Retrospective amendment and accounts-based disallowance required fresh reconsideration of section 80HHC and section 14A claims.

A supporting manufacturer's deduction claim under section 80HHC had to be reconsidered where the earlier basis for denial no longer survived after the retrospective amendment and the export house's deduction position was altered; the matter was remitted for recomputation in accordance with law. The ad hoc disallowance under section 14A also could not be sustained mechanically for a year predating Rule 8D, because the disallowance had to be worked out on a reasonable, accounts-based examination after giving the assessee due opportunity. Both issues were restored to the Assessing Officer for fresh adjudication, and the appeal was allowed for statistical purposes.

---

---

Issues: (i) Whether a supporting manufacturer was entitled to deduction under section 80HHC on turnover covered by a disclaimer certificate when the export house's deduction position had changed after the retrospective amendment to section 80HHC. (ii) Whether the ad hoc disallowance under section 14A required reconsideration in light of the pre-Rule 8D regime.

Issue (i): Whether a supporting manufacturer was entitled to deduction under section 80HHC on turnover covered by a disclaimer certificate when the export house's deduction position had changed after the retrospective amendment to section 80HHC.

Analysis: The claim of the supporting manufacturer was examined in the light of the disclaimer certificate issued by the export house, the retrospective insertion of the fifth proviso to section 80HHC(3), and the subsequent allowability of deduction in the hands of the export house. The earlier basis for denial, founded on the export house's alleged net loss and the application of IPCA Laboratories, was no longer decisive once the export house's deduction was allowed after considering the amended statutory position. The supporting manufacturer's eligibility was therefore required to be examined afresh on the altered legal footing.

Conclusion: The issue was remitted to the Assessing Officer for recomputation of deduction under section 80HHC in accordance with law.

Issue (ii): Whether the ad hoc disallowance under section 14A required reconsideration in light of the pre-Rule 8D regime.

Analysis: The assessment year was prior to the introduction of Rule 8D, and disallowance under section 14A could not rest on a mechanical lump-sum estimate without regard to the accounts. The correct approach was a reasonable determination based on the assessee's records and the mandate of section 14A(2), with proper opportunity to the assessee. The matter therefore warranted fresh examination rather than confirmation of the ad hoc figure.

Conclusion: The issue was restored to the Assessing Officer for a fresh working of the disallowance under section 14A.

Final Conclusion: The common order did not finally determine the tax liability on either issue and instead directed fresh adjudication and recomputation, with the appeals treated as allowed for statistical purposes.

Ratio Decidendi: A supporting manufacturer's deduction under section 80HHC must be reconsidered where the legal basis for denial disappears after a retrospective statutory amendment and corresponding allowability in the export house's hands, and a pre-Rule 8D disallowance under section 14A must be made on a reasonable, accounts-based determination.

---