SERUM INSTITUTE OF INDIA LTD, Pune V. ADDL CIT CIR 6, Pune

ITA 948/PUN/2005

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7675 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 04-04-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Assessee Lawyers: R D ONKAR; B K KHARE M P MAHAJANI
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Retrospective amendment; Question of law; Cost of acquisition; Revised return; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 80HHC; 234B; 139(5); 10B; 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.948/PN/2005. (ASSESSMENT YEAR: 2001-02) SERUM INSTITUTE OF INDIA LTD., .. APPELLANT SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE. PAN AABCS4225M VS. ADDL.C.I.T. CIRCLE 6, PUNE .. RESPONDENT APPELLANT BY: SHRI B.K.KHARE ,M.P.MAHAJANI & R.D.ONKAR, AR RESPONDENT BY: SHRI HARESHWA R SHARMA, DR DATE OF HEARING: 08-12-2012. DATE OF PRONOUNCEMENT: 18-01-2012. ORDER PER D.KARUNAKARA RAO, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (A)-II, PUNE DATED 07/01/2005 FOR THE ASSESSMENT YEAR 2001-02. 2. DURING THE PROCEEDINGS BEFORE US AND AT THE VERY OUTSET, THE ASSESSEE FILED A CHART CONTAINING GROUNDWISE ANALYSIS. IN THE CHART , ASSESSEE REFERRED TO RESPECTIVE PARA NOS. FROM THE ORDERS OF THE REVENUE AND THE CO MMENTS FURNISHED ON EACH OF THE GROUND RAISED IN THE APPEAL. FURTHER, THE CO UNSEL MENTIONED GROUNDS 1 (A), 1(B), 3, 5(C), ARE NOT PRESSED. C ONSIDERING THE SAME, WE PROCEED TO DISMISS THE SAME AS NOT PRESSED . 3. GROUND 2 RELATES TO RECLASSIFICATION OF PLANT & MACHINERY AS FURNITURE. THE GROUND READS AS FOLLOWS. 2. THE CIT(A) ERRED IN HOLDING THAT ADDITION TO TH E FIXED ASSETS AMOUNTING TO RS.19,43,791/- BEING COST OF STOOLS, TABLES, ST AINLESS STEAL RACKS, SS CUPBOARDS, SS TROLLEYS, SS TRAYS ETC (LOCATED IN FA CTORY PREMISES) IS NOT PART OF PLANT AND MACHINERY AND THEREBY CONFIRMING THE DEPRECIATION ALLOWANCE 2 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. THEREON @ 10% (I.E. THE RATE APPLICABLE TO FURNITU RE AND FIXTURES) INSTEAD OF ALLOWING THE SAME @ 25%(APPLICABLE TO PLANT & MACHI NERY) 4. IN CONNECTION WITH THE ABOVE GROUND THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENGAGED IN THE MANUFACTURE OF THE CHEMICAL S AND VACCINES AND FOR THIS, THE ASSESSEE HAS LABORATORIES. ASSESSEE PURCHASED STOOL S, TABLES, STAINLESS STEEL RACKS, SS CUPBOARDS, SS TROLLEYS, SS TRAYS ETC AS PART OF THE PLANT AND MACHINERY AMOUNTING TO RS.19,43,791/- AND CLAIMED DEPRECIATION AS PER THE RATES APPLICABL E TO THE PLANT AND MACHINERY. DURING THE ASSESSMENT PROCEEDINGS, A O HELD THAT THEY ARE NOT PLANT AND MACHINERY AND CONSIDERED THEM AS FURNITURE AN D GRANTED THE DEPRECIATION AS PER THE RATES APPLICABLE TO THE FURNITURE. THE CIT (A) CONFIRMED THE VIEW POINT OF THE AO. AGGRIEVED WITH THE SAME THE ASSESSEE IS IN APPE AL BEFORE US. DURING THE PROCEEDINGS, THE ASSESSEE FILED THE FOLLOWING WRITT EN SUBMISSION IN THE FORM OF A WRITTEN NOTE AND THE SAME READS AS FOLLOWS. THE ASSESSEE RELIES ON THE DECISION OF MUMBAI HIGH COURT IN CASE OF CIT VS. PARKE DAVIS 214 ITR 587 (PAGE NO. 9-11 OF PAPER BOOK NO.20) WH EREIN IT IS HELD THAT PLANT MEANS & INCLUDES APPARATUS (FAN) USED BY A BUSINESSMAN FOR CARRYING ON HIS BUSINESS; IT IS NOT CONFINED TO THE APPARATUS USED FOR MECHANICAL OPERATIONS OR PROCESSES. THE ASSESSEE ALSO RELIED ON THE DECISION OF KARNATA KA HIGH COURT IN CASE OF HINDUSTAN AERONAUTICS LTD VS CIT 206 ITR 338 (PAGE NO.12-15 OF PAPER BOOK NO.2) WHEREIN IT IS HELD THAT FOR DETERMINING WHAT CONSTITUTES PLANT THE FUNCTIONAL TEST & NOT MERELY THE AMENITIES TEST HAS TO BE APPLI ED. THUS BINS, RACK & SHELVES KEPT IN WORKSHOP CONSTITUTED P & M. LIST OF ASSETS RECLASSIFIED FROM P & M TO FURNITURE IS ENCLOSED AT PAGE 1-8 OF THE PAPER BOOK NO.-2. 5. IN THIS REGARD, SRI HARESWAR SHARMA, LD DR FOR T HE REVENUE ARGUED STATING THAT THE CITED DECISIONS A DISTINGUISHABLE ON FACTS . REFERRING TO THE KARNATAKA HIGH COURTS JUDGMENT, LD DR MENTIONED THAT THE SAID JUD GMENT WAS DECIDED IN THE CONTEXT OF BINS, RACKS AND SHELVES, WHICH ARE HELD TO BE TOOLS OF THE TRADE AND WERE TREATED AS PLANT. AS PER THE DR, THE IMPUNGED LABOR ATORY TOOLS ARE NOT SPECIALLY DESIGNED AND INTEGRATED WITH THE PLANT AND THEREFOR E, THEY ARE NOT HAVING THE CHARACTER OF TOOLS OF THE TRADE. LD DR PRAYS FOR TH E DISMISSAL OF THE CLAIMS OF THE ASSESSEE AND CONFIRM THE DECISION OF THE CIT(A) ON THIS ISSUE. 3 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. THE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF PARK DEVIS, SUPRA, IS CLEAR ON THE ISSUE THAT THE FUNCTIONAL TEST HAS TO BE APPLIED IN DECIDING IF A PARTICULAR TOOL CONSTITUTES PLANT AND MACHINERY OR THE FURNITURE. KARNATAKA HIGH COURT IN CASE OF HINDUSTAN AERONAUTICS LTD , SUPRA ALSO DECIDED THE ISSUE ADOPTING THE SAME LO GIC. THEREFORE, WE NEED TO ADOPT THE SAME FUNCTIONAL TEST TO DECIDE IF THE IMPUGNED ITEMS IE STOOLS, TABLES, STAINLESS STEEL RACKS, SS CUPBOARDS, SS TROLLEYS, SS TRAYS ETC CONSTITUTES PLANT & MACHINERY FOR THE PURPOSE OF DECIDING THE APPLICABLE RATE OF DEPRECIATION. THE PERUSAL OF THE ORDERS OF THE REVE NUE REVEALED THAT THEY HAVE NOT APPLIED THE FUNCTIONAL TEST TO EACH OF THE DISPUTED ITEMS. IN A SWEEPING STATEMENT, THE AO MENTIONED THAT THE FURNITURE ITEMS LIKE STO OLS, CHAIRS, TABLES, RACKS, TROLLEYS ETC USED IN THE FACTORY CANNOT BE CATEGORIZED AS P LANT AND MACHINERY AS THEY FAIL EVEN ON THE FUNCTIONAL TEST. THERE IS NO DISCUSSI ON IN THE ORDERS ON THE DETAILS OF THE SAID TEST. IN OUR OPINION, THE FUNCTIONAL TEST IMPLIES IF THE SAID ITEMS ARE NECESSARY FOR THE PRODUCTION OF THE PRODUCT IN THE LABORATORY PREMISES. IN OTHER WORDS, IF THE STOOLS, TABLES, STAINLESS STEEL RACKS , SS CUPBOARDS, SS TROLLEYS, SS TRAYS ETC ARE REQUIRED FOR THE LABORATORY PURPOSE IE FOR THE PURPOSE OF PRODUCTION OR PROCESSING OF THE CHEMICAL TESTS IN THE LABORATORY PREMISES LEADING TO THE PRODUCTION OF THE STOCKS, THEY MUST BE CATEGORIZED AS PLANT AN D MACHINERY. THE IMPUGNED ITEMS LIKE THE CASE OF FAN HELD AS PLANT AND MACH INERY BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF PARK DAVIS, SUPRA HAVE BOTH FA CTORY AND OFFICE FUNCTIONS DEPENDING ON THE PLACE OF USE AND THE EMPLOYEES USI NG THEM. IF THE SCIENTIST OR LAB TECHNICIANS HAVE USED THE IMPUGNED CHAIRS OR STOOLS OR RACKS O R TRAYS AS PART OF THE PRODUCTION OF THE VACCINES IN THE FACTORY PR EMISES, THEY MUST BE CONSTRUED AS PLANT AS HELD IN THE CASE OF PARK DAVIS ON THE DI SPUTE RELATING TO FAN AND THE APPLICABLE RATE OF DEPRECIATION. AS ARGUED BY THE L D DR, THE SPECIAL DESIGN IS AN IRRELEVANT FACTOR AS THE SAME ITEM CAN BE USED FOR MULTIPLE FUNCTIONS. THEREFORE, THE USE OF THE ITEM FOR THE FUNCTION OF PRODUCTION RELA TED FUNCTION AT THE PLACE OF LABORATORY MUST BE DECIDES ITS BLOCK IE PLANT & MAC HINERY OR THE FURNITURE. IT IS THE NOT THE CASE OF THE REVENUE THAT THEY WERE NOT USED FOR THE FUNCTION OF THE PRODUCTION OF THE VACCINES. IN OUR OPINION, THE REV ENUE AUTHORITIES HAVE CARRIED 4 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. AWAY MORE BY THE NOMENCLATURE RATHER THAN THE FUNCT IONS OF THE IMPUGNED ITEMS. THEREFORE, CONSIDERING THE SET PRINCIPLE OF FUNCTIO NAL TEST ADVOCATED BY THE JURISDICTIONAL HIGH COURT CITED ABOVE, WE ARE OF TH E OPINION THE ASSESSEE MUST WIN ON THIS ISSUE. ACCORDINGLY, GROUND 2 RAISED IN THE APPEAL OF THE ASSESSEE ARE ALLOWED . 7. GROUND 3 IS NOT PRESSED AS DISCUSSED IN THE PRECEDING PARAGR APHS AND THEREFORE, THE SAME IS DISMISSED AS NO PRESSED WITHOUT GOING INTO THE MERITS OF IT. 8. GROUND 4 RELATES TO THE ISSUE OF CLAIM DEPRECIATION ON INT ANGIBLE ASSET BEING NON-COMPETE FEE. RELEVANT GROUNDS READ AS UND ER: 4(A) DEPRECIATION ON INTANGIBLE ASSET BEING NON-COMPET E FEES : THE CIT(A) ERRED IN DENYING DEPRECIATION ON INTANG IBLE ASSET (BEING NON-COMPETE FEES) ACQUIRED FROM THE AMALGAMATING CO MPANY (ON AMALGAMATION ) ON THE WRITTEN DOWN VALUE OF RS.2,10 ,00,000/- @ 25%. 4(B) THE CIT (A) ERRED IN DISREGARDING THE DECISION OF THE ASSESSING OFFICER OF THE AMALGAMATING COMPANY (I.E. TVL) TO TREAT THE GROSS AMOUNT OF NON-COMPETE FEES (I.E. RS.2.4CR) REPRESENTS AN INT ANGIBLE ASSET & THEREFORE ELIGIBLE FOR DEPRECIATION. 9. RELEVANT FACTS EMANATING FROM THE DOCUMENTS AVAI LABLE BEFORE US, ARE THAT THE INTANGIBLE ASSET IN QUESTION RELATES TO NON CO MPETE FEE. THIS ISSUE HAS GENESIS IN ANOTHER COMPANY NAMED TRANSGENE VACCINES LTD (IN SHORT TVL), WHICH IS FOUNDED BY DR K K RAO. ASSESSEE ACQUIRED BY WAY OF AMALGAMATION THE TVL DURING THE YEAR. DURING THE ASSESSMENT PROCEEDINGS, WHILE STUDYING THE DETAILS OF THE SAID ACQUIRED COMPANY- TVL, THE PRESENT AO OF THIS ASSES SEE NOTICED THAT A SUM OF RS 2.4 CRORES WAS PAID BY THE TVL TO SRI RAO AS NON CO MPETE FEE FOR THE AY 2000-01 AND THE SAME WAS DEBITED TO ITS P & L ACCOUNT AS AN ALLOWABLE EXPENDITURE. THE CURRENT AO ALSO NOTED THAT THE SAID ISSUE WAS THE S UBJECT MATTER OF THE SCRUTINY ASSESSMENT IN THE CASE OF M/S TVL BY THE THEN AO A T ANDHRA PRADESH AND THE SAID AMOUNT WAS HELD BY THE REVENUE AS A CAPITAL EXPEND ITURE AND DEPRECIATION @ 30% WAS ALLOWED ON THE SAID CAPITAL ASSET. THE MATTER REACHED FINALITY ON THIS ISSUE AS STATED BY THE LD COUNSEL AT BAR BEFORE US. THIS ISS UE IS RELEVANT FOR THE AY 2000-01 AND THE ASSESSEE ACQUIRED BY WAY OF AMALGAMATION , THE SAID TCL COMPANY FOR THE YEAR UNDER CONSIDERATION IE AY 2001-02 AS A GOI NG CONCERN WITH THE REVENUES 5 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. STAND THAT THE IMPUGNED NON COMPETE FEE OF RS 2.1 C R (NON COMPETE FEE OF RS 2.4 CR RS 30 LAKHS OF DEPRECIATION CLAIM THEREON FOR THA T YEAR) IS THE DEPRECIABLE INTANGIBLE ASSET. 10. IN THE FACTUAL MATRIX OF THE ABOVE, THE PARTIES IN THE LITIGATION MADE VARIOUS SUBMISSIONS. THE THEN CIT DR FILED WRITTEN SUBMISSI ON DATED 30.7.2008 WITH THE LIMITED OBJECTION THAT THE NON COMPETE FEE IS NOT ELIGIBLE FOR DEPRECIATION VIDE PARA 4 TO 7 OF THE NOTE. THE SUMMARY IS GIVEN IN PARA 7 OF THE NOTE AND THE SAME READ AS UNDER: 7. THEREFORE, THE CIT(A) WAS CORRECT IN HOLDING THA T THERE IS NO PROVISION IN THE ACT AND RULES FOR ALLOWING DEPRECIATION ON CAPI TAL EXPENDITURE INCURRED ON NON-COMPETE FEES.(PARA 8.3, PAGE 8-9 OF CIT(A)S OR DER). IN THIS REGARD, THE REVENUE IS OF THE OPINION THAT THE SAID CAPITAL ASSET IS NOT A DEPRECIABLE ONE AND THEREFORE, DEPRECIATION IS NO T ALLOWABLE U/S 32 OF THE ACT. REVENUE HAVE POWER TO WITHDRAW THE CLAIM OF THE ASS ESSEE, WHICH IS UNDER CONSIDERATION, WHEN THE GRANT OF DEPRECIATION IN TH E STATUS OF M/S TVL BY THE THEN AO IS NOT IN ACCORDANCE WITH THE LAW. PER CONTRA, THE ASSESSEES SUBMISSIONS IN NUTSHELL ARE THAT (I ) IT IS THE DECISION OF THE REVENUE TO TREAT THE SAID NON-COMPETE FEE AS THE CAPITAL EXPENDITURE AND TO GRANT DEPRECIATION ON THE SAME FOR THE AY 2000-01 AND IN EFFECT IT ALREADY ENTERED THE BLOCK OF ASSETS IN THE AY 2000-01 BY VIRTUE O F THE THRUSTING BY THE AO. IN SUCH CIRCUMSTANCES, THE AO CANNOT DISTURB THE SAME IN TH E AY 2001-02, WHILE THE DEPRECIATION WAS GRANTED AND REMAIN UNDISTURBED FOR THE PRECEDING AY; HOW CAN REVENUE TAKE TWO DIVERGENT DECISION ON THE SAME FAC TS FOR THE AY 2000-01 & 20001- 02? (II) AS SUCH THE SUCH NON COMPETE FEE PAYMENTS CONSTITUTES A COMMERCIAL RIGHTS WITHIN THE MEANING OF THE PROVISIONS OF SECTION 32 OF THE INCOME TAX ACT. THE RELEVANT PORTIONS OF THE WRITTEN SUBMISSION OF THE ASSESSEE FILED BEFORE US ARE REPRODUCED AS UNDER. AN ATTEMPT WAS MADE BY CIT PUNE TO WITHDRAW TH IS DEPRECIATION BUT THE ITAT BY ITS ORDER IN ITA NO. 1127/PN/2005 QUASHED THE OR DER OF THE CIT FOR A.Y. 2000-01. THE MA FILED BY THE DEPARTMENT WAS ALSO DISMISSED BY TH E ITAT BY ITS ORDER IN MA NO. 66/PN/2008. THE DEPARTMENT HAD NOT GONE TO THE HIG H COURT AGAINST THIS ORDER OF THE ITAT. 6 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. THUS THE ISSUE OF GRANT OF DEPRECIATION ON PAYMENT MADE TO DR. K.K. RAO, IN THE YEAR OF ITS ACQUISITION, HAS BECOME FINAL AND CANNOT BE QUESTIONED IN ANY SUBSEQUENT YEAR WITHDRAWING THE SAME IN THE INITIAL YEAR. UNDER SECTION 43(6)(II) READ WITH 43(6)(I)(A) WRI TTEN DOWN VALUE OF A BLOCK OF ASSETS HAS BEEN DEFINED TO INCLUDE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THE BLOCK, ACQUIRED DURING THE PREVIOUS YEAR. THUS ENTRY OF AN ASSET INTO A BLOCK OF ASSETS HAPPENS ONLY IN THE YEAR IN WHICH IT IS ACQUIRED. SUCH ENT RY CANNOT BE QUESTIONED IN ANY SUBSEQUENT YEAR. IN THE PRESENT CASE THE IMPUGNED INTANGIBLE A SSET WAS ACQUIRED IN THE PREVIOUS YEAR RELEVANT TO AY 2000-01 AND HAS THUS ENTERED THE BLO CK IN THAT YEAR. SECONDLY , IN TERMS OF 43(6)(I)(B) FOR THE PURPOSES OF COMPU TING WRITTEN DOWN VALUE, EXIST FROM A BLOCK OF ASSETS HAPPENS ONLY WHEN AN A SSET IS SOLD, DISCARDED OR DEMOLISHED.FOR OUR SAID VIEW WE RELY ON THE DECISIO N OF SWATI SYNTHETICS VS. ITO 38 SOT 208 (MUM). NEITHER OF THIS HAS HAPPENED IN THE PRES ENT CASE SO AS TO DENY DEPRECIATION. EXPLANATION 2 TO SECTION 43(6) PROVIDES FOR THE MA NNER OF COMPUTING WRITTEN DOWN VALUE OF A BLOCK IN CASE WHERE THE BLOCK IS TRANSFE RRED BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY. IT PROVIDES THAT THE WRITTEN DOWN VALUE OF THE BLOCK IN THE CASE OF THE AMALGAMATING COMPANY WILL BE THE WRITTEN DOWN V ALUE IN THE CASE OF THE AMALGAMATED COMPANY.HERE AGAIN THERE IS NO SCOPE FOR EXISTING F ROM THE BLOCK OF ASSETS TRANSFERRED BY THE AMALGAMATING COMPANY (TVL) TO THE AMALGAMATED C OMPANY SERUM). WITHOUT PREJUDICE TO THE FACTUAL POSITION THAT THE AO HAS NOT HELD T HE PAYMENT TO BE IN THE NATURE OF NON COMPETE FEES, WE WOULD LIKE TO REFER TO THE DECISION OF THE MADRAS BENCH OF THE TRIBUNAL IN THE CASE OF REAL IMAGE TECH (P) LTD (120 TTJ 983) WHERE IT HAS BEEN HELD THAT PAYMENT MADE UNDER A NON-COMP ETE AGREEMENT WAS CAPITAL EXPENDITURE AND ENTITLED TO DEPRECIATION AS IN INTA NGIBLE ASSET . THE BENCH APPLIED THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TECHNO SHARES AND STOCK LTD (101 TTJ 349) (BOM) (DEPRECIATION ON STOCK EXCHANGE MEMB ERSHIP CARD) WHICH WAS CONFIRMED BY THE SUPREME COURT IN 327 ITR 323. 11. FROM THE ABOVE IT IS EVIDENT, SO LONG AS THE N ON COMPETE FEE IN QUESTION IS A CAPITAL EXPENDITURE, THE SAME IS ENTITLED FOR DEPR ECIATION AS HELD BY THE APEX COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD, SUPRA. THE ABOVE SUBMISSION WERE MADE BEFORE THE FIRST APPELLATE AUTHORITY. BUT THE CIT(A) NEVER BOTHERED TO PASS PROPER ORDER ATTENDING TO THE ABOVE SUBMISSIONS OF THE ASSESSEE. EVENTUALLY, CIT(A) REJECTED THE SAME FOR THE REASONS DISCUSSION PARA 8.3 OF HIS ORD ER AND RELEVANT PORTIONS ARE AS UNDER: .THE SUBMISSIONS HAVE BEEN CONSIDERED. THE NATUR E OF PAYMENT, I.E. PAYMENT MADE T ELIMINATE COMPETITION TO WARD OFF COMPLETION , CONSTITUTES CAPITAL EXPENDITURE. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION IN CIT VS. COAL SHIPMENTS (P) LTD. 82 ITR 902 (SC), ORISSA ROAD TRA NSPORT COMPANY VS. CIT 75 ITR 126 (ORISSA), TAMIL NADU DAIRY DEVELOPMENT CO RPORATION VS. CIT 239 ITR 142 (MAD), GUJARAT MINERAL DEVELOPMENT CORPORATION LTD. VS. CIT. THEREFORE THERE IS NO DENIAL OF THE FACT THAT THE NON-COMPETE FEES PAID B THE APPELLANT IS A CAPITAL EXPENDITURE. THE ISSUE HERE IS ABOUT ALLOWABILITY OF THE DEPRECIATION ON NON- COMPETE FEES, WHICH THE APPELLANT HAS CLAIMED THAT IT NOW FORMED PART OF BLOCK OF ASSETS. MERELY BECAUSE IN THE EARLIER YEAR THE A.O HAD DISALLOWED THE CLAIM OF THE 7 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. APPELLANT OF THE NON-COMPETE EXPENDITURE AS REVENUE EXPENDITURE AND HAD HELD IT AS CAPITAL EXPENDITURE AND HAD WRONGLY ALLOWED DEPR ECIATION ON THIS AMOUNT, IT DOES NOT BECOME BINDING ON THE A.O TO HOLD THE SAME VIEW IN THE SUBSEQUENT YEAR AND CONTINUE WITH THE ERROR WHICH WAS PERPETUATED I N THE EARLIER YEARS. EACH YEAR IS A SELF CONTAINED UNIT AND IT IS THE DU TY OF THE AO TO DETERMINE WHAT IN HIS OPINION WOULD BE THE CORRECT INCOME OF THAT YEAR. RELIANCE IS PLACED ON THE DECISION OF THE CIT VS BRITISH PAINTS INDIA LTD 188 ITR 44 SC. THE AO IS NOT BARRED FROM NOT ALLOWING DEPRECIATION ON ANY CAPITAL ASSE T INCLUDED IN THE BLOCK OF ASSETS ON WHICH DEPRECIATION IS NOT ALLOWABLE AS PE R THE INCOME TAX RULES. THE EXPENDITURE ON COMPETE FEES IS A CAPITAL EXPENDITUR E AND AT THE SAME TIME IT IS NEITHER A PART OF THE BUILDING, FURNITURE AND PLANT AND MACHINERY. THERE IS NO PROVISION IN THE INCOME TAX ACT AND INCOME TAX RULE S FOR ALLOWING DEPRECIATION ON CAPITAL EXPENDITURE INCURRED ON NON-COMPETE FEES. T HE CLAIM OF THE APPELLANT IS THEREFORE REJECTED. 12. THUS, AS CAB BE SEEN FROM ABOVE, THE CIT(A) HAS MERELY MENTIONED THAT THE NON COMPETE FEE IS A CAPITAL EXPENDITURE AND NOT T HAT TYPE OF BUILDING, FURNITURE AND PLANT AND MACHINERY . CIT(A) IS SIMPLY IGNORANT OF THE LAW THAT THAT TH E DEPRECIATION IS ALLOWABLE ON THE CAPITAL ASSETS OF INTANGIBLE NA TURE TOO WITH EFFECT FROM 1.4.1999 AND THE AY UNDER CONSIDERATION IS AY 2001-02. IT IS NOT KNOWN AS TO WHY THE CITED DECISION OF THE CHENNAI BENCH, ITAT IN THE CASE OF REAL IMAGE TECH (P) LTD (120 TTJ 983). WE FIND THE SAID UNDISTURBED DECISION IS STRAIGHT O N THE ISSUE UNDER CONSIDERATION AND IT IS RELEVANT FOR THE PROPOSITION THAT PAYMENT MADE UNDER A NON-COMPETE AGREEMENT WAS CAPITAL EXPENDITURE AND ENTITLED TO DEPRECIATION AS IN INTANGIBLE ASSET . IT IS NOT CASE OF THE REVENUE THERE EXISTS ANY OTHER DECISION CONTRARY TO THAT OF REAL IMAGE TECH (P) LTD (SUPRA). 13. THEREFORE, THE LIMITED DISPUTED FOR ADJUDICATIO N BEFORE US RELATES TO IF THE CAPITAL EXPENDITURE BY WAY OF NON COMPETE FEE IN QUESTION IS AN INTANGIBLE ASSET AND IF THE SAME IS DEPRECIABLE ASSET FOR THE BENEFI TS U/S 32 OF THE ACT. THERE IS NO DISPUTE ON THE CAPITAL NATURE OF THE IMPUGNED NON COMPETE FEE IN VIEW OF THE REPORTED JUDGMENT OF THE SUPREME COURT IN CASE OF GUFFIC CHEM (P.) LTD. V. CIT [2011] 332 ITR 602/198 TAXMAN 78/10 TAXMANN.COM 105 , WHICH IS ADOPTED IN THE JUDGMENT IN THE CASE OF HARI SHANKAR BHARTIA [2011] 15 TAXMANN.COM 113 (CALCUTTA). IN ANY CASE, BOTH THE PARTIES ACCEPTED THE FACT THAT THE SAID FEE IS CAPITAL IN NATURE. ON GOING THROUGH THE FACTS, ARGUMENTS, S UBMISSIONS, DOCUMENTS AVAILABLE BEFORE US AND THE ORDERS OF THE REVENUE, WE FIND TH E ISSUE IS SQUARELY COVERED BY 8 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. THE DECISION OF THE CHENNAI BENCH OF THE ITAT IN TH E CASE OF REAL IMAGE TECH (P) LTD (SUPRA). IT IS OUR ENDEAVOR TO MAKE THIS ORDER SELF CONTAINE D AND THEREFORE, WE REPRODUCE THE RELEVANT HELD PORTIONS OF THE SAID DECISION AND THE SAME READ AS UNDER. HELD: WHEN A BUSINESSMAN PAYS MONEY TO ANOTHER BUSINESSMAN FOR RESTRAINING THE OTHER BUSINESSMAN FROM COMPETING WI TH THE ASSESSEE , HE GETS A VESTED RIGHT WHICH CAN BE ENFORCED UNDER LAW AND WITHOUT THAT THE OTHER BUSINESSMAN CAN COMPETE WITH THE FIRST BUSINESSMAN. WHEN BY PAYMENT OF NON- COMPETE FEE, THE BUSINESSMAN GETS HIS RIGHT WHAT HE IS PRACTICALLY GETTING IS KIND OF MONOPOLY TO RUN HIS BUSINESS WITHOUT BOT HERING ABOUT THE COMPETITION. IT IS JUST LIKE SEPARATING BIG PLANT FROM OTHER P LANTS AFFECTING THE GROWTH OF THE BIG PLANT. GENERALLY, NON-COMPETE FEE IS PAID FOR A DEFINITE PERIOD WHICH IN THIS CASE IS FIVE YEARS. THE IDEA IS THAT BY THAT TIME, THE BUSINESS WOULD STAND FIRMLY ON ITS OWN FOOTING AND CAN SUSTAIN LATER ON. THIS CLEARLY SHOWS THAT THE COMMERCIAL RIGHT COMES INTO EXISTENCE WHENEVER THE ASSESSEE MAKES PAYMENT FOR NON-COMPETE FEE. NOW, THE SECOND QUESTION IS WHETHER SUCH RIGHT CAN BE TERMED AS OR ANY OTHER BUSINESS OR CO MMERCIAL RIGHTS OF SIMILAR NATURE FOR CONSTRUING THE SAME AS INTANGI BLE ASSET. HERE, THE DOCTRINE OF EJUSDEM GENERIS WOULD COME INTO OPERATI ON. THE TERM OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE HA S TO BE INTERPRETED IN SUCH A WAY THAT IT WOULD HAVE SOME SIMILARITIES AS OTHER ASSET S MENTIONED IN CL. (B) OF EXPLN. 3. THE OTHER ASSETS MENTIONED ARE KNOWHOW, PATENTS, CO PYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES, ETC. IN ALL THESE CASES NO PHYSICAL ASS ET COMES INTO POSSESSION OF THE ASSESSEE. WHAT COMES IN IS ONLY A RIGHT TO CARRY ON THE BUSINESS SMOOTHLY AND SUCCESSFULLY AND THEREFORE EVEN THE RIGHT OBTAINED BY WAY OF NON-COMPETE COMMERCIAL RIGHTS OF SIMILAR NATURE BECAUSE AFTER OBTAINING NON-COMPETE RIGHT, THE ASSESSEE CAN DEVELOP AND RUN HIS BUSINESS WITHOUT B OTHERING ABOUT THE COMPETITION. THE RIGHT ACQUIRED BY PAYMENT OF NON-COMPETE FEE IS DEFINITELY INTANGIBLE ASSET. MOREOVER, THIS RIGHT (ASSET) WILL EVAPORATE OVER A PERIOD OF TIME OF FIVE YEARS IN THIS CASE BECAUSE AFTER THAT THE PROTECTION OF NON-COMPE TITION WILL NOT BE AVAILABLE TO THE ASSESSEE. THIS MEANS, THIS RIGHT IS SUBJECT TO WEAR AND TEAR BY THE PASSAGE OF TIME, IN THE SENSE, THAT AFTER THE LAPSE OF A DEFINITE PE RIOD OF FIVE YEARS, THIS ASSET WILL NOT BE AVAILABLE TO THE ASSESSEE AND, THEREFORE, THIS ASSET MUST BE HELD TO BE SUBJECT TO DEPRECIATION . ASSESSEE WOULD BE ENTITLED TO DEPRECIATION IN RE SPECT OF NON-COMPETE FEE WHICH IS IN THE NATURE OF INTANGIBL E ASSET. 14. FROM THE ABOVE, IT IS VIVID THAT THE, BY PAYME NT OF NON COMPETE FEE TO ANOTHER PERSON TO REDUCE THE BUSINESS OR COMMERCIAL COMPETITION FOR A PERIOD, THE ASSESSEE ACQUIRES A RIGHT AND IT IS A CAPITAL ASSET , WHICH IS A BUSINESS OR A COMMERCIAL RIGHT AS HELD BY THE ABOVE SAID DECISION OF THE TRIBUNAL-CHENNAI BENCH. SUCH RIGHTS ARE INTANGIBLE ONES AND THEY ARE COVERE D BY THE PROVISIONS OF CLAUSE (II) OF SECTION 32(1) OF THE ACT RELATING DEPRECIATION . THE SAID PROVISIONS W E F 1.4.1999 READ AS FOLLOWS. 32. (1) IN RESPECT OF DEPRECIATION OF- (I). 9 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST APRIL, 1998 15. THE SAID RIGHT IS ACQUIRED UNDISPUTEDLY AFTER T HE 1.4.1998 AND THERE IS NO DISPUTE ON THIS FACT. IN SUCH CIRCUMSTANCES, WITHO UT GOING INTO OTHER ASPECTS OF THE SUBMISSION RELATING TO SEGREGATING AN ASSET FROM TH E BLOCK OF ASSETS FOR PURPOSE OF DENIAL OF DEPRECIATION ON SUCH ASSET, WHICH IS OF C OURSE IS A SETTLED PROPOSITION AGAINST THE REVENUE, IN OUR OPINION, THE ASSESSEE M UST WIN ON THIS ISSUE IN VIEW OF THE CITED RATIO IN THE CASE OF REAL IMAGE TECH (P) LTD (SUPRA). FURTHER, IT IS A SETTLED ISSUE THAT THE NON COMPETE FEE IS INTANGIBLE AND D EPRECIABLE ASSET AS HELD BY THE CITED SUPREME COURTS JUDGMENTS, WHICH ARE DISCUSSE D IN THE PRECEDING PARAGRAPHS. ON BOTH THE COUNTS, THE ARGUMENTS OF THE REVENUE AR E DISMISSED. ACCORDINGLY, THE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE ARE DE CIDED IN FAVOUR OF THE ASSESSEE. 16. GROUND 5(A) RELATES TO REDUCING SALES TAX REFUND FROM BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT: ASS ESSEE RECEIVED THE SALES TAX REFUND AMOUNTING TO RS 45,34,126/- AND CONSIDERED T HE SAME AS ELIGIBLE PROFITS OF THE BUSINESS FOR THE PURPOSE OF CALCULATING THE DE DUCTION U/S 80HHC OF THE ACT. AO DID NOT ALLOW THE SAID METHOD OF COMPUTATION FOR AR RIVING AT THE ALLOWABLE DEDUCTION. IN THE PROCESS, THE AO/CIT(A) REJECTED THE ASSESSEE S EXPLANATION THAT THE SAID REFUND RECEIPT CONSTITUTES THE OPERATIONAL INCOME OF THE COMPANY. THAT IS HOW THE MATTER TRAVELLED TO THE PRECINCTS OF THIS TRIBUNAL. BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REFUND OF SALES TAX ARI SES MAINLY ON ACCOUNT OF DETERMINATION, AT THE TIME OF SALES TAX ASSESSMENT, OF A HIGHER AMOUNT OF SALES TAX SET OFF. THIS SET OFF IS IN RESPECT OF PURCHASE TAX PAID ON PURCHASES AND THUS REDUCES THE INCIDENCE OF SUCH PURCHASE TAX, WHICH TAX FORMS PART OF THE PURCHASE PRICE OF RAW MATERIALS ETC. AND HAS THEREFORE GONE TO REDUCE THE BUSINESS PROFITS IN THE FIRST PLACE. RECOUPMENT OF PART OF THE PURCHASE COST SHOU LD FORM PART OF THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF SECTION 80HHC. FURTHER, IT WAS SUBMITTED THAT THE ISSUE UNDER CONSIDERATION WAS ALREADY ADJUDICATED BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER AYS. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE 10 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. ORDERS OF THE REVENUE, WHICH WERE DECIDED BASED ON THE JUDGMENT IN THE CASES OF CIT VS K K DOSHI & CO 245 ITR 849 FOR THE PROPOSITI ON THAT THE PROFITS OF BUSINESS SHOULD BE THOSE RECEIPTS WHICH HAD DIRECT NEXUS TO THE EXPORT ACTIVITIES. 17. WE HAVE HEARD THE PARTIES AND FIND THE ISSUE UN DER CONSIDERATION HAS REACHED FINALITY AT THE LEVEL OF THE TRIBUNAL AND THE ISSUE OF EXCLUSION OF EXCISE DUTY AND SALES TAX COLLECTED HAS BEEN ALLOWED BY THE LEARNED CIT(A ) AND DEPARTMENTS APPEAL AGAINST THE SAID DECISION OF THE CIT(A) HAS BEEN DI SMISSED BY THE ITAT PUNE. ASSESSEE IS DIRECTED TO FILE RELEVANT COPIES OF THE ORDERS IN THIS REGARD FOR THE PERUSAL OF THE AO AT THE TIME RECOMPUTATION OF ALLOWABLE DE DUCTION U/S 80HHC OF THE ACT. THEREFORE, THE GROUND 5(A) HAS TO BE ALLOWED IN FAV OUR OF THE ASSESSEE. HOWEVER, THE ASSESSEE IS DIRECTED TO FILED RELEVANT COPIES O F THE ORDERS OF BOTH CIT(A) AND THE TRIBUNAL REFERRED TO ABOVE BEFORE THE AO FOR GIVING EFFECT TO THE SAID BINDING ORDER OF THE TRIBUNAL AT THE TIME OF RECOMPUTATION OF THE ALLOWABLE DEDUCTION U/S 80HHC OF THE ACT. ACCORDINGLY, AO SHALL GRANT RELIEF IN T HIS REGARD AND THUS, THE GROUND 5(A) IS ALLOWED. 18. GROUND 5(B) RELATES TO REDUCING INTEREST INCOME FROM BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. DURING THE PROCEEDINGS BEFORE, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE CIT(A) ERRED IN CONFIRMING THE REDUCTION OF INTEREST INCO ME AMOUNTING TO RS.3,57,54,581/- AS PER EXPLANATION BAA OF SECTION 80HHC BY IGNOR ING APPELLANTS CONTENTION THAT SUCH ACTION IS UNWARRANTED SINCE INTEREST PAID ( I. E.9,59,82,804/-) EXCEEDS INTEREST EARNED (I.E. RS.3,57,54,581/-). LD COUNSEL MENTIONE D THAT THE ASSESSEE DESERVES THE BENEFITS OF NETTING OFF OF THE INTEREST EXPENDITURE AGAINST THE INTEREST RECEIPTS. IN THIS REGARD, THE ASSESSEE RELIES ON THE DECISION OF KOLKATA ITAT IN CASE OF HINDUSTAN GUM & CHEMICALS LTD VS. ITO -23 SOT 143 WHEREIN IT IS HELD THAT WHERE INTEREST INCOME IS TREATED AS BUSINESS INCOME, THE INTEREST RECEIPTS HAVE TO BE DEALT WITH IN TERMS OF CLAUSE (BAA) OF THE EXPLANATION TO SEC.80H HC OF THE ACT IS THE NET INTEREST. PER CONTRA, LD DR FOR THE REVENUE MENTIONED THAT JU RISDICTIONAL AND BINDING HIGH COURTS JUDGMENT IN THE CASE OF THE ASIAN STAR CO L TD 326 ITR 0056 (BOM) FOR THE PREPOSITION THAT THE GROSS INTEREST AND NOT NET INT EREST IS TO BE TAKEN INTO ACCOUNT FOR 11 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. CONSIDER ING THE ABOVE CITED JUDGMENT, WE ARE OF THE OPINION, THE ISSUE SHOULD BE SET ASIDE THE FILES OF THE AO TO GIVE EFFECT THE SAID JUDGMENT AND DECIDE THE ISSUE AFRES H AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE. ACCORDINGLY, THE GROUND 5(B) IS SET ASIDE. 19. GROUND 5(C) RELATES TO THE SET OFF OF THE UNABSORBED DEPRECIAT ION OF EARLIER AYS OF TVL. AT THE OUTSET, LD COUNSEL MENTIONED THA T THE SAID GROUND IS NOT PRESSED. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 20. GROUND 5(D) RELATES TO REDUCING FROM THE PROFIT ELIGIBLE FOR DE DUCTION U/S. 80-HHC A SUM OF RS.6,40,80,683/- BEING DEDUCTION U/ S.80-HHC OF THE ACT A SUM OF RS.6,40,80,683/- BEING DEDUCTION U/S. 80-IA OF THE ACT. DURING THE PROCEEDINGS BEFORE US, REFERRING TO THE ADDITIONAL GROUND, LD C OUNSEL MENTIONED THAT THE SAID ADDITIONAL GROUND INTER ALIA RAISES TWO RELATED ISS UES VIZ. (I) THAT THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80 IA RS. 6,4 4,91,533/- BE NOT EXCLUDED FROM THE PROFITS OF THE BUSINESS AT THE TIME OF APPLYING THE FORMULA AND COMPUTING DEDUCTION UNDER SECTION 80 HHC IN THE LIGHT OF THE JUDGMENT OF JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (332 ITR 42)(SC) . THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE L IGHT OF THE JURISDICTIONAL BOMBAY HIGH COURT DECISION CITED (SUPRA) AND (II) THAT EXC ISE DUTY COLLECTED RS. 1,01,800/- AND SALES TAX COLLECTED RS. 1,77,85,482/- BE EXCLUD ED FROM THE TOTAL TURNOVER OF THE BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTI NG DEDUCTION U/S 80 HHC. THIS ISSUE IS ALSO COVERED BY THE JUDGMENT OF HONBLE SU PREME COURT IN THE CASE OF LAXMI MACHINE WORKS (290 ITR 667). FURTHER, HE MENTIONED THAT BOTH A.O. AND CIT APPEALS DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR EXCLUSION OF THE AMOUNT QUANTIFIED FOR DEDUCTION U/S 80 IA FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80 HHC. PER CONTRA, LD DR FOR THE REVENUE FAIRLY RELIED ON THE ORDERS OF THE REVENUE WITHOUT CONCEDI NG THE POINT. ON HEARING BOTH PARTIES, WE ARE OF THE OPINION THAT THE ISSUE UNDER CONSIDERATION IS NOW SETTLED AND THEREFORE, WE DIRECT THE AO TO GRANT RELIEF. ACCORD INGLY, GROUND 5(D) AS MODIFIED IS ALLOWED IN VIEW OF THE SAID BINDING JUDGMENTS. 12 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 21. GROUND NO.5(E) ORIGINALLY RAISED BEFORE US RELATES TO THE ALLOWAB ILITY OF DEDUCTION U/S.80HHC OF THE ACT ON THE EXPORT TURNOV ER OF THE ASSESSEE INCLUDING THE EXPORT SALES OF THE EOU UNIT OF THE ASSESSEE. ASSESSEE REVISED THE ABOVE GROUND AND NUMBERED THE SAME AS GROUND 6 . OF COURSE, THIS ISSUE IS RAISED FOR THE FIRST TIME BEFORE US AND NOT BEFORE THE AUTHORITIES BELOW IN VIEW OF THE SUBSEQUENT AND BINDING JUDICIAL PRONOUNCEMENTS RELATING TO THE PROVISIONS OF SECTION 10B OF THE ACT. THEREFORE, THERE IS NEED FOR DELVING INTO CERT AIN FACTS AND THE SAME IS DISCUSSED IN THE SUCCEEDING PARAGRAPHS OF THIS ORDER. BRIEFLY, STATED THE FACTS OF THE CASE AND ISSUE UND ER CONSIDERATION ARE THAT THE ASSESSEE HAS TWO UNITS NAMELY EOU UNIT AND DTA UNIT AND BOTH UNITS HAVE DOMESTIC AS WELL AS EXPORT TURNOVER. WHILE THE EOU UNIT IS ENTITLED FOR DEDUCTION U/S.10B OF THE ACT, THE DTA UNIT IS ENTITLED FOR DEDUCTION U/S .80IA OF THE ACT. FURTHER, DTA UNIT IS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT ON I TS EXPORT PROFIT. AT THE TIME OF FILING OF ORIGINAL RETURN OF INCOME ASSESSEE FILED THE AUDIT CERTIFICATES AS REQUIRED FOR THE PURPOSE OF SECTION 10B AND SEC. 80HHC OF THE AC T. IN THE ORIGINAL RETURN, WHILE COMPUTING THE DEDUCTION U/S 80HHC, THE ASSESSEE DID NOT COMPUTE THE SAME AFTER INCLUDING THE ELIGIBLE PROFITS, EXPORT TURNOVER AND TOTAL TURNOVER OF THE EOU UNIT IN THE PROFITS OF BUSINESS, EXPORT TURNOVER AND TOTAL TURNOVER OF THE BUSINESS OF THE ASSESSEE FOR A COUPLE OF REASONS, NAMELY (I) THE AM ENDMENT W E F 1.4.2001 BY WAY OF SUBSTITUTION OF SECTION 10B OF THE ACT CONTAININ G THE EXPRESSIONS OF DEDUCTION IN IT AND (II) THE JUDGMENT OF THE HONBLE HIGH COURT JUDGMENT IN THE CASE OF HINDUSTAN UNILEVER LTD 325 IT 102 WHICH DECLARED THAT THE PROVISIONS OF S ECTION 10B OF THE ACT ARE DEDUCTION PROVISIONS AND NOT OF EXEMPTION. 22. FOR THE FIRST TIME VIDE LETTER DATED 26/02/2009, ASSESSEE MODIFIED THE SAID GROUND NO.5(E) (RENUMBERED AS 6 IN THE SAID LETTER) AND THE MODIFIED GROUND WITH REFERENCE OF INCLUSION OF THE EXPORT SALES OF EOU UNIT READS AS UNDER CIT(A) OUGHT TO HAVE HELD ON FACTS BEFORE HIM THAT THE EXPORT SALES OF EOU SHOULD HAVE BEEN INCLUDED IN THE EXPORT TURNOVER OF THE ASSESSEE COMPANY WHILE COMPUTING THE DEDUCTION U/S.80HHC. 13 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 23. SUBSEQUENTLY, THE SAID ADDITIONAL GROUND WAS FU RTHER MODIFIED VIDE LETTER DATED 30/04/2011 WITH SPECIAL REFERENCE TO THE INCLUSION OF PROFIT OF THE EOU UNIT AND THE SAID GROUND READ AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, FOR THE PURPOSES OF EXPLANATION (BAA) TO 80HHC, PROFITS OF THE BUSINES S SHOULD INCLUDE PROFITS DERIVED BY THE 100% EOU NOTWITHSTANDING THE FACT THAT SUCH PROFITS ARE TO BE DEDUCTED FROM THE TOTAL INCOME OF THE ASSESSEE I N TERMS OF SECTION 10B OF THE ACT 24. HOWEVER, THIS GROUND IS SUBSEQUENTLY AND ORALLY GIVEN UP BY THE ASSESSEE ON CONSIDERING THE APPLICATION OF THE PROVISIONS OF SE CTION 80IA(9) OF THE ACT IE TOTAL ALLOWABLE DEDUCTIONS U/S 10B, 80IA AND 80HHC EXCEED ED THE PROFITS OF THE ASSESSEE SPECIFIED IN THE SAID PROVISIONS OF SECTIO N 80IA(9). THEREFORE, THE ADDITIONAL GROUND THAT IS REMAINED FOR ADJUDICATION ON ADMISSION AND MERITS, BY THE TIME THE MATTER WAS HEARD BEFORE US, RELATES TO THE INCLUSION OF EXPORT TURNOVER OF THE 10B UNIT OR EOU UNIT IN THE EXPORT TURNOVER OF THE BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTED THE ALLOWABLE DEDUCTION U/S .80HHC OF THE ACT. THUS, THE RAISING OF THE SAID ADDITIONAL GROUNDS HAS GENESIS IN THE NEW SECTION 10B AND THE BINDING JUDGMENT IN THE CASE OF HINDUSTAN UNILEVER LTD (SUPRA). NOW, WE SHALL EXAMINE IF THE SAID ADDITIONAL GROUNDS IS QUALIFIED TO BE ADMITTED FOR ADJUDICATION OR OTHERWISE. ADMISSION OF THE ADDITIONAL GROUND: 25. GROUND 5(E), WHICH IS SUBSEQUENTLY RENUMBERED A S GROUND 6, WAS ADMITTEDLY RAISED FOR THE FIRST TIME BEFORE US VIDE THE FORM N O 36. IN SUPPORT, FROM NO 10CCAC ALONG WITH ANNEXURES WAS FILED FOR THE FIRST TIME B EFORE US. AS PER THE ASSESSEE THE ADDITIONAL GROUND IS LEGAL IN NATURE AND THEREFORE THE ADDITIONAL GROUND CAN BE RAISED AND ADMITTED BY THE TRIBUNAL. IN THIS REGAR D, THE LEARNED COUNSEL RELIED ON VARIOUS CITATIONS NATIONAL THERMAL POWER CO.LTD. VS . CIT 229 383 (SC), JUTE CORPORATION OF INDIA LTD. VS. CIT (1991)187 ITR 688 AND GOETZE (INDIA) LTD. VS. CIT 284 ITR 383(SC). TAKING SHELTER OF THESE CITATI ONS, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADJUDICATION OF THIS GROUND DOES NOT CALL FOR ANY INVESTIGATION INTO THE FACTS AS THE REQUIRED FACTS RELATE TO THE FIGUR ES RELATING TO PROFITS OF THE EOU UNIT, 14 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. EXPORT TURNOVER AND TOTAL TURNOVER OF THE SAID UNIT AND THOSE OF THE EXPORT BUSINESS OF THE ASSESSEE, WHICH ARE ALREADY AVAILABLE ON THE RECORDS OF THE AUTHORITIES BELOW. HE ALSO MENTIONED THAT THE SAID FACTS ARE DULY CERT IFIED BY THE AUDITORS WHILE COMPUTING THE DEDUCTION U/S.10B OF THE ACT. THE ADJ UDICATION OF THE ADDITIONAL GROUND MERELY INVOLVES THE INCLUSION OF THE EXPORT TURNOVER & TOTAL TURNOVER OF THE EOU UNIT IN THE EXPORT TURNOVER & TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S.80HHC OF THE ACT. THE RELEVANT REVISED FORM NO.10CCAC WERE ALREADY FILED BEFORE THE TRIBUNAL AL ONG WITH THE ADDITIONAL GROUND AND THE FIGURES THAT APPEARED IN THE REVISED FORM A RE MERE CONSOLIDATION OF THE FIGURES OF BOTH EOU AND DTI UNITS OF THE ASSESSEE. REFERRING TO THE REASONS FOR NOT RAISED IN THE GROUND BEFORE THE AUTHORITIES BELOW T HE ASSESSEE MENTIONED THAT THE ASSESSEE WAS UNDER BONA FIDE BELIEF THAT THE PROVISIONS OF SECTION U/S.10B OF T HE ACT ARE EXEMPTION PROVISIONS IN NATURE AND IN SUCH CASE , THE PROFITS OF THE EOU UNIT SHALL NOT ENTER THE COMPUTATION OF INCOME AT ALL. HOWEV ER, THERE IS NOW FINALITY ON THE NATURE OF THE PROVISIONS OF SECTION 10B OF THE ACT VIDE THE BINDING JUDGMENT OF JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF HINDUSTAN UNILEVER LTD., VS. DEPUTY COMMISSIONER OF INCOME TAX & ANOTHER, 325 IT R 102 (BOM) FOR THE PROPOSITION THAT AFTER THE AMENDMENT BY THE FINANCE ACT, 2000 AND WITH EFFECT FROM 1.4.2001, NOTWITHSTANDING THE FACT THAT IT CONTINUE S TO BE LOCATED IN CHAPTER III AND NOT LOCATED IN CHAPTER VIA OF THE INCOME TAX ACT, 1 961, SECTION 10B OF THE ACT IS DEDUCTION PROVISIONS AND THEY ARE NO LONGER THE E XEMPTION PROVISIONS FOR A.Y.2001- 02 ONWARDS. THESE PROVISIONS OF SECTION 10B PROVIDE FOR 100% DEDUCTION OF PROFITS OF THE EOU UNIT, AND AFTER THE SAID JUDGMENT, THE R ELEVANT PROFITS OF THE EOU SHALL ENTER THE COMPUTATION OF THE INCOME OF THE ASSESSEE . CONSEQUENTLY, THE INCLUSION OF THE EXPORT SALES OF THE EOU UNIT IN THE EXPORT TURN OVER OF THE BUSINESS OF THE ASSESSEE IS THE CONSEQUENTIAL REQUIREMENT FOR THE P URPOSE OF COMPUTING THE ALLOWABLE DEDUCTION U/S 880HHC OF THE ACT. THEREFOR E, THE RAISING OF THE SAID ADDITIONAL GROUND IS FULLY JUSTIFIED BEFORE THE HON BLE TRIBUNAL. FURTHER VIDE ANOTHER JURISDICTIONAL DECISION IN THE CASE OF ASSOCIATED C APSULES P LTD VS DCIT (332 ITR 42), THERE IS REQUIREMENT OF COMPUTATION OF ALLOWAB LE DEDUCTION U/S.80HHC CONSIDERING THE SAID JUDGMENT DELIVERED IN THE CONT EXT OF PROVISION OF SEC.80IA (9) 15 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. OF THE ACT. THE HONBLE HIGH COURT HELD THAT IN T HIS CASE THAT TRIBUNAL WAS NOT RIGHT IN HOLDING THAT SECTION 80-IA (9) OF THE ACT, MANDATES THAT AMOUNT OF PROFITS ALLOWED AS DEDUCTION U/S.80-IA (1) OF THE ACT HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WHILE COMPUTING THE DEDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING C IN CHAPTER VI-A OF THE A CT. THE APPLICATION OF THIS JUDGMENT ALSO BRINGS THE CHANGE IN QUANTIFICATION O F THE ALLOWABLE DEDUCTION U/S.80HHC FOR THIS YEAR. THUS, AS PER THE ASSESSEE, RAISING THE ADDITIONAL GROUND AT THIS POINT OF TIME JUSTIFIED IN ALL RESPECTS. TO SU M UP, THE LEGAL NATURE OF THE GROUND, NON ESSENTIALITY ANY INVESTIGATION INTO THE FACTS R ELATING TO THE ISSUE FOR THE ADJUDICATION OF THE SAID ADDITIONAL GROUND, THE AME NDMENT BY THE FINANCE ACT, 2000 TO SECTION 10B READ WITH THE BINDING JUDGMENT OF TH E HONBLE HIGH COURT OF BOMBAY ON THE DEDUCTION NATURE OF THE SAID SECTION AND FIN ALLY THE EFFECT /BEARING OF THE SAID ADDITIONAL GROUND ON THE TAX LIABILITY OF THE ASSES SEE, ARE THE ARGUMENTS IN BRIEF FOR ADMITTING THE ADDITIONAL GROUND IN QUESTION. THE A SSESSEE SUBMITTED THAT THE AUDIT REPORT SUCH AS FORM NO.10CCA CAN BE SUBMITTED ANY T IME BEFORE THE END OF THE APPEAL PROCEEDINGS AND RELIED ON VARIOUS JURISDICTI ONAL DECISIONS IN THIS REGARD. 26. PER CONTRA, SRI HARESWAR SHARMA, LD CIT- DR FOR THE REVENUE AR GUED STATING THAT THE SAID ADDITIONAL GROUND SHOULD NOT BE ADMIT TED FOR REASONS 1) IT WAS NOT ONLY NEVER RAISED BEFORE THE LOWER AUTHO RITIES BUT ALSO NOT RAISED BY FILING THE REVISED RETURN OF INCOME; 2) REVISED FORM NO.10CCAC WITH ITS ANNEXURE WAS FILED BEFORE THE TRIBUNAL FOR THE FIRST TIME; 3) THERE IS NEED FOR INVESTIGATION INTO THE FACTS OF T HIS ISSUE. THEREFORE, CITED DECISION RELIED BY ASSESSEE ARE INAPPLICABLE. 27. WE HEARD BOTH THE PARTIES ON THIS PRELIMINARY I SSUE OF THE ADMISSION OF THIS ADDITIONAL GROUND AS DISCUSSED IN THE PRECEDING PAR AGRAPHS. WE HAVE EXAMINED THE ORDERS AND THE PAPER AVAILABLE BEFORE US. FURTHER , WE HAVE EXAMINED THE BINDING DECISION OF THE SAID CITED DECISION IN THE CASE OF HINDUSTAN UNILEVER LTD., VS. DCIT (SUPRA) AND FIND THAT THERE IS CLARITY NOW AFTER TH E SAID JUDGMENT DATED 1/04/11 THAT SEC 10B IS NO LONGER AN EXEMPT PROVISION AT LEAST F OR THE COMPUTATION IN GENERAL AND IN MATTERS RELATING TO SET OFF OF LOSS OF ALLOWABL E UNITS AGAINST THE PROFIT OF THE 16 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. BUSINESS IN PARTICULAR. THEREFORE, THE ASSESSEES TIMING FOR RAISING OF THE ADDITIONAL GROUND BEFORE US CANNOT BE FAULTED FOR. SO FAR AS THE LEGAL NATURE OF ADDITIONAL GROUND IS CONCERNED, WE FIND THAT THE SA ID ISSUE WAS ALREADY ADJUDICATED BY HONBLE HIGH COURT THEREBY THE LEGAL NATURE OF THE ADDITIONAL GROUND CANNOT BE QUESTIONED TOO. FINALLY, THE OTHER OBJECTION OF THE REVENUE RELATES THE REQUIREMENT OF INVESTIGATION INTO THE FACTS RELATIN G TO THE SAID ADDITIONAL GROUND. IN THIS REGARD, WE HAVE PERUSED THE RATIO OF THE NATIO NAL THERMAL POWER CO.LTD. VS. CIT (SUPRA) AND THE HELD PORTION OF THE SAID JUDGMENT IS READS AS UNDER NA TIONAL THERMAL POWER CO LTD. VS. CIT (SUPRA) HELD THAT THE TRIBUNAL HAD JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH AROSE FROM THE FACTS AS FOUND BY THE INCOME TAX AU THORITIES AND HAVING BEARING ON THE TAX LIABILITY OF THE ASSESSEE 28. THE ABOVE RATIO SPECIFIES TWIN CONDITIONS OF (I ) I T AUTHORITIES SHOULD HAVE FOUND THE RELEVANT FIGURES; AND (II) ADDITIONAL ISS UE SHOULD HAVE BEARING ON THE TAX LIABILITY OF THE ASSESSEE. WE HAVE EXAMINED ABOVE T O THE FACTS OF THE INSTANT CASE AND FIND THAT THE FACTS RELEVANT FOR ADJUDICATION R ELATE TO THE FIGURES OF PROFITS, EXPORT AND TOTAL TURNOVERS OF THE EOU AND DTI UNITS AND UNDISPUTEDLY, THESE UNIT- WISE FIGURES ARE ALREADY AVAILABLE BEFORE THE INCOM E TAX AUTHORITIES. IT IS A MERELY CASE OF CONSOLIDATION OF RELEVANT TURNOVER/ PROFITS AND THERE IS NO NEED FOR THE INVESTIGATION INTO THE FIGURES. SO FAR AS THE BEAR ING OF THE ISSUE ON THE TAX LIABILITY OF THE ASSESSEE IS CONCERNED WE FIND THERE IS NO DISPU TE AND THE ADJUDICATION OF THE ISSUE SHALL HAVE BEARING ON ITS TAX LIABILITY. 29. FURTHER, DURING THE PROCEEDINGS BEFORE US, LEAR NED COUNSEL RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZ INDIA LTD. 284 ITR 323, FOR THE PROPOSITION THAT THE APPELLATE AUTHORITIES LIKE CIT(A), ITAT AND HIGHER COURTS CAN ADMIT AND ADJUDICATE ANY ISSUE CONNECTED TO THE FACTS AVAILABLE WITH THE AO/CIT(A) AND THE DIRECTION OF THE SUPREME COURT IN THE SAID JUDGMENT, THAT ANY CLAIM IS MADE BY THE ASSESSEE ONLY THROUGH ORIGINAL RETURN OF INCOME OR REVISED RETURN OF INCOME FILED U/S 139(1) & 139(5) OF THE A CT, IS APPLICABLE TO ASSESSING AUTHORITIES ONLY AND NOT TO THE APPELLATE AUTHORITI ES LIKE AO, CIT(A) AND HIGHER 17 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. JUDICIARY. FURTHER, WE HAVE ALSO PERUSED THE RELEVA NT DECISION OF THE SUPREME COURT AND FIND PARA 17 ON PAGE 4 IS RELEVANT WHICH READS AS UNDER. 17. IN GOETZE (INDIA) LTD. VS. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC), WHEREIN DEDUCTION CLAIMED BY WAY OF A LETTER BEFORE AO, WAS DISALLOWED ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE ACT TO MAKE AMENDMENT IN THE RETURN WITHOUT FILING A REVISED RETURN. APPEAL TO THE SU PREME COURT, AS THE DECISION WAS UPHELD BY THE TRIBUNAL AND THE HIGH COURT, WAS DISM ISSED MAKING CLEAR THAT THE DECISION WAS LIMITED TO THE POWER OF ASSESSING AUTHORITY TO ENTERTAIN CLAIM FOR DEDUCTION OTHERWISE THAN BY REVISED RETURN , AND DID NOT IMPINGE ON THE POWER OF TRIBUNAL 30. IN VIEW OF THE ABOVE JUDGMENT OF THE APEX COURT , IT IS EVIDENT THAT THE FILING OF THE REVISED RETURN IS NOT MANDATORY WHEN AN ADDI TIONAL GROUND IS MADE BEFORE THE ITAT AND THE SAME IS SPRUNG FROM THE BINDING JURISD ICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF HINDUSTAN UNILEVER LTD, SUPRA. THEREFO RE, WE ADMIT SAID GROUNDS OF THE ASSESSEE. ADJUDICATION OF THE ADDITIONAL GROUND ON ITS MERITS : 31. THE ISSUE RAISED IN GROUND NO.6 ERSTWHILE 5(E) RELATES TO INCLUSION OF EXPORT TURNOVER OF EOU UNIT IN THE EXPORT TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE ALLOWABLE DEDUCTION U/S. 80HHC OF THE ACT. IN THE PRECEDING PARAGRAPHS, WE HAVE ALREADY DISCUSSED THAT THE SAID ISSUE RAISED IS ADMITTEDLY LINKED TO THE RATIO OF THE JURISDICTIONAL HIGH COURT JUDGM ENT IN THE CASE OF HINDUSTAN UNILEVER LTD., (SUPRA), THEREBY, THE SECTION 10B, T HOUGH PLACED IN CHAPTER III OF THE INCOME TAX ACT, IS INTERPRETED BY THE JURISDICTIONA L HIGH COURT AS A DEDUCTION PROVISION LIKE THE ONES ALREADY EXISTING IN CHAPTER VI-A OF THE ACT. THIS VIEW OF THE HONBLE HIGH COURT WAS ALREADY IN EXISTENCE VIDE TH E RATIO OF SPECIAL BENCH DECISION IN THE CASE OF SCIENTIFIC ATLANTA INDIA TECHNOLOGY P LTD VIS ACIT (37 DTR(CHENNAI)(TRIB)46. THE SAID SB HELD THAT THE VER Y PRESENCE OF THE SAID SECTION 10A OF THE ACT UNDER THE SUB HEADING SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE, ETC AND ALSO THE VERY PRESENCE OF WORDS DEDUCTION IN THE SAID SECTION 10A, THESE PROVISIO NS MUST BE CONSTRUED AS DEDUCTION PROVISIONS AND NOT THE EXEMPTION PROVISION. THE LOCATION OF SECTION 10A IN THE SAID SUB HEADING IN CHAPTER III WAS JUSTIFIED BY THE SB ON THE GROUND OF 90% OF QUANTITY 18 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. OF ALLOWABLE DEDUCTION AT LEAST DURING THE POST-AME NDMENT TO SECTION 10B W E F 1.4.2003. EARLIER, THE ENTIRE PROFITS ARE ALLOWED A S DEDUCTION. THE SAME LOGIC APPLY TO THE PROVISIONS OF SECTION 10A OF THE ACT. CONS EQUENCES OF SUCH A FINDING ARE THAT THE PROFITS OF THE EOU UNIT SHALL ENTER THE COMPUTA TION OF TOTAL INCOME ON PAR WITH THE PROFITS OF THE ELIGIBLE UNDERTAKINGS/UNITS COVE RED BY THE PROVISIONS OF VARIOUS SECTION IN CHAPTER VIA OF THE ACT. EVENTUALLY, THE PROFIT OF THE EOU UNIT U/S. 10B FORMS PART OF THE PROFITS OF THE BUSINESS AS DEFI NED IN EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION UNDER THE SAID SECTION AND CONSEQUENTLY, THE EXPORT AND TOTAL TURNOVER OF THE SAID EOU UNIT ARE REQUIRED TO BE INCLUDED IN THE EXPORT TURNOVER AND TOTAL TURNOVER OF THE ASSESSEE AS WELL. IN THIS REGARD, THE LEARNED COUNSEL FOR THE A SSESSEE FILED A WRITTEN SUBMISSION CONSISTING OF HIS ARGUMENTS AND THE RELEVANT PARTS ARE IMPORTED HERE AS UNDER: 11. THE CONTENTIONS OF THE APPELLANT FOR INCLUS ION OF ET AND PROFITS OF THE 10B UNIT IN THE ET AND PROFITS OF THE ASSESSEE FOR THE PURPOSES OF S 80HHC FIND SUPPORT IN THE FOLLOWING SUBMISSIONS: A. AFTER ITS AMENDMENT W-E-F AY 2001-02 S. 10B IS A DEDUCTION SECTION & NOT AN EXEMPTION SEC- HINDUSTAN UNILEVER LTD 325 ITR 102 (BOM) B. DEDUCTION U/S 10B IS TO BE ALLOWED FROM TOTAL I NCOME C. THEREFORE, COMPUTATION OF PROFITS AND DEDUCTION U/S 10B BECOMES PART OF THE PROCESS OF COMPUTING TOTAL INCOME UNLIKE WHEN IT WA S AN EXEMPTION SECTION. D. UNDER S 28 PROFIT OF EACH BUSINESS CARRIED ON B Y THE ASSESSEE HAS TO BE COMPUTED SEPARATELY IN ACCORDANCE WITH THE PROVISIO NS OF THE ACT BUT SHOULD THEREAFTER BE ALL PUT TOGETHER AND AGGREGATED TO AR RIVE AT THE PROFITS AND GAINS TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINES S. E. THEREFORE, S 10B INCOME WILL HAVE TO BE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS RELEVANT PROVISIONS FOR WHIC H ARE CONTAINED IN SECTIONS 30 TO 43D. F. S 10B IS AN UNDERTAKING / UNIT SPECIFIC DEDUCTIO N - HINDUSTAN UNILEVER LTD (SUPRA) AND SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA 129 TTJ 273 (CHENNAI) G. S 80HHC IS ASSESSEE SPECIFIC. IT DOES NOT DISTIN GUISH BETWEEN EXPORTS BY AN ASSESSEE AND EXPORTS BY A UNIT OF THE ASSESSEE. H. THE ONLY SATISFYING CONDITION U/S 80HHC(1) IS TH AT THE ASSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF EXPORT OF GOODS. I. IN TERMS OF S 80HHC(2) THE SECTION APPLIES TO EX PORT OF ALL GOODS EXCEPT THOSE PROHIBITED U/S 80HH(2)(B). J. IT IS NOT A PRE-CONDITION OF THE SECTION THAT TH E EXPORTS SHOULD IN FACT RESULT IN PROFITS. THE EXPORT PROFITS ARE MERELY DERIVED OR N OTIONAL PROFITS AND NOT ACTUAL PROFITS. THE ONLY REQUIREMENT IS A POSITIVE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND OF COURSE A POSITIVE GROSS T OTAL INCOME. K. EXCLUSION OF 10B ET FROM THE ET OF THE ASSESSEE FOR THE PURPOSES OF S 80HHC IS NOT PROVIDED FOR IN THE DEFINITION OF ET I N EXPLANATION (B) TO SECTION 80HHC. 19 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. L. SIMILARLY EXCLUSION OF 10B PROFITS FOR THE PURP OSES OF S 80HHC IS NOT PROVIDED FOR IN THE DEFINITION OF PROFITS OF THE BUSINESS IN EXPLANATION (BAA) TO SECTION 80HHC M. THE ACT DOES NOT PROVIDE FOR THE POINT OF TIME A T WHICH PROFITS U/S 10B HAVE TO BE DEDUCTED FROM TOTAL INCOME N. PROCESS OF COMPUTING GROSS TOTAL INCOME EXTENDS TO CHAPTER VI; TAXABLE TOTAL INCOME EMERGES AFTER CHAPTER VIA DEDUCTIONS; O. THE SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA 129 TTJ 273 (CHENNAI) HAS HELD THAT DEDUCTION U/S 10B IS TO BE ALLOWED WH ILE COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS R. IN HUL IT HAS BEEN HELD THAT DEDUCTION U/S 10A I S TO BE ALLOWED ON PROFITS MADE BY ALL 10A UNITS UNDIMINISHED BY LOSSES OF 10A UNITS WHICH LOSSES ARE TO BE SET OFF AGAINST OTHER BUSINESS INCOME. THIS D ECISION OF HON. BOMBAY HIGH COURT DEALS WITH THE QUESTION OF INTER SE SETT ING OFF OF PROFITS AND LOSSES OF ELIGIBLE 10A UNDERTAKINGS. IT DID NOT DEALT WITH THE QUESTION OF SETTING OFF OF LOSSES OF NON 10A UNDERTAKING FROM PROFITS OF 10A U NDERTAKING WHICH QUESTION HAD COME UP FOR CONSIDERATION OF HON. SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA ( SUPRA). THE SAID TWO DECISIONS ARE THEREF ORE DISTINCT FROM EACH OTHER AND OPERATE IN SEPARATE SPHERES. THIS PROPOSITION H AS BEEN UPHELD AND RATIO OF THE DECISION IN THE CASE OF HINDUSTAN UNILEVER H AS BEEN IMPLICITLY FOLLOWED BY HON. PUNE BENCH OF ITAT IN THE CASE OF SYMANTEC SOFTWARE (INDIA) PVT. LTD. ITA 805/PN/09 AY 2004-05 . U. IN EFFECT THEREFORE, IN VIEW OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF HUL, 10A PROFITS NECESSARILY FORM PART OF I NCOME COMPUTED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS V. THUS THE DECISION OF THE SPECIAL BENCH ON THIS L IMITED ASPECT IS CONTRARY TO THE SUBSEQUENT JURISDICTIONAL HIGH COURT DECISION W. THE ENACTMENT OF SUBSECTION 80A(4) SUPPORTS THE VIEW THAT DEDUCTIONS UNDER S 10A, 10B ETC ARE OF THE SAME GENRE OF DEDUCTIONS UNDER CHAPTER VIA. X. ONCE 10B PROFITS FORM PART OF INCOME OF THE ASSE SSEE COMPUTED UNDER THE HEAD THE PROFITS AND GAINS FROM BUSINESS, THEY WOUL D HAVE TO BE INCLUDED AS SUCH UNDER EXPLANATION (BAA) TO S 80HHC Y. S 80HHC(3) PROVIDES FOR COMPUTATION OF PROFITS D ERIVED FROM EXPORT OF GOODS TO WHICH THIS SECTION APPLIES; Z. SINCE 10B PROFITS WOULD FORM PART OF PROFITS OF BUSINESS IN TERMS OF EXPLANATION BAA AS EXPLAINED ABOVE, SUCH PROFITS WO ULD ALSO QUALIFY FOR DEDUCTION U/S 80HHC(1) AA. SINCE SUCH PROFITS QUALIFY U/S 80HHC(1) THE COR RESPONDING EXPORT TURNOVER ALSO QUALIFIES FOR BEING INCLUDED IN THE FIGURE OF ET UNDER EXPLANATION B TO S 80HHC BB. THUS PROFITS DERIVED FROM EXPORT OF 10B UNIT AND DTA UNIT WOULD BOTH FORM PART OF THE PROFITS OF BUSINESS FROM EXPORT OF GOODS REFERRED TO IN S 80HHC(1). CORRESPONDINGLY, SINCE COMPUTATION OF DED UCTION U/S 80HHC IS TO BE DONE FOR THE ASSESSEE AS A WHOLE, EXPORT TURNOVE R OF THE ASSESSEE AS A WHOLE NEEDS TO BE TAKEN AS NUMERATOR. 12. THUS THE CLAIMS RAISED BY THE APPELLANT VIDE MODIFIED GROUND NO. 6 AND THE ADDITIONAL GROUND FIND SUPPORT IN THE SCHEME OF S 1 0B AS EMERGES ON A READING OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE O F HINDUSTAN UNILEVER LTD. 20 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 32. THE ABOVE ESSENTIALLY ADVOCATES FOR CONSIDERING THE EOU UNIT AS BELONGING TO THE SAME GENRE OF THE DTA UNIT FOR THE PURPOSE OF C OMPUTATION OF ALLOWABLE DEDUCTION U/S 80HHC OF THE ACT. IN THIS REGARD, THE RATIOS OF THE PUNE BENCH DECISIONS, SB DECISION AND THE BINDING JURISDICTION AL HIGH COURTS JUDGMENT IN THE CASE OF HUL ARE HEAVILY RELIED UPON BY THE ASSESSEE . 33. PER CONTRA, SRI HARESWAR SHARMA, LD DRS FOR THE REVENUE STRON GLY CONTESTED THE ABOVE LINES OF ARGUMENTS OF THE ASSESSEE AND FI LED WRITTEN SUBMISSION. HE RELIED ON A DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL I N THE CASE OF TATA BP SOLAR INDIA LTD (139 TTJ 289)(MUM) FOR THE PROPOSITION THAT THE EXPORT TURNOVER OF THE EOU WHICH IS ENJOYING DEDUCTION U/S10B IS TO BE INCLUDE D IN THE TOTAL TURNOVER BUT NOT IN THE EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION U/ S 80HHC(3)(A) OF THE ACT. MENTIONING THAT THE SAID PROPOSITION WAS TAKEN IN T HE CONTEXT OF REVIEW ORDER U/S 263, LD DR DEVELOPED THE SAID PROPOSITION TO MAKE O UT THAT THE EXPORT TURNOVER OF THE EOU UNIT SHOULD NOT BE INCLUDED FOR COMPUTATION OF DEDUCTION U/S 80HHC(3)(A) OF THE ACT. FURTHER, HE ALSO TRACED THE MUMBAI BENC H OF THE TRIBUNAL AWARE OF THE PRINCIPLE OF PARITY DISCUSSED IN THE DECISION OF A BENGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S TATA ELXSI LTD 115 TTJ(BANG) 423 BE FORE COMING TO THE ABOVE PROPOSITION. NOW PROCEED TO IMPORT THE RELEVANT PA RTS OF THE WRITTEN SUBMISSION FILED BEFORE US WHICH ARE AS UNDER: FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF I T ACT FORMULA IS PROVIDED IN THE MACHINERY SECTION 80HHC(3)(A). FOR THE SAKE OF CLARITY THE SAME IS REPRODUCED AS UNDER: WHERE THE EXPORT OUT OF INDIA IS OF GOODS AND MERC HANDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAM E PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. HERE IT IS IMPORTANT TO NOTE THAT EXPORT TURNOVER I N RESPECT OF SUCH GOODS HAS BEEN MENTIONED TO LIMIT THE SAME ONLY TO EXPORT OF SUCH GOODS TO WHICH SECTION 80HHC OF THE ACT APPLIES WHILE TOTAL TURNOVER REPRE SENTS THE TOTAL TURNOVER OF THE BUSINESS AS AWHILE. SIMILAR WORDING HAS BEEN USED F OR THE PROFIT TOO BY MENTIONING PROFIT DERIVED FROM SUCH EXPORT. THUS IT IS CLEAR T HAT FOR THE PURPOSE OF COMPUTATION U/S 80HHC OF THE INCOME TAX ACT: (I) PROFITS OF EOU WILL NOT BE INCLUDED IN THE PROFITS FOR COMPUTATION OF DEDUCTION U/S80HHC 21 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. (II) EXPORT TURNOVER OF EOU WILL NOT BE INCLUDED IN THE EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION U/S 80HHC (III) TOTAL TURNOVER OF EOU WILL BE INCLUDED IN THE TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S80HHC AS IT DENOTES TO TAL TURNOVER OF THE BUSINESS AND NOT ONLY SUCH EXPORT. FOR THIS PROPOSITION RELIANCE IS PLACED ON THE DECI SION..IN THE CASE OF TATA BP SOLAR INDIA LTD(139 TTJ 289) ( DATED 20.10.2010 ) 34. IN THE LATER PARAGRAPHS OF HIS WRITTEN SUBMISSI ONS, LD DR WENT ON TO MENTION THAT THE IN THAT CASE, THE ASSESSEE DID NOT INCLUDE THE PROFIT OF THE EOU UNIT, EXPORT AND TOTAL TURNOVERS IN THE NUMERATOR AND DENOMINATO R OF THE FORMULA DEVISED FOR COMPUTATION OF DEDUCTION U/S80HHC AND THE ASSESSMEN T WAS COMPLETED ACCORDINGLY. CIT REVIEWED THE SAME U/S 263 OF THE ACT AND DIRECT ED THE AO TO INCLUDE THE EXPORT TURNOVER OF THE EOU UNIT IN THE TOTAL TURNOVER (DEN OMINATOR) OF THE FORMULA. IN THE SECOND APPELLATE PROCEEDINGS, HONBLE ITAT CONFIRME D THE ABOVE VIEW OF THE CIT UNDER THE CIRCUMSTANCES (I) THE PROVISIONS OF SECTI ON 10B ARE EXEMPT PROVISIONS AND NOT THE DEDUCTION PROVISIONS; AND (II) THE ABSENCE OF THE CITED JURISDICTIONAL HIGH COURTS JUDGMENTS IN THE CASE OF HINDUSTHAN UNILEVE R LTD, SUPRA AND ASSOCIATED CAPSULES LTD, SUPRA. 35. FURTHER, ELABORATING THE TIMING OF THE ABOVE JU DGMENTS, LD DR WAS FAIR IN TRACING THEIR TIME LINE AND MENTIONED THAT NEITHER THE CITED KARNATAKA HIGH COURT JUDGMENT IN THE CASE OF TATA ELXSI LTD, SUPRA AND M ANY OTHERS VIDE TS 637-HC-2011- 2011(KAR) (DATED 30.08.2011) NOR THE SB DECISION IN THE CASE OF SCIENTIFIC ATLA NTA INDIA TECH P LTD SUPRA ( DATED 5.2.10) WAS IN EXISTENCE AT THE RELEVANT POINT OF TIME IE THE DECISION IN THE CASE OF TATA BP SOLAR INDIA LTD(139 TTJ 289) IS DATED 20.10.2010. 36. DURING THE REBUTTAL TIME, LEARNED COUNSEL FOR THE ASSESSEE FILED A RET URN OF SUBMISSIONS CONTESTING THE DRS SUBMISSIONS AND DIS TINGUISHING THE ORDER OF THE TRIBUNAL IN THE CASE OF TATA BP SOLAR INDIA LTD. (S UPRA). THE RELEVANT PARTS OF ASSESSEES SUBMISSIONS FILED IN TWO PARTS ARE REPRO DUCED AS FOLLOWS. 22 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. FIRST PART: 13. THE DECISION OF THE TRIBUNAL IN THE CASE OF TATA BP SOLAR 130 ITD 386 (BOM) CITED BY THE LEARNED DR ONLY SUPPORTS THE PROPOSITI ON THAT EVEN TOTAL TURNOVER OF THE 10B UNIT IS TO BE INCLUDED IN THE TOTAL TURNOVER FO R THE PURPOSES OF S 80HHC. THIS IN FACT SUPPORTS THE PROPOSITION THAT DEDUCTION U/S 80 HHC IS TO BE COMPUTED FOR THE ASSESSEE AS A WHOLE. 14. THE PORTION OF THE SAID DECISION IN THE CASE OF TATA BP SOLAR HOLDING THAT EXPORT TURNOVER OF THE 10B IS HOWEVER NOT TO BE INCLUDED I N EXPORT TURNOVER FOR THE PURPOSES OF S 80HHC PROCEEDS ON THE PREMISE THAT S 10B IS AN EXEMPTION SECTION AND NOT A DEDUCTION SECTION. THIS LED THE TRIBUNAL TO HOLD TH AT WHILE COMPUTING DEDUCTION U/S 80HHC(3) PROFITS FROM EXPORTS BY 10B UNIT ARE NOT T O BE CONSIDERED FOR S 80HHC(1). IT HELD THAT SINCE 10B PROFITS ARE NOT ELIGIBLE U/S 80HHC(1) AS A NATURAL COROLLARY EXPORT TURNOVER OF 10B UNIT CANNOT ENTER 80HHC COMP UTATION 15. THE BASIC PREMISE OF TATA BP SOLAR THAT 10B IS AN EXEMPTION AND NOT A DEDUCTION IS CONTRARY TO THE DECISION OF THE BOMBAY HIGH COURT I N THE CASE OF HUL WHICH THOUGH RENDERED EARLIER WAS NOT BROUGHT TO THE NOTICE OF T HE TRIBUNAL. 16. CONCLUSIONS THAT FLOW FROM TATA BP SOLAR ARE NO LONGER GOOD LAW 17. THE DECISION OF THE CHANDIGARH BENCH OF THE TRI BUNAL IN THE CASE OF MAHAVIR SPINNING MILLS ( 110 ITD 211) RELIED UPON BY THE LEARNED DR RELATES TO AY 1998-99 WHEN THE SECTION WAS AN EXEMPTION SECTION AND NOT A DEDUCTION SECTION. THERE THE ASSESSEE HAD ADMITTED THAT PROFITS OF THE 10B UNIT HAD NOT BEEN INCLUDED IN THE PROFITS TO CLAIM DEDUCTION U/S 80HHC SINCE S 10B WA S AN EXEMPTION SECTION. THIS IS CONTRARY THE SCHEME OF THE NEW S 10B AS INTERPRETED BY THE DECISION IN THE CASE OF HUL. SECOND PART: OUR SUBMISSIONS: DECISION IN THE CASE OF TATA BP SOLAR DISTINGUISHED 1. THE APPEAL BEFORE THE HONOURABLE TRIBUNAL HAD AR ISEN OUT OF ORDER PASSED U/S 263 WHEREIN THE ISSUE RAISED WAS CONFINED ONLY TO THE I NCLUSION OF TURNOVER OF EOU ENJOYING DEDUCTION U/S 10 B IN THE TOTAL TURNOVER O F THE ASSESSEE AS A WHOLE. THE CONTENTIONS OF THE ASSESSEE TO ALSO INCLUDE PRO FIT AND EXPORT TURNOVER OF THE EOU ENJOYING DEDUCTION U/S 10 B ON GROUNDS OF PARITY AN D WEIGHTAGE TO THE THREE VARIABLES IN THE PRESCRIBED FORMULA WERE OBJECTED TO BY THE D R IN THAT CASE. 2. THE DECISION HAS BEEN DRIVEN BY THE ERRONEOUS AS SUMPTION THAT SECTION 10 B WAS AN EXEMPTION SECTION AND NOT DEDUCTION EVEN AFTER THE AMENDMENT W.E.F. 1 ST APRIL, 2001. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF HIDUSTHAN UNILEVER LTD 325 ITR 102 WAS NOT CITED BEFORE THE TRIBUNAL AND THEREFORE IT COULD NOT HAVE THE BENEFIT OF THE SAID DECISION IN DECIDING THE ISSUE. 3. THE WORD SUCH GOODS IN SUB SECTION 3 OF SEC . 80 HHC THOUGH EXPLAINED IN SUB SECTION 2(A) AND (B) OF SEC. 80 HHC WERE LOST SIGHT OF BY THE TRIBUNAL IN DECIDING THE ISSUE. 37. TO SUM UP, THE ASSESSEE IS OF THE VIEW THAT THE TRIBUNAL HAS CONFIRMED THE PRINCIPLE OF INCLUSION OF THE EXPORT TURNOVER IN TH E DENOMINATOR OF THE FORMULA DEVISED FOR COMPUTATION OF ALLOWABLE DEDUCTION U/S 80HHC. SO FAR AS THE INCLUSION OF THE SAME IN THE NUMERATOR IS CONCERN, THE ISSUE WAS NOT RAISED BEFORE THE TRIBUNAL, WHICH WAS NOT OBLIGATION TO DIRECT FOR SUCH INCLUSI ON IN THE EXPORT TURNOVER AS THE CITED JUDGMENT OF THE KARNATAKA HIGH COURT IN THE C ASE OF TATA ELXSI LTD SUPRA AND SB DECISION IN THE CASE OF SCIENTIFIC ATLANTA I TEC HNOLOGY P LTD SUPRA, WERE NOT 23 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. AVAILABLE AT THE RELEVANT POINT OF TIME. THEREFORE, THE SAID DECISION OF THE TRIBUNAL OF MUMBAI BENCH IS DISTINGUISHABLE 38. FURTHER, LEARNED COUNSEL FOR THE ASSESSEE MENTI ONED THAT THE ORDER OF THE TRIBUNAL RELIED UPON BY THE DR PERTAINS TO THE PERI ODS PRIOR TO PROCLAMATION OF JUDGMENT IN HINDUSTAN UNILEVER LTD., (SUPRA). DUR ING SAID PERIOD, THE SAID PROVISIONS OF U/S.10B WERE CONSIDERED AS AN EXEMPTION PROVISIONS. THEREFORE, AS PER THE COUNSEL, THE SAID DECISION OF THE TRIBUNAL IN THE CASE OF TATA BP SOLAR LTD SHOULD BE IGNORED. LEARNED COUNSEL RELIED ON THE JU DGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD VS. ASSTT. CIT (2008) 115 TTJ (BANG) 423 : (2008) 1 DTR (BANG) (TRIB) 237 AND USHA MARTIN INDU STRIES LTD. VS. DY. CIT (2003) 79 TTJ (KOL) 23 : (2003) 86 ITD 261 (KOL) ITA NO. 70/09 DATED 30 TH AUGUST, 2011 AND READ OUT THE REFERENCE ADMITTED BEFORE THE HON BLE HIGH COURT OF KARNATAKA AND RATIO OF THIS DECISION IN THE SUBSEQUENT PARAGRAPHS OF T HE SAID ORDER. AS PER LEARNED COUNSEL FOR THE ASSESSEE, THE PARITY PRINCIPLE IS REQUIRED TO BE FOLLOWED IN MATTERS OF EXCLUSION/INCLUSION IN THE EXPORT TUR N OVER AND TOTAL TURNOVER WHEN ALLOWABLE DEDUCTION IS COMPUTED U/S 10A OF THE ACT. IN THIS REGARD, THE LEARNED COUNSEL RELIED ON VARIOUS DECISIONS I.E GEM PLUS JE WELLERY INDIA LTD 330 ITR 175 (BOM). FURTHER THE LEARNED COUNSEL FILED A COPY OF THE ORD ER OF THIS TRIBUNAL IN THE CASE OF SYMANTEC SOFTWARE INDIA PVT. LTD. VIDE ITA NO. 787/ PN/09 AND ITA NO. 805/PN/09 IN SUPPORT OF THE SAID PARITY PRINCIPLE. PARA 29 TO 31 OF THE SAID JUDGMENT OF THE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD VS. ASSTT. CIT AND ORS SUPRA ARE RELEVANT IN THIS REGARD. AT THE END, LEARNED COUNSEL FOR THE ASSESSEE SUMMED UP BY STATING THAT THE (1) THE EXPORT TURNOVER DEFINITION EXPLANATION G IVEN IN SECTION 80HHC IS BROAD ENOUGH TO COVER THE EXPORT SALES OF EOU UNDER TAKINGS AS IT REFERS TO THE EXPRESSIONS OF ANY GOODS OR MERCHANDISE TO WHICH TH IS SECTION APPLIES. (2) THE RESTRICTIONS MENTIONED IN CLAUSE (B) OF SECTION 2 OF 80HHC ARE NOT APPLICABLE TO THE ASSESSEES CASE. THEREFORE, THE S UB-SECTION 2(A) SUPPORTS THE INCLUSION OF EXPORT SALES OF EOU UNIT FOR COMPUTIN G DEDUCTION U/S.80HHC IN WHICH ASSESSEES UNIT. (3) INCLUSION OF EXPORT SALES EOU TURNOVER IS BEC OME THE LOGICAL REQUIREMENT FOR APPLYING FORMULA AS PROFITS OF THE EOU UNDERTAK ING. (4) ONES THE EXPORT SALE OF THE EOU IS INCLUDED IN THE EXPORT TURNOVER OF THE ASSESSEE IN VIEW OF THE PRINCIPLE OF PARITY WHICH IS APPROVED BY VARIOUS HIGH COURTS, 24 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. TRIBUNAL DISCUSSED ABOVE. THE TOTAL TURNOVER OF THE EOU UNIT SHALL ALSO BE INCLUDED IN THE TOTAL TURNOVER OF THE ASSESSEE. 39. THUS, THERE ARE NUMBER OF CHANGES LEGALLY AFTER THE 30.10.2010, THE DATE OF PRONOUNCEMENT OF THE DECISION IN THE CASE OF THE TA TA BP SOLAR INDIA LTD, SUPRA. THEY ARE: JUDGMENTS OF BOMBAY AND KARNATAKA HIGH CO URTS IN THE CASE OF HINDUSTHAN UNILEVER LTD, SUPRA AND TATA ELXISI LTD, SUPRA, RESPECTIVELY ONE SIDE AND THE SB DECISION IN THE CASE OF M/S SCIENTIFIC ATLAN TA INDIA TECH P LTD, SUPRA ETC ON THE OTHER. IN THESE CHANGED CIRCUMSTANCES, WE NEED TO DECIDE IF THE MUMBAI BENCH TRIBUNAL DECISION RELIED UPON BY THE LD DR STILL HO LDS WATERS. IN THIS REGARD, OUR DECISIONS ARE DISCUSSED IN THE SUCCEEDING PARAGRAPH S OF THIS ORDER. DECISION OF THE TRIBUNAL 40. WE HEARD BOTH THE PARTIES AND PERUSED THE VARIO US MATERIAL OF JUDGMENTS PLACED BEFORE US WHICH ARE DISCUSSED ABOVE. DIVERGE NT STANDS OF THE PARTIES ARE WELL CONSIDERED. ASSESSEES STAND IS THAT (I) THE PROVIS IONS OF SECTION 10B ARE DEDUCTION PROVISIONS AND NOT EXEMPTION ONES; (II) THEREFORE T HEY ENTER THE COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE; (III) CONSEQUENTLY, T HE PROFITS, EXPORT TURNOVER AND TOTAL TURNOVER OF THE EOU UNIT SHALL ENTER THE NUME RATOR AND DENOMINATOR, AS THE CASE MAY BE, OF THE FORMULA DEVISED FOR COMPUTING T HE ALLOWABLE DEDUCTION U/S 80HHC OF THE ACT; (IV) THE DECISION OF TATA BP SOLA R INDIA LTD, SUPRA IS DISTINGUISHABLE ON FACT AND BINDING ON THE TRIBUNAL AND ALSO IN VIEW OF THE SUBSEQUENT JUDGMENTS IN TERMS OF TIME AND ALSO OF T HE SUPERIOR COURTS OF BOMBAY AND KARNATAKA IN TERMS OF JUDICIAL HIERARCHY. (V) THE DEFINITION OF EXPORT TURNOVER GIVEN IN EXPLANATION (B) AND SUBSECTION (2) OF SECT ION 80HHC OF THE ACT. IN OPPOSITION, THE CASE OF THE REVENUE IS THAT THE LITERAL INTERPRETATION OF THE RELEVANT PROVISIONS DOES NOT PERMIT SUCH INCLUSION IN THE EXPORT TURN OVER AND RELY ON THE DECISION IN THE CASE OF TATA BP SOLAR INDIA LTD, SUPRA . 41. WE HAVE ALSO GONE THROUGH THE SUBMISSIONS MADE BY THE BOTH THE PARTIES. WE SHALL DEAL WITH THE ABOVE ISSUES RAISED IN THE A DDITIONAL GROUND IN THE FOLLOWING MANNER, NAMELY (1) SCOPE OF THE PROVISIONS RELATING TO (A) ENTRY OF THE EOU RELATED DATA INTO THE COMPUTATION OF TOTAL INCOME AND (B) I NCLUSIONS OF PROFITS AND GAINS OF 25 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. EOU UNITS IN THE PROFITS OF THE BUSINESS OF THE ASS ESSEE FOR THE PURPOSE OF SECTION 80HHC OF THE ACT; (2) SCOPE OF ASSESSEE LEVEL EXP ORT TURNOVER DEFINITIONS GIVEN IN SECTION 80HHC EXPLANATION (B); AND (3) THE PRINCIPA L OF PARITY EXAMINING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE ABOVE DISCU SSED SCOPE. ALL THESE THREE ASPECTS ARE TAKEN UP ON THE SUCCEEDING PARAGRAPHS. (1) SCOPE OF THE PROVISIONS RELATING TO (A) ENTRY O F THE EOU RELATED DATA INTO THE COMPUTATION OF TOTAL INCOME A ND (B) INCLUSIONS OF PROFITS AND GAINS OF EOU UNITS IN THE PROFITS OF THE BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF SECTION 80HHC OF THE ACT: 42. THE PROVISIONS OF SECTION 10B OF THE ACT ARE AM ENDED BY THE FINANCE ACT, 2000 W E F 1.4.2001 AND SO ARE THE PROVISIONS OF S ECTION 80A (4) W E F 1.4.2003. THESE AMENDED PROVISIONS CONTAINS ADEQUATE EXPRESSI ONS IN THEM TO INFER AND INTERPRET THAT THE PROVISIONS OF SECTION 10B ARE TH E DEDUCTION PROVISIONS AND NO LONGER THE EXEMPTIONS PROVISIONS. THE JUDGMENT IN T HE CASE OF HINDUSTAN UNILEVER LTD., (SUPRA) IS RELEVANT IN THIS REGARD AS DISCUSS ED IN DETAIL IN THE PRECEDING PARAGRAPHS AND IT PROVIDED A STAMP OF SEAL ON SUCH INTERPRETATION. IT IS SO NOTWITHSTANDING THE LOCATION OF THE SECTION 10B IN CHAPTER III OF THE INCOME TAX ACT, 1962. AS A CONSEQUENCE OF THE SAID JUDGMENT OF THE JURISDICTIONAL AND BINDING JUDGMENT, THE PROFITS OF EOU UNIT SHALL FIND ITS WAY INTO THE COMPUTATIO N OF TOTAL INCOME LIKE ANY OTHER BUSINESS INCOME OF THE ASSESS EE. OTHERWISE, NO EXEMPT INCOME SHALL ENTER THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE. RELEVANT RATIO OF SAID JUDGMENT IN THE CASE OF HINDUSTAN UNILEVER LTD., (SUPRA) IS REPRODUCED AS UNDER. (IV)THAT THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME WAS EXEMPTED, THE LOS S WAS NOT ALLOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSE SSMENT YEAR, WILE THE CRAB SICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UN ITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAIN ST THE NORMAL BUSINESS INCOME . IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED WAS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B. THE REASSESSMENT PROCEEDINGS WERE NOT VALID AND WE RE LIABLE TO BE QUASHED. 26 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 43. THEREFORE, SECTION 10B, THOUGH PLACED IN CHAPTE R III OF THE INCOME TAX ACT, IS INTERPRETED BY THE JURISDICTIONAL HIGH COURT AS A DEDUCTION PROVISION LIKE THE ONES ALREADY EXISTING IN CHAPTER VI-A OF THE ACT. THIS VIEW OF THE HONBLE HIGH COURT WAS ALREADY IN EXISTENCE VIDE THE RATIO OF SPECIAL BENC H DECISION IN THE CASE OF SCIENTIFIC ATLANTA INDIA TECHNOLOGY P LTD VIS ACIT (37 DTR)(CHENNAI) (TRIB)46. WE HAVE ALREADY DISCUSSED ABOVE THAT THE SAID SB HELD THAT THE VERY PRESENCE OF THE SAID SECTION 10A OF THE ACT UNDER THE SUB HEADING SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE, ETC AND ALSO THE VERY PRESENCE OF WORDS DEDUCTION IN THE SAID SECTION 10A, THESE PROVISIO NS MUST BE CONSTRUED AS DEDUCTION PROVISIONS AND NOT THE EXEMPTION PROVISION. CON SEQUENCES OF SUCH A FINDING ARE THAT THE PROFITS OF THE EOU UNIT SHALL ENTER THE COMPUTATION OF TOTAL INCOME ON PAR WITH THE PROFITS OF THE ELIGIBLE UNDERTAKINGS/U NITS WHICH ARE EXPRESSLY COVERED BY THE PROVISIONS OF VARIOUS SECTION IN CHAPTER VIA OF THE ACT. IN THIS SENSE OF THE MATTER, BOTH SPECIES OF THE PROVISIONS OF SECTIONS 10B AND 80HHC ALTHOU GH LOCATED IN CHAPTER III AND VIA RESPECTIVELY BELONG TO THE S AME GENUS . 44. CONSEQUENCES OF THE SAID SCOPE OF THE PROVISION S ARE (I) THAT PROFITS OF THE EOU UNIT SHALL FORM PART OF THE HEAD OF INCOME PR OFITS AND GAINS OF BUSINESS OR PROFESSION (II) THEREFORE, THE SAME IS INCLUDIBLE IN THE PROFITS OF THE BUSINESS OF THE ASSESSEE, WHICH IS DEFINED IN EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT, WHICH READS AS FOLLOWS,- (BAA) PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR P ROFESSION AS REDUCED BY,- .. 45. ONCE IMPUGNED PROFITS OF THE EOU UNIT OF 10B FO RM PART OF THE PROFITS OF THE BUSINESS, THE REDUCTIONS IF ANY ARE TO BE ALLOWED ONLY IN ACCORDANCE WITH CLAUSE (1) AND (2) OF THE SAID EXPLANATION (BAA). THAT IS HOW THE PROFITS OF THE EOU UNIT ENTER THE FORMULA DEVISED FOR COMPUTATION OF ALLOWABLE DE DUCTION U/S 80HHC OF THE ACT. HOWEVER, IN VIEW OF THE PROVISIONS OF SECTION 80IA( 9) OF THE ACT AS EXPLAINED BY THE BINDING JUDGMENT OF BOMBAY HIGH COURT IN THE CASE O F M/S ASSOCIATED CAPSULES LTD , 332 ITR 42 (BOM), THE QUANTITY OF DEDUCTION SHALL N OT EXCEED THE PROFITS AND GAINS 27 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. OF SUCH ELIGIBLE BUSINESS. IN THE INSTANT CASE, THE ASSESSEE MENTIONED DURING THE HEARING THE DEDUCTION CLAIM EXCEEDS SUCH LIMIT IF I NCLUDED AND THEREFORE, THE CLAIM OF THIS KIND IS NOT RAISED BEFORE US. THEREFORE, THE I SSUES RELATING TO INCLUSION OF THE PROFITS OF THE EOU UNIT IN THE PROFITS OF THE BUSIN ESS IS SUPERFLUOUS AND WE SHALL NOT SPEND MUCH TIME ON THIS ISSUE IN VIEW OF THE STATEM ENTS MADE BY THE LD COUNSEL AT BAR. 46. TO SUMMARISE, THE PROFITS OF THE EOU UNIT COVER ED U/S 10B OF THE ACT SHALL ENTER THE HEAD OF INCOME PROFITS AND GAINS FROM BU SINESS OR PROFESSION AND THEREFORE THE COMPUTATION OF TOTAL INCOME OF THE A SSESSEE'. NOW WE SHALL TAKE UP THE WELL CONNECTED SECOND ASPECT OF THE ISSUE IE IN CLUSION OF EXPORT TURNOVER AND TOTAL TURNOVER OF THE EOU UNIT IN THE EXPORT AND TO TAL TURNOVER WHICH ARE PART OF THE FORMULA DEVISED FOR COMPUTATION OF THE ALLOWABLE DE DUCTION U/S 80HHC OF THE ACT. (2) SCOPE OF ASSESSEE-LEVEL EXPORT TURNOVER -INCLU SION OF EXPORT SALES OF THE EOU UNIT- COMPUTATION OF ALLOWABLE DED UCTION U/S 80HHC OF THE ACT: 47. INCLUSION OF THE EXPORT SALES OF THE EOU UNIT I N THE EXPORT TURNOVER, THE NUMERATOR OF THE FORMULA DEVISED FOR COMPUTATION TH E ALLOWABLE DEDUCTION U/S 80HHC IS THE MAIN CONTENTION OF THE REVENUE. REVENU E HAS TAKEN THE ARGUMENT AGAINST SUCH INCLUSION, WHILE IT PLEADS FOR INCLUSI ON RELEVANT TURNOVER OF THE EOU UNIT IN THE TOTAL TURNOVER, THE DENOMINATOR IN THE SAI D FORMULA. PER CONTRA, RELYING ON VARIOUS DECISIONS, THE ASSESSEE TAKES THE STAND THA T THE INCLUSIONS OF EXPORT TURNOVER AND THE TOTAL TURNOVER OF THE EOU UNIT HAS TO BE DO NE IN EXPORT TURNOVER AND TOTAL TURNOVER IN THE FORMULA. FOR THIS, WE UNDERTAKE TO EXAMINE THE RELEVANT PROVISIONS TO ADJUDICATE IF SUCH INCLUSIONS ARE PREVENTED OR OTHE RWISE. WE SHALL FIRST TAKE UP THE EXPORT TURNOVER AS DEFINED IN THE ACT. THE EXPRESSI ON EXPORT TURNOVER IS DEFINED IN THE EXPLANATION (B) TO SECTION 80HHC OF THE ACT AN D THE SAME IS REPRODUCED AS UNDER (B) EXPORT TURNOVER MEANS THE SALE PROCEEDS RECE IVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH CLAUSE (A) OF SUB-SECTION (2) OF ANY GOODS OR MERCHANDISE TO WHICH THIS 28 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. SECTION APPLIES AND WHICH ARE EXPORTED OUT OF INDIA , BUT DOES NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCHANDISE BEYOND THE CUSTOMS STATION AS DEFINED IN THE CUSTOM S ACT, 1962 48. FROM THE ABOVE, THE LEGISLATURE HAS USED THE EX PRESSIONS THE SALE PROCEEDS RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE AND THE EXPRESSIONS BY THE ASSESSEE DESERVES EMPHASIS AS IT CONNOTES THAT THE EXPORT TURNOVER SHOULD BE OF ASSESSEE LEVEL. MEANING THEREBY, THE ASSESSEES LEV EL EXPORT TURNOVER NEEDS TO BE CONSIDERED. THE EXPRESSION IS WIDE ENOUGH TO INCLU DE THE EXPORT SALES OF THE EOU UNIT. FURTHER, BY THE USE OF EXPRESSION ANY BEFO RE GOODS AND MERCHANDISE ALL THE GOODS AND MERCHANDISE IS COVERED. HOWEVER, THE RESTRICTION APPLY TO SUCH GOODS AND MERCHANDISE, WHICH ARE LISTED IN CLAUSE (B) OF SECTION 80HHC (2) I.E. MINERAL OIL AND MINERALS AND ORES (OTHER THAN PROCESSED MINERAL S AND ORES SPECIFIED IN 12 TH SCHEDULE TO ACT. 49. THE REASONING GIVEN IN THE ORDER OF THE TRIBUNA L IN THE CASE OF TATA BP SOLAR INDIA LTD, SUPRA IS REQUIRED TO BE MUTATED CONSIDER ING THE SUBSEQUENT DECISIONS/JUDGMENT OF THE HIGHER JUDICIAL FORA. THI S DECISION OF THE TRIBUNAL IE INCLUSION IN TOTAL TURN IS OK AND NOT OKAYED THE IN CLUSION IN THESE EXPORT TURNOVER IS NOT IN HARMONY WITH THE WELL ESTABLISHED PRINCIPLE OF PARITY STRONGLY PROPOUNDED BY THE HONBLE KARUNATAKA HIGH COURT IN THE CASE OF TA TA ELXISI LTD, SUPRA. WE SHALL TAKE UP THIS PRINCIPLES AT LENGTH IN THE SUBSEQUENT PARA GRAPHS. 50. TO SUMMARISE, THE GOODS AND MERCHANDISE EXPORTE D BY THE EOU UNIT OF THE ASSESSEE ARE COVERED BY THE DEFINITION TO EXPORT T URNOVER IMPORTED ABOVE. THEREFORE, THERE IS NO LEGAL BAR FOR INCLUDING THE EXPORT SALES/ TURNOVER OF THE EOU UNIT IN THE EXPORT TURNOVER OF THE ASSESSEE. NOW WE SHALL DISCUSS THE CONSEQUENCE OF SUCH INCLUSION OF THE EXPORT TURNOVER OF THE EOU UNIT. (3) PRINCIPAL OF PARITY BETWEEN NUMERATOR AND DENO MINATOR: 51. THE COMPUTATION OF ALLOWABLE DEDUCTION U/S 80HH C OF THE ACT IS DONE USING THE FOLLOWING FORMULA, NAMELY,- 29 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. PROFITS OF THE BUSINESS X EXPORT TURNOVER TOTAL TURNOVER SO FAR AS THE CONSTITUENTS OF EXPORT TURNOVER ARE C ONCERNED, THERE IS NEED FOR PARITY SUBJECTED TO THE RATIO OF THE SUPREME COURT S JUDGMENT IN THE CASE OF LAXMI MACHINE TOOLS, SUPRA IE THE RECEIPTS WITHOUT TURNOV ER ELEMENTS NEED NOT FOR PART OF THE TOTAL TURNOVER. OTHERWISE, THE PRINCIPLE RUL E IS THAT WHATEVER IS INCLUDED OR EXCLUDED FROM THE EXPORT TURNOVER, THE SAME HAS T O BE INCLUDED OR EXCLUDED FROM THE TOTAL TURNOVER. MEANING THEREBY, THERE HAS TO BE JUSTIFIABLE PARITY OF CONSTITUTES BETWEEN THESE TURNOVERS WITH ONLY EXCEPTION OF SUCH RECEIPTS, WHICH ARE WITHOUT TURNOVERS AS SPECIFIED IN THE RATIO OF THE LAXMI MA CHINE TOOLS, SUPRA. THIS PRINCIPLE IS WELL DISCUSSED BY VARIOUS HIGH COURTS IN THE CON TEXT OF PROVISIONS OF SECTIONS 10A, 10B, 80HHF, 80HHC ETC. 52. THIS ISSUE OF PRINCIPLE OF PARITY IS RELEVANT W HEN DECIDING THE INCLUSION OF TOTAL TURNOVER OF THE ASSESSEE. IN THIS REGARD JUD GMENT OF THE KARNATAKA OF HIGH COURT IS RELEVANT, THE HONBLE HIGH COURT OF THE KA RANATAKA HAS BORROWED THE EXPLANATION USED IN SECTION 80HHC FOR THE PURPOSE O F INTERPRETING THE EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF S ECTION 10A WHICH LACKS EXPRESS DEFINITIONS FOR TOTAL TURNOVER. PARA 9 TO 11 RELEVA NT IN THIS REGARD AFTER CONSIDERING THE APEX COURT DECISION IN THE CASE OF CATAPHARMA ( INDIA) PVT. LTD [(2007) 292 ITR 641(SC)] WHICH WAS DELIVERED IN THE CONTEXT OF EXCL USION OF BROKERAGE COMMISSION, INTEREST RATE ETC. FROM THE TOTAL TURNOVER (EXCIS E DUTY AND SALES TAX AT PAR) U/S. 80HHC (3) (B) OF THE ACT. LAXMI MACHINE WORKS [(20 07)290 ITR 667 (SC)] AND ANOTHER BOMBAY HIGH COURT DECISION IN THE CASE OF G EM PLUS JEWELLERY INDIA LTD.[2011 333 ITR 175] WHICH WAS DELIVERED IN THE I NCLUSION OF FREIGHT INSURANCE FROM THE TOTAL TURNOVER FOR THE PURPOSE OF SECTIO N 10A, CAME TO CLEAR KNEW ABOUT PRINCIPLE OF PARITY. THEY ALSO DISCUSSED DECISION IN THE CASE OF SAK SOFT LTD.[(2009) 313 ITR (AT), 353 (CHENNAI) SPL. BENCH] , BEFORE COMING TO THE CONCLUSION FOR UPHOLDING THE PRINCIPLE OF PARITY IN FAVOUR OF THE ASSESSEE. P ARA 10- 30 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 11 OF THE SAID JUDGMENT OF THE KARANATAKA HIGH COURT ARE RELEVANT AND THE SAME ARE REPRODUCED AS UNDER. (PAGE 59 PAGE 63 OF THE JUDGMENT),- THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDE R SECTION 10A WOULD BE AS UNDER: PROFITS OF THE BUSINESS X EXPORT TURNOVER TOTAL TURNOVER FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE AN OMALIES OR ABSURD RESULTS. SECTION 10-A IS A BENEFICIAL SECTION. IT IS INTEND ED TO PROVIDE INCENTIVES TO PROMOTE SECTION. IT IS INTENDED TO PROVIDE INCENTIV ES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS . IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AN D DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE B USINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10-A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINES S, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOV ER WOULD BE A COMPONENT OR PART OF A DENOMINATOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER, T HERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINAT OR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD A LSO BE THE SAME. IN OTHER WORDS IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNO VER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR & THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TERM TURNOVER IN SECTION 10-A, THERE IS NOTHING I N THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDIN ARY MEANING IS TO BE ATTRIBUTED TO THE SAME THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHI CH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNO VER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLA TURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WH EN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TU RNOVER, WHEN THE EXPORT 31 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE . IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATE D SO. IF THEY HAVE NOT CHOSE TO EXPRESSLY DEFINE WHAT THE TOTAL TURNOVER M EANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSI GNED BY THE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EF FECT TO, WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECT ION 10-A, WOULD BE AS UNDER: PROFITS OF THE BUSINESS X EXPORT TURN OVER _____________________ (EXPORT TURNOVER + DOMESTIC TURNOVER TOTAL TURN OVER) 11. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY E RROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10-A WHEN THE PRINCIPLE UND ERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. THEREFORE, WE DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 53. THE ABOVE EXTRACTS CONTAINS THE IN DEPTH ANALYS IS AS TO THE FORMULA FOR DETERMINING THE ALLOWABLE DEDUCTION, NUMERATOR-DENO MINATOR ANALYSIS AND FINALLY, THEY ARRIVE AT THE NEED FOR MAINTAINING THE PARITY OF THE CONSTITUENTS BETWEEN THE EXPORT TURNOVER AND TOTAL TURNOVERS. ON THE IMP UGNED ISSUE OF INCLUSION/EXCLUSION, THE JUDGMENTS PRONOUNCED IN THE CONTEXT OF SECTION 80HHC ARE EQUALLY RELEVANT FOR THE APPLICABILITY OF THE SECTION 10A AND IN FACT SE CTION 10B TOO. THESE ARE THE BENEFICIAL PROVISIONS AND THERE IS NEED FOR EXPLAIN ING THEM TO THE ADVANTAGE OF THE ASSESSEE. IT IS NOT THAT AT ALL TIMES THE INCLUSION S HELPS THE ASSESSEE. SOME TIME EXCLUSIONS HELP TOO. THEREFORE, DEPENDING ON THE FA CTS OF THE EACH OF THE CASES, THE SAID INCLUSION OR EXCLUSION NEEDS TO BE DECIDED. BU T IN ALL CASES, THE PRINCIPLE OF PARITY IN MATTERS OF INCLUSION OR EXCLUSION HAS TO BE MAINTAINED. 54. TO SUM UP, THE PROVISIONS OF SECTION 10B OF THE ACT ARE THE DEDUCTION PROVISIONS VIDE THE BINDING JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY AND IT IS SO DESPITE ITS PLACEMENT IN THE ACT AT CHAPTER III. ON THE ISSUE OF INCLUSION OF THE EXPORT SALES OF THE EOU UNIT TO THE EXPORT TURNOVE R, THE NUMERATOR OF THE FORMULA 32 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. DEVISED FOR DETERMINATION OF THE ALLOWABLE DEDUCTIO N U/S 80HHC OF THE ACT BASED ON THE FACT OF THE PRESENT CASE, THE PROVISIONS OF SEC TION 10B OF THE ACT APPLICABLE TO THE SAID EOU UNIT ARE THE DEDUCTION PROVISIONS AN D THEREFORE, THE RELEVANT PROFITS OF THE SAID UNIT ENTER THE HEAD OF INCOME PROFITS AND GAINS FROM THE BUSINESS OR PROFESSION AND IN TURN ENTER THE COMPUTATION OF T OTAL INCOME. THE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF HINDUSTHAN UNI LEVER LTD, SUPRA IS RELEVANT HERE. THESE PROFITS ARE DEALT WITH AS PER THE DEFINITION OF PROFITS OF BUSINESS GIVEN IN THE EXPLANATION (BAA) OF SECTION 80HHC AT THE TIME OF C OMPUTATION OF THE ALLOWABLE DEDUCTION UNDER THE SAID SECTION. HOWEVER, THE LIMI TATION PROVIDED IN SECTION 80IA(9) OF THE ACT APPLIES AS HELD BY ANOTHER BINDING JUDGM ENT IN THE CASE OF ASSOCIATED CAPSULES LTD, SUPRA. CONSIDERING THE REQUIREMENT OF ASSESSEE LEVEL TURNOVERS AS ELUCIDATED ABOVE, THERE IS NEED FOR INCLUDING THE E XPORT SALES OF THE EOU UNIT IN THE NUMERATOR PART OF THE SAID FORMULA DISCUSSED ABOVE. INCLUSION OF THE EXPORT TURNOVER IN THE TOTAL TURNOVER, DENOMINATOR WAS ADVOCATED BY MANY DECISIONS/JUDGMENTS INCLUDING THE TATA BP SOLAR INDIA LTD, SUPRA. FURTH ER, CONSIDERING THE PRINCIPLE OF PARITY, ONCE A CONSTITUENT IS ADDED TO THE TOTAL T URNOVER, THE DENOMINATOR, THE SAME HAS TO BE INCLUDED TO THE EXPORT TURNOVER, THE NU MERATOR. THIS LINE OF COMPUTATION GETS SUPPORT NOT ONLY FROM THE JUDGMENT OF THE KARN ATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD, SUPRA BUT ALSO BY THE VARIOUS DECIS IONS OF THE TRIBUNAL INCLUDING THE DECISION BY THIS PUNE BENCH. IN THE CASE OF M/S PAT NI COMPUTERS SYSTEMS LTD FOR THE AY 2002-03 AND 2003-04, THE TRIBUNAL CAME ACROSS A CASE OF EXCLUSION OF PROFITS AND TURNOVERS OF THE ELIGIBLE UNIT U/S 10A OF THE ACT F OR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION U/S 80HHF OF THE ACT AND THE TR IBUNAL UPHELD THE PRINCIPLE OF PARITY AND DECIDED THE CASE IN FAVOUR OF THE ASSESS EE. CONSIDERING THE ABOVE AND FOR WANT OF CONSISTENCY, WE ARE OF THE OPINION, THE PRINCIPLE OF PARITY SHOULD BE MAINTAINED IN MATTERS OF SAID INCLUSION OR EXCLUSIO N, AS THE CASE MAY BE, OF THE CONSTITUENTS OF THE NUMERATOR AND DENOMINATOR. THUS , THE ASSESSEE IS ENTITLED TO INCLUSION OF THE EXPORT SALES IN THE EXPORT TURNOVE R, NUMERATOR OF APPEARING IN THE FORMULA. CONSEQUENT TO THE SAID INCLUSION, AS ORALL Y SUBMITTED BY THE LD DR FOR THE REVENUE, THE SAID CONSTITUENT HAS TO BE INCLUDED IN THE TOTAL TURNOVER, DENOMINATOR OF THE FORMULA TOO. WE ALLOW THE SAID ORAL CLAIM OF THE REVENUE. IN SO FAR AS THE 33 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. INCLUSION OF THE PROFITS OF THE EOU UNIT IN THE PRO FITS OF THE BUSINESS IS CONCERNED, IN THE SPECIFIC CASE, THE ASSESSEE HAS RETRACTED MAKIN G SUCH CLAIM AS IT TURNOUT TO BE AN ACADEMIC EXERCISE IN VIEW OF THE RESTRICTIONS PR OVIDED IN THE PROVISIONS OF SECTION 80IA(9) OF THE ACT AS INTERPRETED BY THE HONBLE HI GH COURT IN THE CASE OF ASSOCIATED CAPSULES LTD, SUPRA. INCLUSION IN PROFITS OF BUSINE SS IS A WASTEFUL EXERCISE IN THIS CASE HENCE, IT DOES NOT MAKE ANY DIFFERENCE SINCE THE SP ECIAL DEDUCTIONS QUANTITATIVELY EXCEEDS THE AVAILABLE PROFITS AND GAINS OF THE BUSI NESS OF THE ASSESSEE. THEREFORE, IT IS FOR THE REVENUE TO INCLUDE AND RESTRICT LATER AS PER THE SAID PROVISIONS OF SECTION 80IA(9) OF THE ACT. IT IS RELEVANT TO MENTION THAT IN THIS CASE, THE ASSESSEE IS ENTITLED FOR SPECIAL DEDUCTIONS U/S 10B, 80IA AND 80HHC OF T HE ACT. THUS, THE AO IS DIRECTED TO RECOMPUTE THE ALLOWABLE DEDUCTION U/S 80HHC OF T HE ACT FOLLOWING THE PRINCIPLE OF PARITY PROPOUNDED THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD, SUPRA AND OTHER TRIBUNAL DECISIONS MENTIONED ABOVE AND ALLOW THE ENTITLED RELIEF TO THE ASSESSEE. ACCORDINGLY, THE ADDITIONAL GROUND OF THE ASSESSEE IS ALLOWED. 55 . MODIFIED GROUND 7 (ORIGINAL GROUND 6) DEALS WITH THE ASSESSEES GRIEVANCE RELATING TO THE LEVY OF STATUTORY INTEREST U/S 234B , 234C AND 234D OF THE ACT. PARAGRAPH 14 OF THE IMPUGNED ORDER DEALS WITH THIS ISSUE AND THE SAME READ AS UNDER: 14. THE GROUND 13 IS AGAINST CHARGING OF INTEREST UNDER SECTIONS 234B, 234C &234D. THIS GROUND IS NOT PRESSED . HOWEVER, CONSEQUENTIAL RELIEF, IF ANY, SHOULD BE ALLOWED . IN THIS REGARD, LD COUNSEL MENTIONED THAT THE CONSE QUENTIAL RELIEFS ARE ALLOWED AND HOWEVER, HE DID NOT ADJUDICATE THE ISSUES BY PASSIN G A SPEAKING ORDER. FURTHER, LD COUNSEL REFERRED TO THE GROUND 6(C) OF ORIGINAL GRO UNDS AND STATED THAT THE SAID GROUND RELATES TO APPLICABILITY OF THE AMENDED PROV ISIONS OF SECTION 234D OF THE ACT TO THE AY 2001-02 UNDER CONSIDERATION AND IN THIS REGARD, THE COUNSEL STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISION IN THE CASE OF EKTA PROMOTERS (P) LTD (113 ITD 719)(2008)( SB)(DEL). LD COUNSEL ARGUED 34 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. THAT THE CIT(A) ERRED IN CONCLUDING WITHOUT DISCUSS ION THAT THE AMENDED PROVISIONS APPLY TO THE AY 2001-02 AND THE REFUNDS RECEIVED AF TER THE AMENDMENT BROUGHT OUT BY THE TAXATION LAWS (AMENDMENT) ACT, 2003 W.E.F 1S T JUNE, 2003. THE LEARNED DR RELIED ON THE ORDERS OF THE REVENUE. 56. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S OF THE REVENUE. THE CIT(A) CONFIRMED THE LEVY OF INTEREST U/S 234D ON THE GROU ND THAT THE REFUND WAS GRANTED TO THE ASSESSEE ON 19.6.2003 IE AFTER THE AMENDMENT BECAME EFFECTIVE ON 1.6.2003. IN THIS REGARD, WE HAVE ALSO PERUSED THE SAID SPECI AL BENCH DECISION IN THE CASE OF EKTA PROMOTERS (P) LTD (SUPRA). THE PERUSAL OF THE SAID DECISION REVEALED THAT THE RATIO OF THE SAME COVERS THE CASE UNDER CONSIDERATI ON. IN VIEW OF THE IMPORTANCE, THE CONCLUSION PART OF THE SAID ORDER IS REPRODUCED AS UNDER. SECTION 234D INSERTED IN THE INCOME TAX ACT, 61, B Y THE TAXATION LAWS (AMENDMENT) ACT, 2003 W.E.F 1ST JUNE, 2003, BEING S UBSTANTIVE IN NATURE, HAS NO RETROSPECTIVE EFFECT, HENCE APPLICABLE FROM THE AY 2004-05 ONLY; INTEREST U/S 234D IS CHARGEABLE FROM THE AY 2004-05 ONLY AND IT COULD NOT BE CHARGED FOR EARLIER ASSESSMENT YEARS EVEN THOUGH REGULAR ASSESSMENTS FO R SUCH EARLIER ASSESSMENT YEARS ARE FRAMED AFTER 1 ST JUNE, 2003 OR REFUND IS GRANTED FOR THOSE YEARS AF TER THE SAID DATE. 57. THE ABOVE EXTRACTION OF THE CITED DECISION OF T HE SPECIAL BENCH IS UNAMBIGUOUS IN STATING THAT THE INTEREST COULD NOT BE CHARGED FOR EARLIER ASSESSMENT YEARS EVEN THOUGH THE REGULAR ASSESSMENTS FOR EARLI ER ASSESSMENT YEARS IE EARLIER TO THE AY 2004-05, ARE FRAMED AFTER 1 ST JUNE, 2003 OR THE REFUND IS GRANTED FOR THOSE YEARS AFTER THE SAID DATE. THEREFORE, ORDER OF THE CIT (A) HAS TO BE REVERSED ON THIS ISSUE. ACCORDINGLY, GROUND 6(C) OF THE ASSESSEE IS ALLOWED . REGARDING OTHER GROUNDS OF 6(A), 6(B) AND 6(D), SINCE ALLOWED ON TH E GROUND OF THE PRINCIPLE OF CONSEQUENTIALITY, THE DECISION OF CIT(A) IS AFFIR MED AND ALLOWED IN FAVOUR OF THE ASSESSEE. ORIGINAL GROUND 6 WITH ITS SUB-GROUNDS IS ALLOWED. 35 ITA NO.948/PN/2005 ASSESSMENT YEAR:2001-02 SERUM INSTITUTE OF INDIA LTD. 58. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE COURT ON 18 TH JANUARY, 2012. SD/- SD/- (I.C.SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED:18 TH JANUARY, 2012. COPY TO:- 1) ASSESSEE 2) THE ADDL..CIT CIR.6,PUNE 3) THE CIT(A) II, PUNE 4) THE CIT CONCERNED 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVAATE SECRET ARY I.T.A.T., PUNE