ORDER
Jaidev, AM.
This is the appeal filed by the assessee against order of Commissioner (Appeals) dated 11-10-1999. The first grievance of the assessee-company is that Commissioner (Appeals) has erred in confirming the order of assessing officer and in rejecting the claim of assessee-company for deduction of sum of Rs. 3,78,80,936 under section 80HHC on irrelevant and in cogent grounds. In this regard, the following further arguments have been given in the grounds of appeal :
'2. The learned Commissioner (Appeals) has failed to appreciate the scheme of section 80HHC of the Act which was amended from the assessment year 1992-93 to give boost to the exports of the country by giving incentives to the exporters. The learned Commissioner (Appeals) failed to carry out the directions of the Supreme Court in Bajaj Tempo Ltd. v. CIT : [1992]196ITR188(SC) as to the manner in which the incentive provisions are to be interpreted.
3. The Commissioner (Appeals) also erred in not considering the fact that provisions of section 80HHC as they apply to holder of export house certificate or trading house certificate are different from those that apply to assessee having neither of these certificates. In case of assessee having export house certificate s_ 80HHC would apply only in respect of profit from the export of trading goods in respect of which the assessee-company has not given disclaimer certificates to the supporting manufacturer under proviso to sub-section (1) of section 8011HC.
4. The appellant further submits that profit from export in respect of trading goods for the purpose of sub-clause (ii) of clause (c) of sub-section (3) would be in respect of goods for which the manufacturer has not issued certificate to supporting manufacturer under proviso to sub-section (1) of section 80HHC. The turnover for which such certificates are issued does not come within the purview of deduction for section 80HHC in accordance with the said proviso.
5. The appellant submits that the appellant being a holder of export house certificate having disclaimed the entire turnover in favour of the supporting manufacturer would not come within the ambit of sub-clause (ii) of clause (c) of sub-section (3) of section 80HHC irrespective whether the appellant company had made profit or loss thereon.
6. The appellant company makes profit in export of trading goods as well as in export of goods manufactured by it. It is only for the purpose of sub-section (3) (c)(1i) of section 80HHC that there is a loss in export of trading goods as the profit for the purpose of sub-section (3) has to be worked out by reducing from the export turnover of the trading goods both direct and indirect expenses attributable to the export of such goods.
7. The appellant further summits that for the purpose of sub-section (1) of section 80HHC the term profit would also mean negative profit i.e., loss following the decisions of the Supreme Court in CIT v. Karamchand Premchand Ltd. : [1960]40ITR106(SC) and CIT v. Haiprasad & Co. (P). Ltd. : [1975]99ITR118(SC) .
8. The Commissioner (Appeals) has failed to correctly interpret the function of a proviso in relation to the main provision of the Act. Proviso to sub-section (1) of s, 80HHC takes out from the main provision the profit from trading turnover of goods for which the appellant company has issued the certificates to supporting manufacturers. Reading together both the main provision and the said proviso, sub-section (1) will apply to the appellant company only in respect of profit from goods manufactured by it as in respect of the traded goods the appellant has disclaimed the same entirely in favour of the supporting manufacturer.
9. The appellant further submits that it is well established that where there are two interpretations possible with regard to any provision then interpretation which favours the assessee should always be followed.'
2. The assessee had filed return of income declaring Nil income. The income before the deductions, under Chapter VI-A was Rs. 4,39,86,418. Against this, the assessee had claimed the deductions under Chapter VI-A to the tune of Rs. 4,75,62,066 including deduction of Rs. 3,78,80,936 under section 80HHC. The assessee is an exporter of goods that are self -manufactured as well as the goods manufactured by others. As such, for the quantification of deduction under section 80HHC, the computation of profits shall be as per section 80HHC(3)(c). According to this, the profit eligible for deduction will be the sum of
1. Profit from export of self- manufactured goods.
2. Profit from the export of goods manufactured by others.
3. Profit from export incentives as per the proviso to the section 80HHC(3)(c).
As per the Form No. 10CCAC filed along with the return of income, there is net loss from the export of goods. The break-up of profit/loss was as under :
Loss from the export of goods manufactured by others
Rs. (-)6,86,65,804
Profit from the export of self -manufactured goods
Rs. 3,78,80,936
The profit from the export incentives is included in the profit from the export of self- manufactured goods. It was noted by the assessing officer that there was net loss from the exports of the goods. As per the provision of section 80HHC(3)(c), the profit from the exports, which is allowable as deduction from the taxable income, is the composite profit from export of own manufactured goods and the goods manufactured by others. If the composite profit is a loss, the assessing officer observed that there is no question of deduction under section 80H11C. The assessing officer, therefore, disallowed the assessee's claim by observing as under :
'To become eligible for the deduction under section 80HHC, in spite of the loss from the activities of exports, the assessee has followed an ingenious method. This method is to disclaim the export benefit under section 80HHC in favour of the supporting manufacturers. The end result of this ingenious method is that both the assessee and its supporting manufacturers have become eligible for the benefit under section 80HHC whereas, if there were no disclaimers, none would be entitled for this benefit.
It is pertinent to note that section 80HHC(1) has been amended with effect from 1-4-1989, as a result of which, the word 'profit' has been substituted for 'whole of income'. The section 80HHC (1) has been further amended with effect from assessment year 1992-93. The words appearing in the proviso-'Total profits of the export business of the assessee have been replaced by 'total profits derived by the assessee from the export of trading goods .........'
Thus, it is not difficult to see that the intended purpose of these amendments is to ensure that the deduction allowed under section 80HHC comes into play only when the assessee is having profit. Income may include loss but deduction is admissible only if the assessee has a profit from the activity of exports.
The proviso to section 80HHC(1), according to which the assessee has disclaimed the export benefits to the supporting manufacturers, will come into play only when the assessee has profit from the activity of exports, as it talks of profits and not income (which may include loss). Thus, it can be easily seen that the proviso to section 80HHC(1) is not at all applicable to the assessee. This is of relevance only when the assessee has profits .....
The disclaimer resorted to by the assessee in favour of the supporting manufacturers is also untenable in view of the fact that, as already highlighted, the aggregate profit of the trading goods exported and the manufactured goods exported is a negative figure.
It is also worth mentioning that in the book of Income-tax, Vol. IV, para 4454, Mr. D.M. Harish has observed that even when the assessee made losses in export of an item but the overall result is a positive income, the assessee was entitled to deduction under section 80HI-IC. In the instant case, however, there is mixed export, trading as well as manufacturing, but the net effect is loss from the export of goods.'
3. Aggrieved, the assessee filed appeal before Commissioner (Appeals). Apart from other arguments, the following contentions were raised by the assessee before the Commissioner (Appeals).
'It is argued that if the assessing officer's view is accepted that the proviso to section 8011HC(1) can only be invoked if the assessee is showing positive profit in exports and not in case of loss i.e., negative profit, then also the same should be applied for the purpose of interpretation of clause (c) of section 80HHC(3). But the assessing officer has considered the negative profit (loss) of the export of trading goods activity for the purpose of clause (c)(ii) of section 80HHC(3) and adjusted, out of the positive profit. As already submitted earlier, the various Supreme Court decisions support the view that profit includes 'positive profits' as well as 'negative profits'. If the negative profit from export of trading goods is taken for the computation of deduction under section 80HHC(3)(c)(ii) then on the similar count, negative profit from the entire trading export activity disclaimed in accordance with the provisions of section 80HHC(1) should be considered while arriving at the final quantum of deduction under section 80HHC. Therefore, there cannot be two interpretations for term 'profit' one for the purpose of section 80HHC(3)(c)(ii) and another for the purpose of proviso to s, 80HHC(1). '
4. The Commissioner (Appeals) upheld the order of assessing officer by passing an elaborate and speaking order. Some of the relevant extracts from Commissioner (Appeals)'s order are reproduced as under :
'Thus, 3 clauses have been inserted in sub-section (3) with a view to provide distinct formula without any ambiguity for working out of profit from each of the activities of the assessee. Clauses (a) and (b) give formula for computing the profit in case the assessee dealing with export goods or merchandised, manufactured or processed by them and in export of trading goods respectively. Clause (c) gives separate formula for computing the profit when the assessee deals in export 'of goods or merchandised manufactured or processed by it and of trading goods. Though the formula for calculating the profit from both the activities are separately provided in sub-clauses (i) and (ii) but the net profit is to be calculated by clubbing the figures from both the activities of the assessee irrespective of nature of the profit from the purpose of clause (c) of section 80HHC(3). The profit may be a positive or negative from either of the activities, the net profit is to be computed for the purpose of allowability of deduction.
It is very significant to refer to the word 'and' which is used as a conjecture between sub-clause (i) and sub-clause (ii) of clause (c) of section 80HH(3) of the Act. The main intention of the legislature for inserting the word 'and' in between the two sub-clauses is to find out the net result from both the activities of the assessee. For ascertaining the net profit, both the figures though it may be positive or negative are to be clubbed.
Emphasis should also be provided on word 'profit' used in the main provisions of clause (c) of sub-section (3) and it should be kept in view that the said word does not appear anywhere in sub-clause (i) and sub-clause (ii) of clause (c). The net result of sub-clauses (i) and (ii) should only be termed as profit for the purpose of clause (c). Thus, a plain reading of the provisions of sub-clauses (i) and (h) indicate that loss worked out under either of the said sub-clauses cannot be ignored, but only to be aggregated/adjusted to profit of the other activity with a view to arrive at the net profit or loss for the purpose of clause (c) of section 80HHC(3) from export of manufacturing goods and trading goods. At the cost of repetition, I should emphasise that the loss worked out under either of the said sub-clauses cannot be ignored., even though the provisions of section 80HHC is interpreted liberally being an incentive provision.
Looking to this aspect from a different angle, 1 am of the considered opinion that the appellant company should not stand to gain being an export house compared to a mixed exporter coming within the purview of clause (c) of sub-section (3) of section 80HHC or in that matter; any exporter coming within the scope of clause (a) or (b) or (c) thereunder. A plain reading of sub-section (1) clearly indicates that while an exporter other than the holder of export house or trading house certificate would be entitled to the deduction of the entire profit derived from export as computed under clauses (a), (b) or (c) of sub-section (3) of section 80HHC, the appellant company being a mixed exporter as well as having the export house status and in the light of the fact that it had disclaimed the entire export turnover of trading goods in favour of supporting manufacturers, the profit otherwise eligible for deduction under the main provision is to be further reduced by applying the formula contained in the proviso below sub-section (1) of section 80HHC. The main provisions of sub-section (1) of section 80HHC would apply with equal force both to an exporter as well as to a holder of export house or trading house certificate. If the export profit computed under sub-section (3) is a negative one, as already stated, no deduction is allowable under sub-section (1) of section SOHHC to any of the exporters including the appellant company. In that situation, the proviso below sub-section (1) will be of no help to the appellant company merely because it is an export house and disclaimed the entire export turnover of trading goods in favour of supporting manufacturers. The proviso under sub-section (1) provides for an exception by way of reduction of deduction otherwise allowable under the main provisions of the said sub-section and as such, the said proviso cannot be divorced from the provision to which it stands as a proviso.
Therefore, the reduction of deduction by an amount to be computed in the manner prescribed in the proviso under sub-section (1) cannot rather should not be interpreted as granting bonus or additional benefit to the appellant company merely because it is an export house/trading house vis-a-vis other exporters which is obviously not intended on plain reading of sub-section 80HHC(1) of the Act. '
5. The learned Commissioner (Appeals) also dealt with the decisions relied upon by the learned counsel of the assessee including the decision of Hon'ble apex court in the case of Bajaj Tempo Ltd. (supra) (mentioned by the assessee in the grounds of appeal before us); and quoting the decision of Honble Bombay High Court in the case of M.H. Daryani v. CIT : [1993]202ITR731(Bom) , the learned Commissioner (Appeals) highlighted the following observations of the Hon'ble court :
'The principle of beneficial interpretation has no application in a case where the words of a statute are plain, precise and unambiguous. In such a case the well settled principle of interpretation is that the statutory provision should be construed according to the plain natural meaning of its language. When the language of a particular provision is clear and according to the plain natural meaning thereof the assessee is not entitled to any rebate, relief or allowance, it is not for the court to strain and stretch the language of the statutory provision to enable the assessee to get such relief. Such an approach will be against all accepted principles of interpretation.'
6. The learned Commissioner (Appeals) then summed his observations as under
'Following the principles laid by the Hon'ble Courts, I am of the view that this section is self-explanatory and there is no ambiguity either in the computation section 80HHC(3) or in the enabling section 80HHC(1). The language used in clause (c) is also very clear and though, the individual profit or loss from each activity is to be computed under sub-clause (i) and sub-clause (ii) separately in accordance with the formula provided in the said respective sub-clauses, the same are to be clubbed together to ascertain the profit or loss for the purpose of clause (c) of section 80HHC (3) in case of a mixed exporter. The profit or loss cannot be ignored at this stage while computing the profit or loss under sub-clauses (i) and (ii) or clause (c) of section 80HHC(3). That will tantamount to obliterating the relevant provisions or make the same otiose.'
7. Regarding the argument of the learned counsel of the assessee that method followed by assessee-company and accepted by the assessing officer in the preceding years should not be altered for no reasons, the learned Commissioner (Appeals) observed that this argument should also fail keeping in view the principles of res judicata which does not apply to income-tax assessment.
8. While dealing with assessee's grounds of appeal Nos. 1 to 9, the learned counsel of the assessee pointed out that the assessee is an exporter of goods that are self-manufactured as well as goods manufactured by others. The assessee incurred profit from export of self-manufactured goods and loss in trading goods (i.e., goods exported which are manufactured by others). The assessee disclaimed export trading turnovers in favour of manufacturers by issue of disclaimer certificates to the supporting manufacturers. It is stated that assessee-company's case falls under sub-clause (c) of section 80HHC(3). The learned counsel contended that this section provides for sharing of turnover and not profit between a manufacturer and export house. The learned counsel adverted our attention to the report of auditors in Form No. 1OCCA (available at p. 4 to 12 of paper book) as required under section 80HHC(4)/WHHC(4A) of the Income Tax Act, Relying upon the decision of Tribunal Ahmedabad Bench 'C' in the case of Hindustan Fashions Ltd. v. Assistant Commissioner (1998) 61 TTJ (Ahd) 734, the learned counsel contended that working out the decision under such sub-clauses (i) and (ii) of clause (c) of section 80HHC(3), the negative figures has to be ignored.
9. The learned departmental Representative contended that section 80HHC(1) does not apply in assessee's case as there is no export profit after set off of the loss in trading goods (manufactured by supporting manufacturers) with the profit from export of self -manufactured goods. In this regard, the learned departmental Representative relied upon the decision of Tribunal of Delhi Bench reported at Eastern Leather Products (P) Ltd. v. Dy. CIT as well as upon Indore Bench of Tribunal reported at Prestige Foods Ltd. v. Dy. CIT (1997) 58 TTJ (Ind) 300 : (1997) 61 ITD 390 (Ind). The reliance was also placed upon decision of Hon'ble Bombay High Court, reported at CIT v. New Shorrock Spg. & Mfg. Co. Ltd. : [1995]212ITR355(Bom) , in support of the contention that liberal interpretation of section 80HHC does not mean erroneous interpretation. The learned departmental Representative further contended that proviso to section 80HHC(1) will not apply if case is not covered under section 80HHC(1). It was pointed out that section 80HHC(1) is a charging or enabling section, whereas section 80HHC(1) is a machinery section which lays down formula for working out profit from each of the activities of the assessee. It was argued that word profit' in the context in which it is mentioned in sub-section (1) of section 80HHC does not include loss. It was pleaded that if the export profit under section 80HHC(3) is a negative one, no deduction is allowable under section 80HHC(1). The learned departmental Representative further referred to section 80AB and contended that no deduction under Chapter VI-A is admissible (including deduction under section 80HHC if gross total income results in a loss. In this regard, the learned departmental Representative relied upon decision of Kerala High Court, reported at CIT v. V T Joseph : [1997]225ITR731(Ker) and that of Gujarat High Court at Ahmedabad Mfg. & Calico Printing Co. Ltd. v. CIT : [1982]137ITR616(Guj) . The reliance was also placed on Synco Industries Ltd. v. Dy. CIT . Relying upon decision of Hon'ble Supreme Court in CIT v. B. C. Srinivasa Setty : [1981]128ITR294(SC) , the learned departmental Representative contended that section 80HHC(3), which is a machinery section, comes into play only when enabling section 80HHC(1) applies. It was further contended that proviso to section 80HHC(1) comes into play only when section 80HHQ1) applies. Reliance was placed in the decision of Kerala High Court in CIT v. Sea Pearl Industries : [1999]238ITR542(Ker) . Then the learned departmental Representative took us through para 6.8 and 7.11 of Commissioner (Appeals)'s order. The learned departmental Representative further stated that notices under section 148 were issued for three years preceding the assessment year under appeal on 30-3-1999, i.e., much before passing the order by Commissioner (Appeals) on 11-10-1999, for the year under appeal. Thus, it is pointed out that assessee's contention that in preceding assessment years, identical issues were decided by the department in assessee's favour is factually incorrect. Then the learned departmental Representative took us through sub-clauses (a), (b) and (c) of sub-section 80HHC(3). Relying upon the decision of Hon'ble Supreme Court, in the case of CIT v. Indo Mercantile bank Ltd. : [1959]36ITR1(SC) , the learned departmental Representative stated as under
(a) Proviso carves out an exception out of main enactment.
(b) Proviso cannot be used to interpret the main enactment.
(c) Proviso cannot exclude by implication what the enactment clearly says
(d) Proviso is to be construed harmoniously with the main enactment.
9.1. It was stated that proviso to section 801-IHC(1) quantifies the amount of export profit which cannot be allowed as deduction under section 80HHC(1). It, in other words, quantifies the amount required to be taxed. The learned departmental Representative then took us through the proviso to section 80HHC(1) and contended that there is only limited purpose of the proviso; it does not mean that entire trading turnover goes to supporting manufacturers. It was stated, interpretation has to be the same whether part of trading turnover is disclaimed or full. The learned departmental Representative emphasized that proviso operates when there is profit, it does not operate when there is loss. The learned departmental Representative vehemently argued that loss cannot be ignored (as suggested by the counsel of the assessee) for the purpose of computation of deduction under section 80HHC. The learned departmental Representative stated that under S. 28, profit from one source and loss from other head of business are required to be set off. In other words, intra-head adjustments have to be done. In this regard, the learned departmental Representative placed reliance on the decision of Tribunal Delhi Bench D (SB) in the case of International Research Park Laboratories Ltd. v. Assistant Commissioner (1994) 122 CTR (Delhi) 452 . (1999) 212 ITR 1 as well as on decision of Bombay High Court in CIT v. Jagan Nath Narsingdas : [1965]55ITR128(Bom) and of Hon'ble Supreme Court CIT v. PM. Muthuraman Chettiar & Anr. : [1962]44ITR710(SC) . Replying upon decision of Hon'ble apex court in CIT v. Haiprasad & Co. (P) Ltd. : [1975]99ITR118(SC) , the learned departmental Representative contended that for the purpose of sub-section (3) of section 80HHQ profit includes loss. It was stated that loss is a negative profit and it cannot be ignored. Relying upon CIT v. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1987) 161 ITR 320 , the learned departmental Representative further stated that Chapter VI-A has undergone a thorough change when sections 80HH and 80AB were introduced with effect from 1-4-1968. It was stated that in the assessees case, it is section 80HHC(1)(c) which is applicable and not 80HHC(3)(a). The learned departmental Representative further stated that decisions relied upon by the learned counsel of the assessee are distinguishable in facts. In the end, the learned departmental Representative relied upon the Commissioner (Appeals)'s order.
10. On the other hand, in his rejoinder, the learned counsel of the assessee contended that the claim under section 80HHC is less than business income and gross total income. In this regard, our attention was adverted to pp. 1 and 2 of paper book wherein from the statement of total income, it could be seen that business income has been computed at Rs. 4,39,29,488, gross total income is computed at Rs. 4,39,86,418 and deduction under section 80HHC is claimed at Rs. 3,78,80,936. Thus, accounting to learned counsel, the deduction is allowable as per provisions of section 80AB and the decisions quoted by learned departmental Representative in this regard are irrelevant. Further, distinguishing the decision at (1997) 55 TTJM (Ind) 300 : (1998) 61 ITD 390 (Ind) (supra), the learned counsel pointed out that there was no disclaimer in that case. The learned counsel further relied upon 65 ITR 741 (sic) as well as on (supra) and contended that where there is export profit and domestic loss, the domestic loss has to be ignored and it will not reduce the export profit.
10.1. It is further contended that Special Bench decision of Tribunal relied upon by the learned departmental Representative did not deal with sub-clauses (a), (b) and (c) of section 80HHC(3) as this section was not excising at the relevant time. Moreover, that was not a case of disclaimer. It was further stated that in assessment year 1983-84, there was no provision for supporting manufacturers getting the deduction. Hence, according to learned counsel decision reported at : [1999]238ITR542(Ker) (supra) would not apply.
10.2. The learned counsel further stated it was not a wrong statement when it was said that assessee's claim has been accepted by the department in preceding years. It was pointed out that in the notices under section 148, the reasons for reopening the assessments were not given. It is stated that assessment order under consideration is dated 30-3-1999, and notices under section 148 are also dated 30-3-1999 (served subsequently).
10.3. It was further stated that in the decision reported at : [1997]225ITR731(Ker) (supra), which is relied upon by the learned departmental Representative the gross total income was Rs. 33,108 whereas the claim for deduction under section 80HHC was to the tune of Rs. 2,88,604. It was pointed out that in the instant case, the assessee's gross total income and even business income are much more and hence the aforesaid decision of Kerala High Court is not relevant. Similarly, it is stated that decision of Gujarat High Court : [1982]137ITR616(Guj) (supra) relied upon by the learned departmental Representative is not relevant as section 80HHC and disclaimer were not there in that case.
10.4. The learned counsel referred to para 40.1 of Explanatory Notes of Circular of CBDT No. 636, 31-8-1992 ( (1992) 107 CTR 11, and stated that the Finance Act had amended section 80HHC in order to provide that where the export or trading house disclaims the tax concession in favour of the support manufacturer, the concession to the export of trading house will be reduced by the amount which bears to the total export profits of trading goods the same proportion as the disclaimed export turnover bears to the total export turnover or trading goods. By applying this formula, the learned counsel of the assessee gave the computation, on a separate sheet of paper, of deduction under section 80HHC which worked out to Rs. 3,78,80,937.
10.5. In the end, the learned counsel contended that in view of decision of Hon'ble Supreme Court reported at : [1992]196ITR188(SC) (supra) the incentive provisions must be interpreted in favour of the assessee.
11. We have given our careful consideration to the rival submissions, facts of the case and the decisions quoted by both the sides. As the gross total income as well as the business income in this case is more than the deduction claimed by the assessee under section 80HHC, we are of the opinion that provisions of ss 80AB are not attracted and will not block the assessee's claim under section 80HHC if it is otherwise admissible as per provisions of section 80HHC. The argument of the learned departmental Representative in this regard must, therefore, fail However, now we have to see whether assessee's claim is legally admissible as per provisions of section 80HHC. Not much support can be derived from the decisions quoted by the rival sides as the facts are distinguishable. The learned departmental Representative has shown that the decisions quoted by the learned counsel of the assessee are distinguishable in facts whereas the learned counsel of the assessee has shown that decisions tilted by the learned departmental Representative are not on all fours with the facts of the instant case. The legal issue involved in this case is interesting and without going into the plethora of decisions quoted by both the sides, we express our own opinion on the point at issue emerges as under :
(i) We are inclined to agree with the view of learned Commissioner (Appeals) that principle of res judicata does not apply to income-tax assessments. Thus, the fact that the method followed by the assessee was accepted by the assessing officer in the preceding assessment years is of no consequence. Moreover, the arguments of the learned counsel of the assessee in this regard must fail as the assessing officer realised his mistake and reopened the past three assessments by issue of notices under section 148 simultaneously with completion of assessment for the year under appeal. Hence, it cannot be said that the method followed by the assessee was accepted by the department in the past.
(ii) We are inclined to accept the argument of the learned departmental Representative that the principle of beneficial interpretation has no application in a case where the words of a statute are plain, precise and unambiguous. We accept that in such a case, the well settled principle of interpretation is that statutory provision should be construed according to the plain natural meaning of its language. The learned Commissioner (Appeals) has rightly held that only in such cases where there is any ambiguity of language, the benefit of ambiguity must be given to the assessee in accordance with the ratio laid down by Honble Supreme Court in the case of Bajaj Tempo Ltd. (supra). The learned Commissioner (Appeals) has rightly placed reliance on the decision of Honble Bombay High Court in the case of M.H. Daryanj (supra).
(iii) The assessee being exporter of goods that are self- manufactured as well as the goods manufactured by others, we hold that the provisions of clause (c) of s 80HHC(3) have been rightly applied by revenue authorities. We find that language adopted in clause (c) is very clear and, by its plain reading, it appears that for ascertaining the net profit derived from export business of goods manufactured by the assessee and of trading goods (manufactured by supporting manufacturers), the individual profit from both the activities of the assessee is to be computed in accordance with the formula applicable to the respective activities, though it may be negative or positive, and clubbed with each other for arriving at the resultant profits contemplated in clause (c) of s 80HHC(3). After ascertaining the net profits from the export business of the assessee from both the activities, it shall be further increased as per the proviso given under that sub-section and thereafter a deduction shall be allowed as per sub-section (1) of section 80HHC. We find no force in the argument of the learned counsel that while working out deduction under sub-clauses (i) and (ii) of clause (c) of section 80HHC(3), the negative figure has to be ignored. Thus, we hold that in the instant case, the assessee did not make proper calculations of profit from both the activities and deduction was not properly claimed by it. In our opinion, the assessing officer and Commissioner (Appeals) had properly applied provisions of section 80HHC. Therefore, we hold that deduction under section 80HHC was available on the net result of both the activities.
(iv) We are inclined to accept the argument of the learned departmental Representative that the word 'profit' in the context in which it is mentioned in sub-section (1) of section 80HHC does not include loss. Thus, we are of the opinion that s 80HHC(1) does not apply in assessee's case as the net result of both the activities of the assessee is a negative figure.
(v) As the assessee's case is not covered under section 80HHC(1), we further hold that the proviso to section 80HHC(1) does not apply in assessee's case.
(vi) We find force in the argument of the learned departmental Representative that section 80HHC(1) is the enabling section, whereas section 80HHC(3) is a machinery section which lays down formula for working out 'profit' from each of the activities of the assessee. We accept the arguments of the learned departmental Representative that intra-head adjustments have to be done to arrive at the net result of manufacturing and trading export activities of the assessee.
12. In view of the above findings as well as the legal position, we hold that the revenue authorities have rightly rejected the assessee's claim for deduction under section 80HHC. We do not find any infirmity in the Commissioner (Appeals)'s order and hence. we hold that no interference is called for in the same. The appeal of the assessee, being devoid of merit, fails on this issue.
13. The next two grounds of appeal are as follows:
'The Commissioner (Appeals) also erred in reducing from the claim of the appellant of Rs. 85,81,700 under section 80-IA of the Act in respect of Formulation Unit at Ratlam by reducing therefrom R&D; capital expenditure of Rs. 28,29,355. The appellant submits that deduction under section 80-LA has to be calculated on profit before the said deduction. In any event, the apportionment of capital expenditure of R&D; between the Bulk Drug and the Formulation Division is arbitrary and ad hoc. '
'The Commissioner (Appeals) also erred in confirming the order of the assessing officer in reducing from the claim of the appellant for Formulation Unit sum of Rs. 4,14,932 being the, miscellaneous income derived from the said undertaking as detailed below .
Cash discount
Rs. 83,498
Miscellaneous income (insurance claim. transporters claim, sales-tax refund, etc.)
Rs. 3,31,434
Rs. 4,14,932
14. The assessee had claimed deduction under section 80-IA to the tune of Rs. 85,81,700 in respect of liquid formulations manufactured at Ratlam Unit. As done in the preceding years, the assessing officer held that for working out deduction under section 80-IA, the eligible profit had to be reduced by reducing R&D; capital expenditure of Rs. 28,29,335 from the profits of industrial undertaking. It was stated that assessing officer's action was confirmed by the first appellate authority in the past. As regards the exclusion of miscellaneous income of Rs. 4,14,932 for the above purpose, the assessing officer had not given any basis and in fact in this regard, there is no discussion in the assessment order. The assessee had contended before Commissioner (Appeals) that impugned income is part of business profits of the industrial undertaking and, therefore, the said income cannot be excluded while working out deduction under section 80-IA of the Act.
14.1. Following his own orders for the preceding assessment year, the Commissioner (Appeals) confirmed the action of the assessing officer in reducing the R&D; expenses of Rs. 28,29,335 and excluding miscellaneous income of Rs. 4,14,932 from the profits of industrial undertaking for the purpose of allowing deduction under section 80-1A.
14.2. The learned counsel of the assessee pointed out that there is no claim under section 80-IA for chemical division and the claim is only for Formulation Division. The learned counsel suggested that the matter be restored to the A0 and if the claims relate to only Formulation Division, then only deduction under section 80-IA should be allowed. It was further stated that for holding that miscellaneous income is not part of profit of industrial undertaking, the Commissioner (Appeals) had followed his order for the immediately preceding year.
14.3. On the other hand, the learned departmental Representative relied upon the orders of revenue authorities on the point at issue.
14.4. We have given a careful consideration to the rival submissions and the facts and circumstances of the case. We find that this issue was never raised before Commissioner (Appeals) that there is some confusion whether the matter of deduction under section 80-IA relates to Chemical Division or Formulation Division. From the orders of revenue authorities, there appears to be no such confusion. In fact, on the point at issue, the Commissioner (Appeals) has followed his order for the immediately preceding year. It has not been pointed out to us that Commissioner (Appeals)'s order for assessment year 1995-96 was not accepted by the assessee and an appeal is pending in the Tribunal. We, therefore, hold that no interference is called for in the order of Commissioner (Appeals). The appeal of the assessee, being devoid of merit, fails on this issue as well.
15. In the result, the appeal stands dismissed.