Shah Trilokchand Bhabutmal, Solapur V. Asstt.CIT,Cir.1, Solapur, Solapur

ITA 278/PUN/2011

• Counselvise Citation: 27824514 RSA 2011
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 16-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MISHRA
• Assessee Lawyers: S G BHATUDA
• Keywords: Business income
• Section: 80C; 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.278/PN/2011 (ASSESSMENT YEAR 2004-05) SHAH TILOKCHAND BHABUTMAL, 941/43, WEST MANGALWAR PETH, PHALTAN GALLI, SOLAPUR 413004. .. APPELLANT PAN NO.ADQPS 7101P VS. ACIT, CIRCLE-1, SOLAPUR .. RESPONDENT ASSESSEE BY : SHRI S.G. BHATUDA REVENUE BY : SHRI ALOK MISHRA DATE OF HEARING : 12-04-2013 DATE OF PRONOUNCEMENT : 30-04-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 29-09-2010 OF THE CIT(A)-III, PUNE RELATING TO ASSE SSMENT YEAR 2004-05. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE AND FROM THE POINT OF LAW, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DIS ALLOWANCE OF INTEREST OF RS.42,693/- U/S.40A(2)(B) OF THE INCOME TAX ACT, 19 61. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS ING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE HAS DEBITED INTEREST OF RS.1,40,078/- IN THE PROFIT AND LOSS AC COUNT OF KANSWA TEXTILES. HE NOTED THAT THE ASSESSEE HAS PAID INTEREST @12% T O AN OUTSIDE PARTY SAMU TEXTILES WHEREAS IT HAS PAID INTEREST TO THE RELATE D PARTIES NAMELY, CHANDRAKANT TILOKCHAND SHAH, KAMALA TILOKCHAND SHAH AND YOGESH FABRICS @18%. INVOKING THE PROVISIONS OF SECTION 4 0A(2)(B), THE ASSESSING OFFICER DISALLOWED EXCESS INTEREST OF 6% PAID TO THE RELATED PARTIES AT RS.42,693/-. 2 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSE SSEE HAS PAID INTEREST @18% ON LOANS AVAILED FROM THE FOLLOWING PARTIES : 1. SHAH CHANDRAKANT TILOKCHAND RS.61,169/- 2. SHAH KAMALA TILOKCHAND RS.54,010/- 3. SHAH YOGESH TILOKCHAND RS.12,089/- IT WAS SUBMITTED THAT THE LOANS WERE TAKEN FROM THE RELATED PERSONS DURING F.Y. 1998-99, 1999-2000, 2001-02 AND 2002-03. THE RATES PREVAILING AT THE TIME OF AVAILING OF THE LOANS WERE 18% AND THE ASSE SSEE CONTINUED TO PAY THE INTEREST AT THAT RATE THEREAFTER ALSO. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WITHOUT BRINGING ON RECORD ANY COGENT MATER IAL TO TREAT THE PAYMENT AS EXCESSIVE DISALLOWED INTEREST OF RS.42,693/-. I T WAS ARGUED THAT IF MONEY IS AVAILABLE FROM SOME PERSON AT LOWER RATE IT DOES NOT MEAN THAT THE INTEREST PAID TO OTHERS IS EXCESSIVE. IT WAS FURTHER SUBMIT TED THAT MONEY WAS BORROWED AT THE TIME OF REQUIREMENT OF FUNDS AND TH E TERMS ARE NEGOTIATED AND FINALISED ON THE BASIS OF THE CIRCUMSTANCES PRE VAILING AND THE NEED AND URGENCY OF THE PARTIES. IT WAS ALSO SUBMITTED THAT ALL THE 3 PERSONS RELATED TO THE ASSESSEE TO WHOM INTEREST HAS BEEN PAID @18% AR E INCOME TAX ASSESSEES AND HAVE PAID TAX @30% FOR THE A.Y. 2004- 05. THEREFORE, IT CANNOT BE SAID THAT THE INTEREST HAS BEEN PAID WITH A VIEW TO MINIMISE THE TAX LIABILITY. 5. HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH T HE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER. WHILE DOING SO, HE OBSERVED THAT IF THE M ONEY WAS BORROWED AT HIGHER RATE OF INTEREST AT THE TIME OF BORROWING, T HE RATE OF INTEREST CAN ALWAYS BE REVISED DOWNWARDS WHEN THE MONEY IS AVAIL ABLE AT LOWER RATE OF INTEREST SUBSEQUENTLY. IN THE ALTERNATIVE, THE BOR ROWINGS MADE AT HIGHER RATE OF INTEREST CAN BE REPAID WHEN FUNDS WERE AVAILABLE AT LOWER RATE OF INTEREST 3 FROM OTHER PERSONS. EXCEPT STATING THAT THE AMOUNT S WERE BORROWED EARLIER AT HIGHER RATE OF INTEREST THE ASSESSEE HAS NOT FUR NISHED ANY EXPLANATION AS TO WHY THE BORROWING AT SUCH HIGHER RATE OF INTEREST W AS ALLOWED TO BE CONTINUED WHEN THE FUNDS WERE AVAILABLE SUBSEQUENTL Y AT LESSER RATE OF INTEREST. HE, ACCORDINGLY, HELD THAT THERE IS NO J USTIFICATION OR BUSINESS COMPULSION WHATSOEVER FOR THE ASSESSEE TO BORROW MO NEY FROM RELATED PARTIES AT HIGHER RATE OF INTEREST AND CONTINUE WIT H THE BORROWINGS WHEN THE FUNDS WERE AVAILABLE OTHERWISE AT A LOWER RATE OF I NTEREST. HE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT SINCE THE RELAT ED PARTIES HAVE PAID TAX @30% FOR A.Y.2004-05, THEREFORE, IT CANNOT BE SAID THAT INTEREST PAID HAS BEEN MADE WITH A VIEW TO MINIMISE THE TAX LIABILITY . 5.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND IN T HE INSTANT CASE WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD THE ASSESSIN G OFFICER INVOKED THE PROVISIONS OF SECTION 40A(2)(B) AND ADDED INTEREST OF RS.42,693/- AS EXCESSIVE ON THE GROUND THAT THE ASSESSEE HAS PAID INTEREST @12% TO AN OUTSIDE PARTY SAMU TEXTILES WHEREAS INTEREST HAS BE EN PAID TO RELATED PARTIES @18%. FROM THE DETAILS FURNISHED BEFORE THE CIT(A) WE FIND THE ASSESSEE HAS TAKEN THE LOANS FROM THE RELATED PARTIES DURING F.Y. 1998-99, 1999- 2000, 2001-02 & 2002-03 AND THE INTEREST @18% HAS B EEN ALLOWED BY THE REVENUE IN THE PAST. MERELY BECAUSE SOME FUNDS ARE AVAILABLE AT LOWER RATE FROM A PARTICULAR PERSON IT CANNOT BE SAID THAT FUN DS ARE AVAILABLE AT SUCH LOWER RATE FROM OTHER PERSONS/PARTIES AS PER THE RE QUIREMENT OF THE ASSESSEE 4 AND THE ASSESSEE CAN BORROW AT SUCH LOWER RATE AND REPAY THE LOANS OBTAINED EARLIER AT HIGHER RATE. SO MANY FACTORS COUNT FOR OBTAINING LOAN FROM PRIVATE PARTIES AND A SINGLE INSTANCE OF OBTAINING LOAN AT LOWER RATE CANNOT BE CONSIDERED AS A THUMB RULE THAT LOANS ARE AVAILABLE AT SUCH LOWER RATE. FURTHER, WE FIND SOME FORCE IN THE SUBMISSION OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT WHEN THE ASSESSEE AS WELL AS THE PERS ONS TO WHOM INTEREST @18% HAS BEEN PAID ARE FALLING UNDER THE SAME TAX B RACKET, I.E. 30%, THEREFORE, IT CANNOT BE SAID THAT HIGHER INTEREST W AS PAID WITH A VIEW TO MINIMISE THE TAX LIABILITY. SINCE THE ASSESSEE HAS OBTAINED LOANS IN THE PRECEDING YEARS AND THE RATE OF INTEREST @18% HAS B EEN ALLOWED BY THE DEPARTMENT IN THE PAST AND SINCE THE ASSESSEE AS WE LL AS THE PERSONS TO WHOM INTEREST HAS BEEN PAID ARE FALLING IN THE SAME TAX BRACKET, THEREFORE, WE FIND NO JUSTIFICATION FOR DISALLOWANCE OF INTERE ST BEING EXCESS PAYMENT TO RELATED PARTIES U/S.40A(2)(B). WE, THEREFORE, SET- ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE T HE DISALLOWANCE. 7. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : 2. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE AND FROM THE POINT OF LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DE DUCTION ALLOWABLE U/S.80HHC OF THE INCOME TAX ACT, 1961 TO THE EXTENT OF RS.12, 84,148/- AS AGAINST THE CLAIM OF THE APPELLANT OF RS.19,98,253/-. 8. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS THE PROPRIETOR OF (A) KANSWA TEXTILES WHICH IS ENGAGED IN THE BUSINESS OF STITCHING AND PACKING ON JOB WORK BASIS AND (B) KANSWA TEXTILES (EXPORT D IVISION) WHICH IS ENGAGED IN EXPORTING TOWELS AND OTHER FABRICS (BOTH MANUFACTURED BY OWN AND BOUGHT FROM OTHERS). THE ASSESSEE CLAIMED DEDU CTION OF RS.19,98,253/- U/S.80HHC IN THE CASE PROFITS FROM KANSWA TEXTILES (EXPORT DIVISION). 5 THE ASSESSING OFFICER NOTED THAT THE CALCULATION OF DEDUCTION MADE BY THE ASSESSEE SUFFERS FROM THE FOLLOWING ERRORS : 1. SINCE DEDUCTION U/S.80HHC IS IN RESPECT OF AN A SSESSEE AND NOT THAT OF A CONCERN PER SE, THE BOOK RESULTS OF BOTH THE CONCER NS VIZ., KANSWA TEXTILES AND KANSWA TEXTILES (EXPORT DIVISION) SHOULD HAVE BEEN NETTED OFF BEFORE CLAIMING THE DEDUCTION. IN THIS CONTEXT, THE ASSESSING OFFI CER RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABOR ATORIES LTD. VS. DCIT (2004). 2. THE AMOUNT OF DEPB RECEIVABLE OF RS.29,11,307/- SHOULD HAVE BEEN REDUCED FROM THE NET PROFIT OF THE ASSESSEE FOR THE PURPOSE OF DEDUCTION U/S.80HHC. 3. THE TOTAL TURNOVER OF BOTH THE CONCERNS SHOULD B E TAKEN TOGETHER AND NOT ONLY THE TURNOVER OF THE EXPORT DIVISION ALONE. 9. THE AO CONFRONTED THE ASSESSEE ABOUT THE ABOVE O BSERVATIONS. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE AND FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IP CA LABORATORIES LTD. VS. DCIT REPORTED IN 266 ITR 521 AND THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. VIRUSHUNAGAR TEXTILE MILLS LTD. RE PORTED IN 97 ITD 306 THE AO RECOMPUTED THE ALLOWABLE DEDUCTION U/S.80HHC AT RS. 4,94,760/- AS AGAINST RS.19,98,253/- CLAIMED BY THE ASSESSEE. 10. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE DED UCTION U/S.80HHC IS IN RESPECT OF PROFIT/GAIN DERIVED FROM EXPORT MADE BY THE ASSESSEE AND NOT INCOME FROM ALL SOURCES OF THE ASSESSEE. IT WAS AR GUED THAT IF TURNOVER OF OTHER BUSINESS CARRIED OUT BY THE ASSESSEE IS TO BE TAKEN INTO ACCOUNT FOR CLAIMING DEDUCTION U/S.80HHC, IT WILL BE AN ABSURD INTERPRET ATION OF LAW. IT WAS SUBMITTED THAT THE ASSESSEE DURING THE IMPUGNED ASS ESSMENT YEAR HAD CARRIED OUT TWO TYPES OF BUSINESS (1) EXPORT TRADE AND (2) INDIGENOUS TRADE AND HAS MAINTAINED TWO SEPARATE BOOKS OF ACCOUNTS AND DETER MINED PROFIT FROM THESE TWO TYPES OF BUSINESS SEPARATELY AND FILING THE RET URN OF INCOME. IT WAS POINTED OUT THAT THIS PRACTICE HAS BEEN ADOPTED BY THE ASSESSEE CONSISTENTLY 6 SINCE 1999-2000 AND WAS FILING RETURN OF INCOME ON THE SAME BASIS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT SO FAR. I T WAS POINTED OUT THAT EVEN DURING A.Y. 2003-04 WHICH WAS UNDER SCRUTINY THIS I SSUE WAS NEVER TAKEN UP BY THE REVENUE. IT WAS SUBMITTED THAT THE AO SHOUL D TAKE CONSISTENT VIEW ON A PARTICULAR MATTER UNLESS THE SITUATION HAS CHANGED AND SUCH SITUATION WARRANTS THE CHANGE IN THE PRINCIPLE. 10.1 IT WAS SUBMITTED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES LTD. VS. DCIT (SUPRA) WAS RAIS ED BY THE AO IN THE ASSESSMENT PROCEEDINGS OF THE EARLIER YEARS ALSO WH EREIN AFTER EXAMINATION IT WAS HELD THAT THE SAID CASE IS NOT APPLICABLE TO TH E FACTS OF THE ASSESSEES CASE. IT WAS SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT IF THERE IS NET PROFIT FROM ONE TYPE OF EXPORT AND NET LOSS FROM ANOTHER TYPE OF EXPORT, THEN WHILE GIVING BENEFIT U/S.80HHC NET RESULT HAS TO BE CONSIDERED AND BENEFIT CANNOT BE GRANTED ONLY TO NET PROFIT OF EXPORT BUSINESS WITHOUT CONSIDERING THE NET LOSS OF ANOTHER EXPORT. IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE EXPORT OF ONLY ONE TYPE OF BUSINESS AND TH ERE IS NET PROFIT. THERE IS LOSS FROM BUSINESS NOT FROM ANOTHER EXPORT BUT FROM INDIGENOUS TRADE. THEREFORE, NETTING OF EXPORT INCOME AGAINST THE LOS S OF INDIGENOUS TRADE IS TOTALLY INCORRECT. 11. SO FAR AS THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IS CONCERNED IT WAS SUBMITTED THAT IN THAT CASE NO SEP ARATE BOOKS OF ACCOUNTS WERE MAINTAINED FOR EXPORT AND DOMESTIC BUSINESS WH EREAS IN THE ASSESSEES CASE HE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS, I.E. FOR EXPORT BUSINESS AND FOR INDIGENOUS BUSINESS. SO FAR AS THE OBSERVATION OF THE AO THAT PROFIT ON TRANSFER OF DEPB WILL BE ELIGIBLE FOR DEDUCTION U/S .80HHC ONLY IF THERE IS AN 7 ACTUAL SALE AND NOT WHEN THE AMOUNT IS SHOWN AS REC EIVABLE IN VIEW OF THE AMENDED PROVISIONS OF SECTION 28(IIID), IT WAS SUBM ITTED THAT AS PER THE PROVISIONS OF SECTION 28(IIID) OF THE I.T. ACT PROF IT ON THE TRANSFER OF DEPB IS TAXABLE AND THEREFORE THE SAME WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED THAT IF IN THE OPINION OF THE AO THE PROFIT ON SALE OF DEPB IS NOT TAXABLE BECAUSE THERE IS NO ACTUAL SALE THE PRO PER COURSE SHOULD HAVE BEEN TO EXCLUDE THE SAME FROM THE TAXABLE INCOME. HOWEV ER, THE AO HAS EXCLUDED THE SAME FROM THE DEDUCTION CLAIMED THEREBY TAXING THE INCOME WHICH ACCORDING TO THE AO HIMSELF IS NOT TAXABLE. IT WAS SUBMITTED THAT THE AO IN THE ASSESSMENT ORDER HAS NOT GIVEN ANY CLEAR REASON AS TO WHY THE INCOME FROM DEPB IS NOT ALLOWABLE FOR DEDUCTION U/S.80HHC WHEN THE SAID INCOME HAS ARISEN EXCLUSIVELY AND ONLY BECAUSE OF EXPORT. 12. HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE COMPUT ED THE DEDUCTION UNDER CLAUSE (B) OF SECTION 80HHC (3) R.W. THE PROVISO TH ERETO TREATING THE ENTIRE EXPORT TURNOVER AS EXPORT OF TRADING GOODS WHICH IS NOT CORRECT. THE AO HAS WORKED OUT THE ALLOWABLE DEDUCTION UNDER CLAUSE (A) OF SECTION 80HHC(3) AS THE EXPORTS WERE OF GOODS OR MERCHANDISE PROCESSED BY THE ASSESSEE AND NOT OF TRADING GOODS. HE OBSERVED THAT THE AO IN PRINCIPL E IS JUSTIFIED IN ADOPTING THE FORMULA PROVIDED IN CLAUSE (A) OF 80HHC(3) FOR THE PURPOSE OF COMPUTATION OF DEDUCTION ALLOWABLE U/S.80HHC. HE OBSERVED THAT AS PER THE CLEAR PROVISIONS OF SECTION 80HHC WHERE AN ASSESSEE BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGE D IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE, IS ENTITL ED TO DEDUCTION AS PRESCRIBED IN THE SECTION. THE ELIGIBILITY OF DEDUCTION IS CO NTEMPLATED BY SECTION 80HHC(1) WHEREAS QUANTUM OF DEDUCTION IS DETERMINED U/S.80HHC(3). SUB- 8 SECTION (3) PROVIDES FOR THE FORMULA FOR CALCULATIN G THE EXPORT PROFIT IN CASE OF A COMPOSITE BUSINESS WHERE EXPORT TURNOVER AS WELL AS LOCAL TURNOVER IS ALSO INVOLVED BECAUSE THE DEDUCTION HAS TO BE ALLOWED ON LY IN CASE OF PROFIT DERIVED FROM EXPORT TURNOVER. HE NOTED THAT AS PER PROVIS IONS OF SECTION 80HHC(3)(A) WHENEVER THERE IS A COMPOSITE BUSINESS, I.E. EXPORT AND DOMESTIC BUSINESS CARRIED ON BY THE ASSESSEE, DEDUCTION TO BE ALLOWED ON EXPORT PROFIT IS TO BE CALCULATED BY DETERMINING PROPORTIONATE PROFIT ON ACCOUNT OF EXPORT BUSINESS FROM THE TOTAL BUSINESS PROFITS. THEREFORE, IF ASS ESSEE IS DEALING IN SPECIFIED GOODS ON WHICH DEDUCTION IS AVAILABLE AND HIS WHOLE BUSINESS CONSISTS OF EXPORTS ONLY, THEN HE IS ENTITLED TO DEDUCTION ON W HOLE OF SUCH PROFITS. HOWEVER, IF SOME SUCH SPECIFIED GOODS ARE SOLD IN T HE LOCAL MARKET, THEN DEDUCTION WILL BE AVAILABLE ON THE PROPORTIONATE BA SIS AS PER SECTION 80HHC(3)(A). 12.1 HE REJECTED THE CONTENTION OF THE ASSESSEE THA T SINCE SEPARATE BOOKS ARE MAINTAINED FOR EXPORT BUSINESS AND DOMESTIC BUSINES S AND PROFITS FOR BOTH THE BUSINESS ARE IDENTIFIABLE SEPARATELY, THE FORMULA P ROVIDED IN SECTION 80HHC(3)(A) IS NOT APPLICABLE AND THE DEDUCTION HAS TO BE ALLOWED INDEPENDENTLY ON THE PROFITS DERIVED FROM EXPORTS ON THE GROUND THAT THE SAME IS NOT LEGALLY SUSTAINABLE. HE NOTED THAT THE ISSU ES NAMELY APPLICABILITY OF CLAUSE (A) OF SUB-SECTION (3) WHEN SEPARATE BOOKS OF ACCOUNTS ARE BEING MAINTAINED FOR THE EXPORT BUSINESS AND (2) THE CONS IDERATION OF EXPORT ACTIVITIES AS A SEPARATE AND DISTINCT BUSINESS AND NOT A PART OF THE OTHER BUSINESS OF DOMESTIC TRADE CARRIED ON BY THE ASSESSEE WERE A LREADY CONSIDERED AND DEALT WITH BY THE ITAT SPECIAL BENCH DELHI IN THE CASE OF PEARL POLYMERS LTD. REPORTED IN 80 ITD 1 AND IN THE CASE OF INTERNATION AL RESEARCH PARK LABORATORIES LTD. REPORTED IN 50 ITD 37. HE NOTED THAT ALTHOUGH THE DECISION 9 OF THE SPECIAL BENCH IN THE CASE REFERRED SUPRA WA S RENDERED IN THE CONTEXT OF PRE AMENDED PROVISIONS OF CLAUSE (A) AND CLAUSE (B) OF SECTION 80HHC(3) THE OBSERVATIONS MADE BY THE SPECIAL BENCH ARE EQUALLY APPLICABLE TO THE PROVISIONS AS APPLICABLE FOR THE YEAR UNDER CONSIDE RATION. HE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT SIMILAR CLAIM WAS A LLOWED IN THE PRECEDING YEARS IN THE SCRUTINY ASSESSMENT ON THE GROUND THA T THERE IS NO ESTOPPEL OR RESJUDICATA IN IT PROCEEDINGS AND THE AO CAN EXAMIN E THE CLAIM OF THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR ON THE BAS IS OF THE FACTS EXISTING IN THAT YEAR. HE ACCORDINGLY HELD THAT THE AO IS JUSTIFIED IN AGGREGATING LOSS OF NON EXPORT DIVISION, I.E. LOSS FROM DOMESTIC SALE UNIT AND PROFIT OF EXPORT DIVISION OF THE ASSESSEE WHILE COMPUTING THE DEDUCTION ALLOW ABLE U/S.80HHC. FURTHER, HE HELD THAT THE AO WAS ALSO JUSTIFIED IN TAKING TH E TURNOVER OF THE ENTIRE BUSINESS INCLUDING DOMESTIC AND EXPORT TURNOVER FOR THE PURPOSE OF TOTAL TURNOVER, I.E. DENOMINATOR IN THE FORMULA FOR COMPU TING THE DEDUCTION U/S.80HHC(3). 13. SO FAR AS THE INCLUSION OF DEPB AMOUNT IN THE TOTAL TURNOVER BY THE AO HE HELD THAT THE SAME IS NOT INCLUDIBLE IN TOTAL TU RNOVER AS DEFINED UNDER CLAUSE (BA) OF EXPLANATION TO SECTION 80HHC. HE, ACCORDIN GLY RECOMPUTED THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S.80HHC AT RS .12,84,148/- GIVING RELIEF OF RS.7,89,388/-. 13.1 AGAINST SUCH PART RELIEF GIVEN BY THE CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR THE EXPO RT BUSINESS AS WELL AS DOMESTIC BUSINESS, THEREFORE, THE COMPUTATION MADE BY THE ASSESSEE IS CORRECT 10 AND THE LD. CIT(A) WAS NOT JUSTIFIED IN REJECTING T HE CLAIM OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE FO LLOWING DECISIONS AND SUBMITTED THAT WHEN ASSESSEE MAINTAINS SEPARATE ACC OUNTS FOR EXPORT SALES AND DOMESTIC SALES DEDUCTION U/S.80HHC IS NOT TO BE ON BASIS OF TOTAL TURNOVER OF ALL BUSINESS OF ASSESSEE AND THE ASSESSEE IS ENTITL ED TO DEDUCTION FULLY ON EXPORT PROFIT. 1. CIT VS. M. GANI AND CO. REPORTED IN 301 ITR 38 1 (MADRAS) 2. CIT VS. MACMILLAN INDIA LTD. REPORTED IN 295 IT R 67 (MADRAS) 3. CIT VS. RATHORE BROTHERS REPORTED IN 254 ITR 65 6 (MADRAS) 14.1 HE ALSO RELIED ON THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. PADMINI TECHNOLOGIES PVT. LTD. VIDE ITA NO.1265/2007 ORDER DATED 14-09-2011. 15. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND RELIED ON THE ORDER OF THE CIT(A). REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MYSODET PVT. LTD. VS. CIT REPORTED IN 3 05 ITR 276 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT IN ORDER TO ARRIVE AT THE AMOUNT DEDUCTIBLE U/S.80HHC(3) IN THE CASE OF AN ASSESSEE HAVING EXPORT BUSINESS AS WELL AS SOME OTHER DOMEST IC BUSINESS, THE PRINCIPLE OF PROPORTIONALITY IS APPLICABLE AND THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER TO THE BUSINESS PROFITS WILL BE APPLIED T O DETERMINE THE QUANTUM OF DEDUCTION. 15.1 REFERRING TO THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TATA BP SOLAR INDIA LTD. VS. ACIT REPORTED IN 13 0 ITD 386 HE SUBMITTED THAT THE PROVISIONS OF SECTION 80HHC GRANT DEDUCTIO N ON THE BASIS OF PROPORTIONATE PROFITS ATTRIBUTABLE TO THE EXPORT TU RNOVER VIS--VIS TOTAL TURNOVER. THE PROVISIONS OF SECTION 80HHC(3)(A) ALSO REFER TO THE TOTAL TURNOVER OF THE 11 BUSINESS CARRIED ON BY THE ASSESSEE. THEREFORE, TH E TOTAL TURNOVER SHOULD INCLUDE ALL SALES WHERE THERE IS AN ELEMENT OF PROF IT EMBEDDED THEREIN. THE PROVISIONS OF SECTION 80HHC(3)(A) WHICH REFER TO PR OFITS DERIVED FROM EXPORT OF GOODS MANUFACTURED THEN THE PROFIT DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO T HE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. HE ALSO RELIE D ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF DUNCANS INDUSTRI ES LTD. VS. CIT REPORTED IN 254 ITR 463 (CAL). HE ACCORDINGLY SUBMITTED THAT T HE ORDER OF THE CIT(A) BE UPHELD. 16. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. THE ONLY DISPUTE TO BE DECID ED IN THE INSTANT CASE IS WHETHER THE REVENUE AUTHORITIES ARE JUSTIFIED IN TA KING THE TURNOVER OF THE ENTIRE BUSINESS INCLUDING DOMESTIC AND EXPORT TURNOVER FOR THE PURPOSE OF TOTAL TURNOVER WHEN THE ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR EXPORT BUSINESS AS WELL AS DOMESTIC BUSINES. WE FIND THE ISSUE HAS TO BE DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE I N VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MYSODET PVT. L TD. VS. CIT (SUPRA) WHEREIN THE HONBLE SUPREME COURT HAS OBSERVED AS U NDER : 5. AT THE OUTSET IT MAY BE STATED THAT S. 80HHC FA LLS UNDER CHAPTER VI-A WHICH REFERS TO DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME. UNDER S. 80A IT IS INTER ALIA PROVIDED THAT IN COMPUTING TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME DEDUCTIONS SPEC IFIED IN SS. 80C TO SOU. IT IS FURTHER PROVIDED THAT THE AGGREGATE AMOUNT OF DEDUC TIONS UNDER CHAPTER VI-A SHALL NOT EXCEED THE GROSS TOTAL INCOME OF THE ASSE SSEE. IN OUR OPINION, S. 80A GOVERNS S. 80HHC WHICH DEALS WITH DEDUCTIONS IN RES PECT OF PROFITS RETAINED FOR EXPORT BUSINESS. AT THIS STAGE WE MAY ALSO NOTE THA T THE HEADNOTE TO S. 80HHC REFERS TO DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. IT IS NOT PROFITS RETAINED FROM EXPORT BUSINESS. MOREOVER, PR IOR TO 1ST APRIL, 1986, S. 80HHC REFERRED TO DEDUCTION IN RESPECT OF EXPORT TU RNOVER. THAT PHRASEOLOGY HAS BEEN CHANGED LATER ON. WE ARE CONCERNED WITH TH E ASST. YR. 1990-91. KEEPING IN VIEW THE ABOVE ANALYSIS WE HAVE TO INTERPRET S. 80HHC(3). AT THIS STAGE IT MAY 12 BE NOTED THAT ELIGIBILITY FOR DEDUCTION IS CONTEMPL ATED BY S. 80HHC(1) WHEREAS QUANTUM OF DEDUCTION IS DETERMINED UNDER S. 80HHC(3 ). IN THE MATTER OF DETERMINING THE QUANTUM OF DEDUCTION, THE 'PRINCIPL E OF PROPORTIONALITY' APPLIES. THERE ARE TWO SITUATIONS WHICH ARE COVERED BY S. 80 HHC(3), NAMELY, TURNOVER ONLY FROM EXPORT SALES AND, SECONDLY, TURNOVER FROM COMPOSITE SALES (DOMESTIC AND EXPORT BUSINESS). IN BOTH CASES THE FORMULA APP LIES AS UNDER : PROFITS OF BUSINESS X EXPORT TURNOVER SEC. 80HHC CONCESSION = EXPORT PROFITS = TOTAL TURNOVER IN THE FIRST SITUATION WHERE THE BUSINESS OF THE AS SESSEE IS ONLY IN TERMS OF EXPORTS EXCLUSIVELY, THE PROFITS OF BUSINESS HAS TO BE MULT IPLIED BY 1/1. HOWEVER, WHEN IT COMES TO COMPOSITE BUSINESS THE PROFITS OF BUSINESS IN THE ABOVE FORMULA HAS TO MULTIPLIED BY TWO DIFFERENT FIGURES IN THE DENOMINA TOR AND NOMINATOR (NUMERATOR). THIS CALCULATION HAS BEEN CORRECTLY DO NE BY THE ITO AS INDICATED HEREINABOVE. THE ITO TOOK INTO ACCOUNT THE BUSINESS INCOME AT RS. 55,31,941 TO WHICH HE CORRECTLY APPLIES THE RATIO OF RS. 90,91,0 63/RS. 3,81,01,941. IN THE CASE OF COMPOSITE BUSINESS, AS STATED ABOVE, THE FIGURE OF EXPORT TURNOVER IS QUITE DIFFERENT FROM TOTAL TURNOVER. THE ENTIRE OBJECT FO R APPLYING THE PRINCIPLE OF PROPORTIONALITY IS TO DERIVE EXPORT PROFITS FROM TO TAL BUSINESS PROFITS. AS STATED ABOVE, THIS FORMULA APPLIES BOTH UNDER S. 80HHC(3)( A) AS WELL AS S. 80HHC(3)(B). 6. IN THE PRESENT CASE, IT APPEARS THAT THE HIGH CO URT HAS DECIDED THE MATTER AGAINST THE ASSESSEE OVERRULING THE DECISION OF THE TRIBUNAL BY PLACING RELIANCE ON THE JUDGMENT OF THIS COURT IN IPCA LABORATORY LT D. (SUPRA). IN OUR VIEW THE HIGH COURT COULD NOT HAVE RELIED UPON THE JUDGMENT OF THIS COURT IN IPCA LABORATORY LTD. (SUPRA) FOR TWO REASONS. FIRSTLY, S . 80HHC(3) HAS UNDERGONE AMENDMENTS 11 TIMES. WE ARE CONCERNED WITH THE INIT IAL PERIOD WHEN THE ABOVE FORMULA WAS SIMPLISTICALLY STATED. LATER ON THAT FO RMULA HAS UNDERGONE A CHANGE BY SEVERAL AMENDMENTS. IPCA LABORATORY LTD. (SUPRA) WAS CONCERNED WITH THE ASST. YR. 1996-97. BY THAT TIME THE FORMULA HAD UND ERGONE A CHANGE. BY THAT TIME THE CONCEPT OF ADJUSTED EXPORT TURNOVER, ADJUSTED P ROFITS OF BUSINESS AND ADJUSTED TOTAL TURNOVER HAD COME INTO PLAY. THEREFORE, THE H IGH COURT HAD ERRED IN RELYING UPON THE JUDGMENT OF THIS COURT IN IPCA LAB ORATORY LTD. (SUPRA). SECONDLY, IN THE PRESENT CASE WE ARE CONCERNED WITH THE ASST. YR. 1990-91. AT THAT TIME THE ABOVE FORMULA EXISTED. ON 5TH JULY, 1990, CBDT HAD ISSUED A CIRCULAR NO. 564 [(1990) 85 CTR (ST) 41]. WE QUOTE HEREIN BE LOW PARAS 4, 6 AND 9 : '4. SUB-S. (3) OF S. 80HHC STATUTORILY FIXES THE QU ANTUM OF DEDUCTION ON THE BASIS OF A PROPORTION OF THE PROFITS OF BUSINES S UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IRRESPECTIVE O F WHAT COULD STRICTLY BE DESCRIBED AS 'PROFITS DERIVED FROM THE EXPORT OF GO ODS OR MERCHANDISE OUT OF INDIA'. THE DEDUCTION IS COMPUTED IN THE FOLLOWI NG MANNER : PROFIT OF THE BUSINESS X EXPORT TURNOVER TOTAL TURNOVER 6. THE TERM 'EXPORT TURNOVER' UNDER THE EXISTING PR OVISIONS, MEANS THE SALE PROCEEDS (EXCLUDING FREIGHT AND INSURANCE) REC EIVABLE BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE. IN OTHER WORDS, THE FOB VALUE OF EXPORTS. THE FINANCE ACT, 1990, HAS RESTRICTED T HE DEFINITION OF THE TERM 'EXPORT TURNOVER' TO MEAN FOB SALE PROCEEDS ACTUALL Y RECEIVED BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE WITHIN SIX MONTHS OF THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PERIOD AS THE CHIEF CIT/CIT MAY ALLOW IN THIS REGARD. 9. THUS, IN THE CASE OF AN ASSESSEE WHO IS DOING EX PORT BUSINESS EXCLUSIVELY, 'EXPORT TURNOVER AND TOTAL TURNOVER' W OULD BE IDENTICAL, IF THE ENTIRE SALE PROCEEDS ARE BROUGHT INTO INDIA IN CONV ERTIBLE FOREIGN EXCHANGE WITHIN THE PRESCRIBED TIME-LIMIT. IN THAT CASE, THE ENTIRE PROFIT UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' (WHICH WILL INCLUDE THE THREE EXPORT INCENTIVES) WILL BE DEDUCT IBLE UNDER S. 80HHC. HOWEVER, IN ORDER TO ARRIVE AT THE AMOUNT DEDUCTIBL E UNDER S. 80HHC IN 13 THE CASE OF AN ASSESSEE DOING EXPORT BUSINESS AS WE LL AS SOME OTHER DOMESTIC BUSINESS, THE FRACTION OF 'EXPORT TURNOVER ' TO 'TOTAL TURNOVER', WILL BE APPLIED TO HIS PROFITS COMPUTED UNDER THE HEAD ' PROFITS AND GAINS OF BUSINESS OR PROFESSION' 16.1 THE VARIOUS DECISIONS RELIED ON BY THE LD. COU NSEL FOR THE ASSESSEE ARE NOT APPLICABLE IN VIEW OF THE DECISION OF THE HONB LE SUPREME COURT CITED (SUPRA) WHICH HAS NOT BEEN CONSIDERED IN ANY OF THO SE DECISIONS AND WHICH IS BINDING. WE, THEREFORE, UPHOLD THE ORDER OF THE CI T(A) ON THIS ISSUE AND THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH OF APRIL, 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED THE 30 TH APRIL 2013. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-III 4. THE CIT-III, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // PRIVATE SECRETARY, INCOME TAX APPELLATE T RIBUNAL, PUNE.