Shri Ashok Kumar jain, Agra V. ITO, Agra

ITA 107/AGR/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2509 (ITAT-AGRA)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-01-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 19-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Keywords: Business income; Competent authority
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO.106/AGR/2008 ASST. YEAR: 2003-04 INCOME TAX OFFICER 1(1), VS. SHRI ASHOK KUMAR JA IN, AGRA. PROP. M/S OSWAL EXPORTS, 30, MUNRO ROAD, AGRA. (PAN : ABMPJ 6160 F). ITA NO.107/AGR/2008 ASST. YEAR: 2003-04 SHRI ASHOK KUMAR JAIN, VS. INCOME TAX OFFICER 1( 1), PROP. M/S OSWAL EMPORIUM, AGRA. 30, MUNRO ROAD, AGRA. (PAN : ABMPJ 6160 F). (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI A.K. SHARMA, JR. D.R. ASSESSEE BY : SHRI ARVIND KUMAR BANSAL, ADVOCATE ORDER PER P.K. BANSAL, A.M.: THESE CROSS APPEALS HAVE BEEN FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-I DATED 10.01.2008 FOR THE ASSESSMENT YE AR 2003-04. 2. THE GROUND NO.1 HAS NOT BEEN PRESSED BY THE ASSE SSEE IN ITS APPEAL NO.107/AGR/2008. THE ONLY ISSUE WHICH REMAINS FOR OUR ADJUDICATION I N BOTH THESE APPEALS RELATES TO THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT, 1961 (THE ACT HEREINAFTER). 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CLAIMED DEDUCTION UNDER SECTION 80HHC AMOUNTING TO ` 19,09,168/- IN RESPECT OF THE PROFIT SHOWN IN OSWAL EMPORIUM. THE ASSESSING OFFICER WHILE COMPUTING THE CLAIM MADE BY THE ASSES SEE UNDER SECTION 80HHC NOTED THAT THE ASSESSEE HAS NOT TAKEN INTO CONSIDERATION THE LOSSE S SHOWN UNDER THE THREE SETS OF ACCOUNTS IN THE NAME AND STYLE KENDRIYA SHILP GRANM, KENDRIYA ART & CULTURAL AND TOURIST TRANSPORT SERVICE. THE ASSESSING OFFICER COMPUTED THE DEDUCTION UNDER SECTION 80HHC ON THE BASIS OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. IP CA LAB. LIMITED VS. DCIT, 266 ITR 521, AFTER TAKING TOTAL TURNOVER AND PROFIT DERIVED BY T HE ASSESSEE AS A WHOLE IN RESPECT OF ALL THE UNITS RUN BY THE ASSESSEE IN THE FOLLOWING MANNER AT ` 10,41,005/- TOTAL TURNOVER OSWAL EMPORIUM 44873200 KENDRIYA SHILP GRAM 12550137 KENDRIYA ART & CULTURE 1362650 TOURIST TPT.. SERVICE 1947371 ------------ 60733458 TOTAL EXPORT TURNOVER 5,67,65,071 DEDUCTION U/S. 80HHC BUSINESS PROFIT X ET/TT 22,27,561 X 5,67,65,071/60733458 = 20,82,010/- @ 50% ` 10,41,005/-. 4. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS MAINTAINING SEPARAT E BOOKS OF ACCOUNTS FOR VARIOUS BUSINESS CONCERNS. THE BUSINESS PREMISES OF ALL THE CONCERN S ARE FAR AWAY FROM EACH OTHER. THE SALES AND PROFITS OF THESE CONCERNS LOCATED AT DIFFERENT PLAC ES CANNOT BE CLUBBED. THE DECISION OF M/S. IPCA LAB. LIMITED VS. DCIT (SUPRA) WAS NOT APPLICAB LE. IN THAT CASE BUSINESS WAS IN ONE NAME AND WAS DONE FROM ONE PLACE RELATING TO THE SAME IT EM. THE ASSESSEE WAS MAINTAINING ONE SET OF 3 BOOKS AND COMMON BANK ACCOUNT. THE CIT(A) HELD THA T THE RECEIPTS FROM THE TRANSPORT SERVICE IN THE CONCERN TOURIST TRANSPORT SERVICE AND THE RE CEIPTS FROM SALE OF TICKETS FOR CULTURAL SHOWS ETC. IN THE CONCERN KENDRIYA ART AND CULTURE CANNOT BE INCLUDED IN TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC AS THERE IS NO TRA DING OF GOODS INVOLVED IN EITHER ACTIVITY AND SINCE BOTH THE CONCERNS ARE DERIVING INCOME FROM SE RVICES. IT WAS ALSO HELD THAT THE PROFIT AND LOSS DERIVED FROM THESE CONCERNS ALSO CANNOT BE AGG REGATED WITH THE PROFIT DERIVED FROM TRADING OF GOODS. THE ASSESSING OFFICER WAS ACCORDINGLY RE DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTION 80HHC BY EXCLUDING THE FOLLOWING:- NET LOSS FROM KENDRIYA ART AND CULTURE ` 30,550/- NET LOSS FROM TOURIST TRANSPORT SERVICE ` 7,60,606/- TURNOVER OF KENDRIYA ART AND CULTURE ` 13,62,650/- TURNOVER OF TOURIST TRANSPORT SERVICE ` 19,47,371/- 5. WITH REGARD TO THE CONTENTION OF THE ASSESSEE TH AT DEDUCTION UNDER SECTION 80HHC SHOULD BE ALLOWED EXCLUSIVELY ON PROFIT OF OSWAL EMPORIUM ALONE, THE CIT(A) DID NOT AGREE. HE TOOK THE VIEW THAT THE HONBLE SUPREME COURT IN THE CASE OF M/S. IPCA LAB. LIMITED VS. DCIT, 266 ITR 521 HELD THAT IN VIEW OF THE OVERRIDING PROVISI ONS OF SECTION 80AB, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, BOTH PROFITS AS WELL AS LOS SES WILL HAVE TO BE TAKEN INTO CONSIDERATION. IF, AFTER SUCH ADJUSTMENTS, THERE IS POSITIVE PROFIT, T HE ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 80HHC(1). IF THERE IS A LOSS HE WILL NOT B E ENTITLED TO ANY DEDUCTION. THUS, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO REDUCE THE LOSS O F KENDIRYA SHILP GRAM FROM THE PROFIT OF OSWAL EMPORIUM WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. 4 6. THE LD. D.R. BEFORE US VEHEMENTLY CONTENDED THAT THE PROFIT AND LOSS AND TURNOVER OF ALL THE BUSINESSES ARE TO BE CONSIDERED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC, WHILE THE LD. A.R. CONTENDED THAT ONLY THE TURNOVER AND T HE PROFIT AND LOSS OF OSWAL EMPORIUM HAS TO BE CONSIDERED WHILE COMPUTING THE DEDUCTION UNDER S ECTION 80HHC, AS THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNTS. RELIANCE W AS PLACED IN THIS REGARD ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS MOT ORS LIMITED/M.M. FORGINGS LIMITED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. THE RELEVANT PROVISIONS OF SECTION 80HHC AS STOOD D URING THE IMPUGNED ASSESSMENT YEAR READ AS UNDER :- 80HHC. (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGED IN THE BUSIN ESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPL IES, 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 E XTENT OF PROFITS, REFERRED TO IN SUB-SECTION (1B),] DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE : PROVIDED THAT IF THE ASSESSEE, BEING A HOLDER OF AN EXPORT HOUSE CERTIFICATE OR A TRADING HOUSE CERTIFICATE (HEREAFTER IN THIS SECTIO N REFERRED TO AS AN EXPORT HOUSE OR A TRADING HOUSE, AS THE CASE MAY BE,) ISSUES A C ERTIFICATE REFERRED TO IN CLAUSE (B) OF SUB-SECTION (4A), THAT IN RESPECT OF THE AMO UNT OF THE EXPORT TURNOVER SPECIFIED THEREIN, THE DEDUCTION UNDER THIS SUB-SEC TION IS TO BE ALLOWED TO A SUPPORTING MANUFACTURER, THEN THE AMOUNT OF DEDUCTI ON IN THE CASE OF THE ASSESSEE SHALL BE REDUCED BY SUCH AMOUNT WHICH BEARS TO THE [TOTAL PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF TRADING GOODS, THE SAME PROPORTION AS THE AMOUNT OF EXPORT TURNOVER SPECIFIED IN THE SAID CERTIFICATE B EARS TO THE TOTAL EXPORT TURNOVER OF THE ASSESSEE IN RESPECT OF SUCH TRADING GOODS]. (1A) WHERE THE ASSESSEE, BEING A SUPPORTING MANUFAC TURER, HAS DURING THE PREVIOUS YEAR, SOLD GOODS OR MERCHANDISE TO ANY EXP ORT HOUSE OR TRADING HOUSE IN RESPECT OF WHICH THE EXPORT HOUSE OR TRADING HOU SE HAS ISSUED A CERTIFICATE UNDER THE PROVISO TO SUB-SECTION (1), THERE SHALL, IN ACCORDANCE WITH THE SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED IN COMPU TING THE TOTAL INCOME OF THE ASSESSEE, [A DEDUCTION TO THE EXTENT OF PROFITS, RE FERRED TO IN SUB-SECTION (1B),] 5 DERIVED BY THE ASSESSEE FROM THE SALE OF GOODS OR M ERCHANDISE TO THE EXPORT HOUSE OR TRADING HOUSE IN RESPECT OF WHICH THE CERT IFICATE HAS BEEN ISSUED BY THE EXPORT HOUSE OR TRADING HOUSE.] [(1B) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A ), THE EXTENT OF DEDUCTION OF THE PROFITS SHALL BE AN AMOUNT EQUAL TO- (I) EIGHTY PER CENT THEREOF OR AN ASSESSMENT YEAR B EGINNING ON THE 1 ST DAY OF APRIL, 2001; [(II) SEVENTY PER CENT THEREOF FOR AN ASSESSMENT YE AR BEGINNING ON THE 1 ST DAY OF APRIL, 2002; (III) FIFTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2003; (IV) THIRTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2004,] AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2005 AND ANY SUBSEQUENT ASSESSMENT Y EAR.] (2)(A) THIS SECTION APPLIES TO ALL GOODS OR MERCHAN DISE, OTHER THAN THOSE SPECIFIED IN CLAUSE (B), IF THE SALE PROCEEDS OF SUCH GOODS OR M ERCHANDISE EXPORTED OUT IN INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE (OTHER THAN THE SUPPORTING MANUFACTURER) IN CONVERTIBLE FOREIGN EXCHANGE WITHI N A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHO RITY AS IS AUTHORISED UNDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE. (B) THIS SECTION DOES NOT APPLY TO THE FOLLOWING GO ODS OR MERCHANDISE, NAMELY :- (I) MINERAL OIL; AND (II) MINERALS AND ORES (OTHER THAN PROCESSED MINERALS AN D ORES SPECIFIED IN THE TWELFTH SCHEDULE). EXPLANATION 1. - THE SALE PROCEEDS REFERRED TO IN CLAUSE (A) SH ALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEEDS ARE CRED ITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSI DE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. EXPLANATION 2. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLAR ED THAT WHERE ANY GOODS OR MERCHANDISE ARE TRANSFERRED BY AN ASSESSEE TO A BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA AND SUCH GOODS OR MERCHANDISE ARE 6 SOLD FROM SUCH BRANCH, OFFICE, WAREHOUSE OR ESTABLI SHMENT, THEN, SUCH TRANSFER SHALL BE DEEMED TO BE EXPORT OUT OF INDIA OF SUCH GOODS AND MERCHANDISE AND THE VALUE OF SUCH GOODS OR MERCHANDISE DECLARED IN THE SHIPPING BILL OR BILL OF EXPORT AS REFERRED TO IN SUB- SECTION (1) OF SECTION 50 OF THE CUSTOMS ACT, 1962 (52 OF 1962), SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE THE SALE PROCEEDS THE REOF. (3) FOR THE PURPOSES OF SUB-SECTION (1), - (A) WHERE THE EXPORT OUT OF INDIA IS A GOODS OR MER CHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE, THE PROFITS DERIVED FRO M SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINE SS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEA RS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE; (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOO DS, 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 ATTR IBUTABLE TO SUCH EXPORT; (C) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR ME RCHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE AND OF TRADING GOODS, TH E PROFITS DERIVED FROM SUCH EXPORT SHALL, - (I) IN RESPECT OF THE GOODS OR MERCHANDISE MANUFACT URED [OR PROCESSED] BY THE ASSESSEE, BE THE AMOUNT WHICH BEA RS TO THE ADJUSTED PROFITS OF THE BUSINESS, THE SAME PROPORTI ON AS THE ADJUSTED EXPORT TURNOVER IN RESPECT OF SUCH GOODS B EARS TO THE ADJUSTED TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE; AND (II) IN RESPECT OF TRADING GOODS, BE THE EXPORT TUR NOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND IND IRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS : PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAU SE (B) OR CLAUSE (C) OF THIS SUB- SECTION SHALL BE FURTHER INCREASED BY THE AMOUNT WH ICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIIA) (NOT BEING PROFITS ON SALE OF A LICENCE ACQUIRED FROM ANY OTHER PERSON), AND CLAUSES (IIIB) AND (IIIC) OF SEC TION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE ASSESSEE. PROVIDED FURTHER THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURN OVER NOT EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PRO FITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFT ER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOU NT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (III E), AS THE CASE MAY BE, OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE: 7 PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURN OVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUT ED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFTER GIVING EFFE CT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEAR S TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28, THE SAM E PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT,- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRA WBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO TH E CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME: PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURN OVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUT ED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFTER GIVING EFFE CT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEAR S TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIIE) OF SECTION 28, THE SAM E PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT,- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRA WBACK OR THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO TH E CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY FREE REPLEN ISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME. EXPLANATION .-FOR THE PURPOSES OF THIS CLAUSE, 'RATE OF CREDIT ALLOWABLE' MEANS THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME CALCULATED IN THE MANNER AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT : PROVIDED ALSO THAT IN CASE THE COMPUTATION UNDER CLAUSE (A) OR C LAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION IS A LOSS, SUCH LOSS SHALL BE SET OFF AGAINST THE AMOUNT WHICH BEARS TO NINETY PER CENT OF- (A) ANY SUM REFERRED TO IN CLAUSE (IIIA) OR CLAUSE (IIIB) OR CLAUSE (IIIC), AS THE CASE MAY BE, OR (B) ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (IIIE), AS THE CASE MAY BE, OF SECTION 28, AS APPLICABLE IN THE CASE OF AN ASSESSEE REFERR ED TO IN THE SECOND OR THE THIRD OR THE FOURTH PROVISO, AS THE CASE MAY BE, 8 THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION . - FOR THE PURPOSES OF THIS SUB-SECTION, - (A) ADJUSTED EXPORT TURNOVER MEANS THE EXPORT TURNOVE R AS REDUCED BY THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS; (B) ADJUSTED PROFITS OF THE BUSINESS MEANS THE PROFIT S OF THE BUSINESS AS REDUCED BY THE PROFITS DERIVED FROM THE BUSINESS OF EXPORT OUT OF INDIA OF TRADING GOODS AS COMPUTED IN THE MANNER PROVIDED IN CLAUSE (B) OF SU B-SECTION (3); (C) ADJUSTED TOTAL TURNOVER MEANS THE TOTAL TURNOVER OF THE BUSINESS AS REDUCED BY THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS; (D) DIRECT COSTS MEANS COSTS DIRECTLY ATTRIBUTABLE TO THE TRADING GOODS EXPORTED OUT OF INDIA INCLUDING THE PURCHASE PRICE OF SUCH GOODS ; (E) INDIRECT COSTS MEANS COST, NOT BEING DIRECT COSTS , ALLOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER; (F) TRADING GOODS MEANS GOODS WHICH ARE NOT MANUFACTU RED [OR PROCESSED] BY THE ASSESSEE. (3A) FOR THE PURPOSES OF SUB-SECTION (1A), PROFITS DERIVED BY A SUPPORTING MANUFACTURER FROM THE SALE OF GOODS OR MERCHANDISE SHALL BE,- (A) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE SUPPORTING MANUFACTURER CONSISTS EXCLUSIVELY OF SALE OF GOODS OR MERCHANDISE TO ONE OR MORE EXPORT HOUSES OR TRADING HOUSES, THE PROFITS OF THE BUSINESS [***] ; (B) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE SUPPORTING MANUFACTURER DOES NOT CONSIST EXCLUSIVELY OF SALE OF GOODS OR MERCHANDISE TO ONE OR MORE EXPORT HOUSES OR TRADING HOUSES, THE AMOUNT WHICH BEARS TO THE PR OFITS OF THE BUSINESS [***] THE SAME PROPORTION AS THE TURNOVER IN RESPECT OF SALE TO THE RESPECTIVE EXPORT HOUSE OR TRADING HOUSE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. (4) THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT B E ADMISSIBLE UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM, ALONG WITH THE RE TURN OF INCOME, THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB -SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED [IN A CCORDANCE WITH THE PROVISIONS OF THIS SECTION:] PROVIDED THAT IN THE CASE OF AN UNDERTAKING REFERRED TO IN SUB-SECTION (4C), THE ASSESSEE SHALL ALSO FURNISH ALONG WITH THE RETURN OF INCOME, A CERTIFICATE FROM THE UNDERTAKING IN 9 THE SPECIAL ECONOMIC ZONE CONTAINING SUCH PARTICULA RS AS MAY BE PRESCRIBED, DULY CERTIFIED BY THE AUDITOR AUDITING THE ACCOUNTS OF T HE UNDERTAKING IN THE SPECIAL ECONOMIC ZONE UNDER THE PROVISIONS OF THIS ACT OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE. (4A) THE DEDUCTION UNDER SUB-SECTION (1A) SHALL NOT BE ADMISSIBLE UNLESS THE SUPPORTING MANUFACTURER FURNISHES IN THE PRESCRIBED FORM ALONG WITH HIS RETURN OF INCOME,- (A) THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED ON THE BASIS OF THE [PROFITS] OF THE SUPPORTING MANUFACTURER IN RESPECT OF HIS SALE OF GOODS OR MERCHANDISE TO THE EXPORT HOUSE OR TRADING HOUSE; A ND (B) A CERTIFICATE FROM THE EXPORT HOUSE OR TRADING HOUSE CONTAINING SUCH PARTICULARS AS MAY BE PRESCRIBED AND VERIFIED IN THE MANNER PRE SCRIBED THAT IN RESPECT OF THE EXPORT TURNOVER MENTIONED IN THE CERTIFICATE, THE E XPORT HOUSE OR TRADING HOUSE HAS NOT CLAIMED THE DEDUCTION UNDER THIS SECTION : PROVIDED THAT THE CERTIFICATE SPECIFIED IN CLAUSE (B) SHALL BE DULY CERTIFIED BY THE AUDITOR AUDITING THE ACCOUNTS OF THE EXPORT HOUSE O R TRADING HOUSE UNDER THE PROVISIONS OF THIS ACT OR UNDER ANY OTHER LAW. (4B) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER SUB-SECTION (1) OR SUB- SECTION (1A), ANY INCOME NOT CHARGED TO TAX UNDER T HIS ACT SHALL BE EXCLUDED. (4C) THE PROVISIONS OF THIS SECTION SHALL APPLY TO AN ASSESSEE,_ (A) FOR AN ASSESSMENT YEAR BEGINNING AFTER THE 31 ST DAY OF MARCH, 2004 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2005; (B) WHO OWNS ANY UNDERTAKING WHICH MANUFACTURES OR PRODUCES GOODS OR MERCHANDISE ANYWHERE IN INDIA (OUTSIDE ANY SPECIAL ECONOMIC ZONE) AND SELLS THE SAME TO ANY UNDERTAKING SITUATED IN A SPE CIAL ECONOMIC ZONE WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A A ND SUCH SALE SHALL BE DEEMED TO BE EXPORT OUT OF INDIA FOR THE PURPOSES O F THIS SECTION. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, - (A) CONVERTIBLE FOREIGN EXCHANGE MEANS FOREIGN EX CHANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVE RTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF THE FOREIGN EXCHANGE REGULATION ACT , 1973 (46 OF 1973), AND ANY RULES MADE THEREUNDER ; (AA) EXPORT OUT OF INDIA SHALL NOT INCLUDE ANY TR ANSACTION BY WAY OF SALE OR OTHERWISE, IN A SHOP, EMPORIUM OR ANY OTHER ESTABLI SHMENT SITUATE IN INDIA, NOT INVOLVING CLEARANCE AT ANY CUSTOMS STATION AS DEFIN ED IN THE CUSTOMS ACT, 1962 (52 OF 1962) ; 10 (B) EXPORT TURNOVER MEANS THE SALE PROCEEDS, [REC EIVED IN, OR BROUGHT INTO, INDIA] BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE [IN AC CORDANCE WITH CLAUSE (A) OF SUB-SECTION (2)] OF ANY GOODS OR MERCHANDISE TO WHI CH THIS SECTION APPLIES AND WHICH ARE EXPORTED OUT OF INDIA, BUT DOES NOT INCLU DE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCH ANDISE BEYOND THE CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT, 1962 (52 OF 1962) ; (BA) TOTAL TURNOVER SHALL NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCHANDISE BEYOND THE CUSTOMS STAT ION AS DEFINED IN THE CUSTOMS ACT, 1962 (52 OF 1962): PROVIDED THAT IN RELATION TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1991, THE EXPRESSION TOTAL TURNOVER SHALL HAVE EFFECT AS IF IT ALSO EXCLUDED ANY SUM REFERRED TO IN CLAUSES (IIIA), (II IB) [, (IIIC), (IIID) AND (IIIE)] OF SECTION 28; (BAA) PROFITS OF THE BUSINESS MEANS THE PROFITS O F 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) [, (IIIC), (IIID) AND (IIIE)] OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT 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; (C) EXPORT HOUSE CERTIFICATE OR TRADING HOUSE CE RTIFICATE MEANS A VALID EXPORT HOUSE CERTIFICATE OR TRADING HOUSE CERTIFICATE, AS THE CASE MAY BE, ISSUED BY THE CHIEF CONTROLLER OF IMPORTS AND EXPORTS, GOVERNMENT OF INDIA; (D) SUPPORTING MANUFACTURER MEANS A PERSON BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, [MANUFACT URING (INCLUDING PROCESSING) GOODS] OR MERCHANDISE AND SELLING SUCH GOODS OR MER CHANDISE TO AN EXPORT HOUSE OR A TRADING HOUSE FOR THE PURPOSES OF EXPORT ; (E) 'SPECIAL ECONOMIC ZONE' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (VIII) OF THE EXPLANATION 2 TO SECTION 10A. 8. THIS COMPUTATION PROVISION LAYS DOWN THREE STAGE S FOR COMPUTATION OF PROFITS DERIVED FROM EXPORTS : 11 (1) FIRSTLY, PROFITS OF THE BUSINESS ARE TO BE COMPUT ED AS PER EXPLANATION (BAA) APPENDED BELOW SECTION 80HHC(4B). PROFITS AND GAINS OF BUSIN ESS AS COMPUTED UNDER THE HEAD BUSINESS INCOME MINUS 90% OF ANY SUM UNDER CLAUSE S (IIIA), (IIIB) , (IIIC), (IIID) AND (IIIE) OF SECTION 28 OR ANY RECEIPT BY WAY OF BROKE RAGE, COMMISSION, INTEREST,RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED I N SUCH PROFITS. (2) SECONDLY, PROPORTION OF THE AFORESAID PROFITS OF B USINESS AS EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED BY THE ASSES SEE IS CALCULATED IF HE IS A MANUFACTURER OR HAVING MIX BUSINESS AS TRADER AND MANUFACTURER. IN CASE ASSESSEE IS TRADER, THE EXPORT PROFITS ARE TO BE COMPUTED AS PER SECTION 80HHC(3)( B) BY REDUCING DIRECT AND INDIRECT COSTS THEREFROM. (3) THIRDLY, THE FIGURE ARRIVED AT AS PER NO. (2) A BOVE WOULD BE FURTHER INCREASED BY AN AMOUNT WHICH BEARS TO 90% OF ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) , (IIIC), (IIID) OR (IIIE) OF SECTION 28, SAME PROPORTION AS EXPORT TUR NOVER BEARS TO THE TOTAL TURNOVER OF BUSINESS AS PER IST, 2 ND ,3 RD AND IVTH PROVISOS TO SECTION 80HHC(3). 9. SECTION 80HHC(1) ALLOWS A DEDUCTION TO THE ASSES SEE OF THE PROFITS DERIVED FROM THE EXPORT BUSINESS. THE PROFIT FROM THE EXPORT BUSINE SS HAVE TO BE ASCERTAINED AS PER SECTION 80HHC(3) WHICH GIVES A FORMULA. SECTION 80HHC(3) LA ID DOWN FOLLOWING PROPOSITION :- (I) IN SUB-SECTION (A) THE EXPORT PROFITS ARE TO BE COM PUTED WHEN THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF GOODS, MERCHAN DISE, MANUFACTURE OR PROCESS BY HIM. (II) IN SUB-CLAUSE (B), EXPORT PROFITS ARE TO BE COMPUTE D WHEN THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF TRADING GOODS ONLY. (III) IN SUB-CLAUSE (C), THE EXPORT PROFITS ARE TO BE COM PUTED WHEN THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF GOODS, MANUFAC TURE OR PROCESSED BY HIM AND OF TRADING GOODS. 10. WE HAVE ALSO GONE THROUGH THE DECISION OF CIT V S. MADRAS MOTORS LIMITED/M.M. FORGINGS LIMITED, 257 ITR 60 (MADRAS) ON WHICH THE LD. A.R. VEHEMENTLY RELIED. IN OUR OPINION, THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. THIS DECISION RELATES TO TH E PROVISIONS OF SECTION 80HHC AS WERE IN EXISTENCE PR IOR TO 01.04.1992. THE QUESTION INVOLVED IN 12 THAT DECISION RELATES TO THE ASSESSMENT YEAR 1989-9 0 AND 1990-91. AT PAGE NO.69, THE HONBLE HIGH COURT HAS REPRODUCED THE RELEVANT PROVISIONS O F SECTION 80HHC(3) WHICH READS AS UNDER:- 80HHC. DEDUCTION IN RESPECT OF PROFITS RETAINED FO R EXPORT BUSINESS.-. (3) FOR THE PURPOSES OF SUB-SECTION(1), PROFITS DER IVED FROM THE EXPORT OF GOODS OR MERCHANDISE OUT OF INDIA SHALL BE,- (A) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE ASSESSEE CONSISTS EXCLUSIVELY OF THE EXPORT OUT OF INDIA OF THE GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES, THE PROFITS OF THE BUSINESS AS COM PUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION ; (B) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE ASSESSEE DOES NOT CONSIST EXCLUSIVELY OF THE EXPORT OUT OF INDIA OF T HE GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES, THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS (AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION) THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. 11. FROM A PERUSAL OF THIS SECTION, IT IS APPARENT THAT THIS SECTION DEALS WITH TWO SITUATIONS FOR DETERMINING THE PROFIT DERIVED FROM THE EXPORT OF G OODS OR MERCHANDISE. THE FIRST SITUATION RELATES TO WHEN THE ASSESSEES BUSINESS EXCLUSIVELY CONSISTS OF EXPORT BUSINESS I.E. PROVIDED UNDER SECTION 80HHC(3)(A). THE SECOND SITUATION RE LATES TO WHEN THE ASSESSEES BUSINESS DOES NOT EXCLUSIVELY CONSIST OF EXPORT BUSINESS. THIS S ITUATION IS GIVEN UNDER SECTION 80HHC(3)(B). THE LD. A.R., WITHOUT LOOKING TO THE PROVISO TO THI S SECTION AS WAS IN EXISTENCE IN THE ASSESSMENT YEAR 2003-04, TRIED TO ARGUE BEFORE THE TRIBUNAL RE LYING ON THE CASE LAW WHICH RELATES TO THE PROVISIONS WHICH WAS IN EXISTENCE DURING THE ASSESS MENT YEAR 1989-90 AND 1990-91. RELIANCE ON THIS JUDGEMENT, THEREFORE, IN OUR OPINION, IS TO TALLY INCORRECT AND THIS JUDGEMENT CANNOT ASSIST THE ASSESSEE. THIS IS SETTLED RULE OF INTERPRETATI ON THAT THE JUDGMENT HAS TO BE INTERPRETED ON THE BASIS OF THE QUESTION INVOLVED AND CONTEXT THEREIN. THE AMENDMENT MADE BY SUBSTITUTING SUB 13 SECTION (3) HAS INTRODUCED A DIFFERENT BASIS FOR AL LOWING DEDUCTION IN RESPECT OF EXPORT PROFITS. WHEREAS PRIOR THERETO, THE DEDUCTION WAS ALLOWED IN RESPECT OF THAT PORTION OF THE PROFITS AND GAINS OF THE BUSINESS AS PER THE ASSESSMENT WHICH IS PROPORTIONATE TO THE RATIO WHICH THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER, AFTER THE AME NDMENT DIFFERENT BASES WERE PROVIDED DEPENDING ON WHETHER THE ASSESSEE IS AN EXPORTER OF MANUFACTURING GOODS EXCLUSIVELY OR OF TRADING GOODS EXCLUSIVELY OR A COMBINATION OF BOTH. 12. NOW COMING TO THE PROVISIONS OF SECTION 80HHC A S IN EXISTENCE DURING THE YEAR UNDER CONSIDERATION, WE HAVE SEEN FROM THE PROVISIONS OF SECTION 80HHC(3)(B) THAT THE EXPORT PROFITS ARE TO BE COMPUTED WHEN THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OR TRADING GOODS ONLY BY REDUCING FROM THE EXPORT TURNOVER THE DIRECT COS T AND INDIRECT COST ATTRIBUTABLE TO SUCH EXPORT. DIRECT COST AND INDIRECT COST HAVE DULY BEEN DEFINE D UNDER EXPLANATION TO SECTION 80HHC(3) UNDER SUB-CLAUSE (D) AND (E). WE NOTED FROM THE AS SESSMENT ORDER AND THE ORDER OF THE CIT(A) THAT NONE OF THE AUTHORITIES BELOW HAS APPLIED THE PROVISION OF SECTION 80HHC CORRECTLY. THE EXPORT PROFIT HAS TO BE ASCERTAINED FOR THE PURPOSE OF SUB-SECTION (1) OF SECTION 80HHC IN THE CASE OF THE ASSESSEE AS PER THE PROVISIONS OF SECTI ON 80HHC(3)(B) FIRST, AFTER THAT THE ASSESSEE WILL BE ENTITLED TO THE DEDUCTION SUBJECT TO THE PR OVISIONS OF SECTION 80HHC(1B) WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. SECTIO N 80AB IN ANY CASE HAS AN OVERRIDING EFFECT OVER ALL THE PROVISIONS IN CHAPTER-VI-A. THE DEDUC TION AVAILABLE UNDER SECTION 80HHC IN ANY WAY CANNOT EXCEED THE EXPORT PROFIT INCLUDED IN THE TOTAL INCOME SUBJECT TO THE GROSS TOTAL INCOME EARNED BY THE ASSESSEE DURING THE IMPUGNED A.Y. WE , THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE BACK TO THE FILE OF TH E ASSESSING OFFICER WITH THE DIRECTION THAT THE 14 ITA NO.106/AGR/2008 & ITA NO.107/AGR/2008 ASST. YEAR: 2003-04 ASSESSING OFFICER SHALL RECOMPUTE THE DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80HHC. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 11.02.2011) . SD/- SD/- (H.S. SIDHU) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 11 TH FEBRUARY, 2011 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR, ITAT, AGRA BENCH, AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY