SHRI BALAJI YARN TRADERS PVT. LTD. vs. A.C.I.T.

Facts

The assessee, Shri Balaji Yarn Traders Pvt. Ltd., is a private limited company engaged in the manufacture of clothes for local and export sales. For Assessment Year 1996-97, it filed a return declaring Nil income. The Assessing Officer passed an assessment order under Section 143(3) on March 31, 1998. The assessee appealed to the CIT(A), which partly allowed the appeal. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, which passed the impugned order on July 2, 2003. The present appeal is filed by the assessee against the ITAT's order.

Held

The High Court held that the ITAT had erred in its judgment. The Court found that the issue was concluded by the Delhi High Court's decision in CIT v. Padmini Technologies Ltd. In that case, the Delhi High Court had held that if two businesses are carried on in separate undertakings, with separate books of account and separate profit and loss accounts, then the total turnover of business under Section 80HHC would only mean the total turnover of the business of goods to which the section applies. Therefore, the turnover of the domestic unit could not be included in calculating the deduction under Section 80HHC. The High Court noted that the Revenue's counsel was not in a position to dispute this proposition of law. Consequently, the question was answered in favour of the assessee and against the Revenue. The appeal was disposed of without elaborate reasons, following the Delhi High Court's judgment.

Key Issues

1. Whether, on the facts and in the circumstances of the case, when actual profits from export turnover are known and agreed, it is necessary under Section 80HHC of the Income-tax Act, 1961, to disregard this actual figure of profit from the export division and substitute it with a theoretical figure derived by clubbing the profit and turnover of both the export and local divisions, and then apportioning such total profits in proportion to the turnover of the two divisions under Section 80HHC(3)(a), despite both divisions being identifiable and separate with their own actual profits? Assessee's contention: The assessee argued that the ITAT erred in holding that even with two separate manufacturing divisions (export and local) and separate books of accounts, the actual export profits should be substituted by a theoretical figure derived from clubbing turnovers and apportioning profits, due to Section 80HHC. The assessee relied on decisions in CIT v. Vegetable Products Ltd., CIT v. M. Gani & Co., CIT v. Suresh B. Mehta, and CIT v. Rathore Brothers. Revenue's contention: The Revenue drew attention to the Delhi High Court's decision in CIT v. Padmini Technologies Ltd., stating that the ITAT's reliance on IPCA Laboratory Ltd. v. Dy. CIT was duly considered in that case.