The profit for determining the benefit of deduction under Section 80 HHC has to be a positive profit income and not a loss or negative profit and, therefore, the losses and profits of respective units of the same assessee-company have to be adjusted and if the net result of the same is the positive profit income, then the deduction under Section 80HHC of the Act has to be computed on the basis of such positive profit income only and not otherwise.

1. - The appellant-assessee has filed this appeal under Section 260A of the Income Tax Act, 1961 (for short, hereinafter referred to as 'Act') being aggrieved by the order of learned Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur dated 20.07.2007 for the Assessment Year 2003-04, whereby the learned ITAT following the decision of Hon'ble Supreme Court in the case of Indian Penal Code A Laboratory Ltd. v. Deputy Commissioner of Income-Tax, Mumbai reported in (2004) 266 ITR 521 [SC] : 2004 106 (2) Bom. L.R. 406 (SC) held that the deduction under Section 80HHC (3C) can be allowed only, if there is a positive profit or income and if there is a loss in either of two separate Divisions of business then the loss of one Division has to be adjusted against the profit of the other D.B. Income Tax Appeal No.147/2007 Madhav Marbles & Granites Ltd. v. ACIT, Circle-2, Udaipur division for the purposes of computing the profit for computing of deduction under Section 80HHC of the Act to the extent prescribed under sub-Section (1B) of Section 80HHC of the Act.

2. The assessee, a manufacturer of Granite and Marbles slabs and tiles, during the relevant assessment year 2003-04, has three different units setup. Unit-I is engaged in manufacturing of Granite tiles, while the Unit-II manufactures Granite slabs and Unit-III is again a manufacturer of Marble slabs and tiles. For the assessment year 2003-04 in question, the assessee claimed the income of Rs. 4,37,81,709/- exempt under Section 10B with respect of Unit-II. While in other two units, the assessee claimed deduction under Section 80HHC of Act of Rs. 2,56,46,746/- in the original return, which education claim was revised upwardly to Rs. 3,02,97,098/- during the course of assessment proceedings. The assessee claimed deduction in Revised Return only on the profits on export turnover of Granite division (Unit-I), ignoring the loss on export turnover in respect of Marble division (Unit-III).

3. The Assessing authority disallowed such revised claim of the assessee and held that the loss of Marble Division (Unit-III) has to be first adjusted against the profit of Unit-I engaged in manufacturing of Granite tiles and only net of the positive profit shall be the "profits of business" as defined under Section 80HHC (4C) (baa) of the Act; and therefore, the benefit of deduction under Section 80HHC of the Act, cannot be given to the extent of increased D.B. Income Tax Appeal No.147/2007 Madhav Marbles & Granites Ltd. v. ACIT, Circle-2, Udaipur amount of Rs. 3,02,97,098/-. The assessee took the matter further in the first appeal before the learned Commissioner of Income Tax (Appeals), who however, allowed the claim of the assessee following the decision of Bench of Income Tax Tribunal in the case of Easter Leather Products Pvt. Ltd. v. DCIT reported in (1999) 68 ITD 358 (Del.), in which a Bench of learned ITAT held that for the purpose of computation under Section 80HHC in respect of leather division engaged in export, loss in the engineering division is not required to be merged with the profit of leather division, as the two divisions are independent and maintain separate books; and therefore, they cannot be combined for the purposes of working out the deduction under Section 80HHC of the Act.

4. Being aggrieved by these findings of learned CIT (Appeals), the Revenue went up in the present case in a second appeal before the learned ITAT, who allowed the Revenue's appeal on this issue in terms of Hon'ble Supreme Court decision in the case of Indian Penal Code A Laboratory Ltd. (supra) in the following terms:

"... The short controversy raised before us in this ground is about the setting off of loss in Unit III against the profit of Unit No.1 for the purpose of deduction under section 80 HHC. The ld. A.R. has relied on the order passed by the Delhi Bench of the Tribunal in the case of Easter Leather Products. P. Ltd. v. DCIT [1999] 65 TTJ 603 (Del) as per which the loss in one division