2010-VIL-422-ITAT-MUM

Equivalent Citation: [2011] 130 ITD 386

Income Tax Appellate Tribunal MUMBAI

IT APPEAL NO. 3381 (MUM.) OF 2009

Date: 30.09.2010

TATA BP SOLAR INDIA LTD.

Vs

ADDITIONAL COMMISSIONER OF INCOME-TAX, RG. 7 (3) , MUMBAI

For the Petitioner : Kanchun Kaushal, Dhanesh Bafna and Shital Bandekar
For the Respondent : Hemant Lal

BENCH

N.V. VASUDEVAN, JUDICIAL MEMBER AND R.K. PANDA, ACCOUNTANT MEMBER

JUDGMENT

Per N.V. Vasudevan, Judicial Member. –

This is an appeal by the assessee against the order dated 9-3-2009 of CIT-VII, Mumbai, passed under section 263 of the Income-tax Act, 1961 (‘the Act’).

2. The facts and circumstances under which the CIT passed order under section 263 of the Act are as follows:

3. The assessee is engaged in the business of manufacture and sale including export of Solar Cells, Phtovoltaic Modules and Systems. It has manufacturing facilities situated at Survey Nos. 43(P), 44(P), Electronic City Phase II, Electronic City, Bangalore. Further, it has a 100 per cent Export-Oriented Unit (‘EOU’) situated at the aforesaid manufacturing facility. The return of income for the assessment year under consideration was filed on 29-10-2004 declaring a total income of Rs. 285,628,902 and claiming deduction under section 10B of the Act in respect of its profits from EOU unit and under section 80HHC of the Act amounting to Rs. 41,930,669 in respect of the profits of non-EOU business. Subsequently, the assessee filed revised return of income on 12-1-2005 declaring total income of Rs. 254,119,786 and revising its claim for deduction on account of deduction under section 80HHC of the Act to Rs. 33,439,785.

4. The total turnover considered for the purpose of calculation of deduction under section 80HHC of the Act in Form No. 10CCAC filed along with revised return of income was Rs. 2,386,361,638 and the total turnover as per Profit and Loss Account of the assessee for the year ended 31-3-2004 was Rs. 3,511,673,574. The difference in the amount of the total turnover stated in the Profit and Loss Account and that considered for the purpose of deduction under section 80HHC of the Act was on account of reduction of turnover of EOU unit from the total turnover, since the same was considered for the purpose of computation of deduction under section 10B of the Act. The basis of computation of ‘export turnover’ and ‘total turnover’ for the purpose of deduction under section 80HHC of the Act was explained vide Note Nos. 1 to 6 appended in the Auditor’s Certificate in Form No. 10CCAC dated 10-1-2005. During the course of assessment proceedings, the Assessing Officer examined the revised return of income filed by the assessee in detail including claim of deduction under section 80HHC of the Act and made certain disallowances/ adjustments including with respect to deduction under section 80HHC of the Act. An Order under section 143(3) of the Act was passed by the Assessing Officer determining the total income at Rs. 389,525,780.

5. Section 80HHC(1) allows deduction to the extent of profits, referred to in sub-section (1B) of section 80HHC, derived by an assessee from the export out of India of goods or merchandise. Section 80HHC(1B) gives percentage of profits derived by an assessee from the export out of India of goods or merchandise and different percentage are referred to for different assessment years therein. Sub-section (3) of section 80HHC lays down the manner in which "Profits derived from export of goods or merchandise" are to be computed. Clause (a) of sub-section (3) of section 80HHC deals with such computation, where the export out of India is of goods or merchandise manufactured or processed by the assessee. Clause (b) of sub-section (3) of section 80HHC deals with such computation, where the export out of India is of goods or merchandise by an assessee in the capacity of a trader. Clause (c) of sub-section (3) of section 80HHC deals with such computation, where the export out of India is of goods or merchandise manufactured or processed by the assessee and also exported out of India by an assessee in his capacity as a trader.

6. In the present case, the assessee is a Manufacturer exporter and therefore clause (a) of sub-section (3) of section 80HHC alone is relevant. It reads as follows :

"(a)Where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee."

7. Another section which is relevant for the present case is section 10B of the Act. We have already seen that the assessee is engaged in the business of manufacture and sale of solar cells, photovoltaic modules and systems. It has a 100 per cent Export-Oriented Unit (EOU) manufacturing solar cells, photovoltaic modules and systems. Section 10B makes special provisions in respect of newly established 100 per cent EOUs. Sub-section (1) of section 10B provides that a deduction of such profits and gains as are derived by a 100 per cent EOU from the export of article or things or computer software for a period of 10 years beginning with the assessment year relevant to P.Y. in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. Sub-section (4) of section 10B provides that for the purposes of sub-section (1) of section 10B, the profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried by the undertaking. Clause (iii) of Explanation 2 below section 10B defines "Export Turnover" for the purpose of section 10B to mean the conside-ration in respect of the export by the undertaking of articles or things or computer software received or brought into India in convertible foreign exchange, but does not include (a) freight, telecommunication charges or insurance attributable to the delivery of the article or things or computer software outside India or (b) expenses, if any, incurred in foreign exchange in providing the technical services outside India. There is no definition of what is total turnover for the purpose of section 10B. Clause (iii) of sub-section (6) of section 10B provides that notwithstanding anything contained in any other provisions of the Act, in computing the total income of the asseseee, no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking.

8. As already stated the assessee claimed deduction both under section 10B of the Act as well as under section 80HHC of the Act. What is relevant for the present appeal is the claim for deduction made by the assessee under section 80HHC of the Act. We have already seen the formulae given in section 80HHC(3)(a) to compute profits derived from export out of India of goods or merchandise. The same is :

= Profits of the business × Export Turnover/Total Turnover

"Profits of the business" has been defined in Explnation (baa) to section 80HHC of the Act to mean the profits of the business as computed under the head "Profits and gains of business or profession" and reduced by (1) 90 per cent of any sum referred to in clauses (iiia), ( iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, chargers or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside of India.

"Export Turnover" has been defined by Explanation (b) to section 80HHC to mean the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exportered out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).

"Total Turnover" has been defined by Explanation (ba) to section 80HHC not to include freight or insurance attributable to transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).

9. The Total Turnover of Non-EOU was arrived at by the assessee as follows :

Total sales (turnover) as per Profit and Loss Account was Rs. 351,16,73,574. From the Total turnover the assessee reduced Rs. 134,19,91,724 which was export turnover of the EOU and arrived at a figure of Rs. 216,96,81,850. To the above figure the assessee added sale of scrap and transfer from DTA to EOU of Rs. 31,08,583 and Rs. 21,35,71,205 respectively and arrived at the total turnover of Rs. 238,63,61,638.

Export Turnover was arrived at by the assessee as follows :

The total turnover as per Profit and Loss Account was Rs. 351,16,73,574. Out of the above a sum of Rs. 222,05,69,230 was Export turnover. Out of the above Export turnover, the export turnover of the EOU was Rs. 134,19,91,724. There were Rupee export of Rs. 2,84,50,842 and unrealized exports of Rs. 90,15,774. All the above were reduced from the figure of Rs. 222,05,69,230 and a figure of Export turnover for the Non-EOU was arrived at Rs. 84,11,10,890.

Profits of business was arrived at by the assessee as follows :

Profit under the head ‘Profits and gains of business or profession’ was arrived at by the assessee at Rs. 40,21,30,721. The profit of the EOU was Rs. 7,45,58,650. This was reduced and a resultant figure of Rs. 32,75,72,071 was arrived at.

From the above 90 per cent of the following was reduced :

Export Incentive: Rs. 66,50,431, + SESI Income 1,11,11,208, + Interest Rs. 14,73,169 = Rs. 1,92,34,808

90 per cent of the above was Rs. 1,73,11,327

Rs. 32,75,72,071 - Rs. 1,73,11,327 = Rs. 31,02,60,744.

10. Thus in the computation of deduction under section 80HHC, the assessee did not include in the total turnover as well as export turnover, the turnover of the EOU. The assessee also did not include the profits of the EOU in the profits of business.

11. This calculation of the assessee was accepted by the Assessing Officer with some modification. The revised computation done by the Assessing Officer has nothing to do with the issue in this appeal and therefore we need not go into this aspect.

12. In exercise of his powers under section 263 of the Act, the CIT was of the view that the basis of computation of deduction under section 80HHC as done by the assessee and as accepted by the Assessing Officer was erroneous. He therefore issued a show-cause notice dated 26-6-2008 under section 263 of the Act. According to the CIT, the Assessing Officer ought to have taken the total turnover for the purpose of allowing deduction under section 80HHC of the Act as per Profit and Loss Account which was Rs. 351,16,73,574. From the above Total turnover the assessee ought not to have reduced Rs. 134,19,91,724 which was export turnover of the EOU. By the said action of the Assessing Officer there was a loss to the revenue inasmuch as deduction under section 80HHC had been allowed at a higher figure.

13. In reply to the above show-cause notice, the assessee by its letter dated 21-7-2008 submitted that profits and turnover of the EOU unit were excluded while computing the deduction under section 80HHC of the Act since the deduction under section 80HHC of the Act was claimed only with respect of profits derived from export of goods pertaining to non-EOU business and deduction under section 10B of the Act was claimed with respect to profits derived from EOU business. It was further submitted that formula for computing deduction under section 80HHC of the Act has to be read in its entirety and accordingly the term ‘export turnover’ and ‘total turnover’ and profits of the business are interlinked. Thus, export turnover and total turnover should be considered in respect of that business whose profits can be claimed deduction under section 80HHC of the Act. Attention was invited to the provisions of section 80HHC(4B) of the Act which provides that for the purposes of computing the total income under section 80HHC(1) or section 80HHC(1A) of the Act, any income not charged to tax under the Act, shall be excluded. Accordingly, if the profits of the EOU unit is not to be considered for the purpose of deduction under section 80HHC of the Act then correspondingly its turnover can also not be considered for the purpose of computing ‘export turnover’ and ‘total turnover’ under section 80HHC of the Act. Otherwise, the formula would become unworkable and may result incongruent results. The assessee also placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Lakshmi Machine Works [2007] 290 ITR 667 1 wherein it was held that excise duty and sales tax have to be included both from the numerator as well as the denominator, i.e., from the Export Turnover as well as the Total Turnover. Without prejudice to the above, it was further submitted that if the CIT is of the view that turnover of the EOU unit should be included in ‘total turnover’ while computing deduction under section 80HHC of the Act then an identical adjustment would also be required to be made to the amount of ‘export turnover’ and ‘profits of the business’. Attention was invited to the definitions of the terms ‘export turnover’, ‘total turnover’ and ‘profits of the business’ provided in the Explanation to section 80HHC of the Act. The export turnover has been defined to mean sale proceeds of any goods or merchandise to which section 80HHC of the Act applies and which are exported out of India and are received in, or brought into, India by the assessee in convertible foreign exchange. Accordingly, the turnover of EOU unit can also be included in ‘export turnover’ since the same represents sale proceeds of goods exported out of India and brought in convertible foreign exchange. Profits of the business has been defined to mean the profits of the business as computed under the head ‘Profits and gains of business or profession’. Without prejudice to the provisions of section 80HHC(4B) of the Act, Profit of the EOU unit also needs to be included in ‘profits of the business’ considering the entirety principle laid down by the Hon’ble Supreme Court in the case of Lakshmi Machine Works (supra). The total turnover has been defined in a broader sense so as to exclude freight and insurance attributable to the transport of the goods or merchandise beyond the customs station of India. Thus, if the turnover of EOU unit is included in ‘total turnover’, then correspondingly, the amount of EOU turnover would be also be required to be included in the amount of ‘export turnover’. Further profits of the EOU unit would also be required to be added to ‘profits of the business’ for the purpose of computation of deduction under section 80HHC of the Act. Without prejudice to above, it was submitted that if the turnover of EOU unit is included in ‘total turnover’ then at least the said amount needs to be included in the ‘export turnover’ while computing deduction under section 80HHC of the Act. Attention was invited to the decision wherein in the context of deduction under section 80HHC of the Act it has been held that if a particular item is to be included in denominator (total turnover) then on like to like basis, the same should also form part of the numerator (export turnover), other there would be distortion of eligible profits.

14. The CIT issued another show-cause notice under section 263 of the Act, dated 18-7-2008. In this show-cause notice the CIT was of the view that the claim of depreciation made by the assessee at 80 per cent on some of the machineries purchased during the previous year (which were used for less than 180 days and therefore depreciation at 40 per cent was claimed by the assessee) on the ground that they were renewal energy devises was erroneous and prejudicial to the interest of the revenue. According to the CIT, the machineries were not renewal energy devises and therefore depreciation admissible was 25 per cent and therefore the Assessing Officer ought to have allowed only 12.5 per cent because the said machineries were used for less than 180 days. The details of the machineries and their purchase price was as follows:

Sl. No.	Date on which asset put to use	Nature of the item	Purchase Price (Rs.)
1.	October 6, 2003	Welding Machine	515,571
2.	March 31, 2004	Welding Machine	2,738,998
3.	December 11, 2003	Airconditioning of Photovoltaic Module plant.	1,249,549
		Total	4,504,118

15. The assessee in reply submitted that the assessee is engaged in the business of manufacture of Solar water heating systems, Solar Lanterns, Solar water pumping system, Industrial water heating systems, Photovoltaic Modules and Systems. The assessee submitted Part A to the Appendix I of the Income-tax Rules, 1962 prescribing rates of depreciation (at the rate of 80 per cent on renewal energy devices) provides as follows :

III. Machinery and plant

 (8)(xiii) Renewal energy devices being-

 (d)Solar Water heaters and systems

 (k)Solar Photovoltaic modules and panels for water pumping and other applications.

 (r)Machinery and plant used in the manufacture of any of the above sub-items.

It was submitted that clauses (d ) and (k) to entry No. III(8)(xiii) provides that renewable energy devices being Solar water heaters and systems and Solar-photovoltaic modules and panels for water pumping and other applications qualifies for depreciation at the rate of 80 per cent. Further clause (r) to entry No. III(8)(xiii) provides that any machinery and plant used in manufacture of any of the items referred at clause (a) to (q) of entry No. III(8)( xiii) would also qualify for depreciation rate of 80 per cent. Accordingly, any plant and machinery used in the manufacture of Solar Water Heater Systems and Solar Photovoltaic Modules would also qualify for depreciation rate of 80 per cent. The assessee submitted that plant and machineries under consideration i.e., welding machines and Airconditioning for Photovoltaic Modulation plant were an integral part of the manufacturing process and the usage of each of the said plant and machinery in the manufacturing process was also explained by the assessee.

16. The CIT passed the impugned order dealing with both the issues viz., total turnover for computing deduction under section 80HHC and incorrect claim for depreciation on renewable energy saving devices. On the issue of total turnover, he held as follows :-

"I have considered the aforesaid submission of the assessee’s A.R. I have also carefully gone through the decision of the Hon’ble Apex Court in the case of CIT v. Lakshmi Machine Works (supra). I find that the issue involved in the said case was materially different from the issue in the present case. In the said case, the issue involved was as to whether excise duty and sales tax can form part of "total turnover" for the purposes of deduction under section 80HHC. It was held by the Hon’ble Court that since excise duty and sales tax do not emanate from "turnover" in the same was as interest, commission etc. which are excluded from the definition of the "total turnover", the excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3) of the Act. The assessee has quoted certain observations of the Court from the aforesaid decision which has no relevance to the issue involved in the present case. The assessee has also relied upon the observations of the Hon’ble High Court in the case of CIT v. Sudarshan Chemical Industries Ltd. ( 245 ITR 769 ) which again is a decision related to the definition of "total turnover" including or excluding sales tax and excise duty. None of the authorities cited are directly on the issue raised in the notice under section 263 of the Act. It is an admitted fact that the account of the assessee are combined. The term "total turnover" for the purposes of section 80HHC has been defined to exclude certain items including freight or insurance attributable to the transport of the goods or merchandise beyond the custom stations. Therefore, the non-exclusion of the "turnover" of the EOU unit for the purposes of deduction under section 80HHC was a mistake of law resulting into higher deduction allowed to the assessee under section 80HHC of the Act. The assessment order is, therefore, treated as erroneous and prejudicial to the interest of revenue on this account."

17. With regard to the depreciation on renewable energy devices the CIT held that the Assessing Officer before completing the assessment did not examine the technical aspects involved with proper evidence for a proper decision. The CIT accordingly directed the Assessing Officer to examine the issue afresh to ascertain whether depreciation claimed by the assessee were in respect of renewable energy device.

18. The CIT also held that the exercise of jurisdiction under section 263 of the Act was proper. In this regard the assessee had submitted that the claim for deduction under section 80HHC was examined in detail by the Assessing Officer and the Assessing Officer had taken one view. The fact that the CIT did not agree with the view will not give rise exercise of jurisdiction under section 263 of the Act. In this regard the assessee had relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 1 and the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 832. On the above submission the CIT held that the Assessing Officer had wrongly applied the provisions of law and, therefore, the same has to be corrected under section 263 of the Act.

19. Aggrieved by the order of the CIT the assessee has preferred the present appeal before the Tribunal.

20. The ld. counsel for the assessee submitted that the learned CIT was not correct either in law or on facts in holding that turnover of the Export-Oriented Unit (‘EOU’) be included while computing ‘Total Turnover’ for the purpose of deduction under section 80HHC of the Act. Without prejudice to above, it was further submitted that having held that turnover of the EOU be included while computing ‘Total Turnover’ for the purpose of deduction under section 80HHC of the Act, the learned CIT ought to have held that the profits relatable to the said turnover should also be included while computing the ‘profits of the business’ for the purpose of deduction under section 80HHC of the Act. Without prejudice to the above, having held that turnover of the EOU be included while computing ‘Total Turnover’ for the purpose of deduction under section 80HHC of the Act, the learned CIT ought to have held that export turnover of EOU should also be included for the purpose of deduction under section 80HHC of the Act. It was submitted that the learned CIT erred in law and on facts in holding that your appellant’s claim of depreciation at the rate of 80 per cent on renewable energy devices is erroneous. It was submitted that the CIT erred in holding that order under section 143(3) of the Act passed by Assessing Officer allowing depreciation at the rate of 80 per cent in respect of aforesaid items was erroneous and prejudicial to the interest of the revenue on the ground that said depreciation was allowed without application of mind and without obtaining the opinion of technical expert.

21. The following submissions were made by the learned counsel for the assessee with regard to the claim for deduction under section 80HHC of the Act. In support of the contention that Total turnover need not include the turnover of the EOU and in the event of the total turnover being enhanced by adding the export turnover of EOU then the turnover of the EOU should also be added to the export turnover while calculating deduction under section 80HHC of the Act, the ld. counsel for the assessee relied on the decision of the Chandigarh Bench of ITAT in the case of Asstt. CIT v. Mahavir Spg. Mills Ltd. [2008] 110 ITD 211. In the aforesaid decision the assessee was entitled to deduction under section 10B as well as section 80HHC of the Act. While claiming deduction under section 80HHC of the Act the assessee included the turnover of the 10B unit also in the export turnover. According to the Assessing Officer the income of the EOU was already exempt under section 10B of the Act and by including the turnover of the said unit in the computation of deduction under section 80HHC of the Act the assessee was getting a double benefit in respect of the very same income. The assessee submitted that section 10B and section 80HHC are two different sections intended to given different benefit to the eligible assessee. It was also submitted that there is nothing in section 10B which restricted the deduction being allowed on the income claimed as exempt under section 10B to a deduction under section 80HHC also. In other words it was submitted by the assessee that the deduction under section 10B was an additional advantage given to 100 per cent EOU. The assessee had placed reliance on the provisions of section 10B(6)(iii) of the Act which provided that notwithstanding anything contained in any other provisions of the Act, in computing the total income of the assessee, no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or 80-IB in relation to the profits and gains of the undertaking. The assessee submitted that since provisions of section 80HHC are not referred to in the above provisions, the assessee could make a claim for deduction in respect of the turnover of EOU both under section 10B as well as under section 80HHC of the Act. The claim of the assessee was rejected by the Assessing Officer, who held that the turnover of the 10B unit had to be excluded from the export turnover as well as the total turnover of the assessee. The CIT(A) accepted the plea of the assessee and further appeal by the revenue the Tribunal held as follows :

"Deduction under section 80HHC is to be allowed to the profits which have been derived by the assessee from the export of goods or merchandise. Therefore, the export turnover which is to be considered while working out deduction under section 80HHC is that turnover which is only and only relevant for earning the profit/income from export. It has been admitted by the assessee that the profit for which deduction under section 10B has been claimed was not included in the profit to claim deduction under section 80HHC. Therefore, the turnover which was related to the profit eligible for deduction under section 10B can also not be included in the turnover considered for the purpose of deduction under section 80HHC. The turnover of sales made by the assessee for which deduction under section 10B has been claimed did not answer the description of turnover eligible for deduction under section 80HHC. Therefore, the Assessing Officer rightly excluded such turnover from export turnover while computing relief available to the assessee under section 80HHC. It is also relevant to point out that as per clause (iii) of sub-section (6) of section 10B, no deduction shall be allowed under section 80HH or 80HHA, 80-IB or 80-IA in relation of the profits and gains of the undertaking who claimed deduction under section 10B. Therefore, to ensure that no assessee should claim any benefit over and above the benefits under section 10B in respect of same industrial undertaking the said provision has indicated separately and exclusively to clear that double deduction should not be claimed for the same income. Moreover, for claiming the deduction under the said sections condition to make the export is not mandatory while for claiming the deduction under sections 10B and 80HHC it is mandatory that the income be derived from export. Non-mentioning section 80HHC in the aforesaid clause (iii) of sub-section (6) of section 10B will not entitle the assessee to claim deduction under section 80HHC for the reason that the deduction under section 80HHC is otherwise also not available to the units claiming exemption under section 10B because the profits of the unit claiming deduction under section 10B are not to be included with the profits eligible for deduction under section 80HHC and since in such type of industrial undertaking no eligible profits can be derived without having export turnover, therefore, export turnover which earned profit eligible for deduction under section 10B should also not be included in the turnover to claim deduction under section 80HHC."

22. The ld. counsel for the assessee placed very strong reliance on the above decision in support of his contention that turnover of 10B unit should not form part of the total turnover while computing deduction under section 80HHC of the Act and in the event of the total turnover is considered by adding the turnover of the 10B unit then the export turnover should also increase by the turnover of the 10B unit while computing deduction under section 80HHC of the Act. Further reliance was placed on the following decisions in the case of (1) Samtex Fashions Ltd. v. Asstt. CIT [2005] 92 ITD 535 (Delhi) and (2) VXL Instruments Ltd. v. Jt. CIT [2006] 6 SOT 371 (Bang.) for identical proposition as was laid down in the case of Mahavir Spg. Mills Ltd. ( supra).

23. The next submission of the ld. counsel for the assessee was that in the event of the total turnover being considered to include the turnover of 10B unit then the turnover of the 10B unit should also be added to the export turnover while computing deduction under section 80HHC of the Act. In this regard ld. counsel for the assessee placed reliance on the decision of the Special Bench of ITAT Chennai in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 and the following other decisions :

 (1)Asstt. CIT v. South India Produce Co. [2003] 262 ITR 20 1 (Ker.).

 (2)CIT v. Sudarshan Chemicals Industries Ltd. [2000] 112 Taxman 1 (Bom.).

 (3)Dy. CIT v. Lotus Trans Travels (P.) Ltd. [2006] 98 ITD 115 (Delhi).

 (4)Patni Telecom (P.) Ltd. v. ITO [2009] 120 ITD 105 (Hyd.).

 (5)Chloride India Ltd. v. Dy. CIT [1995] 53 ITD 180 (Cal.).

 (6)Tata Elxsi Ltd. v. Asstt. CIT [2008] 115 TTJ (Bang.) 423.

 (7)CIT v. Bharat Earth Movers Ltd. [2004] 137 Taxman 421 (Kar.).

 (8)Godavari Drugs Ltd. v. Jt. CIT [2004] 89 ITD 326 (Hyd.).

 (9)Dy. CIT v. Dimexon Diamonds Ltd. [2008] 20 SOT 31 (Mum.).

24. It was further submitted that the profit of the business considered for computation under section 80HHC of the Act should also include the profits of the 10B units based on the parity principle.

25. The ld. D.R. drew our attention to the provisions of section 80HHC(3)(a) of the Act and submitted that statutory language of the said provisions are very clear inasmuch as the reference is made to the total turnover of the business carried by the assessee. His submission was that the turnover of the assessee as per the P&L account included both the turnover of the 10B unit and 80HHC unit. It was also submitted by him that the expression ‘total turnover’ has been defined in section 80HHC not to include freight or insurance attributable to transport of the goods or merchandise beyond the custom stations. The normal conception of the term ‘turnover’ would include receipt of sale consi- deration which has an element of profit embedded in it. Therefore, the total turnover has to include all sales by the assessee which has an element of profit. His further submission was that the issue for consideration in the proceedings under section 263 was as to whether total turnover should include export turnover also or not. It was not open to the assessee to submit the turnover of the 10B unit should also be excluded from the export turnover or that the profits of the 10B unit should also be included in the profits of business. These issues according to the ld. D.R. are beyond the scope of the present proceedings. With regard to the decision of the Special Bench, Chennai in the case of SAK Soft Ltd. (supra) and the other decisions relied upon by the ld. counsel for the assessee it was submitted by him that those decisions were rendered in the context of whether excise duty and sale tax forms part of the total turnover for the purpose of section 80HHC of the Act. It was submitted by him that excise duty and sales tax does not have an element of profit and, therefore, they were not considered as part of either the total turnover or export turnover. According to him said analogy cannot be extended to turnover which has an element of profit embedded in it. It was submitted by him that the Special Bench of ITAT Chennai in the case of SAK Soft Ltd. (supra) was concerned with the computation of total turnover under section 10B of the Act. As per clause (iii) of Explanation 2 to section 10B freight, telecom charges and insurance attributable to delivery of goods outside India and expenses incurred in foreign exchange in providing technical services outside India were not part of the turnover, whether export or total turnover of the assessee. Thus the issue considered by the Special Bench was also in respect of items which did not have an element of profit embedded in them. The other decisions referred to by the learned counsel for the assessee for the above reason are also not relevant to decide the dispute in the present appeal.

26. With regard to the decision in the case of Mahavir Spg. Mills Ltd. (supra) it was submitted by him that the Assessing Officer in the said case himself did not include the turnover of EOU in the total turnover for computation of deduction under section 80HHC of the Act. In fact the correctness of such treatment is the issue raised in the impugned order of CIT under section 263 in this appeal. Thus the Tribunal in the case of Mahavir Spg. Mills Ltd. (supra) never had any occasion to express any opinion on this issue. It was submitted that the said decision and the other two decisions cannot therefore be said to be authority for the proposition that total turnover need not include turnover of section 10B unit while computing deduction under section 80HHC of the Act. In any event it cannot be said that there was any conscious decision on the issue.

27. We have considered the rival submissions. As far as the decision in the case of Mahavir Spg. Mills Ltd. (supra) is concerned as rightly contended by the ld. D.R the Assessing Officer did not in that case consider the turnover of the 10B unit either as part of the total turnover or part of the export turnover while computing deduction under section 80HHC of the Act. The Tribunal never considered the question as to whether turnover of the 10B unit has to form part of the total turnover or not. In such circumstances it cannot be said that the Tribunal has laid down a proposition that turnover of 10B unit should be excluded from the total turnover while computing deduction under section 80HHC of the Act. For the very same reason the other two decisions relied upon by the ld. counsel for the assessee are not of any use to present case. Therefore, the turnover of the 10B unit cannot be excluded from the total turnover. The provisions of section 80HHC grant deduction on the basis of proportionate profits attributable to the export turnover vis-a-vis total turnover. The provisions of section 80HHC(3)(a) also refer to the total turnover of the business carried on by the assessee. Therefore, total turnover should include all sales where there is an element of profit embedded therein.

28. With regard to inclusion of the turnover of the 10B unit in the export turnover for allowing deduction under section 80HHC of the Act, we find that the decisions relied upon by the ld. counsel for the assessee are in the context of freight insurance, sales tax and excise duty, where there is no element of profit embedded. This aspect has been made very clear in the decision of the Special Bench of ITAT in the case of SAK Soft Ltd. (supra). The Special Bench referred to the decision of the Hon’ble Supreme Court in the case Lakshmi Machine Works (supra), wherein the issue was with regard to excise duty and sales tax, whether should form part of the turnover. The Court has specifically held excise duty and sales tax do not have an element of turnover as they were recovered by the assessee on behalf of the Govern- ment. The principle of parity between export turnover and total turnover was accepted in the aforesaid context. As rightly contended by the ld. D.R. the aforesaid decisions do not have relevance to the issue in the present appeal. We have already seen the provisions of section 80HHC(3)(a) of the Act, which refers to profits derived from export of goods manufactured then the profit derived from such export shall be the amount which bears to the profits of the business the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. The expression "such" before the expression ‘Export turnover’ only means that the export turnover referred to is the turnover of the goods manufactured whose profits are being computed under section 80HHC(3)(a). We cannot therefore ignore the intention of the Legislature expressed in such clear terms.

29. With regard to the submission of the ld. counsel for the assessee that the profits of business should be increased by adding profits of 10B units also, we are of the view that the profits of 10B unit fall under Chapter-III of the Act under the head ‘Income’ which do not form part of the total income. Therefore, the profits of 10B unit will not enter the computation of total income at all. The said profits cannot therefore form part of the profits under the head "Profits and gains of business or profession". For all the above reasons we are of the view that the order of CIT directing the Assessing Officer to include export turnover also as part of the total turnover was correct and does not call for any interference.

30. With regard to the claim of depreciation we find that in the course of assessment proceedings the Assessing Officer by his letter dated 18-8-2006 called upon the assessee to furnish details of additions to fixed assets along with all supporting documents. The Assessing Officer had not raised any specific query with regard to the claim of depreciation at 80 per cent on renewable energy devices. The assessee had given a depreciation chart wherein the description of the items of machinery had been given on which the depreciation at 80 per cent had been claimed because they were renewable energy equipments. The submission of the ld. counsel for the assessee before us was that even in case where no enquiries were made by the Assessing Officer while completing the assessment, the CIT to exercise power under section 263 on the ground of lack of proper enquiry should further point out and show as to how lack of enquiry has caused prejudice to the revenue. In this regard assessee placed reliance on the following decisions :

 (1)CIT v. George Williamson (Assam) Ltd. [2001] 250 ITR 7471 (Gau.).

 (2)CIT v. Chawla Trunk House [1983] 139 ITR 182 2 (Punj. & Har.).

 (3)Girdharilal B. Rohra v. CIT [2004] 86 TTJ (Mum.) 177.

 (4)Salora International Ltd. v. Addl. CIT [2005] 2 SOT 705 (Delhi).

 (5)Saw Pipes Ltd. v. Addl. CIT [2005] 3 SOT 237 (Delhi).

 (6)CIT v. Shantilal Agarwalla [1983] 142 ITR 778 3 (Pat.).

 (7)CIT v. R.K. Metal Works [1978] 112 ITR 445 (Punj. & Har.).

 (8)Russell Properties (P.) Ltd. v. Addl. CIT [1977] 109 ITR 229 (Cal.).

 (9)Usha Martin Industries Ltd. v. Dy. CIT [2003] 86 ITD 261 (Cal.).

 (10)Orient (Goa) Ltd. v. Dy. CIT [1988] 66 ITD 479 (Pune).

31. The ld. D.R., on the other hand, relied on the decision of the Mumbai Tribunal in the case of Arvee International v. Addl. CIT [2006] 101 ITD 495, wherein the Mumbai Bench of the Tribunal after considering the decision of the Hon’ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 has held that where Assessing Officer fails to make enquiries which were required to be made in the given facts and circumstances of the case, then that would by itself render his order erroneous and prejudicial to the interest of the revenue. Thus according to him the principle laid down by the Hon’ble Supreme Court is that if it is shown that there was failure to make enquiries which were warranted in the given facts and circumstances of the case then that would be sufficient to invoke the powers under section 263 of the Act.

32. We have considered the rival submissions. Admittedly while completing the assessment proceedings the Assessing Officer did not raise any specific query regarding the claim for depreciation at 80 per cent on certain items of machinery which were claimed as renewable energy devices. As rightly held by the CIT in the order under section 263 it was not possible for the Assessing Officer to conclude as to whether a device is an energy device or a particular item of plant and machinery used in making renewable energy devices, without proper enquiry or submission by the assessee. In any event he ought to have been called for details from the assessee. Not doing so was a failure on the part of the Assessing Officer to make enquiries which were necessary in the given facts and circumstances of the case. The CIT was, therefore, right in exercising jurisdiction under section 263 on this issue. The decision of the Hon’ble Supreme Court in the case of Smt. Tara Devi Aggarwal (supra) clearly supports the stand of the revenue before us.

33. With regard to the decisions relied upon by the ld. counsel for the assessee, we find that in the case of George Williamson (Assam) Ltd. (supra), it was a case where the order under section 143(1) was set aside in proceedings under section 263 of the Act. For making an adjustment under section 143(1) of the Act certain conditions had to be fulfilled and it was in that context the Hon’ble Court held that there was no material before CIT to show that the Assessing Officer could have made adjustment and, therefore, the order under section 263 was quashed. In the present case we are concerned with an assessment under section 143(3) of the Act, where the scope of enquiry before the Assessing Officer were not limited or there was any restriction as was contained in the erstwhile provision of section 143(1) of the Act. In the case of Chawla Trunk House ( supra) the finding of fact was that the Assessing Officer made proper enquiries. In the case of Girdharilal B. Rohra (supra) again the finding of fact was that there were proper enquiries made before completing the assessment by the Assessing Officer. Same is the position in the case of Salora International Ltd. (supra), where the facts were such that no further enquiry was called for by the Assessing Officer. The decision in the case of Saw Pipes Ltd. (supra) it has been held that even where there is a failure to make enquiry by the Assessing Officer the CIT has to assess the reply to the show-cause notice under section 263 of the Act and come to the conclusion that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. This decision in our view is contrary to the decision of the Hon’ble Supreme Court in the case of Smt. Tara Devi Aggarwal (supra). Moreover, the CIT in the present case has held that the question as to whether the items of machineries on which depreciation was claimed at 80 per cent was renewable energy device or not cannot be decided without the help of experts. The decision in the case of Shantilal Agarwalla (supra) was a case where there was a contravention of power vested under section 124 of the Act. On that ground power under section 263 was invoked and the same was set aside by the Tribunal and affirmed by the Hon’ble High Court. The decision in the case of R.K. Metal Works ( supra) was not a case where jurisdiction under section 263 was invoked for failure to make enquiries by the Assessing Officer. Same is the position in the case of Usha Martin Industries Ltd. (supra) and Orient (Goa) Ltd.’s case (supra). Thus none of the decisions relied upon by the ld. counsel for the assessee support the plea raised on behalf of the assessee. We are of the view that the exercise of jurisdiction by the CIT in the given facts and circumstances of the present case was proper and the order of the CIT in this regard does not call for any interference. Consequently the order under section 263 is upheld and the appeal by the assessee is dismissed.

34. In the result, the appeal of the assessee is dismissed.

 

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