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Before: Shri M. Balaganesh
This appeal of the assessee arises out of the order of the Learned CITA in Appeal No. 304/CIT(A)-1/Cir-2/07-08 dated 25-07-2011 for the Asst Year 1999-2000 passed against the order of assessment framed by the Learned AO u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
Shri. Subhasis Dey and Shri.Abhay Ruia, CAs, the Learned AR argued on behalf of the assessee Shri.Sanjay Mukherjee, JCIT, the Learned DR argued on behalf of the revenue.
The first two grounds raised
by the assessee are regarding jurisdiction of the Learned AO to frame the re-assessment. During the course of hearing before us, the Learned AR informed the bench that these two grounds are not pressed by him and the same is taken as a statement from the Bar. Accordingly, the first two grounds raised by the assessee are dismissed as not pressed.
1. C-AM M/s.Flender Limited
The next issue to be decided in this appeal is the amount of deduction u/s 80HHE of the Act eligible to be claimed by the assessee in the facts and circumstances of the case.
4.1. The brief facts of this issue is that the assessee claimed deduction u/s 80HHE of the Act to the tune of Rs. 2,02,02,199/- in the return of income. The assessee is engaged in two businesses namely manufacture and sale of gear boxes, couplings etc and development of computer software. The assessee maintained separate accounts for the said businesses and their profits are computed separately. The assessee claimed deduction u/s 80HHE of the Act in respect of its development of computer software business in the formula of profits of the business of computer software development multiplied by export turnover of such software development and divided by total turnover of such software development. Whereas the Learned AO recomputed the deduction u/s 80HHE of the Act by taking the total turnover of the assessee as a whole in the denominator instead of total turnover of software business alone. The Learned AO relied on the earlier year order for Asst Year 1998-99 upheld by this tribunal. Though the assessee had preferred further appeal to Hon’ble High Court against the order of this tribunal for Asst Year 1998-99 and the same was admitted , the Learned CITA on first appeal upheld the addition of the Learned AO based on the earlier year’s tribunal order for the Asst Year 1998-99. Aggrieved, the assessee is in appeal before us on the following grounds:-
3. That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in restricting the deduction admissible to the appellant u/s. 80HHE of the Act for the year under consideration to only Rs.20,03,821 against the claim made by the appellant of Rs.2,02,02,199.
4. That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in restricting the deduction admissible to the appellant u/s. 80HHE of the Act to Rs.20,03,821 by merely following the order passed in appellant’s own case for the AY 1998-99 without applying his mind to the issue.
5. That on the facts and in the circumstances of the case, the learned CIT(Appeals) failed to appreciate that Assessing Officer erred in holding that for the purpose of computing deduction admissible 2 C-AM M/s.Flender Limited u/s. 80HHE of the Act ‘total turnover’ would also include turnover of the business of manufacture and sale of gear box, couplings etc.
6. That on the facts and in the circumstances of the case, the learned CIT(Appeals) failed to appreciate that the Assessing Officer erred in considering the loss from the business of gear box, couplings etc. while arriving at the ‘profits of the business’ for the purpose of computing deduction admissible u/s. 80HHE of the Act.
7. That the appellant craves leave to add to and/or amend, alter, modify or rescind any of the grounds hereinabove before or at the time of hearing of the appeal”.
4.2. The Learned AR argued that this issue is squarely covered by the decision of the Jurisdictional High Court in assessee’s own case. In response to this, the Learned DR vehemently supported the orders of the lower authorities.
4.3. We have heard the rival submissions and perused the materials available on record. Even though the assessee had raised several grounds with regard to the grant of deduction u/s 80HHE of the Act, we find that the central issue revolves around the computation of deduction u/s 80HHE of the Act only. We find that the impugned issue before us is squarely covered by the decision of the Jurisdictional High Court in assessee’s own case of Flender Ltd vs CIT reported in 223 Taxman 221 (Calcutta) dated 20.2.2014 wherein the questions raised before the Hon’ble Calcutta High Court were as follows:- “4. The learned tribunal, agreeing with the views expressed by the CIT(A) and relying on the judgment in the case of CIT v. Parry Agro Industries Ltd [2002[257 ITR 41/[2003] 131 Taxman 577 (Ker.), upheld the views of the CIT(A) and added that in arriving at the admissible deduction under Section 80HHE the Assessing Officer has also to take into account the negative profit arising out of the business of gear box. The questions in the circumstance, which arise for determination, are as follows: (a) Whether there is any material difference between Section 80HHC(3) and Section 80HHE(3)? (b) Whether the turnover and profit or loss arising out of the business of gear box etc. is to be taken into account for the purpose of determining admissible deduction under Section 80HHE(1)?”
Their Lordships had held as below:- 3 C-AM M/s.Flender Limited “8. We have considered the respective submissions advanced by the learned advocates for the parties. We are of the opinion that the submissions made by Mr. Bajoria must be accepted in answering the first question formulated above. Section 80HHC is a provision intended to encourage export of any goods or merchandise except minerals and mineral oil. The aforesaid provision is general in nature. If there was no material difference between Sections 80HHC and 80HHE, there was no reason to legislate Section 80HHE because export of computer software in any event would have been covered by Section 80HHC. The fact that the legislature took pains to specifically provide for computer related business separately, is a pointer to show that the provisions contained in Section 80HHE are specific and were carved out from the general category of export of goods appearing from 80HHC. There is, as such, no reason to treat them identically nor is it open, in our opinion, to hold that there is no material difference between the language of 80HHC(3) and that of Section 80HHE(3). There may not be any material difference between sub-Section 3 of each of the aforesaid sections but they certainly operate in different fields. The objects of operation of the aforesaid two sections are altogether different. Therefore, in deciding a question arising out of Section 80HHE, if the judgments rendered in the cases arising out of Section 80HHC are to be applied then a wrong result is bound to follow. We are, as such, of the opinion that the first question, formulated above, must be answered in the affirmative and in favour of the assessee.
In so far as the second question is concerned, Mr. Bajoria drew our attention to a judgment of the Delhi High Court in the case of CIT v. Padmni Technologies Ltd [2013] 33 taxmann.com 668. The assessee, in the case before Delhi High Court, was running and managing two separate units. One of the units was engaged in the business of multimedia including exports thereof and the other unit was engaged in the manufacture of PET jars. The Delhi High Court held that the expression total turnover of the business would only mean that total turnover of the goods to which the section applies. In the aforesaid case, the claim was made for deduction under Section 80HHC. Therefore, this judgment is not an authority for the purpose of deciding the issue, which has arisen before us.
From a combined reading of the aforesaid two sub-sections it can be said that the business referred to in sub-Section(3) is the business appearing from sub-Section(1).What did the legislature have in mind while using the word “business” has not been left unidentified. In sub-Section(1), the word “business” has itself been defined in clauses (i) and (ii) of sub- Section(1) quoted above. Therefore, the conclusion is bound to be that the turnover of business which can be taken into account is only the turnover of the computer software or in respect of providing technical service as the case may be. Any reference to Section 80HHC for the purpose of understanding the mechanism of sub-Section(3) of Section 80HHE is likely to lead to wrong conclusion. The legislature, in this case, was only 4 C-AM M/s.Flender Limited concerned with respect to deductions allowable in respect of profits from export of computer software etc. which is also the title of the section and a pointer to show the intention of the legislature.
The object of providing the mechanism in sub-Section (3) for the purpose of computing the profits was to provide adequate safeguard to prevent jugglery or manipulation of the books of account. In a case where the exporter is also engaged in the same business in the domestic market, it may not be very difficult for him to manipulate the books of account in such a manner so that the entire or major part of the profit is shown to have arisen from the export business and on that basis he could inflate his claim for deduction under Section 80HHE. In order to stop any such attempt, the legislature has provided for a special mechanism for the purpose of assessing the profits from out of which deductions can be claimed. Deductions were obviously provided for in order to generate foreign exchange.
We are, as such, of the opinion that neither the turnover nor the profit nor loss arising out of the business activity relating to gear box had anything to do with the computation of the admissible deduction under Section 80HHE(3). Therefore, the second question, formulated above, is answered in the negative and in favour of the assessee.”
Hence respectfully following the aforesaid decision, we have no hesitation in allowing the grounds raised by the assessee in this regard.
In the result, the appeal of the assessee is partly allowed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 7 / 10/2015