POSITIVE PACKAGING INDUSTRIES LTD ( FORMERLY KNOWN AS ENPAC INDIA P. LTD ), MUMBAI V. ITO 3(2)(2), MUMBAI

ITA 668/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55644 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 02-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D EVI SINGH
• Assessee Lawyers: DR K SHIVRAM; SANJAY R PAREKH
• Keywords: Business income; Depreciation; Question of law; Unabsorbed depreciation
• Section: 80HHC; 115JB; 32; 28

Judgement Text

1 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C BEFORE SHRI R.K. PANDA, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 668/MUM/2009 ASSESSMENT YEAR 2004-05 M/S POSITIVE PACKAGING INDUSTRIES LIMITED, (FORMERLY KNOWN AS ENPAC INDIA PVT. LTD.), 98, JOLLY MAKER CHAMBERS, NARIMAN POINT, MUMBAI - 400 021. PAN AAACP 2836 Q VS. THE INCOME TAX OFFICER 3(2)(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400020. APPELLANT RESPONDENT APPELLANT BY DR. K. SHIVRAM & SHRI SANJAY R. PAREKH RESPONDENT BY SHRI DEVI SINGH DATE OF HEARING 04.08.2011 DATE OF PRONOUNCEMENT 25.10.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DT. 20.11.2008 OF THE CIT(A)- III, MUMBAI RELATING TO A.Y. 2004-05. 2. GROUND OF APPEAL NO. A READS AS UNDER:- A) SETTING OFF OF UNABSORBED DEPRECIATION OF OTHER UNI T WHILE COMPUTING DEDUCTION U/S.80HHC. (1) THE LEARNED CIT(A) COMMISSIONER OF INCOME TAX ( APPEALS), MUMBAI [CIT(A)] HAVING HELD THAT THE DEDUCTION U/S.80 HHC WAS TO BE COMPUTED 2 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. QUA EACH EXPORT UNDERTAKING, ERRED IN HOLDING THAT UNABSORBED DEPRECIATION OF SAI METAPLAST WAS TO CONSIDERED AS CURRENT YEARS DEPRECIATION AND WAS ACCORDINGLY REQUIRED TO BE SET OFF FOR ARRIVING AT PROFITS OF BUSINESS AS PER EXPLANATION (BAA) OF THE EXPORT UNIT. (2) THE APPELLANT PRAYS THAT YOUR HONOUR HOLD THAT THE DEDUCTION U/S.80HHC HAS TO BE ALLOWED QUA INDUSTRIAL UNDERTAK ING AND ACCORDINGLY, THE UNABSORBED DEPRECIATION OF SAI MET APLAST COULD NOT BE SET OFF FOR COMPUTING EXPORT PROFITS FOR CALCULA TING DEDUCTION U/S.80 HHC. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE COMPUTATION O F INCOME THAT CARRY FORWARD LOSSES ARE SET OFF AGAINST THE TOTAL INCOME AFTER CLAIMING DEDUCTION UNDER CHAPTER VI-A I.E 80HHC OF THE ACT. ACCORDING TO THE A.O. CARRY FORWARD LOSSES FOR EARLIER YEARS ARE TO BE SET OFF AGAINST GROSS TOTAL INCOME BEFORE DEDUCTION U/S 80 HHC AND NOT AGAINST THE TOTAL INC OME ARRIVED AT AFTER ALLOWING DEDUCTION UNDER CHAPTER VIA. HE, THEREFOR E, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE CLAIM OF THE ASSESSEE SHOULD NOT BE REJECTED. 2.1 IT WAS REPLIED BY THE ASSESSEE THAT BROUGHT FOR WARD BUSINESS LOSS SHOULD NOT BE SET OFF WHILE COMPUTING DEDUCTION U/S 80 HHC . THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SHIRKE CONS TRUCTION EQUIPMENT CO. PVT. LTD. REPORTED IN 246 ITR 459 (BOM) AND THE DEC ISION OF THE HONBLE A.P. HIGH COURT IN THE CASE OF CIT V. GOGIENI TOBACCO LT D. REPORTED IN 238 ITR 970 (A.P) WERE RELIED UPON. IT WAS FURTHER SUBMITTED T HAT SECTION 32(2) AS AMENDED BY THE FINANCE ACT, 2001STATES THAT THE SAID PROVIS IONS OF SECTION ARE SUBJECT TO THE PROVISIONS OF SECTION 72(2) AND 73(3) OF THE IN COME-TAX ACT. THE SECTION APPLICABLE TO THE ASESSEE IS SECTION 72(2). THE DE CISION OF THE TRIBUNAL IN THE CASE OF SUASHISH JEWELLERY VS. DCIT IN ITA NO. 1179 /MUM/04 ORDER DTD. 8.5.2006 WAS BROUGHT TO THE NOTICE OF THE A.O. ACCO RDING TO WHICH BROUGHT FORWARD BUSINESS LOSS SHOULD NOT BE SET OFF WHILE C OMPUTING THE DEDUCTION U/S 80HHC. 3 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. 2.2 HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. HE DISCUSSED THE PROVISIONS OF SECTION 8 0A AND 80AB. RELYING ON A COUPLE OF DECISIONS, HE HELD THAT THE CARRY FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION AND BROUGHT FORWARD BUSINES S LOSS HAS TO BE FIRST SET OFF AGAINST THE GROSS TOTAL INCOME COMPRISING OF BU SINESS INCOME AND THEREAFTER GROSS TOTAL INCOME HAS TO BE RECOMPUTED. HE ALSO NO TED THAT THE ISSUE WAS DEALT IN ASSESSEES OWN CASE IN THE A.Y. 2003-04 WH EREIN THE A.O. HAS TAKEN SIMILAR STAND AND FIRST SET OFF UNABSORBED DEPRECIA TION AND NO DEDUCTION U/S 80HHC HAS BEEN ALLOWED TO THE ASSESSEE. 2.1 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT CO RPORATE ENTITIES NAMELY ACUPRINTS SYSTEMS P. LTD. AND M/S SAI METAPLAST PVT . LTD. HAVE AMALGAMATED WITH THE ASSESSEE COMPANY. THE ASSESSEE IS IN EXPO RT BUSINESS FOR A LONG TIME. M/S ACUPRINTS SYSTEMS (P) LTD. IS ALSO IN EXPORT BU SINESS. THE POSITION OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATIO N IN RESPECT OF THESE 3 UNITS ARE EXPLAINED AS UNDER:- POSITIVE PACKAGING ACCUPRINT SYSTEM SAI META PLAST INCOME CURRENT YEAR 17,54,86,257 1,92,12,187 ( - ) 5,27,42,356 UNABSORBED LOSSES 6,45,61,553 NIL ( - ) 4,92,10,841 UNABSORBED DEPRECIATION NIL NIL 14,21,644 IT WAS SUBMITTED THAT THE ASSESSEE IS MAINTAINING SEPARATE ACCOUNT. THEREFORE, CALCULATION OF DEDUCTION U/S 80 HHC HAS TO BE DONE INDEPENDENTLY AND SEPARATELY FOR POSITIVE PACKAGING PVT. LTD. AND FOR ACCUPRINT SYSTEM PVT. LTD. AND UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRE CIATION OF SAI METAPLAST CANNOT BE ADJUSTED AGAINST SUCH PROFIT. THIS CLAIM IS ONLY FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 80HHC AND NOT FOR THE PUR POSE OF COMPUTING TOTAL INCOME OF THE ASSESSEE. THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. REPORTED IN 299 ITR 444 WA S BROUGHT TO THE NOTICE OF THE LD. CIT(A) WHEREIN IT HAS BEEN OBSERVED THAT WH ILE COMPUTING DEDUCTION U/S 80I(6), THE A.O. HAS TO TREAT THE PROFIT DERIVED FR OM AN INDUSTRIAL UNDERTAKING 4 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. AS THE ONLY SOURCE OF INCOME IN ORDER TO VERIFY THE DEDUCTION AND IS DRAWING PARALLEL FOR THE PURPOSE OF SECTION 80 HHC AS WELL. IT WAS ACCORDINGLY ARGUED THAT WHILE COMPUTING THE DEDUCTION U/S 80 HHC(3) RE AD WITH EXPLANATION BAA, EACH EXPORT ENTITY HAS TO BE CONSIDERED INDEPENDENT LY AND SEPARATELY AND IT IS THE PROFITS OF THAT PARTICULAR ENTITY ALONE WHICH H AS TO BE TAKEN INTO ACCOUNT FOR CALCULATING THE DEDUCTION. THEREFORE, UNABSORBED BU SINESS LOSSES AND UNABSORBED DEPRECIATION OF SAI METAPLAST WHICH IS N OT ENGAGED IN EXPORT AT ALL CANNOT BE ADJUSTED FOR CALCULATING DEDUCTION U/S 80 HHC OF THE ACT. 2.2 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD. CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT FOR CALCUL ATING DEDUCTION U/S 80HHC EACH UNIT UNDERTAKING EXPORT HAS TO BE CONSIDERED I NDEPENDENTLY AND SEPARATELY SINCE THE ASSESSEE IS MAINTAINING SEPARA TE BOOKS OF ACCOUNT FOR EACH EXPORT ENTITY. HE OBSERVED THAT THE ASSESSEES ACTI VITIES WHICH ARE NOT IN THE LINE OF EXPORTS ARE OUTSIDE THE PURVIEW OF SECTION 80HHC. ACCORDING TO HIM SO FAR AS THE SETTING OFF OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION OF THE SAME UNIT IS CONCERNED, THERE IS NO DOUBT TH AT IT HAS TO BE DONE AND THE LD. COUNSEL OF THE ASSESSEE HAS ALSO AGREED TO THIS PROPOSITION. HE NOTED THAT IN RESPECT OF PARENT COMPANY I.E. POSITIVE PACKAGIN G LTD., THERE WAS UNABSORBED BUSINESS LOSS WHICH HAS TO BE ADJUSTED A GAINST INCOME OF THIS UNIT OF THE CURRENT YEAR AND THAT WAS NOT OBJECTED TO BY THE LD. COUNSEL OF THE ASSESSEE. SO FAR AS THE ISSUE RELATING TO SET OFF OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION OF SAI METAPLAST, THE U NIT WHICH IS NOT ENGAGED IN EXPORT ACTIVITY IS CONCERNED, HE NOTED THAT THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. IS CATEG ORICAL ON THIS ISSUE ACCORDING TO WHICH ONE HAS TO TREAT THE PROFITS DERIVED FROM THE UNDERTAKING AS THE ONLY SOURCE OF INCOME TO ARRIVE AT DEDUCTION UNDER CHAPT ER VI-A. HE HELD THAT SECTION 72 IN RESPECT OF SET OFF OF UNABSORBED BUSI NESS LOSS CANNOT BE GIVEN EFFECT FOR CALCULATING DEDUCTION U/S 80HHC. HOWEVER , SECTION 32(2) AUTOMATICALLY COMES INTO PLAY, THEREFORE, THE ENTIR E UNABSORBED DEPRECIATION OF 5 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. ALL UNITS WHETHER ENGAGED IN EXPORT ACTIVITY OR NOT IS DEEMED TO BE TREATED AS CURRENT YEAR DEPRECIATION AND THEREFORE, WILL HAVE TO BE GIVEN SET OFF FOR ARRIVING AT PROFITS OF THE BUSINESS AS DEFINED IN EXPLANATIO N BAA. THEREFORE, UNABSORBED DEPRECIATION OF M/S SAI METAPLAST WILL HAVE TO BE A DJUSTED AGAINST INCOME/PROFITS OF THE ELIGIBLE UNITS FOR CALCULATIN G DEDUCTION U/S 80HHC. ACCORDINGLY, THE LD. CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE RELATING TO SET OFF OF UNABSORBED BUSINESS LOSS FROM CURRENT YEARS INCOME WHILE CALCULATING DEDUCTION U/S 80HHC AND REJECTED THE CLAIM OF UNABS ORBED DEPRECIATION. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR INDEPENDE NT UNITS, THEREFORE, DEDUCTION U/S 80HHC HAS TO BE CALCULATED QUA UNIT. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. M. GANI & CO. [2007] 301 ITR (MAD) 381. HE SUBMITTED THAT THE LD. CIT(A) HAS ALREADY ACCEPTED THE CONTENTION OF THE ASSESSEE THA T FOR DEDUCTION U/S 80HHC EACH UNIT UNDERTAKING EXPORT HAS TO BE CONSIDERED I NDEPENDENTLY AND SEPARATELY FOR WHICH THE REVENUE IS NOT IN APPEAL. HOWEVER, THE LD. CIT(A) ERRED IN HOLDING THAT UNABSORBED DEPRECIATION OF SA I METAPLAST WAS TO BE SET OFF WHILE COMPUTING DEDUCTION U/S 80HHC. HE SUBMITTED THAT AS PER EXPLANATION BAA, PROFITS OF THE BUSINESS HAVE TO BE COMPUTED UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN CASE OF INDEP ENDENT UNITS, PROFITS HAVE TO BE COMPUTED AS PER SECTIONS 28 TO 44 QUA EXPORT UNI T. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. VS. ACIT REPORTED IN 299 ITR 444. HE SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. PRO SEA L CLOSURES (P) LTD. (2009) 314 ITR 132 (KAR) HAS DIRECTED THE A.O. TO FOLLOW T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. (SUPRA) WHILE COMPUTING DEDUCTION U/S 80HHC. HE SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 32(2) SET OFF OF UNABSORBED DEPRECIATION IS SUBJECT TO THE PROVISIONS OF SECTION 72 (2) AND 73(3). SECTION 72(2) AND 73(3) PROVIDES THAT WHERE ANY ALLOWANCE OR 6 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. PART THEREOF IS TO BE GIVEN AS PER PROVISIONS OF SE CTION 32(2) OR 35(4), EFFECT SHALL FIRST BE GIVEN WITH RESPECT TO PROVISIONS OF SECTIO N 72 OR 73. ACCORDINGLY, SET OFF OF UNABSORBED DEPRECIATION CAN BE GIVEN ONLY AFTER SETTING OFF OF UNABSORBED LOSSES. AS CLAUSE (BAA) TALKS OF COMPUTATION U/S. 2 8 TO 44, NEITHER EFFECT OF SECTION 72 OR 73 CAN BE GIVEN NOR EFFECT OF SECTION 32(2) CAN BE GIVEN AS UNABSORBED DEPRECIATION IS SUBSEQUENT TO ALLOWANCE OF UNABSORBED BUSINESS LOSSES UNDER SECTION 72. 3.1 WITHOUT PREJUDICE TO THE ABOVE HE SUBMITTED THA T THE ACT CONTEMPLATES THAT A BUSINESSMAN MAY HAVE MORE THAN ONE BUSINESS. FURTHER, SECTION 32(2) ONLY TALKS OF UNABSORBED DEPRECIATION BEING ADDED T O THE DEPRECIATION OF THE CURRENT YEAR. SUCH ADDITION HAS TO BE TO DEPRECIATI ON QUA THE UNIT/BUSINESS. IT IS ONLY AFTER SUCH ADDITION THAT THERE IS A LOSS, S ECTION 70 WILL TAKE EFFECT AND LOSS OF ONE BUSINESS HAS TO BE ADJUSTED AGAINST THE PROFIT OF ANOTHER BUSINESS. HE SUBMITTED THAT AS DEDUCTION U/S. 8OHHC IS WITH R ESPECT TO PROFITS OF THE BUSINESS WHICH HAS TO BE COMPUTED AS PER THE PROVI SIONS OF SECTION 28 TO 44, NEITHER THE PROVISION OF SECTION 70 NOR SECTION 72 NOR UNABSORBED DEPRECIATION OF ANOTHER UNIT CAN BE ADJUSTED FROM THE PROFITS OF THE ELIGIBLE UNIT. HE ACCORDINGLY SUBMITTED THAT THE CIT(A) WAS NOT JUSTI FIED IN DIRECTING THE AO TO SET OFF UNABSORBED DEPRECIATION OF SAI METAPLAST BE FORE ALLOWING DEDUCTION U/S. 8OHHC AFTER HOLDING THAT EACH UNIT HAS TO BE CONSID ERED SEPARATE AND DEDUCTION U/S. 80HHC HAS TO BE COMPUTED WITH RESPEC T TO THE ELIGIBLE UNIT. 3.4 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VARIOUS DECISIONS RELIED ON BY THE A.O. ARE DISTINGUISHABLE AND ARE N OT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF MAHALAXMI FABRIC MILLS LTD. V. ACIT (2009) REPORTED IN 309 ITR 63, THE UNABSORBED DEPRECIATION AND INVESTMENT ALLOWANCE PERTAINED TO THE SAME BUSINESS. HOWEVER, IN THE PR ESENT CASE, THE UNABSORBED DEPRECIATION PERTAINS TO BUSINESS OF SAI METAPLAST AND NOT OF THE EXPORT BUSINESS. IN THE CASE OF CIT VS. HIMATASINGIKE SEI DE LTD. (2006) REPORTED IN 7 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. 286 ITR 255, THE ASSESSEE HAD SET OFF UNABSORBED DE PRECIATION OF EARLIER YEARS NOT AGAINST BUSINESS INCOME BUT AGAINST INCOME FROM OTHER SOURCES. FURTHER, UNABSORBED DEPRECIATION AND INVESTMENT ALLOWANCE OF SOME YEARS WERE CARRIED FORWARD INSTEAD OF BEING ADJUSTED AGAINST PROFITS O F THE UNDERTAKING. IN THAT CASE, THE UNABSORBED DEPRECIATION WAS OF THE SAME U NIT. HOWEVER, IN THE CASE OF THE ASSESSEE, THE UNABSORBED DEPRECIATION PERTAI NS TO ANOTHER INDEPENDENT BUSINESS, THEREFORE, THE SAID DECISION IS NOT APPLI CABLE TO THE FACTS OF THE ASSESSEES CASE. HE ACCORDINGLY SUBMITTED THAT THE UNABSORBED DEPRECIATION OF SAI METAPLAST SHOULD NOT BE REDUCED WHILE COMPUTING THE EXPORT PROFITS U/S 80HHC. 4. THE LD. D.R., ON THE OTHER HAND, WHILE SUPPORTIN G THE ORDER OF THE LD. CIT(A) SUBMITTED THAT THE UNABSORBED DEPRECIATION I S COVERED U/S 32(2) AND THEREFORE, THE SAME NEEDS TO BE TREATED AT PAR WITH CURRENT YEARS DEPRECIATION AND THEREFORE WHILE COMPUTING PROFIT OF BUSINESS FO R THE PURPOSE OF DEDUCTION U/S 80 HHC, THE SAME NEEDS TO BE REDUCED. REFERRIN G TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PL ASTIBENDS INDIA LIMITED VS. ACIT REPORTED IN [2009] 318 ITR 352 (BOM), HE SUBMI TTED THAT THE COURT SPECIFICALLY HELD THAT WHILE CALCULATING DEDUCTION UNDER CHAPTER VI-A THE GROSS TOTAL INCOME HAS TO BE COMPUTED, INTERALIA, BY DEDU CTING THE DEDUCTIONS ALLOWABLE U/S 32 TO 43D INCLUDING DEPRECIATION ALLO WABLE U/S 32. HE ACCORDINGLY SUBMITTED THAT THE TRIBUNAL SHOULD DISM ISS THE GROUND RAISED BY THE ASSESSEE AND DIRECT THE A.O. TO EVEN REDUCE BUS INESS LOSS FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS GOT 3 UNITS OUT OF WHICH 2 ARE ENGAGED IN EXPORT BUSINESS AND ONE UNIT NAMELY SAI METAPLAST (P) LTD. IS 8 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. NOT ENGAGED IN EXPORT BUSINESS. THERE IS ALSO NO D ISPUTE TO THE FACT THAT EACH UNIT IS MAINTAINING SEPARATE BOOKS OF ACCOUNT. THE ONLY QUESTION TO BE DECIDED IN THE IMPUGNED GROUND IS AS TO WHETHER THE UNABSOR BED DEPRECIATION OF SAI METAPLAST (P) LTD. HAS TO BE SET OFF WHILE COMPUTIN G THE DEDUCTION U/S 80HHC OF THE ACT. 5.1 WE FIND THE LD. CIT(A) HAS AGREED WITH THE CONT ENTION OF THE ASSESSEE THAT FOR CALCULATING DEDUCTION U/S 80HHC, EACH UNIT UNDE RTAKING EXPORT HAS TO BE CONSIDERED INDEPENDENTLY AND SEPARATELY. THE REVENU E IS NOT IN APPEAL AGAINST THE ABOVE FINDING OF THE LD. CIT(A). WE, THEREFORE , FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M. GANI & CO. REPORTED IN 301 ITR 381WHEREIN TH E HONBLE HIGH COURT HAS HELD AS UNDER:- THIS QUESTION OF LAW AS TO WHETHER WHERE THE ASSES SEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT IN RESPECT OF DOMESTIC TR ANSACTION AS WELL AS THE EXPORT TRANSACTION THE CLUBBING OF INCOME WAS PERMI SSIBLE WAS CONSIDERED BY THIS COURT IN CIT V. RATHORE BROTHERS REPORTED IN [ 2002] 254 ITR 656. IN THAT CASE, IT WAS HELD THAT WHERE THE ASSESSEE HAS MAINT AINED SEPARATE ACCOUNTS AND IT HAD MAINTAINED ITS TRADING RECEIPTS AND PROF IT AND LOSS ACCOUNTS SEPARATELY FOR EXPORT SALES AND DOMESTIC SALES AND THERE WAS SUFFICIENT MATERIALS SUPPORTED BY ALL THE NECESSARY DOCUMENTS TO SHOW THAT THE DEDUCTION CLAIMED WAS ENTIRELY DUE TO EXPORT, THERE WAS NO WARRANT FOR DISALLOWING ANY PORTION OF THE EXPORT EARNINGS PRO RATA BY INVOKING CLAUSE (B) OF SUB-SECTION (3) OF SECTION 80HHC OF THE ACT. THE PU RPOSE OF THE CLAUSE WAS TO DISALLOW A PART OF THE ALLOWANCE UNDER THE SECTION ONLY WHEN THE ENTIRE CLAIM COULD NOT BE REGARDED AS BEING RELATABLE TO EXPORT. THAT DECISION HAS BEEN FOLLOWED SUBSEQUENTLY, IN CIT V. SURESH B. MEHTA R EPORTED IN [2007] 291 ITR 462 (MAD) IN SIMILAR SET OF FACTS, WHERE THE ASSES SEE HAD MAINTAINED THE SEPARATE ACCOUNTS FOR DOMESTIC TRANSACTION AS WELL AS THE EXPORT TRANSACTION. HAVING REGARD TO THE SAID FACT, THIS COURT HAS HEL D THAT THE ASSESSEE WAS MAINTAINING SEPARATE ACCOUNTS INDEPENDENT OF HIS O THER BUSINESS AND THAT THERE WAS NO INTERMINGLING OF EXPENDITURE OR INTER LACING OF FUNDS OF ANY KIND WHATSOEVER THE ASSESSEE WAS ENTITLED TO THE RELIEF . THAT DECISION WAS FOLLOWED IN ANOTHER CASE IN CIT V. MACMILLAN INDIA LTD. REPORT ED IN [2007] 295 ITR 67, WHEREIN ALSO, THE COURT HELD AS FOLLOWS (HEADNOTE) : WHERE THE ASSESSEE HAD MAINTAINED SEPARATE ACCOUNT S AND MAINTAINED ITS TRADING RECEIPTS AND PROFIT AND LOSS ACCOUNTS SEPAR ATELY FOR EXPORT SALES AND 9 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. DOMESTIC SALES AND PRODUCED SUFFICIENT MATERIAL IN SUPPORT OF ALL THE NECESSARY DOCUMENTS TO SHOW THAT THE DEDUCTION CLAIMED WAS E NTIRELY DUE TO EXPORT, THERE IS NO WARRANT FOR DISALLOWING ANY PORTION OF THE EXPORT EARNINGS PRO RATA BY INVOKING CLAUSE (B) OF SUB-SECTION (3) OF SECTI ON 80HHC OF THE INCOME-TAX ACT, 1961, AS THE PURPOSE OF THE CLAUSE IS TO DISA LLOW A PART OF THE ALLOWANCE UNDER THAT SECTION ONLY WHEN THE ENTIRE DEDUCTION CLAIMED COULD NOT BE REGARDED AS BEING RELATABLE TO EXPORTS. INCIDENTALLY, IN THE LATTER TWO CASES, ONE OF US WA S A PARTY (CVJ). IN PARAGRAPH- 6 OF THE ORDER, THE TRIBUNAL HAS CATEGORICALLY STAT ED WITHOUT ANY AMBIGUITY THAT THE ASSESSEE IS MAINTAINING SEPARATE SET OF BOOKS O F ACCOUNT. HENCE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 8 0HHC OF THE ACT FULLY ON THE EXPORT PROFIT. IN VIEW OF THE FACT THAT THE ASSESS EE MAINTAINED THE SEPARATE BOOKS OF ACCOUNT FOR EXPORT BUSINESS AND DOMESTIC BUSINESS AND IN THE LIGHT OF THE EARLIER DECISIONS CITED, WE ARE OF THE CONSIDE RED VIEW THAT THE TRIBUNAL HAS DECIDED THE ISSUE CORRECTLY AND THE APPEAL DESERVE S NO MERIT CONSIDERATION. THEREFORE, THE APPEAL IS DISMISSED. NO COSTS. 5.2 SINCE THE ASSESSEE IN THE INSTANT CASE IS MAINT AINING SEPARATE SETS OF BOOKS OF ACCOUNT FOR EACH UNIT A FACT BROUGHT ON RE CORD BY THE LD. CIT(A) AND NOT CONTROVERTED BY THE REVENUE, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE DEDUCTION U/S 80HHC HAS TO BE ALLOWED QUA INDUSTRIAL UNDERTAKING AND THEREFORE THE UNABSORBED DEPRECIATION OF SAI ME TAPLAST COULD NOT BE SET OFF FOR COMPUTING EXPORT PROFITS FOR CALCULATING THE DE DUCTION U/S 80HHC. THE VARIOUS DECISIONS RELIED ON BY THE LD. D.R. ARE DIS TINGUISHABLE ON FACTS AND NOT APPLICABLE TO THE ISSUE ON HAND. IN THIS VIEW OF T HE MATTER, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 6. GROUND OF APPEAL NO. B READS AS UNDER:- REDUCING 90% OF GROSS INTEREST RECEIVED WHILE CALCU LATING DEDUCTION U/S.80HHC. 1) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT THE APPELLANT HAD MADE NO ATTEMPT IN ESTABLISHING THE N EXUS BETWEEN INTEREST INCOME AND INTEREST EXPENSES AND ACCORDING LY, NETTING OFF OF INTEREST COULD NOT BE PERMITTED. 2) THE APPELLANT PRAYS THAT YOUR HONOUR MAY DIRECT THE CIT(A)/AO TO VERIFY THE NEXUS AND NET INTEREST INCOME MAY BE REDUCED WHILE COMPUTING DEDUCTION U/S.80HHC. 10 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. 7. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THIS GROUND IS COVERED AGAINST THE ASSESSEE BY THE DECIS ION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR CO. LTD. REPORTED I N [2010] 326 ITR 56 WHEREIN IT HAS BEEN HELD THAT GROSS INTEREST RECEIVED BY TH E ASSESSEE AND NOT THE NET INTEREST ON FIXED DEPOSIT IN BANKS TO BE TAKEN INTO ACCOUNT WHILE CALCULATING DEDUCTION U/S 80HHC. FOR THE PURPOSE OF EXPLANATIO N BAA TO SECTION 80HHC, THE GROSS INTEREST OF FIXED DEPOSIT IN THE BANK REC EIVED BY THE ASSESSEE SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DE DUCTION U/S 80HHC AND NOT THE NET INTEREST. 8. THE LD. D.R. HAS NO OBJECTION FOR THE SAME. ACC ORDINGLY, THE GROUND OF APPEAL B BY THE ASSESSEE IS DISMISSED. 9. GROUND OF APPEAL C READS AS UNDER: COMPUTING INDIRECT EXPENSE WHILE COMPUTING COST OF EXPORT OF TRADING GOODS. 1) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT REPAIRS TO BUILDING, ADMINISTRATIVE AND SELLING EXP ENSES, FINANCIAL EXPENSES ETC. WERE IN SOME WAY OR OTHER HAVING A DI RECT OR INDIRECT BEARING UPON THE TRADING ACTIVITIES OF THE APPELLANT. 2) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT O NLY DIRECT AND INDIRECT COST OF GOODS EXPORTED WAS TO BE REDUCED F ROM THE F.O.B. VALUE OF THE TRADING GOODS AND NOT THE ENTIRE DIREC T AND INDIRECT COSTS. 3) THE APPELLANT PRAYS THAT YOUR HONOUR HOLD THAT ONLY DIRECT AND INDIRECT EXPENSES OF GOODS EXPORTED SHOULD BE EXCLU DED FROM THE F.O.B VALUE OF TRADING GOODS AND NOT THE ENTIRE DIR ECT AND INDIRECT EXPENSES OF THE APPELLANT COMPANY. 10. FACTS OF THE CASE IN BRIEF ARE THAT WHILE WORKI NG OUT THE INDIRECT EXPENSES FOR TRADING EXPORT, THE A.O. NOTED THAT THE ASSESSE E HAS NOT TAKEN ALL THE AMOUNTS OF INDIRECT EXPENSES APPEARING IN THE P&L A CCOUNT. HE NOTED THAT CERTAIN EXPENSES HAVE BEEN EXCLUDED AND ONLY PART O F THE EXPENSES HAVE BEEN 11 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. TAKEN. ON BEING QUESTIONED BY THE A.O. TO EXPLAIN THE BASIS ON WHICH THE INDIRECT EXPENSES HAVE BEEN WORKED OUT AND TO EXPLA IN AS TO WHY ONLY PART OF THE EXPENSES HAVE BEEN CONSIDERED FOR THE PURPOSE O F CALCULATING THE INDIRECT COST IT WAS SUBMITTED THAT THE SAME HAS CORRECTLY B EEN DONE AS PER THE PROVISIONS OF SECTION 80HHC AND AS SUPPORTED BY THE AUDIT REPORT IN FORM NO. 10CCAC. SINCE THE EXPLANATION GIVEN BY THE ASSESSE E WAS GENERAL IN NATURE WITHOUT ASSIGNING ANY REASON FOR THE INCLUSION/EXCL USION OF A PARTICULAR ITEM OF EXPENDITURE, THE A.O. HELD THAT THE ASSESSEE CAN EX CLUDE ONLY THOSE COSTS WHICH ARE DIRECT COSTS AND ALL OTHER EXPENSES DEBIT ED TO P&L ACCOUNT HAVE TO BE INCLUDED IN INDIRECT COST FOR ALLOCATION IN PROP ORTION OF TRADING EXPORT TURNOVER TO TOTAL TURNOVER. HE ACCORDINGLY CALCULA TED THE PROPORTIONATE INDIRECT COSTS AT ` 8,33,845/- AND RECONSIDERED THE DEDUCTION U/S 80HH C ACCORDINGLY. 10.1 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT T HE EXPENSES TAKEN INTO ACCOUNT BY THE A.O. HAVE NO CONNECTION TO TRADING A CTIVITY. HOWEVER, THE LD. CIT(A) OBSERVED THAT NOTHING WAS BROUGHT ON RECORD THAT HOW THERE IS NO CO- RELATION. ACCORDING TO HIM, THE REPAIRS ON BUILDIN GS ETC., PERSONNEL EXPENSES, ADMINISTRATIVE AND SELLING EXPENSES AND FINANCIAL E XPENSES IN SOME WAY OR OTHER HAVE A DIRECT OR INDIRECT BEARING UPON TRADIN G ACTIVITY OF THE ASSESSEE. THEREFORE, ADJUSTMENT OF THESE EXPENSES BEFORE APPL YING THE PROPORTION IS JUSTIFIED. SO FAR AS THE A.O.S ACTION IN IGNORING THE FREIGHT AND FORWARDING EXPENSES AND SALARY IS CONCERNED, HE NOTED THAT THE ASSESSEE HAD ON ITS OWN WORKING MADE THE DIRECT ALLOCATION OF THESE EXPENSE S TO TRADING ACTIVITY WHICH IS JUSTIFIED. HE ACCORDINGLY DIRECTED THE A.O. TO T AKE INTO ACCOUNT THESE EXPENSES. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER SECTION 80HHC(3)(B) PROFITS FROM EXPORT OF TRADED GOODS HAV E TO BE DETERMINED BY REDUCING THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORTS. REFERRING TO 12 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF HERO EXPORTS V. CIT REPORTED IN [2007] 295 ITR 454 (SC) HE SUBMITTED TH AT ATTRIBUTABLE TO SUCH EXPORTS MEANS RELATING TO SUCH EXPORTS. THEREFORE O NLY EXPENSES ATTRIBUTABLE TO TRADING EXPORTS CAN BE REDUCED WHILE COMPUTING DEDU CTION U/S 80HHC. HE ACCORDINGLY SUBMITTED THAT DIRECTIONS MAY BE GIVEN TO A.O. TO CONSIDER ONLY INDIRECT COSTS ATTRIBUTABLE TO EXPORTS. WITHOUT PRE JUDICE TO THE ABOVE, HE SUBMITTED THAT INDIRECT COSTS PERTAINING TO SAI MET APLAST COULD UNDER NO CIRCUMSTANCES BE CONSIDERED TO BE ATTRIBUTABLE TO E XPORTS, THEREFORE, INDIRECT COSTS OF SAI METAPLAST REQUIRES TO BE EXCLUDED FROM THE INDIRECT COSTS BEFORE DETERMINING INDIRECT COST. 12. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LD. CIT(A). 13. AFTER HEARING BOTH THE SIDES WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO GIVE AN OPPORT UNITY TO THE ASSESSEE TO SUBSTANTIATE TO HIS SATISFACTION THE INDIRECT COSTS THAT ARE ATTRIBUTABLE TO SUCH EXPORTS IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF HERO EXPORTS (SUPRA).THE A.O. IS ALSO DIRECTED NOT TO IN CLUDE INDIRECT COST OF SAI METAPLAST WHICH IS NOT ENGAGED IN EXPORT ACTIVITY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED FOR STATISTI CAL PURPOSE. 14. GROUNDS OF APPEAL D READS AS UNDER:- DEDUCTION U/S.80 HHC WHILE CALCULATING THE BOOK PRO FIT U/S.115JB. 1) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT EXPLANATION (BAA) TO SECTION 80HHC WAS APPLICABLE W HILE COMPUTING DEDUCTION U/S.80HHC FOR CALCULATING BOOK PROFIT U/S.115JB. 2) THE APPELLANT PRAYS THAT YOUR HONOUR HOLD THAT EXPL ANATION (BAA) WAS NOT APPLICABLE WHILE COMPUTING DEDUCTION U/S.80 HHC WHILE CALCULATING THE BOOK PROFIT U/S.115JB. 13 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. 15. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET , SUBMITTED THAT THE A.O. MAY BE DIRECTED TO FOLLOW THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF AJANTA PHARMA REPORTED IN 327 ITR 305 (SC). 16. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF AJANTA PHARMA LIMITED REPORTED IN 318 ITR 252 AN D IN THE CASE OF CIT VS. AL-KABEER EXPORTS LTD. REPORTED IN 233 CTR (BOM) 44 3. THEREFORE, THIS GROUND BY THE ASSESSEE SHOULD BE DISMISSED. 17. AFTER HEARING BOTH THE SIDES, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO COMPUTE TH E BOOK PROFIT U/S 115JB OF THE ACT IN THE LIGHT OF THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF AJANTA PHARMA REPORTED IN 327 ITR 305. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPO SES. 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 25.10.2011. SD/- SD/- (V. DURGA RAO) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 25.10.2011 RK 14 ITA 668/ M/2009, POSITIVE PACKAGING INDUSTRIES LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 25, MUMBAI 4. THE CIT 14, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI