ALLANA FROZEN FOODS LTD,MUMBAI vs. DCIT CIR 1(1), MUMBAI

सुनवाई क" तार"ख /Date of Hearing : 28-09-2016 घोषणा क" तार"ख /Date of Pronouncement : 02-01-2017 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member These are bunch of eight appeals pertaining to different assessee’s of the same group. Out of these eight appeals, four appeals by the assessees’ being 4121/Mum/11,4185/Mum/11 and 4110/Mum/11 and other four appeals by the Revenue being ITA Nos. 5534/Mum/11, 5548/Mum/11, 5518/Mum/11 and 5533/Mum/11 are ITA 4056/Mum/2011, ITA 5534/Mum/11 4 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 cross appeals for the assessment years 2002-03 to 2004-05 which are directed against separate appellate orders passed by the learned Commissioner of Income Tax(Appeal), Mumbai (hereinafter called “the CIT(A)”). The issues involved in all these appeals are common; the same have been heard together and are being disposed of by this single consolidated order for the sake of convenience.

First we shall take up assessee’s appeal in 2002-03. 2. The assesseee has raised following grounds of appeal in the memo of appeal filed with the Income-Tax Appellate Tribunal(hereinafter called “ the Tribunal”) :

The Commissioner of Income Tax(Appeals)-1,Mumbai erred:- 1.1. Without prejudice, in not appreciating that Allanasons Ltd. , a Trading House, had made a profit on the sale of goods purchased from the Appellant, a Supporting Manufacturer, as was evident from the Form No 10CCAB filed with the Assessing Officer.

The assessee has also raised following additional grounds of appeal:-

“Without prejudice to the Appellant's contention [which has been accepted by the Commissioner of Income Tax (Appeals)] that its claim for deduction u/s 80HHC as a Supporting Manufacturer is not dependant on the outcome of claim made by Allanasons Ltd., a Trading House which issued Disclaimer Certificate in favour of Appellant:-

1.2 erred in not appreciating that Allanasons Ltd., the Trading House which made a disclaimer, would be entitled to a deduction u/s 80HHC for the year under appeal as per Section 80HHC as amended by Taxation Laws (Amendment) Act, 2005. The above additional ground which is being raised before the Hon'ble Income Tax Appellate Tribunal arises out of the recent judgment of Hon'ble Gujarat High Court in the Writ Petition filed by Allanasons Ltd. [156/2006 renumbered as 10187/2012] and the judgment of the ITA 4056/Mum/2011, ITA 5534/Mum/11 5 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 Hon'ble Supreme Court in Topman Exports reported at 342 ITR 49 and delivered on 08/02/2012. We pray that the above ground be kindly admitted since it emanates from the order of the Commissioner of Income Tax (Appeals).”

3. The learned counsel for the assessee submitted that these additional grounds of appeal are legal grounds and it goes to the root of the matter and need to be admitted in the interest of justice. The learned DR did not objected to the admission of these additional grounds of appeal. After hearing both the parties, we direct that these additional grounds be admitted in the interest of substantial justice and be adjudicated on merits in accordance with law.

4. The brief facts of the case are that the assessee is a manufacturer of frozen foodstuffs who exported large parts of its production through an export house namely Allana Sons Limited. The assessee being a supporting manufacturer, got a disclaimer certificate from the export house as prescribed under sub section 4A(b) of Section 80 HHC of the Act. The assessee had claimed deduction u/s 80HHC of the Act on disclaimed turnover of Rs. 39,07,97,779/- . The assessee has made claim of deduction u/s 80 HHC of the Act on the profit arose to the assessee on the sales to the export house of its manufactured goods which was specified as assessee’s turnover in the disclaimer certificate issued by the export house in favour of the assessee. The claim of the assessee for deduction u/s 80HHC of the Act was denied by the AO relying on the decision of the Hon’ble Supreme Court in the case of IPCA Laboratories Ltd., (2004)266 ITR 521(SC), as no deduction u/s 80HHC of the Act was available to Allana Sons Limited. Thus, in nutshell, the A.O. disallowed the deduction u/s 80HHC of the Act to the assessee on the ground that M/s Allana Sons Limited itself is not entitled to deduction u/s 80 HHC of the Act, then the assessee being supporting manufacturer cannot claim any deduction u/s. 80HHC of the Act on the export turnover disclaimed by the export house. It is pertinent to note at this stage that loss of Allana Sons Limited from export of ITA 4056/Mum/2011, ITA 5534/Mum/11 6 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 trading goods is much more than profits earned by it on export of manufactured goods. The assessee was , however, allowed deduction u/s 80HHC of the Act on the direct export turnover made by the assessee. The AO passed assessment order dated 17-03-2005 u/s. 143(3) of the Act.

5. Aggrieved by the assessment order dated 17-03-2005 passed by the AO u/s 143(3) of the Act, the assessee carried the matter in appeal before the ld. CIT(A) whereby the assessee reiterated the submissions as were made before the A.O. . The assessee contended that in view of insertion of fifth proviso to Section 80HHC(3) with retrospective effect from 1.4.1992 by Taxation Laws (Amendment) Act, 2005 to provide that the losses from trading/manufacturing exports would be adjusted against export incentives as provided in the said proviso, and that a deduction u/s 80HHC of the Act would be allowable against the balance profit. It was submitted that the assessee being supporting manufacturer should be allowed deduction u/s 80HHC of the Act on profits made by it on goods supplied to export house , Allanasons Limited for which it hold disclaimer certificate from Allana Sons Limited. It was submitted that the decision of Hon’ble Supreme Court in the case of Ipca Laboratories Limited(supra) is not applicable to supporting manufacturers as the same is applicable to trading house/export houses who have made exports . The assessee relied upon CBDT circular no 528 dated 16th December 1988 to contend that the CBDT circular clarifies the manner of computing deduction u/s 80HHC of the Act in the case of supporting manufacturers. Thus, it was submitted that to get deductions u/s 80HHC of the Act in the case of supporting manufactures, it is not relevant whether the trading house/export house has made profits or not . The ld. CIT(A) observed that as per the ratio of law laid down by the Hon’ble Supreme Court in the case of IPCA Laboratories Ltd. (supra) the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken in to consideration before allowing deduction u/s 80HHC of the Act which shall be ITA 4056/Mum/2011, ITA 5534/Mum/11 7 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 allowed only when there is positive profit after adjusting losses, if any. Thus as per learned CIT(A), the losses arising from export of traded goods shall be set off against profit from export of manufactured goods by Allana Sons Limited before allowing deduction u/s 80HHC of the Act in the hands of Allana Sons Limited. Thus, it was observed by the learned CIT(A) that ratio of decision of Hon’ble Supreme Court in Ipca Laboratories Limited(supra) clearly lays down that if no deduction is available in the hands of trading house/export house , because there is a net loss in the case of export house/ trading house , then the export house cannot pass on or give credit of such non existing deduction to a supporting manufacture . The ld. CIT (A) further observed the assessee has complied with all the necessary provisions of Sec. 80 HHC (1A) r.w.s. 3A, 4A of the Act for claiming deduction as envisaged in proviso to section 80HHC(l) and hence the AO was not correct in denying the claim of the deduction made by the assessee in view of the following facts:-

(i) Admittedly the appellant was a supporting manufacturer in terms of clause "D" of the explanation to section 80HHC. (ii) The disclaimer certificate issued to the appellant was by an export house /trading house as per clause "C" of the explanation. (iii) The disclaimer certificate required under sub section (4A) of Section 80HHC of the Act in form No. 10 CCAB as per rule 18BBA(2) of Income- tax Rules,1962 was filed by the appellant along with return of income for claiming deduction u/s 80HHC(1A) certifying that the export house had not claimed deduction under Section 80HHC(1) on the export of trading goods effected on manufacturing goods of the appellant. (iv) The appellant has also filed a certificate in prescribed proforma i.e. form no. 10CCAC as per Rule 18BBA(3) in terms of sub clause (a) of sub section (4A) of Section 80HHC.

ITA 4056/Mum/2011, ITA 5534/Mum/11 8 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11

In any view of the matter, the stand of the petitioner on with regard to interest income being included while computing claim for deduction under Section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to Section 80HHC (3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing officer would bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice dated 10 January 2005.

ITA 4056/Mum/2011, ITA 5534/Mum/11 10 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 Thus, it is submitted that now the assessee is entitled for deduction u/s 80HHC of the Act. It was also submitted that the Mumbai Bench of the Tribunal in the case of other supporting manufacturer namely Frigorifico Allana Limited in cross appeals ACIT v. Frigorifico Allana Limited and ors. vide and ors. for the assessment years 2002-03 to 2004-05 vide common orders dated 27th July, 2016 has also allowed the claim of deduction under section 80HHC of the Act to other supporting manufacturer of Allanasons Limited namely Frigorifico Allana Limited and ors. , keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by the introduction of Taxation Laws (Amendment) Act, 2005 with effect from 01-04-1992 , whereby the Tribunal has held as under:-

“These appeals belong to different assessees of same group arising in different assessment years involving identical issues and therefore these were heard together and being disposed by this common order.

2. During the course of hearing, arguments were made by Shri P.J. Pardiwalla & Ms. Vasanti Patel, Authorised Representatives (ARs) on behalf of the Assessee and by Shri G.M. Doss & Shri E. Shreedhar, Departmental Representatives (DRs) on behalf of the Revenue.

First we shall take up appeals of the Assessee & Revenue in the case of Frigerio Conserva Allana Ltd in & ITA No. 5528/Mum/2011, respectively, for A.Y. 2000-01:

3. Ground Nos 1 & 2 of assessee’s appeal and Ground No.2 of Revenue’s appeal involve identical issue with regard to denial of deduction u/s 80HHC to the assessee on the ground that deduction u/s 80HHC was denied to the main exporter also, to whom the assessee (a supporting manufacturer) had sold its goods.

3.1. We have heard both the parties on this issue in detail and also gone through the orders of the lower authorities as well as copies of judgment placed before us. The brief background of this case is that assessee is supporting manufacturer, selling its goods to the export house namely M/s. Allana Sons Ltd, who had issued disclaimer certificate in favour of the assessee u/s 80HHC and accordingly, the assessee claimed benefit of deduction u/s 80HHC on the amount of turnover made by the assessee to the export company. During the course of reassessment proceedings, the AO noted that the said export house has been denied ITA 4056/Mum/2011, ITA 5534/Mum/11 11 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 the benefit of deduction u/s 80HHC on the ground that the said export house company namely M/s. Allana Sons Ltd. (‘here in after referred to as ‘ASL’ in short) had incurred loss in case the amount of incentive is not included in its export profits. Accordingly, the AO of the assessee withdrew the benefit of claim of deduction u/s 80HHC in the case of present assessee also solely on the ground when the main exporter i.e. ASL as itself being denied the benefit of deduction u/s 80HHC, therefore, consequently, the assessee should also be denied the benefit of deduction u/s 80HHC. Accordingly, the claim made by the assessee u/s 80HHC for Rs.16,87,12,722/- on the turnover of Rs.97,59,61,941/- (disclaimed by ASL in favour of the assessee) was withdrawn by the AO.

3.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and made exhaustive submissions on various grounds to agitate this addition. Ld. CIT(A) accepted the submissions of the assessee in part and allowed the benefit of deduction u/s 80HHC to the assessee on the ground that the assessee is entitled for benefit of deduction u/s 80HHC without depending upon actual allowability of deduction u/s 80HHC in the hands of export house and he further held that in any case the export house has been actually allowed the deduction u/s 80HHC, and therefore, on facts also the assessee is entitled for deduction u/s 80HHC.

3.3. Being aggrieved, the revenue filed an appeal before the Tribunal on the ground that Ld. CIT(A) ought not to have allowed the benefit of deduction u/s 80HHC in the light of judgment of Hon’ble Supreme Court in the CIT v. IPCA Laboratories Ltd. 266 ITR 521 (SC) wherein it was held that in case there was loss from export activities, then the export house cannot pass on the benefit of deduction u/s 80HHC by way of issue of disclaimer certificate u/s 80HHC (4)(a) to the supporting manufacturer.

3.4. Before us, the Ld. Counsel of the assessee defended and justified the order of Ld. CIT(A) for allowing deduction u/s 80HHC on many grounds. His first argument was that deduction has been actually allowed to the export house i.e. ASL by the Tribunal and order of the Tribunal has been upheld by the Hon’ble Bombay High Court wherein the reopening done by the AO of the ASL has been quashed and on merits also Hon’ble High Court had found that deduction u/s 80HHC was allowable in the hands of ASL as per law and facts. Thus, the whole premise on which the deduction was disallowed in the hands of the assessee ceases to exist and therefore the deduction has to be allowed to the assessee. Second argument made by the assessee was that this controversy has been resolved in the judgment of Hon’ble Banglore Bench in the case of Shamanur Kallappa & Sons vs. ACIT 23 DTR (Bang)(Trib) 269 which has been subsequently upheld by the Hon’ble Karnataka High Court by vide its order dated 12th January 2015 in by holding that deduction u/s 80HHC to the supporting manufacturer is allowable independent of actual allowing of deduction in the hands of main exporter. The third argument made by the Ld. Counsel ITA 4056/Mum/2011, ITA 5534/Mum/11 12 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 was that reopening was done in the case of the assessee by the AO on the issue of disallowance u/s 40A(3) only and no issue was raised in the ‘Reasons’ recorded with respect to deduction u/s 80HHC. The disallowance made u/s 40A(3) has been deleted by the Ld. CIT(A) against which revenue has not filed any appeal. Thus, main issue on which ‘Reasons’ were recorded has been settled and therefore, no other disallowance would be sustainable as reopening would become bad in law.

3.4. Per contra, Ld. DR relied upon the judgment of Hon’ble Supreme Court in the case of IPCA Laboratories Ltd. v. CIT (supra) and relied upon the order of the AO. We have considered the entire matrix and facts of this case and copies of judgment placed before us. Before going deeper in details, it has been noted by us at the outset that deduction u/s 80HHC in the hands of ASL (i.e. export house) has been found to be allowable by Hon’ble Bombay High Court in the case of M/s. Allana Sons Ltd. v. DCIT writ petition No.802 of 2005 dated 22nd July 2014 wherein it was held that reopening of the assessment in the hands of M/s. Allana Sons Ltd. was not valid as per law and the same was quashed with following observations:

We have considered the rival submission. It is well settled that a notice to reopen the assessment under section 148 of the Act can only be issued if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This reason to believe on the part of the Assessing Officer has not to be on the basis of change of opinion i.e. where Assessing Officer has had occasion to consider an issue during the assessment proceeding under section 143(3) of the Act. In this case, the Assessing Officer had during the proceeding under section 143(3) of the Act raised queries to the petitioner specifically with regard to petitioner’s claim for deduction under section 80HHC of the Act and the petitioner’s response to the same was considered by the Assessing Officer while passing the assessment order. Therefore, the impugned notice and the grounds in support thereof are in fact a change of pinion on the part of the Assessing Officer. Therefore, on the aforesaid ground alone impugned notice is not sustainable.

3.5. It is further noted by us that, on merits also Hon’ble High Court observed that deduction u/s 80HHC was actually allowable to the said export house the observations of the Hon’ble High Court are very useful and these are reproduced hereunder for the sake of ready reference:

In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the claim for deduction under section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to section 80HHC(3) of the Act by addition of ITA 4056/Mum/2011, ITA 5534/Mum/11 13 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing Officer would be bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice date 10th January 2005.

3.6. Thus, it is noted by us that the Hon’ble High Court has not only quashed the reassessment order but also held that deduction u/s 80HHC is actually allowable to ASL. It is further noted by us that it has been held by Hon’ble Gujarat High Court in the case of Avani Exports & Others dated 02.07.2012 that the amendment made by Taxation Laws (Amendment) Act 2005 in section 80HHC to curtail the benefit of u/s 80HHC on the amount of incentive received by the main exporters would not operate retrospective. Thus, if we consider on facts the case of ASL on merits also, it is noted that after including amount of incentives there would arise positive amount of profit. Thus, viewed from any angle, and keeping in view the fact that when deduction u/s 80HHC has been actually allowed in the hands of ASL i.e. export house, therefore, the whole premises of the AO based upon which the deduction was denied to the assessee, ceases to exist. Under these facts and circumstances, we find that Ld. CIT(A) has rightly allowed the benefit of deduction u/s 80HHC to the assessee and therefore, we find nothing wrong in the order of Ld. CIT(A) and therefore, the same is upheld. Since, we have allowed the relief to the assessee on the first argument itself therefore, we treat other arguments as academic in nature and therefore, we are not dealing with the same at this stage. As a result, grounds raised by the revenue in this appeal are dismissed and grounds raised by the assessee may be treated as allowed.”

Thus, from a reading of the aforesaid provision of law in our considered opinion a supporting manufacturer who receive certificate referred to in sub-section (4A) clause (b) of the Act is entitled for deduction under section 80HHC to the extent of profit earned by it on such goods to the Export House subject to provisions of sub-section (IB) of section 80HHC of the· Act. Nowhere the section stipulates· for allowing deduction under section 80HHC (lA) it is also a condition precedent that Export House should have also made a profit on export of trading goods. The Learned Assessing Officer disallowed the claim in view of his ITA 4056/Mum/2011, ITA 5534/Mum/11 14 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 reading of the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd., (supra). We find that in the case of IPCA Laboratory Ltd., (supra) the Hon'ble Supreme Court was confronted with the case of an Export House. The assessee there was an Export House. That assessee suffered a loss on export of trading goods. While computing deduction allowable under section 80 HHC of the Act the assessee ignored the loss on export of trading goods on the ground that it has issued a disclaimer certificate under section 80 HHC (4A(b) of the Act in respect of turnover of trading goods. In this context, the Hon’ble Supreme Court viewed that the disclaimer certificate can be given in respect of profit only and not in respect of loss. In other words, as assessee who is an Export House or Trading House is entitled to reduce the amount of deduction allowable under section 80- HHC by issuing a disclaimer certificate but the assessee cannot increase the amount of deduction otherwise allowable under section 80 HHC by issuing a disclaimer certificate.

In any view of the matter, the stand of the petitioner on with regard to interest income being included while computing claim for deduction under Section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to Section 80HHC (3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing officer would bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice dated 10 January 2005.

ITA 4056/Mum/2011, ITA 5534/Mum/11 17 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 The Mumbai Bench of the Tribunal in the case of other supporting manufacturer to Allana Sons Limited namely Frigorifico Allana Limited and ors. in cross appeals ACIT v. Frigorifico Allana Limited and ors. vide and ors. for the assessment years 2002-03 to 2004-05 vide common orders dated 27th July, 2016 has also allowed the claim of deduction under section 80HHC of the Act. , keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by the introduction of Taxation Laws (Amendment) Act, 2005 with effect from 01-04-1992 , whereby the Tribunal has held as under:-

“These appeals belong to different assessees of same group arising in different assessment years involving identical issues and therefore these were heard together and being disposed by this common order.

First we shall take up appeals of the Assessee & Revenue in the case of Frigerio Conserva Allana Ltd in & ITA No. 5528/Mum/2011, respectively, for A.Y. 2000-01:

3.1. We have heard both the parties on this issue in detail and also gone through the orders of the lower authorities as well as copies of judgment placed before us. The brief background of this case is that assessee is supporting manufacturer, selling its goods to the export house namely M/s. Allana Sons Ltd, who had issued disclaimer certificate in favour of the assessee u/s 80HHC and accordingly, the assessee claimed benefit of deduction u/s 80HHC on the amount of turnover made by the assessee to the export company. During the course of reassessment proceedings, the AO noted that the said export house has been denied the benefit of deduction u/s 80HHC on the ground that the said export house company namely M/s. Allana Sons Ltd. (‘here in after referred to ITA 4056/Mum/2011, ITA 5534/Mum/11 18 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 as ‘ASL’ in short) had incurred loss in case the amount of incentive is not included in its export profits. Accordingly, the AO of the assessee withdrew the benefit of claim of deduction u/s 80HHC in the case of present assessee also solely on the ground when the main exporter i.e. ASL as itself being denied the benefit of deduction u/s 80HHC, therefore, consequently, the assessee should also be denied the benefit of deduction u/s 80HHC. Accordingly, the claim made by the assessee u/s 80HHC for Rs.16,87,12,722/- on the turnover of Rs.97,59,61,941/- (disclaimed by ASL in favour of the assessee) was withdrawn by the AO.

3.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and made exhaustive submissions on various grounds to agitate this addition. Ld. CIT(A) accepted the submissions of the assessee in part and allowed the benefit of deduction u/s 80HHC to the assessee on the ground that the assessee is entitled for benefit of deduction u/s 80HHC without depending upon actual allowability of deduction u/s 80HHC in the hands of export house and he further held that in any case the export house has been actually allowed the deduction u/s 80HHC, and therefore, on facts also the assessee is entitled for deduction u/s 80HHC.

3.3. Being aggrieved, the revenue filed an appeal before the Tribunal on the ground that Ld. CIT(A) ought not to have allowed the benefit of deduction u/s 80HHC in the light of judgment of Hon’ble Supreme Court in the CIT v. IPCA Laboratories Ltd. 266 ITR 521 (SC) wherein it was held that in case there was loss from export activities, then the export house cannot pass on the benefit of deduction u/s 80HHC by way of issue of disclaimer certificate u/s 80HHC (4)(a) to the supporting manufacturer.

3.4. Before us, the Ld. Counsel of the assessee defended and justified the order of Ld. CIT(A) for allowing deduction u/s 80HHC on many grounds. His first argument was that deduction has been actually allowed to the export house i.e. ASL by the Tribunal and order of the Tribunal has been upheld by the Hon’ble Bombay High Court wherein the reopening done by the AO of the ASL has been quashed and on merits also Hon’ble High Court had found that deduction u/s 80HHC was allowable in the hands of ASL as per law and facts. Thus, the whole premise on which the deduction was disallowed in the hands of the assessee ceases to exist and therefore the deduction has to be allowed to the assessee. Second argument made by the assessee was that this controversy has been resolved in the judgment of Hon’ble Banglore Bench in the case of Shamanur Kallappa & Sons vs. ACIT 23 DTR (Bang)(Trib) 269 which has been subsequently upheld by the Hon’ble Karnataka High Court by vide its order dated 12th January 2015 in by holding that deduction u/s 80HHC to the supporting manufacturer is allowable independent of actual allowing of deduction in the hands of main exporter. The third argument made by the Ld. Counsel was that reopening was done in the case of the assessee by the AO on the issue of disallowance u/s 40A(3) only and no issue was raised in the ITA 4056/Mum/2011, ITA 5534/Mum/11 19 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 ‘Reasons’ recorded with respect to deduction u/s 80HHC. The disallowance made u/s 40A(3) has been deleted by the Ld. CIT(A) against which revenue has not filed any appeal. Thus, main issue on which ‘Reasons’ were recorded has been settled and therefore, no other disallowance would be sustainable as reopening would become bad in law.

3.4. Per contra, Ld. DR relied upon the judgment of Hon’ble Supreme Court in the case of IPCA Laboratories Ltd. v. CIT (supra) and relied upon the order of the AO. We have considered the entire matrix and facts of this case and copies of judgment placed before us. Before going deeper in details, it has been noted by us at the outset that deduction u/s 80HHC in the hands of ASL (i.e. export house) has been found to be allowable by Hon’ble Bombay High Court in the case of M/s. Allana Sons Ltd. v. DCIT writ petition No.802 of 2005 dated 22nd July 2014 wherein it was held that reopening of the assessment in the hands of M/s. Allana Sons Ltd. was not valid as per law and the same was quashed with following observations:

We have considered the rival submission. It is well settled that a notice to reopen the assessment under section 148 of the Act can only be issued if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This reason to believe on the part of the Assessing Officer has not to be on the basis of change of opinion i.e. where Assessing Officer has had occasion to consider an issue during the assessment proceeding under section 143(3) of the Act. In this case, the Assessing Officer had during the proceeding under section 143(3) of the Act raised queries to the petitioner specifically with regard to petitioner’s claim for deduction under section 80HHC of the Act and the petitioner’s response to the same was considered by the Assessing Officer while passing the assessment order. Therefore, the impugned notice and the grounds in support thereof are in fact a change of pinion on the part of the Assessing Officer. Therefore, on the aforesaid ground alone impugned notice is not sustainable.

3.5. It is further noted by us that, on merits also Hon’ble High Court observed that deduction u/s 80HHC was actually allowable to the said export house the observations of the Hon’ble High Court are very useful and these are reproduced hereunder for the sake of ready reference:

In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the claim for deduction under section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to section 80HHC(3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment ITA 4056/Mum/2011, ITA 5534/Mum/11 20 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 proceedings would be a mere academic exercise only because the Assessing Officer would be bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice date 10th January 2005.

3.6. Thus, it is noted by us that the Hon’ble High Court has not only quashed the reassessment order but also held that deduction u/s 80HHC is actually allowable to ASL. It is further noted by us that it has been held by Hon’ble Gujarat High Court in the case of Avani Exports & Others dated 02.07.2012 that the amendment made by Taxation Laws (Amendment) Act 2005 in section 80HHC to curtail the benefit of u/s 80HHC on the amount of incentive received by the main exporters would not operate retrospective. Thus, if we consider on facts the case of ASL on merits also, it is noted that after including amount of incentives there would arise positive amount of profit. Thus, viewed from any angle, and keeping in view the fact that when deduction u/s 80HHC has been actually allowed in the hands of ASL i.e. export house, therefore, the whole premises of the AO based upon which the deduction was denied to the assessee, ceases to exist. Under these facts and circumstances, we find that Ld. CIT(A) has rightly allowed the benefit of deduction u/s 80HHC to the assessee and therefore, we find nothing wrong in the order of Ld. CIT(A) and therefore, the same is upheld. Since, we have allowed the relief to the assessee on the first argument itself therefore, we treat other arguments as academic in nature and therefore, we are not dealing with the same at this stage. As a result, grounds raised by the revenue in this appeal are dismissed and grounds raised by the assessee may be treated as allowed.”

It is also noted that Hon’ble Apex Court in the case of CIT v. Avani Exports vide order dated 30/03/3015 , duly considered the amendment in Section 80HHC(3) with retrospective effect from 01/04/1992 substituted the following in the direction of the Hon’ble High Court:-

Having seen the twin conditions and since 80HHC benefit is not available after 04/04/2005 , we are satisfied that cases of exporters having a turnover below and those above 10 crore should be treated similarly. This order is in substitution of the judgment in Appeal.

Thus in light of our detailed discussions as set out above, we restore the matter to the file of the AO for computing deduction allowable to the assessee u/s 80HHC of the Act in accordance with law . The assessee is directed to appear before the AO and produce all relevant evidences and explanations in ITA 4056/Mum/2011, ITA 5534/Mum/11 21 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice. This disposes of appeal in 2002-03. We order accordingly.

Revenue Appeal in the case of ACIT v. Allana Frozen Foods Private Limited in for assessment year 2002-03

Assessee’s Appeal in the case of Allana Cold Storage Limited v. DCIT in for assessment year 2003-04 and Revenue Appeal in ITA no. 5548/Mum/2011 for assessment year 2003-04 in the case of ACIT v. Allana Cold Storage Limited.

Assessee’s Appeal in the case of Allana Cold Storage Limited v. DCIT in for assessment year 2004-05 and Revenue Appeal in ITA no. 5518/Mum/2011 for assessment year 2004-05 in the case of ACIT v. Allana Cold Storage Limited.

ITA 4056/Mum/2011, ITA 5534/Mum/11 23 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 “2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restoring the issue of disallowance of Rs. 2,00,000/- U/s. 14A as per rule 8D to the Assessing Officer's file and directing that disallowance to be as per immediate preceding year in the light of observation of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT 234 ITR 1 (Bom.) as the decision of Hon'ble Bombay High Court is not accepted by the Department”.

ITA 4056/Mum/2011, ITA 5534/Mum/11 25 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11

21. We have considered the rival contentions and also perused the material available on record. The A.O. has made ad-hoc lump-sum disallowance of Rs. 2,00,000/- towards expenditure incurred in relation to earning of exempt income , without having regards to the accounts of the assessee as per mandate of Section 14A(2) of the Act. We are of the considered view that the appeal under consideration is prior to assessment year 2008-09 and hence Rule 8D of Income-tax Rules, 1962 is not applicable to the impugned assessment year under appeal. Keeping in view the decision of the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.(supra), the disallowance u/s 14A of the Act should be restricted to a reasonable estimation having regards to the accounts of the assessee. In our considered view , the ld. CIT(A) has rightly set aside and restored the issue back to the file of the A.O. for working out reasonable disallowance u/s 14A of the Act. We do not any infirmity in the order of the ld. CIT(A) and accordingly the said appellate order of learned CIT(A) is sustained and confirmed and the AO in remand proceedings shall work out reasonable disallowance of expenditure incurred in relation to earning of exempt income having regards to the accounts of the assessee in accordance with mandate of Section 14A(2) of the Act. The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice. This disposes of ground no 2 raised by the Revenue in memo of appeal filed with the tribunal. We order accordingly.

22. In the result, both the assessees’ appeal in and Revenue appeal in ITA no. 5518/Mum/2011 for assessment year 2004- 05 are allowed for statistical purposes.

ITA 4056/Mum/2011, ITA 5534/Mum/11 26 ITA 5548/Mum/2011, ITA 4121/Mum/11, ITA 5533/Mum/2011, ITA 5518/Mum/11, ITA 4185/Mum/11 & ITA 4110/Mum/11 Assessee’s Appeal in the case of Allana Investment and Trading Company Limited v. DCIT in for assessment year 2004- 05 and Revenue Appeal in ITA no. 5533/Mum/2011 for assessment year 2004-05 in the case of ACIT v. Allana Investment and Trading Company Limited.