Income Tax Appellate Tribunal - Mumbai
Pink Star vs Deputy Commissioner Of Income-Tax on 23 February, 1999
Equivalent citations: [2000]72ITD137(MUM)
ORDER
Pradeep Parikh, A.M.
1. The assessee is in appeal before us against the order of the ld. CIT(A) dated 28-9-1997 for assessment year 1994-95. There are two main grounds in the appeal, one relating to deduction under section 80HHC of the Income-tax Act, 1961 ("the Act") and second, relating to deduction under section 80-I of the Act. Four main issues are involved in the ground relating to section 80HHC which are as follows :
(a) Whether premium received by the assessee on sale/surrender of import licences is to be included in the total turnover or not.
(b) Whether the profits of the business have to be reduced by 90% of gross labour charges or by 90% of net labour charges received by the assessee.
(c) Whether the profits of business have to be reduced by 9096 of gross interest received by the assessee or by 9096 of the net interest received by the assessee.
(d) Whether the profits of the business have to be increased by 90% of the net premium received from the Government of India.
2. The assessee firm is engaged in the business of importing of rough diamonds, processing them and exporting of cut and polished diamonds. The assessee furnished its return of income showing nil income. In the computation it had claimed a deduction of Rs. 88,40,538 under section 80HHC. For the year under consideration assessee had no local turnover. So far as the first issue is concerned, it was observed that the assessee had credited its profit & loss account by a sum of Rs. 15,47,005 as premium received on surrender of own licences and Rs. 36,46,824 as premium received on surrender of the licences purchased by it from the open market. Thus, the aggregate licence premium received by the assessee amounted to Rs. 51,93,829. While computing deduction under section 80HHC, assessee did not include either of the two amounts in the total turnover on the ground that it was an incentive received by it from the Government and hence fell under clause (ba) of the Explanation to section 80HHC. The Assessing Officer referred to Circular Nos. 11/93 dated 5-5-1993 No. 1/2/REP/74-EPG (Pt) and REP Circular No. 14/93 dated 13-9-1993 No. 1/2/REP/74-EPG(Pt) and also referred the matter to the Directorate of Foreign Trade, Ministry of Commerce, Government of India. On consideration of all these materials before him Assessing Officer was of the view that the aggregate amount of Rs. 51,93,829 cannot be treated as cash incentive and that the amount should also form part of the total turnover. In this regard the CIT(A) directed the Assessing Officer as follows :
"The Assessing Officer shall verify that the profits earned by the appellant on sale of licences were in respect of those licences which the assessee itself has received under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947)."
3. In this connection it was stated by the ld. counsel that assessee had received certain licences from the Joint Chief Controller of Imports against its own exports. These licences were surrendered to the Government of India, for which it received a premium of Rs. 15,47,005. Besides this the assessee also had purchased import licences in respect of rough diamonds from the open market at a cost of Rs. 30,59,799. These licences were also surrendered to the Government for premium of Rs. 36,46,824. Referring to clause (ba) of the Explanation to section 80HHC, the ld. counsel submitted that these were incentives referred to in clauses (iiia), (iiib) and (iiic) of section 28 and hence could not form part of total Reference was then made to section 28. Referring to clause (iiia) of section 28, it was submitted that since the assessee had sold the licences held by it, it was a profit under section 28 and it was also to be excluded from the "total turnover" as provided in clause (ba) of the Explanation. Since the licences were not sold in the open market, but were surrendered to the Government, it was also submitted that if the transaction is not considered to be a sale of licence, then by virtue of surrendering them to the Government, the premium received as a result thereof should be treated as cash assistance as mentioned in clause (iiib) of section 28. Thus, in nut shell, the contention of the ld. counsel was that the total premium received by the assessee on sale/surrender of import licences fell either under clause (iiia) or clause (iiib) or under both, of section 28. This being the case, it was contended that as per clause (ba) of the Explanation the sum of Rs. 51,93,829 cannot be treated as turnover. So far as this aspect is concerned, the ld. D.R. relied on the order of the Assessing Officer.
4. We have given our due consideration to the rival contentions. The issue is whether the sum of Rs. 51,93,829, being premium on sale/surrender of import licences has to be included in total turnover or not for the purpose of computing deduction under section 80HHC of the term "total turnover" in clause (ba) of the Explanation to section 80HHC which we reproduce below for immediate reference :
"(ba) "total turnover" shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) :
Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28;"
The proviso specifies that on and from assessment year 1991-92, "total turnover" shall not include any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28. For immediate reference, we reproduce below the said clauses :
See. 28 cl. (i) to (iii) ........
cl. (iiia) "profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947);
cl. (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;
cl. (iiic) any duty of customs or excise re-paid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;
5. For our purposes, we shall divide the premium amount (Rs. 51,93,829) into two parts, viz,. (a) premium received on own licences (Rs. 15,47,005) and premium received on licences purchased in the open market (Rs. 36,46,824) and deal with them separately. First we take up the issue pertaining to premium received on own licences.
6. Admittedly, clauses (iiia) to (iiic) of section 28 pertain to various incentives as exporter is entitled to on effecting exports. Grant of an import licences is one such incentive which enables the exporter to import raw material. This is a facility which enables the assessee not only to obtain the raw material of the required quality if the same is not available in the local market, but it also facilitates to procure raw materials at a cost lower than that obtaining in the local market. In the instant case, assessee was granted such licences under the Imports (Control) Order, 1955 on exports effected by it. Thus assessee earned this incentive on fulfilling its export obligation. The licences could have enabled the assessee to import rough diamonds at a lower cost. However, with the introduction of full convertibility of the rupee, exporters who had completed their exports but had not completed their imports stood to lose if goods were to be imported under the licences they held. Hence, in order to adequately compensate the exporters, Ministry of Commerce, Government of India announced a scheme vide its Circular No. 1/2/REP/74-EPC (pt) dated 5-5-93, whereby the Government was to pay cash amount equivalent to 8% of their unutilised import licences. The sum of Rs. 15,47,005 represents this 8% of unutilised import licence.
7. Earlier we have already mentioned that grant of import licence to an exporter by a governmental authority under the import-export policy of the Government is an incentive earned by the exporter. This incentive could not be put to intended use profitably on account of change in governmental policy itself and hence government offered cash equivalent to the exporter. This, in our opinion, shall certainly fall within clause (iiib) of section 28. It is undoubtedly "cash assistance (by whatever name called)" received against exports under a scheme of the Government of India. Incentive in the form of import licence was, of course, not a cash assistance. But in view of changed circumstances, government itself converted it into cash and, therefore, it became a cash assistance for the exporter falling under clause (iiib) of section 28.
8. We may clarify that in our view of the matter, the said sum of Rs. 15,47,005 shall not fall in clause (iiia) of section 28. The licences were granted by the government as an incentive and the assessee exchanged the licences for cash equivalent with the government. In our opinion, there is no sale of licence but it was exchange of licence for cash with the Government. The prescribed application forms for claiming the premium also describe it as surrender and not as sale. Hence we categorically hold that the premium received by the assessee will not fall under clause (iiia) of section 28 but will fall under clause (iiib) thereof and shall not form part of the turnover as envisaged and provided in the provision to clause (ba) of the Explanation to section 80HHC.
9. Now we come to the second part of the premium, i.e., Rs. 36,46,824 received on surrender of licences purchased by the assessee from open market. This amount also cannot be added to the total turnover. What we are concerned within section 80HHC is export profits. In case of a processor, in order to determine export profits, under clause (a) of sub-section 13) of section 80HHC, one is required to determine profits of business. Profits of business, as per clause (baa) of the Explanation to section 80HHC means profits of business determined under the head "Profits and gains of business or profession", as reduced by, inter alia, ninety per cent of the sums referred to in clauses (iiia), (iiib) and (iiic) of section 28. Clause (iiia) of section 28 refers to profits on sale of a licence granted under the Import (Control) Order. Thus what has to be reduced while determining profits of business is profit on sale of licence. Again, under proviso to section 80HHC(3), profits of business are to be increased by the amount which bears to 90% of the sums referred to in clause (iiia) (except profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as export turnover bears to the total turnover of the business.
10. From the above discussion it is clear that after determining export profit on trading, what has to be added is the profit on sale of licence. When profit of an independent item is added to already determined profits of business, logically, the question of including sale proceeds of a licence does not arise. Both the profits are determined independently, hence the sale proceeds of the two items need not be and should not be mixed. The accounting logic is specifically approved by the Legislature by providing in clause (ba) of the Explanation to section 80HHC reproduced earlier. Thus, the amount of Rs. 36,46,824 shall not form part of total turnover. Accordingly, the first issue is decided in favour of the assessee, that is, the amount of Rs. 51,93,829 (Rs. 15,47,005 + Rs. 36,46,824) shall not form part of the total turnover.
11. Since issue (d) mentioned in para 1 is closely related to the issue determined above, we take up the said issue before taking up issues at (b) and (c) mentioned in first para above. The AO, while computing deduction under section 80HHC, did not deal with export incentives at all. While determining profits of business, he did not follow the mandate of clause (baa) of the Explanation to section 80HHC, i.e., he did not reduce the profits of business by 90% of the sums referred to in clauses (iiia), (iiib) and (iiic) of section 28. Correspondingly, after determining the profits of business, the AO also did not follow the mandate of the proviso to sub-section (3) of section 80HHC. We fail to comprehend why he failed to do so. The object of clause (baa) is to first determine the actual business profits and hence all other receipts/profits are delinked. Then under clause (a) of sub-section (3) of section 80HHC, export profit is carved out of the business profit so determined. Finally, since export incentives have a link with actual export performance, proviso to sub-section (3) again links up the incentives partly to enable the assessee to claim deduction thereon. Thus AO ought to have carried out this exercise while computing deduction under section 80HHC.
12. Now we see the facts of the case before us. Assessee got a premium of Rs. 15,47.005 on surrender of own licences. Besides this, assessee procured licences worth Rs. 30,59,799 from open market and got a premium of Rs. 36,46,824 on surrender of these licences. Thus net surplus on licences was 15,47,005 + 36,46,824 - 51,93,829 - 30,59,799 = Rs. 21,34,030. The AO ought to have reduced 9096 of Rs. 21,34,030 from profits of business as per clause (baa). Therefore, having determined profits derived from export as per clause (a) of sub-section (3), said profits have to be increased by 90% of the export incentives on prora basis. However, there is only one exception. Profits on sale of a licence acquired from any other person cannot go to augment the export profit. In the instant case, assessee got a premium of Rs. 36.46,824 on licences acquired from other persons at a cost of Rs. 30,59,799. The intention of the Legislature is to grant deduction to the exporter on incentive earned by it. Earlier, in case of premium of Rs. 15,47,005 we have held that these were licences earned by the assessee on its export performance. The same is not true so far as licences acquired from open market are concerned. The acquisition of these licences have no connection whatsoever with the export performance of the assessee. It doesn't matter that the same were surrendered to the Government and Government itself paid cash. The fact remains that these are not incentives earned by the assessee and hence cannot claim deduction on the same. If assessee's plea to include 90% of such premium in export profit is accepted, at times it may lead to disastrous situation. A non-exporter may acquire licence in the open market and on earning profit thereon, may claim deduction under section 80HHC. The argument of the assessee that it is not a trader in licence is also not helpful to it. To a regular trader in licence, of course, the deduction cannot be allowed. At the same time, in case of a regular exporter also no distinction can be made for the reason that it is not an incentive in his case also. Thus, we hold that export profit derived as per clause (a) of sub-section (3) shall be increased by 9096 of Rs. 15,47,005 only and not by 9096 of Rs. 21,34,030. This finishes us with issues (a) and (a) mentioned in first para of this order.
13. Now we take up the remaining issues connected with the deduction under section 80HHC. They are, whether, profits of the business have to be reduced by 90% of gross labour charges received by the assessee or by 90% of net labour charges. Second issue is the same but in connection with interest. At the outset we take up the issue relating to labour charges and a few facts first in connection therewith. The assessee firm had undertaken to get the rough diamonds belonging to M/s. Swati Diamonds cut and polished on commission basis. Assessee got 8887.50 carats of diamonds cut and polished on behalf of M/s. Swati Diamonds from various cutters at Mumbai and Surat. The diamonds, when cut and polished, weighed 2341.28 carats and for getting them cut and polished, assessee paid total labour charges of Rs. 23,31,585. These labour charges were reimbursed to the assessee by M/s. Swati Diamonds. Thus, since the labour charges account got squared off, the payment as well as receipt thereof were not reflected in the profit and loss account. However, as;" agreed upon, M/s. Swati Diamonds paid Rs. 93,264 being 4% commission on the labour charges, which was duly reflected by the assessee in its pro fit and loss account. While computing deduction under section 80HHC, assessee, as per the provisions of clause (baa) of the Explanation to section 80HHC, reduced 90% of Rs. 93,264 from profits of the business. AO, however, had different views. He called for a detailed manufacturing and profit & loss account. In the detailed profit & loss account, assessee showed labour charges of Rs. 23,31,585 on the debit side and an equal amount on the credit side. AO was of the view that as per clause (baa), it were receipts which were included in such profits which were to be reduced and not the net receipts. Accordingly, he reduced the profits of the business by 90% of Rs. 23,31,585 thereby ignoring the expenditure of like amount incurred by the assessee. CIT(A) upheld the action of the AO without any application of mind. The contention of the ld. counsel is that clause (baa) envisages net receipts and not gross receipts and further, he has relied on the decision of the Mumbai Bench of the Tribunal in the case of Kantilal Chhotalal [IT Appeal No. 2045 (Mum.) of 1996, dated 30-4-98]. The ld. D.R. has relied on the orders of the lower authorities.
14. We have given our due consideration to the issue before us. Earlier we have noted that under clause (a) of sub-section (3) export profit has to be carved out from profits of the business. The meaning of "profits of the business" has been given in clause. (baa) of the Explanation to section 80HHC. We reproduce the said clause below for immediate reference :
"(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by-
(1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India."
15. From the above it is clear that profit of the business first has to be computed under the head "Profits and gains of business or profession". Having done so, the profit so determined has to be reduced by the sums specified in sub-clauses (1) and (2) above. It is obvious that when profit is determined under the head "Profits and gains of business or profession", what are included in it are the net receipts of the various components that go to make the profit under that head. The object of reducing the profits by the sums specified in sub-clauses (1) and (2) is to determine the actual profit earned by the assessee on the manufacture/processing and selling of goods, from which, in turn, export profit will be carved out as per clause (a) of sub-section (3). Thus if the profits of business include certain receipts which have corresponding costs, or if the profits include certain credits and the business also has debits of the same nature, if these are not netted out against each other, the profits of business will present a distorted picture and may lead to injustice while implementing an incentive provision. This can be explained by the following illustration :
Trading and Profit & Loss Account Cost of Goods 30 Export Sales 50 Labour Charges paid 12 Receipt of Labour Other Expenses 10 Charges 15 Net Profit 13 ----- ---- 65 65 ----- ----
Situation I : (Gross labour charges 13.0 considered) : Profits of business 13.5 Less : 90% of 1513.5 ---- - ---- Situation II : (Net labour charges considered) : Profits of business 13.0 Less : 90% of 3 (15 - 12) 2.7 ---- 10.3 ----
16. From the above illustration it is evident that though there is profit on export trade and though there is net profit in the business, assessee will be denied deduction under section 80HHC in view of negative figure obtained in Situation 1. Negative figure is obtained because something more is sought to be deducted than the actual net profit of the business. This is fallacious, it gives a distorted picture and it runs counter to the intended objective of section 80HHC.
17. In the instant case, the fact regarding payment of labour charges is not disputed. The fact that assessee was reimbursed the same is also not disputed. The amount of labour charges paid and received Rs. 23,31,585 is also not disputed by the revenue. Thus net receipt of labour charges being nil, there is no question of any reduction on that account from the profits of business. We are supported in our views by the order of the Tribunal cited supra and also by the order of the Tribunal in the case of Mangalya Trading &Investments Ltd. [IT Appeal No. 4696/B/971 dated 9-2-1999] to which one of us (the AM) is a party.
18. We now come to the last issue in connection with the deduction under section 80HHC. Here also, as in the case of labour charges, in its original profit & loss account assessee had shown a net debit of Rs. 34,04,095 as interest paid to the bank. No credit on account of interest was reflected in the profit & loss account. However, at the insistence of the AO, assessee furnished a detailed profit & loss account in which bank interest debited amounted to Rs. 36,21,595 (Rs. 36,89,553 - 67,958) and bank interest credited amounted to Rs. 1,97,500. This, that is Rs. 36,21,595 - Rs. 1,97,500 gives a net amount of Rs. 34,24,095 which was shown as net debit in the profit & loss account. AO, applying the same logic as in the case of labour charges, reduced the profits of business by 9096 of Rs. 1,97,500. The submissions of the ld. counsel and the ld. D.R. are the same as they were in respect of labour charges above. In para 12 above we have already observed that credits and debits of the same nature should be netted out against each other in order to avoid any distortion in the profits. The same analogy will apply in case of interest also. It cannot be denied that despite earning interest of Rs. 1,97,500, the said earning has merely gone to reduce the net interest burden of the assessee from Rs. 36,21,595 to Rs. 34,24,095. Thus in effect, there is no income on account of interest included in the profits of the business and hence no reduction whatsoever is called for as envisaged in clause (baa) of the Explanation to section 80HHC.
19. We are conscious of the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502. However, the facts in that case are quite distinguishable. In that case, assessee had sought to adjust interest income against expenditure which was to be capitalised. This would have not only distorted the actual cost of construction, but more importantly, an income which had no characteristic of a capital receipt would have escaped the tax net. Therefore, the Supreme Court did not allow a revenue receipt to be adjusted against capital expenditure.
20. In another case, i.e., in CIT v. Bokaro Steel Ltd. [1999] 102 Taxman 94 (SC), at the relevant time, the assessee was in the process of constructing its factory and installation of plant. During this period assessee had given some of its capital assets to the contractors for use and had charged the contractors for the same. It had also given interest bearing advances to the contractors so that the contractors did not have to raise funds from outside agencies. The Tribunal and the High Court held that all these amounts received by the assessee had gone to reduce the cost of construction. These were in the nature of capital receipts which could be set off against capital expenditure incurred by the assessee during the relevant assessment years. The Supreme Court, distinguishing its decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) affirmed the view taken by the High Court by observing as follows :
"However, while interest earned by investing borrowed capital in short-term deposit is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilisation of various assets of the company and the payments received for such utilisation are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with the setting up of the capital structure of the assessee-company. They must, therefore, be viewed as capital receipts going to reduce the cost of construction."
21. Further, referring to the decision of the Supreme Court in the case of Chalapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, their Lordships observed as follows :
"In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the assessee receives any amounts which are inextricably linked with the process Of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income."
22. Understanding the above two decisions, in our opinion it follows that whereas a revenue receipt cannot be adjusted against capital expenditure, a capital receipt can be so adjusted. On the same analogy, in our view, while computing profits of business for the purposes of section 80HHC, revenue receipts can be adjusted against revenue expenditure of the like nature. Just as income earned by the assessee from letting out assets to the contractor, which were to be used during and for the construction were held to be capital receipts in the case of Bokaro Steel Ltd. (supra) which went to reduce the capital expenditure, in the present case, revenue receipt in the form of interest went to reduce the revenue expenditure of interest, because funds were borrowed for the purpose of business and funds were kept in fixed deposits for the purpose of business. It was one of the conditions laid down by the bank while granting credit facilities to the assessee. Therefore, interest income was inextricably linked with the business of the assessee and hence the adjustment. Since expenditure on interest is higher than the interest income, no interest income augmented the profits of the business which needed to be reduced as envisaged by clause (baa). This very principle has been followed by us while dealing with the issue relating to labour charges in earlier paras and also in respect of interest income.
23. Finally, with regard to the deduction under section 80HHC, we summarise our conclusions as follows :
(a) The amount of Rs. 51,93,829 - (Rs. 15,47,005 + 36,46,824) being premium on sale/surrender of import licences shall not form part of the total turnover (para 9).
(b) The profits of the business have to be reduced by 90% of net labour charges. In the instant case, since the income from labour charges is nil, no reduction will take place (para 14).
(c) The profits of the business have to be reduced by 9096 of the net interest received by the assessee. In the instant case, since there is no surplus in the interest account, no reduction will take place (paras 15 to 18).
(d) Under cl. (baa) of the Explanation to section 80HHC the profits of business shall be reduced by 90 % of net premium of Rs. 21,34,030 (paras 10 and 11).
(e) Under the proviso to sub-section (3) profits of the business have to be increased by 90% of the premium received on surrender of assessee's own import licences, i.e., by 90% of Rs. 15,47,005 (para 11). Under the proviso to sub-section (3), profits of the business shall not be increased by any profit earned or premium received by the assessee on sale/surrender of import licences acquired from other parties.
24. Thus, no part of Rs. 36,46,824 shall go to increase the profits of business (para 11). -
25. The last ground relates to the denial of deduction of Rs. 84,428 under section 80-1 of the Act. AO relied on the decision of the Bombay High Court in the case of CIT v. London Star Diamond Co. (I) Ltd. [1995] 213 ITR 517/79 Taxman 276. He was of the view that assessee was engaged merely in the activity of processing diamonds and not in any manufacturing activity and hence deduction under section 80-I could not be allowed. CIT(A) upheld the disallowance.
26. We have given our due consideration to the rival contentions. The issue, in our opinion, is almost settled by the Bombay High Court in the Cases of London Star Diamond Co. (I)Ltd. (supra) and CIT v. Sterling Foods (Goa) [1995] 213 ITR 851/79 Taxman 381. In the case of Sterling Foods (Goa) (supra) the Bombay High Court was seized with the issue as to whether processing of prawns amounts of manufacture or not. The High Court held that before processing the product was prawns and after processing also it has remained prawns. Hence, no new product has come into existence on account of processing. In the case of London Star Diamond Co. (I) Ltd. (supra), the Bombay High Court was considering the issue as to whether processing of diamonds would constitute an industry under section 2(8)(c) of the Finance Act, 1975. It held that cutting and polishing of diamonds may not be a manufacturing activity, but it certainly amounted to processing and processing being a wider term than manufacturing, it would constitute an industry.
27. Thus, in the case of London Star Diamond Co. (I) Ltd (supra), the jurisdictional High Court has almost expressed its opinion that cutting and polishing of diamonds may not constitute manufacturing. Deduction under section 80-I is available only to those industrial undertakings which manufacture or produce articles or things [section 80-I(IA)]. Diamonds, like prawns, are diamonds only before processing and remain diamonds after processing. No new product comes into existence. Difference is only that of roughness and smoothness. Hence, in the instant case, assessee being a processor, is not entitled to deduction under section 80-I. Moreover, where the Legislature intended to give deduction to a processor, it has specified so, as in section 80HHC [clause (a) of sub-section (3)]. In view of these specific provisions in the Act, it does not matter if the assessee is registered as a small-scale industrial undertaking. As a processor it may be regarded as an industrial undertaking but deduction under section 80-1 is available only to a manufacturer or a producer and not to a processor. Therefore, we uphold the decision of the CIT(A) of disallowing deduction of Rs. 84,428 under section 80-1 to the assessee.
28. In the result, the appeal of the assessee is partly allowed.