M/S. INDAGRO FOODS LTD.,MUMBAI vs. ACIT - (OSD) 2(1), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. These three appeals by assessee are directed against the order of ld. CIT(A)-II, Mumbai dated 08.12.2008 for Assessment Years 2003-04, 2004-05 & 2005-06 respectively. In all the appeals, the assessee has

raised the certain common grounds of appeal, therefore, all the appeals were clubbed, heard and are decided by common order. With the consent of the parties, the appeal for A.Y. 2003-04 are treated as lead case. In

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

appeal for AY 2003-04 (ITA No.7342/Mum/2008) the assessee has

raised the following grounds of appeal:

The Commissioner of Income Tax (Appeals) - II has erred in confirming the order of the Assistant Commissioner of Income Tax OSD 2(1) and erred- 1.1 in not allowing the Appellant a deduction under Section 80IB in respect of profits earned by the Appellant from an undertaking set up in an eligible backward district on the ground that the activity of the Appellant did not amount to either "manufacture" or "production". 1.2 in not appreciating that the Appellant was actually manufacturing products which were commercially distinct and different from the raw materials used in an integrated manufacturing undertaking. 2.1 In denying the Appellant, a Supporting Manufacturer, deduction under Section 80HHC only on the ground that the Export House, Allanasons Ltd, which has issued a Disclaimer Certificate under Section 80HHC was not entitled to any deduction under Section 80HHC. 2.2 in not appreciating that the deduction under Section 80HHC to the Appellant is allowable in its capacity as a Supporting Manufacturer for which separate sub-section (1A), (3A), (4A) and explanation clauses (d) and (e) are applicable and that the proviso to sub-section (1) can only apply to and limit the amount of deduction In case of an Export House but cannot affect the eligibility of the Appellant for claiming the deduction. 2.3 in not appreciating that the Export House is entitled to a deduction under Section 80HHC as amended by Taxation Laws (Amendment) Act, 2005 since loss before export Incentives can be set off against export Incentives and Its calculation of deduction under Section 80HHC as per Audit Report in Form 10CCAC showed a similar calculation.

A.Y. 2003-04 raised the following additional grounds of appeal:

2.4 in not adjudicating that the appellant would be entitled to a deduction u/s 80HHC on profits earned from exports as well as u/s 80IB for profits earned from manufacturing activity in a backward area so long as the 2

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

aggregate deduction u/s 80HHC and 80IB does not exceed the profit earned by the undertaking.

manufacturing and export of frozen food stuff, filed its return of income on

10.11.2003 declaring an income of Rs. 12,12,03,830/-. The return of

income was selected for scrutiny. In the return of income, the assessee

claimed deduction under section 80HHC of Rs. 7,55,83,940/- on the

ground that it is engaged in the business of manufacturing and processing

food stuff, mainly meat and vegetables. The assessee claimed deduction

under section 80HHC as a supporting manufacturer on the basis of

disclaimer certificate in respect of turn over issued by Export House,

‘Allanasons Ltd.’. The Assessing Officer after perusal of report under Form

No. 10CCAC of Allanasons Ltd. with return of income for same

Assessment Year noted that the claim of deduction under section 80HHC in

the hand of Allanssons Ltd. is arisen only on account of export incentive on

DEPB and the said deduction is not allowable in view of Taxation Law

Amendment Act, 2005, the Assessing Officer also held that export house

Allanasons would have opted for DEPB instead of duty draw back as

DEPB would have been higher, therefore, it could not have issued a valid

certificate to a supporting manufacturer and disallowed the deduction to the

assessee. The assessee in alternative claimed deduction under section 80IB

as the undertaking of the assessee is located in backward district and the

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

profit of the said undertaking are eligible for deduction under section 80IB

of the Act. The Assessing Officer took the view that the claim of assessee

is not admissible as the activity of the assessee did not amount to

“manufacturer” or “production” of goods. Thus, the Assessing Officer

denied the deduction under section 80HHC as well as deduction under

section 80IB. On appeal before the ld. CIT(A), the action of Assessing

Officer on deduction under section 80HHC was confirmed. However, the

alternative claim under section 80IB was not adjudicated. Thus, further

aggrieved by the order of ld. CIT(A), the assessee has filed the present

appeal before us.

the assessee and ld. Departmental Representative (DR) for the Revenue and

perused the material available on record. Ground No.1 relates to deduction

under section 80IB. The ld. AR of the assessee submits that the AO

disallowed the deduction under section 80IB holding that the assessee’s

activity did not amount to ‘manufacture’ or ‘production’ of goods by

relying upon the decision of Hon’ble Supreme Court in CIT vs. Relish

Foods (237 ITR 59). The ld. AR further submits that deduction under

80IB(v) is available to assessee on Profit & Gain derived from an Industrial

Undertaking situated in backward area/district specified in the notification,

interalia, that it manufactures or produce an article of things, not being

article of things specified in Eleventh Schedule. The assessee fulfilled all 4

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

the condition for deduction under section 80IB. The assessee has an

integrated industrial undertaking in the business of manufacturing of frozen

boneless buffalo meat, frozen and dried inedible products, meat and

boneless meal, tallo and gel bone chips. The products are manufactured

from buffalo carcasses received at assessee’s factory/establishment. The

various product manufactured by assessee at different and distinct end use.

Frozen chilled/mincd boneless buffalo meats and Frozen Tendons/Neck

Bands are used for human consumption, frozen/dried cartilages for Pharma

Industries, Meat and Bone Meal for Poultry Industry, Tallow for

Soaps/Lubricants/Textiles/Industries and Gel-bone Chips for Gelatine

Industry. It was explained that Veterinary Doctors check prescribed health

perform prescribed health checks of Buffalo Livestock at the approved

slaughter Houses. After ante-mortem inspection under the supervision of

assessee company personnel and the Buffalo Carcasses cleared by

Veterinary Doctors on post-mortem inspection by sellers at the Chiller

plant in the factory. Carcasses mean meat with bones, fats, tissues and

inedible portions, cartilages; tendons etc. produce at the Slaughter House

activity. The Carcasses on arrival are again checked physically and are

subject to high pressure washing using highly chlorinating water to

decontaminate the Carcasses. The Carcasses are washed with lactic acid

spray for the decontamination. The Chillers are highly sophisticated

chambers with insulated walls and carcass hanging arrangements with the 5

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

help of rails and hooks to facilitate their easy movement. The Carcasses are

normally retained for 24 hours to drop the temperature from 37 degree

centigrade to chilling point. This chilling activities controlled by random

checking of core temperatures. Simultaneously, the Hydrogen Ion

Concentration (pH) levels of the Carcasses are also subject to random

checks at definite intervals. During this postmortem changes that take place

in the muscles during the chilling activity are (i) Rigor Mortis, (ii)

Tenderization, (iii) Water Holding Capacity, (iv) Fatty Acids, (v) Colour,

(vi) Shrinkage & (vii) Microbiological Composition. The aforesaid

activities in the chiller and the control postmortem changes during the

course of these activities complete the process of conversion of muscles in

the Carcasses into meat. The chilled Carcasses are subject to three different

manufacturing processes with deboning, for the production of (i) Frozen

Boneless Meat, (ii) Chilled Vacuum Packed Meat and (iii) Minced Meat.

During the deboning activity Costal Cartilages which are small bent bones

like cartilages from ribs, Shoulder Cartilages are collected. The Cartilages

collected as cut into small pieces mechanically and passed through various

enzymatic actions and acid treatments by controlling pH. The ld. AR

explained that by passing through all the aforesaid activities, the assessee is

actually producing various products which are commercially radically

different from the raw material used and which are actually sued and

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

consumed in different industries. A new and different and distinctive

names, characters and uses have emerged as a result of the above activities.

defined under the Income-tax Act. However, the activities carried out by

assessee are accepted as “manufacturing” under Excise Law. The ld. AR

invited our attention on page no. 59 of Paper Book which is the photocopy

of classification of Industries wherein preservation of meat except by

canning and processing/canning of meat. The ld. AR further taken us to

revise National Industrial Classification of all economic activities, wherein

under division 20-21 manufacture of foods products includes slaughtering,

preparation and preservation of meat is classified as manufacturing. The

assessee is granted certificate of registration under section 22/22A of

Bombay Sale Tax, 1959, wherein the nature of business of assessee is

accepted as manufacturer, reseller, importer and exporter. The classes of

goods in which assessee-company deals is also accepted in the said

certificate, which consist of meat and marine products, raw/processed

hides, finished, treated or untreated leather, bone and meat meals and

Carcasses meats, crushed bones, food products, dyes, chemicals and its

products, live animals and its meat etc.

decisions of Hon’ble Supreme Court in DCIT vs. K.M. Mohammad Ali (90

SOT 174 (SC), DCIT vs. A.B. Ismail (62 STC 394 (SC), CIT vs. Emptee 7

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

Poly-Yarn (P.) Ltd. [2010 188 TAXMAN 188 (SC), Aspinwall and Co.

Ltd. vs. CIT [251 ITR 323 (SC) CIT vs. Hindustan Petroleum Corporation

Ltd. [2017] 396 ITR 696 (SC), decision of Hon’ble Kerala High Court in

Meat Products of India Ltd. vs. State of Kerala (Vol. 137 page 570 (137

STC 570 (Kerala), decision of Hon’ble High Court of Bombay in

Associated Capsules (P.) Ltd. vs. DCIT [2011] 197 TAXMAN 84 (Bom.),

decision of Chennai Tribunal in ITO vs. Shri Swasan Chemicals (M) P.

Ltd. [2008] 300 ITR (AT) 171 (Chennai).

Assessing Officer. The ld. DR further submits that the Assessing Officer

has clearly mentioned in its order that the assessee does not qualify the

condition no. (iii) of section 80IB. The activities of the assessee do not fall

in the category of manufacturing of production. The industrial activities are

genus; manufacture or processing of goods is species. The ld. DR further

submits that all manufacturing activities are industrial but all industries

activities do not necessary involved in manufacturing. The expresses

process is wider than manufactures or production; it is an action which

brings some change or alteration of the goods or material subjected to the

act of processing.

decision of Hon’ble High Court of Kerala in Olam Exports (India) Ltd. vs.

CIT [2009] 184 Taxman 373 (Kerala) and the decision of Hon’ble Delhi 8

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

High Court in Great Eastern Exports vs. CIT [2011] 196 Taxman 145

(Del.).

Bombay High Court in Associated Capsules (P.) Ltd. vs. DCIT (supra) has

considered the decision of Kerala High Court in Olam Exports (India) Ltd.

(supra) and decision of Delhi High Court in Great Eastern Exports vs. CIT

(Supra).

through the orders of authorities below. The Assessing Officer disallowed

the deduction under section 80IB holding that the assessee’s activities

undertaken at industrial unit at District-Unnao, State of U.P. does not fall in

the category of ‘manufacturing’ or ‘production’. The ld. CIT(A) while

deciding the appeal held that in the entire process involved in converting

Carcass into meat, there is no difference in between input and the output in

the name, character and use. Merely deployment of considerable capital

outlet, sophisticated machinery and engagement of skill labour, no

significant degree of value addition to the end-product. The process carried

out by assessee does not result into different marketable product. We have

noted that the ld. AR of the assessee has explained that the end-use product

manufactured by assessee is distinct and entirely different from the original

raw-material (Buffalo’s Carcasses), which has been discarded by ld.

CIT(A) holding that assessee is not carrying or manufacturing or producing 9

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

of articles or things. The ld. AR has also explained that in integrated

industrial undertaking the assessee is manufacturing the frozen boneless

buffalo meat, frozen and dried inedible products, meat and boneless meal,

tallow and gel bone chips. The products are manufactured from buffalo

carcasses received at assessee’s factory/establishment. The various product

manufactured by assessee at different and distinct end use. The product

manufactured by the assessee is separate and independent marketable

product. The end-use product is used for human consumption, frozen/dried

cartilages for Pharma Industries, Meat and Bone Meal for Poultry Industry,

Tallow for Soaps/Lubricants/Textiles/Industries and Gel-bone Chips for

Gelatine Industry. The Veterinary Doctors check prescribed health perform

prescribed health checks of Buffalo Livestock at the approved slaughter

Houses. After ante-mortem inspection under the supervision of assessee

company personnel and the Buffalo Carcasses cleared by Veterinary

Doctors on post-mortem inspection by sellers at the Chiller plant in the

factory. Carcasses mean meat with bones, fats, tissues and inedible

portions, cartilages; tendons etc. produce at the Slaughter House activity.

We have noted that the ld. AR of the assessee has explained the different

stage of process for converting the Buffalo Carcasses for end-use of

consumption not only for human need but also for the various industrial

purposes. We have also noted that certain postmortem changes also take

place in the muscles during the chilling activity like (i) Rigor Mortis, (ii) 10

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

Tenderization, (iii) Water Holding Capacity, (iv) Fatty Acids, (v) Colour,

(vi) Shrinkage & (vii) Microbiological Composition. The aforesaid

activities in the chiller and the control postmortem changes during the

course of these activities complete the process of conversion of muscles in

the Carcasses into meat. We have also noted that chilled Carcasses are

subject to three different manufacturing processes with deboning, for the

production of (i) Frozen Boneless Meat, (ii) Chilled Vacuum Packed Meat

and (iii) Minced Meat. During the deboning activity Costal Cartilages

which are small bent bones like cartilages from ribs, Shoulder Cartilages

are collected. The ld. AR explained that by passing through all the

aforesaid activities, the assessee is actually producing various products

which are commercially radically different from the raw material used and

which are actually sued and consumed in different industries. A new and

different and distinctive names, characters and uses have emerged as a

result of the above activities. The Assessing Officer discarded the

contention of assessee without discussing the production activities at

different stage undertaken by the assessee. We have further noted that the

facts brought in our notice and different activities undertaken by assessee

are not disputed by ld. DR for the revenue, while replying the submission

of ld. AR of the assessee. The assessee has also filed copy of the order 30

dated 22.08.2008 (for I/ Year 2003-04) passed under section 9(2) read with

section of U.P. Trade Tax Act, passed by Dy Commercial Tax Unnao, U.P. 11

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

wherein the assessee is recognized as manufacturer and its business is for

manufacture and sale of food stuff and its by product is hides, MBM and

tallow.

by NSS and Revised Classification by CSO, Ministry of Planning”

indicating the activity of the assessee under the broad head “Manufacture

of food products”. Also, the Central Sales Tax (CST) and Bombay Sales

Tax (BST) registration certificates indicate the nature of business as

“manufacture”. Also, the classification of meat products as excisable is

shown under Excise Tariff List. The Central Excise Registration Certificate

indicates that the company is registered for manufacturer of excisable

goods. In the order u/s 9(2) read with Section 30 of the UP Trade Tax Act,

passed by the Deputy Commissioner (Assessment) dated 22.08.2008, it is

held that the assessee dealer is manufacturer and its business is for

manufacture and sale of food stuff. Also it is held therein that the processed

frozen food stuff was manufactured and ultimately sold.

that the slaughter of the animals and their conversion into meat is the

consequence of consumption of the animals in the legal sense. In such

conversion, a process of manufactures can also be inferred. Lifeless meat is

by any standard ‘other goods’, different from (Goat and Sheep). Further,

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

the Hon’ble Apex Court in DCIT Sale Tax vs. K.M. Mohammad Ali

(supra) by following the decision of A.B. Ismail (supra) held that lifeless

meat is different from the Goat and Sheep for the purpose of purchase tax

under section 5A of Kerala General Sale Tax Act.

Kerala (supra) while considering the claim on the basis that conversion of

animals into meat by slaughtering does not involved any manufacturing

process, the Hon’ble High Court while relying upon the decision of

Supreme Court in A.B. Ismail (supra) held that it can no longer be

contended that Sheep, Goat and Pig on the one hand and the meat of the

said live stock obtained after slaughtering than are one and the same

commodity.

held that Partially Oriented Yarn (POY) by using Thermo Mechanical

Process, which converts POY into texture yard amounts to manufacture in

term of section 80IA. The Hon’ble Apex Court further held that the

definition of the word 'manufacture' is made explicit by Finance (No. 2)

Act, 2009 which states that 'manufacture' shall, inter alia, mean a change in

bringing into existence of a new and distinct object or article or thing with

a different chemical composition or integral structure. Applying this

definition to the facts of the present case, it may be mentioned that the

above thermo-mechanical process also bring about a structural change in 13

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

the yarn itself, which is one of the important tests to be seen while judging

whether the process is manufacture or not. The structure, the character, the

use and the name of the product are indicia to be taken into account while

deciding the question whether the process is a manufacture or not.

the process is manufacturing process when it brings out a complete

transformation in the original article so as to produce a commercially

different article or commodity. That process itself may consist of several

processes. The different processes are integrally connected which results in

the production of a commercially different article. If a commercially

different article or commodity results after processing, then it would be a

manufacturing activity. The assessee after processing the raw berries

converted them into coffee beans which is a commercially different

commodity. Conversion of the raw berry into coffee beans would be a

manufacturing activity.

(supra) while considering the question of law “whether bottling of LPG, as

undertaken by the assessee, is a process which amounts to 'production' or

'manufacture' for the purposes of Sections 80HH, 80-I and 80-IA of the

Act?; and if so, whether the respondents/assessees are entitled to claim the

benefit of deduction under the aforesaid provisions while computing their

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

taxable income”. The Hon’ble Court held that the when bottling activities

at the assessee’s' plants, LPG is stored in cylinders in liquefied form under

pressure. When the cylinder valve is opened and the gas is withdrawn from

the cylinder, the pressure falls and the liquid boils to return to gaseous

state. This is how LPG is made suitable for domestic use by customers who

will not be able to use LPG in its vapour form as produced in the oil

refinery. It, therefore, becomes apparent that the LPG obtained from the

refinery undergoes a complex technical process in the assessee’s plants and

was clearly distinguishable from the LPG bottled in cylinders and cleared

from these plants for domestic use by customers. It may be relevant to

point out that keeping in view the aforesaid process; the Tribunal arrived at

the specific findings in support of its decision, which are (a) There was no

dispute that the LPG produced in the refinery cannot be directly supplied to

the consumer for domestic use because of various reasons of handling,

storage and safety. (b) LPG bottling was a highly technical and complex

activity which requires precise functions of machines operated by

technically expert personnel. (c) Bottling of LPG is an essential process for

rendering the product marketable and usable for the end customer. (d) The

word 'production' has a wider connotation in comparison to 'manufacture',

and any activity which brings a commercially new product into existence

constitutes production. The process of bottling of LPG renders it capable of

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

being marketed as a domestic, kitchen fuel and, thereby, makes it a viable

commercial product.

P. Ltd. (supra) held that the assessee who was involved in production of

specialized polymer alloys in powder form that were commercially

different from polymer granules. The process of production itself involved

a number of step and process. The result was that final polymer alloys in

powder work not the same as original product. The final product and

application in various industries. The raw-material could not be substituted

for the final product. The production process resulted not only in

qualitative changes but also gave the product a distinct appearance and

character which was so recognized in the trade. Hence, production process

resulted in a commercially different product having specific characteristic

and qualities through a series of steps and process. The assessee, therefore,

satisfied the requirement that it manufactured or produced an article of

things for the purpose of section 80IB of the Act.

view that the final product produced by the assessee-company is

commercially different from the raw-material (Buffalo Carcasses), the

process of production involved a number of steps and processes. The raw-

material used by the assessee cannot be substituted by the final product.

The production process as explained by assessee resulted not only in 16

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

qualitative changes, but also a distinct product for end-use of the consumer.

Thus, in our considered view, the assessee fulfilled the requisite

requirement i.e. manufacturing or producing an article of things for the

purpose of section 80IB of the Act. In the result, ground no.1 of the appeal

raised by assessee is allowed.

The ld. AR of the assessee submits that assessee is entitled for deduction

under section 80HHC. The assessee is a supporting manufacturer for which

there are specific provisions. The assessee is entitled for deduction from the

profit earned from the manufacturing activities and the disclaimer only

entitled it to include the turnover as export turnover. The ld. AR further

submits that similar disallowances was made by Assessing Officer and

confirmed by ld. CIT(A), however, on appeal before the Tribunal, the issue

was restored back to file of Assessing Officer to consider the claim of

assessee as per law.

Allana Limited (supporting manufacturer) the Assessing Officer denied

deduction under section 80HHC for A.Y. 2002-03, 2003-04 & 2004-05

after re-opening of the assessment holding that deduction under section

80HHC was denied to the main exporter who had incurred loss in case of

amount of incentive is not included in its export profit. Accordingly, the

Assessing Officer withdrew the deduction under section 80HHC. The 17

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

assessee in the said case claimed deduction on the basis of disclaimer

certificate issued in favour of assessee. The assessee in the said case filed

appeal before ld. CIT(A), wherein the partial relief was granted. Both the

parties filed appeal before Tribunal. The appeal of that assessee was

allowed and appeal filed by revenue was dismissed vide ITA Nos. 5513,

5532 & 5514/Mum/2011 and ITA Nos. 4078, 4167 & 4137/Mum/2011

vide order dated 27.07.2016.

Shamanur Kallappa & Sons vs. ACIT (23 DTR 269) wherein it was held

that the only condition stipulated by legislation is that the same benefit

should not be claimed by both the export house and the supporting

manufacturer. The pre-condition is that export house should furnish a

certificate of disclaimer in respect of export turnover and the amount of

deduction allowable to the export house would be accordingly reduced in

the specified manner. Similarly, the supporting manufacturer can claim

benefit on the basis of disclaimer certificate of export house. The ld. AR

submits that the Assessing Officer disallowed the deduction that in case

export house is not eligible for deduction and it issues a disclaimer

certificate to supporting manufacturer, the supporting manufacturer is not

entitled for any deduction. The ld. AR further submits that the assessee has

raised additional ground of appeal that assessee is entitled to a deduction

under section 80HHC on the profit earned from export as well as under 18

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

section 80IB for profit earned from the manufacturing activities in the

backward area so long as aggregate deduction under section 80HHC and

80IB does not exceed the profit earned by undertaking. In support of his

submission, the ld. AR relied upon the decision Associated Capsules (P.)

Ltd. (supra). The ld AR for the assessee also furnished a certificate dated

02/07/2003 issued by Superintendent Central Excise Range-9, Unnao,

certifying that during year 2001-02 and 2002-03 the assessee has exported

frozen buffalo meat through M/s Allanasons Limited.

of Assessing Officer and ld. CIT(A). The ld. DR also relied upon the

decision of Hon’ble Apex Court in IPCA Laboratories vs. DCIT (266 ITR

521). And the decisions of Hon’ble High Court of Kerala in Olam Exports

(India) Ltd. vs. CIT [2009] 184 Taxman 373 (Kerala) and the decision of

Hon’ble Delhi High Court in Great Eastern Exports vs. CIT [2011] 196

Taxman 145 (Del.).

through the orders of authorities below. We have also deliberated on the

various case laws. During the assessment, the Assessing Officer took the

view that the deduction to export house (Allana Sons Ltd. ) under section

80HHC was arising only on account of DEPB Export Incentive and that the

said deduction would be denied on account of Taxation Law (Amendment)

Act, 2005. The Assessing Officer also took the view that export house 19

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

would have opted for DEPB instead of duty draw back as DEPB would

have been higher. Thus, the Assessing Officer concluded that export house

could not have issued a valid certificate (disclaimer certificate) to a

supporting manufacturer. The Assessing Officer while referring the

decision IPCA Laboratories Ltd. (supra) concluded that if no deduction is

available to the export house, then export house cannot give such credit to

supporting manufacturer. The ld. CIT(A) confirmed the action of Assessing

Officer that if the export house is not entitled to claim deduction under

section 80HHC, it cannot pass the benefit to the supporting manufacture.

Sons Vs ACIT held that wherein the assessee being supporting

manufacture claimed deduction under section 80HHC on the basis of

disclaimer certificate issued by State Trading Corporation (STC) certifying

that it has not claimed deduction on the export of trading goods. The

assessee apparently complied the statutorily requirement provided under

section 80HHC(1A) it was held that only condition stipulated by the

legislation is that the same benefit should not be claimed by both the export

house and the supporting manufacture. To ensure the same, it was made a

pre-condition that export house should furnishes a certificate of disclaimer

in respect of export turnover, and the amount of deduction available to the

export house would be accordingly reduced in the specified manner. The

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

decision of Tribunal was upheld by Hon’ble Karnataka High Court in Tax

Appeal No. 10/2009 dated 12.01.2015.

(supra) and in Great Eastern Exports (supra) is not helpful to the revenue as

both the decisions were considered by Hon’ble jurisdictional High Court in

Associated Capsules (P.) Ltd. vs. DCIT (supra) wherein the Hon’ble Court

held as under:

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

profits and gains derived from the business and deduction under section 80HHC at 50 per cent of the profits of the business. Further, there is no dispute that the deduction under section 80-IA has to be computed on the total profits derived from the business. However, the dispute is in computing the deduction under section 80HHC in view of the insertion of section 80- IA(9) by the Finance Act, 1998. According to the Revenue, section 80-IA(9) mandates that the deduction under section 80HHC has to be computed not only on the profits of the business as reduced by the amounts specified in clause (baa) and clause (4B) of section 80HHC but also by reducing the amount of profits and gains allowed as deduction under section 80-IA(1) of the Act. According to the assessee, even after the introduction of section 80- IA(9), the deduction under section 80HHC has to be computed in the manner specified under section 80HHC on the profits of the business computed under the head ‘profits & gains of business or profession’ as reduced by the amount set out in clause (baa) of section 80HHC/80HHC(4B) as the case may be and there is no scope for reducing the profits of business by the amount of profits allowed under section 80- IA(1) of the Act. According to the assessee, section 80-IA(9) merely affects the allowability of the deduction computed under section 80HHC so that the combined deduction under sections 80-IA(1) and 80HHC does not exceed the profits and gains of the undertaking. 26. To illustrate, if the profits and gains of the eligible undertaking is Rs. 100, the deduction allowable under section 80-IA(1) is 30 per cent and the deduction allowable under section 80HHC is 80 per cent, then accord- ing to the Revenue, deduction to be allowed under section 80-IA would be Rs. 30 (30 per cent of Rs. 100) and in view of section 80-IA(9), the deduction under section 80HHC has to be computed not on the profits of the business of Rs. 100 but on Rs. 70 being the profits of the business reduced by the amount of profits allowed under section 80-IA(1). According to the assessee, deduction under section 80HHC has to be computed on the profits of the business of Rs. 100 and not on Rs. 70 as contended by the Revenue, because, according to the assessee, section 80-IA(9) does not affect the computation of deduction under section 80HHC but affects the allowance of deduction computed under section 80HHC, so that the aggregate deduction does not exceed the profits of the business. 27. The question, therefore, to be considered is, whether section 80-IA(9) seeks to disturb the mechanism of computing the deduction provided under section 80HHC(3) of the Act or section 80-IA(9) comes into operation only at the stage of allowing the deduction computed under section 80HHC, so that the combined deduction under sections 80-IA and 80HHC does not exceed the total profits of the business of the undertaking. 28. Section 80-IA(9) consists of three parts:— "First Part - where any amount of profits and gains of an undertaking/enterprise is claimed and allowed under section 80-IA(1) for any assessment year, then Second Part - deduction to the extent of profits and gains allowed under section 80-IA(1) shall not be allowed under any other provisions under heading ‘C’ of Chapter VI-A of the Act; and

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Third Part - in no case the deduction allowed shall exceed theprofits and gains of the business of the undertaking enterprise." 29. The dispute in the present case is, whether the second part of section 80- IA(9) seeks to disturb the mechanism of computing the deduction provided under section 80HHC(3) of the Act ? The second part of section 80-IA(9) provided that the deduction to the extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that is allowable under other provisions under heading ‘C’ of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading ‘C’ of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading ‘C’ of Chapter VI-A of the Act. 30. How to compute deduction allowable under section 80HHC(1) is set out in section 80HHC(3). In the case of a manufacturer exporter, section 80HHC(3)(a) provides that the deduction under section 80HHC(1) has to be computed as per the formula : Export turnover Profits of the business× Total turnover Clause (baa) in section 80HHC defines the term ‘profits of the business’ for the purposes of section 80HHC to mean the profits of the business as computed under the head ‘profits and gains of business or profession’ as reduced by the amounts specified therein. Therefore, in the case of a manufacturer exporter, deduction under section 80HHC(1) is statutorily required to be computed on the profits of the business as reduced by the amounts specified in clause (baa) of section 80HHC. Unless, it is speci- fically provided by the statute, the profits of the business for the purpose of section 80HHC cannot be reduced by any amount save and except the amount specified in clause (baa) of section 80HHC itself. Section 80-IA(9) of the Act does not expressly or impliedly provide that the amount of profits allowed as deduction under section 80-IA(1) should be reduced from the profits of the business for the purpose of computing deduction under section 80HHC or computing deduction under any other provisions in heading ‘C’ of Chapter VI-A and, therefore, the contention of the revenue to that effect cannot be accepted. 31. In the case of a trader exporter, section 80HHC(3)(b) provides that the deduction under section 80HHC(1) has to be computed on the export turnover reduced by the direct costs and indirect costs attributable to the goods or merchandise exported by the assessee. The argument of the revenue that under section 80-IA(9) the amount of profits allowed under section 80-IA has to be deducted from the profits of business while computing deduction under section 80HHC is accepted, then the section becomes unworkable, because in the case of a trader exporter, the deduction under section 80HHC is computed on the exporter turnover and not on the profits of the business. The words ‘export turnover’ and ‘profits of business’ are separately defined under section 80HHC. Therefore, in the case of a trader exporter, section 80-IA(9) can be applied only after the deduction 23

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under section 80HHC(3)(b) is computed. Similarly, in the case of a manufacturer/processor exporter, section 80-IA(9) would be applicable while allowing the deduction computed under section 80HHC(3)(a) of the Act. 32. If the words used in section 80-IA(9) were ‘shall not qualify’, then, probably it could be said that the legislature intended to affect the quantum of deductions computable under other provisions under heading ‘C’ of Chapter VI-A, because the amount that qualifies for deduction alone forms the basis for computing the deduction. The word ‘qualify’ is an expression relatable to the computation of deduction. The word ‘allowed’ is relatable to allowing the deduction that is computed. The word ‘allowed’ cannot be equated with the word ‘qualify’. Since section 80-IA(9) uses the words ‘shall not be allowed’, in our opinion, the section seeks to restrict the allowance of deduction and not the computation of deduction under any other sections under heading ‘C’ of Chapter VI-A of the Act. 33. Wherever the Legislature intended that the deduction allowed under one section should affect the computation of deduction under other provisions of the Act, the legislature has expressly used words to that effect. It may be noted that sections 80HHD(7) and 80-IA(9A) [presently 80-IA(9)] were introduced by Finance Act, 1998 with effect from 1-4-1999. Section 80HHD(7) provides that the deduction allowed under section 80HHD(1) shall not qualify to that extent for deduction under any other provisions of Chapter VI-A under the heading ‘C’, whereas, section 80-IA(9A) provides that the deduction allowed under section 80-IA(1) shall not be allowed under any other provisions of Chapter VI-A under heading ‘C’. Similarly, in section 80-IC(5), the words used are that notwithstanding anything contained in any other provision of the Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or section 10A or section 10B in relation to the profits and gains of the undertaking. Thus, the legislature has used specific words whenever it intended to affect the computation of deduction. As the words used in section 80-IA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) is inserted with a view to affect computation of deduction under any other provisions under heading ‘C’ of Chapter VI-A. 34. It is well established in law that the language of the statute must be read as it is, and the statute must not be read by adding or substituting the words unless it is absolutely necessary to do so. Since section 80-IA(9) uses the words ‘shall not be allowed’, it is not permissible to read section 80-IA(9) by substituting the above words with the words ‘shall not qualify’ or by adding the words ‘shall not be allowed in computing’ the deduction under any other provisions under heading ‘C’ of Chapter VI-A of the Act. When the plain and simple meaning of section 80-IA(9) can be ascertained from the words used in the section, it would not be proper to construe the section by substituting or adding words as suggested by the revenue. 35. In these circumstances, in our opinion, the reasonable construction of section 80-IA(9) would be that where deduction is allowed under section 80-IA(1), then the deduction computed under other provisions under heading ‘C’ of Chapter VI-A has to be restricted to the profits of the business that remains after excluding the profits allowed as deductions 24

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under section 80-IA, so that the total deduction allowed under the heading ‘C’ of Chapter VI-A does not exceed the profits of the business. 36. Strong reliance was placed by the Counsel for the revenue on the Notes on Clauses explaining the reasons for inserting section 80-IA(9A) [presently 80-IA(9)], by Finance Act, 1998, wherein it is stated that the profits allowed under section 80-IA(1) shall not qualify for deductions under any other provisions under heading ‘C’ of Chapter VI-A. As noted earlier, the words used in section 80-IA(9) are ‘shall not be allowed’ and not the words ‘shall not qualify’ or ‘shall not be allowed in computing deduction’ .... Therefore, reading the section 80-IA(9) in the light of the words used in the section, we have no hesitation in holding that the restriction therein relates to the allowance of deduction and not computation of deduction. 37. Strong reliance was also placed by the Counsel for the revenue on the Special Bench decisions of the Tribunal in the case of Rogini Garments (supra) and Hindustan Mint & Agro Products (P.) Ltd. (supra), which are affirmed by the Delhi High Court in the case of Great Eastern Exports (supra). Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. (supra) which supports the case of the revenue. 38. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of section 80-IA(9). In that case, in fact, the Counsel for the revenue had argued (see para 38 of the judgment) that section 80-IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading ‘C’ of Chapter VI-A. It was argued that in the matter of grant of deduction, the first stage is computation of deduction and the second stage is the allowance of the deduction. Computation of deduction has to be made as provided in the respective sections and it is only at the stage of allowing deduction under section 80-IA(1) and also under other provisions under heading ‘C’ of Chapter VI-A, the provisions of section 80-IA(9) comes into operation. While accepting the arguments advanced by the Counsel for the Revenue, it appears that the Delhi High Court failed to consider the important argument of the revenue noted in para 38 of its judgment. Moreover, without rejecting the argument of the revenue that section 80-IA(9) applies at the stage of allowing the deduction and not at the stage of computing the deduction, the Delhi High Court could not have held that section 80-IA(9) seeks to disturb the method of computing the deduction provided under other provisions under heading ‘C’ of Chapter VI-A of the Act. In these circumstances, we find it difficult to concur with the views expressed by the Delhi High Court in the case of Great Eastern Exports (supra). For the same reason, we find it difficult to subscribe to the views expressed by the Kerala High Court in the case of Olam Exports (India) Ltd. (supra). 39. In the result, we hold that section 80-IA(9) does not affect the computability of deduction under various provisions under heading ‘C’ of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading ‘C’ of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading ‘C’ of Chapter VI-A do not exceed 100 per cent of the profits of the business of the assessee. Our above view is also supported by the C.B.D.T. Circular No. 25

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772 dated 23-12-1998, wherein it is stated that section 80IA(9) has been introduced with a view to prevent the tax-payers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80-IA(9) being not to curtail the deductions computable under various provisions under heading ‘C’ of Chapter, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business.” 26. Further the ratio in case of IPCA Laboratories (supra), the case law relied

by ld. DR is also not applicable on the facts of the present case as in the

said case. The Hon'ble Supreme Court in IPCA's case (supra), held that

the proviso to sub-section (1) of section 80HHC enables the disclaimer to

enable the export house to pass on deductions and it in no way reduces the

turnover of the export house and computing total income, the entire

turnover is taken into account even though there is disclaimer. The Hon'ble

Supreme Court further said that even after disclaimer, the turnover has

remained the turnover of the export house. Therefore, the ratio of the

Hon'ble Supreme Court is that even if an export house gives a disclaimer to

the supporting manufacturer, the disclaimed turnover and the result

therefrom will have to be considered for the purpose of determining the

quantum of deduction under section 80HHC(3)(c). The Hon'ble Supreme

Court had to declare the aforesaid law as the assessee export house claimed

that the loss arising from export of goods brought by it from the supporting

manufacturer should not be. Considered in computing its profits eligible for 26

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deduction under s. 80HHC as the assessee export house had given

disclaimer certificate in respect of such turnover to the supporting

manufacturer. In our view this was the only issue before the Hon'ble

Supreme Court in the above case. The coordinate bench of Bangalore

Tribunal in Shamanur Kallappa & sons (supra) held while considering the

the IPCA's case (supra) held as under :

“10. The main issue for our consideration would be whether the decision of the Hon'ble Supreme Court rendered in the case of IPCA Laboratory Ltd. (supra) has been rightly applied to the facts of the assessee's case. The Revenue contends that it has been rightly applied and, on the other hand, the assessee contends that the said decision of the Supreme Court is not applicable to its case. The arguments of both the parties have been heard and carefully considered by us. 11. As the contentions relate to interpretation of a statutory provision which provide for tax benefit to the assessee, the principles relating to the same, as enunciated by the Hon'ble Supreme Court would be relevant for our consideration. The Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. (supra) observed. "Undoubtedly, s. 80HHC has been incorporated in the IT Act, 1961, with a view to providing incentive for earning foreign exchange. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of the section. If the wording of the section is clear, then benefits which are not available cannot be conferred by ignoring or misinterpreting words in the section." In other words, this would mean that these provisions are to be interpreted plainly and literally. Once the basic conditions are satisfied then there is scope for liberal interpretation. 12. The principal issue or rather the only issue before the Supreme Court in the IPCA Laboratory Ltd. ( supra) was whether the assessee, an export/trading house, for the purpose of deduction under s. 80HHC, take into account only if profits from the exports of manufactured goods and ignore its loss from the export of trading goods. The Hon'ble Supreme Court resolved this issue in the following manner observing : "In this case we are concerned with the wordings of sub-s. (3)( c) of s. 80HHC. As noted earlier sub-s. (3)(a) deals with the case where the export 27

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is only of self-manufactured goods. Sub-s. 3(b) deals with the case where the export is only of trading goods. Thus, when the legislature wanted to take exports from self-manufactured goods or trading goods separately, it has already so provided in sub-ss. (3)(a) and (3)(b). It would not be denied that the word 'profit' in s. 80HHC(1) and ss. 80HHC(3)(a) and (3)(b) means a positive profit. In other words, if there is a loss then no deduction would be available under s. 80HHC(1) or (3)(a) or (3)(b ). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-s. (3)(c) deals with cases where the export is of both self-manufactured goods as well as trading goods. The opening part of sub-s. (3)(c) states 'profits derived from such export shall'. Then follow (i) and (ii). Between (i) and (ii), the word 'and' appears. A plain reading of sub-s. (3)(c) shows that 'profits from such exports' has to be profits of exports of self-manufactured goods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in sub-ss. (3)(c)(i) and (ii). The opening words 'profit derived from such exports' together with the word 'and' clearly indicate that the profits have to be calculated by counting both the exports. It is clear from a reading of sub-s. (1) of s. 80HHC(3) that a deduction can be permitted only if there is a positive profit in the exports of both self-manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits." 13. It could be seen that the entire issue related to the interpretation of the word 'profit' in s. 80HHC(1) and s. 80HHC(3), particularly cl. (c) of sub-s. (3) of s. 80HHC. It would be relevant to mention that the conditions as to allowing deduction to supporting manufacturer in terms of s. 80HHC(1A) or the manner of computation of profit in terms of s. 80HHC(3A) were never an issue before the Hon'ble Supreme Court. Hence, we are of the opinion that the action of the AO in applying the above decision to the assessee's case, who is only a supporting manufacturer and who has made his claim under s. 80HHC(3A) is not correct. We take support for the above view in the light of the decision of the Hon'ble Supreme Court in the case Baby Marine Exports (supra), wherein the Hon'ble Supreme Court has observed, " ..........further, the supporting manufacturer's claim of deduction is only under s. 80HHC(1A) and not under s. 80HHC(1) which applies to export houses only." 14. We also thought it fit to go into the legislative evolution of these provisions granting benefits to the supporting manufacturer to understand the purpose and scheme of the provisions. Tax benefit to supporting manufacturer on the exports made through the export house was initially provided in the form of a CBDT circular in Circular No. 466, dt. 14th Aug., 1986 [reported in [1986] 57 CTR (St) 1 : [1986] 161 ITR (St) 68]. It reads as follows : 28

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"Subject : Provisions of s. 80HHC of the IT Act, 1961 : Sharing of tax benefit between the export houses/trading houses and manufacturers Regarding. Sec. 80HHC as amended by the Finance Act, 1985, provides that where an assessee, being an Indian company or a person (other than a company) resident in India exports out of India during the previous year, any goods or merchandise to which this section applies, he will be allowed a deduction of an amount not exceeding 50 per cent of the profits derived from the export of such goods or merchandise. 2. Representations have been received to the effect that the manufacturers of goods or merchandise exported through the export houses/trading houses do not derive any benefit under the amended provisions of s. 80HHC. It has further been represented that if the tax benefit derived by the export house/trading house under s. 80HHC is passed on to the concerned manufacturer, the amount so passed on should be allowed as a deduction in the computation of the total income of the export house/trading house. 3. The matter has been examined by the Board. It has been decided that if any export house/trading house holding a certificate in this regard issued by the Ministry of Commerce for the relevant accounting period passes on to the manufacturer part or whole of the amount of tax benefit derived by the former on account of deduction under s. 80HHC, then the amount of actual payment made to the manufacturer for passing on the tax benefit may, subject to the limit laid down hereinafter, be treated as business expenditure and be allowed as deduction in the computation of the total income of the export house/trading house. 4. The total amount of the tax benefit on account of deduction under s. 80HHC and the tax benefit on account of the deduction in para 3 above shall, in no case, exceed the maximum amount of tax benefit available under s. 80HHC to the export house/trading house. For computing the maximum amount of tax benefit under s. 80HHC, however, the 'profits' as referred to in that section, will be determined after taking into account the deduction referred to in para 3 above. 5. It has further been decided by the Board that the payment so received by any manufacturer whose goods or merchandise are exported through the export house/trading house will not be included in the total income of the manufacturer if such claim for non-inclusion is supported by a certificate by the export house/trading house." 15. This principle of providing tax benefit to supporting manufacturer took statutory form by way of sub-s. (1A) of s. 80HHC by the Finance Act, 1988. The purpose and ambit of the provision are stated in CBDT Circular 29

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No. 528, dt. 16th Dec. 1988, [[1989] 76 CTR (St) 69 : [1989] 175 ITR (St) 154], the relevant portion of which is extracted below for our consideration : "28.3 As a measure to provide incentive to persons exporting goods through or by any other person, being a recognised Export House or Trading House, the Board had issued a Circular No. 466, dt. the 14th Aug., 1986, enabling the sharing of tax benefits under the section between recognised Trading Houses or Export Houses on the one hand and the exporter actually exporting the goods through them on the other. Since doubts have been raised that the benefit given by the circular is beyond the intention and spirit of the provision, as a measure to provide benefit to the supporting manufacturers exporting goods through the recognised Export House or Trading House, a new proviso to sub-s. (1) of the section has been inserted. The said proviso provides that where an Export House or Trading House issues a certificate in a prescribed form that in respect of any amount of export turnover, deduction under sub-s. (1) is to be allowed to a supporting manufacturer, the amount of deduction available to the Export House or the Trading House shall be reduced by such an amount which bears to the total profits of the export business of the Export House or the Trading House issuing the certificate, the same proportion as the amount of export turnover specified in the certificate bears to the total export turnover of the Export House or the Trading House as the case may be. 28.4 As a measure to extend the benefit provided under sub-s. (1) to the supporting manufacturers, a new sub-s. (1A) has been inserted to provide that where the supporting manufacturer has sold goods to any Export House or Trading House in respect of which the latter has issued a certificate in the prescribed form in accordance with the provisions of sub- s. (1) read with the proviso, deduction will be allowed in the computation of the income of the supporting manufacturer, of the whole of the profits derived by it from the sale of goods or merchandise to the Export House or Trading House, as the case may be, in respect of which the certificate was issued by the latter. For this purpose :

Export House or Trading House has been defined as being the holder of an Export House Certificate or Trading House Certificate as the case may be;

the new Expln. (d) defines 'Export House Certificate' or Trading House Certificate' to mean a valid Export House Certificate or the Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India;

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the new Expln. (e) defines 'supporting manufacturer' to mean a person being an Indian company or any other person, resident in India, manufacturing goods or merchandise and selling such goods to the Export House or Trading House for the purposes of export.

28.5 With a view to enabling the supporting manufacturers to compute the profit derived from the sale of goods or merchandise to the Export House or the Trading House, a new sub-s. (3A) has been inserted; The new sub-s. (3A) provides that where the business carried on by the supporting manufacturer consists exclusively of the sale of goods or merchandise to one or more Export Houses or Trading Houses, the whole of the profits derived from the business by the supporting manufacturers shall be deemed as the profits derived from the sale of goods to the Export Houses or Trading Houses. However, where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits derived by the supporting manufacturer from sale of goods to the Export House or the Trading House shall be the amount which bears to the total profits of the business of the supporting manufacturer the same proportion as the turnover in respect of sale to the Export House or Trading House bears to the total turnover of the business carried on by the supporting manufacturer. 28.6 The new sub-s. (4A) provides that the deduction to the supporting manufacturer shall not be allowed unless it furnishes the prescribed forms along with the return of its income :

the report of an accountant certifying that the deduction has been correctly claimed on the basis of the income derived by the supporting manufacturer in respect of sale of goods or merchandise to the Export House or the Trading House. For this purpose, the accountant shall be the one as defined in the Explanation below sub-s. (2) of s. 288; and

a certificate from the Export House or the Trading House that in respect of the export turnover mentioned in the certificate, the Export House or the Trading House has not claimed any deduction under this section. The certificate issued by the Export House or the Trading House shall be certified by the auditor auditing the account of the Export House or the Trading House under the provisions of this Act or under any law.

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28.7 The working of the benefit under this section, as can be shared between a recognised export house or a trading house with the supporting manufacturer, has been illustrated in the example below : Total export earning in convertible foreign exchange of an Export House : 50 crores Net profit from exports 1 crore at 2% Amount of deduction eligible under s. 1 crore 80HHC(1) Export earnings in convertible foreign exchange in respect of purchases made from supporting 50 lakhs manufacturer : Profit from such 1 lakh exports at 2% Purchase price of goods in the hands of Export House in respect of item purchased from 45 lakhs supporting manufacturer Profit to supporting manufacturer on sale to Export House at 10% 4.5 lakhs Case I : Where the Export House does not issue a 1 crore certificate under proviso to sub-s. (1) of s. 80HHC.

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Deduction allowable to Export House under s. 80HHC(1) Case II : Where the Export House issues certificate in favour of the supporting manufacturer. Deduction allowable to (100-1) the Export House under lakhs proviso = 99 to s. 80HHC(1) lakhs Deduction allowable to supporting manufacturer under s. 80HHC(1A) 4.5 lakhs As a consequence, the benefit contained in Circular No. 466, dt. 14th Aug., 1986, is deemed as withdrawn." 16. A careful perusal of the above circulars would reveal that the legislative intent was to provide certain tax benefit to the supporting manufacturers exporting goods through the export house/trading house. For the purpose, a new proviso to sub-s. (1) and a new sub-s. (1A) to s. 80HHC has been introduced. Correspondingly, sub-ss. (3A) and (4A) were also introduced to provide for the manner of computation of the profits of the supporting manufacturer and for the manner of issuing disclaimer certificate by the export house. The only condition stipulated by the legislation is that the same benefit should not be claimed by both the export house and the supporting manufacturer. To ensure the same, it was made a precondition that the export house should furnish a certificate of disclaimer in respect of the export turnover, and the amount of the deduction available to the export house would be accordingly reduced in the specified manner. Similarly, it was provided in sub-s. (1A), the supporting manufacturer can claim tax benefit only on the basis of the disclaimer certificate of the export house. We could not see any other conditions stipulated in these provisions. The scheme of these provisions suggests that the supporting manufacturer gets an independent right to claim deduction once he gets in his favour a disclaimer certificate from the export house. In the light of these discussions, we are of the view that the assessee would be entitled to claim deduction as per s. 80HHC(1A) of 33

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the IT Act. Further from the illustration presented in the circular clearly exhibits that benefit derived under s. 8HHC(1A) by the supporting manufacturer could be higher than the benefit available under s. 80HHC(1) to the Export House in the case where the Export House themselves exported the goods without the help of supporting manufacturer. This establishes the fact that there is no correlation as regards to profit element of both Export House and supporting manufacturer for the purpose of claiming benefit under the Act. Moreover in the present case the Export House is STC, an organization being the extended limb of the Government created for the purpose of facilitating, promoting and encouraging exports and not only for the purpose of profit motive.” 27. The aforesaid decision of the Tribunal has been affirmed by Hon’ble

Karnataka High Court. The decision of the Hon’ble Bombay High Court in

Associated Capsules (P) Ltd (supra), wherein the simultaneous deductions

under section 80IB and 80 HHC was allowed and the contrary decisions of

Delhi High Court in Great Eastern Export (332 ITR 14) has been referred by Hon’ble Apex Court for larger bench on 10th December 2015 in ACIT

Vs Micro Labs Ltd (380 ITR 1). This fact was confronted with ld AR for

the assessee and was asked if any decision has rendered by Hon’ble

Supreme Court on the reference made to larger bench till now.

stayed the operation of decision of the Hon’ble Bombay high Court in

Associated Capsules (P) Ltd (supra), which is binding precedent on us. It

was further brought to our notice that the Hon’ble Bombay High Court

while considering the similar question of law in CIT Vs Merck Ltd dated

08.08.2016 reported vide (389 ITR 70) “ whether on the facts and in the

circumstance of the case and in law, the Tribunal was justified in allowing

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double deduction under Section 80IB and 80HHC of the Income Tax Act

without appreciating that as per provision of Section 80IB (13)/80IA(9) the

expression "shall in no case exceed the profits and gains of such eligible

business of undertaking or enterprise" starts with conjunction 'AND' and

this expression is in addition to the expression "deduction to the extent of

"SUCH" [as per provision of Section 80-IA(9) & 80-B(13)] profits and

gains shall not be allowed under any other provisions of this Chapter” ,

passed the following order:

We find that the impugned order of the Tribunal has allowed concurrent “ (a) deduction under Sections 80HHC and 80IB of the Act. This by following the decision of this Court in Associated Capsules (P.) Ltd. v. Dy. CIT [2011] 332 ITR 42/197 Taxman 84/9 taxmann.com 63. (b) Mr. Suresh Kumar, learned Counsel appearing for the Revenue does not dispute the fact that this issue is covered by the decision of this Court in Associated Capsules (P.) Ltd. (supra). However, he invites our attention to the decision of the Apex Court in Asstt. CIT v. Micro Labs Ltd. [2016] 380 ITR 1/237 Taxman 74/[2015] 64 taxmann.com 199 wherein an identical issue as arising in this question has been referred by the Apex Court to a Larger Bench. The decision of the Larger Bench is still awaited. Thus, he requests that this question be admitted for consideration. We see no reason to admit the present question. This for the reasons as the issue stands concluded by the decision of a Co-ordinate bench of this Court in the Associated Capsules (P.) Ltd.'s case (supra) which is binding upon us, as it has not been stayed. (c) In the above view, the question of law (c) as formulated for our consideration, does not give rise to any substantial question of law. Thus, not entertained.” 29. Therefore, considering the decision of Jurisdictional High Court in Merck

Ltd (supra) as the decision of larger bench in Hon’ble Apex Court is

awaited and there is no stay of the binding decision of Jurisdiction High

Court in Associated Capsules (P) Ltd (supra), which is binding on this 35

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

Tribunal and the decision of Bangalore Tribunal in Shamanur Kallappa &

sons (supra), the ground No. 2 of appeal raised by the assessee and the

additional grounds of appeal raised by the assessee are allowed. The

assessing officer is directed to re-compute the deduction under section

80IB & 80 HHC in accordance with law.

ITA No. 7343/Mum/2008 A.Y. 2004-05

appeal, however, as per our considered view, the following are the

substantial grounds of appeal:

identical as raised in appeal for AY 2003-04, which we have already

allowed, therefore, following the principle of consistency, both the grounds

of appeal raised by assessee are allowed with similar direction.

ITA No. 7344/Mum/2008 A.Y. 2004-05

under the sole ground of appeal, which relates to deduction under section

80IB. We have noted this ground of appeal is identical to the ground no.1

of the appeal for A.Y. 2003-04 and A.Y. 2004-05, which we have already

ITA No. 7342 to 7344 Mum 2008-M/s Indagro Foods Ltd.

allowed. Therefore, this ground of appeal is also allowed with similar

direction.

Order pronounced in the open court on 26/04/2019.

Sd/- Sd/- N.K. PRADHAN, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 26.04.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “I” Bench, ITAT, Mumbai 6. Guard File

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai