N.K. Saini, A.M.
1. This is an appeal filed by the assesses against the order of the CIT(A), dt. 30th
2. The grievance of the assessee vide this appeal is that the learned CIT(A) erred in wrongly upholding the figure of deduction under Section 80HHC at Rs. 1,98,62,147 against Rs. 3,94,62,341 claimed by the assessee.
3. The assessee was of the view that even if the export operations resulted in a loss, it will not be adjusted with 10 per cent of the export incentive to arrive at the allowable deduction. The claim was rejected by the AO and action of the assessee in ignoring the toss and taking at nil was not considered by the AO in accordance with Sub-section (3) of Section 80HHC. The AO was of the view that profit also means loss as in any other section of IT Act.
4. In the first appeal, it was submitted that Section 80HHC(3) did not state that profit also included loss and proviso to section stated that the profits computed under Clause (a) or (b) or (c) of the sub-section shall be further increased by this amount which bore 90 per cent of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 of the IT Act. It was also submitted that computation of profit under the head ‘profit and gains of business or profession” and calculation of deduction under Section 80HHC were totally two different aspects. It was also argued that it could not therefore be constituted to mean that loss before providing effect to addition of 90 per cent of proportionate export incentive would be converted to income as a result of giving the said effect.
5. The CIT(A) considered the arguments of the assessee as unreasonable and agreed with the AO that profit referred to in Section 80HHC(3) included loss as in any other section of IT Act. He was of the view that profit computed under any head of “business or profession” which resulted in a loss was not to be taken at nil as rightly pointed out by the AO. He also observed that:
“The assessee’s interpretation that the profit in the given context does not include loss as there is no specific mention in the given section stating that profits include loss cannot be accepted as under the IT Act profit was inclusive of loss and the loss was negative profit.”
With the aforesaid observations the CIT(A) confirmed the order of the AO.
6. Being aggrieved, the assessee is in appeal and the learned authorised representative submitted before us that the assessee suffered loss in export trading, under Section 80HHC(3) there is no word for loss. So.profit in this case was rightly taken at nil and was increased by 90 per cent of sum of profit under Section 28 in proportion as the export turnover bore to the total turnover of the business carried on by the assessee. He also relied on the order of the Hon’ble Supreme Court in the case of CIT v. Canam Workshops (P) Ltd. (1986) 161 ITR 320 (SC) and also the order of the Hon’ble Tribunal, Cochin Bench in the case of Smt. T.C. Usha v. Dy. CIT (1999) 106 Taxman 305 (Mag).
7. In his rival submission that learned Departmental Representative relied on the orders of the authorities below and also mentioned that the cases relied by the learned authorised representative were having different facts, so not related to the instant case. He further submitted that the method adopted by the AO was correct and should be upheld.
8. We have heard both the parties and also perused the material available on
the record along with the case laws relied by the learned authorised representative. The case relied by the learned authorised representative Canara Workshop (P) Ltd. (supra) is distinguishable because in that case it was held by the Hon’ble apex Court that in computing the profits for the purpose of deduction under Section 80E of the IT Act, 1961 the loss incurred by the assessee in the manufacture of alloy steel could not be set off against the profits of manufactured automobile ancillaries. From the above, it is clear that in the case decided by the Hon’ble Supreme Court, the loss of one unit was not allowed to be adjusted against the profit of another unit of the same assessee. But in the instant case, there is no such circumstances. Similarly, the case of Smt T.C. Usha (supra) relied by the learned authorised representative is also distinguishable because in that case it was held that the authorities below were not justified in setting off of the negative profit in respect of export of trading goods against the aggregate of the export profits on manufactured goods, incentive and sales to export house, but in the instant case, there is no such adjustment. It appears from the facts of the case that the assessee was having negative figure of profit and took the same as nil to get the benefit under Section 80HHC(3)(b) which states that:
“(b) Where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export.”
It is also provided in Sub-section (3) of Section 80HHC that :
“The profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiia) (not being profits on sale of a licence acquired from any other person), and Clauses (iiib) and (iiic) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.”
It is crystal clear as per proviso to Sub-section (3) of Section 80HHC that the profit computed under Clause (b) shall be further increased, but in the instant case, the profit computed under Clause (b) of Sub-section (3) of Section 80HHC is a negative figure. If the same is considered as nil, as per version of the learned authorised representative no adjustment can be made which is otherwise allowable as per proviso to Sub-section (3) of Section 80HHC, and also nowhere it is mentioned that negative profit may be considered as nil.
9. As per the above discussion, we are of the view that the profit in the instant case was negative and the AO rightly made the adjustment in the negative profit according to the proviso to Section 80HHC(3) which were upheld by the CIT(A). In the light of the above discussion and considering the facts of the case, we are of the view that no interference is required in the order of the CIT(A).
10. In the result, the appeal of the assessee is hereby dismissed.