M/s. Prachi Leathers Pvt. Ltd., Kanpur V. Dy. Commissioner of Income Tax, Kanpur

ITA 390/LKW/2012

• Counselvise Citation: 39023714 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-03-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 11-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKAS GARG FCA SHRI R K RAM
• Assessee Lawyers: AND ASSESSMENT YEAR; THERE IS ONE APPEAL OF
• Keywords: Business income; Depreciation; Principle of natural justice; Unabsorbed depreciation
• Section: 80HHC; 80IB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.390/LKW/2012 ASSESSMENT YEAR:2003 - 04 M/S PRACHI LEATHER PVT. LTD., C - 3, UDYOG NAGAR, KANPUR. PAN:AAACP8242N VS. DY.C.I.T., RANGE - VI, KANPUR. (APPELLANT) (RESPONDENT) ITA NO.417/LKW/2012 ASSESSMENT YEAR:2003 - 04 A.C.I.T. - 6, KANPUR. VS. M/S PRACHI LEATHER PVT. LTD., C - 3, UDYOG NAGAR, KANPUR. PAN:AAACP8242N (APPELLANT) (RESPONDENT) ITA NO.391/LKW/2012 ASSESSMENT YEAR:2004 - 05 M/S PRACHI LEATHER PVT. LTD., C - 3, UDYOG NAGAR, KANPUR. PAN:AAACP8242N VS. DY.C.I.T., RANGE - VI, KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER SUNIL KUMAR YADAV: THERE ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE FOR ASSESSMENT YEAR 2003 - 04 AND THERE IS ONE APPEAL OF THE ASSESSEE FOR ASSESSEE BY SHRI VIKAS GARG, FCA REVENUE BY SHRI R. K. RAM, D.R. DATE OF HEARING 19 /0 3 /201 5 DATE OF PRONOUNCEMENT 1 5 / 06 /201 5 2 ASSESSMENT YEAR 2004 - 05. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003 - 04 I.E. I.T.A. NO.390/LKW/2012. 3. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT IN VIEW OF THE PROVISIONS OF SECTION 80HHC(3), RESULTS OF THE THREE UNITS WERE LIABLE TO BE AGGREGATED WITH EACH OTHER AND THE BENEFIT UNDER SECTION 80HHC WAS AVAILABLE ONLY WITH REFERENCE TO THE COMPUTATION OF AGGREGATE OF 'TURNOVER' AND 'PROFITS' OF THE THREE UNITS TAKEN TOGETHER. 2. BECAUSE THE VIEW TAKEN BY THE AUTHORITIES BELOW IN THE MATTER OF AGGREGATIO N OF THE RESULTS OF THE THREE UNITS FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 80HHC, IS WHOLLY MISCONCEIVED AND ERRONEOUS, AS BEING INCONSISTENT WITH THE LETTER AND SPIRIT OF THE PROVISIONS CONTAINED IN SECTION 80HHC. 3. BECAUSE THE A.O. HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE THREE UNITS VIZ UNIT - I, UNIT - II AND UNIT - III NEITHER FUNCTIONED INDEPENDENTLY NOR THERE WAS ANY FAIR APPORTIONMENT OF EXPENSES, INTRA UNITS AND IN COMPUTING THE RELIEF ADMISSIBLE TO THE APP ELLANT UNDER SECTION 80HHC, BY AGGREGATING RESULTS OF THREE UNITS. 4. BECAUSE THE THREE UNITS, VIZ. UNIT - I: ENGAGED IN THE BUSINESS OF MANUFACTURING OF FINISHED LEATHER AND SELLING THE SAME ALMOST WHOLLY THROUGH DOMESTIC SALES; UNIT - II: ENGAGED IN THE BUSINESS OF MANUFACTURING OF LEATHER GOODS, MAINLY COMPLETE SHOES & LEATHER UPPERS AND 3 SELLING THE LEATHER UPPERS WHOLLY THROUGH EXPORTS TO THE OVERSEAS MARKETS AND COMPLETE SHOES ALMOST WHOLLY THROUGH EXPORTS TO THE OVERSEAS MARKET: UNI T - IIII: ENGAGED IN THE MANUFACTURING OF LEATHER UPPER (FOR SHOES) AND LEATHER BAGS AND SELLING THE LEATHER UPPERS WHOLLY IN THE DOMESTIC MARKET AND THE BAGS WHOLLY THROUGH EXPORTS TO THE OVERSEAS MARKET. FOR WHICH NOT ONLY ACCOUNTS HAVE BEEN MAINTAINED S EPARATELY, THEIR RESULTS WERE ALSO ASCERTAINED INDEPENDENTLY AND FAIRLY; AND ACCORDINGLY THE AUTHORITIES BELOW WERE OBLIGED TO UPHOLD THE APPELLANT'S CLAIM FOR RELIEF UNDER SECTION 80HHC BASED ON THE RESULTS DISCLOSED IN UNIT NO. - II AND UNIT NO.III. 5. BE CAUSE THE VIEW TAKEN BY THE LEARNED CIT, (APPEALS), IN THE MATTER OF COMPUTATION OF RELIEF UNDER SECTION 80HHC, IN ANY CASE STANDS WHOLLY VITIATED, AS THE SAME IS BASED ON NON - CONSIDERATION/NON - APPRECIATION OF THE VOLUMINOUS SUBMISSIONS AS WERE PLACED BEFO RE HIM, DURING THE COURSE OF HEARING OF APPEAL. 6. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 4. THE BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NOTED BY LEARNED CIT(A) IN PARA 3.2.1 OF HIS ORDER AND THE SAME IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 3.2.1 THE APPELLANT IS IN THE BUSINESS OF MANUFACTURING AND SALES, INCLUDING EXPORT SALES OF FINISHED LEATHER, LEATHER FOOTWEAR AND LEATHER BAGS ETC. THE APPELLANT HAS THREE INDUSTRIAL UN ITS WHICH FOR SAKE OF CONVENIENCE ARE TERMED AS UNIT - 1, UNIT - 2 AND UNIT - 3. UNIT 1 IS ENGAGED IN MANUFACTURING FINISHED LEATHER AT VILLAGE SWAROOP PUR TEHSIL AKBARPUR, DISTT. KANPUR(DEHAT). FINISHED LEATHER IS MAINLY SOLD IN THE DOMESTIC MARKET AND A PART I S USED IN MANUFACTURING LEATHER FOOTWEAR/GOODS IN UNIT - 2 AND UNIT - 3. UNIT 2 IS ENGAGED IN MANUFACTURING OF COMPLETE SHOES & SHOE UPPERS. THIS UNIT IS LOCATED AT VILLAGE SWAROOP PUR TEHSIL AKHBARPUR DISTT. 4 KANPUR(DEHAT). UNIT - 2 IS REGISTERED WITH THE CENTRA L EXCISE DEPARTMENT UNDER THE CENTRAL EXCISE ACT 1944 AS A SEPARATE FACTORY, HAVING A SEPARATE PREMISES QUA ITS OTHER UNITS. UNIT - 2 IS MAINLY EXPORTING ITS PRODUCTION. UNIT 3 IS LOCATED AT C - 3 UDYOG NAGAR AND IS REGISTERED UNDER THE CENTRAL EXCISE ACT 1944 AS A SEPARATE FACTORY. UNIT - 3 IS ENGAGED IN MANUFACTURING LEATHER UPPERS FOR DOMESTIC SALES AND LEATHER BAGS FOR EXPORT. THE ASSESSEE COMPANY CLAIMED UNIT WISE DEDUCTION U/S 80HHC IN RESPECT OF UNIT II & UNIT III WHICH WAS CLAIMED AT RS.91,28,329/ - AND RS .40,42,088/ - RESPECTIVELY. THE A.O. HAS COMPUTED DEDUCTION U/S 80 HHC BY AGGREGATING THE EXPORT AND TOTAL TURNOVER OF ALL THE UNITS, INCLUDING UNIT - I, ON TWO GROUNDS: - ( I ) THAT THE ENTIRE SHOW OF MAINTENANCE OF SEPARATE ACCOUNTS HAS BEEN MANAGED WITH THE SOLE PURPOSE OF CLAIMING HIGHER DEDUCTION U/S 80HHC AND THE VARIOUS UNITS BEING RUN BY THE ASSESSEE ARE NOT INDEPENDENT UNITS. ( II ) THE LAW CLEARLY STIPULATES THAT DEDUCTION U/S 80HHC IS ASSESSEE SPECIFIC AND NOT UNIT SPECIFIC. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) WHO HAS GRANTED VARIOUS RELIEF IN RESPECT OF COMPUTATION OF DEDUCTION U/S 80HHC BUT REGARDING COMPUTING THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC ON THE BASIS OF EACH UNIT, THE MATTER HAS BEEN DECIDED BY LEARNED CIT(A) AGAINST THE ASSESSEE AND THEREFORE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. LEARNED A.R. OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) ACIT VS. L.G. ELECTRONICS INDIA (P) LTD. 35 TAXMANN.COM 344 (DELHI - TRIB.) ( II ) CIT VS. PADMINI TECHNOLOGIES LTD. 33 TAXMANN.COM 668 (DELHI) 245 CTR 611 (DELHI) ( III ) TATA CONSULTANCY SERVICES LTD. VS. ACIT 26 TAXMANN.COM 21 (MUMBAI - TRIB.), 54 SOT 221 (MUMBAI) (URO) 5 ( IV ) CREW B.O.S. LEATHER PRODUCTS LTD. VS. ACIT 20 TAXMANN.COM 239 (DELHI - TRIB.) ( V ) EASTERN LEATHER PRODUCTS (P) LTD. VS. DY.CIT 68 ITD 358 (DELHI) ( VI ) ACIT VS. MAHAVIR SPG. MILLS LTD. 110 ITD 211 (CHD) ( VII ) CHAMUNDI TEXTILES (SILK MILL) LTD. VS. CIT 341 ITR 488 (MADRAS) ( VIII ) CIT VS. MCMILLAN INDIA LTD. [2007] 295 ITR 67 (MADRAS) ( IX ) CIT VS. M. GANI AND CO. [2008] 301 ITR 381 (MADRAS) ( X ) CIT VS. SIVAGAMI MATCH INDUSTRIES 24 CTR 109 (2009) (MADRAS) ( XI ) CIT VS. RATHORE BROTHERS [2001] 254 ITR 656 (MADRAS) ( XII ) CIT VS. MADRAS MOTORS LTD./MM. FORGINGS LTD. 257 ITR 60 (MADRAS) ( XIII ) CIT VS. SURESH B. MEHTA 291 ITR 462 (MADRAS) ( XIV ) CIT VS. VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) ( XV ) UNION OF INDIA AND OTHERS VS. ONKAR S. KAMWARE AND OTHERS 258 ITR 761 (SC) ( XVI ) BAJAJ TEMPO LTD. VS. CIT [1992] 196 ITR 188 (SC) ( XVII ) K. P. VARGHESE VS. INCOME TAX OFFICER [1981] 131 ITR 597 (SC) ( XVIII ) CIT VS. J . H. GOTLA [1985] 156 ITR 323 (SC) 7. LEARNED A.R. OF THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR EACH UNIT AND BASED ON SUCH SEPARATE BOOKS OF ACCOUNT, DEDUCTION HAS BEEN ALLOWED BY THE ASSESSING OFFICER U/S 80IB OF THE ACT AND HENCE, THIS HAS TO BE ACCEPTED THAT THE VERACITY OF SEPARATE BOOKS OF ACCOUNT ARE ACCEPTED BY THE ASSESSING OFFICER ALSO. HE FURTHER SUBMITTED THAT IN THE CASE OF CIT VS. PADMINI TECHNOLOGIES LTD. (SUPRA), HON'BLE DELHI HIGH COURT HAS DULY CONSIDERED THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF IPCA LABORATORY LTD. VS. DY. CIT [2004] 266 ITR 521 AND EVEN THEREAFTER, THE ISSUE WAS DECIDED BY HON'BLE DELHI HIGH COURT IN FAVOUR OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE TOTAL TURNOVER OF THE ASSESSEE CAN ONLY BE TAKEN WITH RESPECT TO THOSE UNITS, WHICH ARE ENGAGED IN THE BUSINESS OF EXPORT. IN SUPPORT OF THIS CONTENTION, HE HAS INVITED OUR ATTENTION TO THE PROVISION OF 80HHC(1) IN WHIC H THE LEGISLATURE HAS USED THE 6 WORDS BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES. THEREFORE, THE TURNOVER OF THOSE UNITS, WHICH ARE NOT ENGAGED IN THE EXPORT ACTIVITIES AND TO WHICH THE SECTION APPLIED, CANNOT BE TAKEN AS PART OF TOTAL TURNOVER OF THE ASSESSEE IN ORDER TO COMPUTE DEDUCTION U/S 80HHC OF THE ACT. 8. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF LEARNED CIT(A) AND HE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE APEX COURT RE NDERED IN THE CASE OF IPCA LABORATORY LTD. VS. DY. CIT [2004] 266 ITR 521. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AGAINST THE ASSESSEE AS PER PARA 3.3.1 AND 3.2.2 OF HIS ORDER, WHICH IS REPRODU CED BELOW FOR THE SAKE OF READY REFERENCE: 3.3.1 AFTER HAVING PERUSED ALL THE DECISIONS CITED BY THE LD. A.R., I FIND THAT THE MOTHER OF ALL THESE DECISIONS IS CIT VS RATHORE BROTHERS WHICH HAS BEEN FOLLOWED BY THE HON'BLE MADRAS HIGH COURT IN ALL ITS SUBSEQUENT DECISIONS. WHILE GOING THROUGH THIS DECIS ION IT IS SEEN THAT IT HAS BEEN RENDERED FOR THE PERIOD PRIOR TO THE F.Y.1991 - 92, THE YEAR WHEN MAJOR AMENDMENTS WERE CARRIED OUT IN THE PROVISIONS OF SEC. 80HHC. THE SAID AMENDMENT COMPLETELY CHANGED THE METHOD OF CALCULATION FOR PROFIT (DERIVED FROM EXPO RTS) BY GIVING A RIGID FORMULA U/S 80HHC(3). IN THIS VIEW OF THE MATTER, WITH DUE RESPECT, THESE DECISION OF THE HON'BLE MADRAS HIGH COURT CANNOT BE TAKEN AS A YARDSTICK FOR COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. 3.3.2 AS FAR AS COMPUTATION OF DED UCTION U/S 80HHC UNDER THE AMENDED (PRESENT) REGIME IS CONCERNED, THE MATTER HAS BEEN RESOLVED BY AN ELABORATE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF G.J. FERNANDEZ VS ACIT [ 2011] 52 DTR [KAR) 345 WHICH IS ALSO FOR A.Y. 2003 - 04 AS IS THE PRESENT CASE. SIMILAR IS THE VIEW OF THE HON'BLE TRIBUNAL IN THE CASE OF TATA BP SOLAR INDIA LTD. VS ADDL. CIT [2011] 54 DTR (MUMBAI 7 TRIBUNAL) 150. IN THIS VIEW OF THE MATTER, I AM OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE APPELLANT IN THIS CON NECTION HAS TO BE REJECTED AND THE ACTION OF THE A.O. IS TO UPHELD AND IT WOULD MAKE NO DIFFERENCE TO THE COMPUTATION OF DEDUCTION U/S 80HHC AS TO WHETHER THE UNITS OF THE ASSESSEE COMPANY WERE SEPARATE AND INDEPENDENT. 9.1 FROM A CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT UNDISPUTEDLY, THE APPELLANT ASSESSEE HAS THREE INDUSTRIAL UNITS, WHICH ARE TERMED AS UNIT NO. 1, UNIT NO. 2 AND UNIT NO. 3. UNIT NO. 1 IS ENGAGED IN MANUFACTURING OF FINISHED LEATHER WHICH IS MAINLY SOLD IN DO MESTIC MARKET OR IS U TILIZED IN MANUFACTURING OF LEATHER FOOTWEAR/GOODS BY OTHER UNITS OF THE COMPANY. THE OTHER UNIT NO. 2 IS ENGAGED IN MANUFACTURING OF LEATHER GOODS I.E. MAINLY COMPLETE SHOE S AND SHOE UPPERS. THE PRODUCTION OF COMPLETE SHO ES IS MAINLY EXPORTED AND SMALL PORTION IS SOLD IN THE DOMESTIC MARKET. THE AFORESAID UNIT NO. 1 & 2 ARE LOCATED AT VILLAGE - SWAROOP PUR, TEHSIL - AKHARPUR, DISTRICT KANPUR DEHAT. THE THIRD UNIT IS ENGAGED IN MANUFACTURING OF LEATHER GOODS I.E. SHOE UPP ERS FOR SALE IN DOMESTIC MARKET AND LEATHER BAGS, WHICH ARE MAINLY EXPORTED. THIS UNIT IS LOCATED AT C - 3, UDYOG NAGAR, KANPUR. ACCORDING TO THE ASSESSEE, IT HAS PREPARED SEPARATE BALANCE SHEET, PROFIT & LOSS ACCOUNT FOR EACH UNIT AT THE YEAR END, WHICH A RE LATER ON CONSOLIDATED TO PREPARE A SINGLE BALANCE SHEET AND PROFIT & LOSS ACCOUNT FOR THE COMPANY AS A WHOLE. NOW THE ISSUE ARISES BEFORE US IS WHE THER THE ASSESSEE CAN CLAIM DEDUCTION U/S 80HHC UNIT - WISE THOUGH ALL THE UNITS OF THE ASSESSEE ARE ENGAGE D IN S IMILAR TYPE OF BUSINESS . OUR ATTENTION WAS INVITED TO VARIOUS JUDICIAL PRONOUNCEMENTS DURING THE COURSE OF HEARING THAT DEDUCTION U/S 80HHC CAN BE CLAIMED UNIT - WISE WHERE THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR EACH AND EVERY UNIT. BEFORE DEALING WITH THE ISSUE, WE WOULD LIKE TO REPRODUCE THE PROVISIONS OF SECTION 80HHC FOR THE SAKE OF REFERENCE. 8 (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, 3A DEDUCTION TO THE EXTENT 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 SECTION REFERRED TO AS AN E XPORT 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 SUPP ORTING MANUFACTURER, THEN THE AMOUNT OF DEDUCTION 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 SP ECIFIED IN THE SAID CERTIFICATE BEARS TO THE TOTAL EXPORT TURNOVER OF THE ASSESSEE IN RESPECT OF SUCH TRADING GOODS. (1A) WHERE THE ASSESSEE, BEING A SUPPORTING MANUFACTURER, HAS DURING THE PREVIOUS YEAR, SOLD GOODS OR MERCHANDISE TO ANY EXPORT HOUSE OR TR ADING HOUSE IN RESPECT OF WHICH THE EXPORT HOUSE OR TRADING HOUSE HAS ISSUED A CERTIFICATE UNDER THE PROVISO TO SUB - SECTION (1), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, 3A DEDUCTION TO THE EXTENT OF PROFITS, REFERRED TO IN SUB - SECTION (1B) DERIVED BY THE ASSESSEE FROM THE SALE OF GOODS OR MERCHANDISE TO THE EXPORT HOUSE OR TRADING HOUSE IN RESPECT OF WHICH THE CERTIFICATE HAS BEEN ISSUED BY THE EXPORT HOUSE OR T RADING 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 FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2001 ; 9 (II) SEVENTY PER CENT. THER EOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2002 ; (III) FIFTY PER CENT. THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2003 ; (IV) THIRTY PER CENT. THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2004. AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2005 AND ANY SUBSEQUENT ASSESSMENT YEAR. XXXXXXXXXXXXXXXXXXXXXXXXXXXXX (3) FOR THE PURPOSES OF SUB - SECTION (1), -- (A) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPERTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO TH E 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 INDIR ECT COSTS ATTRIBUTABLE TO SUCH EXPORT ; (C) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE AND OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL, -- (I) IN RESPECT OF THE GOODS OR MERCHANDISE MA NUFACTURED 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 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 : 10 PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUS E (B) OR CLAUSE (C) OF THIS SUB - SECTION SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH 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) O F SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. PROVIDED FURTHER THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEA R, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB - SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT. OF ANY SUM REFERRED TO IN CLA USE (IIID) OR CLAUSE (IIIE), 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 : PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB - SECTION OR AFTER GIVING EFFECT 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 SAME 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 T HAT,(A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME ; AND(B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER T HE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME : PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB - SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT. OF ANY SUM REFERRED TO IN CLAUSE (IIIE) OF SECTION 28, THE SAME PROPORTION 11 AS THE EXPORT TURN OVER 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 DRAWBACK OR THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME ; AND(B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME. PROVIDED ALSO THAT IN CASE THE COMPUTAT ION UNDER CLAUSE (A) OR CLAUSE (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 REFERRED TO IN THE SECOND OR THE THIRD OR THE FOURTH PROVISO, AS THE CASE MAY BE,THE SAME PROPORTION AS THE EXPORT TUR NOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. 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 CALCUL ATED IN THE MANNER AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT ; FOR THE PURPOSES OF THIS SUB - SECTION, -- (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 CA SE 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 PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE TURNOVER IN RESPECT OF SALE TO THE RESPECTIVE EXPORT HOUSE OR TRADING HOUSE 12 BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. DURING THE COURSE OF HEARING OUR ATTENTION WAS INVITED TO THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF L. M. CHHABDA AND SONS VS. CIT AS REPORTED IN [1 967] 65 ITR 638 (SC) , AND JUDGMENTS OF VARIOUS DIFFERENT HIGH COURT IN SUPPORT OF THE CONTENTION THAT WHERE THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT OF DIFFERENT UNITS, DEDUCTION CAN BE ALLOWED IN RESPECT OF ONE UNIT IGNORING THE PROFITS AND L OSS OF THE OTHER UNITS. SOME OF THE CASES RELIED ON BY THE ASSESSEE RELATE TO THE DEDUCTIONS CLAIMED U/S 80I, 80IA OF THE ACT WHERE THE DEDUCTION IS ALLOWABLE ON INDEPENDENT INDUSTRIAL UNIT BUT SOME OF THE CASES ALSO RELATES TO THE DEDUCTION U/S 80HHC. WE, THEREFORE, PREFER TO REFER ONLY THOS E CASES, WHICH RELATE TO THE DEDUCTION CLAIMED U/S 80HHC OF THE ACT. 9.2 IN THIS CASE OF HON'BLE DELHI HIGH COURT HAS ADJUDICATED THE ISSUE AS PER PARA 8 TO 10, WHICH ARE REPRODUCED BEL OW FOR THE SAKE OF READY REFERENCE: 8. IN OUR VIEW, THE CONTENTION IS COMPLETELY MISCONCEIVED. THE ISSUE INVOLVED IN THE PRESENT CASE IS : WHERE AN ASSESSEE RUNS AND MANAGES TWO SEPARATE UNITS, ONE OF WHICH IS ENGAGED FULLY OR PARTIALLY IN EARNING INCOME THROUGH EXPORTS THEN, IN THE CALCULATION OF PROPORTIONATE DEDUCTIBLE PROFITS, WOULD THE EXPRESSION 'TOTAL TURNOVER OF THE BUSINESS' INCLUDE ONLY THE TURNOVER OF THE EXPORT BUSINESS OR ALSO THAT OF THE DOMESTIC BUSINESS. 9. BEFORE WE PROCEED FURTHER IT MAY BE RELEVANT TO NOTE EVEN THOUGH PROVISIONS OF S. 80HHC HAVE BEEN AMENDED FROM TIME, THE EXPRESSION 'TOTAL TURNOVER OF THE BUSINESS' HAS NOT UNDERGONE A CHANGE. THE EXPRESSION FINDS MENTION IN SUB - S. (3)(C)(I) OF S. 80HHC. 10. IT IS PERTINENT TO NOTE THAT T HE REVENUE HAS NOT ASSAILED BEFORE US THE FINDING OF FACT RETURNED BY THE TRIBUNAL THAT INSOFAR AS THE TWO BUSINESSES WERE CONCERNED, THEY WERE 13 CARRIED ON IN TWO SEPARATE UNDERTAKINGS. IT WAS ALSO NOT DISPUTED THAT IN RESPECT OF THE SAID UNDERTAKINGS, THE ASSESSEE MAINTAINED SEPARATE BOOKS OF ACCOUNTS AND ALSO PREPARED SEPARATE P&L A/C AND BALANCE - SHEETS. IN THE JUDGMENT OF MADRAS MOTORS LTD. (SUPRA), THE RATIONALE GIVEN IS THAT THE WORD 'BUSINESS' WHICH FOLLOWS THE EXPRESSION 'TOTAL TURNOVER' WOULD HAVE TO BE CONFINED TO ONLY THOSE GOODS TO WHICH THE SECTION APPLIES. THEREFORE, BY NECESSARY IMPLICATION, THE TOTAL TURNOVER OF BUSINESS WOULD ONLY MEAN TOTAL TURNOVER OF BUSINESS OF GOODS TO WHICH THE SECTION APPLIES. INCLUSION OF TURNOVER OF GOODS TO WHICH THE SECTION DOES NOT APPLY, WOULD BE DOING VIOLENCE TO THE LANGUAGE OF SUB - S. (3)(B). SUB - S. (3) IS INSERTED ONLY TO DETERMINE THE DEDUCTIBLE PROFITS OUT OF THE TOTAL PROFITS OF BUSINESS WHICH CAN BE ATTRIBUTED TO THE EXPORT BUSINESS. WE ARE IN RESPECTFUL AGR EEMENT WITH THE RATIONALE ADOPTED BY THE MADRAS HIGH COURT IN MADRAS MOTORS LTD. (SUPRA). AS A MATTER OF FACT, THERE COULD BE A CIRCUMSTANCE WHERE ONE UNIT IS COMPLETELY ENGAGED IN EXPORT AND NOT PARTIALLY AS WAS THE CASE IN MADRAS MOTORS LTD. (SUPRA). IN THOSE CIRCUMSTANCES, THERE WOULD BE NO OCCASION FOR DISALLOWING A PORTION OF THE EXPORT EARNINGS BY ADOPTING FORMULA PROVIDED IN S. 80HHC OF THE IT ACT. THIS VIEW WAS TAKEN BY THE MADRAS HIGH COURT NOT ONLY IN RATHORE BROTHERS (SUPRA) BUT ALSO IN M. GANI & CO. (SUPRA) WHICH IN TURN FOLLOWED YET ANOTHER JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. SURESH B. MEHTA (2007)291 ITR 462(MAD). 10. IN PARA 11 OF THIS JUDGMENT, THE HON'BLE HIGH COURT HAS DISCUSSED TWO JUDGMENTS OF HON'BLE APEX COURT RENDERED IN THE CASE OF IPCA LABORATORY LTD. (SUPRA) AND SYNCO INDUSTRIES LTD. 168 TAXMAN 224 (SC). FOR THE SAKE OF READY REFERENCE, THESE PARAS BEING PARA NO. 11 & 12 ARE ALSO REPRODUCED BELOW: 11. MS. AGGARWAL'S SUBMISSION THAT THE JUDGMENT OF THE SUPR EME COURT IN IPCA LABORATORY LTD. (SUPRA) AND SIMCO INDUSTRIES LTD. (SUPRA) WOULD APPLY IS ACCORDING TO US COMPLETELY UNTENABLE. THIS IS DEMONSTRABLE FROM THE FACTS OBTAINING IN THE TWO JUDGMENTS CITED BEFORE US. IN IPCA LABORATORY LTD. (SUPRA), THE ASSESS EE WAS RUNNING AN EXPORT HOUSE. FOR THE ASST. YR. 1996 - 97, THE ASSESSEE HAD FILED A RETURN OF INCOME DECLARING 'NIL' INCOME. THE ASSESSEE'S INCOME 14 BEFORE CLAIMING DEDUCTIONS UNDER CHAPTER VI - A OF THE IT ACT WAS RS. 4.39 CRORES. AGAINST THIS INCOME, THE ASS ESSEE HAD CLAIMED VARIOUS DEDUCTIONS INCLUDING A DEDUCTION UNDER S. 80HHC AMOUNTING TO RS. 3.78 CRORES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE WAS EXPORTING GOODS WHICH WERE MANUFACTURED BY IT BUT ALSO THOSE WHICH W ERE PRODUCED BY SUPPORTING MANUFACTURERS. THE ASSESSMENT PROCEEDINGS REVEALED THAT THE PROFIT OF RS. 3.78 CRORES WHICH THE ASSESSEE HAD CLAIMED WAS EARNED BY THE ASSESSEE FROM EXPORTS OF GOODS MANUFACTURED BY THE ASSESSEE. INSOFAR AS EXPORTS MADE BY THE AS SESSEE IN RESPECT OF GOODS MANUFACTURED BY THE SUPPORTING MANUFACTURERS WAS CONCERNED, THE ASSESSEE HAD RECORDED A LOSS OF RS. 6.86 CRORES. IT WAS ALSO FOUND THAT THE ASSESSEE HAD ISSUED CERTIFICATES OF DISCLAIMER IN FAVOUR OF SUPPORTING MANUFACTURERS IN R ESPECT OF GOODS SUPPLIED BY THEM FOR THE PURPOSES OF EXPORT. IT IS IN THESE CIRCUMSTANCES THAT THE AO CAME TO THE CONCLUSION THAT NO DEDUCTION WAS AVAILABLE TO THE ASSESSEE ON EXPORT OF GOODS AS IT HAD AS A MATTER OF FACT RECORDED A NET LOSS. THEREFORE, TH E QUESTION WHICH CAME UP FOR CONSIDERATION BEFORE THE SUPREME COURT WAS WHETHER THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE SUM OF RS. 3.78 CRORES WITHOUT TAKING INTO ACCOUNT THE LOSS OF RS. 6.86 CRORES RECORDED BY THE ASSESSEE IN RESPECT OF THE EXPORTS CARRIED OUT BY IT QUA THE GOODS OF SUPPORTING MANUFACTURERS. THE SUPREME COURT AFTER A DETAILED CONSIDERATION OF THE MATTER CAME TO THE CONCLUSION THAT THE EXPRESSION 'PROFITS FROM SUCH EXPORTS' APPEARING IN S. 80HHC(3)(C) COULD ONLY MEAN PROF ITS OF SELF - MANUFACTURED GOODS PLUS PROFIT OF EXPORTS OF TRADING GOODS (I.E., THOSE SUPPLIED BY SUPPORTING MANUFACTURERS). THE COURT CONCLUDED THAT PROFITS HAD TO BE CALCULATED BY TAKING INTO ACCOUNT BOTH EXPORTS, AND THAT DEDUCTION WAS PERMISSIBLE UNDER S . 80HHC(3)(C)(2) ONLY IF THERE WAS POSITIVE PROFIT IN THE EXPORT OF BOTH SELF - MANUFACTURED GOODS AS WELL AS TRADING GOODS. THE SUPREME COURT IN REPELLING THE CONTENTION OF THE ASSESSEE, IN ADDITION, TOOK RECOURSE TO THE PROVISIONS OF S. 80AB AND S. 80B(5). AS IS EVIDENT, THE FACTS OF THE CASE ARE QUITE DIFFERENT FROM THOSE OBTAINING IN THE INSTANT APPEAL BEFORE US. 12. SIMILARLY, THE FACTS OBTAINING IN SIMCO INDUSTRIES (SUPRA) WERE ALSO DIFFERENT. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OIL AND CHEMICALS. THE OIL DIVISION WAS LOCATED IN SIROHI, WHILE THE CHEMICAL DIVISION WAS SITUATED IN JODHPUR. 15 IN RESPECT OF ASST. YR. 1990 - 91, IT HAD EARNED PROFITS IN BOTH DIVISIONS. HOWEVER, IN EARLIER YEARS THE ASSESSEE HAD EARNED LOSSES IN THE OIL DIVISION. THE ASSESSEE CLAIMED DEDUCTIONS UNDER S. 80HH AND 80 - I OF THE IT ACT. TO SUSTAIN ITS CLAIM FOR DEDUCTION, THE ASSESSEE TOOK THE STAND THAT THE DIVISIONS SHOULD BE TREATED SEPARATELY AND THE LOSSES SUFFERED IN THE EARLIER YEARS IN THE OIL DIVISION OUGHT NOT TO BE ADJUSTED AGAINST THE PROFITS EARNED BY IT IN THE CHEMICAL DIVISION. THE AO, HOWEVER, REPELLED THIS CONTENTION AND DENIED THE DEDUCTION TO THE ASSESSEE UNDER CHAPTER VI - A SINCE THE GROSS TOTAL INCOME WAS NIL. THE TRIBUNAL AS WELL AS THE HIGH COURT AFFIRMED THE VIEW OF THE AO. IT IS IN THESE CIRCUMSTANCES, THE SUPREME COURT WAS CALLED UPON TO CONSIDER THE QUESTION AS TO WHETHER THE LOSSES SUFFERED IN THE EARLIER YEARS BY THE OIL DIVISION OF THE ASSESSEE COULD BE ADJUSTED AGAINST THE PROFITS OF THE TWO DIVISIONS (I.E., THE CHEMICAL AND OIL DIVISION), WHILE CONSIDERING THE GRANT OF DEDUCTION UNDER S. 80 - I OF THE ACT. THE SUPREME COURT CAME TO THE CONCLUSION THAT DEDUCTIONS UNDER CHAPTER VI - A COULD ONLY BE GRANTED IF THE GROSS TOTAL INCOME OF THE ASSESSEE WAS POSITIVE. IT IS IN THIS CONNECTION THAT THE COURT NOTICED THE PROVISIONS OF S. 80B(5) WHICH DEFINES 'G ROSS TOTAL INCOME' AS TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE IT ACT BEFORE MAKING ANY DEDUCTIONS UNDER CHAPTER VI - A. THE COURT OBSERVED IF (AS IN THAT CASE) THE ASSESSEE'S GROSS TOTAL INCOME IS NIL, THERE WAS NO QUESTION OF ALLOWING ANY DEDUCTION UNDER CHAPTER VI - A. THE COURT WENT ON TO OBSERVE THAT IN CALCULATING THE GROSS TOTAL INCOME, THE AO WOULD HAVE TO TAKE INTO ACCOUNT THE PROVISIONS OF S. 71 OF THE IT ACT WHICH PROVIDES FOR SET OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM AN OTHER, AND ALSO PROVISIONS OF S. 72 OF THE IT ACT WHICH PROVIDES CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A REFERENCE WAS ALSO MADE TO THE PROVISIONS OF S. 32(2) WHICH PROVIDES FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION OF A PARTICULAR Y EAR. THE SUM AND SUBSTANCE OF THE DISCUSSION OF THE SUPREME COURT IN THE SAID CASE WAS THAT IN DETERMINING THE GROSS TOTAL INCOME, THE BUSINESS LOSSES OF EARLIER YEARS OF THE OIL DIVISION HAD TO BE SET OFF BEFORE ALLOWING ANY DEDUCTION UNDER CHAPTER VI - A. THEREFORE, IF AS A RESULT OF THIS EXERCISE, THE GROSS TOTAL INCOME OF THE ASSESSEE WAS NIL, THE ASSESSEE COULD NOT CLAIM ANY DEDUCTION UNDER CHAPTER VI - A. AS NOTICED ABOVE, IN OUR VIEW THIS JUDGMENT ALSO DOES NOT COME TO THE AID OF THE REVENUE. 16 10.1 FROM THE ABOVE PARAS, IT IS SEEN THAT THE HON'BLE HIGH COURT HAS DULY CONSIDERED TWO JUDGMENTS OF HON'BLE APEX COURT AND IT WAS HELD THAT THESE JUDGMENTS ARE NOT APPLICABLE FOR DECIDING THE ISSUE AS TO WHETHER THE DEDUCTION U/S 80HHC CA N BE ALLOWED ON UNIT BAS IS WHERE SEPARATE BOOKS ARE MAINTAINED. REGARDING THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF IPCA LABORATORY LTD., IT IS NOTED THAT IN THAT CASE, THE ASSESSEE COMPANY WAS MAKING TWO TYPES OF EXPORTS I.E. MANUFACTURING EXPORT AND TRADING EXPORT AND UNDER THESE FACTS, IT WAS HELD THAT PROFIT FOR BOTH TYPE OF EXPORTS HAS TO BE CALCULATED BY TAKING INTO ACCOUNT BOTH EXPORTS AND THAT DEDUCTION WAS PERMISSIBLE U/S 80HHC OF THE ACT IF THERE WAS POSITIVE PROFIT IN THE EXPORT OF BOTH SELF - MANUFACTURED GOODS AS WELL AS TRADING GOODS. IN THE PRESENT CASE AND IN THE CASE BEFORE HON'BLE DELHI HIGH COURT, THE ISSUE WAS NOT REGARDING IGNORING THE PROFIT OR LOSS FROM ONE TYPE OF EXPORT. IN BOTH THESE CASES, THE ISSUE WAS THAT WHETHER THE DEDUCTION ALLOWABLE TO THE ASSESSEE CAN BE COMPUTED ON UNIT - WISE BASIS WHERE SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED. IT IS HELD BY HON'BLE DELHI HIGH COURT THAT THERE CAN BE A CIRCUMSTANCE WHERE ONE UNIT IS COMPLETELY ENGAGED IN THE EXPORT AND NOT PARTIALLY AS WAS THE CASE IN MA DRAS MOTORS LTD. (SUPRA). IN THOSE CIRCUMSTANCES, THERE WOULD BE NO OCCASION FOR DISALLOWING A PORTION OF THE EXPORT EARNINGS BY ADOPTING FORMULA PROVIDED IN S ECTION 80HHC OF THE IT ACT. HON'BLE DELHI HIGH COURT HAS FOLLOWED THE JUDGMENT OF HON'BLE MADRAS HIGH COURT AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CASE OF CIT VS. PADMINI TECHNOLOGIES LTD. (SUPRA), THE FACTS WERE THAT THE ASSESSEE WAS RUNNING TWO UNITS. IN ONE UNIT, THE BUSINESS OF THE ASSESSEE WAS OF MULTIMEDIA AND IN THIS UNIT, T HE ASSESSEE WAS MAKING EXPORT. IN OTHER UNIT, THE ASSESSEE WAS MANUFACTURING PET JARS AND IN THIS UNIT, THERE WAS NO EXPORT. IN THAT CASE, THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS.1,913 LAC OUT OF PROFIT OF THE MULTIMEDIA UNIT. THE ASSESSING OFFIC ER WAS OF THE VIEW THAT FOR COMPUTING DEDUCTION, TOTAL TURNOVER OF BOTH UNITS HAS TO 17 BE CONSIDERED AS TOTAL TURNOVER. UNDER THESE FACTS, HON'BLE DELHI HIGH COURT HAS HELD THAT UNIT - WISE COMPUTATION OF DEDUCTION IS ALLOWABLE. 11. NOW WE ALSO CONSIDER THE J UDGMENT OF HON'BLE MADRAS HIGH COURT RENDERED IN THE CASE OF CHAMUNDI TEXTILES (SILK MILL) LTD. VS. CIT (SUPRA). IN THIS CASE ALSO, THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF SYNCO INDUSTRIES LTD. VS. A.O., 299 ITR 444 (SC) & IN THE CASE O F IPCA LABORATORY LTD. VS. DCIT 266 ITR 521 (SC) WERE DULY CONSIDERED. IN THAT CASE, THE ASSESSEE WAS HAVING A 100% EOU AT BANGALORE AND THE OTHER UNIT AT RAMNAGARAM WAS DEALING IN SAME ITEM I.E. SILK FABRICS HAVING DOMESTIC SALE AS WELL AS EXPORT SALE. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC FOR BANGALORE UNIT I.E. 100% EOU. THE ASSESSING OFFICER AGGREGATED THE TURNOVER OF BOTH UNITS AND THEN COMPUTED THE DEDUCTION U/S 80HHC. LEARNED CIT(A) AND TRIBUNAL ALSO DECIDED AGAINST THE ASSESSEE. UNDER THESE FACTS, HON'BLE MADRAS HIGH COURT DECIDED IN FAVOUR OF THE ASSESSEE. THE RELEVANT PARAS ARE PARA 19 TO 21 AS REPRODUCED BELOW: 19. THE APEX COURT POINTED OUT THAT IN ARRIVING AT A FIGURE OF POSITIVE PROFIT, BOTH THE PROFITS AND LOSS HAVE TO BE CONSIDERED . IF THE NET FIGURE IS A POSITIVE PROFIT, THEN THE ASSESSEE WOULD BE ENTITLED TO A DEDUCTION, BUT IF THE NET FIGURE IS A LOSS, THEN THE ASSESSEE WOULD NOT BE ENTITLED TO A DEDUCTION. A READING OF THE JUDGMENT OF THE APEX COURT REPORTED IN SYNCO INDUSTRIE S LTD. V. ASSESSING OFFICER (INCOME - TAX) [2008] 299 ITR 444 (SC) SHOWS THAT THE ASSESSEE THEREIN HAD MORE THAN ONE UNIT. THE CLAIM OF THE ASSESSEE IS THAT EACH UNIT SHOULD BE TREATED SEPARATELY AND THE LOSSES SUFFERED IN THE EARLIER YEARS WERE NOT ADJUS TABLE AGAINST THE PROFITS OF THE OTHER UNIT. BUT SINCE THE GROSS TOTAL INCOME WAS NIL, THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE FOR THE BENEFIT OF DEDUCTIONS UNDER CHAPTER VI - A. THE APPELLATE TRIBUNAL AND THE HIGH COURT AFFIRMED THE VIEW OF THE OFFICER. ON FURTHER APPEAL, THE APEX COURT HELD THAT IN DETERMINING THE GROSS TOTAL INCOME, THE ASSESSEE HAS TO COMPUTE THE INCOME FROM EACH ONE OF THE UNITS. WHEN ONE UNIT SUFFERED LOSS AND OTHER UNIT EARNED PROFIT, AFTER SETTING 18 OFF LOSS, IF THE GROSS TOTAL INCOME WORKED OUT SHOWS PROFIT, THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER CHAPTER VI - A. ON THE OTHER HAND, IF THE GROSS TOTAL INCOME IS A NEGATIVE INCOME, THEN THE CLAIM OF THE ASSESSEE COULD NOT BE CONSIDERED FOR ANY BENEFIT UND ER CHAPTER VI - A. IN THE LIGHT OF THE LAW THUS LAID DOWN BY THE APEX COURT, IT IS CLEAR THAT ONLY IN THE CASE OF GROSS TOTAL INCOME BEING A PROFIT, THE CLAIM OF THE ASSESSEE FOR DEDUCTION MERITED TO BE CONSIDERED. 20. COMING TO THE FACTS HEREIN, IT IS N OT DISPUTED BY THE REVENUE THAT BOTH THE UNITS OF THE ASSESSEE ARE PROFIT - MAKING UNITS AND THE GROSS TOTAL INCOME WAS COMPUTED IN THE MANNER AS GIVEN UNDER THE ACT AND THAT THERE WAS A POSITIVE INCOME OF PROFIT. GOING BY THE DECISIONS REFERRED TO ABOVE AND THE SAME WHEN APPLIED TO THE FACTS OF THE CASE HEREIN, THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER CHAPTER VI - A. IN THE LIGHT OF THIS FACT, WE DO NOT FIND ANY JUSTIFICATION IN THE VIEW OF THE TRIBUNAL, REJECTING THE PLEA OF THE ASSESSEE FOR D EDUCTION UNDER CHAPTER VI - A. 21. A READING OF THE ORDER OF THE TRIBUNAL SHOWS THAT IT MISCONSTRUED THE DECISION OF THE APEX COURT REPORTED IN IPCA LABORATORY LTD. V. DEPUTY CIT [2004] 266 ITR 521 (SC), TO REJECT THE CASE OF THE ASSESSEE. APPLYING THE S AID DECISION AND THE DECISION REPORTED IN SYNCO INDUSTRIES LTD. V. ASSESSING OFFICER (INCOME - TAX) [2008] 299 ITR 444 (SC), TO THE FACTS HEREIN THAT THE ASSESSEE HAD PROFIT AND THE DECISIONS OF THIS COURT CITED SUPRA, VIZ., CIT V. MACMILLAN INDIA LTD. [20 07] 295 ITR 67 ( MAD), CIT V. RATHORE BROTHERS [2002] 254 ITR 656 (MAD), CIT V. SURESH B. MEHTA [2007] 291 ITR 462 (MAD) AND CIT V. M. GANI AND CO. [2008] 301 ITR 381 (MAD), AS REGARDS THE GRANT OF 100 PER CENT. RELIEF TO THE UNIT ENGAGED IN EXPORT ACTIV ITY AND THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE FOR THE EXPORT UNIT TO OTHER UNITS ARE INDEPENDENT, WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE'S UNIT AT BANGALORE, BEING 100 PER CENT. EXPORT UNIT, IS ENTITLED TO HAVE THE DEDUCTION IN TE RMS OF SECTION 80HHC(3). QUITE APART FROM THAT, FOLLOWING THE DECISIONS OF THIS COURT ON THE ASPECT OF GRANT OF RELIEF, IT IS RELEVANT TO NOTE HERE THAT SECTION 80HHC CONTEMPLATES THREE SITUATIONS, VIZ., SUB - SECTION (3)(A) DEALING WITH THE CASE WHERE TH E EXPORT IS ONLY OF SELF - MANUFACTURED GOODS, SUB - SECTION (3)(B) DEALING WITH THE CASE WHERE THE EXPORT IS ONLY OF TRADING 19 GOODS, AND SUB - SECTION (3)(C) DEALING WITH THE CASES WHERE THE EXPORT IS OF BOTH SELF - MANUFACTURED GOODS AS WELL AS TRADING GOODS. APART FROM THIS, THE SECTION NOWHERE DEALS WITH THE SITUATION OF AN ASSESSEE HAVING MORE THAN ONE UNIT OF BUSINESS AND ONE OF THE UNITS BEING PURELY 100 PER CENT. EXPORT ORIENTED UNIT AND THE OTHER UNIT, A PARTIALLY EXPORT UNIT. EVEN THOUGH THE ACT DOES NOT PROVIDE FOR DEALING WITH SUCH A SITUATION, YET, BEING A BENEFICIAL PROVISION, WE FEEL THAT, IN FITNESS OF THINGS, THE ASSESSEE IS ENTITLED TO THE RELIEF IN RESPECT OF 100 PER CENT. EXPORT ORIENTED UNIT. CONSEQUENTLY, EVEN IN RESPECT OF THE COMPUTATI ON AS GIVEN IN EXPLANATION (BAA) TO SECTION 80HHC, THE CONSIDERATION FOR GRANT OF RELIEF MUST FOLLOW THE DECISIONS OF THE APEX COURT REPORTED IN L. M. CHHABDA AND SONS V. CIT [1967] 65 ITR 638 (SC) AS WELL AS WATERFALL ESTATES LTD. V. CIT [1996] 219 IT R 563 (SC). THE CASE OF EACH OF THE UNITS HAVE TO BE CONSIDERED INDEPENDENTLY FOR THE PURPOSE OF WORKING OUT THE RELIEF UNDER SECTION 80HHC. THIS WOULD DEPEND UPON THE FACTS TO SHOW THAT EACH OF THE UNIT HAD MAINTAINED THEIR ACCOUNTS INDEPENDENTLY AND TH ERE WAS NO INTERDEPENDENCY OR INTERLACING OF FUNDS TO TREAT THEM AS ONE CONSOLIDATED UNIT. GOING BY THE FACTS RECORDED THEREIN, WE HAVE NO HESITATION IN ACCEPTING THE PLEA OF THE ASSESSEE THAT THE INCOME EARNED FROM THE EXPORT GOODS FROM THE BANGALORE U NIT MERITED TO BE CONSIDERED FOR 100 PER CENT. RELIEF, AS ONE FALLING UNDER SECTION 80HHC(3)(A) OF THE ACT. 12. FROM THE ABOVE PARAS FROM THE JUDGMENT OF HON'BLE HIGH COURT, IT IS SEEN THAT IT IS HELD BY HON'BLE HIGH COURT IN PARA 21 THAT THE CASE OF EA CH OF THE UNITS HAVE TO BE CONSIDERED INDEPENDENTLY FOR THE PURPOSE OF WORKING OUT RELIEF U/S 80HHC. 13. NOW WE EXAMINE AND COMPARE THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE, THE ASSESSEE IS HAVING THREE UNITS. IN UNIT NO. 1, THE ASSESSEE IS MAN UFACTURING FINISHED LEATHER WHICH IS SOLD IN DOMESTIC MARKET OR IS UTILIZED IN MANUFACTURING OF LEATHER FOOTWEAR OR GOODS BY OTHER UNITS. IN UNIT NO. 2, THE ASSESSEE IS MANUFACTURING COMPLETE SHOES AND LEATHER UPPERS AND OTHER LEATHER GOODS. IN THIS UNIT, THERE IS MAINLY EXPORT SALES, ALTHOUGH THERE IS SMALL AMOUNT OF DOMESTIC SALE. IN UNIT NO. 3, THE ASSESSEE IS 20 MANUFACTURING LEATHER UPPERS AND BAGS AS WELL AS OTHER LEATHER GOODS. IN THIS UNIT ALSO, THERE IS SMALL AMOUNT OF DOMESTIC SALE OF RS.25.10 LA CS AS WELL AS EXPORT SALES OF RS.4,217 LACS. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC IN RESPECT OF UNIT NO. 2 & 3 WHERE DOMESTIC SALE IS VERY SMALL TO THE EXTENT OF RS.98.88 LACS AND RS.25.80 LACS RESPECTIVELY AS AGAINST EXPORT SALE OF RS.581.48 LACS AND RS.421 LACS RESPECTIVELY AND HAS NOT CLAIMED ANY DEDUCTION U/S 80HHC IN RESPECT OF UNIT NO. 1 WHERE DOMESTIC SALE IS TO THE EXTENT OF RS.2,051.83 LACS . THE ITEMS MANUFACTURED IN UNIT NO. 1 IS FINISHED LEATHER WHEREAS IN UNIT NO. 2 AND 3, THE FINI SHED LEATHER IS RAW MATERIAL AND END PRODUCTS ARE LEATHER UPPERS, COMPLETE SHOES, LEATHER BAGS AND OTHER LEATHER GOODS. UNDER THESE FACTS, WE FIND THAT THIS UNIT IS HAVING DOMESTIC SALES AND THE ITEMS OF PRODUCTION IS DIFFERENT IN UNIT NO. 1 AS COMPARED TO UNIT NO. 2 & 3. REGARDING THE CORRECTNESS OF THE PROFIT REPORTED IN THESE UNITS, WE FIND THAT DEDUCTION WAS CLAIMED BY THE ASSESSEE U/S 80IB ALSO IN RESPECT OF UNIT NO. 2 ON THE BASIS OF PROFIT AS PER PROFIT & LOSS ACCOUNT OF UNIT NO. 2 AT RS.21,49,626 / - . THE ASSESSING OFFICER HAS ALLOWED DEDUCTION TO THE ASSESSEE U/S 80IB FOR THIS UNIT ON THE BASIS OF SAME PROFIT ALTHOUGH AFTER MAKING SOME ADJUSTMENTS IN RESPECT OF INTEREST INCOME AND EXPORT BENEFITS. THIS GOES TO SHOW THAT VERACITY OF BOOKS OF ACCOU NT OF UNIT NO. 2 HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER ALSO BECAUSE HE HAS ALLOWED DEDUCTION TO THE ASSESSEE U/S 80IB ON THE BASIS OF SEPARATE PROFIT & LOSS ACCOUNT OF UNIT NO. 2. HENCE, THIS IS NOT THE ALLEGATION OF THE REVENUE THAT UNIT NO. 2 BOOK S OF ACCOUNT AND PROFIT & LOSS ACCOUNT ARE NOT CORRECT AND RELIABLE. WE ALSO FIND THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO. 5 OF THE ASSESSMENT ORDER THAT FROM THE COMPUTATION OF INCOME FILED ALONG WITH IN RETURN OF INCOME, IT IS NOTICED THAT THE DEDUCTION U/S 80HHC HAS BEEN CLAIMED BY THE ASSESSEE OF RS.91,28,329/ - IN UNIT NO. 2 AND RS.4,04,200/ - IN UNIT NO. 3 TOTALING TO RS.1,31,07,417/ - . WHEN AS PER THE ASSESSING OFFICER, IT CAN BE SEEN IN ANNEXURE - A TO THE ASSESSMENT ORDER, 21 PROFIT OF THE B USINESS AS WHOLE HAS BEEN WORKED OUT AT RS.1,81,06,614/ - BEFORE REDUCING DEDUCTION ALLOWED BY HIM U/S 80IB AND PROFIT WAS COMPUTED AT RS.1,32,82,262/ - AFTER REDUCING SUCH DEDUCTION ALLOWABLE U/S 80IB OF THE ACT. HENCE, IT IS SEEN THAT THE DEDUCTION CLAIM ED BY THE ASSESSEE IS NOT MORE THAN TOTAL PROFIT WORKED OUT BY THE ASSESSING OFFICER SUGGESTING LOSS IN UNIT NO. 1. IN OUR CONSIDERED OPINION, UNDER THESE FACTS, THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF PADMINI TECHNOLOGIES (SUPRA) AND OF H ON'BLE MADRAS HIGH COURT AS DISCUSSED ABOVE ARE SQUARELY APPLICABLE AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT IN THE FACTS OF THE PRESENT CASE, DEDUCTION IS ALLOWABLE TO THE ASSESSEE IN RESPECT OF UNIT NO. 2 & 3 AS HAS BEEN CLAIMED BY THE ASSESSEE. BUT FOR THE LIMITED PURPOSE OF VERIFYING THE CALCULATION OF THE ASSESSEE FOR CLAIMING SUCH DEDUCTION U/S 80HHC, WE REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING THE VERACITY OF THIS COMPUTATION AND TO DE TERMINE THE ACTUAL DEDUCTION ALLOWABLE TO THE ASSESSEE BY TAKING THE PROFIT, EXPORT TURNOVER AND TOTAL TURNOVER OF THESE UNITS NO. 2 & 3 ONLY BY EXCLUDING THE FIGURES OF UNIT NO. 1. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATIST ICAL PURPOSES AS INDICATED ABOVE. 15. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003 - 04 I.E. I.T.A. NO.417/LKW/2012. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX(A) - L WAS JUSTIFIED IN IGNORING THE FACTS THAT THE SECTION 80IB READ WITH SECTION 80IA(9) OF THE ACT IS VERY CLEAR IN THIS REGARD WHICH STATES THAT IF ANY AMOUNT OF PROFI TS AND GAINS OF AN UNDERTAKING IS CLAIMED AND ALLOWED AS DEDUCTION U/S 80IA OR 80IB, DEDUCTION TO THE EXTENT OF SUCH PROFITS AND 22 GAINS SHALL BE NOT ALLOWED ANY OTHER PROVISIONS OF THE ACT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COM MISSIONER OF INCOME TAX(A) - L WAS JUSTIFIED TO IGNORE THE FACTS OF THE JUDICIAL RULINGS RELIED UPON BY LD. CIT(A) IN HIS JUDGMENT ARE ALSO NOT SIMILAR TO THE FACTS OF CASE UNDER CONSIDERATION. 3. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(A) - I KA NPUR BEING ERRONEOUS IN LAW AND ON FACTS DESERVES TO BE VACATED AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 16. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE KERALA HIGH COURT REND ERED IN THE CASE OF OLAM EXPORTS (INDIA) LTD. VS. CIT [2009] 184 TAXMAN 373 (KER.). 17. AS AGAINST THIS, LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. VS. DCIT 332 ITR 42 (MUMBAI). HE ALSO PLACED RELIANCE ON THE FOLLOWING THREE JUDICIAL PRONOUNCEMENTS: ( I ) CIT VS. MILLIPORE INDIA PVT. LTD. 341 ITR 219 (KAR) ( II ) SCM CREATION VS. ACIT 304 ITR 319 (MAD) ( III ) GITANJALI CHEMICALS PVT. LTD. VS. INCOME TAX OFFICER 10 SOT 329 (MUMBAI) 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IT IS HELD BY LEARNED CIT(A) IN PARA 3.4(III) THAT FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC, DEDUCTION ALLOWABLE U/S 8 0IB WOULD NOT BE REDUCED. IN THIS REGARD, HE HAS FOLLOWED THESE JUDGMENTS OF HON'BLE BOMBAY HIGH COURT, HON'BLE KERALA HIGH COURT AND HON'BLE MADRAS HIGH COURT, WHICH ARE CITED BEFORE US BY LEARNED A.R. OF THE ASSESSEE. WE FIND 23 THAT IN THE CASE OF ASSOCI ATED CAPSULES (P) LTD., HON'BLE BOMBAY HIGH COURT HAS DULY CONSIDERED THIS JUDGMENT OF HON'BLE KERALA HIGH COURT CITED BY LEARNED D.R. OF THE REVENUE HAVING BEEN RENDERED IN THE CASE OF OLAM EXPORTS (INDIA) LTD. SINCE THIS JUDGMENT OF HON'BLE BOMAY HIGH COURT IS AFTER CONSIDERING THE JUDGMENT OF HON'BLE HERALA HIGH COURT, WE FIND NO REASON FOR FOLLOWING THE JUDGMENT OF HON'BLE KERALA HIGH COURT IN PREFERENCE TO THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT. IN THE CASE OF ASSOCIATED CAPSULES (P) LTD., IT WA S HELD BY HON'BLE BOMBAY HIGH COURT THAT FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE U/S 80HHC OF THE ACT, DEDUCTION ALLOWABLE U/S 80IA IS NOT REQUIRED TO BE REDUCED BUT FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC OF THE ACT, THE SAME CAN BE ALLOW ED ONLY TO THE EXTENT AFTER REDUCING THE DEDUCTION ALLOWABLE U/S 80IA OF THE ACT. IT MEANS THE TOTAL DEDUCTION ALLOWABLE INCLUDING ALL SECTIONS SHOULD NOT EXCEED 100% OF THE TAXABLE PROFIT AND GROSS TOTAL OF INCOME. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. 19. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 20. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004 - 05 I.E. I.T.A. NO.391/LKW/2012. 21. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS: 1. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT IN VIEW OF THE PROVISIONS OF SECTION 80HHC(3), RESULTS OF THE THREE UNITS WERE LIABLE TO BE AGGREGATED WITH EACH OTHER AND THE BENEFIT UNDER SECTION 80HHC WAS AVAILABL E ONLY WITH REFERENCE TO THE COMPUTATION OF AGGREGATE OF 'TURNOVER' AND 'PROFITS' OF THE THREE UNITS TAKEN TOGETHER. 2. BECAUSE THE VIEW TAKEN BY THE AUTHORITIES BELOW IN THE MATTER OF AGGREGATION OF THE RESULTS OF THE THREE UNITS FOR THE PURPOSE OF COMPU TING RELIEF UNDER SECTION 80HHC, IS WHOLLY 24 MISCONCEIVED AND ERRONEOUS, AS BEING INCONSISTENT WITH THE LETTER AND SPIRIT OF THE PROVISIONS CONTAINED IN SECTION 80HHC. 3. BECAUSE THE A.O. HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE THREE UNITS VIZ UNI T - I, UNIT - II AND UNIT - III NEITHER FUNCTIONED INDEPENDENTLY NOR THERE WAS ANY FAIR APPORTIONMENT OF EXPENSES, INTRA UNITS AND IN COMPUTING THE RELIEF ADMISSIBLE TO THE APPELLANT UNDER SECTION 80HHC, BY AGGREGATING RESULTS OF THREE UNITS. 4. BECAUSE THE THREE UNITS, VIZ. UNIT - I: ENGAGED IN THE BUSINESS OF MANUFACTURING OF FINISHED LEATHER AND SELLING THE SAME ALMOST WHOLLY THROUGH DOMESTIC SALES; UNIT - II: ENGAGED IN THE BUSINESS OF MANUFACTURING OF LEATHER GOODS, MAINLY COMPLETE SHOES & LEATHER UPPERS AND SELLING THE LEATHER UPPERS WHOLLY THROUGH EXPORTS TO THE OVERSEAS MARKETS AND COMPLETE SHOES ALMOST WHOLLY THROUGH EXPORTS TO THE OVERSEAS MARKET: UNIT - IIII: ENGAGED IN THE MANUFACTURING OF LEATHER UPPER (FOR SHOES) AND LEATHER BAGS AND SELLING THE LEATHER UPPERS WHOLLY IN THE DOMESTIC MARKET AND THE BAGS WHOLLY THROUGH EXPORTS TO THE OVERSEAS MARKET. FOR WHICH NOT ONLY ACCOUNTS HAVE BEEN MAINTAINED SEPARATELY, THEIR RESULTS WERE ALSO ASCERTAINED INDEPENDENTLY AND FAIRLY; AND ACCORDINGLY THE AUTHOR ITIES BELOW WERE OBLIGED TO UPHOLD THE APPELLANT'S CLAIM FOR RELIEF UNDER SECTION 80HHC BASED ON THE RESULTS DISCLOSED IN UNIT NO. - II AND UNIT NO.III. 5. BECAUSE THE VIEW TAKEN BY THE LEARNED CIT, (APPEALS), IN THE MATTER OF COMPUTATION OF RELIEF UNDER SE CTION 80HHC, IN ANY CASE STANDS WHOLLY VITIATED, AS THE SAME IS BASED ON NON - CONSIDERATION/NON - APPRECIATION OF THE VOLUMINOUS SUBMISSIONS AS WERE PLACED BEFORE HIM, DURING THE COURSE OF HEARING OF APPEAL. 25 6. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 22. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE FACTS AND ISSUES INVOLVED IN THIS YEAR ARE IDENTICAL TO THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003 - 04 AND THE ISSUE CAN BE DECIDED ON SIMILAR LINE. IN ASSESSMENT YEAR 2003 - 04, WE HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AS PER PARA NO. 13 AND THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR LIMITED PURPOSE OF VERIFYING THE VERACITY OF COMPUTATION AND TO DETERMINE THE ACTUAL DEDUCTION ALLOWABLE TO THE ASSESSEE BY TAKING THE PROFIT, EXPORT TURNOVER AND TOTAL TURNOVER OF THESE UNITS NO. 2 & 3 ONLY AFTER EXCLUDING THE FIGURES OF UNIT NO. 1. IN THIS YEAR ALSO, WE DIRECT THE ASSESSING OFFICER ACCORDINGLY. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 24. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. ( A. K. GARODIA ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 5 / 06 /201 5 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR