Teeknits V. Commissioner of Income Tax, Ludhiana

ITA/284/2004

AI Insights

The case involves M/s Teeknits, the appellant, contesting the decision of the Commissioner of Income Tax, Ludhiana, regarding the deduction under Section 80HHC of the Income Tax Act, 1961 for the assessment year 1998-99. The primary legal issue was whether the net loss under Section 80HHC should be adjusted against export incentives. The Assessing Officer initially allowed a deduction under Section 80HHC, which was later contested by the revenue and led to the Tribunal's decision favoring the Assessing Officer's original computation. The High Court dismissed the appeal, referencing the Supreme Court's decision in IPCA Laboratories Ltd. v. DCIT, which supported the Tribunal's view.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 796700 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 07-10-2010
• Assessment Year: misc
• Other Referred Cases: IPCA Laboratories Ltd. Vs. DCIT, Commissioner of Income-Tax v. Avon Cycles Ltd., Rashtra Udyog Ltd. v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: RAJESH KATOCH
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Deduction under section 80HHC; Export Profits; Substantial question of law; Net loss adjustment
• Section: 80HHC

Judgement Text

"ITA No. 284 of 2004 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 284 of 2004 Date of Decision: 7.10.2010 M/s Teeknits ....Appellant. Versus Commissioner of Income Tax, Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 284 and 285 of 2004 as common question of law and facts are involved therein. For brevity, the facts are being taken from ITA No. 284 of 2004. 2. This Court vide order dated 24.3.2005 admitted the appeal, for determination of the following substantial question of law:- “Whether the Tribunal was justified in law in holding that the issue raised was covered by the decision of the Supreme Court in IPCA Laboratories Ltd. Vs. DCIT (2004) 266 ITR 521 and a net loss under section 80HH(3) and A, B and C has to be adjusted against export incentive?” 3. Facts necessary for adjudication as narrated in the appeal may be noticed. The assessee filed its return for assessment year 1998-99 on 23.10.1998 declaring nil income. During the course of assessment proceedings, it was noticed that assessee had made ITA No. 284 of 2004 -2- substantial export sales and after claiming deduction under Section 80HHC of the Income Tax Act, 1961 (in short “the Act”), the net profit of Rs.20,80,937/- was reduced to nil after taking benefit of deduction under Section 80HHC. The assessee claimed that the loss under Section 80HHC (iiia), (iiib) and (iiic) be ignored and the benefit only in respect of the incentives be given and claimed deduction of Rs.28,91,946/- under Section 80HHC. The Assessing Authority vide assessment order dated 22.12.2000 allowed the claim of deduction under Section 80HHC to the extent of Rs.20,13,378/-. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 20.4.2001 allowed the claim of the assessee in the appeal. Feeling dissatisfied, the revenue took the matter in appeal before the Tribunal, who vide order dated 19.4.2004 set aside the order of the CIT (A) on the issue in question and restored that of the Assessing Officer. Hence, the present appeal by the assessee. 4. We have heard learned counsel for the parties and perused the record. 5. The Assessing Officer while dealing with the aforesaid issue had allowed the deduction under Section 80HHC of the Act to the assessee. The Assessing Officer had computed the income as under:- “Total Turnover Rs.61126238/- Total export turnover Rs.52486157/- Proportion of export turnover to total Rs.85.86% turnover. 90% of export incentives (3742232) Rs.3368068/- ITA No. 284 of 2004 -3- Business profits (2342955-3366008) (-) Rs.1023053/- Export profits (3368008x85.86/100 (-) Rs.2013378/- 1023053 x 85.86/100)” 7. The primary question raised by the assessee was that the loss which was incurred by the assessee was not liable to be excluded from export profits. However, the said stance has been negatived by the Tribunal in view of the decision of Hon'ble Supreme Court in IPCA Laboratories Ltd. v. DCIT [2004] 266 ITR 521. The said view was followed by this Court in Commissioner of Income-Tax v. Avon Cycles Ltd., [2008] 303 ITR 345 (P&H). Further an amendment by Taxation Laws (Amendment) Act, 2005 has been made retrospectively w.e.f. Ist April, 1992 whereby fifth proviso has been inserted which is to the following effect:- “Provided also that in case the computation under cl. (a) or cl. (b) or cl. (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of- (a) any sum referred to in cl. (iiia) or cl. (iiib) or cl. (iiic), as the case may be, or (b) any sum referred to in cl. (iiid) or cl. (iiie), as the case may be, of s. 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.” 8. The said provision came up for consideration before the ITA No. 284 of 2004 -4- Calcutta High Court in Rashtra Udyog Ltd. v. Commissioner of Income Tax, [2009] 23 DTR (Cal) 383, wherein it has been held that the profit referred in Section 80HHC(3)(a) included losses and deduction under the said Section had to be allowed after adjusting losses against the amount computed under the proviso contained therein. 9. Further, learned counsel for the assessee was unable to pinpoint any error in the deduction which has been allowed by the Assessing Officer as noticed above. 10. In view of the above, there is no merit in these appeals and the same are hereby dismissed. (AJAY KUMAR MITTAL) JUDGE October 7, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 284 of 2004 -5- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 285 of 2004 Date of Decision: 7.10.2010 M/s Teeknits ....Appellant. Versus Commissioner of Income Tax, Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is dismissed. For orders, see ITA No. 284 of 2004 (M/s Teeknits v. Commissioner of Income Tax, Ludhiana). (AJAY KUMAR MITTAL) JUDGE October 7, 2010 (ADARSH KUMAR GOEL) gbs JUDGE "