duty claimed during the year by way of adjustment entry in a running account and, therefore, the provisions of Section 43B do not apply. The decision of the Supreme Court in the case of J.B. Boda & Co. (P) Ltd. v. CBDT (supra) cited by the learned counsel fully supports the view taken by us. The assessee in this case was a reinsurance broker and made remittance of reinsurance premium to foreign reinsurers after retaining his commission. The Supreme Court held that the commission retained is "income received in convertible foreign exchange" and formal remittance to foreign company and receipt thereafter is not necessary for the purpose of relief under Section 80-O of the IT Act. Their Lordships held :
"A two-way traffic is unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual on the facts of the case."
The learned Departmental Representative has next relied on the Supreme Court decision in the case of CIT v. A. Krishnaswami Mudaliar (1964) 53 ITR122 (SC) wherein it has been held that an assessee ought to get the advantage and suffer the disadvantage of the method of accounting employed by him. This decision in our opinion reinforce the conclusion arrived at by us above that the method of accounting regularly followed by the assessee, which is in accordance with well recognised principles of accounting, cannot be rejected.
18. Before parting with these grounds of appeal we may point out that a string of judicial authorities cited by the learned Departmental Representative in support of Revenue's case have been carefully gone through by us and we find that these decisions are entirely distinguishable and do not support the case of the Revenue.
19. In CIT v. Shri Digvijay Cement Co. Ltd. (supra) relied upon by the learned Departmental Representative the liability debited in the books by the assessee-company was admittedly the contingent liability to the State Trading Corporation of India. The amount payable to the assessee by the CACO of sale was withheld for meeting the contingent liability to the STC of India: The decision, therefore, does not help the Revenue.
20. In Ginwarlal Shri Chand v. CIT (supra) it was held by the Allahabad High Court that no deduction can be made under the mercantile system of accounting unless an ascertained and enforceable liability exists. In the instant case the facts are distinguishable inasmuch as the liability of customs duty on account of import of raw material is an ascertained and crystallised liability which has been discharged by the assessee by way of adjustment against the customs duty benefit under the Duty Exemption Scheme. Therefore, the decision does not help the Revenue.
21. The other decisions cited by the learned Departmental Representative particularly on the question of accrued liability as well as applicability of provisions of Section 43B have also been gone through by us and we find that they are entirely distinguishable and render no assistance to the Department's case.
22. Ground Nos. (1) to (4) are allowed.
23. Ground No. (5) is against the sustaining of addition of Rs. 2,40,000 incurred for raising share capital. The learned counsel submitted that the expenditure in question is admittedly of capital nature and is not allowable. However, it is urged that the assessee has not debited the amount in the P&L a/c and, therefore, no disallowance should be made. We hold accordingly. The matter is restored back to the file of the AO with the direction that in case the amount has been claimed by way of deduction, the disallowance would be maintained.
24. Ground No. (6) is not pressed and the same is dismissed.
25. Ground No. (7) is against the levy of interest under Section 234B. The learned counsel urged that the CIT(A) declined to entertain the ground despite the fact that the assessee denied its liability to pay interest under Section 234B. Reliance was placed on the decision of the Supreme Court in the case of CIT and Ors. v. Ranchi Club Ltd. The provisions governing the levy of interest under Sections 234A and 234B are subject-matter of retrospective amendment in the Finance Bill, 2001 by the legislature. In the circumstances we would restore the matter back to the AO for fresh consideration and decision in accordance with law.
26. In the result, the assessee's appeal is disposed of as above.
27. Now we take up the cross-objection filed by the Revenue. Ground No. 1 of the cross-objection reads as under:
(1) In case it is directed by the Hon'ble Tribunal to allow the deduction of customs duty payable and delete the addition under Section 43B, the assessee's contention should not be accepted that the customs duty is an allowable expenditure under Section 37 of the IT Act- It is a notional entry and the same was not payable to the Customs Department as the same was exempt. Moreover, there is no enforceable liability for such expenditure, so it is not allowable under Section 37 of the IT Act following the decision of Gujarat High Court in the case of CIT v. Shri Digvijay Cement Ltd. (supra).
27.1. This ground reiterates the case of the Department regarding deduction of Rs. 6,22,41,119 debited to the purchase account under Section 37 as well as 43B of the Act. We have already considered and disposed of this issue while deciding the assessee's appeal as above. This ground is therefore, dismissed.
28. Ground Nos. (2), (3) and (4) read as under:
(2) If the addition under Section 43B is deleted, deduction under Section 80HHC should not be allowed for the notional credit entry and the assessee's working for 80HHC should not be accepted in view of the fact that the matter is sub judice before Gujarat High Court in the assessee's own case for earlier years.
(3) The proviso to s. 80HHC(3) should not be interpreted as providing something by way of an addendum to the main enactment. Reliance is placed in the decision of Supreme Court in the case of CIT and Ors. v. The Indo Mercantile Bank Ltd. and Ors. AIR 1959 SC 713.
(4) When there is a loss from the export business, the proviso to s. 80HHC(3) should not be applied and the assessee should not be allowed deduction under Section 80HHC in view of the decision of Tribunal Madras Bench in the Krishlar Diesel Engines v. Asstt. CIT (2000) 69 TTJ (Mad) 46 : (2000) 74 ITD 414 (Mad).
28.1. These grounds are mainly concerned with the computation of deduction under Section 80HHC in the asst. yr. 1996-97 under appeal. The relevant facts having a bearing on the computation of deduction under Section 80HHC may be briefly indicated. The assessee claimed deduction under Section 80HHC amounting to Rs. 7,16,03,516. The computation of deduction as claimed by the assessee has been reproduced by the AO in para 6 of the assessment order as under:
STATEMENT C Profit of the Business Rs.
Rs.
Profit of the business 46,176,266 Less : (a) 90% of export incentive
(i) Premium on REP licence 34,18,989
(ii) Duty benefit against export 7,00,24,935
(iii) Excise duty refund 2,85,14,626
(iv) Duty drawback 1,08,85,616 Export incentive 11,28,44,066 90% of Rs. 11,28,44,065 10,15,59,659
(b) 90% of interest, commission & rent interest 32,58,446 90% 3,258,446 29,32.602 10,44,92,260 10,44,92,260
-58,315, 994 STATEMENT-D A Profit of the business X Export turnover Total turnover (-) 5,83,15,994 X 27,77,59,426 =Nil 40,53,39,178 B. 90% of export incentive X Export turnover Total turnover 10,44,92,260 X 27,77,59,426 40,53,39,178 =7,16,03,516 Total deduction under s 80HHC (A+B)
-7,16,03,516 28.2. The AO has, however, allowed the deduction as per p. 17 of the assessment order amounting to Rs. 7,24,48,103. While making the assessment and allowing the aforesaid amount of deduction, the AO observed that in case the assessee succeeds before the appellate authorities in the matter of allowing deduction of Rs. 6,22,41,119 debited to the purchase amount as above, in that case the assessee would not be entitled to any deduction whatsoever under Section 80HHC. The reasoning of the AO is that the profits of the business computed by the assessee as per Expln. (baa) below s. 80HHC(4B) is a negative figure and, therefore, the assessee has incurred loss in the export business and no deduction under Section 80HHC would be allowable.
28.3. Since the learned CIT(A) upheld the action of the AO in rejecting the claim of Rs. 6,22,41,119, the issue regarding quantification of deduction under Section 80HHC, as raised by the AO above did not survive.
28.4. Now, since we have held above that the deduction of customs duty debited is allowable to the assessee, a whole controversy regarding the computation of deduction under Section 80HHC, which is the subject-matter of cross objection by the Revenue is very much material and needs adjudication by us. Before we proceed further with the question of computation of deduction under Section 80HHC, it may be pointed out that S.N. Soparkar, the learned counsel for the assessee raised a preliminary objection against the entertainment of the cross objection of the Revenue on the ground that it may lead to an enhancement of income which is beyond the purview of power of the Tribunal. The preliminary objection is, in our opinion, without any merit since the AO has recorded an alternative finding in the assessment order that the assessee would not be entitled to any deduction under Section 80HHC in case the customs duty debited to the purchase account is allowed. There is, therefore, no question of any enhancement involved in the admission of the grounds raised by the revenue in the cross objection. We accordingly admit the grounds for adjudication.
29. Regarding the computation of deduction under Section 80HHC, Dave, the learned CIT Departmental Representative raised a preliminary issue before us that notional credit of Rs. 7,00,24,935 to the P&L a/c on account of customs duty benefit would not fall under Section 28(iiib) of the Act and would, therefore, be liable to be excluded from the computation. Soparkar, learned counsel, on the other hand, pointed out that the issue stands settled by the earlier orders of the Tribunal in the assessee's own case for asst. yrs. 1992-93 and 1993-94 as well as 1994-95 wherein it has been held that the amount of duty benefit credited to the P&L a/c is covered under Section 28(iiib). In fact, the AO in the assessment order for the asst. yr. 1996-97 under appeal while computing the deduction under Section 80HHC, himself has proceeded on the basis that the duty benefit credit to the P&L a/c is profits under Section 28(iiib). Without entering into any further discussion on the matter we feel that the export benefit of Rs. 7,00,24,935 is covered under Section 28(iiib) of the Act.
30. Dave, the learned GIT Departmental Representative took us through the computation of deduction under Section 80HHC as made by the assessee in the return and strongly urged that since the profit of business as per Expln. (baa) is a negative figure, the assessee has incurred loss in the export business and no deduction under Section 80HHC is allowable to the assessee. Regarding the proviso appended to Sub-section (3) of Section 80HHC, Dave argued that the function of the proviso is to carve out an exception to the main provision. He further added that the proviso cannot be construed as enlarging the scope of an enactment and therefore, the proviso to Section 80HHC(3) would be operative only if the assessee has profits from the export business. In support of his contention Dave placed reliance on the following decisions :
(1) CIT v. Indo Mercantile Bank Ltd. (1959) 136 ITR 1 (SC); and (2) CIT v. Madurai Mills Co. Ltd. (1973) 89 ITR 45 (SC).
30.1. The learned Departmental Representative also quoted for Principles of Statutory Interpretation by Justice G.P. Singh from pp. 159 to 166 wherein the function of the proviso appended to a provision have been elaborated by the learned author. The learned Departmental Representative strongly urged that when there is a loss from the export business, proviso to Section 80HHC should not be applied and the assessee should not be allowed deduction under Section 80HHC. In support of his contentions, reliance has been placed on the following decisions :
(1) CIT v. V.T. Joseph (1997) 225 YTR 731 (Ker);
(2) Krishlar Diesel Engines v. Asstt. CIT (supra);
(3) Themis Agencies v. Dy. CIT BCAJ Vol. 30, Part 9 December, 1998; and (4) IPCA Laboratories v. Dy. CIT(2001) 70 TTJ (Mum) 991.
30.2. The learned Departmental Representative concluded his arguments by observing that since the assessee has incurred a loss in export business, deduction under Section 80HHC should not be allowed.
31. Soparkar, the learned counsel for the assessee, on the other hand, strongly urged that "A" Bench of the Tribunal in the case of the assessee itself for earlier asst. yrs. 1992-93, 1993-94 and once again for asst. yr. 1994-95 has, after elaborate discussion of the facts and issues, held in favour of the assessee company. According to the learned counsel, the Hon'ble Gujarat High Court has admitted the following question of law as raised by the Department in reference to asst. yrs. 1992-93 and 1993-94 :
"Whether, in the facts and circumstances of the case, the Tribunal was justified in law in holding that the proviso to Section 80HHC(3) should be read independent of Clause (a) or (b) or (c) and not together so as to ignore the negative figure or a loss which now work out as per aforesaid clause ?"
31.1. The learned counsel further added that insofar as asst. yr 1994-95 is concerned, the Department has accepted the finding of the Tribunal and not filed reference application under Section 256(2). On these facts the learned counsel strongly emphasized that it would not be appropriate for the Tribunal to review the entire situation particularly when the Hon'ble Gujarat High Court is seized of the issue. The learned counsel further placed reliance on the following decisions of various Benches of the Tribunal.
(1) A.M. Moosa v. Asstt. CIT (1996) 54 TTJ (Coch) 193;
(2) Avon Cycles v. Asstt. CIT (1997) 59 TTJ (Chd) 57;
(3) Alpine Solvex Ltd. v. Dy. CIT [ITA Nos. 510 & 1026/97, (Ind)]; and (4) Hindustan Fashion Ltd. v. Asstt. CIT (1998) 61 TTJ (Ahd) 734.
31.2. The learned counsel vehemently argued that in view of the aforesaid decisions of various Benches of the Tribunal including as many as three decisions of Ahmedabad Bench of the Tribunal, the entire issue stands covered and needs to be decided in favour of the assessee. The learned counsel submitted that while computing deduction under Section 80HHC, the first component which is a negative figure should be ignored and the profit as worked out under the proviso should be adopted for the purpose of deduction under Section 80HHC, as held by the various Benches of the Tribunal as above.
32. We have carefully considered the rival submissions and gone through the various decisions cited by the learned representatives before us. Since the entire issue of deduction involved in the cross-objection rests on the interpretation of the provisions of Section 80HHC, it will be useful to analyse the provisions contained in Section 80HHC for computation of deduction. Section 80HHC(1), as it stands for the relevant period being asst. yr. 1996-97 envisages deduction of the profits derived by the assessee from the export of such goods or merchandise. Section 80HHC(3) provides for quantification of profits derived by the assessee from exports. This computation provision lays down three stages for computation of profits derived from exports :
(1) In the first stage, "profits of the business" are to be computed as per Expln. (baa) appended below Section 80HHC(4B) = Profits and gains of business as computed under the head "business income" minus 90 per cent of any sum under Clauses (iiia), (iiib) and (iiic) of Section 28 or any receipt by way of brokerage, commission, interest, etc. (2) Calculate proportion of the aforesaid "profits of business" as export turnover bears to the total turnover of the business carried by the assessee.
(3) Proviso lays down that the figure arrived at in stage No. (2) above would be further increased by an amount which bears to 90 per cent of any sum referred to in Clause (iiia), (iiib) and (iiic) of Section 28, same proportion as export turnover bears to the total turnover of business.
33. From the aforesaid working, it would be seen that the profits derived from exports as per Section 80HHC(1) which qualifies for relief would be the amount arrived at in the second stage which is further increased by the amount arrived at in the third stage as above. If the figure in the first stage as above works out to be negative, it clearly means that the same would have to be ignored for the purpose of working out the proportionate figure in the second stage as above and in that eventuality "profits of the business" would be adopted as Nil. There is obviously no question of calculating the proportion of a negative figure in the aforementioned second stage and the profits derived from exports, for the purpose of Section 80HHC(1) would in that case comprise of the amount arrived at in the third stage as above.
34. The interpretation being placed by us is fully supported by the rule of literal interpretation as well as rule of purposive interpretation of statutes. It is relevant to note that Section 80HHC(1) as well as Section 80HHC(3) along with the proviso appended thereto consistently speak of profits. The word "Profit" is understood and known in the common parlance as well as in the commercial world as excess of incoming over outgoing. The computation Section 80HHC(3)(a) provides for computation of profits derived from exports comprised in two components, say, (A) and (B). The profit component (A) is to be further increased by profit component (B) to arrive at the profits derived from exports for purpose of Section 80HHC(1). It is to be noted that the section envisages both the profit components as positive figures and there is no occasion to any adjustment if the figure as worked out under Expln. (baa) is a negative figure. What Section 80HHC(3) provides for is not the algebric sum of the two profit components, one computed under the main section i.e., Clause (a) and the other computed under the proviso to the section. Had the legislature used the word "income", the word may have negative connotation also in the light of the inclusive definition on income under Section 2(24) of the Act.
35. The fact that the word "profit" is intended by the legislature to have positive connotation, as commonly understood in the commercial world, is further manifested by the other computation provisions enacted in the IT Act, 1961, like Section 67A which lays down the method of computing a member's share in income of AOP or BOI Clauses (a), (b) and (c) of Sub-section (!) of Section 67A are relevant in this connection. If the amount computed in Clause (a) is a profit, then Clause (b) would apply and the amount shall be added to interest, salary, etc. to arrive at the member's share. If the amount computed in Clause (a) is a loss, then Clause (c) would apply and the loss amount shall be adjusted against the interest, salary, etc. to arrive at the members share. We may note here that a similar method of computation had been earlier laid down in Section 67 for computing a partner's share in the income of a firm (since omitted by the Finance Act, 1922, w.e.f. 1st April, 1994).
36. The afroresaid provisions fully reinforce the view taken by us as above that first profit component as per main Section 80HHC(3)(a) is envisaged as a positive figure which is to be further increased by the amount arrived as per proviso thereto. The expression "further increased by" used in the proviso by the legislature puts the matter, in our opinion, beyond any controversy.
37. At this stage it would be useful to refer to Expln. (baa) below Section 80HHC(4B) which defines the expression "profits of the business" used in Section 80HHC(3)(a). It provides that profits of business as computed under the head "profits and gains of business or profession" as reduced by ninety per cent of export incentives, and receipts like brokerage, commission, interest, etc. The words "as reduced by" clearly implies that quantum of reduction is to be limited to the figure of profits which is to be reduced. While considering the word "reduced" in Section 225(3) of the IT Act it has been held by the Supreme Court in Sri Mohan Wahi v. CIT (2001) 248 ITR 799 (SC) that the term "reduced" in Section 225(3) would include a case where the demand consequent upon any appeal or any proceedings under the IT Act has been reduced to Nil also. We may further refer to the decision of the Hon'ble Supreme Court in the case of Motor Transport Controller Maharashtra State v. Provincial Rashtriya Motor Kamgar Union AIR 1964 SC 1690 wherein their Lordships while construing the word "reduction" held that reduction can only be used when something is left after reduction. Thus, the phraseology used by the legislature while enacting Section 80HHC(3) clearly indicates that the figure arrived at as per Expln. (baa) would be a positive figure (which includes a Nil figure also) provided the assesses has positive income under the business head.
38. It is interesting to note that the computation provision i.e., Section 80HHC(3) has been so designed and conceived by the legislature that an assessee engaged in export business as well as deriving income from domestic business would not be deprived of the benefit of the incentive provisions in the eventuality of loss incurred in the domestic business. Clause (a) applies to an assessee manufacturer who is exporting his goods as well as selling them in the domestic market. Under the main clause i.e., Clause (a) of Section 80HHC(3) the first profit component is to be calculated by excluding 90% of the export incentive in the same proportion as export turnover bears to the total turn over. Proviso stipulates that the aforesaid amount which is virtually deducted while calculating the first profit component is added back by virtue of the proviso. The method of computation thus laid down by the legislature providing for deduction of the proportionate amount of export incentive in the first stage and adopting the same percentage in the second stage for arriving at the profits derived from exports, clearly indicates that the computation has been designedly made in such a way as to benefit the export manufacturer even if he is running into heavy loss in the domestic market.
39. Needless to say, Section 80HHC is an incentive provision enacted by the legislature with the objective of boosting foreign exchange earnings of the Government and such an incentive provision would obviously be interpreted in a liberal manner. In the instant case the basic conditions as implicit in the incentive provision are fulfilled by the assessee before us inasmuch as goods manufactured have been exported and foreign exchange has been realised and since the composite picture of business including export business as well as domestic business, reflected in the books depicts a substantial amount of profit of Rs. 5,13,76,033. Once the basic conditions are satisfied, the computation provisions contained under Section 80HHC(3) would have to be applied in a liberal manner which is beneficial to the assessee. The approach adopted by us above is in consonance with the object and purpose of the legislature in enacting the incentive provision under Section 80HHC. The purposive approach has in fact been harmonised with the literal rule of interpretation while analysing the provisions contained under Section 80HHC(3).
40. The learned senior Departmental Representative has argued that the proviso appended to a provision could not enlarge the scope and ambit of the main provision. Admittedly this is the normal function of a proviso which is engrafted to a statutory provision by the legislature. Generally a proviso cuts down the scope and ambit of the main provision to which it is appended. However, in the instant case the proviso appended to Section 80HHC(3) provides in unambiguous and unequivocal manner that the profits computed in the main provision would be further increased by the amount to be calculated as per the proviso. Thus, the legislature has clearly made a departure from the normal restrictive function of a proviso and intended the proviso to further enlarge the scope of the small provision. The express legislative intention which is manifestly clear from the unambiguous language used while drafting the proviso cannot be ignored merely on the basis of certain rules of interpretation regarding normal function of proviso. Any such approach, which is suggested by the learned Departmental Representative before us, would be contrary to the express provisions of Section 80HHC(3) and would be impermissible in law. We are therefore, inclined to reject the contention of the learned CIT-Departmental Representative that if the profit component "A" is worked out at a negative figure, proviso becomes a mere surplusage.
41. The learned senior Departmental Representative has vehemently urged that since "profits of the business" as computed under Expln. (baa) is a negative figure, the assessee has incurred loss in export business. In our opinion this contention is contrary to the facts and law and cannot be accepted. As we have already pointed out that the profits derived from exports for the purpose of Section 80HHC(1) are to be arrived at by the first profit component as computed under the main provision which is further increased by the second profit component as worked under the proviso thereto. The first profit component worked out under the main provision does not represent profits or loss of the export business. The figure of profits from export business are to be arrived at on the basis of computation as laid down under Section 80HHC(3). Merely because the figure worked out under Expln. (baa) is negative, would not lead to the conclusion that there is loss in the export business. Any such assumption would be contrary to the express provisions of Section 80HHC(1).
42. The learned senior Departmental Representative has also referred to the provisions of Section 80AB in support of his contention that the assessee is not entitled to deduction under Section 80HHC. We feel that the contention of the learned Departmental Representative is not, based on the correct appreciation of Section 80AB. Section 80AB read in the context of Section 80HHC, lays down the restrictive condition that the deduction would he restricted to the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income". Now in the instant case the profits derived by the assessee from exports would qualify the deduction from gross total income and such profits are to be computed in accordance with the provisions contained under Section 80HHC(3). Section 80AB, therefore, does not in any manner runs contrary to the computation provision as contained under Section 80HHC. The contention of the learned Departmental Representative is therefore, without substance and is rejected.
43. The learned Departmental Representative placed reliance on the decision of the Kerala High Court in the case of CIT v. V.T. Joseph (supra). The said decision has been rendered in the context of the provisions contained under Section 80HHC as it stood for asst. yr. 1983-84. The said provision has undergone sea change because of the amendments made by the legislature from time to time and the said decision would, therefore, render no assistance to the Department's case while construing the provisions of Section 80HHC(3)(a).
44. Having regard to the aforesaid discussion we are inclined to express our respectful concurrence with the earlier decisions of the Ahmedabad Bench of the Tribunal in the case of the assessee for asst. yrs. 1992-93, 1993-94 and 1994-95 as well as the decision of Cochin Bench, Chandigarh Bench and Indore Bench of the Tribunal taking a similar view. In any case, since the entire issue is before the Hon'ble Gujarat High Court in reference filed by the income-tax Department for asst. yrs. 1992-93 and 1993-94 we are not inclined to take a contrary view or refer the issue to a larger Bench for consideration. At this stage we may observe that Dave fairly conceded that since the issue is ending adjudication before a higher judicial forum, it may not be appropriate for us to disagree with the earlier decision of the Ahmedabad Bench as referred to above.
45. For the reasons as discussed hereinbefore, we hold that deduction under Section 80HHC would be computed in accordance with the observations/directions as given above.
46. In the result, the cross objection of the Revenue is dismissed.