D.b. Income Tax Appeal v. Acit, Circle-2, Udaipurjudgment Dated 29/01/2013

D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPURORDER D.B. Income Tax Appeal No.147/2007 Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, Udaipur thDate of Order :::: 29 January, 2013 PRESENT REPORTABLE HON'BLE DR. JUSTICE VINEET KOTHARIHON'BLE MR. JUSTICE V.K. MATHUR Mr. Sanjay Nahar, for the appellant-Assessee.Mr. K.K. Bissa, for the respondent- Revenue. BY THE COURT (Per Dr. Justice Vineet Kothari) 1.The appellant-assessee has filed this appeal underSection 260A of the Income Tax Act, 1961 (for short, hereinafterreferred to as 'Act') being aggrieved by the order of learned IncomeTax Appellate Tribunal, Jodhpur Bench, Jodhpur dated 20.07.2007for the Assessment Year 2003-04, whereby the learned ITATfollowing the decision of Hon'ble Supreme Court in the case of IPCALaboratory Ltd. Vs. Deputy Commissioner of Income-Tax,Mumbai reported in (2004) 266 ITR 521 : 2004 106 (2) Bom.L.R. 406 (SC) held that the deduction under Section 80HHC (3C)can be allowed only, if there is a positive profit or income and if thereis a loss in either of two separate Divisions of business then the lossof one Division has to be adjusted against the profit of the other D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 2 division for the purposes of computing the profit for computing ofdeduction under Section 80HHC of the Act to the extent prescribedunder sub-Section (1B) of Section 80HHC of the Act. 2.The assessee, a manufacturer of Granite and Marblesslabs and tiles, during the relevant assessment year 2003-04, hasthree different units setup. Unit-I is engaged in manufacturing ofGranite tiles, while the Unit-II manufactures Granite slabs and Unit-IIIis again a manufacturer of Marble slabs and tiles. For theassessment year 2003-04 in question, the assessee claimed theincome of Rs.4,37,81,709/- exempt under Section 10B with respectof Unit-II. While in other two units, the assessee claimed deductionunder Section 80HHC of Act of Rs.2,56,46,746/- in the originalreturn, which eduction claim was revised upwardly toRs.3,02,97,098/- during the course of assessment proceedings. Theassessee claimed deduction in Revised Return only on the profits onexport turnover of Granite division (Unit-I), ignoring the loss onexport turnover in respect of Marble division (Unit-III). 3.The Assessing authority disallowed such revised claimof the assessee and held that the loss of Marble Division (Unit-III)has to be first adjusted against the profit of Unit-I engaged inmanufacturing of Granite tiles and only net of the positive profit shallbe the “profits of business” as defined under Section 80HHC (4C)(baa) of the Act; and therefore, the benefit of deduction underSection 80HHC of the Act, cannot be given to the extent of increased D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 3 amount of Rs.3,02,97,098/-. The assessee took the matter further inthe first appeal before the learned Commissioner of Income Tax(Appeals), who however, allowed the claim of the assessee followingthe decision of Bench of Income Tax Tribunal in the case of EasterLeather Products Pvt. Ltd. Vs. DCIT reported in (1999)68 ITD 358(Del.), in which a Bench of learned ITAT held that for the purpose ofcomputation under Section 80HHC in respect of leather divisionengaged in export, loss in the engineering division is not required tobe merged with the profit of leather division, as the two divisions areindependent and maintain separate books; and therefore, theycannot be combined for the purposes of working out the deductionunder Section 80HHC of the Act. 3 amount of Rs.3,02,97,098/-. The assessee took the matter further inthe first appeal before the learned Commissioner of Income Tax(Appeals), who however, allowed the claim of the assessee followingthe decision of Bench of Income Tax Tribunal in the case of EasterLeather Products Pvt. Ltd. Vs. DCIT reported in (1999)68 ITD 358(Del.), in which a Bench of learned ITAT held that for the purpose ofcomputation under Section 80HHC in respect of leather divisionengaged in export, loss in the engineering division is not required tobe merged with the profit of leather division, as the two divisions areindependent and maintain separate books; and therefore, theycannot be combined for the purposes of working out the deductionunder Section 80HHC of the Act. 4.Being aggrieved by these findings of learned CIT(Appeals), the Revenue went up in the present case in a secondappeal before the learned ITAT, who allowed the Revenue's appealon this issue in terms of Hon'ble Supreme Court decision in the case of IPCA Laboratory Ltd. (supra) in the following terms: “..... The short controversy raised before us inthis ground is about the setting off of loss in Unit IIIagainst the profit of Unit No.1 for the purpose ofdeduction u/s 80 HHC. The ld. A.R. has relied on theorder passed by the Delhi Bench of the Tribunal in thecase of Easter Leather Products. P. Ltd. Vs. DCIT[1999] 65 TTJ 603 (Del) as per which the loss in onedivision was not to be merged with the profits of theother division. The contention of the ld. A.R. is without any substance in as much as in that case loss fromanother unit not connected with the export unit washeld to be not adjustable against the profit of exportunit. However, in the present case, the loss runningunit is not unconnected with exports. Moreover, thiscontention is no more a good law in view of thedecision of the Hon'ble Supreme Court in the case ofIPCA Laboratory Ltd. Vs. CIT 266 ITR 521 inwhich it was held that deduction u/s 80HHC (3) (c)can be allowed only if there is a positive profit incomein trading goods and if there is a loss in either of thetwo, then that loss has to be taken into account for thepurposes of computing the profits. The ld. A.R.unsuccessfully tried to distinguish its case bycontending that clause (a) of sub-section (3) wasapplicable and not clause (c) of sec.80 HHC (3) as wasdealt with by the Hon'ble Supreme Court. In ourconsidered opinion, the Hon'ble Supreme Court haslaid down a proposition for adjustment of loss in oneunit against the profit of the other unit for allowingdeduction by taking into consideration the provisions ofsec. 80AB r.w.s. 80B (5). It does not make anydifference as to whether the case falls in clause (a) of(c) of sec.80 HHC (3). We, therefore, hold that the ld.CIT (A) failed to take note of the binding judgment ofthe Hon'ble Supreme Court which was available at thetime of passing of his impugned order and erred inaccepting the assessee's claim for ignoring the loss inone unit and allowing deduction on the other unit Judgment dated 29/01/20135 which earned income. We, therefore, set aside theimpugned order on this score.” 5.Having lost before the ITAT, the assessee hasapproached this Court by way of present appeal under Section 260Aof the Act. While admitting the present appeal, a coordinate bench ofthis Court framed the following substantial questions of law forconsideration vide order dated 13.12.2007: - Judgment dated 29/01/20135 which earned income. We, therefore, set aside theimpugned order on this score.” 5.Having lost before the ITAT, the assessee hasapproached this Court by way of present appeal under Section 260Aof the Act. While admitting the present appeal, a coordinate bench ofthis Court framed the following substantial questions of law forconsideration vide order dated 13.12.2007: - 1. Whether the learned Tribunal was in error in following thejudgment in IPCA Laboratory Ltd. Vs. CIT 266 ITR-521 (SC)as the basic facts of that case are entirely different from thefacts of the present case inasmuch as in that case there wasone Unit only, and the question was of adjustment of loss inexport towards the profit of trading in manufacturing of thesame Unit, and in the present case the two units being theUnit no.1 and 3 have nothing to do with each other exceptthey are owned by one Company?judgment in IPCA Laboratory Ltd. Vs. CIT 266 ITR-521 (SC)as the basic facts of that case are entirely different from thefacts of the present case inasmuch as in that case there wasone Unit only, and the question was of adjustment of loss inexport towards the profit of trading in manufacturing of thesame Unit, and in the present case the two units being theUnit no.1 and 3 have nothing to do with each other exceptthey are owned by one Company? 2. Whether on the facts and in the circumstances of the case theturn over and profits/losses of the two Units being Unit No.1and 3 could be clubbed together to determine the averageprofit/proportionate profits for the purpose of computing thedeductions u/s. 80 HHC?turn over and profits/losses of the two Units being Unit No.1and 3 could be clubbed together to determine the averageprofit/proportionate profits for the purpose of computing thedeductions u/s. 80 HHC? 6.Learned counsel for the appellant, Mr. Sanjay Nahar,except relying on the findings of learned CIT(A) and the decision ofITAT, Delhi Bench in the case of of Easter Leather Products Pvt.Ltd. (supra) could not successfully urge anything contrary to thebinding precedent of Hon'ble Supreme Court in the case of IPCA 6 Laboratory Ltd. (supra). 7. On the other hand, Mr. K.K. Bissa, learned counsel forthe Revenue submitted that the controversy is no more res-integraand in view of decision of Hon'ble Supreme Court in the case ofIPCA Laboratory Ltd. (supra), the ITAT was justified in denying thebenefit of deduction u/s 80 HHC without adjustment of loss of Unit-IIIof marble division against the profits of Unit-I, granite division, in thecase of assessee since the owner of both the units is admittedly onelimited company, namely, the assessee appellant before this Court. 8.We have heard learned counsels for the parties at somelength and perused the impugned orders as well as the judgmentcited at bar in the case of IPCA Laboratory Ltd. (supra). 9.In our opinion the decision of Hon'ble Supreme Courtrelied upon by the learned ITAT squarely deals with controversy inhand involved in the present before us. 10.The Hon'ble Supreme Court in the case of IPCALaboratory Ltd. (supra) while dealing with situation of almostsimilar nature held that profit for determining the benefit of deductionunder Section 80 HHC has to be a positive profit income and not aloss or negative profit and, therefore, the losses and profits ofrespective units of the same assessee-company have to be adjustedand if the net result of the same is the positive profit income, then thededuction under Section 80HHC of the Act has to be computed onthe basis of such positive profit income only and not otherwise. It D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 7 would be appropriate to quote the relevant portion of the ratio ofHon'ble Supreme Court decision in the case of IPCA LaboratoryLtd. (supra) as under: - “Undoubtedly s. 80-HHC has been D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 7 would be appropriate to quote the relevant portion of the ratio ofHon'ble Supreme Court decision in the case of IPCA LaboratoryLtd. (supra) as under: - “Undoubtedly s. 80-HHC has been incorporated with a view to providing incentive toexport houses. Even though a liberal interpretation hasto be given to such a provision in the interpretation hasto be as per the wordings of this section. If thewordings of the section are clear then benefits, whichare not available under the section, cannot beconferred by ignoring or misinterpreting words in thesection. Sub-section 3 (a) deals with the case where theexport is only of self-manufactured goods. Sub-s. 3(b)deals with the case where the export is only of tradinggoods. Thus when the Legislature wanted to takeexports from self-manufactured goods or trading goodsseparately, it has already so provided in sub-s. (3) (a)and 3 (b). It would not be denied that the word “profit”in s. 80-HHC (1) and ss. 80HHC (3) (a) and 3 (b)means a positive profit. In other words if there is a lossthen no deduction would be available under s. 80-HHC(1) or 3 (a) or (3) (b). In arriving at the figure ofpositive profit, both the profits and the losses will haveto be considered. If the net figure is a positive profitthen the assessee will be entitled to a deduction. If thenet figure is a loss then the assessee will not beentitled to a deduction. Sub-s. 3(c) deals with caseswhere 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”. Thenfollows (i) and (ii). Between (i) and (ii) the word “and”appears. A plain reading of sub-s. (c) shows that“profits from such exports” has to be profits of exportsof self-manufactured goods plus profits of exports oftrading goods. The profit is to be calculated in themanner laid down in s. 3 (c) (i) and (ii). The openingwords “profit derived from such exports” together withthe word “and” clearly indicate that the profits have tobe calculated by counting both the exports. It is clearfrom a reading of sub-s. (1) of s.80-HHC (3) that adecision can be permitted only if there is a positiveprofit in the exports of both self-manufactured goods aswell as trading goods. If there is a loss in either of thetwo then that loss has to be taken into account for thepurposes of computing profits. Under s. 80-HHC(1) the deduction is to be givenin computing the total income of the assessee. Incomputing the total income of the assessee both profitsas well as losses will have to be taken intoconsideration. Section 80-B (5) provides that “gross totalincome” means total income computed in accordancewith the provisions of the income-tax Act. Section 80-AB is also in Chapter VI-A. It startswith the words “where any deduction is required to bemade or allowed under any section of this Chapter.”This would include s. 80-HHC. S. 80-AB further D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 provides that “notwithstanding anything contained inthat section.” Thus s. 80-AB has been given anoverriding effect over all other sections in ChapterVIA. Section 80-HHC does not provide that itsprovisions are to prevail over s.80-AB or even anyother provision of the Act. Section 80-HHC would thusbe governed by s.80-AB. Decisions of the BombayHigh Court and the Kerala High Court to thecontrary cannot be said to be the correct law. Section80-AB makes it clear that the computation of incomehas to be in accordance with the provisions of the Act.If the income has to be computed in accordance withthe provisions of the Act, then not only profits but alsolosses have to be taken into consideration. provides that “notwithstanding anything contained inthat section.” Thus s. 80-AB has been given anoverriding effect over all other sections in ChapterVIA. Section 80-HHC does not provide that itsprovisions are to prevail over s.80-AB or even anyother provision of the Act. Section 80-HHC would thusbe governed by s.80-AB. Decisions of the BombayHigh Court and the Kerala High Court to thecontrary cannot be said to be the correct law. Section80-AB makes it clear that the computation of incomehas to be in accordance with the provisions of the Act.If the income has to be computed in accordance withthe provisions of the Act, then not only profits but alsolosses have to be taken into consideration. Even under s.80-HHC (3) (c) (i) the profit is tobe adjusted profit of business. The adjusted profit of thebusiness means a profit as reduced by the profitderived from business of exports out of India of tradinggoods. Thus in calculating the profits under s. (3) (c)(i), one necessarily has to reduce by profits under s. (3)(c) (ii). As seen above the term “profit” means positiveprofit. Thus if there is loss then those losses in export oftrading goods have to be adjusted. They cannot beignored. A plain reading of s. 80-HHC makes it clearthat in arriving at profits earned from export of bothself-manufactured and trading goods, the profits andlosses in both the trades have to be taken intoconsideration. If after such adjustments there is apositive profit the assessee would be entitled todeduction under s. 80-HHC(i). If there is a loss he will D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 10 not be entitled to any deduction.” 11.It is undisputed before us that the words “assesseebeing an Indian company or a person (other than a company)resident of India” is used in Section 80HHC of the Act. The differentunits of the same assessee company engaged in manufacturing ofdifferent goods viz. Granite slabs and tiles in Unit-I and Marble slabsand tiles in Unit-III in the present case before us, does not makeseparate Units of the same assessee company as separate anddifferent assessable units for the purposes of Income-tax Act, 1961,or for that matter for the purposes of Section 80-HHC of the Act. Theassessee, a body corporate, in the present case is one, namely,Madhav Marbles & Granites Ltd. Merely because for the purpose ofits accounting politices or describing different units for the differentgoods manufactured and exports by it, the assessee has describedthe same as Unit, I, II and III in the present case, it does not meanthat benefit of Section 80HHC can be given for Unit-I separately onits profit earned by exports while the loss of Unit-III remainsunadjusted against such profit of Unit-I. The purpose of giving benefitof deduction under Section 80-HHC is to encourage the exports andprofits derived by the assessee as such during the relevant yearwould form the basis for determining the extent of such deduction.The Hon'ble Supreme Court has put the said controversy of unit-wiseprofits beyond pale of doubt in the case of IPCA Laboratory Ltd.(supra) and while in that case exports of self manufactured goods D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 11 and export by way of trading activity of goods manufactured byothers, were clubbed together and loss of one was held to beadjustable against the profit of other Division, before deduction u/s80 HHC could be computed in the net positive profit, in the presentcase the profit of Unit-I of Granite and Unit-III of Marble cannot standon a different footing. D.B. Income Tax Appeal No.147/2007Madhav Marbles & Granites Ltd. Vs. ACIT, Circle-2, UdaipurJudgment dated 29/01/2013 11 and export by way of trading activity of goods manufactured byothers, were clubbed together and loss of one was held to beadjustable against the profit of other Division, before deduction u/s80 HHC could be computed in the net positive profit, in the presentcase the profit of Unit-I of Granite and Unit-III of Marble cannot standon a different footing. 12.In our considered opinion, the controversy is, therefore,no more res-integra and the learned ITAT was perfectly justified inallowing Revenue's appeal in the present case following the Hon'bleSupreme Court decision in the case of IPCA Laboratory Ltd.(supra); and the Tribunal's Delhi Bench decision in the case ofEaster Leather Products Pvt. Ltd. (supra), cannot be said to begood law in view of Apex Court decision. Therefore, we are of theview that the present appeal of the assessee has no force and isliable to be dismissed and the substantial questions of law, framedabove, deserve to be answered against the appellant-assessee andin favour of Revenue. They are answered accordingly. 13.In view of above, the present appeal of the appellant-assessee is hereby dismissed. No costs. (V.K. MATHUR), J. (DR. VINEET KOTHARI), J.