Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI KUL BHARAT & SHRI NIKHIL CHOUDHARY
PER KUL BHARAT, VICE PRESIDENT.: This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income-tax (Appeals)-1, Kanpur, dated 15.07.2016, pertaining to the assessment year 2004-05. The assessee has raised the following grounds of appeal: - “1.Because the CIT(A) has failed to appreciate the facts and circumstances of the case and has erred in not allowing the deduction both under section 80IB and 80HHC simultaneously from the net profit, which action of the CIT(A) is bad in law, the order be quashed.
1. 2. Because the CIT(A) has erred on facts and in law in wrongly holding, that the issue is vexed and undecided by the Hon’ble Supreme Court and hence, the fate of the present appeal would be decided either way on the basis of the order of the Hon'ble Supreme Court. In such circumstances, the appeal should have been kept pending, the order passed by the CIT(A) is erroneous.
3. Because in any case, the decision in favorable to the assessee should have been adopted and the appeal should have been allowed in favor of the assessee.
4. Because the CIT(A) has erred on facts and in law in holding that both the deductions under section 80IB and 80HHC are not to be allowed simultaneously, but are allowable one after the year, which decision of the CIT(A) is erroneous and misconceived, the order is liable to be quashed.” 2. The only effective ground in this appeal is with regard to the claim of deduction u/s 80IB and also 80HHC of the Income Tax Act, 1961 (“Act”, for short) simultaneously from the net profit.
The facts giving rise to the present appeal are that in this case, the assessee filed its return of income declaring total income at Rs.2,17,52,380/- on 01.11.2004. The return was processed u/s 143(1) of the Act and a refund of sum of Rs.25,52,093/- was determined by the Assessing Authority. Thereafter, the case of the assessee was taken up for scrutiny assessment. In response to the notices issued u/s 143(2) of the Act, the Ld. Authorized Representative of the assessee attended the proceedings. The assessee is a partnership firm engaged in the business of manufacture and sale of finished leather. The assessee firm was having two Units, at situated at Jajmau, Kanpur (Old Unit) and the other situated at Banthar Industrial Area, Unnao. The assessee filed its separate set of audited Profit & Loss account and balance-sheet in respect of the Banthar Unnao Unit and Jajmau Kanpur Unit along with the return of income. It was noticed that the deduction u/s 80IB of the Act and also deduction 80HHC of the Act, the Assessing Officer did not allow the deduction as claimed by the assessee on the basis that the assessee could not have claimed both the deductions.
Page 3 of 11 Aggrieved by this, the assessee preferred an appeal before the Ld. CIT(A) who partly allowed the appeal of the assessee. Now, the assessee is in appeal before this Tribunal.
At the outset, the Ld. Counsel for the assessee stated that the issue is now covered by the judgment of the Hon’ble Supreme Court has decided the issue in favour of the assessee. He contended that the judgment of the Hon’ble Bombay High Court rendered in the case of Associated Capsules (P.) Ltd vs DCIT, Central Circle-43 (332 ITR 42) has been approved by the three Judges Bench of the Hon’ble Apex Court rendered in the case of Shital Fibers Ltd vs CIT (Civil Appeal No.14318 of 2015) along with other appeals. Hence, the issue now stands decided in favour of the assessee. Further, the Ld. Counsel for the assessee reiterated the submission as made in the brief submission. For the sake of clarity, the submission of the assessee is reproduced as under: - “1. In connection to the above, it is humbly submitted before your honour that the case of appellant is fixed for hearing on 20.01.2025 and was earlier kept as sine die.
That the issue in the case of the appellant involves whether the appellant would be allowed simultaneous deduction of Section 8OHHC and 801/B or deduction under section 80HHC on total income after excluding the deduction available under section 801B of the Act. The Id.AO has excluded the deduction available to the appellant u/s 801B of the Act of Rs.28,56,197/-. The appellant humbly submits before your honour that though the issue is pending before the larger bench of Apex Court in the case of ACIT Vs. Micro Labs Ltd. reported in [2015] 64 taxmann.com 199 (SC) dated 10-12-2015 but the Hon’ble Supreme Court in the case of ACIT vs. IPCA Laboratories Ltd, SLP No. 19270 of 2013 dated 03.07.2019 has dismissed the SLP of the department and the decision of Hon’ble Bombay High Court in the case of IPCA Laboratories Ltd vs ACIT, of 2009 was affirmed following the decision of Associated Capsules (P) Ltd. vs. DCIT, 332 ITR 42 where the Hon’ble Bombay High Court has held that the assessee would be eligible to deduction us 801B and 80HHC simultaneously and was directed to recompute the deduction in the light of aforesaid decision.
Page 4 of 11 Furthermore, the Hon’ble Lucknow Tribunal in the case of in the case M/s. ATO Exims Pvt. Ltd. Vs. ITO [ dated 15-02-2018 and M/s. Euro Footwear Ltd. Vs. ACIT [ & 878/Lkw/2008] dated 18-12-2014 has held the issue in favour of the assessee that the assessee would be eligible to the deduction u/s 80IB and 80HHC simultaneously. Relying upon the decision of Hon’ble Bombay High Court in the case of Associated Capsules (P) Ltd. vs. DCIT, 332 ITR 42 the Hon’ble Lucknow Tribunal has held in the case of M/s. ATO Exims Pvt. Ltd. Vs. ITO [ ITA No. 449/Lkw/2016] dated 15-02-2018 as under: “10. We therefore, following the view taken by the Tribunal in earlier year, set aside the order of the Id.CIT(A) and direct the Assessing Officer to compute deduction under section 80HHC of the Act and while computing the deduction, he should not exclude the income on which deduction under section 80-IB of the Act has been allowed while computing the profit of the business. This ground is allowed for statistical purposes.”
Moreover, the Hon’ble High Court in the case of Hon’ble High Court of Allahabad order in the case of Commissioner of Income Tax & Other Vs. M/s. Rashid Exports Industries [ITA No. 734 of 2007] and Commissioner of Income Tax & Another Vs. Asian Handicrafts [ITA No. 598 of 2011] dated 11-12-2015 has quashed the 263 proceeding of the Id. CIT on the premise that there are divergent views of the courts on the issue of simultaneous deduction and the Id.AO has adopted a view that the assessee is eligible for simultaneous deduction u/s 801B and 80HHC which is permissible in law or where two views are possible then CIT could not exercise its power u/s 263 to differ the view of AO even if there was a loss of revenue.
6. The appellant further humbly submits before your honour that the Id.CIT(A) has given his finding at page 3 of his order that as the issue is vexed and undecided by the Hon’ble Supreme Court and the assessee will be entitled to due relief if the aforesaid decision of Hon’ble Chief Justice of India is in his favour, otherwise appeal shall be automatically dismissed. The appellant in view of above finding of the Id.CIT(A) humbly submits before your honour that the larger bench has not decided the Issue yet whereas the decision of Hon’ble Bombay High Court is in favour of the appellant where the SLP of the department has also been dismissed. The appellant humbly request your honour that the view favorable to the assessee may kindly be followed for which reliance is placed upon Vegetable Products (SC) 82 ITR 192 and in case the Larger Bench of Hon'ble Supreme Court decides the issue against the assessee then the Issue may accordingly be appropriated by the department.
In case your honour deem fit the case may kindly be decided on the above case authorities cited or as your honour deem fit in the interest of justice.”
5. On the other hand, the Ld. Departmental Representative for the Revenue opposed the submission of the assessee and contended that the submission filed by the Ld. CIT(A) on “1. The case of the assessee was selected for scrutiny u/s 143 (3) on 22.12.2006 for AY 2004-05 The assessee is a partnership firm engaged in ‘the business of manufacture and sale of finished leather. The assessee firm has two units, one is situated at Jajmau, Kanpur (Old: Unit) and second one is in Banthar Industrial Area, Unnao. The Banthar Unit, Unnao started in its second year of its production, The assessee has filed two separate sets of audited Profit & Loss account and Balance sheet in respect of each unit. The assessee has claimed the deduction u/s 80IB and 8OHHC at the total amounts of profit earned from Banthar Unit, Unnao, aggrieved with the Order of A.O., the assessee has filed an appeal before Ld. CIT (A). Further, the assessee has filed second appeal before Hon'ble Bench of Lucknow in ITA 190/LKW/2011. Vide Order dated ‘93.12.2013, the Hon'ble Bench ITAT directed that the case has set aside and restored to CIT (A) Only for point no.
3. Point No. 3 of ground of appeal
is reproduced below: “…………..
3. Because the authorities below have erred on facts and in law in reducing the profits of the business by the amount of deduction allowed u/s 80IB while computing the deduction u/s 80HHC in respect of Banthar Unit...” The Ld. CIT: (A) has passed order on 15.07.2016 vide which the appeal is partly allowed. The main contention of the assessee is not allowing the deduction both u/s 80IB and 80HHC simultaneously from the net profit by the CIT (A).
1. Deduction u s 80IB The deductions u/s 80IB is claimed 100% of the profits which includes the export incentive on account of duty draw back and DEPB entitlements. The assessee should have excluded the amount of export incentive received by way of duty draw back and DEPB entitlements and only on the balance amount of profits and gains a business at all available with the assesses should be claimed deduction u/s 8OIB. The A.O. was taking the support of Hon’ble Apex Court in the case of CIT Vs Sterlin: Foods 1999 237 ITR 579, it is held that the following principles: "The word "derive" is usually by the word "from", and it means: get, to trace from a source; arise from, originate in; show the origin or formation of". The source of import entitlements could not be said to be the industrial undertaking of the assessee. The source of the import entitlements could only be said to be the export Promotion Scheme of the Central Government where under the export entitlements became available. There must be, for the application of the words “derived from’ a nexus between the profits and gains and the Industrial nexus was not direct by only undertaking. In the Instant case, the incidental. The Industrial undertaking exported processed sea foods. By reason of such export, the Export promotion Scheme applied. There under, the assessee was entitled to Import entitlements, which it could sell. The assessee's industrial undertaking. The receipts from the sale of Import 4ntitlements could not be included in the income of the assessee for the purpose of computing the relief under s. 80HH of the IT Act, 1961."
Page 6 of 11 Double Deduction Debarred u s 80IA(9) Deduction wake section 80-IA - he Section 80-IA(9) specifically debars the assessee from claiming the deduction on the income on which the deduction under section 801B has been allowed, calculating the deduction u/s 80HHC without deducting the deduction u/s 801B is wrong and cannot be allowed. The effect of beneficial section can be bestowed upon the assessee only when all conditions, qualifications and limitations should applied upon case. These beneficial sections provides inner ring road Imposing estrictions upon the quantum of eligible Income or any other limitations. Since the assessee is only benefited by these sections, he is required to comply with all the restrictions and limitations provided by the section. Section 80AB provides the outer ring road and it never says that the provisions of other beneficial sections regarding computation of deductions should not be followed. As section 801B read with section 801A (9) /80IB (13) specifically provided that where any amount of profits and gains of any Industrial taking of an assessee is claimed and allowed u/s 80IA for any assessment year, in such a situation deduction to the extent of such profits and gain shall not be allowed under any of sections 80HH to 8ORRA. That is the deduction u/s 80HHC ought to have been computed after reducing the amount of deduction u/s 80IB. In support of the above findings, the following case law is relied upon: 1. Sun Pharmaceutical Industries Ltd. Vs. DCIT 75 taxmann.com 143 Gujarat 14.09.2016 The Hon’ble High Court held that “Section 8OHHC, read with section 80, of the Income-tax Act, 1961 - Deductions - Exporters (Sub-section (9)) Whether provisions of section 80-1A(9) have to be applied while considering assessee's claim for deduction under section 80H C Held, yes [Para 7] [In favour of revenue]” In support of ithe above findings, some landmark judgements of Hon’ble Apex Curt as well as High Court are as below: 2. Shah Originals Vs. CIT 459 ITR 385 SC 21.11.2023 The Hon’ble (Apex Court held that “ Section 80HHC of the Income tax Act, 1961 Deduction Exporters (Computation of deduction) Assessment ‘years 2000-01 and 2001-02-Whether as per section 8OHHC deduction is intended and restricted only to profits of business of exports of goods and merchandise outside India by assessee, therefore, gain from Foreign Currency (EEFC) account would not fall within meaning of ‘derived from’ export of garments by assessee and profit from exchange fluctuations being independent of export earnings could not be included in profits of business while calculating deduction under section 80HHC Held, yes [Paras 12.2 and 13] [in ‘favour of revenue]” 3.Saraf Exports Vs. CIT 453 ITR 625 SC 10.04.2023 The Hon’ble Apex Court held that “ Section 80-IB, read with section 28, of the Income-tax Act, 1961 Deductions Profits and gains from industrial undertakings other than infrastructure development undertakings Page 7 of 11 (Computation of deduction) Assessment year 2008-09 assessee-partnership firm was engaged in business of manufacturing and exporting wooden handicraft items - assessee claimed deduction on account of receipts from Duty Entitlement Pass Book Scheme (DEPB) and Duty Drawback Scheme under section 80IB Whether said receipts were incentive profits and could not be said to be derived from an industrial undertaking and, thus, assessee would not be entitled to claim deduction under section 80-IB with respect to said receipts - Held, yes [Paras 7.3, 7.6 and 8] [In favour of revenue]”
4. Broadways Overseas Ltd. Vs. CIT 262 Taxman 208 SC 18.02.20219 The ‘Hon'ble, Apex Court held that “Section 80HHC, read with sections 80- 1A and 80-IB, of the Income-tax Act, 1961 Deductions Exports (Computation of deduction) - Assessment years 2001-02 and 2003-04 High Court by impugned order held that if an assessee has claimed deduction of profit or gains under section 80-1B, deduction to that extent is not to be allowed under section 80HHC — Whether ; Special leave petition filed against impugned order was to be dismissed - Held, yes [Para 22] [In favour of revenue]” PRAYER In view of the above submissions, the order of the Learned Commissioner of Income Tax (Appeals)-1, kanpur, it is humbly prayed that the addition confirmed by the Learned Commissioner of Income Tax (Appeals)-1, Kanpur nay kindly be upheld and appeal of the assessee may kindly be dismissed.”
Heard, the Ld. Representatives of the parties and perused the materials available on record. Before adverting to the rival contention, the relevant finding of the Ld. CIT(A) is reproduced as under: - “The only issue to be decided in this appeal, the deduction is to be allowed u/s 8O0HHC. In the return deduction both u/s 80IB and 80HHC were claimed. The AO computed the deduction u/s 80IB and after allowing deduction of same, computed deduction u/s 80HHC on remaining profits and allow the same. It is claim of the assessee that both deduction u/s 80IB and 80HHC should be allowed indepently and not after setting off the deduction u/s 80IB. The Bombay High Court has set at rest the controversy In the case of Associated Capsules Pvt. Ltd. 332 ITR 42. The Bombay High Court has held that both the deduction u/s 80IB and 80HHC have to be allowed symenteniously subject to the effect that the deduction claimed under both the section 80IB & 80HHC should not exceed 100% of the assessed income.” Hon‘ble Supreme Court in the case of Advanced Microlabs vs ACIT had to consider whether section 80-1A(9)/80IB of the Income-Tax Act, 1961 mandates that the amount of profits allowed as deduction under section Page 8 of 11 80-1A(1) of the Act has to be reduced from the profits of the business of the undertaking while computing deduction under any another provisions under heading C in Chapter VI-A (u/s 80HHC) of the Income-tax Act, 1961? It was noted that the Bombay High Court had in Associated Capsules Private Limited v. Deputy Commissioner of Income Tax and another [2011] 332 ITR 42 (Bom) dissented from the view taken by the Delhi High in Great Eastern Exports vs Commissioner of Income-Tax [2011] 332 ITR 14 (Delhi). While Hon‘ble Mr. Justice Anil R. Dave took the view that the judgement of the Delhi’ High Court in Great Eastern Exports v. €commissioner of Income-Tax [2011] 332 ITR 14 (Delhi) lays down the correct position in law and allowed the appeals of the Revenue, Hon'ble Mr. Justice Dipak Misra dissented and held that the law laid down by the Bombay High Court had in Associated Capsules Private Limited v. Deputy Commissioner of Income Tax and another (2011) 332 ITR 42 (Bom) lays down the correct position in law and dismissed the appeals of the Revenue. Judgment: In view of difference of opinion, the matters are referred to a larger Bench. The Registry is directed to place the matters before the Hon’ble the Chief Justice of India, so that the same can be referred to an appropriate Bench. Decision As the issue is vexed and undecided by the Hon’ble Supreme Court, assessee will be entitled to due relief if the aforesaid decision of Hon’ble the Chief Justice of India is in his favour, otherwise appeal shall be automatically dismissed.”
7. From the above finding, it is clear that the Ld. CIT(A) has noted about the diversion view taken by the Hon’ble High Court and also dissenting view of the Hon’ble Supreme Court. The Hon’ble Supreme Court in the case of Shital Fibers Ltd vs CIT (supra) has held as under: - “23. Hence, we find that the view taken by the Bombay High Court is correct. Dipak Misra, J (as he then was), in paragraphs 47 and 48 of the decision in the case of Assistant Commissioner of Income Tax, Bangalore v. Micro Labs Limited1 approved the view taken by Bombay High Court in the aforesaid case. Paragraphs 47 and 48 read thus: “47. It is in the context of Section 80-HHC that sub-section (9) of Section 80-I has come up for interpretation. There is no dispute that sub-section (9) of Section 80-I would be applicable as the assessee would be entitled to deduction under Section 80-IA as well as under Section 80-HHC. The contention of the Revenue is that the said sub-section mandates that deduction under Section80-HHC has to be computed not only on the profits of business as reduced by the amounts specified in clause (baa) and sub-section (4-B) of Section 80-HHC but by also reducing the amount of profit and gains allowed as a deduction under Section 80-IA(1) of the Act. In other words, the gross total income eligible for deduction under Section 80-HHC would be less or reduced by the deduction already allowed under Section 80-IA. Thus, the gross total income eligible for deduction would not be the gross total income as defined in sub- section (5) of Section 80-B read with Section 80-B, but would be the gross total income computed under sub-section (5) of Section 80- B read with Section 80-AB less the deduction under Section 80-IA. An example will make the position clear. Supposing an assessee has gross total income of Rs 1000 and is entitled to deduction under Sections 80-IA and 80- HHC and the deduction under Section 80-IA is Rs 300, then the gross total income of which deduction under Section 80-HHC is to be computed would be Rs 700, and not Rs 1000.
On the other hand, the case of the assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80-HHC. The two deductions will be computed separately, without the deduction allowed under Section 80-IA being reduced from the gross total income for computing the deduction under Section 80-HHC. The reason being that sub- section (9) of Section 80-IA does not affect computation of deduction under Section 80- HHC, but postulates that the deduction computed under Section 80-HHC so aggregated with the deduction under Section 80-IA does not exceed the profits of the business.” In paragraphs 53 and 54 of the same decision, it is held thus:- “53. The first part of sub-section (9) of Section 80-IA refers to the computation of profits and gains of an undertaking or enterprise allowed under Section 80-IA in any assessment year and the amount so calculated shall not be allowed as a deduction under any other provisions of this Chapter. It is in this context that the Bombay High Court has rightly pointed out that there is a difference between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub- section (9) of Section 80- IA does not bar or prohibit the deduction allowed under Section 80-IA from being included in the gross total income, when deduction under Section 80- HHC(3) of the Act is computed. In this context it has been held that the expression “shall not be allowed” cannot be equated with the words “shall not qualify” or “shall not be allowed in computing deduction”. The effect thereof would be that while computing deduction under Section 80-HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80-IA or other sections of Part C of Chapter VI-A of the Act. But once the deduction under Section 80- HHC has been calculated, it will be allowed, ensuring that the deduction under Sections 80-HHC and 80-IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise.
As I find, the legislature has used the expression “shall not qualify” in Sections 80- HHB(5) and 80-HHD(7), but the said expression has not been used in sub-section (9) of Section 80-IA. The formula prescribed in sub-section (3) of Section 80-HHC is a complete code for the purpose of the said computation of eligible profits and gains of business from exports of mercantiles and goods. It has reference to total turnover, turnover from exports in proportion to profits and gains from business in clause (a) and so forth under clauses (b) and (c) of Section 80- HHC(3) of the Act. In case the gross total income is reduced or modified taking into account the deduction allowed under Section 80-IA, it would lead to absurd and unintended consequences. It would render the formula under sub-section (3) of Section 80-HHC ineffective and unworkable as highlighted in para 30 of the decision in Associated Capsules (P) Ltd. [Associated Capsules (P) Ltd. v. CIT, 2011 SCC Online Bom 27 : (2011) 332 ITR 42 (Bom)] with reference to clause(b) of Section 80-HHC(3). Even when I apply clause (a) and calculate eligible deduction under Section 80- HHC, it would give an odd and anomalous figure. To illustrate, I would like to expound on the Page 10 of 11 earlier example after recording that the gross total income of Rs 1000 was on assumed total turnover of Rs 10,000 which includes export turnover of Rs 5000 and the deduction allowable under Section 80-IA was 30% and the deduction allowable under Section 80- HHC was 80% of the eligible profits as computed under Section 80-HHC(3). The stand of the Revenue is that without alteration or modification of the figures of total turnover and the export turnover, the gross total income would undergo a reduction from Rs 1000 to Rs 700 as Rs 300 has been allowed as a deduction under Section 80-IA. This would result in anomaly for the said figure would not be the actual and true figure or the true gross total income or profit earned on the total turnover including export turnover and, therefore, would give a somewhat unusual and unacceptable result. There is no logic or rationale for making the calculation in the said impracticable and unintelligible manner.”
In view of what we have held above, we find that the interpretation made by the Bombay High Court in the case of Associated Capsules (P) Ltd. v. Deputy Commissioner of Income Tax and Anr appears to be logical and correct.”
The issue in question regarding the claim of deduction by the assessee is now settled by the Hon’ble Supreme Court in the case of Shital Fibers Ltd vs Commissioner of Income Tax (supra). Moreover, the Revenue has also not brought any adverse material suggesting that the assessee is not entitled for the claim of deduction. Therefore, respectfully following the judgment of the Hon’ble Supreme Court in the case of Shital Fibers Ltd vs Commissioner of Income Tax (supra), the Assessing Officer is directed to delete the additions. The grounds raised in this appeal are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 20/08/2025.