M/s. INDAGRO FOODS LTD., MUMBAI V. ACIT - (OSD) 2(1), MUMBAI

ITA 7342/MUM/2008

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7325 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-11-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 30-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITNYA ANJARIA; MANOJ KUMAR SINGH SR DRS
• Keywords: Business expenditure; Question of law
• Section: 80C; 80HHC; 80IB; 10B

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 7342/MUM/2008 (ASSESSMENT YEAR 2003-04 ) ITA NO. 7343/MUM/2008 (ASSESSMENT YEAR 2004-05 ) ITA NO. 7344/MUM/2008 (ASSESSMENT YEAR 2005-06 ) M/S INDAGRO FOODS LTD., ALLANA HOUSE, 4 J.A. ALLANA MARG, KOLABA, MUMBAI-400001 . PAN: AAACI6584Q VS. ACIT (OSD)-2(1), AAYAKAR B HAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDE NT APPELLANT BY : SHRI PERCY PARDIWALA, WITH MS. VASANTI PATEL & SHRI APURVA SHAH (AR) RESPONDENT BY : SHRI CHAITNYA ANJARIA AND SH. MANOJ KUMAR SINGH (SR.DRS) DATE OF HEARING : 12.04.2018 DATE OF PRONOUNCEMEN T : 26.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE THREE APPEALS BY ASSESSEE ARE DIRECTED AGAINS T THE ORDER OF LD. CIT(A)-II, MUMBAI DATED 08.12.2008 FOR ASSESSMENT Y EARS 2003-04, 2004-05 & 2005-06 RESPECTIVELY. IN ALL THE APPEALS, THE ASSESSEE HAS RAISED THE CERTAIN COMMON GROUNDS OF APPEAL, THEREF ORE, ALL THE APPEALS WERE CLUBBED, HEARD AND ARE DECIDED BY COMMON ORDER . WITH THE CONSENT OF THE PARTIES, THE APPEAL FOR A.Y. 2003-04 ARE TRE ATED AS LEAD CASE. IN ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 2 APPEAL FOR AY 2003-04 (ITA NO.7342/MUM/2008) THE AS SESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: THE COMMISSIONER OF INCOME TAX (APPEALS) - II HAS E RRED IN CONFIRMING THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME TAX O SD 2(1) AND ERRED- 1.1 IN NOT ALLOWING THE APPELLANT A DEDUCTION UNDER SECTION 80IB IN RESPECT OF PROFITS EARNED BY THE APPELLANT FROM AN UNDERTAKING SET UP IN AN ELIGIBLE BACKWARD DISTRICT ON THE GROUND THAT THE A CTIVITY OF THE APPELLANT DID NOT AMOUNT TO EITHER 'MANUFACTURE' OR 'PRODUCTI ON'. 1.2 IN NOT APPRECIATING THAT THE APPELLANT WAS ACTU ALLY MANUFACTURING PRODUCTS WHICH WERE COMMERCIALLY DISTINCT AND DIFFE RENT FROM THE RAW MATERIALS USED IN AN INTEGRATED MANUFACTURING UNDER TAKING. 2.1 IN DENYING THE APPELLANT, A SUPPORTING MANUFACT URER, DEDUCTION UNDER SECTION 80HHC ONLY ON THE GROUND THAT THE EXPORT HO USE, ALLANASONS LTD, WHICH HAS ISSUED A DISCLAIMER CERTIFICATE UNDE R SECTION 80HHC WAS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 80HHC. 2.2 IN NOT APPRECIATING THAT THE DEDUCTION UNDER SE CTION 80HHC TO THE APPELLANT IS ALLOWABLE IN ITS CAPACITY AS A SUPPORT ING MANUFACTURER FOR WHICH SEPARATE SUB-SECTION (1A), (3A), (4A) AND EXP LANATION CLAUSES (D) AND (E) ARE APPLICABLE AND THAT THE PROVISO TO SUB- SECTION (1) CAN ONLY APPLY TO AND LIMIT THE AMOUNT OF DEDUCTION IN CASE OF AN EXPORT HOUSE BUT CANNOT AFFECT THE ELIGIBILITY OF THE APPELLANT FOR CLAIMING THE DEDUCTION. 2.3 IN NOT APPRECIATING THAT THE EXPORT HOUSE IS EN TITLED TO A DEDUCTION UNDER SECTION 80HHC AS AMENDED BY TAXATION LAWS (AM ENDMENT) ACT, 2005 SINCE LOSS BEFORE EXPORT INCENTIVES CAN BE SET OFF AGAINST EXPORT INCENTIVES AND ITS CALCULATION OF DEDUCTION UNDER S ECTION 80HHC AS PER AUDIT REPORT IN FORM 10CCAC SHOWED A SIMILAR CALCUL ATION. 2. FURTHER, THE ASSESSEE VIDE ITS APPLICATION DATED 31 ST JANUARY 2011 FOR A.Y. 2003-04 RAISED THE FOLLOWING ADDITIONAL GROUND S OF APPEAL: 2.4 IN NOT ADJUDICATING THAT THE APPELLANT WOULD BE ENTITLED TO A DEDUCTION U/S 80HHC ON PROFITS EARNED FROM EXPORTS AS WELL AS U/S 80IB FOR PROFITS EARNED FROM MANUFACTURING ACTIVITY IN A BACKWARD AR EA SO LONG AS THE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 3 AGGREGATE DEDUCTION U/S 80HHC AND 80IB DOES NOT EXC EED THE PROFIT EARNED BY THE UNDERTAKING. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE MANUFACTURING AND EXPORT OF FROZEN FOOD STUFF, FILE D ITS RETURN OF INCOME ON 10.11.2003 DECLARING AN INCOME OF RS. 12,12,03,830/ -. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80HHC OF RS. 7,55,8 3,940/- ON THE GROUND THAT IT IS ENGAGED IN THE BUSINESS OF MANUFA CTURING AND PROCESSING FOOD STUFF, MAINLY MEAT AND VEGETABLES. THE ASSESSE E CLAIMED DEDUCTION UNDER SECTION 80HHC AS A SUPPORTING MANUFACTURER ON THE BASIS OF DISCLAIMER CERTIFICATE IN RESPECT OF TURN OVER ISSU ED BY EXPORT HOUSE, ALLANASONS LTD.. THE ASSESSING OFFICER AFTER PERU SAL OF REPORT UNDER FORM NO. 10CCAC OF ALLANASONS LTD. WITH RETURN OF INCOME FOR SAME ASSESSMENT YEAR NOTED THAT THE CLAIM OF DEDUCTION U NDER SECTION 80HHC IN THE HAND OF ALLANSSONS LTD. IS ARISEN ONLY ON ACCOU NT OF EXPORT INCENTIVE ON DEPB AND THE SAID DEDUCTION IS NOT ALLOWABLE IN VIE W OF TAXATION LAW AMENDMENT ACT, 2005, THE ASSESSING OFFICER ALSO HEL D THAT EXPORT HOUSE ALLANASONS WOULD HAVE OPTED FOR DEPB INSTEAD OF DUT Y DRAW BACK AS DEPB WOULD HAVE BEEN HIGHER, THEREFORE, IT COULD NO T HAVE ISSUED A VALID CERTIFICATE TO A SUPPORTING MANUFACTURER AND DISALL OWED THE DEDUCTION TO THE ASSESSEE. THE ASSESSEE IN ALTERNATIVE CLAIMED DEDUC TION UNDER SECTION 80IB AS THE UNDERTAKING OF THE ASSESSEE IS LOCATED IN BA CKWARD DISTRICT AND THE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 4 PROFIT OF THE SAID UNDERTAKING ARE ELIGIBLE FOR DED UCTION UNDER SECTION 80IB OF THE ACT. THE ASSESSING OFFICER TOOK THE VIEW THA T THE CLAIM OF ASSESSEE IS NOT ADMISSIBLE AS THE ACTIVITY OF THE ASSESSEE D ID NOT AMOUNT TO MANUFACTURER OR PRODUCTION OF GOODS. THUS, THE ASSESSING OFFICER DENIED THE DEDUCTION UNDER SECTION 80HHC AS WELL AS DEDUCTION UNDER SECTION 80IB. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF ASSESSING OFFICER ON DEDUCTION UNDER SECTION 80HHC WAS CONFIR MED. HOWEVER, THE ALTERNATIVE CLAIM UNDER SECTION 80IB WAS NOT ADJUDI CATED. THUS, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO .1 RELATES TO DEDUCTION UNDER SECTION 80IB. THE LD. AR OF THE ASSESSEE SUBM ITS THAT THE AO DISALLOWED THE DEDUCTION UNDER SECTION 80IB HOLDING THAT THE ASSESSEES ACTIVITY DID NOT AMOUNT TO MANUFACTURE OR PRODUC TION OF GOODS BY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN CIT VS. RELISH FOODS (237 ITR 59). THE LD. AR FURTHER SUBMITS THAT DEDUCTION UNDER 80IB(V) IS AVAILABLE TO ASSESSEE ON PROFIT & GAIN D ERIVED FROM AN INDUSTRIAL UNDERTAKING SITUATED IN BACKWARD AREA/DISTRICT SPEC IFIED IN THE NOTIFICATION, INTERALIA, THAT IT MANUFACTURES OR PRODUCE AN ARTI CLE OF THINGS, NOT BEING ARTICLE OF THINGS SPECIFIED IN ELEVENTH SCHEDULE. T HE ASSESSEE FULFILLED ALL ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 5 THE CONDITION FOR DEDUCTION UNDER SECTION 80IB. THE ASSESSEE HAS AN INTEGRATED INDUSTRIAL UNDERTAKING IN THE BUSINESS O F MANUFACTURING OF FROZEN BONELESS BUFFALO MEAT, FROZEN AND DRIED INEDIBLE PR ODUCTS, MEAT AND BONELESS MEAL, TALLO AND GEL BONE CHIPS. THE PRODUC TS ARE MANUFACTURED FROM BUFFALO CARCASSES RECEIVED AT ASSESSEES FACTO RY/ESTABLISHMENT. THE VARIOUS PRODUCT MANUFACTURED BY ASSESSEE AT DIFFERE NT AND DISTINCT END USE. FROZEN CHILLED/MINCD BONELESS BUFFALO MEATS AND FRO ZEN TENDONS/NECK BANDS ARE USED FOR HUMAN CONSUMPTION, FROZEN/DRIED CARTILAGES FOR PHARMA INDUSTRIES, MEAT AND BONE MEAL FOR POULTRY INDUSTRY , TALLOW FOR SOAPS/LUBRICANTS/TEXTILES/INDUSTRIES AND GEL-BONE C HIPS FOR GELATINE INDUSTRY. IT WAS EXPLAINED THAT VETERINARY DOCTORS CHECK PRESCRIBED HEALTH PERFORM PRESCRIBED HEALTH CHECKS OF BUFFALO LIVESTO CK AT THE APPROVED SLAUGHTER HOUSES. AFTER ANTE-MORTEM INSPECTION UNDE R THE SUPERVISION OF ASSESSEE COMPANY PERSONNEL AND THE BUFFALO CARCASSE S CLEARED BY VETERINARY DOCTORS ON POST-MORTEM INSPECTION BY SEL LERS AT THE CHILLER PLANT IN THE FACTORY. CARCASSES MEAN MEAT WITH BONE S, FATS, TISSUES AND INEDIBLE PORTIONS, CARTILAGES; TENDONS ETC. PRODUCE AT THE SLAUGHTER HOUSE ACTIVITY. THE CARCASSES ON ARRIVAL ARE AGAIN CHECKE D PHYSICALLY AND ARE SUBJECT TO HIGH PRESSURE WASHING USING HIGHLY CHLOR INATING WATER TO DECONTAMINATE THE CARCASSES. THE CARCASSES ARE WASH ED WITH LACTIC ACID SPRAY FOR THE DECONTAMINATION. THE CHILLERS ARE HIG HLY SOPHISTICATED CHAMBERS WITH INSULATED WALLS AND CARCASS HANGING A RRANGEMENTS WITH THE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 6 HELP OF RAILS AND HOOKS TO FACILITATE THEIR EASY MO VEMENT. THE CARCASSES ARE NORMALLY RETAINED FOR 24 HOURS TO DROP THE TEMPERAT URE FROM 37 DEGREE CENTIGRADE TO CHILLING POINT. THIS CHILLING ACTIVIT IES CONTROLLED BY RANDOM CHECKING OF CORE TEMPERATURES. SIMULTANEOUSLY, THE HYDROGEN ION CONCENTRATION (PH) LEVELS OF THE CARCASSES ARE ALSO SUBJECT TO RANDOM CHECKS AT DEFINITE INTERVALS. DURING THIS POSTMORTE M CHANGES THAT TAKE PLACE IN THE MUSCLES DURING THE CHILLING ACTIVITY ARE (I) RIGOR MORTIS, (II) TENDERIZATION, (III) WATER HOLDING CAPACITY, (IV) F ATTY ACIDS, (V) COLOUR, (VI) SHRINKAGE & (VII) MICROBIOLOGICAL COMPOSITION. THE AFORESAID ACTIVITIES IN THE CHILLER AND THE CONTROL POSTMORTE M CHANGES DURING THE COURSE OF THESE ACTIVITIES COMPLETE THE PROCESS OF CONVERSION OF MUSCLES IN THE CARCASSES INTO MEAT. THE CHILLED CARCASSES ARE SUBJECT TO THREE DIFFERENT MANUFACTURING PROCESSES WITH DEBONING, FOR THE PROD UCTION OF (I) FROZEN BONELESS MEAT, (II) CHILLED VACUUM PACKED MEAT AND (III) MINCED MEAT. DURING THE DEBONING ACTIVITY COSTAL CARTILAGES WHIC H ARE SMALL BENT BONES LIKE CARTILAGES FROM RIBS, SHOULDER CARTILAGES ARE COLLECTED. THE CARTILAGES COLLECTED AS CUT INTO SMALL PIECES MECHANICALLY AND PASSED THROUGH VARIOUS ENZYMATIC ACTIONS AND ACID TREATMENTS BY CONTROLLIN G PH. THE LD. AR EXPLAINED THAT BY PASSING THROUGH ALL THE AFORESAID ACTIVITIES, THE ASSESSEE IS ACTUALLY PRODUCING VARIOUS PRODUCTS WHICH ARE COMME RCIALLY RADICALLY DIFFERENT FROM THE RAW MATERIAL USED AND WHICH ARE ACTUALLY SUED AND ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 7 CONSUMED IN DIFFERENT INDUSTRIES. A NEW AND DIFFERE NT AND DISTINCTIVE NAMES, CHARACTERS AND USES HAVE EMERGED AS A RESULT OF THE ABOVE ACTIVITIES. 5. THE LD. AR SUBMITS THAT THE WORD MANUFACTURE OR PRODUCTION ARE NOT DEFINED UNDER THE INCOME-TAX ACT. HOWEVER, THE ACTI VITIES CARRIED OUT BY ASSESSEE ARE ACCEPTED AS MANUFACTURING UNDER EXCI SE LAW. THE LD. AR INVITED OUR ATTENTION ON PAGE NO. 59 OF PAPER BOOK WHICH IS THE PHOTOCOPY OF CLASSIFICATION OF INDUSTRIES WHEREIN PRESERVATIO N OF MEAT EXCEPT BY CANNING AND PROCESSING/CANNING OF MEAT. THE LD. AR FURTHER TAKEN US TO REVISE NATIONAL INDUSTRIAL CLASSIFICATION OF ALL EC ONOMIC ACTIVITIES, WHEREIN UNDER DIVISION 20-21 MANUFACTURE OF FOODS PRODUCTS INCLUDES SLAUGHTERING, PREPARATION AND PRESERVATION OF MEAT IS CLASSIFIED AS MANUFACTURING. THE ASSESSEE IS GRANTED CERTIFICATE OF REGISTRATION UND ER SECTION 22/22A OF BOMBAY SALE TAX, 1959, WHEREIN THE NATURE OF BUSINE SS OF ASSESSEE IS ACCEPTED AS MANUFACTURER, RESELLER, IMPORTER AND EX PORTER. THE CLASSES OF GOODS IN WHICH ASSESSEE-COMPANY DEALS IS ALSO ACCEP TED IN THE SAID CERTIFICATE, WHICH CONSIST OF MEAT AND MARINE PRODU CTS, RAW/PROCESSED HIDES, FINISHED, TREATED OR UNTREATED LEATHER, BONE AND MEAT MEALS AND CARCASSES MEATS, CRUSHED BONES, FOOD PRODUCTS, DYES , CHEMICALS AND ITS PRODUCTS, LIVE ANIMALS AND ITS MEAT ETC. 6. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASS ESSEE RELIED UPON THE DECISIONS OF HONBLE SUPREME COURT IN DCIT VS. K.M. MOHAMMAD ALI (90 SOT 174 (SC), DCIT VS. A.B. ISMAIL (62 STC 394 (SC) , CIT VS. EMPTEE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 8 POLY-YARN (P.) LTD. [2010 188 TAXMAN 188 (SC), ASPI NWALL AND CO. LTD. VS. CIT [251 ITR 323 (SC) CIT VS. HINDUSTAN PE TROLEUM CORPORATION LTD. [2017] 396 ITR 696 (SC), DECISION OF HONBLE K ERALA HIGH COURT IN MEAT PRODUCTS OF INDIA LTD. VS. STATE OF KERALA (VO L. 137 PAGE 570 (137 STC 570 (KERALA), DECISION OF HONBLE HIGH COURT OF BOMBAY IN ASSOCIATED CAPSULES (P.) LTD. VS. DCIT [2011] 197 T AXMAN 84 (BOM.), DECISION OF CHENNAI TRIBUNAL IN ITO VS. SHRI SWASAN CHEMICALS (M) P. LTD. [2008] 300 ITR (AT) 171 (CHENNAI). 7. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF ASSESSING OFFICER. THE LD. DR FURTHER SUBMITS THAT THE ASSESSING OFFICER HAS CLEARLY MENTIONED IN ITS ORDER THAT THE ASSESSE E DOES NOT QUALIFY THE CONDITION NO. (III) OF SECTION 80IB. THE ACTIVITIE S OF THE ASSESSEE DO NOT FALL IN THE CATEGORY OF MANUFACTURING OF PRODUCTION. THE INDUSTRIAL ACTIVITIES ARE GENUS; MANUFACTURE OR PROCESSING OF GOODS IS SPECIE S. THE LD. DR FURTHER SUBMITS THAT ALL MANUFACTURING ACTIVITIES ARE INDUS TRIAL BUT ALL INDUSTRIES ACTIVITIES DO NOT NECESSARY INVOLVED IN MANUFACTURI NG. THE EXPRESSES PROCESS IS WIDER THAN MANUFACTURES OR PRODUCTION; I T IS AN ACTION WHICH BRINGS SOME CHANGE OR ALTERATION OF THE GOODS OR MA TERIAL SUBJECTED TO THE ACT OF PROCESSING. 8. THE LD. DR FOR THE REVENUE IN SUPPORT OF HIS SUBMIS SION RELIED UPON THE DECISION OF HONBLE HIGH COURT OF KERALA IN OLAM EX PORTS (INDIA) LTD. VS. CIT [2009] 184 TAXMAN 373 (KERALA) AND THE DECISION OF HONBLE DELHI ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 9 HIGH COURT IN GREAT EASTERN EXPORTS VS. CIT [2011] 196 TAXMAN 145 (DEL.). 9. IN REJOINDER SUBMISSION, THE LD. AR OF THE ASSESSEE SUBMITS THAT THE HONBLE BOMBAY HIGH COURT IN ASSOCIATED CAPSULES (P.) LTD. VS. DCIT (SUPRA) HAS CONSIDERED THE DECISION OF KERALA HIGH COURT IN OLA M EXPORTS (INDIA) LTD. (SUPRA) AND DECISION OF DELHI HIGH COURT IN GREAT E ASTERN EXPORTS VS. CIT (SUPRA). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PAR TIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER DISALLOWED THE DEDUCTION UNDER SECTION 80IB HOLDING THAT THE A SSESSEES ACTIVITIES UNDERTAKEN AT INDUSTRIAL UNIT AT DISTRICT-UNNAO, ST ATE OF U.P. DOES NOT FALL IN THE CATEGORY OF MANUFACTURING OR PRODUCTION. TH E LD. CIT(A) WHILE DECIDING THE APPEAL HELD THAT IN THE ENTIRE PROCESS INVOLVED IN CONVERTING CARCASS INTO MEAT, THERE IS NO DIFFERENCE IN BETWEE N INPUT AND THE OUTPUT IN THE NAME, CHARACTER AND USE. MERELY DEPLOYMENT OF C ONSIDERABLE CAPITAL OUTLET, SOPHISTICATED MACHINERY AND ENGAGEMENT OF S KILL LABOUR, NO SIGNIFICANT DEGREE OF VALUE ADDITION TO THE END-PRO DUCT. THE PROCESS CARRIED OUT BY ASSESSEE DOES NOT RESULT INTO DIFFERENT MARK ETABLE PRODUCT. WE HAVE NOTED THAT THE LD. AR OF THE ASSESSEE HAS EXPLAINED THAT THE END-USE PRODUCT MANUFACTURED BY ASSESSEE IS DISTINCT AND ENTIRELY D IFFERENT FROM THE ORIGINAL RAW-MATERIAL (BUFFALOS CARCASSES), WHICH HAS BEEN DISCARDED BY LD. CIT(A) HOLDING THAT ASSESSEE IS NOT CARRYING OR MAN UFACTURING OR PRODUCING ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 10 OF ARTICLES OR THINGS. THE LD. AR HAS ALSO EXPLAINE D THAT IN INTEGRATED INDUSTRIAL UNDERTAKING THE ASSESSEE IS MANUFACTURIN G THE FROZEN BONELESS BUFFALO MEAT, FROZEN AND DRIED INEDIBLE PRODUCTS, M EAT AND BONELESS MEAL, TALLOW AND GEL BONE CHIPS. THE PRODUCTS ARE MANUFAC TURED FROM BUFFALO CARCASSES RECEIVED AT ASSESSEES FACTORY/ESTABLISHM ENT. THE VARIOUS PRODUCT MANUFACTURED BY ASSESSEE AT DIFFERENT AND DISTINCT END USE. THE PRODUCT MANUFACTURED BY THE ASSESSEE IS SEPARATE AND INDEPE NDENT MARKETABLE PRODUCT. THE END-USE PRODUCT IS USED FOR HUMAN CONS UMPTION, FROZEN/DRIED CARTILAGES FOR PHARMA INDUSTRIES, MEAT AND BONE MEA L FOR POULTRY INDUSTRY, TALLOW FOR SOAPS/LUBRICANTS/TEXTILES/INDUSTRIES AND GEL-BONE CHIPS FOR GELATINE INDUSTRY. THE VETERINARY DOCTORS CHECK PRE SCRIBED HEALTH PERFORM PRESCRIBED HEALTH CHECKS OF BUFFALO LIVESTOCK AT TH E APPROVED SLAUGHTER HOUSES. AFTER ANTE-MORTEM INSPECTION UNDER THE SUPE RVISION OF ASSESSEE COMPANY PERSONNEL AND THE BUFFALO CARCASSES CLEARED BY VETERINARY DOCTORS ON POST-MORTEM INSPECTION BY SELLERS AT THE CHILLER PLANT IN THE FACTORY. CARCASSES MEAN MEAT WITH BONES, FATS, TISS UES AND INEDIBLE PORTIONS, CARTILAGES; TENDONS ETC. PRODUCE AT THE S LAUGHTER HOUSE ACTIVITY. WE HAVE NOTED THAT THE LD. AR OF THE ASSESSEE HAS E XPLAINED THE DIFFERENT STAGE OF PROCESS FOR CONVERTING THE BUFFALO CARCASS ES FOR END-USE OF CONSUMPTION NOT ONLY FOR HUMAN NEED BUT ALSO FOR TH E VARIOUS INDUSTRIAL PURPOSES. WE HAVE ALSO NOTED THAT CERTAIN POSTMORTE M CHANGES ALSO TAKE PLACE IN THE MUSCLES DURING THE CHILLING ACTIVITY L IKE (I) RIGOR MORTIS, (II) ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 11 TENDERIZATION, (III) WATER HOLDING CAPACITY, (IV) F ATTY ACIDS, (V) COLOUR, (VI) SHRINKAGE & (VII) MICROBIOLOGICAL COMPOSITION. THE AFORESAID ACTIVITIES IN THE CHILLER AND THE CONTROL POSTMORTE M CHANGES DURING THE COURSE OF THESE ACTIVITIES COMPLETE THE PROCESS OF CONVERSION OF MUSCLES IN THE CARCASSES INTO MEAT. WE HAVE ALSO NOTED THAT CH ILLED CARCASSES ARE SUBJECT TO THREE DIFFERENT MANUFACTURING PROCESSES WITH DEBONING, FOR THE PRODUCTION OF (I) FROZEN BONELESS MEAT, (II) CHILLE D VACUUM PACKED MEAT AND (III) MINCED MEAT. DURING THE DEBONING ACTIVITY COSTAL CARTILAGES WHICH ARE SMALL BENT BONES LIKE CARTILAGES FROM RIB S, SHOULDER CARTILAGES ARE COLLECTED. THE LD. AR EXPLAINED THAT BY PASSING THROUGH ALL THE AFORESAID ACTIVITIES, THE ASSESSEE IS ACTUALLY PROD UCING VARIOUS PRODUCTS WHICH ARE COMMERCIALLY RADICALLY DIFFERENT FROM THE RAW MATERIAL USED AND WHICH ARE ACTUALLY SUED AND CONSUMED IN DIFFERENT I NDUSTRIES. A NEW AND DIFFERENT AND DISTINCTIVE NAMES, CHARACTERS AND USE S HAVE EMERGED AS A RESULT OF THE ABOVE ACTIVITIES. THE ASSESSING OFFIC ER DISCARDED THE CONTENTION OF ASSESSEE WITHOUT DISCUSSING THE PRODU CTION ACTIVITIES AT DIFFERENT STAGE UNDERTAKEN BY THE ASSESSEE. WE HAVE FURTHER NOTED THAT THE FACTS BROUGHT IN OUR NOTICE AND DIFFERENT ACTIVITIE S UNDERTAKEN BY ASSESSEE ARE NOT DISPUTED BY LD. DR FOR THE REVENUE, WHILE R EPLYING THE SUBMISSION OF LD. AR OF THE ASSESSEE. THE ASSESSEE HAS ALSO FI LED COPY OF THE ORDER 30 DATED 22.08.2008 (FOR I/ YEAR 2003-04) PASSED UNDER SECTION 9(2) READ WITH SECTION OF U.P. TRADE TAX ACT, PASSED BY DY COMMERC IAL TAX UNNAO, U.P. ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 12 WHEREIN THE ASSESSEE IS RECOGNIZED AS MANUFACTURER AND ITS BUSINESS IS FOR MANUFACTURE AND SALE OF FOOD STUFF AND ITS BY PRODU CT IS HIDES, MBM AND TALLOW. 11. TO SUM UP, WE FIND THAT IN THE INSTANT CASE THE CL ASSIFICATION OF INDUSTRIES BY NSS AND REVISED CLASSIFICATION BY CSO, MINISTRY OF PLANNING INDICATING THE ACTIVITY OF THE ASSESSEE UNDER THE B ROAD HEAD MANUFACTURE OF FOOD PRODUCTS. ALSO, THE CENTRAL SALES TAX (CST ) AND BOMBAY SALES TAX (BST) REGISTRATION CERTIFICATES INDICATE THE NA TURE OF BUSINESS AS MANUFACTURE. ALSO, THE CLASSIFICATION OF MEAT PRO DUCTS AS EXCISABLE IS SHOWN UNDER EXCISE TARIFF LIST. THE CENTRAL EXCISE REGISTRATION CERTIFICATE INDICATES THAT THE COMPANY IS REGISTERED FOR MANUFA CTURER OF EXCISABLE GOODS. IN THE ORDER U/S 9(2) READ WITH SECTION 30 O F THE UP TRADE TAX ACT, PASSED BY THE DEPUTY COMMISSIONER (ASSESSMENT) DATE D 22.08.2008, IT IS HELD THAT THE ASSESSEE DEALER IS MANUFACTURER AND I TS BUSINESS IS FOR MANUFACTURE AND SALE OF FOOD STUFF. ALSO IT IS HELD THEREIN THAT THE PROCESSED FROZEN FOOD STUFF WAS MANUFACTURED AND ULTIMATELY S OLD. 12. THE HONBLE SUPREME COURT IN DCIT SALE TAX VS. A.B. ISMAIL (SUPRA) HELD THAT THE SLAUGHTER OF THE ANIMALS AND THEIR CONVERS ION INTO MEAT IS THE CONSEQUENCE OF CONSUMPTION OF THE ANIMALS IN THE LE GAL SENSE. IN SUCH CONVERSION, A PROCESS OF MANUFACTURES CAN ALSO BE I NFERRED. LIFELESS MEAT IS BY ANY STANDARD OTHER GOODS, DIFFERENT FROM (GOAT AND SHEEP). FURTHER, ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 13 THE HONBLE APEX COURT IN DCIT SALE TAX VS. K.M. MO HAMMAD ALI (SUPRA) BY FOLLOWING THE DECISION OF A.B. ISMAIL (S UPRA) HELD THAT LIFELESS MEAT IS DIFFERENT FROM THE GOAT AND SHEEP FOR THE P URPOSE OF PURCHASE TAX UNDER SECTION 5A OF KERALA GENERAL SALE TAX ACT. 13. THE HONBLE KERALA HIGH COURT IN MEAT PRODUCTS OF I NDIA VS. STATE OF KERALA (SUPRA) WHILE CONSIDERING THE CLAIM ON THE B ASIS THAT CONVERSION OF ANIMALS INTO MEAT BY SLAUGHTERING DOES NOT INVOLVED ANY MANUFACTURING PROCESS, THE HONBLE HIGH COURT WHILE RELYING UPON THE DECISION OF SUPREME COURT IN A.B. ISMAIL (SUPRA) HELD THAT IT C AN NO LONGER BE CONTENDED THAT SHEEP, GOAT AND PIG ON THE ONE HAND AND THE MEAT OF THE SAID LIVE STOCK OBTAINED AFTER SLAUGHTERING THAN AR E ONE AND THE SAME COMMODITY. 14. THE HONBLE SUPREME COURT IN CIT VS. EMPTEE POLY-YA RN (P.) LTD. (SUPRA) HELD THAT PARTIALLY ORIENTED YARN (POY) BY USING TH ERMO MECHANICAL PROCESS, WHICH CONVERTS POY INTO TEXTURE YARD AMOUN TS TO MANUFACTURE IN TERM OF SECTION 80IA. THE HONBLE APEX COURT FURTHE R HELD THAT THE DEFINITION OF THE WORD 'MANUFACTURE' IS MADE EXPLIC IT BY FINANCE (NO. 2) ACT, 2009 WHICH STATES THAT 'MANUFACTURE' SHALL, INTER ALIA, MEAN A CHANGE IN BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCT URE. APPLYING THIS DEFINITION TO THE FACTS OF THE PRESENT CASE, IT MAY BE MENTIONED THAT THE ABOVE THERMO-MECHANICAL PROCESS ALSO BRING ABOUT A STRUCTURAL CHANGE IN ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 14 THE YARN ITSELF, WHICH IS ONE OF THE IMPORTANT TEST S TO BE SEEN WHILE JUDGING WHETHER THE PROCESS IS MANUFACTURE OR NOT. THE STRU CTURE, THE CHARACTER, THE USE AND THE NAME OF THE PRODUCT ARE INDICIA TO BE T AKEN INTO ACCOUNT WHILE DECIDING THE QUESTION WHETHER THE PROCESS IS A MANU FACTURE OR NOT. 15. THE HONBLE APEX COURT IN ASPINWALL AND CO LTD VS C IT (SUPRA) HELD THAT THE PROCESS IS MANUFACTURING PROCESS WHEN IT BRINGS OUT A COMPLETE TRANSFORMATION IN THE ORIGINAL ARTICLE SO AS TO PRO DUCE A COMMERCIALLY DIFFERENT ARTICLE OR COMMODITY. THAT PROCESS ITSELF MAY CONSIST OF SEVERAL PROCESSES. THE DIFFERENT PROCESSES ARE INTEGRALLY C ONNECTED WHICH RESULTS IN THE PRODUCTION OF A COMMERCIALLY DIFFERENT ARTICLE. IF A COMMERCIALLY DIFFERENT ARTICLE OR COMMODITY RESULTS AFTER PROCES SING, THEN IT WOULD BE A MANUFACTURING ACTIVITY. THE ASSESSEE AFTER PROCESSI NG THE RAW BERRIES CONVERTED THEM INTO COFFEE BEANS WHICH IS A COMMERC IALLY DIFFERENT COMMODITY. CONVERSION OF THE RAW BERRY INTO COFFEE BEANS WOULD BE A MANUFACTURING ACTIVITY. 16. THE HONBLE APEX COURT IN CIT VS. HINDUSTAN PETROLE UM CORPORATION LTD. (SUPRA) WHILE CONSIDERING THE QUESTION OF LAW WHET HER BOTTLING OF LPG, AS UNDERTAKEN BY THE ASSESSEE, IS A PROCESS WHICH AMOU NTS TO 'PRODUCTION' OR 'MANUFACTURE' FOR THE PURPOSES OF SECTIONS 80HH, 80 -I AND 80-IA OF THE ACT?; AND IF SO, WHETHER THE RESPONDENTS/ASSESSEES ARE ENTITLED TO CLAIM THE BENEFIT OF DEDUCTION UNDER THE AFORESAID PROVISIONS WHILE COMPUTING THEIR ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 15 TAXABLE INCOME. THE HONBLE COURT HELD THAT THE WH EN BOTTLING ACTIVITIES AT THE ASSESSEES' PLANTS, LPG IS STORED IN CYLINDE RS IN LIQUEFIED FORM UNDER PRESSURE. WHEN THE CYLINDER VALVE IS OPENED AND THE GAS IS WITHDRAWN FROM THE CYLINDER, THE PRESSURE FALLS AND THE LIQUID BOI LS TO RETURN TO GASEOUS STATE. THIS IS HOW LPG IS MADE SUITABLE FOR DOMESTI C USE BY CUSTOMERS WHO WILL NOT BE ABLE TO USE LPG IN ITS VAPOUR FORM AS P RODUCED IN THE OIL REFINERY. IT, THEREFORE, BECOMES APPARENT THAT THE LPG OBTAINED FROM THE REFINERY UNDERGOES A COMPLEX TECHNICAL PROCESS IN T HE ASSESSEES PLANTS AND WAS CLEARLY DISTINGUISHABLE FROM THE LPG BOTTLED IN CYLINDERS AND CLEARED FROM THESE PLANTS FOR DOMESTIC USE BY CUSTOMERS. IT MAY BE RELEVANT TO POINT OUT THAT KEEPING IN VIEW THE AFORESAID PROCES S; THE TRIBUNAL ARRIVED AT THE SPECIFIC FINDINGS IN SUPPORT OF ITS DECISION, W HICH ARE ( A ) THERE WAS NO DISPUTE THAT THE LPG PRODUCED IN THE REFINERY CANNO T BE DIRECTLY SUPPLIED TO THE CONSUMER FOR DOMESTIC USE BECAUSE OF VARIOUS RE ASONS OF HANDLING, STORAGE AND SAFETY. ( B ) LPG BOTTLING WAS A HIGHLY TECHNICAL AND COMPLEX ACTIVITY WHICH REQUIRES PRECISE FUNCTIONS OF MACHIN ES OPERATED BY TECHNICALLY EXPERT PERSONNEL. ( C ) BOTTLING OF LPG IS AN ESSENTIAL PROCESS FOR RENDERING THE PRODUCT MARKETABLE AND USABLE FOR THE END CUSTOMER. ( D ) THE WORD 'PRODUCTION' HAS A WIDER CONNOTATION IN COMPAR ISON TO 'MANUFACTURE', AND ANY ACTIVITY WHICH BRINGS A COMMERCIALLY NEW PR ODUCT INTO EXISTENCE CONSTITUTES PRODUCTION. THE PROCESS OF BOTTLING OF LPG RENDERS IT CAPABLE OF ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 16 BEING MARKETED AS A DOMESTIC, KITCHEN FUEL AND, THE REBY, MAKES IT A VIABLE COMMERCIAL PRODUCT. 17. THE CO-ORDINATE BENCH OF TRIBUNAL IN ITO VS. SHRI S WASAN CHEMICALS (M) P. LTD. (SUPRA) HELD THAT THE ASSESSEE WHO WAS INVO LVED IN PRODUCTION OF SPECIALIZED POLYMER ALLOYS IN POWDER FORM THAT WERE COMMERCIALLY DIFFERENT FROM POLYMER GRANULES. THE PROCESS OF PRO DUCTION ITSELF INVOLVED A NUMBER OF STEP AND PROCESS. THE RESULT WAS THAT F INAL POLYMER ALLOYS IN POWDER WORK NOT THE SAME AS ORIGINAL PRODUCT. THE F INAL PRODUCT AND APPLICATION IN VARIOUS INDUSTRIES. THE RAW-MATERIAL COULD NOT BE SUBSTITUTED FOR THE FINAL PRODUCT. THE PRODUCTION PROCESS RESUL TED NOT ONLY IN QUALITATIVE CHANGES BUT ALSO GAVE THE PRODUCT A DIS TINCT APPEARANCE AND CHARACTER WHICH WAS SO RECOGNIZED IN THE TRADE. HEN CE, PRODUCTION PROCESS RESULTED IN A COMMERCIALLY DIFFERENT PRODUCT HAVING SPECIFIC CHARACTERISTIC AND QUALITIES THROUGH A SERIES OF STEPS AND PROCESS . THE ASSESSEE, THEREFORE, SATISFIED THE REQUIREMENT THAT IT MANUFACTURED OR P RODUCED AN ARTICLE OF THINGS FOR THE PURPOSE OF SECTION 80IB OF THE ACT. 18. CONSIDERING THE ABOVE REFERRED FACTUAL AND LEGAL DI SCUSSION, WE ARE OF THE VIEW THAT THE FINAL PRODUCT PRODUCED BY THE ASSESSE E-COMPANY IS COMMERCIALLY DIFFERENT FROM THE RAW-MATERIAL (BUFFA LO CARCASSES), THE PROCESS OF PRODUCTION INVOLVED A NUMBER OF STEPS AN D PROCESSES. THE RAW- MATERIAL USED BY THE ASSESSEE CANNOT BE SUBSTITUTED BY THE FINAL PRODUCT. THE PRODUCTION PROCESS AS EXPLAINED BY ASSESSEE RES ULTED NOT ONLY IN ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 17 QUALITATIVE CHANGES, BUT ALSO A DISTINCT PRODUCT FO R END-USE OF THE CONSUMER. THUS, IN OUR CONSIDERED VIEW, THE ASSESSEE FULFILLE D THE REQUISITE REQUIREMENT I.E. MANUFACTURING OR PRODUCING AN ARTI CLE OF THINGS FOR THE PURPOSE OF SECTION 80IB OF THE ACT. IN THE RESULT, GROUND NO.1 OF THE APPEAL RAISED BY ASSESSEE IS ALLOWED. 19. GROUND NO.2 RELATES TO DISALLOWANCE OF DEDUCTION U NDER SECTION 80HHC. THE LD. AR OF THE ASSESSEE SUBMITS THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80HHC. THE ASSESSEE IS A SUPPORTING M ANUFACTURER FOR WHICH THERE ARE SPECIFIC PROVISIONS. THE ASSESSEE IS ENTI TLED FOR DEDUCTION FROM THE PROFIT EARNED FROM THE MANUFACTURING ACTIVITIES AND THE DISCLAIMER ONLY ENTITLED IT TO INCLUDE THE TURNOVER AS EXPORT TURNO VER. THE LD. AR FURTHER SUBMITS THAT SIMILAR DISALLOWANCES WAS MADE BY ASSE SSING OFFICER AND CONFIRMED BY LD. CIT(A), HOWEVER, ON APPEAL BEFORE THE TRIBUNAL, THE ISSUE WAS RESTORED BACK TO FILE OF ASSESSING OFFICER TO C ONSIDER THE CLAIM OF ASSESSEE AS PER LAW. 20. THE LD. AR FURTHER SUBMITS THAT IN OTHER ASSESSEES GROUP IN FRIGORIFICO ALLANA LIMITED (SUPPORTING MANUFACTURER) THE ASSESS ING OFFICER DENIED DEDUCTION UNDER SECTION 80HHC FOR A.Y. 2002-03, 200 3-04 & 2004-05 AFTER RE-OPENING OF THE ASSESSMENT HOLDING THAT DE DUCTION UNDER SECTION 80HHC WAS DENIED TO THE MAIN EXPORTER WHO HAD INCUR RED LOSS IN CASE OF AMOUNT OF INCENTIVE IS NOT INCLUDED IN ITS EXPORT P ROFIT. ACCORDINGLY, THE ASSESSING OFFICER WITHDREW THE DEDUCTION UNDER SECT ION 80HHC. THE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 18 ASSESSEE IN THE SAID CASE CLAIMED DEDUCTION ON THE BASIS OF DISCLAIMER CERTIFICATE ISSUED IN FAVOUR OF ASSESSEE. THE ASSES SEE IN THE SAID CASE FILED APPEAL BEFORE LD. CIT(A), WHEREIN THE PARTIAL RELIE F WAS GRANTED. BOTH THE PARTIES FILED APPEAL BEFORE TRIBUNAL. THE APPEAL OF THAT ASSESSEE WAS ALLOWED AND APPEAL FILED BY REVENUE WAS DISMISSED V IDE ITA NOS. 5513, 5532 & 5514/MUM/2011 AND ITA NOS. 4078, 4167 & 4137 /MUM/2011 VIDE ORDER DATED 27.07.2016. 21. THE LD. AR FURTHER RELIED UPON THE DECISION OF BANG ALORE TRIBUNAL IN SHAMANUR KALLAPPA & SONS VS. ACIT (23 DTR 269) WHER EIN IT WAS HELD THAT THE ONLY CONDITION STIPULATED BY LEGISLATION I S THAT THE SAME BENEFIT SHOULD NOT BE CLAIMED BY BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURER. THE PRE-CONDITION IS THAT EXPORT HOUS E SHOULD FURNISH A CERTIFICATE OF DISCLAIMER IN RESPECT OF EXPORT TURN OVER AND THE AMOUNT OF DEDUCTION ALLOWABLE TO THE EXPORT HOUSE WOULD BE AC CORDINGLY REDUCED IN THE SPECIFIED MANNER. SIMILARLY, THE SUPPORTING MAN UFACTURER CAN CLAIM BENEFIT ON THE BASIS OF DISCLAIMER CERTIFICATE OF E XPORT HOUSE. THE LD. AR SUBMITS THAT THE ASSESSING OFFICER DISALLOWED THE D EDUCTION THAT IN CASE EXPORT HOUSE IS NOT ELIGIBLE FOR DEDUCTION AND IT I SSUES A DISCLAIMER CERTIFICATE TO SUPPORTING MANUFACTURER, THE SUPPORT ING MANUFACTURER IS NOT ENTITLED FOR ANY DEDUCTION. THE LD. AR FURTHER SUBM ITS THAT THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL THAT ASSESSEE IS ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE PROFIT EARNED FROM EXPOR T AS WELL AS UNDER ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 19 SECTION 80IB FOR PROFIT EARNED FROM THE MANUFACTURI NG ACTIVITIES IN THE BACKWARD AREA SO LONG AS AGGREGATE DEDUCTION UNDER SECTION 80HHC AND 80IB DOES NOT EXCEED THE PROFIT EARNED BY UNDERTAKI NG. IN SUPPORT OF HIS SUBMISSION, THE LD. AR RELIED UPON THE DECISION ASS OCIATED CAPSULES (P.) LTD. (SUPRA). THE LD AR FOR THE ASSESSEE ALSO FURNI SHED A CERTIFICATE DATED 02/07/2003 ISSUED BY SUPERINTENDENT CENTRAL EXCISE RANGE-9, UNNAO, CERTIFYING THAT DURING YEAR 2001-02 AND 2002-03 THE ASSESSEE HAS EXPORTED FROZEN BUFFALO MEAT THROUGH M/S ALLANASONS LIMITED. 22. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STRON GLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND LD. CIT(A). THE LD. DR ALS O RELIED UPON THE DECISION OF HONBLE APEX COURT IN IPCA LABORATORIES VS. DCIT (266 ITR 521). AND THE DECISIONS OF HONBLE HIGH COURT OF KE RALA IN OLAM EXPORTS (INDIA) LTD. VS. CIT [2009] 184 TAXMAN 373 (KERALA) AND THE DECISION OF HONBLE DELHI HIGH COURT IN GREAT EASTERN EXPORTS V S. CIT [2011] 196 TAXMAN 145 (DEL.). 23. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO DELIBERATED ON THE VARIOUS CASE LAWS. DURING THE ASSESSMENT, THE ASSES SING OFFICER TOOK THE VIEW THAT THE DEDUCTION TO EXPORT HOUSE (ALLANA SON S LTD. ) UNDER SECTION 80HHC WAS ARISING ONLY ON ACCOUNT OF DEPB EXPORT IN CENTIVE AND THAT THE SAID DEDUCTION WOULD BE DENIED ON ACCOUNT OF TAXATI ON LAW (AMENDMENT) ACT, 2005. THE ASSESSING OFFICER ALSO TOOK THE VIEW THAT EXPORT HOUSE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 20 WOULD HAVE OPTED FOR DEPB INSTEAD OF DUTY DRAW BACK AS DEPB WOULD HAVE BEEN HIGHER. THUS, THE ASSESSING OFFICER CONCL UDED THAT EXPORT HOUSE COULD NOT HAVE ISSUED A VALID CERTIFICATE (DISCLAIM ER CERTIFICATE) TO A SUPPORTING MANUFACTURER. THE ASSESSING OFFICER WHIL E REFERRING THE DECISION IPCA LABORATORIES LTD. (SUPRA) CONCLUDED T HAT IF NO DEDUCTION IS AVAILABLE TO THE EXPORT HOUSE, THEN EXPORT HOUSE CA NNOT GIVE SUCH CREDIT TO SUPPORTING MANUFACTURER. THE LD. CIT(A) CONFIRMED T HE ACTION OF ASSESSING OFFICER THAT IF THE EXPORT HOUSE IS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80HHC, IT CANNOT PASS THE BENEFIT TO THE SU PPORTING MANUFACTURE. 24. WE HAVE NOTED THAT BANGALORE TRIBUNAL IN CASE OF SH AMANUR KALLAPPA & SONS VS ACIT HELD THAT WHEREIN THE ASSESSEE BEING S UPPORTING MANUFACTURE CLAIMED DEDUCTION UNDER SECTION 80HHC O N THE BASIS OF DISCLAIMER CERTIFICATE ISSUED BY STATE TRADING CORP ORATION (STC) CERTIFYING THAT IT HAS NOT CLAIMED DEDUCTION ON THE EXPORT OF TRADING GOODS. THE ASSESSEE APPARENTLY COMPLIED THE STATUTORILY REQUIR EMENT PROVIDED UNDER SECTION 80HHC(1A) IT WAS HELD THAT ONLY CONDITION S TIPULATED BY THE LEGISLATION IS THAT THE SAME BENEFIT SHOULD NOT BE CLAIMED BY BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURE. TO ENSURE THE SAME, IT WAS MADE A PRE-CONDITION THAT EXPORT HOUSE SHOULD FURNISHES A CERTIFICATE OF DISCLAIMER IN RESPECT OF EXPORT TURNOVER, AND THE AMOUNT OF DE DUCTION AVAILABLE TO THE EXPORT HOUSE WOULD BE ACCORDINGLY REDUCED IN THE SP ECIFIED MANNER. THE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 21 DECISION OF TRIBUNAL WAS UPHELD BY HONBLE KARNATAK A HIGH COURT IN TAX APPEAL NO. 10/2009 DATED 12.01.2015. 25. THE CASE LAW RELIED BY LD. DR FOR THE REVENUE IN AL OM EXPORTS (INDIA) LTD. (SUPRA) AND IN GREAT EASTERN EXPORTS (SUPRA) IS NOT HELPFUL TO THE REVENUE AS BOTH THE DECISIONS WERE CONSIDERED BY HONBLE JURIS DICTIONAL HIGH COURT IN ASSOCIATED CAPSULES (P.) LTD. VS. DCIT (SUPRA) WHER EIN THE HONBLE COURT HELD AS UNDER: 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AS ALSO THE DECISIONS OF TWO HIGH COURTS, WHEREIN SIMILAR QUESTION HAS BE EN ANSWERED IN FAVOUR OF THE REVENUE. HOWEVER, WE FIND IT DIFFICULT TO CO NCUR WITH THE VIEWS EXPRESSED THEREIN FOR THE REASONS ENUMERATED HEREIN BELOW. 22. CHAPTER VI-A OF THE ACT PROVIDES FOR VARIETY OF DE DUCTIONS TO BE MADE IN COMPUTING THE TOTAL INCOME. CHAPTER VI-A IS DIVI DED INTO FOUR PARTS VIZ. PART A, B, C & D. PART A (SECTIONS 80A TO 80B) DEAL S WITH GENERAL PROVISIONS, PART B (SECTIONS 80C TO 80GGC) DEALS WI TH DEDUCTIONS IN RESPECT OF CERTAIN PAYMENTS, PART C (SECTIONS 80H TO 80TT) PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES AND PART D (SECTIONS 80U TO 80VV) DEALS WITH OTHER DEDUCTIONS. 23. AS PER SECTION 80A(2) IN PART A OF CHAPTER VI-A, T HE AGGREGATE AMOUNT OF DEDUCTION ALLOWED UNDER CHAPTER VI-A SHALL NOT E XCEED THE GROSS TOTAL INCOME. THUS, THE OVERALL DEDUCTION ALLOWED UNDER C HAPTER VI-A CANNOT EXCEED THE GROSS TOTAL INCOME. HOWEVER, ON NOTICING THAT SEVERAL UNDER- TAKINGS WERE AVAILING DEDUCTIONS UNDER CHAPTER VI-A WITHIN THE OVERALL LIMIT OF GROSS TOTAL INCOME BUT EXCEEDING THE PROFI TS OF THE UNDERTAKING, THE LEGISLATURE INTRODUCED SUB-SECTION (9A) IN SECTION 80-IA BY FINANCE ACT, 1998 WITH EFFECT FROM 1-4-1999. BY FINANCE ACT, 199 9, SECTION 80-IA(9A) HAS BEEN RENUMBERED AS SECTION 80-IA(9). 24. THE OBJECT OF AMENDING SECTION 80-IA BY FINANCE AC T, 1998 AS IS EVIDENT FROM THE MEMORANDUM EXPLAINING THE PROVISIO NS IN THE FINANCE BILL, 1998 [231 ITR (ST) 252] IS THAT IT WAS NOTICED THAT CERTAIN ASSESSEES WERE CLAIMING MORE THAN 100 PER CENT DEDUCTION ON THE PR OFITS AND GAINS OF THE SAME UNDERTAKING, WHEN THEY WERE ENTITLED TO DEDUCT IONS UNDER MORE THAN ONE SECTION UNDER HEADING C OF CHAPTER VI-A. WITH A VIEW TO PREVENT THE TAXPAYER TAKING UNDUE ADVANTAGE OF THE EXISTING PRO VISIONS OF THE ACT, SECTION 80-IA WAS AMENDED BY FINANCE ACT, 1998 SO T HAT THE DEDUCTIONS ALLOWED UNDER SECTION 80-IA AND VARIOUS SECTIONS UN DER HEADING C OF CHAPTER VI-A ARE RESTRICTED TO THE PROFITS OF THE B USINESS OF THE UNDERTAKING/ENTERPRISE. 25. THERE IS NO DISPUTE THAT IN THE PRESENT CASE, THE ASSESSEE IS AN UNDERTAKING ENTITLED TO DEDUCTION UNDER SECTION 80- IA AT 30 PER CENT OF THE ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 22 PROFITS AND GAINS DERIVED FROM THE BUSINESS AND DED UCTION UNDER SECTION 80HHC AT 50 PER CENT OF THE PROFITS OF THE BUSINESS . FURTHER, THERE IS NO DISPUTE THAT THE DEDUCTION UNDER SECTION 80-IA HAS TO BE COMPUTED ON THE TOTAL PROFITS DERIVED FROM THE BUSINESS. HOWEVER, T HE DISPUTE IS IN COMPUTING THE DEDUCTION UNDER SECTION 80HHC IN VIEW OF THE IN SERTION OF SECTION 80- IA(9) BY THE FINANCE ACT, 1998. ACCORDING TO THE RE VENUE, SECTION 80-IA(9) MANDATES THAT THE DEDUCTION UNDER SECTION 80HHC HAS TO BE COMPUTED NOT ONLY ON THE PROFITS OF THE BUSINESS AS REDUCED BY T HE AMOUNTS SPECIFIED IN CLAUSE ( BAA ) AND CLAUSE (4B) OF SECTION 80HHC BUT ALSO BY REDU CING THE AMOUNT OF PROFITS AND GAINS ALLOWED AS DEDUCTION UN DER SECTION 80-IA(1) OF THE ACT. ACCORDING TO THE ASSESSEE, EVEN AFTER THE INTRODUCTION OF SECTION 80- IA(9), THE DEDUCTION UNDER SECTION 80HHC HAS TO BE COMPUTED IN THE MANNER SPECIFIED UNDER SECTION 80HHC ON THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINES S OR PROFESSION AS REDUCED BY THE AMOUNT SET OUT IN CLAUSE ( BAA ) OF SECTION 80HHC/80HHC(4B) AS THE CASE MAY BE AND THERE IS NO SCOPE FOR REDUCING THE PROFITS OF BUSINESS BY THE AMOUNT OF PROFITS AL LOWED UNDER SECTION 80- IA(1) OF THE ACT. ACCORDING TO THE ASSESSEE, SECTIO N 80-IA(9) MERELY AFFECTS THE ALLOWABILITY OF THE DEDUCTION COMPUTED UNDER SE CTION 80HHC SO THAT THE COMBINED DEDUCTION UNDER SECTIONS 80-IA(1) AND 80HH C DOES NOT EXCEED THE PROFITS AND GAINS OF THE UNDERTAKING. 26. TO ILLUSTRATE, IF THE PROFITS AND GAINS OF THE ELI GIBLE UNDERTAKING IS RS. 100, THE DEDUCTION ALLOWABLE UNDER SECTION 80-IA(1) IS 30 PER CENT AND THE DEDUCTION ALLOWABLE UNDER SECTION 80HHC IS 80 PER C ENT, THEN ACCORD- ING TO THE REVENUE, DEDUCTION TO BE ALLOWED UNDER SECTION 80-IA WOULD BE RS. 30 (30 PER CENT OF RS. 100) AND IN VIEW OF SECTION 80- IA(9), THE DEDUCTION UNDER SECTION 80HHC HAS TO BE COMPUTED NOT ON THE P ROFITS OF THE BUSINESS OF RS. 100 BUT ON RS. 70 BEING THE PROFITS OF THE B USINESS REDUCED BY THE AMOUNT OF PROFITS ALLOWED UNDER SECTION 80-IA(1). A CCORDING TO THE ASSESSEE, DEDUCTION UNDER SECTION 80HHC HAS TO BE C OMPUTED ON THE PROFITS OF THE BUSINESS OF RS. 100 AND NOT ON RS. 70 AS CON TENDED BY THE REVENUE, BECAUSE, ACCORDING TO THE ASSESSEE, SECTION 80-IA(9 ) DOES NOT AFFECT THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC BUT AF FECTS THE ALLOWANCE OF DEDUCTION COMPUTED UNDER SECTION 80HHC, SO THAT THE AGGREGATE DEDUCTION DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 27. THE QUESTION, THEREFORE, TO BE CONSIDERED IS, WHET HER SECTION 80-IA(9) SEEKS TO DISTURB THE MECHANISM OF COMPUTING THE DED UCTION PROVIDED UNDER SECTION 80HHC(3) OF THE ACT OR SECTION 80-IA(9) COM ES INTO OPERATION ONLY AT THE STAGE OF ALLOWING THE DEDUCTION COMPUTED UND ER SECTION 80HHC, SO THAT THE COMBINED DEDUCTION UNDER SECTIONS 80-IA AN D 80HHC DOES NOT EXCEED THE TOTAL PROFITS OF THE BUSINESS OF THE UND ERTAKING. 28. SECTION 80-IA(9) CONSISTS OF THREE PARTS: 'FIRST PART - WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN UNDERTAKING/ENTERPRISE IS CLAIMED AND ALLOWED UNDER SECTION 80-IA(1) FOR ANY ASSESSMENT YEAR, THEN SECOND PART - DEDUCTION TO THE EXTENT OF PROFITS AN D GAINS ALLOWED UNDER SECTION 80-IA(1) SHALL NOT BE ALLOWED UNDER ANY OTH ER PROVISIONS UNDER HEADING C OF CHAPTER VI-A OF THE ACT; AND ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 23 THIRD PART - IN NO CASE THE DEDUCTION ALLOWED SHALL EXCEED THEPROFITS AND GAINS OF THE BUSINESS OF THE UNDERTAKING ENTERPRISE .' 29. THE DISPUTE IN THE PRESENT CASE IS, WHETHER THE SE COND PART OF SECTION 80- IA(9) SEEKS TO DISTURB THE MECHANISM OF COMPUTING T HE DEDUCTION PROVIDED UNDER SECTION 80HHC(3) OF THE ACT ? THE SECOND PART OF SECTION 80-IA(9) PROVIDED THAT THE DEDUCTION TO THE EXTENT OF PROFIT S ALLOWED UNDER SECTION 80-IA(1) SHALL NOT BE ALLOWED UNDER ANY OTHER PROVI SIONS. IT OBVIOUSLY MEANS THAT THE DEDUCTIONS THAT IS ALLOWABLE UNDER O THER PROVISIONS UNDER HEADING C OF CHAPTER VI-A WOULD BE ALLOWED TO THE EXTENT OF PROFITS AS REDUCED BY THE PROFITS ALLOWED UNDER SECTION 80-IA( 1). THE SECOND PART OF SECTION 80-IA(9) DOES NOT EVEN REMOTELY REFER TO TH E METHOD OF COMPUTING DEDUCTION UNDER OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A. THUS, SECTION 80-IA(9) SEEKS TO CURTAIL ALLOWANCE OF DEDU CTION AND NOT COMPUTABILITY OF DEDUCTION UNDER ANY OTHER PROVISIO NS UNDER HEADING C OF CHAPTER VI-A OF THE ACT. 30. HOW TO COMPUTE DEDUCTION ALLOWABLE UNDER SECTION 8 0HHC(1) IS SET OUT IN SECTION 80HHC(3). IN THE CASE OF A MANUFACTURER EXPORTER, SECTION 80HHC(3)( A ) PROVIDES THAT THE DEDUCTION UNDER SECTION 80HHC(1 ) HAS TO BE COMPUTED AS PER THE FORMULA : PROFITS OF THE BUSINESS EXPORT TURNOVER TOTAL TURNOVER CLAUSE ( BAA ) IN SECTION 80HHC DEFINES THE TERM PROFITS OF THE BUSINESS FOR THE PURPOSES OF SECTION 80HHC TO MEAN THE PROFITS O F THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS REDUCED BY THE AMOUNTS SPECIFIED THEREIN. THEREFORE , IN THE CASE OF A MANUFACTURER EXPORTER, DEDUCTION UNDER SECTION 80HH C(1) IS STATUTORILY REQUIRED TO BE COMPUTED ON THE PROFITS OF THE BUSIN ESS AS REDUCED BY THE AMOUNTS SPECIFIED IN CLAUSE ( BAA ) OF SECTION 80HHC. UNLESS, IT IS SPECI- FICALLY PROVIDED BY THE STATUTE, THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF SECTION 80HHC CANNOT BE REDUCED BY ANY AMOUNT SAVE AND EXCEPT THE AMOUNT SPECIFIED IN CLAUSE ( BAA ) OF SECTION 80HHC ITSELF. SECTION 80-IA(9) OF THE ACT DOES NOT EXPRESSLY OR IMPLIEDLY PROVIDE THAT THE AMOUNT OF PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTIN G DEDUCTION UNDER SECTION 80HHC OR COMPUTING DEDUCTION UNDER ANY OTHER PROVIS IONS IN HEADING C OF CHAPTER VI-A AND, THEREFORE, THE CONTENTION OF T HE REVENUE TO THAT EFFECT CANNOT BE ACCEPTED. 31. IN THE CASE OF A TRADER EXPORTER, SECTION 80HHC(3) ( B ) PROVIDES THAT THE DEDUCTION UNDER SECTION 80HHC(1) HAS TO BE COMPUTED ON THE EXPORT TURNOVER REDUCED BY THE DIRECT COSTS AND INDIRECT C OSTS ATTRIBUTABLE TO THE GOODS OR MERCHANDISE EXPORTED BY THE ASSESSEE. THE ARGUMENT OF THE REVENUE THAT UNDER SECTION 80-IA(9) THE AMOUNT OF P ROFITS ALLOWED UNDER SECTION 80-IA HAS TO BE DEDUCTED FROM THE PROFITS O F BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC IS ACCEPTED , THEN THE SECTION BECOMES UNWORKABLE, BECAUSE IN THE CASE OF A TRADER EXPORTER, THE DEDUCTION UNDER SECTION 80HHC IS COMPUTED ON THE EXPORTER TUR NOVER AND NOT ON THE PROFITS OF THE BUSINESS. THE WORDS EXPORT TURNOVER AND PROFITS OF BUSINESS ARE SEPARATELY DEFINED UNDER SECTION 80HHC. THEREFO RE, IN THE CASE OF A TRADER EXPORTER, SECTION 80-IA(9) CAN BE APPLIED ON LY AFTER THE DEDUCTION ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 24 UNDER SECTION 80HHC(3)( B ) IS COMPUTED. SIMILARLY, IN THE CASE OF A MANUFACTURER/PROCESSOR EXPORTER, SECTION 80-IA(9) W OULD BE APPLICABLE WHILE ALLOWING THE DEDUCTION COMPUTED UNDER SECTION 80HHC(3)( A ) OF THE ACT. 32. IF THE WORDS USED IN SECTION 80-IA(9) WERE SHALL NOT QUALIFY, THEN, PROBABLY IT COULD BE SAID THAT THE LEGISLATURE INTE NDED TO AFFECT THE QUANTUM OF DEDUCTIONS COMPUTABLE UNDER OTHER PROVISIONS UND ER HEADING C OF CHAPTER VI-A, BECAUSE THE AMOUNT THAT QUALIFIES FOR DEDUCTION ALONE FORMS THE BASIS FOR COMPUTING THE DEDUCTION. THE WORD QU ALIFY IS AN EXPRESSION RELATABLE TO THE COMPUTATION OF DEDUCTION. THE WORD ALLOWED IS RELATABLE TO ALLOWING THE DEDUCTION THAT IS COMPUTED. THE WORD ALLOWED CANNOT BE EQUATED WITH THE WORD QUALIFY. SINCE SECTION 80-I A(9) USES THE WORDS SHALL NOT BE ALLOWED, IN OUR OPINION, THE SECTION SEEKS TO RESTRICT THE ALLOWANCE OF DEDUCTION AND NOT THE COMPUTATION OF D EDUCTION UNDER ANY OTHER SECTIONS UNDER HEADING C OF CHAPTER VI-A OF THE ACT. 33. WHEREVER THE LEGISLATURE INTENDED THAT THE DEDUCTI ON ALLOWED UNDER ONE SECTION SHOULD AFFECT THE COMPUTATION OF DEDUCTION UNDER OTHER PROVISIONS OF THE ACT, THE LEGISLATURE HAS EXPRESSLY USED WORDS T O THAT EFFECT. IT MAY BE NOTED THAT SECTIONS 80HHD(7) AND 80-IA(9A) [PRESENT LY 80-IA(9)] WERE INTRODUCED BY FINANCE ACT, 1998 WITH EFFECT FROM 1- 4-1999. SECTION 80HHD(7) PROVIDES THAT THE DEDUCTION ALLOWED UNDER SECTION 80HHD(1) SHALL NOT QUALIFY TO THAT EXTENT FOR DEDUCTION UNDE R ANY OTHER PROVISIONS OF CHAPTER VI-A UNDER THE HEADING C, WHEREAS, SECTIO N 80-IA(9A) PROVIDES THAT THE DEDUCTION ALLOWED UNDER SECTION 80-IA(1) S HALL NOT BE ALLOWED UNDER ANY OTHER PROVISIONS OF CHAPTER VI-A UNDER HE ADING C. SIMILARLY, IN SECTION 80-IC(5), THE WORDS USED ARE THAT NOTWITHST ANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THE ACT, IN COM PUTING THE TOTAL INCOME OF THE ASSESSEE, NO DEDUCTION SHALL BE ALLOWED UNDE R ANY OTHER SECTION CONTAINED IN CHAPTER VIA OR SECTION 10A OR SECTION 10B IN RELATION TO THE PROFITS AND GAINS OF THE UNDERTAKING. THUS, THE LEG ISLATURE HAS USED SPECIFIC WORDS WHENEVER IT INTENDED TO AFFECT THE COMPUTATIO N OF DEDUCTION. AS THE WORDS USED IN SECTION 80-IA(9) RELATE TO ALLOWANCE AND NOT COMPUTATION OF DEDUCTION, IT CANNOT BE INFERRED THAT SECTION 80-IA (9) IS INSERTED WITH A VIEW TO AFFECT COMPUTATION OF DEDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A. 34. IT IS WELL ESTABLISHED IN LAW THAT THE LANGUAGE OF THE STATUTE MUST BE READ AS IT IS, AND THE STATUTE MUST NOT BE READ BY ADDIN G OR SUBSTITUTING THE WORDS UNLESS IT IS ABSOLUTELY NECESSARY TO DO SO. SINCE S ECTION 80-IA(9) USES THE WORDS SHALL NOT BE ALLOWED, IT IS NOT PERMISSIBLE TO READ SECTION 80-IA(9) BY SUBSTITUTING THE ABOVE WORDS WITH THE WORDS SHA LL NOT QUALIFY OR BY ADDING THE WORDS SHALL NOT BE ALLOWED IN COMPUTING THE DEDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING C OF CHAPTER V I-A OF THE ACT. WHEN THE PLAIN AND SIMPLE MEANING OF SECTION 80-IA(9) CA N BE ASCERTAINED FROM THE WORDS USED IN THE SECTION, IT WOULD NOT BE PROP ER TO CONSTRUE THE SECTION BY SUBSTITUTING OR ADDING WORDS AS SUGGESTED BY THE REVENUE. 35. IN THESE CIRCUMSTANCES, IN OUR OPINION, THE REASON ABLE CONSTRUCTION OF SECTION 80-IA(9) WOULD BE THAT WHERE DEDUCTION IS A LLOWED UNDER SECTION 80-IA(1), THEN THE DEDUCTION COMPUTED UNDER OTHER P ROVISIONS UNDER HEADING C OF CHAPTER VI-A HAS TO BE RESTRICTED TO THE PROFITS OF THE BUSINESS THAT REMAINS AFTER EXCLUDING THE PROFITS A LLOWED AS DEDUCTIONS ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 25 UNDER SECTION 80-IA, SO THAT THE TOTAL DEDUCTION AL LOWED UNDER THE HEADING C OF CHAPTER VI-A DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 36. STRONG RELIANCE WAS PLACED BY THE COUNSEL FOR THE REVENUE ON THE NOTES ON CLAUSES EXPLAINING THE REASONS FOR INSERTING SEC TION 80-IA(9A) [PRESENTLY 80-IA(9)], BY FINANCE ACT, 1998, WHEREIN IT IS STAT ED THAT THE PROFITS ALLOWED UNDER SECTION 80-IA(1) SHALL NOT QUALIFY FOR DEDUCT IONS UNDER ANY OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A. AS NO TED EARLIER, THE WORDS USED IN SECTION 80-IA(9) ARE SHALL NOT BE ALLOWED AND NOT THE WORDS SHALL NOT QUALIFY OR SHALL NOT BE ALLOWED IN COMPUTING DEDUCTION .... THEREFORE, READING THE SECTION 80-IA(9) IN THE LIGHT OF THE WO RDS USED IN THE SECTION, WE HAVE NO HESITATION IN HOLDING THAT THE RESTRICTION THEREIN RELATES TO THE ALLOWANCE OF DEDUCTION AND NOT COMPUTATION OF DEDUC TION. 37. STRONG RELIANCE WAS ALSO PLACED BY THE COUNSEL FOR THE REVENUE ON THE SPECIAL BENCH DECISIONS OF THE TRIBUNAL IN THE CASE OF ROGINI GARMENTS ( SUPRA ) AND HINDUSTAN MINT & AGRO PRODUCTS (P.) LTD. ( SUPRA ), WHICH ARE AFFIRMED BY THE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPORTS ( SUPRA ). RELIANCE IS ALSO PLACED ON DECISION OF THE KERAL A HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD. ( SUPRA ) WHICH SUPPORTS THE CASE OF THE REVENUE. 38. WE FIND IT DIFFICULT TO SUBSCRIBE TO THE VIEWS EXP RESSED BY THE DELHI HIGH COURT IN INTERPRETING THE PROVISIONS OF SECTIO N 80-IA(9). IN THAT CASE, IN FACT, THE COUNSEL FOR THE REVENUE HAD ARGUED ( SEE PARA 38 OF THE JUDGMENT) THAT SECTION 80-IA(9) APPLIES AT THE STAGE OF ALLOW ING DEDUCTION AND NOT AT THE STAGE OF COMPUTING DEDUCTION UNDER OTHER PROVIS IONS UNDER HEADING C OF CHAPTER VI-A. IT WAS ARGUED THAT IN THE MATTER O F GRANT OF DEDUCTION, THE FIRST STAGE IS COMPUTATION OF DEDUCTION AND THE SEC OND STAGE IS THE ALLOWANCE OF THE DEDUCTION. COMPUTATION OF DEDUCTION HAS TO B E MADE AS PROVIDED IN THE RESPECTIVE SECTIONS AND IT IS ONLY AT THE STAGE OF ALLOWING DEDUCTION UNDER SECTION 80-IA(1) AND ALSO UNDER OTHER PROVISI ONS UNDER HEADING C OF CHAPTER VI-A, THE PROVISIONS OF SECTION 80-IA(9) CO MES INTO OPERATION. WHILE ACCEPTING THE ARGUMENTS ADVANCED BY THE COUNS EL FOR THE REVENUE, IT APPEARS THAT THE DELHI HIGH COURT FAILED TO CONSIDE R THE IMPORTANT ARGUMENT OF THE REVENUE NOTED IN PARA 38 OF ITS JUDGMENT. MO REOVER, WITHOUT REJECTING THE ARGUMENT OF THE REVENUE THAT SECTION 80-IA(9) A PPLIES AT THE STAGE OF ALLOWING THE DEDUCTION AND NOT AT THE STAGE OF COMP UTING THE DEDUCTION, THE DELHI HIGH COURT COULD NOT HAVE HELD THAT SECTION 8 0-IA(9) SEEKS TO DISTURB THE METHOD OF COMPUTING THE DEDUCTION PROVIDED UNDE R OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A OF THE ACT. IN TH ESE CIRCUMSTANCES, WE FIND IT DIFFICULT TO CONCUR WITH THE VIEWS EXPRESSE D BY THE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPORTS ( SUPRA ). FOR THE SAME REASON, WE FIND IT DIFFICULT TO SUBSCRIBE TO THE VIEWS EXPRESSED BY TH E KERALA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD. ( SUPRA ). 39. IN THE RESULT, WE HOLD THAT SECTION 80-IA(9) DOES NOT AFFECT THE COMPUTABILITY OF DEDUCTION UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A, BUT IT AFFECTS THE ALLOWABILITY OF DE DUCTIONS COMPUTED UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI- A, SO THAT THE AGGREGATE DEDUCTION UNDER SECTION 80-IA AND OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A DO NOT EXCEED 100 PER CENT OF THE PROF ITS OF THE BUSINESS OF THE ASSESSEE. OUR ABOVE VIEW IS ALSO SUPPORTED BY THE C .B.D.T. CIRCULAR NO. ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 26 772 DATED 23-12-1998, WHEREIN IT IS STATED THAT SEC TION 80IA(9) HAS BEEN INTRODUCED WITH A VIEW TO PREVENT THE TAX-PAYERS FR OM CLAIMING REPEATED DEDUCTIONS IN RESPECT OF THE SAME AMOUNT OF ELIGIBL E INCOME AND THAT TOO IN EXCESS OF THE ELIGIBLE PROFITS. THUS, THE OBJECT OF SECTION 80-IA(9) BEING NOT TO CURTAIL THE DEDUCTIONS COMPUTABLE UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER, IT IS REASONABLE TO HOLD THAT SECTI ON 80-IA(9) AFFECTS ALLOWABILITY OF DEDUCTION AND NOT COMPUTATION OF DE DUCTION. TO ILLUSTRATE, IF RS. 100 IS THE PROFITS OF THE BUSINESS OF THE UNDER TAKING, RS. 30 IS THE PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) AND THE DEDUCTION COMPUTED AS PER SECTION 80HHC IS RS. 80, THEN, IN VIEW OF SECTI ON 80-IA(9), THE DEDUCTION UNDER SECTION 80HHC WOULD BE RESTRICTED T O RS. 70, SO THAT THE AGGREGATE DEDUCTION DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 26. FURTHER THE RATIO IN CASE OF IPCA LABORATORIES (SUP RA), THE CASE LAW RELIED BY LD. DR IS ALSO NOT APPLICABLE ON THE FACTS OF TH E PRESENT CASE AS IN THE SAID CASE. THE HON'BLE SUPREME COURT IN IPCA'S CASE ( SUPRA ), HELD THAT THE PROVISO TO SUB-SECTION (1) OF SECTION 80HHC EN ABLES THE DISCLAIMER TO ENABLE THE EXPORT HOUSE TO PASS ON DEDUCTIONS AND I T IN NO WAY REDUCES THE TURNOVER OF THE EXPORT HOUSE AND COMPUTING TOTAL IN COME, THE ENTIRE TURNOVER IS TAKEN INTO ACCOUNT EVEN THOUGH THERE IS DISCLAIMER. THE HON'BLE SUPREME COURT FURTHER SAID THAT EVEN AFTER DISCLAIM ER, THE TURNOVER HAS REMAINED THE TURNOVER OF THE EXPORT HOUSE. THEREFOR E, THE RATIO OF THE HON'BLE SUPREME COURT IS THAT EVEN IF AN EXPORT HOU SE GIVES A DISCLAIMER TO THE SUPPORTING MANUFACTURER, THE DISCLAIMED TURNOVE R AND THE RESULT THEREFROM WILL HAVE TO BE CONSIDERED FOR THE PURPOS E OF DETERMINING THE QUANTUM OF DEDUCTION UNDER SECTION 80HHC(3)( C ). THE HON'BLE SUPREME COURT HAD TO DECLARE THE AFORESAID LAW AS THE ASSES SEE EXPORT HOUSE CLAIMED THAT THE LOSS ARISING FROM EXPORT OF GOODS BROUGHT BY IT FROM THE SUPPORTING MANUFACTURER SHOULD NOT BE. CONSIDERED IN COMPUTING ITS PROFITS ELIGIBLE FOR ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 27 DEDUCTION UNDER S. 80HHC AS THE ASSESSEE EXPORT HOU SE HAD GIVEN DISCLAIMER CERTIFICATE IN RESPECT OF SUCH TURNOVER TO THE SUPPORTING MANUFACTURER. IN OUR VIEW THIS WAS THE ONLY ISSUE BEFORE THE HON'BLE SUPREME COURT IN THE ABOVE CASE. THE COORDINATE BE NCH OF BANGALORE TRIBUNAL IN SHAMANUR KALLAPPA & SONS (SUPRA) HELD W HILE CONSIDERING THE THE IPCA'S CASE ( SUPRA) HELD AS UNDER : 10. THE MAIN ISSUE FOR OUR CONSIDERATION WOULD BE WHETH ER THE DECISION OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF IPCA LABORATORY LTD. ( SUPRA ) HAS BEEN RIGHTLY APPLIED TO THE FACTS OF THE ASSE SSEE'S CASE. THE REVENUE CONTENDS THAT IT HAS BEEN RIGHTLY APPLIED A ND, ON THE OTHER HAND, THE ASSESSEE CONTENDS THAT THE SAID DECISION OF THE SUP REME COURT IS NOT APPLICABLE TO ITS CASE. THE ARGUMENTS OF BOTH THE P ARTIES HAVE BEEN HEARD AND CAREFULLY CONSIDERED BY US. 11. AS THE CONTENTIONS RELATE TO INTERPRETATION OF A ST ATUTORY PROVISION WHICH PROVIDE FOR TAX BENEFIT TO THE ASSESSEE, THE PRINCI PLES RELATING TO THE SAME, AS ENUNCIATED BY THE HON'BLE SUPREME COURT WOULD BE RE LEVANT FOR OUR CONSIDERATION. THE HON'BLE SUPREME COURT IN THE CAS E OF IPCA LABORATORY LTD. ( SUPRA ) OBSERVED. 'UNDOUBTEDLY, S. 80HHC HAS BEEN INCORPORATED IN THE IT ACT, 1961, WITH A VIEW TO PROVIDING INCENTIVE FOR EARNING FOREIGN EXC HANGE. EVEN THOUGH A LIBERAL INTERPRETATION HAS TO BE GIVEN TO SUCH A PR OVISION THE INTERPRETATION HAS TO BE AS PER THE WORDING OF THE SECTION. IF THE WORDING OF THE SECTION IS CLEAR, THEN BENEFITS WHICH ARE NOT AVAILABLE CANNOT BE CONFERRED BY IGNORING OR MISINTERPRETING WORDS IN THE SECTION.' IN OTHER WORDS, THIS WOULD MEAN THAT THESE PROVISIO NS ARE TO BE INTERPRETED PLAINLY AND LITERALLY. ONCE THE BASIC CONDITIONS AR E SATISFIED THEN THERE IS SCOPE FOR LIBERAL INTERPRETATION . 12. THE PRINCIPAL ISSUE OR RATHER THE ONLY ISSUE BEFORE THE SUPREME COURT IN THE IPCA LABORATORY LTD. ( SUPRA ) WAS WHETHER THE ASSESSEE, AN EXPORT/TRADING HOUSE, FOR THE PURPOSE OF DEDUCTION UNDER S. 80HHC, TAKE INTO ACCOUNT ONLY IF PROFITS FROM THE EXPORTS OF MANUFAC TURED GOODS AND IGNORE ITS LOSS FROM THE EXPORT OF TRADING GOODS. THE HON'BLE SUPREME COURT RESOLVED THIS ISSUE IN THE FOLLOWING MANNER OBSERVING : 'IN THIS CASE WE ARE CONCERNED WITH THE WORDINGS OF SUB-S. (3)( C) OF S. 80HHC. AS NOTED EARLIER SUB-S. (3)(A) DEALS WITH TH E CASE WHERE THE EXPORT ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 28 IS ONLY OF SELF-MANUFACTURED GOODS. SUB-S. 3(B) DEA LS WITH THE CASE WHERE THE EXPORT IS ONLY OF TRADING GOODS. THUS, WHEN THE LEGISLATURE WANTED TO TAKE EXPORTS FROM SELF-MANUFACTURED GOODS OR TRADIN G GOODS SEPARATELY, IT HAS ALREADY SO PROVIDED IN SUB-SS. (3)(A) AND (3)(B ). IT WOULD NOT BE DENIED THAT THE WORD 'PROFIT' IN S. 80HHC(1) AND SS. 80HHC (3)(A) AND (3)(B) MEANS A POSITIVE PROFIT. IN OTHER WORDS, IF THERE I S A LOSS THEN NO DEDUCTION WOULD BE AVAILABLE UNDER S. 80HHC(1) OR (3)(A) OR ( 3)(B ). IN ARRIVING AT THE FIGURE OF POSITIVE PROFIT, BOTH THE PROFITS AND THE LOSSES WILL HAVE TO BE CONSIDERED. IF THE NET FIGURE IS A POSITIVE PROFIT THEN THE ASSESSEE WILL BE ENTITLED TO A DEDUCTION. IF THE NET FIGURE IS A LOS S THEN THE ASSESSEE WILL NOT BE ENTITLED TO A DEDUCTION. SUB-S. (3)(C) DEALS WIT H CASES WHERE THE EXPORT IS OF BOTH SELF-MANUFACTURED GOODS AS WELL AS TRADI NG GOODS. THE OPENING PART OF SUB-S. (3)(C) STATES 'PROFITS DERIVED FROM SUCH EXPORT SHALL'. THEN FOLLOW (I) AND (II). BETWEEN (I) AND (II), THE WORD 'AND' APPEARS. A PLAIN READING OF SUB-S. (3)(C) SHOWS THAT 'PROFITS FROM S UCH EXPORTS' HAS TO BE PROFITS OF EXPORTS OF SELF-MANUFACTURED GOODS PLUS PROFITS OF EXPORTS OF TRADING GOODS. THE PROFIT IS TO BE CALCULATED IN TH E MANNER LAID DOWN IN SUB-SS. (3)(C)(I) AND (II). THE OPENING WORDS 'PROF IT DERIVED FROM SUCH EXPORTS' TOGETHER WITH THE WORD 'AND' CLEARLY INDIC ATE THAT THE PROFITS HAVE TO BE CALCULATED BY COUNTING BOTH THE EXPORTS. IT I S CLEAR FROM A READING OF SUB-S. (1) OF S. 80HHC(3) THAT A DEDUCTION CAN BE P ERMITTED ONLY IF THERE IS A POSITIVE PROFIT IN THE EXPORTS OF BOTH SELF-MANUF ACTURED GOODS AS WELL AS TRADING GOODS. IF THERE IS A LOSS IN EITHER OF THE TWO THEN THAT LOSS HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF COMPUTING PR OFITS.' 13. IT COULD BE SEEN THAT THE ENTIRE ISSUE RELATED TO T HE INTERPRETATION OF THE WORD 'PROFIT' IN S. 80HHC(1) AND S. 80HHC(3), PARTI CULARLY CL. ( C ) OF SUB-S. (3) OF S. 80HHC. IT WOULD BE RELEVANT TO MENTION THAT T HE CONDITIONS AS TO ALLOWING DEDUCTION TO SUPPORTING MANUFACTURER IN TE RMS OF S. 80HHC(1A) OR THE MANNER OF COMPUTATION OF PROFIT IN TERMS OF S. 80HHC(3A) WERE NEVER AN ISSUE BEFORE THE HON'BLE SUPREME COURT. HENCE, WE A RE OF THE OPINION THAT THE ACTION OF THE AO IN APPLYING THE ABOVE DECISION TO THE ASSESSEE'S CASE, WHO IS ONLY A SUPPORTING MANUFACTURER AND WHO HAS MADE HIS CLAIM UNDER S. 80HHC(3A) IS NOT CORRECT. WE TAKE SUPPORT FOR THE A BOVE VIEW IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE BABY MARINE EXPORTS ( SUPRA ), WHEREIN THE HON'BLE SUPREME COURT HAS OBSERVED, ' ..........FURTHER, THE SUPPORTING MANUFACTURER'S CLAIM OF DEDUCTION IS ONLY UNDER S. 80HHC(1A) AND NOT UNDER S. 80HHC(1) WHICH APPLIES TO EXPORT H OUSES ONLY.' 14. WE ALSO THOUGHT IT FIT TO GO INTO THE LEGISLATIVE E VOLUTION OF THESE PROVISIONS GRANTING BENEFITS TO THE SUPPORTING MANU FACTURER TO UNDERSTAND THE PURPOSE AND SCHEME OF THE PROVISIONS. TAX BENEFIT T O SUPPORTING MANUFACTURER ON THE EXPORTS MADE THROUGH THE EXPORT HOUSE WAS IN ITIALLY PROVIDED IN THE FORM OF A CBDT CIRCULAR IN CIRCULAR NO. 466, DT. 14 TH AUG., 1986 [REPORTED IN [1986] 57 CTR (ST) 1 : [1986] 161 ITR (ST) 68]. IT READS AS FOLLOWS : ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 29 'SUBJECT : PROVISIONS OF S. 80HHC OF THE IT ACT, 19 61 : SHARING OF TAX BENEFIT BETWEEN THE EXPORT HOUSES/TRADING HOUSES AN D MANUFACTURERS REGARDING. SEC. 80HHC AS AMENDED BY THE FINANCE ACT, 1985, PRO VIDES THAT WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHE R THAN A COMPANY) RESIDENT IN INDIA EXPORTS OUT OF INDIA DURING THE P REVIOUS YEAR, ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES, HE WI LL BE ALLOWED A DEDUCTION OF AN AMOUNT NOT EXCEEDING 50 PER CENT OF THE PROFITS DERIVED FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE. 2. REPRESENTATIONS HAVE BEEN RECEIVED TO THE EFFECT THAT THE MANUFACTURERS OF GOODS OR MERCHANDISE EXPORTED THROUGH THE EXPORT HOUSES/TRADING HOUSES DO NOT DERIVE ANY BENEFIT UNDER THE AMENDED PROVISIONS OF S. 80HHC. IT HAS FURTHER BEEN REPRESENTED THAT IF THE TAX BENEFIT DERIVED BY THE EXPORT HOUSE/TRADING HOUSE UNDER S. 80HHC IS PA SSED ON TO THE CONCERNED MANUFACTURER, THE AMOUNT SO PASSED ON SHO ULD BE ALLOWED AS A DEDUCTION IN THE COMPUTATION OF THE TOTAL INCOME OF THE EXPORT HOUSE/TRADING HOUSE. 3. THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT HA S BEEN DECIDED THAT IF ANY EXPORT HOUSE/TRADING HOUSE HOLDING A CERTIFICAT E IN THIS REGARD ISSUED BY THE MINISTRY OF COMMERCE FOR THE RELEVANT ACCOUN TING PERIOD PASSES ON TO THE MANUFACTURER PART OR WHOLE OF THE AMOUNT OF TAX BENEFIT DERIVED BY THE FORMER ON ACCOUNT OF DEDUCTION UNDER S. 80HHC, THEN THE AMOUNT OF ACTUAL PAYMENT MADE TO THE MANUFACTURER FOR PASSING ON THE TAX BENEFIT MAY, SUBJECT TO THE LIMIT LAID DOWN HEREINAFTER, BE TREATED AS BUSINESS EXPENDITURE AND BE ALLOWED AS DEDUCTION IN THE COMP UTATION OF THE TOTAL INCOME OF THE EXPORT HOUSE/TRADING HOUSE. 4. THE TOTAL AMOUNT OF THE TAX BENEFIT ON ACCOUNT O F DEDUCTION UNDER S. 80HHC AND THE TAX BENEFIT ON ACCOUNT OF THE DEDUCTI ON IN PARA 3 ABOVE SHALL, IN NO CASE, EXCEED THE MAXIMUM AMOUNT OF TAX BENEFIT AVAILABLE UNDER S. 80HHC TO THE EXPORT HOUSE/TRADING HOUSE. F OR COMPUTING THE MAXIMUM AMOUNT OF TAX BENEFIT UNDER S. 80HHC, HOWEV ER, THE 'PROFITS' AS REFERRED TO IN THAT SECTION, WILL BE DETERMINED AFT ER TAKING INTO ACCOUNT THE DEDUCTION REFERRED TO IN PARA 3 ABOVE. 5. IT HAS FURTHER BEEN DECIDED BY THE BOARD THAT TH E PAYMENT SO RECEIVED BY ANY MANUFACTURER WHOSE GOODS OR MERCHANDISE ARE EXP ORTED THROUGH THE EXPORT HOUSE/TRADING HOUSE WILL NOT BE INCLUDED IN THE TOTAL INCOME OF THE MANUFACTURER IF SUCH CLAIM FOR NON-INCLUSION IS SUP PORTED BY A CERTIFICATE BY THE EXPORT HOUSE/TRADING HOUSE.' 15. THIS PRINCIPLE OF PROVIDING TAX BENEFIT TO SUPPORTI NG MANUFACTURER TOOK STATUTORY FORM BY WAY OF SUB-S. (1A) OF S. 80HHC BY THE FINANCE ACT, 1988. THE PURPOSE AND AMBIT OF THE PROVISION ARE ST ATED IN CBDT CIRCULAR ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 30 NO. 528, DT. 16TH DEC. 1988, [[1989] 76 CTR (ST) 69 : [1989] 175 ITR (ST) 154], THE RELEVANT PORTION OF WHICH IS EXTRACTED BE LOW FOR OUR CONSIDERATION : '28.3 AS A MEASURE TO PROVIDE INCENTIVE TO PERSONS EXPORTING GOODS THROUGH OR BY ANY OTHER PERSON, BEING A RECOGNISED EXPORT HOUSE OR TRADING HOUSE, THE BOARD HAD ISSUED A CIRCULAR NO. 466, DT. THE 14TH AUG., 1986, ENABLING THE SHARING OF TAX BENEFITS UNDER TH E SECTION BETWEEN RECOGNISED TRADING HOUSES OR EXPORT HOUSES ON THE O NE HAND AND THE EXPORTER ACTUALLY EXPORTING THE GOODS THROUGH THEM ON THE OTHER. SINCE DOUBTS HAVE BEEN RAISED THAT THE BENEFIT GIVEN BY T HE CIRCULAR IS BEYOND THE INTENTION AND SPIRIT OF THE PROVISION, AS A MEASURE TO PROVIDE BENEFIT TO THE SUPPORTING MANUFACTURERS EXPORTING GOODS THROUGH TH E RECOGNISED EXPORT HOUSE OR TRADING HOUSE, A NEW PROVISO TO SUB-S. (1) OF THE SECTION HAS BEEN INSERTED. THE SAID PROVISO PROVIDES THAT WHERE AN EXPORT HOUSE OR TRADING HOUSE ISSUES A CERTIFICATE IN A PRESCRIBED FORM THAT IN RESPECT OF ANY AMOUNT OF EXPORT TURNOVER, DEDUCTION UNDER SUB- S. (1) IS TO BE ALLOWED TO A SUPPORTING MANUFACTURER, THE AMOUNT OF DEDUCTI ON AVAILABLE TO THE EXPORT HOUSE OR THE TRADING HOUSE SHALL BE REDUCED BY SUCH AN AMOUNT WHICH BEARS TO THE TOTAL PROFITS OF THE EXPORT BUSI NESS OF THE EXPORT HOUSE OR THE TRADING HOUSE ISSUING THE CERTIFICATE, THE S AME PROPORTION AS THE AMOUNT OF EXPORT TURNOVER SPECIFIED IN THE CERTIFIC ATE BEARS TO THE TOTAL EXPORT TURNOVER OF THE EXPORT HOUSE OR THE TRADING HOUSE AS THE CASE MAY BE. 28.4 AS A MEASURE TO EXTEND THE BENEFIT PROVIDED UN DER SUB-S. (1) TO THE SUPPORTING MANUFACTURERS, A NEW SUB-S. (1A) HAS BEE N INSERTED TO PROVIDE THAT WHERE THE SUPPORTING MANUFACTURER HAS SOLD GOO DS TO ANY EXPORT HOUSE OR TRADING HOUSE IN RESPECT OF WHICH THE LATT ER HAS ISSUED A CERTIFICATE IN THE PRESCRIBED FORM IN ACCORDANCE WI TH THE PROVISIONS OF SUB- S. (1) READ WITH THE PROVISO, DEDUCTION WILL BE ALL OWED IN THE COMPUTATION OF THE INCOME OF THE SUPPORTING MANUFACTURER, OF TH E WHOLE OF THE PROFITS DERIVED BY IT FROM THE SALE OF GOODS OR MERCHANDISE TO THE EXPORT HOUSE OR TRADING HOUSE, AS THE CASE MAY BE, IN RESPECT OF WH ICH THE CERTIFICATE WAS ISSUED BY THE LATTER. FOR THIS PURPOSE : EXPORT HOUSE OR TRADING HOUSE HAS BEEN DEFINED AS B EING THE HOLDER OF AN EXPORT HOUSE CERTIFICATE OR TRADING HO USE CERTIFICATE AS THE CASE MAY BE; THE NEW EXPLN. ( D ) DEFINES 'EXPORT HOUSE CERTIFICATE' OR TRADING HOUSE CERTIFICATE' TO MEAN A VALID EXPORT HOUSE CER TIFICATE OR THE TRADING HOUSE CERTIFICATE, AS THE CASE MAY BE, ISSUED BY THE CHIEF CONTROLLER OF IMPORTS AND EXPORTS, GOVERNMENT OF INDIA; ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 31 THE NEW EXPLN. ( E ) DEFINES 'SUPPORTING MANUFACTURER' TO MEAN A PERSON BEING AN INDIAN COMPANY OR ANY OTHER PERSON, RESIDENT IN INDIA, MANUFACTURING GOODS OR MERCHANDISE AND SELLI NG SUCH GOODS TO THE EXPORT HOUSE OR TRADING HOUSE FOR THE PURPOSES OF EXPORT. 28.5 WITH A VIEW TO ENABLING THE SUPPORTING MANUFAC TURERS TO COMPUTE THE PROFIT DERIVED FROM THE SALE OF GOODS OR MERCHANDIS E TO THE EXPORT HOUSE OR THE TRADING HOUSE, A NEW SUB-S. (3A) HAS BEEN IN SERTED; THE NEW SUB-S. (3A) PROVIDES THAT WHERE THE BUSINESS CARRIED ON BY THE SUPPORTING MANUFACTURER CONSISTS EXCLUSIVELY OF THE SALE OF GO ODS OR MERCHANDISE TO ONE OR MORE EXPORT HOUSES OR TRADING HOUSES, THE WH OLE OF THE PROFITS DERIVED FROM THE BUSINESS BY THE SUPPORTING MANUFAC TURERS SHALL BE DEEMED AS THE PROFITS DERIVED FROM THE SALE OF GOOD S TO THE EXPORT HOUSES OR TRADING HOUSES. HOWEVER, WHERE THE BUSINESS CARR IED ON BY THE SUPPORTING MANUFACTURER DOES NOT CONSIST EXCLUSIVEL Y OF SALE OF GOODS OR MERCHANDISE TO ONE OR MORE EXPORT HOUSES OR TRADING HOUSES, THE PROFITS DERIVED BY THE SUPPORTING MANUFACTURER FROM SALE OF GOODS TO THE EXPORT HOUSE OR THE TRADING HOUSE SHALL BE THE AMOUNT WHIC H BEARS TO THE TOTAL PROFITS OF THE BUSINESS OF THE SUPPORTING MANUFACTU RER THE SAME PROPORTION AS THE TURNOVER IN RESPECT OF SALE TO THE EXPORT HO USE OR TRADING HOUSE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE SUPPORTING MANUFACTURER. 28.6 THE NEW SUB-S. (4A) PROVIDES THAT THE DEDUCTIO N TO THE SUPPORTING MANUFACTURER SHALL NOT BE ALLOWED UNLESS IT FURNISH ES THE PRESCRIBED FORMS ALONG WITH THE RETURN OF ITS INCOME : THE REPORT OF AN ACCOUNTANT CERTIFYING THAT THE DED UCTION HAS BEEN CORRECTLY CLAIMED ON THE BASIS OF THE INCOME D ERIVED BY THE SUPPORTING MANUFACTURER IN RESPECT OF SALE OF GOODS OR MERCHANDISE TO THE EXPORT HOUSE OR THE TRADING HOUS E. FOR THIS PURPOSE, THE ACCOUNTANT SHALL BE THE ONE AS DEFINED IN THE EXPLANATION BELOW SUB-S. (2) OF S. 288; AND A CERTIFICATE FROM THE EXPORT HOUSE OR THE TRADING HOUSE THAT IN RESPECT OF THE EXPORT TURNOVER MENTIONED IN THE CER TIFICATE, THE EXPORT HOUSE OR THE TRADING HOUSE HAS NOT CLAIMED A NY DEDUCTION UNDER THIS SECTION. THE CERTIFICATE ISSUE D BY THE EXPORT HOUSE OR THE TRADING HOUSE SHALL BE CERTIFIE D BY THE AUDITOR AUDITING THE ACCOUNT OF THE EXPORT HOUSE OR THE TRADING HOUSE UNDER THE PROVISIONS OF THIS ACT OR UNDER ANY LAW. ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 32 28.7 THE WORKING OF THE BENEFIT UNDER THIS SECTION, AS CAN BE SHARED BETWEEN A RECOGNISED EXPORT HOUSE OR A TRADING HOUS E WITH THE SUPPORTING MANUFACTURER, HAS BEEN ILLUSTRATED IN THE EXAMPLE B ELOW : TOTAL EXPORT EARNING IN CONVERTIBLE FOREIGN EXCHANGE OF AN EXPORT HOUSE : 50 CRORES NET PROFIT FROM EXPORTS AT 2% 1 CRORE AMOUNT OF DEDUCTION ELIGIBLE UNDER S. 80HHC(1) 1 CRORE EXPORT EARNINGS IN CONVERTIBLE FOREIGN EXCHANGE IN RESPECT OF PURCHASES MADE FROM SUPPORTING MANUFACTURER : 50 LAKHS PROFIT FROM SUCH EXPORTS AT 2% 1 LAKH PURCHASE PRICE OF GOODS IN THE HANDS OF EXPORT HOUSE IN RESPECT OF ITEM PURCHASED FROM SUPPORTING MANUFACTURER 45 LAKHS PROFIT TO SUPPORTING MANUFACTURER ON SALE TO EXPORT HOUSE AT 10% 4.5 LAKHS CASE I : WHERE THE EXPORT HOUSE DOES NOT ISSUE A CERTIFICATE 1 CRORE UNDER PROVISO TO SUB-S. (1) OF S. 80HHC. ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 33 DEDUCTION ALLOWABLE TO EXPORT HOUSE UNDER S. 80HHC(1) CASE II : WHERE THE EXPORT HOUSE ISSUES CERTIFICATE IN FAVOUR OF THE SUPPORTING MANUFACTURER. DEDUCTION ALLOWABLE TO THE EXPORT HOUSE UNDER PROVISO (100-1) LAKHS TO S. 80HHC(1) = 99 LAKHS DEDUCTION ALLOWABLE TO SUPPORTING MANUFACTURER UNDER S. 80HHC(1A) 4.5 LAKHS AS A CONSEQUENCE, THE BENEFIT CONTAINED IN CIRCULAR NO. 466, DT. 14TH AUG., 1986, IS DEEMED AS WITHDRAWN.&Q UOT; 16. A CAREFUL PERUSAL OF THE ABOVE CIRCULARS WOULD REVE AL THAT THE LEGISLATIVE INTENT WAS TO PROVIDE CERTAIN TAX BENEFIT TO THE SU PPORTING MANUFACTURERS EXPORTING GOODS THROUGH THE EXPORT HOUSE/TRADING HO USE. FOR THE PURPOSE, A NEW PROVISO TO SUB-S. (1) AND A NEW SUB-S. (1A) TO S. 80HHC HAS BEEN INTRODUCED. CORRESPONDINGLY, SUB-SS. (3A) AND (4A) WERE ALSO INTRODUCED TO PROVIDE FOR THE MANNER OF COMPUTATION OF THE PROFIT S OF THE SUPPORTING MANUFACTURER AND FOR THE MANNER OF ISSUING DISCLAIM ER CERTIFICATE BY THE EXPORT HOUSE. THE ONLY CONDITION STIPULATED BY THE LEGISLATION IS THAT THE SAME BENEFIT SHOULD NOT BE CLAIMED BY BOTH THE EXPORT HO USE AND THE SUPPORTING MANUFACTURER. TO ENSURE THE SAME, IT WAS MADE A PRE CONDITION THAT THE EXPORT HOUSE SHOULD FURNISH A CERTIFICATE OF DISCLAIMER IN RESPECT OF THE EXPORT TURNOVER, AND THE AMOUNT OF THE DEDUCTION AVAILABLE TO THE EXPORT HOUSE WOULD BE ACCORDINGLY REDUCED IN THE SPECIFIED MANNER. SIM ILARLY, IT WAS PROVIDED IN SUB-S. (1A), THE SUPPORTING MANUFACTURER CAN CLAIM TAX BENEFIT ONLY ON THE BASIS OF THE DISCLAIMER CERTIFICATE OF THE EXPORT H OUSE. WE COULD NOT SEE ANY OTHER CONDITIONS STIPULATED IN THESE PROVISIONS. TH E SCHEME OF THESE PROVISIONS SUGGESTS THAT THE SUPPORTING MANUFACTURE R GETS AN INDEPENDENT RIGHT TO CLAIM DEDUCTION ONCE HE GETS IN HIS FAVOUR A DISCLAIMER CERTIFICATE FROM THE EXPORT HOUSE. IN THE LIGHT OF THESE DISCUS SIONS, WE ARE OF THE VIEW THAT THE ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCT ION AS PER S. 80HHC(1A) OF ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 34 THE IT ACT. FURTHER FROM THE ILLUSTRATION PRESENTED IN THE CIRCULAR CLEARLY EXHIBITS THAT BENEFIT DERIVED UNDER S. 8HHC(1A) BY THE SUPPORTING MANUFACTURER COULD BE HIGHER THAN THE BENEFIT AVAIL ABLE UNDER S. 80HHC(1) TO THE EXPORT HOUSE IN THE CASE WHERE THE EXPORT HOUSE THEMSELVES EXPORTED THE GOODS WITHOUT THE HELP OF SUPPORTING MANUFACTUR ER. THIS ESTABLISHES THE FACT THAT THERE IS NO CORRELATION AS REGARDS TO PRO FIT ELEMENT OF BOTH EXPORT HOUSE AND SUPPORTING MANUFACTURER FOR THE PURPOSE O F CLAIMING BENEFIT UNDER THE ACT. MOREOVER IN THE PRESENT CASE THE EXPORT HO USE IS STC, AN ORGANIZATION BEING THE EXTENDED LIMB OF THE GOVERNM ENT CREATED FOR THE PURPOSE OF FACILITATING, PROMOTING AND ENCOURAGING EXPORTS AND NOT ONLY FOR THE PURPOSE OF PROFIT MOTIVE . 27. THE AFORESAID DECISION OF THE TRIBUNAL HAS BEEN AFF IRMED BY HONBLE KARNATAKA HIGH COURT. THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN ASSOCIATED CAPSULES (P) LTD (SUPRA), WHEREIN THE SI MULTANEOUS DEDUCTIONS UNDER SECTION 80IB AND 80 HHC WAS ALLOWED AND THE C ONTRARY DECISIONS OF DELHI HIGH COURT IN GREAT EASTERN EXPORT (332 ITR 1 4) HAS BEEN REFERRED BY HONBLE APEX COURT FOR LARGER BENCH ON 10 TH DECEMBER 2015 IN ACIT VS MICRO LABS LTD (380 ITR 1). THIS FACT WAS CONFRO NTED WITH LD AR FOR THE ASSESSEE AND WAS ASKED IF ANY DECISION HAS REND ERED BY HONBLE SUPREME COURT ON THE REFERENCE MADE TO LARGER BENCH TILL NOW. 28. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE HON BLE APEX COURT HAS NOT STAYED THE OPERATION OF DECISION OF THE HONBLE BOM BAY HIGH COURT IN ASSOCIATED CAPSULES (P) LTD (SUPRA), WHICH IS BINDI NG PRECEDENT ON US. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT THE HONBLE BOMBAY HIGH COURT WHILE CONSIDERING THE SIMILAR QUESTION OF LAW IN CI T VS MERCK LTD DATED 08.08.2016 REPORTED VIDE (389 ITR 70) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE TRIBUNAL W AS JUSTIFIED IN ALLOWING ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 35 DOUBLE DEDUCTION UNDER SECTION 80IB AND 80HHC OF TH E INCOME TAX ACT WITHOUT APPRECIATING THAT AS PER PROVISION OF SECTI ON 80IB (13)/80IA(9) THE EXPRESSION 'SHALL IN NO CASE EXCEED THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS OF UNDERTAKING OR ENTERPRISE' STARTS WITH CONJUNCTION 'AND' AND THIS EXPRESSION IS IN ADDITION TO THE EXPRESSION 'D EDUCTION TO THE EXTENT OF 'SUCH' [AS PER PROVISION OF SECTION 80-IA(9) & 80-B (13)] PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISIO NS OF THIS CHAPTER , PASSED THE FOLLOWING ORDER: ( A ) WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNAL HAS ALLOWED CONCURRENT DEDUCTION UNDER SECTIONS 80HHC AND 80IB OF THE ACT. THIS BY FOLLOWING THE DECISION OF THIS COURT IN ASSOCIATED CAPSULES (P.) LTD. V. DY. CIT [2011] 332 ITR 42/197 TAXMAN 84/9 TAXMANN.COM 63 . ( B ) MR. SURESH KUMAR, LEARNED COUNSEL APPEARING FOR THE REVENUE DOES NOT DISPUTE THE FACT THAT THIS ISSUE IS COVERED BY THE DECISION OF THIS COURT IN ASSOCIATED CAPSULES (P.) LTD. ( SUPRA ). HOWEVER, HE INVITES OUR ATTENTION TO THE DECISIO N OF THE APEX COURT IN ASSTT. CIT V. MICRO LABS LTD. [2016] 380 ITR 1/237 TAXMAN 74/[2015] 64 TAXMANN.COM 199 WHEREIN AN IDENTICAL ISSUE AS ARISING IN THIS QUESTION HAS BEEN REFERRED BY THE APEX COURT TO A L ARGER BENCH. THE DECISION OF THE LARGER BENCH IS STILL AWAITED. THUS, HE REQU ESTS THAT THIS QUESTION BE ADMITTED FOR CONSIDERATION. WE SEE NO REASON TO ADM IT THE PRESENT QUESTION. THIS FOR THE REASONS AS THE ISSUE STANDS CONCLUDED BY TH E DECISION OF A CO-ORDINATE BENCH OF THIS COURT IN THE ASSOCIATED CAPSULES (P.) LTD.'S CASE ( SUPRA ) WHICH IS BINDING UPON US, AS IT HAS NOT BEEN STAYED. ( C ) IN THE ABOVE VIEW, THE QUESTION OF LAW ( C ) AS FORMULATED FOR OUR CONSIDERATION, DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF L AW. THUS, NOT ENTERTAINED. 29. THEREFORE, CONSIDERING THE DECISION OF JURISDICTION AL HIGH COURT IN MERCK LTD (SUPRA) AS THE DECISION OF LARGER BENCH IN HON BLE APEX COURT IS AWAITED AND THERE IS NO STAY OF THE BINDING DECISIO N OF JURISDICTION HIGH COURT IN ASSOCIATED CAPSULES (P) LTD (SUPRA), WHICH IS BINDING ON THIS ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 36 TRIBUNAL AND THE DECISION OF BANGALORE TRIBUNAL IN SHAMANUR KALLAPPA & SONS (SUPRA), THE GROUND NO. 2 OF APPEAL RAISED BY THE ASSESSEE AND THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE DED UCTION UNDER SECTION 80IB & 80 HHC IN ACCORDANCE WITH LAW. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 7343/MUM/2008 A.Y. 2004-05 31. THOUGH, THE ASSESSEE HAS RAISED MULTIPLE GROUNDS AN D SUB-GROUNDS OF APPEAL, HOWEVER, AS PER OUR CONSIDERED VIEW, THE FO LLOWING ARE THE SUBSTANTIAL GROUNDS OF APPEAL: 1. GROUND NO. 1 RELATES TO DEDUCTION UNDER SECTION 80I B. 2. GROUND NO. 2 RELATES TO DEDUCTION UNDER SECTION 80H HC. 32. WE HAVE NOTED THAT THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE IDENTICAL AS RAISED IN APPEAL FOR AY 2003-04, WHICH WE HAVE ALREADY ALLOWED, THEREFORE, FOLLOWING THE PRINCIPLE OF CONS ISTENCY, BOTH THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE ALLOWED WITH SIMIL AR DIRECTION. 33. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 7344/MUM/2008 A.Y. 2004-05 34. WE HAVE NOTED THAT ASSESSEE HAS RAISED MULTIPLE SUB -GROUNDS OF APPEAL UNDER THE SOLE GROUND OF APPEAL, WHICH RELATES TO D EDUCTION UNDER SECTION 80IB. WE HAVE NOTED THIS GROUND OF APPEAL IS IDENTI CAL TO THE GROUND NO.1 OF THE APPEAL FOR A.Y. 2003-04 AND A.Y. 2004-05, WH ICH WE HAVE ALREADY ITA NO. 7342 TO 7344 MUM 2008-M/S INDAGRO FOODS LTD. 37 ALLOWED. THEREFORE, THIS GROUND OF APPEAL IS ALSO A LLOWED WITH SIMILAR DIRECTION. 35. IN THE RESULT, APPEAL FOR A.Y. 2005-06 IS ALSO ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/04/2019. SD/- SD/- N.K. PRADHAN, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 26.04.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI