ORDER
A.K. Garodia, A.M.
1. This is a Revenue’s appeal directed against the Order of the learned CIT(A)-XLIV, Mumbai, dt. 14th July, 2000, for asst. yr. 1997-98. The only ground raised by the Revenue in this appeal is as under:
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the AO to allow deduction of Rs. 27,79,685 to the assessee under Section 80HHC of the IT Act, 1961.”
2. Briefly stated, the facts of the case are that the assessee is in the business of manufacturing and export of synthetic organic dyestuff. The assessee is also a trading exporter. It was found by the AO that the assessee has claimed deduction under Section 80HHC even on the interest-income of Rs. 4,83,777 and bill discounting income of Rs. 54,95,161. The assessee’s case was that these incomes were also business income and, therefore, entitled to deduction under Section 80HHC. But this was not accepted by the AO and 90 per cent of this interest income of Rs. 4,83777 and bill discounting income of Rs. 54,95,161, was excluded by the AO while computing the deduction under Section 80HHC and as a result, it was found that there is a loss to the assessee both from export from trading goods as well as export of manufactured goods. And these losses were in excess of the export incentives which was available to the assessee as per proviso to Section 80HHC(3); and hence, no deduction under Section 80HHC was allowed by the AO as against the claim of the assessee for allowing deduction under Section 80HHC for Rs. 27,79,685. Being aggrieved, the assessee carried the matter in appeal to learned CIT(A). It was contended before the learned CIT(A) that the no interest income of Rs. 4,83,777, 90 per cent of which has been excluded by the AO on page No. 3 of the assessment order, has been calculated by the assessee by excluding proportionate expenses of Rs. 54,95,161 in connection with interest income from bill discounting amounting to Rs. 59,78,938. But the AO has deducted 90 per cent of this amount of proportionate expenses of Rs. 54,95,161 also from the business income as appearing on page No. 3 of the assessment order. This calculation of expenses amounting to Rs. 54,95,161 and net interest income^ Rs. 4,83,777. is appearing; on, page; Nos. 5 and 6 of the order of the learned CIT(A); It was held by the learned CIT(A): that in view of various Tribunal orders, the losses have to be ignored and deduction has to be allowed under the proviso to Section 80HHC(3) and accordingly he directed the AO to allow deduction of Rs. 27,79,685 under Section 80HHC Now Revenue is in appeal before us
3. It Was contended by the learned Departmental Representative of the Revenue that this issue is now fully covered against the assessee by the judgment of the Hon’ble apex Court rendered In the Case of IPCA Laboratones Ltd. V. Dy CIT (2004) 266 ITR 521 (SC) wherein it was held that Section 80AB has been given an overriding effect over all the Sections Under Chapter VI-A but Section 80HHC does not provide that its provisions are to prevail over Section 80AB, and hence Section 80HHC is to be governed by Section 80AB. it was contended that in view of this no deduction is allowable to the assessee under Section 80HHC.
4. As against this, it Was contended by the learned Authorised Representative of the assessee that this issue is fully covered in favour of the assessee by the order, of the Special Bench of the Tribunal rendered in the case of Lalsons Enterprises v. Dy. CIT (2004) 82 TTJ(DEL)(SB) 1048. (2004) 89 ITD 25 (DEL)(SB) wherein it was held that for the purpose of computing deduction allowable under the proviso to Sub-section (3) to Section 80HHC, the loss if any suffered by the assessee under any of the Clauses (a) (b) or (c) of Section 80HHC (3) shall be ignored and the deduction shall be in respect of amount computed under the said proviso. it was also contende that judgment of Hon’ble Bombay High Court in the case of IPCA Laboratiories Ltd. v. Dy CIT (2001) 251 ITR 401 (Bom) was considered by the Tribunal and Honble apex Court has only affirmed the order of the Hon’ble Bombay High Court in the case of IPCA Laboratories Ltd. (supra) and therefore, deduction Should be allowed to the assessee as per tribunal Order in the case of Lalsons Enterprises(super).
5. We have considered the rival Submissions and Pefused the materials on record, We find that the AO has excluded 90 percent of interest income of Rs. 4,83,777 as Well as 90 percent of interest on bill discounting of Rs. 54,95,161, whereas, the contention of the assessee is that the interest income of Rs. 4,83,777 is the net interest income on the bill discounting as per Calculation given on page Nos. 5 and 6 of the learned CIT (A) S order. If the contention of the assessee is correct then the amount of Rs. 49,45,645 being 90 percent of Rs. 54,95,161 reduced by the AO While working out profit from export of manufactured good’s is not correct It is relevant here to mention that as per the Order of the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra), it was held by the Tribunal that while reducing 90 percent of the receipt by way of interest only 90 percent of the net interest remaining after allowing set off of interest paid which has a, nexus with interest received has to be considered. But, we-find that even if the contention of the assessee is correct, that 90 percent of Rs. 54,95,161 has been wrongly deducted by the AO while working out the profit from export of manufactured goods the profit from manufactured. goods still stands at Rs. 11,39,103 and there is a loss of Rs. 21,89,948 from the export of trading goods. This is a settled position now as per the judgment of the Hon’ble apex Court in the case of IPCA Laboratories (supra) and also as per Tribunal Order in the case of Lalsons Enterprises (supra), that loss arising in either the export of manufactured goods or trading goods shall be set off or adjusted against the profits arising in the other business; and therefore, there will still be: a net loss before the proviso. Therefore, we do not find it relevant to go into the correctness or otherwise of this claim of the assessee for the purpose of deciding about applicability of the proviso.
6. This situation of loss before proviso has been dealt by the Tribunal in the case of Lalsons Enterprises (supra) and it was held that for the purpose of showing deduction as per proviso to Section 80HHC(3), loss, if any, suffered by the assessee under any of the Clause (a), (b) or (c) of Section 80HHC(3) shall be ignored and deduction shall be allowed in respect of amount computed under the said proviso. We are of the considered opinion that since judgment of the Hon’ble jurisdictional High Court in the case of IPCA Laboratories (supra) has been considered by the Tribunal, and Hon’ble apex Court in the case of IPCA Laboratories (supra) has approved the view taken by the Bombay High Court, this judgment of the Hon’ble apex Court has no bearing in this case regarding allowability of deduction under Section 80HHC as per proviso to s, 80HHC(3) by ignoring the losses under any of the Clause. (a), (b) or (c) to Section 80HHC(3). It is also relevant here to mention that the issue before the Hon’ble apex Court in the case of IPCA Laboratories (supra) was regarding set off of loss from export of trading goods against the profit from export of manufactured goods and the Hon’ble apex Court was not dealing with the proviso at all and in this view of the matter also, this judgment of the Hon’ble apex Court is not applicable for the purpose of allowing deduction as per the proviso to Section 80HHC(3) by ignoring the loss suffered by the assessee under any of the Clause (a), (b) or (c) of Section 80HHC(3) as decided by Special Bench of the Tribunal in the case of Lalsons (supra).
7. At this juncture, we consider it appropriate to discuss the Tribunal Order in the case of Mangalya Trading & Investment Ltd. v. Dy. CIT as per ITA No. 6354/Mumbai/1998, dt. 23rd April, 2004 [reported at (2005) 94 TTJ (Mumbai) 526–Ed.], although this was not cited before us by any side. This Tribunal Order is delivered after the Order of Special Bench of Tribunal in the case of Lalsons Enterprises (supra) and also after the judgment of Hon’ble apex Court in the case of IPCA Laboratories (supra) and it was held by the co-ordinate Bench of the Tribunal in this Order as reproduced below being para No. 42 of that Tribunal order:
“In view of the above, We hold as under:
(i) Deduction under Section 80HHC(1) is available to an assessee who has derived a positive profit from the export of specified goods or merchandise. In other words, deduction under Section 80HHC is not available to an assessee who has suffered a loss from the export or, in other words, not derived a positive profit from the export.
(ii) Deduction under Section 80HHC(1) is available on positive profit alone after adjusting the losses. Losses suffered by the assessee from the export of specified goods or merchandise can neither be ignored nor treated as nil for computation of the deduction under Section 80HHC.
(iii) The export incentives alone are not sufficient to form the basis for deduction under Section 80HHC(1) but shall be eligible only for further increasing the profits derived from the export and compute in the manner laid down in Sub-section (3), in terms of the proviso thereto.”
8. In sum and substance, it was held by the Tribunal in this Order that incentive as per the proviso to Section 80HHC(3) can be added to positive profit, if any, available before the proviso and if there is no positive profit prior to the proviso, the export incentive alone cannot form the basis for deduction under Section 80HHC(1) but we find that the Order of the Special Bench in the case of Lalsons Enterprises (supra) is not followed in this Tribunal Order and the issue of proviso to Section 80HHC(3) was not under consideration before Hon’ble apex Court in the case of IPCA Laboratories (supra). This is also a fact that in the case of IPCA Laboratories, Hon’ble apex Court has upheld the orders of the Hon’ble Bombay High Court and this Order of Hon’ble Bombay High Court is duly considered by Special Bench in the case of Lalsons Enterprises (supra). We find that the only development after the Order of Special Bench of Tribunal in the case of Lalsons Enterprises (supra) as pointed out by the co-ordinate Bench in the case of Mangalya Trading (supra) is the judgment of Hon’ble apex Court in the case of IPCA Laboratories (supra). Since, Hon’ble apex Court in this case of IPCA Laboratories (supra) was not dealing with the proviso to Section 80HHC(3) and also because in this order, Hon’ble apex Court has approved the judgment of Hon’ble Bombay high Court, which was duly considered by the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra), we are of the considered opinion that the Order of Special Bench of the Tribunal in the case of Lalsons Enterprises (supra) is still valid, so far as ignoring of losses prior to proviso is concerned. Under these facts and circumstances, we are of the considered opinion that for the purpose of calculating the deduction eligible under Section 80HHC(3), the amount of incentive available to the assessee as per the proviso to Section 80HHC(3) shall be considered after ignoring the losses calculated before the proviso as per the Order of the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra).
9. But for the purpose of calculating actual deduction allowable to the assessee under Section 80HHC, we are of the considered opinion that the judgment of Hon’ble apex Court rendered in the case of IPCA Laboratory Ltd v. Dy. CIT. (supra) has got direct bearing because it was held by Hon’ble apex Court in this judgment that Section 80HHC is ,to be governed by Section 80AB and the judgment of Hon’ble Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. (2000) 246 ITR 429 (Bom) and the judgment of Hon’ble Kerala High Court in the case of CIT v. Smt T.C. Usha (2003) 266 ITR 497 (Ker) were overruled. As per Section 80AB, only net income from exports as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income from exports, which is derived or received by the assessee and which is included m his gross total income
10. In this view of the matter, even after holding that the amount of incentive as per the proviso to s 80HHC(3) as amount eligible for deduction under Section 80HHC after ignoring losses computed prior to the proviso, for the purpose of calculating actual deduction allowable under Section 80HHC r/w Section 80AB, we have to calculate actual export income included in the gross total income of the assessee and this can be done only by reducing the losses computed prior to the proviso from the amount of incentive allowable as per the proviso We find that the amount of incentive eligible as income from export business as calculated under the proviso to Section 80HHC(3) by the AO on page No 3 of assessment Order is Rs 27,79,685 and the losses before ‘the proviso as calculated by the AO is Rs 21,89,984 from trading export and Rs 38.06,542 from manufacturing export being total loss at Rs 59 96,490 which is more than the amount of incentive of Rs 27,79,685 and hence, there remains no export income included in gross total income but as per the contention of the assessee about wrong deduction of Rs 49,45,645 while calculating profit from manifesting export as ‘discussed by us in para 5 above, the total export loss will be reduced to Rs 10,50,845, if this contention of the asaessee is found correct and there will be a net profit from export of Rs 117,28,840, being Rs. 27,79 685 minus Rs 10,50,845) In the para No. 5 of this order above. We have held that it is not relevant to go into correctness or otherwise of the claim of the assessee regarding wrong reduction in calculating profit from export of manufactured goods by Rs 4945,645 for the purpose of deciding about applicability of proviso to Section 80HHC(3) but now we find that for the purpose of calculating correct export profit for the purpose of applicability of Section 80AB and to arrive at actual deduction allowable under Section 80HHC r/w Section 80AB, this matter has to go back to AO for fresh examination
11. Accordingly, we set aside this issue to the file of the AO, With a direction to examine the claim of the assessee that Rs. 49,45,645 being 90 per cent of Rs. 54,95,161 was Wrongly reduced from the profit from manufactured export because this amount of Rs. 54,96,161 is the expenses incurred for earning interest from bill discounting Rs. 59,78,938 and after reducing this Rs. 54 95,161 from it, net interest of Rs. 4,83,777 is already considered by the AO and 90 per cent of that being Rs 4,35,399 has separately been reduced by the AO The AO is (sic) directed to compute the correct amount of loss from manufacturing export and then to compute the deduction allowable under Section 80HHC r/w Section 80AB after deducting such tee’s from export business before proviso from the export incentive as per the proviso to s 80HHC(3) and pass-necessary Order as per law after providing a reasbnable opportunity of being heard to the assessee
12. In the result, Revenue’s Appeal is allowed for statistical purposes