Income Tax Appellate Tribunal - Delhi
Mkr Frozen Food Exports Pvt. Ltd., New ... vs Department Of Income Tax on 12 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "E" NEW DELHI)
BEFORE SHRI G.D. AGRAWAL, HON'BLE VICE-PRESIDENT AND
SHRI RAJPAL YADAV, HON'BLE JUDICIAL MEMBER
ITA No. 1071/Del/2007 Assessment Year: 2003-04
ITA No. 53/Del/2008 Assessment Year: 2004-05
MKR Frozen Food Exports Pvt. Ltd. Vs. Income-tax Officer,
80-MM Janpath, Circle 6(1),
New Delhi. New Delhi
(PAN:AAACM1631N)
(Appellant) (Respondent)
ITA No. 2/Del/2010 Assessment year : 2004-05
Income-tax Officer, Vs. MKR Frozen Food Exports Pvt.
Circle 6(1), Ltd., 88-MM Janpath,
New Delhi. New Delhi.
(PAN: AAACM1631N)
(Appellant) (Respondent)
Assessee by: S/Sh. Salil Aggarwal, Adv. & Salesh Gupta, CAs
Department by: Shri RS Negi, Sr. DR
Date of hearing : 12.01.2012
Date of pronouncement : 29.02.2012
ORDER
PER RAJPAL YADAV: JUDICIAL MEMBER ITA Nos. 1071/Del/2007 and 53/Del/2008 are directed at the instance of the assessee against the separate orders of Learned CIT(Appeals) dated 04.12.2006 and 14.09.2007 passed for assessment year 2003-04 and 2004-05 respectively. These appeals have arisen from the assessment orders passed under section 143(3) of the Income-tax Act, 1961 on 30.1.2006 and 2 28.6.2006 in assessment year 2003-04 and 2005-05 respectively. ITA No.2/Del/2008 is directed at the instance of revenue against the order of Learned CIT(Appeals) dated 29.4.2009 passed in assessment year 2004-05. This appeal has arisen from a penalty proceedings initiated under section 271 (I )( c) of the Act by the Assessing Officer.
2. First we take the appeals of the assessee. The issues involved in both the years are common. In ground No.2 in both the assessment years, the assessee has pleaded that the Learned CIT(Appeals) has wrongly excluded 100% of interest income earned on FDR while calculating the deduction admissible under sec. 80-HHC of the Act. According to the assessee, only 90% of the interest income ought to be reduced while computing the eligible profit for the purpose of grant of deduction under sec. 80-HHC of the Act. The learned counsel for the assessee at the very outset submitted that this issue is covered against the assessee by the judgment of Hon'ble Delhi High Court rendered in the case of Honda Siel reported in 289 ITR 479. He pointed out that the Assessing Officer has assessed the interest income as income from other sources. In view of the Hon'ble Delhi High Court's decision in the case of Honda Siel (supra), the interest income has to be excluded from the eligible profit while computing the deduction under 3 section 80-HHC of the Act. In view of the stand of the assessee before us, ground No.2 in both the assessment years is rejected.
3. The next grievance of the assessee is that Learned CIT(Appeals) has erred in confirming the order of the Assessing Officer, whereby deduction under sec. 80-HHC has been denied to the assessee at Rs.57,06,826 and Rs.35,49,727 in assessment years 2003-04 and 2004-05 respectively. The facts in both the assessment years are common, therefore, for the facility of reference, we are taking up the facts mainly from the assessment year 2003-
04. The brief facts of the case are that the assessee has filed its return of income on 2.12.2003 and 30.10.2004 declaring an income of Rs.52,02,650 and Rs.12,00,311 in assessment years 2003-04 and 2004-05 respectively. The case of the assessee was selected for scrutiny assessment in both the assessment years and notices under sec. 143(2) of the Act were issued and served upon it. The assessee at the relevant time was engaged in the business of manufacture and export of frozen meat. It had two manufacturing units, one at Sahibabad (UP) and the other at Nanded (Maharashtra). The assessee had filed two separate balance sheet, profit and loss account and audit report for the two manufacturing units. It has shown a turnover of Rs.21,44,69,846 at Sahibabad and declared an income of Rs.2,32,83,108. Similarly, at 4 Nanded, it has shown a turnover of Rs.7,51,20,104 and declared a loss of Rs.114,45,552. It has claimed a deduction of Rs.82,59,080 under sec. 80- HHC of the Income-tax Act, 1961 in assessment year 2003-04.
4. In assessment year 2004-05, the turnover at Sahibabad was declared at Rs.33,82,30,240.30 and an income of Rs.158,44,504.11 was declared. The turnover at Nanded was shown at Rs.821,86,834 and a loss of Rs.120,60,465.98 was declared. The assessee had claimed a deduction of Rs.35,49,727 under sec. 80-HHC of the Act.
5. Learned Assessing Officer directed the assessee to file a detailed note on the deduction claimed by it under sec. 80-HHC of the Act. In assessment year 2003-04, assessee has submitted the note vide letter dated 26.12.2005. Learned Assessing Officer has reproduced the facts submitted by the assessee on page Nos. 1 to 3 of the assessment order. We deem it appropriate to take cognizance of this note to the extent it exhibits the factual matrix which read as under:
"During the year relevant to assessment year 2003-04 the assessee company was engaged in the business of manufacturing & processing of frozen meat and was 5 having two industrial undertaking one at Sahebabad in Distt. Uttar Pradesh and other at Nanded in Distt. Maharashtra. The Sahibabad undertaking was established in the year relevant to the assessment year 1992-93 and had started commercial production w.e.f. 25.12.91. The second undertaking at Nanded in Disst. Maharashtra had started commercial production w.e.f.1.45.95 relevant to the assessment year 1995-96.
Both the industrial undertaking were having their separate books of account, their accounts were independently audited, both were having separate Sales Tax Registration under the Sale Tax Act and also were having independent management control for running the affairs of the business.
During the year relevant to the assessment year 2003-04 The assessee company had got its accounts audited Individually for both the units on the basis of separate Books of accounts. Separate audit reports under sec. 80HHC was obtained and were filed with the return of income for the year. In the Sahibabad industrial undertaking the assessee company has declared net profit of Rs.2,41, 78,570 and in Nanded industrial undertaking net loss of Rs.1, 14,45,552 has been shown. The deduction under sec. 80-HHC has been claimed amounting to Rs.82,59,079 on the profit arrived at in the Sahibabad Industrial undertaking. No deduction under sec. 80-HHC has been claimed in the Nanded undertaking on account of net loss shown in its accounts. The computation of deduction under sec. 80-HHC in case of Sahibabad undertaking is also calculated on the profit declared in that undertaking which is Rs.2,41, 78,570 because Sec. 80-HHC(3) read with explanation (baa) defines the word 'Profit of the Business' for the purposes of section to mean profits and gains computed only in accordance with the provisions of sec. 28 to 430 of the Act which falls under chapter IV -0 of the Act. Sec. 70 & 71 which provides for adjustment of the loss under one source or head against the profits from another source or head respectively, do not fall under the 6 computation provisions relating to business income and therefore, the manual adjustment of loss or profit cannot be permitted. Your good self will also appreciate that deduction undersec.80-HHCisselfcontained provision by its self and therefore the benefit under sub-section( 1) of sec. 80-HHC has to be worked out in accordance with and subject to provision of that section only. Section 8-HHC( 1)was amended w.e.f. 10.4.2001 and in the amendment [ a deduction to extent of profit] has been substituted from [a deduction of profits]. This means the deduction under section 80-HHC can be any amount but that must be subject to the profits available for taxation and included in the Gross Total Income. The need for this amendment had arisen only to facilitate the allowability of deduction calculated as per the provisions of 90HHC with a rider that the deduction cannot exceed Gross Total Income".
6. The assessee has submitted before the Assessing Officer that the deduction admissible under sec. 80-HHC has to be computed independently for both the units. The losses of one unit cannot be set off against the profit of other unit while computing the deduction admissible under sec. 80-HHC of the Act. It relied upon the judgment of the Hon'ble Supreme Court in the case of CIT vs. Canara Workshop Pvt. Ltd. reported in 161 ITR 320. It further relied upon the following judgments:
CIT Vs. Rathore Bros reported in 254 ITR 656;
English Electric Co. Ltd. Vs. CIT (S.C) reported in 249 ITR 793, CIT vs. Vasakha Inds. Ltd. (AP) (2001) reported in 251 ITR 471; and 7 JCIT Vs. Dr. Reddy's Laboratories Ltd. (Hyd.) (2004) reported in 91 ITD 188.
7. Learned Assessing Officer confronted the assessee about the decision of Hon'ble Supreme Court in the case of IPCA Laboratories reported in 266 ITR 521. The assessee pointed out that the decision of Hon'ble Supreme Court in the case of IPCA Laboratories is not applicable on its facts. The distinguishing features pointed out by the assessee have been noticed by the learned Assessing Officer at page 3 of the assessment order. Learned Assessing Officer has made a detailed analysis of all the submissions given by the assessee. He observed that the assessee was running tow industrial units for the purpose of manufacture and exports of frozen meat. Both the units were in the same business, manufacturing same products and having common buyers. According to the Assessing Officer, the two units were part of a common business, hence, it is to be treated as one business. He emphasized that sec. 80-HHC(1) of the Act contemplates that "where an assessee, being an independent company or a person other than a company resident in India, is engaged in the business of exports out of India, of any goods or merchandise to which the section applies, their shall in accordance with the subject to the provisions of this section be allowed, in computing the total income of the assessee, a deduction to the extent of profit referred 8 to in sub-section (IB), derived by the assessee from the export of such goods or merchandise. According to the Assessing Officer, this section provides for deduction to the extent of profit derived by an assessee from the export of goods or merchandise. The assessee cannot divide such income into to two or more parts on any basis i.e. either on the type of the goods, place of manufacture or any other basis. Thus, according to the Assessing Officer, the profit from export have to be considered in their entirety. For buttressing his conclusion, he made reference to the decision of Hon'ble Supreme Court reported in the case of IPCA Laboratories and arrived at a conclusion that losses of Nanded Unit have to be set off against the profit of Sahibabad Unit before granting deduction under section 80-HHC of the Act.
8. He restricted the deduction admissible to assessee in assessment year 2003-04 at Rs.25,52,254 as against Rs.82,59,080 made by the assessee. Similar course of action has been adopted in assessment year 2004-05.
9. Appeal to the learned CIT(Appeals) did not bring any relief to the assessee.
9
10. The learned counsel for the assessee while impugning the orders of Learned Revenue Authorities Below submitted that the judgment of the Hon'ble Supreme Court or of the Hon'ble High Court has to be considered after taking into consideration the facts and circumstances on which such judgment was rendered. The judgment of the Hon'ble Supreme Court in the case of IPCA Laboratories is altogether for the different proposition. He took us through section 80-HHC of the Act and pointed out that sub-section (1) of section 80-HHC provides that where an assessee being, an Indian company or a person resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits refer to in sub-section (1B) derived by the assessee from the export of such goods or merchandise. According to the learned counsel for the assessee, sub-section (3) of section 80-HHC provides the computation of profits derived from such export. He pointed out that Hon'ble Supreme Court in the case of IPCA Laboratories considered clause (c) of sub-section (3). In that case, assessee was running an export house. It has exported the goods which were manufactured by it and also those goods which were produced by supporting manufacturers. A profit of Rs.3.78 crores was shown by the 10 assessee from export of goods manufactured by it and a loss of Rs.6.86 crores was reported in respect of goods manufactured by the supporting manufactures. The assessee pleaded that loss be ignored and a deduction under sec. 80 HHC be granted qua the profit earned by it on the goods manufactured by it and exported. This view of the assessee was jettisoned by the Assessing Officer. The dispute traveled up to Hon'ble Supreme Court and Hon'ble Supreme Court after taking into consideration section 80AB and section 80B(5) arrived at a conclusion that the expression "profit from such exports" appearing in section 80-HHC(3)(c) could only mean profit of self- manufactured goods plus profit of export of trading goods. Hon'ble Court has held that profits had to be calculated by taking in to account both exports and a deduction was permissible under sec. 80-HHC(3)(c)(ii) only if there was a positive profit in the export of both self-manufactured goods as well as trading goods. The learned counsel for the assessee submitted that in that case the assessee sought to exclude the losses suffered by it on export of goods manufactured by supporting manufacturer. Hon'ble Supreme Court has considered the applicability of clause (c) sub-section (3) of section 80- HHC. Thus, it was altogether a different factum situation. He pointed out that in the present case, assessee is having two separate units located at different places. It is maintaining separate account, in one unit it has suffered 11 losses and in other unit it has the profit. Therefore, on the basis of Hon'ble Supreme Court's decision, set off of losses against the profit cannot be done.
11. The learned counsel for the assessee further submitted that Hon'ble Delhi High Court has examined a somewhat similar issue in the case of CIT vs. Padmini Technologies Ltd. reported in 64 DTR 217. He placed on record copy of the judgment. He pointed out that in this case, the issue was whether local sales made by the assessee in different units has to be excluded from the total turnover while computing the deduction admissible under sec. 80- HHC. Hon'ble Court has observed that expression "total turnover of the business" employed in section 80-HHC would only include the turnover of the export business. If domestic sales are there then those has to be excluded while working out the total turnover as well as export turnover. The learned counsel for the assessee on the strength of this decision submitted that if in one unit, partially, there are local sales then such local sales deserve to be excluded from the total turnover then the deduction admissible under sec. 80-HHC can be computed on the basis of the turnover of each unit. In other words, the emphasizes of learned counsel for the assessee is that a deduction admissible under sec. 80-HHC is to be computed separately at Sahebabad Unit as well as Nanded Unit. The result of both the units could not be 12 clubbed and profit and losses could not be set off against each other before finalizing the profit for the purpose of deduction admissible under section 80-HHC. He further relied upon the two orders of the ITAT in the case of M/s. Synchem Chemicals (I) Pvt. Ltd. Vs. ACIT in ITA No. 619/Mum/08 and Lupin Ltd. in ITA No. 2446/Mum/05. He placed on record copies of both the decisions.
12. On the other hand, Learned DR relied upon the order of the Learned CIT(Appeals). He pointed out that expression "total income" employed in section 80-HHC sub-section (1) has to be construed in accordance with section 80-AB read with section 80-B(5) of the Income-tax Act, 1961. He further contended that Hon'ble Supreme Court in the case of IPCA Laboratories (supra) has considered this aspect and observed that section 80- AB contemplates that where any deduction is required to be made or allowed under any section of Chapter VI then gross total income is to be computed in accordance with the provisions of the Income-tax Act, 1961. Learned DR further contended that section 80-AB has an overriding effect over section 80-HHC. It provides computation of income in accordance with the provisions of the Act and if the income has to be computed in accordance with the provisions of the Act then not only profit but also losses 13 have to be taken into consideration. The assessee has relied upon the judgment of the Hon'ble Delhi High Court in the case of Padmini Technologies Ltd. and in that case receipts are of different character. Domestic sales cannot form part of total turnover within the meaning of section 80-HHC because there is no link with the export of goods. Thus, there is a fundamental difference about the nature of the receipts and due to that reason Hon'ble High Court has excluded domestic sales from the total turnover as well as the export turnover. He further pointed out that in this very judgment, Hon'ble High Court has considered the case of IPCA Laboratories as well as Simco Industries reported in 299 ITR 444. He pointed out that while considering the case 'Simco Industeis', Hon'ble Court has observed that the Assessing Officer has to take into consideration all the provisions i.e. section 71 which provides for set off of losses from one head against income from another head and also provisions of section 72 which provides carry forward and set off of business losses. He pointed out that as a result of this exercise, if the gross total income of the assessee was nil then it could not claim any deduction under Chapter VIA. Assessing Officer had adopted this exercise and whatever profit remained to the assessee, Assessing Officer has allowed the deduction. There is no error committed by the Assessing Officer on this aspect.
14
13. We have duly considered the rival contentions and gone through the record carefully. Section 80HHC has a direct bearing on the controversy, therefore, it is pertinent to take note relevant part of this section as it was in assessment years 2003-04 and 2004-05. It reads as under:
"[ Deduction in respect of profits retained for export business.28
80HHC. 29[(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, 30[a deduction to the extent of profits31, referred to in sub-section (1B),] derived by the assessee from the export of such goods or merchandise :
Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the 32 [total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods].46
[(3) For the purposes of sub-section (1),--
(a) where the export out of India is of goods or merchandise manufactured 47[or processed] by the assessee, the profits48 derived from such export shall be the amount which bears to the profits of the business48a, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee ;
(b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export ;
(c) where the export out of India is of goods or merchandise manufactured 49[or processed] by the assessee and of trading goods, the profits derived from such export shall,--
(i) in respect of the goods or merchandise manufactured 49[or processed] by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of 15 such goods bears to the adjusted total turnover of the business carried on by the assessee ; and
(ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods :67
[(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 ;]
14. The learned counsel for the assessee on the strength of the ITAT's order in the case of Synchem Chemicals (I) Pvt. Ltd. Vs. ACIT has submitted that when assessee was maintaining separate books of account for its two units then the losses of one unit cannot be adjusted against the profit of other unit for the purpose of computing the deduction admissible under sec. 80-HHC. His contention was that allowability of deduction under sec. 80-HHC is in respect of turnover qua an assessee and not qua the business. The finding of the ITAT on this issue reads as under:
7. Ground Nos. 5, 6 & 7 pertain to the deduction under section 80HHC.
It is assessee's contention that deduction is allowable to the assessee qua business but not qua assessee as it had various business and separate books of accounts were maintained with reference to export activities. It was submitted that this issue was decided in favour of the assessee in the group concern's case wherein on similar issue the ITAT has considered and allowed assessee's contention. The order in group concern's case in 16 ITA Nos. 2447 & 2448/Mum/2005 in the case of Lupin Laboratories Ltd. is placed on record. It was considered and decided on similar facts as under:
"Ground No.5 is against the sustenance of disallowance of deduction u/s.80HHC on the basis of company as a whole as against on the basis of each business unit separately. At the outset the learned counsel submitted that the issue is decided in favour the assessee in assessee's own case for A.Y. 1997-98 wherein it was held as under: -
"26. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit in the plea of the ld. Counsel for the assessee that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case in ITA No.3314 and 3242/Mum/2005 for Assessment Year 2000-01 wherein vide para-11 of the order dated 23.9.2008 it has been held as under :-
"11. We have heard the rival submissions and perused the orders of the l lower authorities along with the judgments relied upon by the parties. From the perusal of the judgment in the case of M. Gani & Co. (supra), we find that the assessee is entitled to the allowability of deduction u/s.80 HHC with the turnover of qua assessee and not the qua business, when assessee having maintained separate books of accounts for different business which is the case in the instant case also. Therefore, we are of the considered opinion that the CIT(A) order is set aside on this issue and Assessing Officer is directed to recompute allowability of deduction u/s.80 HHC qua business and not qua assessee as separate books of accounts maintained by the assessee for bulk drugs, formulas, export divisions etc. The merger of accounts at the head of office for making of single profit and loss account will not come in the way, as such merger is only 'for the limited purpose' of making of the financial statements as books of accounts is allowable. Accordingly, ground 3 is allowed."
The above order has been consistently followed by the Tribunal in the assessee's own case for the Assessment Years 1996-97, 2001-02 and 2002-03 supra.
27. In the absence of any distinguishing feature brought on record by the revenue we respectfully following the consistent view of the Tribunal direct the Assessing Officer to re-compute the deduction u/s.80HHC in the light of the order of the Tribunal supra and allow the same. The ground taken by the assessee is therefore, allowed. Respectfully following the above decision of the Coordinate Bench, we allow this ground of the assessee."
Respectfully following the above decision of the Coordinate Bench, on principle, we allow assessee's contention that 80HHC quantification has to be done on the basis of the unit for which books of account are separately 17 maintained".
15. The exact nature of facts are not discernible from the order of the ITAT. It appears from the opening lines that deduction is available to the assessee qua business but not qua the assessee, because as an assessee could have various businesses and separate books of account. There could not be any dispute about this proposition because if an assessee is engaged in the business where no export was made and section 80-HHC is not applicable then those receipts would not form part of total turnover for the purpose of deduction admissible under sec. 80-HHC. Hon'ble Delhi High Court in the case of Padmini Technology Ltd. has also observed that if an assessee runs and manage two separate units, one of which is engaged fully or partially in earning income through exports then, in the calculation of proportionate deduction, profits for the purpose of section 80-HHC, total turnover of the business would only include the turnover of the export business and not that of domestic business. However, the facts in the present case are quite distinguishable. In the case in hand, at both units, assessee is doing export business on which section 80-HHC is applicable. The turnover of both the business are amenable to applicability of section 80-HHC of the Act. In the case of IPCA Laboratories, Hon'ble Supreme Court has considered section 18 80-AB and 80-B(5) and thereafter propounded the proposition as to how total income has to be computed. It is worth to note relevant observations which are as under:
11. Under section 80HHC(1) the deduction is to be given in computing the total income of the assessee. In computing the total income of the assessee both profits as well as losses will have to be taken into consideration. Section 80AB is relevant. It reads as follows :
80AB. Deductions to be made with reference to the income included in the gross total income.--Where any deduction is required to be made or allowed under any section included in this Chapter under the heading 'C- Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income."
Section 80B(5) is also relevant. Section 80B(5) provides that "gross total income" means total income computed in accordance with the provisions of the Income-tax Act.
12. Section 80AB is also in Chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any section of this Chapter". This would include section 80HHC. Section 80AB further 19 provides that "notwithstanding anything contained in that section". Thus section 80AB has been given an overriding effect over all other sections in Chapter VIA. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by section 80AB. Decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.
16. Thus, the total income of the assessee has to be computed in accordance with the provisions of the Act.
17. Hon'ble Supreme Court has again considered this aspect though in a different contexts in the case of Simco Industries Vs. Assessing Officer reported in 299 ITR 444. In this case, assessee was engaged in the business of oil and chemicals. It had a unit for oil division located at Sirohi and a unit for chemical division situated in Jodhpur. In assessment year 1990-91, it had earned profit in both the divisions. However, in earlier years, the assessee had earned losses in the oil division. The assessee had claimed deduction under sec. 80-HH and 80-I of the Act. In support of its claim, assessee took the stand that both the divisions should be treated separately and losses 20 suffered in the earlier years in the oil division ought not to be adjusted against the profits earned by it in the chemical division. Assessing Officer rejected this contention of the assessee and denied the deduction to the assessee under Chapter VIA because the gross total income was nil. The view of the Assessing Officer was confirmed up to the Hon'ble High Court and ultimately issue traveled to the Hon'ble Supreme Court. Hon'ble Supreme Court was to decide whether the losses suffered in the earlier years by the oil division of the assessee could be adjusted against the profit of the two divisions while computing the deduction admissible to the assessee under sec. 80-I of the Act. Hon'ble Supreme Court on a detailed analysis arrived at the conclusion that the deduction under Chapter VIA could only be granted if the gross total income of the assessee was positive. Hon'ble Supreme Court took into consideration section 80-B(5) which provides the definition of gross total income as well as the claim of deduction admissible under Chapter VIA of the Act. The assessee raised an argument before the Hon'ble Supreme Court on the strength of section 80-I(6) which provides;-
"Section 80-I(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the 21 purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made".
18. On the strength of this clause, it was contended that profits derived from one industrial undertaking cannot be set off against losses suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income. Hon'ble Supreme Court has rejected this contention on the ground that section 80-I(1) lays down that where the gross total income of the assessee includes any profit derived from priority undertaking/division then in computing the total income of the assessee, a deduction from such profit at the rate specified would be granted. Section 80-I(1) lays down the broad parameter indicating circumstances under which an assessee would be entitled to claim deduction and section 80-I(6) deals with determination of the quantum of deduction. 22 Hon'ble Court has observed that it only provides the manner in which the quantum of deduction has to be worked out. Hon'ble court has further emphasized that section 80A(2) and section 80-B(5) are declaratory in nature. They apply to all the sections fallen in Chapter VIA. They impose a ceiling on the total amount of deduction.
19. On an analysis of both the decisions of Hon'ble Supreme Court, coupled with section 80-HHC, we are of the view that the assessee in the present case is exporting goods from both the units. Basically the first step is to compute the profit of entire business. After ascertaining the profit of entire business then it has to be apportioned in proportion the export turnover bears to the total turnover to arrive the profit derived from export of goods in order to compute deduction available to the assessee. The deduction is admissible on the positive income. Section 80-AB contemplates that income of the assessee has to be computed in accordance with the provisions of the Act. All these factors suggest that there is no segregation of computation of profits unit wise. Learned Assessing Officer has rightly held that the income of both the units has to be taken into consideration for determining the total income of the assessee for the purpose of computing the deduction under sec. 80-HHC. We do not find any merit in the grounds 23 of appeal raised by the assessee in this regard, hence, both the appeals are rejected.
20. The revenue in its appeal has pleaded that Learned CIT(Appeals) has erred in deleting the penalty of Rs.13,81,780 imposed under section 271(1)© of the Income-tax Act, 1961.
21. The brief facts have already been noticed in the foregoing paragraphs of quantum appeal. Learned Assessing Officer has initiated the penalty under sec. 271(1)(c) of the Act on the following disallowances:
"
a) Disallowance of deduction claimed u/s 80-HHC:
i) On a/c of consolidation of A/closing stock of Rs.21,34,687 two independent industrial undertaking.
ii) On a/c of Taxation of DEPB Receipts after I.Tax Amdt. Act which was amended on Rs.14,15,040 Rs.35,49,727 29.12.05.
b) Disallowance of claim of deduction u/s 24(1) Rs. 1,98,000 against Rent & Services Charges
c) Addition u/s. 2(24)(x) Rs. 1,03,931 Rs.38,51,658
22. After hearing the assessee, he arrived at a conclusion that assessee deserves to be visited with penalty under sec. 271(1)(c) of the Act on the 24 ground of concealment of income by furnishing inaccurate particulars. Accordingly, he imposed a penalty of Rs.18,81,783.
23. Before Learned First Appellate Authority, it was contended by the assessee that Explanation (baa) to section 80-HHC(3) of the Act provides the definition of the expression "profit of the business". According to the definition, for the purpose of this section, this expression means profit & loss is to be computed only in accordance with provisions of sections 28 to 43D of the Act which falls under Chapter IVD of the Act. Sections 70 & 71 which provides for adjustment of the loss under one source or head against the profits from another source or head respectively, do not fall under the computation of provisions relating to business income and, therefore, the mutual adjustment of loss or profit of one unit against another unit cannot be permitted. The assessee did not set off the loss of one unit against the profit of another unit under this conception of law which also pointed out that judgment of Hon'ble Supreme Court in the case of IPCA Laboratories came in the month of March 2004, though assessee has filed the return subsequent to this decision but it was a new concept. The assessee further contended that there were decisions of ITAT in favour of the assessee. With regard to the addition representing DEPB receipts, it was contended that this addition 25 made on account of retrospective amendment which has been effected in section 80-HHC on 29.12.2005. As far as the disallowance of deduction under sec. 24(1) on service charges is concerned, the assessee contended that it has disclosed all the details and this was disallowed to the assessee on a difference of opinion between it and the Assessing Officer. Learned CIT(Appeals) has allowed the appeal of assessee and deleted the penalty. The observations of the Learned First Appellate Authority are as under:
"3.4 I have gone through the facts and written submissions of the appellant, assessment order and penalty order. In the penalty order, the Assessing Officer himself has admitted that the disallowances were based on various judicial pronouncements as discussed in detail in the quantum order. He has not brought about any material on record how any addition based on judicial pronouncements is further subject to penal action u/s 271(1)(c) of the Income-tax Act, 1961 as the facts of such judicial pronouncements were not exactly the same as argued by the appellant and are subject to further judicial probe. Further any disallowance on the basis of retrospective amendment and after filing of the return of income by the appellant cannot be the basis of penal action u/s. 271(1)(c) of the Income-tax Act. I, therefore, delete the penalty levied on the disallowance of Rs.35,49,727 in the deduction claimed u/s. 80-HHC.
4.0 Disallowance of deduction of Rs.1,98,000 u/s. 24(1) on service charges:- The appellant has explained that they had rented out Bombay Flat with affixtures. The tenant had made two agreements 26 one for the premises and another for fixtures & fittings for his convenience. The assessee company had shown both receipts under the heading income from 'House Property' and claimed deduction u/s. 24(1) on both the receipts. The Assessing Officer had disallowed deduction u/s. 24(1) treating the receipts from the renting on affixtures as Income from other sources.
4.1 The appellant argued that the total amount received from the tenant has been correctly disclosed in the return of income and is not in dispute. It is only the claim of deduction u/s. 24(1) on Service Charges which has been disallowed by the Assessing Officer. The appellant has also pointed out that the reason that both the Rent & Service Charges Agreements were of the same tenant and were signed simultaneously. It is only the difference of opinion as regard to showing both the receipts under the Income from House Property or Income from other Sources.
4.2 I have gone through the submission of the appellant and the assessment order. I agree with the penalty cannot be levied u/s. 271(1)(c) on difference of opinion with regard to claim of any deduction. The appellant has shown full amount of rent and Service Charges under the heading Income from House Property. I, therefore, delete the penalty levied u/s. 271(1)(c) of the Income-tax Act on disallowance of Rs.1,98,000.
5.0 A regards levying of penalty on the addition of a sum of Rs.1,03,931 u/s. 2(24)(x) by Assessing Officer in his order. The appellant argued that the Assessing Officer has not initiated any 27 penalty in the assessment order on this account and he has also failed to explain in his penalty order how the addition of Rs.1,03,931 u/s. 2(24)(x) is liable to penal action u/s. 271(1)(c) of the Income-tax Act".
24. With the assistance of learned representatives, we have gone through the record carefully. The computation of deduction admissible under sec. 80-HHC, is quite cumbrances exercise. There is no settled position. All the issues are quite debatable one. The assessee has disclosed all the material facts in its return and has filed the computation according to its understanding. It was under the impression that the profit derived from export is to be computed separately for both the units and the loss of one unit cannot be adjusted with the profit of other unit. Taking into consideration all these aspects, we are of the view that there is no deliberate attempt at the end of assessee to conceal the particulars. Assessing Officer failed to point out any falsity with the details submitted by the assessee in respect of computation. After taking into consideration the reasoned order of Learned CIT(Appeals), we do not see any reason to interfere in it.
25. In the result, all the three appeals are dismissed. Order pronounced in the open court on 29th February, 2012.
Sd/- Sd/-
( G.D. AGRAWAL ) ( RAJPAL YADAV)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 29 /02/2012
Mohan Lal
28
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR:ITAT: New Delhi.
ASSISTANT REGISTRAR