M/S Universal Cold Storage Limited v. The Deputy Commissioner Of Income Tax, Company Circle Iii(3

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.04.2009 CORAM: THE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HON'BLE MR.JUSTICE M.M.SUNDRESH T.C.(A)NO.1504 OF 2008 M/s Universal Cold Storage Limited ...AppellantVs. The Deputy Commissioner of Income Tax,Company Circle III(3) Chennai600034. ...Respondent Tax Case Appeal filed against the order of the IncomeTax Appellate Tribunal, "B: Bench, Chennai dated 22nd February,2006 in ITA.1725/(Mds)/04 against the order dated 16.3.2004 ofCommissioner of Income Tax (Appeals) III, Chennai, 34 against theorder dated 27.3.2003 in GIR.No.PAN 33095 U/AAACO 0757D byAssistant Commissioner of Income Tax, Company Circle III (3)Chennai 34. For Appellant :Mr.J.BalachandranFor Respondent: Mrs.Pushya Sitaraman Senior Standing Counsel for Income Tax. ---- J U D G M E N T (Order of the Court was made by K.RAVIRAJA PANDIAN,J) The correctness of the order of the Tribunal dated22.2.2006 is put in issue in this appeal by the assessee byformulating the questions of law as follows: "1.Whether on the facts and in the circumstances of thecase, the Appellate Tribunal was right in law in holding that theappellant is not entitled to deduction Under 80HHC without givingan opportunity to the appellant? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether the Tribunal is correct in confirming theorder of the respondent with reference to the computation ofdeduction under Section 80HHC even though the Appellant hadexported directly and also exported through certain export housesfalling within the ambit of sub-section (3A) of the Act"?. 2. The assessee is a company incorporated under theCompanies Act . The assessee is engaged in the business of seafoods export. The relevant assessment year is 2000-2001 and thecorresponding previous year ended is as on 31.3.2000. For theabove assessment years, the assessee filed a return admitting'NIL' income after claiming deduction u/s 80HHC. The return wasprocessed under Section 143(1) and subsequently it was taken upfor scrutiny assessment. While completing the assessment,theAssessing Officer held that the assessee is not eligible forclaiming deduction under Section 80 HHC. According to him aftersetting of the loss as computed under clause (a) of sub-Section(3) against the profits computed under the proviso to sub-Section(3), has resulted in a negative figure and as such the deductionunder Section 80 HHC was withdrawn. On appeal before the IncomeTax Commissioner (Appeals), it was submitted that the losscomputed under clause (a) of sub-section (3) has to be ignored andthe deduction under 80 HHC has to be granted in its entirety onthe profits computed under proviso to sub-Section (3). Acceptingthe same, the Commissioner of Income Tax(Appeals) allowed theappeal by holding that while computing deduction under Section80HHC the loss has to be ignored. Aggrieved over the same, theRevenue has preferred a second appeal before the Tribunal bycontending that as per explanation(baa), 90% of export incentiveshas to be excluded, if that is done, the profits would result in anegative figure and as such the assessee would not be eligible fordeduction under Section 80 HHC. The Tribunal decided the matter infavour of the revenue. The correctness is canvassed in thisappeal by formulating the above questions of law. 3. Learned counsel for the appellant strenuously arguedthat the assessee was not given an opportunity to put forth hiscase before the Tribunal and the matter requires to be remitted tothe Assessing Officer so as to re-compute the deduction. Hefurther contended that there is no loss, if deduction is properlycomputed. It is only a profit earning concern and as such he isentitled to the benefit under Section 80 HHC. 3. Learned counsel for the appellant strenuously arguedthat the assessee was not given an opportunity to put forth hiscase before the Tribunal and the matter requires to be remitted tothe Assessing Officer so as to re-compute the deduction. Hefurther contended that there is no loss, if deduction is properlycomputed. It is only a profit earning concern and as such he isentitled to the benefit under Section 80 HHC. 4. On the contrary, learned counsel for the Revenue hassubmitted that as seen from the orders of the lower authorities,the profit is only negative figure and in such circumstance, thedecision of the Supreme Court would definitely come into play. 5. We have heard the contentions of both sides andperused the materials available on record. We are of the view thatit would be useful to extract the relevant portion of theCommissioner(Appeals) which reads as follows: "3.1 The next ground is regarding computation ofdeduction u/s 80HHC. The AO found that the appellant has claimeddeduction u/s 80 HHC as under:-Profit as per Profit and Loss Account Less 90% of their income included in P & L A/c The profit of the business as per explanation (baa) to sec.80HHCfor the year comes to Rs.(-) 7,62,82,713/-. The appellant ignoredthis negative figure and treated it as nil and claimed deductionu/s 80HHC on DEPB income at Rs.4,70,04,832/-." 6. Before the Tribunal, the solitary issue raised wasthat the Commissioner of Income Tax erred in holding that reliefunder Section 80-HHC should be allowed to the assessee by ignoringthe loss in the export business and that the relief u/s 80HHCshould be allowed on export incentives only. It is true that theappellant was not heard while passing the order by the Tribunalbut it is not the mistake of the Tribunal. The Tribunal hasrecorded a finding that despite the notice was issued, none waspresent on behalf of the assessee. From that finding, it is clearthat it is the assessee who had not availed the opportunity. TheTribunal thereafter proceeded to adjudicate the matter on merit,after hearing the department and on that basis, the matter wasdecided by the Tribunal on merits, as the issue is squarelycovered by the decision of the Supreme Court in IPCA LaboratoriesVs. Deputy Commissioner of Income Tax reported in (2004) 266 ITR521 wherein after considering the provision of Section 80HHC of https://hcservices.ecourts.gov.in/hcservices/ Income-tax Act the Supreme Court held that undoubtedly Section80HHC has been incorporated in the Income-tax Act, 1961, with aview to providing incentive for earning foreign exchange. Eventhough a liberal interpretation has to be given to such aprovision the interpretation has to be as per the wording of theSection. If the wording of the section is clear, then benefitswhich are not available cannot be conferred by ignoring ormisinterpreting words in the section. https://hcservices.ecourts.gov.in/hcservices/ Income-tax Act the Supreme Court held that undoubtedly Section80HHC has been incorporated in the Income-tax Act, 1961, with aview to providing incentive for earning foreign exchange. Eventhough a liberal interpretation has to be given to such aprovision the interpretation has to be as per the wording of theSection. If the wording of the section is clear, then benefitswhich are not available cannot be conferred by ignoring ormisinterpreting words in the section. 7. A plain reading of section 80HHC makes it clear thatin arriving at profits earned from export of both selfmanufactured goods and trading goods, the profits and losses inboth trades have to be taken into consideration. If after suchadjustments there is a positive profit the assessee would beentitled to deduction under Section 80HHC(1). If there is a lossthe assessee would not be entitled to deduction. The word "profit"in sub-sections (1) and 3(a) and (b) of Section 80HHC means apositive profit. In other words, if there is a loss then nodeduction would be available under sub-section (1) or sub-section(3)(a) or sub-section 3(b). In arriving at the figure of positiveprofit, both the profits and the losses will have to beconsidered. If the net figure is a positive profit then theassessee will be entitled to deduction; if the net figure is aloss then the assessee will not be entitled to deduction. CircularNo.636 dated August 31, 1992 of the Central Board nowhere providesfor negative profits. It also shows that only positive profits canbe considered for purposes of deduction under Section 80HHC. To https://hcservices.ecourts.gov.in/hcservices/