1 AFR RESERVED Court No. - 33 Case :- INCOME TAX APPEAL No. - 15 of 2005 ASSESSMENT YEAR 1997-98 Appellant :- Smt. Neha Sharma Respondent :- Jt. Commissioner Income Tax (Assessment), Spl Range Counsel for Appellant :- Vipin Sinha,Krishna Dev Vyas,Navin Sinha,S.D.Singh Counsel for Respondent :- A.N. Mahajan, S.C.,Dhananjai Awasthi Hon'ble Tarun Agarwala,J. Hon'ble Dr. Satish Chandra,J. (Per Hon'ble Dr. Satish Chandra, J) ************ present appeal is filed by assessee against order dated 29.07.2004 passed by Income Tax Appellate Tribunal, Agra in ITA No. 195/Agra/2000 for assessment year 1997-98. On 27.01.2005, Coordinate Bench has admitted appeal on following substantial question of law : 1. Whether deduction under Section 80-I(IA) is to be computed on gross total income derived from business of Industrial undertaking without deducting amount of deduction under Section 80HHC or? 2. Whether Assessing Officer while examining return submitted by assessee, is liable to or empower to grant correct amount of deduction to assessee to which she is entitled to in law even if by 2 omission or otherwise it has not been so claimed in return income, submitted by her? brief facts of case are that during assessment year under consideration, assessee has derived income from industrial activities being mining and was also engaged in export business. assessee also derived income from other sources. Separate books were maintained for mining business, which were duly audited and certificate was furnished in prescribed form relating to income derived from said activity. Net profit from mining was disclosed at Rs. 2,21,42,903/-. After depreciation net profit worked out to Rs. 1,67,89,357/-. assessee has shown net profit of Rs. 7,57,130/-. In return, assessee has claimed deduction under Section 80HHC and under Section 80IA of Act and while computing deduction under Section 80IA, assessee has first claimed deduction on account of Section 80HHC and it was on basis of balance that deduction under Section 80IA was claimed. return was processed under Section 143(1)(a) on 12.3.1998. Later on, A.O. came to know that assessee was not entitled to deduction under Section 80HHC on income earned from hiring charges of pock lane machine and, therefore, he rectified intimation as per order dated 14th October, 1998 and deduction under Section 80HHC was reduced accordingly. deduction under Section 80IA was reduced consequently. Being aggrieved, assessee has moved application under Section 154 of Act, which was rejected by A.O. by following ratio laid down in case of Combay Electric Supply Industrial Co. Ltd. Vs. CIT (1978) 113 ITR 84 SC. 3 However, CIT(A) has allowed claim of assessee, but Tribunal has refused to grant any relief to assessee. Tribunal has restored order passed by A.O. Being aggrieved, assessee has filed present appeal. With this background, heard Shri S.D. Singh, learned Senior Counsel assisted by Shri Krishna Dev Vyas, learned counsel for assessee, who has justified order passed by First Appellate Authority. He read out then Section 80A of Act which on reproduction reads as under :- 80A (1) In computing total income of assessee, there shall be allowed from his gross total income, in accordance with and subject to provisions of this Chapter, deductions specified in sections 80C to [80U]. (2) aggregate amount of deductions under this Chapter shall not, in any case exceed gross total income of assessee. (3) Where, in computing total income of association of persons or body of individuals, any deduction is admissible under Section 80G or Section 80GGA or Section 80HH or Section 80HHA or Sections 80HHB or Section 80HHC or Section 80HHC or Section 80-I or Section 80-IA or Section 80J* or Section 80JJ, no deduction under same section shall be made in computing total income of member of association of persons or body of individuals in relation to 4 share of such member in income of association of persons or body of individuals.... He further submits that Section 80B(5) of Act explains that gross total income which means total income computed in accordance with provisions of this Act, before making any deductions under this Chapter. Section 80HHC(3) provided that deduction in respect of profit retain for export business. He also read out Section 9A to Section 80IA, which on reproduction reads as under :- (9A) Where any amount of profits and gains of industrial undertaking or of hotel in case of assessee is claimed and allowed under this section for any assessment year, deduction to extent of such profits and gains shall not be allowed under any other provisions of this Chapter under heading C.- Deductions in respect of certain incomes , and shall in no case exceed profits and gains of undertaking or hotel, as case may be. Learned counsel for assessee has argued that Chapter VIA is independent code in itself. deductions under this chapter are to be allowed as per different provisions mentioned in chapter itself. Section 80-IA speaks of allowance of deduction in respect of income derived from industrial undertaking. It does not say that same shall be allowed after reducing deductions under other provisions of this chapter. For purpose, he relied 5 on ratio laid down in following cases :- (a) CIT Vs. Lucky Laboratories Ltd. [2006] 284 ITR 435 (All) In this case it was observed that deduction under Section 80HH cannot be excluded while calculating special deduction under Section 80-I Income Tax Act, 1961, sub Section 80HH and 80-I. (b) CIT Vs. Hindustan Pipe Udyog Ltd. [2014] 360 ITR 437 (All) In this case it was held that for purpose of computing relief under Section 80-I of Income Tax Act, 1961, relief granted under Section 80HH cannot be deducted from gross total income. (c) Joint Commissioner of Income Tax Vs. Mandideep Eng. And Pkg. Ind. P. Ltd. [2007] 292 ITR 1 (SC) In this case it was observed that Section 80HH and 80-I of Income Tax Act, 1961, are independent of each other and therefore, new industrial unit can claim deductions under both sections on gross total income independently or that deduction under Section 80- I can be taken on reduced balance after taking into account benefit taken under Section 80HH. (d) Great Eastern Exports Vs. Commissioner of Income Tax [2011] 332 ITR 14 (Delhi) In this case it was observed that by sub-section (13) of section 80-IB of Income-tax Act, 1961, provisions of sub-section (9) to section 80-IA are made applicable to section 80-IA. By plain language of sub- 6 section (9) of section 80-IA, applying test of literal construction, it is clear that: (a) once assessee is allowed deduction under Section 80-IA, to extent of such profits and gains he is not to be allowed further deductions under Part C; and (b) in no case deduction shall exceed profits and gains of such eligible business of undertaking or enterprise, as case may be. expression deduction to extent of such profits clearly signifies that if assessee is claiming benefit of deduction of particular amount of profits and gains under section 80-IA to that extent profits and gains are to be reduced while calculating deduction under heading C of Chapter VI-A of Act. Further word and is disjunctive which would mean that other provision is independent of first one namely, that total deductions should not exceed profits and gains in particular year. It would, therefore, be clear that this provision aims at achieving two independent objectives. It cannot be limited to second objective alone thereby nullifying first altogether and making it otiose. For purpose of computing deduction under section 80HHC of Act, deduction already allowed under Section 80-IA has to be reduced. Lastly, he submits that impugned order passed by Tribunal may kindly be set aside and order passed by First Appellate Authority may be restored. On other hand, Shri Dhananjay Awasthi, learned counsel for Department has justified 7 impugned order passed by Tribunal. He submits that it is assessee who has filed computation. A.O. has allowed deduction under Section 80-IA as per claim of assessee. As per return, there was no mistake in intimation passed under Section 143(1)(a) of Act. When assessee itself had claimed deduction under Section 80-IA in return of income on basis of balance profit remaining after deduction of benefit under section 80HHC of Act, then there was question of any mistake in intimation passed under Section 143 (1) (a) of Act. On merit, even otherwise issue is covered in case of J.P. Tobacco products Pvt. Ltd. 229 ITR 123 wherein it has been held that deduction under Section 80-IA is to be allowed on basis of balance remaining after deduction under Section 80HHC and SLP against this decision has since been dismissed by Hon'ble Supreme Court. Heard both parties at length and gone through material available on record from which it appears that assessee is entitled for deduction under Section 80HHC as well as 80IA. dispute is pertaining to computation of both deductions. It may be mentioned that Hon'ble Supreme Court in case of IPCA Laboratory Ltd. Vs. Deputy Commissioner of Income Tax [2004] ITR (Vol 266) 521 has observed that : ...undoubtedly section 80HHC has been incorporated in Income Tax Act, 1961, with view to providing incentive for earning foregin exchange. Even though liberal interpretation has to be given to such provision interpretation has to be as 8 per wording of section. It wording of section is clear, then benefits which are not available cannot be conferred by ignoring or misinterpreting words in section. plain reading of Section 80HHC makes it clear that in arriving at profits earned from export of both self manufactured goods and trading goods, profits and losses in both trades have to be taken into consideration. If after such adjustments there is positive profit assessee would be entitled to deduction under Section 80HHC(1). If there is loss assessee would not be entitled to deduction. word profit in sub-section (1) and (3)(a) and (b) of section 80HHC means positive profit. In other words, if there is loss then no deduction would be available under sub-section (1) or sub section (3)(a) or sub-section (3)(b). In arriving at figure of positive profit, both profits and losses will have to be considered. It net figure is positive profit then assessee will be entitled to deduction; if net figure is loss then assessee will not be entitled to deduction. plain reading of sub section (3)(c) shows that profits from such exports has to be profits of exports of self-manufactured 9 goods plus profits of exports of trading goods. opening words profit derived from such exports together with word and clearly indicate that profits have to be calculated by counting both exports. Deduction can be permitted under Section 80HHC(1) only if there is positive profit in exports of both self- manufactured goods as well as trading goods. If there is loss in either of two then loss has to be taken into account for purposes of computing profits. Disclaimer under section 80HHC(1A) by export house in favour of supporting manufacturer is only for purpose of enabling export house to pass on deduction which it would have got to supporting manufacturer. If no deduction is available to extent house because there is loss, then export house cannot pass on or give credit of such non-existing deduction to supporting manufacturer. Section 80AB has been given overriding effect over all other sections, in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of Act. Circular No. 636 dated 31st August, 1992 of Central Board nowhere provides 10 for negative profits. It also shows that only positive profits can be considered for purposes of deduction under Section 80HHC. Thus, both deductions under Section 80HHC and 80IA can be granted from total income. But Section 80AB provides that : Where any deduction is required to be made or allowed under any section included in this Chapter under heading C-Deductions in respect of certain incomes in respect of any income of nature specified in that section which is included in gross total income of assessee, then, notwithstanding anything contained in that section, for purpose of computing deduction under that section, amount of income of that nature as computed in accordance with provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be amount of income of that nature which is derived or received by assessee and which is included in his gross total income. said section was amended by Finance Act, 1997 w.e.f. 1.4.1968 and is applicable in assessee's case (Assessment Year 1997-98). If, we allow claim of assessee, then income will be nil or negative, which is not desireable as per Section 80AB. Moreover, in return , assessee herself has shown computation, which was allowed by A.O. In 11 other words, assessee has claimed deduction under Section 80IA in return of income on basis of balance profit remaining after deduction of benefit under Section 80HHC of Act. When it is so, then we find no reason to interfere with impugned order and same is hereby sustained alongwith reasons mentioned therein. So, computation accepted by A.O. is hereby sustained. answer to substantial questions of law is in favour of Department and against assessee.. In result, appeal filed by assessee is dismissed. Order Date :- 02.09.2014 Anurag/- (Dr. Satish Chandra, J.) (Tarun Agarwala, J.) Smt. Neha Sharma v. Jt. Commissioner Income-tax (Assessment), Spl Range