IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.04.2009 CORAM: THE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIAN AND THE HON'BLE MR.JUSTICE M.M.SUNDRESH T.C.(A)NO.1504 OF 2008 M/s Universal Cold Storage Limited ...Appellant Vs. The Deputy Commissioner of Income Tax, Company Circle III(3) Chennai600034. ...Respondent Tax Case Appeal filed against the order of the Income Tax Appellate Tribunal, "B: Bench, Chennai dated 22nd February, 2006 in ITA.1725/(Mds)/04 against the order dated 16.3.2004 of Commissioner of Income Tax (Appeals) III, Chennai, 34 against the order dated 27.3.2003 in GIR.No.PAN 33095 U/AAACO 0757D by Assistant Commissioner of Income Tax, Company Circle III (3) Chennai 34. For Appellant :Mr.J.Balachandran For Respondent: Mrs.Pushya Sitaraman Senior Standing Counsel for Income Tax. ---- J U D G M E N T (Order of the Court was made by K.RAVIRAJA PANDIAN,J) The correctness of the order of the Tribunal dated 22.2.2006 is put in issue in this appeal by the assessee by formulating the questions of law as follows: "1.Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the appellant is not entitled to deduction Under 80HHC without giving an opportunity to the appellant? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether the Tribunal is correct in confirming the order of the respondent with reference to the computation of deduction under Section 80HHC even though the Appellant had exported directly and also exported through certain export houses falling within the ambit of sub-section (3A) of the Act"?. 2. The assessee is a company incorporated under the Companies Act . The assessee is engaged in the business of sea foods export. The relevant assessment year is 2000-2001 and the corresponding previous year ended is as on 31.3.2000. For the above assessment years, the assessee filed a return admitting 'NIL' income after claiming deduction u/s 80HHC. The return was processed under Section 143(1) and subsequently it was taken up for scrutiny assessment. While completing the assessment,the Assessing Officer held that the assessee is not eligible for claiming deduction under Section 80 HHC. According to him after setting of the loss as computed under clause (a) of sub-Section (3) against the profits computed under the proviso to sub-Section (3), has resulted in a negative figure and as such the deduction under Section 80 HHC was withdrawn. On appeal before the Income Tax Commissioner (Appeals), it was submitted that the loss computed under clause (a) of sub-section (3) has to be ignored and the deduction under 80 HHC has to be granted in its entirety on the profits computed under proviso to sub-Section (3). Accepting the same, the Commissioner of Income Tax(Appeals) allowed the appeal by holding that while computing deduction under Section 80HHC the loss has to be ignored. Aggrieved over the same, the Revenue has preferred a second appeal before the Tribunal by contending that as per explanation(baa), 90% of export incentives has to be excluded, if that is done, the profits would result in a negative figure and as such the assessee would not be eligible for deduction under Section 80 HHC. The Tribunal decided the matter in favour of the revenue. The correctness is canvassed in this appeal by formulating the above questions of law. 3. Learned counsel for the appellant strenuously argued that the assessee was not given an opportunity to put forth his case before the Tribunal and the matter requires to be remitted to the Assessing Officer so as to re-compute the deduction. He further contended that there is no loss, if deduction is properly computed. It is only a profit earning concern and as such he is entitled to the benefit under Section 80 HHC. 4. On the contrary, learned counsel for the Revenue has submitted that as seen from the orders of the lower authorities, the profit is only negative figure and in such circumstance, the decision of the Supreme Court would definitely come into play. https://hcservices.ecourts.gov.in/hcservices/ 5. We have heard the contentions of both sides and perused the materials available on record. We are of the view that it would be useful to extract the relevant portion of the Commissioner(Appeals) which reads as follows: "3.1 The next ground is regarding computation of deduction u/s 80HHC. The AO found that the appellant has claimed deduction u/s 80 HHC as under:- Profit as per Profit and Loss Account Rs.86.68.070 ADD: Disallowances u/s 28 to 44 D Provident Fund Disallowed : Rs. 4,92,707 Export Duty Payable : Rs. 35,19,382 Donation and Pooja Expenses : Rs. 3,14,69 Gratuity Provision : Rs. 2,27,865 Rs.45,54,652 Rs.132,22,722 Less 90% of their income included in P & L A/c Rs.895,05,435 Profit under the head profits and gains from business and profession Rs.762.82.713(-) 80 HHC on direct export turnover - 80 HHC on indirect export turnover - 80 HHC on DEPB income - (8.69.84026 x 43.12.77.378/79.80.93.324) Rs.470.04.832 The profit of the business as per explanation (baa) to sec.80HHC for the year comes to Rs.(-) 7,62,82,713/-. The appellant ignored this negative figure and treated it as nil and claimed deduction u/s 80HHC on DEPB income at Rs.4,70,04,832/-." 6. Before the Tribunal, the solitary issue raised was that the Commissioner of Income Tax erred in holding that relief under Section 80-HHC should be allowed to the assessee by ignoring the loss in the export business and that the relief u/s 80HHC should be allowed on export incentives only. It is true that the appellant was not heard while passing the order by the Tribunal but it is not the mistake of the Tribunal. The Tribunal has recorded a finding that despite the notice was issued, none was present on behalf of the assessee. From that finding, it is clear that it is the assessee who had not availed the opportunity. The Tribunal thereafter proceeded to adjudicate the matter on merit, after hearing the department and on that basis, the matter was decided by the Tribunal on merits, as the issue is squarely covered by the decision of the Supreme Court in IPCA Laboratories Vs. Deputy Commissioner of Income Tax reported in (2004) 266 ITR 521 wherein after considering the provision of Section 80HHC of https://hcservices.ecourts.gov.in/hcservices/ Income-tax Act the Supreme Court held that undoubtedly Section 80HHC has been incorporated in the Income-tax Act, 1961, with a view to providing incentive for earning foreign exchange. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of the Section. If the wording of the section is clear, then benefits which are not available cannot be conferred by ignoring or misinterpreting words in the section. 7. A plain reading of section 80HHC makes it clear that in arriving at profits earned from export of both self manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under Section 80HHC(1). If there is a loss the assessee would not be entitled to deduction. The word "profit" in sub-sections (1) and 3(a) and (b) of Section 80HHC means a positive profit. In other words, if there is a loss then no deduction would be available under sub-section (1) or sub-section (3)(a) or sub-section 3(b). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to deduction; if the net figure is a loss then the assessee will not be entitled to deduction. Circular No.636 dated August 31, 1992 of the Central Board nowhere provides for negative profits. It also shows that only positive profits can be considered for purposes of deduction under Section 80HHC. 8.In view of the above, we do not find any merit in this appeal. The tax case appeal is dismissed. No costs. VJY Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar To 1.The Income Tax Appellate Tribunal, 'B' Bench, Chennai 90. 2.The Commissioner of Income Tax Appeals III, Chennai 34. 3.The Assistant Commissioner of Income Tax, Company Circle III(3), Chennai 34. + 1 cc to Mrs. Pushya Sitaraman, Advocate SR No.12899 KA(CO) SR/21.4.2009 T.C.NO.1504 OF 2008 https://hcservices.ecourts.gov.in/hcservices/