Per Shri Nathu Ram, A.M. - The appeal, preferred by the assessee, is directed against the order of the CIT(Appeals) for the Assessment Year 1992-93.

2. The only ground raised by the assessee is that the learned CIT(Appeals) erred in confirming the disallowance of Rs. 77,42,530 out of the claim of deduction of Rs. 94,97,000 under section 80HHC of the Income-tax Act.

2.1 The facts, in brief, as borne out from the records are that the assessee-company carried on business of manufacture of engineering machinery and manufacture and export of leather garments. Both these business activities were carried out separately as engineering division and leather garment division. Leather division was in Delhi whereas the engineering division was functioning at Sahibabad. The leather division primarily dealt in export of manufacturing and trading leather garments. The assessee-company claimed deduction under section 80HHC of Rs. 94,97,000 and in support the audit report in Form no. 10CCAC had been filed. The Assessing Officer, however, allowed the claim under section 80HHC to the extent of Rs. 17,54,465 only. The Assessing Officer curtailed the claim made under section 80HHC mainly on the following grounds :

(a)The assessee declared profit from export of leather garments at Rs. 94,97,000 and in the engineering division the assessee declared a loss of Rs. 17,92,000. The Assessing Officer adjusted the loss claimed in the engineering division against profits shown in leather garment division from export sales for the purposes of allowing deduction under section 80HHC.

(b)The Assessing Officer noted that sub-section (3A) which prescribes computation of profits derived by supporting manufacturers does not have any clause or proviso thereunder to allow deduction for export incentives earned on the sale of goods made through the trading house. He differentiated the provisions of sub-section (3) and sub-section (3A) to the effect that whereas the former through the proviso allow deduction on account of export incentive but latter does not have similar proviso. The Assessing Officer, therefore, concluded that sub-section (3) relates to only direct exports and export incentives received thereon are to be considered for deduction under section 80HHC only in respect of the direct export business and not on export made through trading house as a supporting manufacturer.

(c)The Assessing Officer in the absence of details furnished adopted the direct export sales of Rs. 1,52,30,851 as representing the trading goods only and the balance export sales consisting of trading goods and manufactured goods were taken as made through the trading house. The Assessing Officer also observed that as the supporting manufacturer the assessee-company is not entitled to deduction under section 80HHC on profit derived on trading export sales through the trading house. The assessee-company was, however, entitled to benefit on the profit derived from manufactured goods export sales made through the trading house.

(d)The Assessing Officer as per the working given in the assessment order computed the profits from business, direct cost, indirect cost on exports, increase of profit on account of export incentives and finally worked out the trading profit at Rs. 22,62,866 and loss from supporting manufacturer exports at Rs. 5,08,401 and adjusting the loss against the profit so worked out he allowed the deduction at Rs. 17,54,465 against the claim made of Rs. 94,97,000 under section 80HHC.

2.2 On appeal, it was contended that exports were made only from the leather garment division and therefore the Assessing Officer was not justified in first setting off the loss of engineering division from the profit of the leather garment division.

2.3 The objection so raised by the assessee was not considered to be well-founded by the CIT(Appeals). According to the CIT(Appeals) section 80HHC(1) speaks of computing the total income of the assessee which means all profits/losses of the entire busin