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2006 (4) TMI 346 - AT - Income TaxDeduction u/s 80-IA - Method of accounting - whether section 145A would authorize the increase in valuation of closing stock by MODVAT - HELD THAT:- Opening stock being closing stock of previous year has been arrived on the basis of a method of accounting, in which excise duty/Modvat credit is not included while valuing the inventory, sale and purchase. They are separately accounted for, but in a changed method of accounting imposed by section 145A, such Modvat credit has to be included. Thus, opening stock will not be disturbed whereas purchases, sales and closing stock will have to be disturbed by including Modvat credit. It was submitted before the Assessing Officer that purchases have also been debited in the P/L Account. Before us also it was argued that if cess/excise duty/sales tax etc. are added into purchases, sales and closing stock then net result would be nil. We, therefore, restore this issue to the file of Assessing Officer to re-cast trading account after including cess/excise duty/sales tax in the purchases/sales and closing stock (but not in the opening stock which shall not be disturbed as discussed) and work out the addition if any, to the total income. Therefore this issue is allowed for statistical purposes only. Deduction under sections 80HHC and 80-IA together - HELD THAT:- In our considered view, and as per the language used in section 80-IA(9A), the deduction allowed u/s 80-IA will not be allowed as further deduction under other sections 80HH to 80RRA. This means that deduction u/s 80HHC will be worked out independently, without reducing the ‘business profits’ by the deduction under section 80-IA. That is, effect of deduction u/s 80-IA will be given after applying the formula and working out deduction u/s 80HHC. This is clear from the language of section 80-IA(9A) that "Any amount of profits and gains........ allowed as deduction u/s 80-IA, shall not be allowed as deduction under other sections (from 80HH to 80RRA)." So deduction u/s 80HHC has to be calculated independently and then effect of section 80-IA(9A) has to be given. Where deduction u/s 80HHC is more than the deduction u/s 80-IA, the figure of deduction u/s 80-IA will be reduced from the deduction u/s 80HHC. The balance will be the deduction u/s 80HHC. Where deduction u/s 80-IA is more than the deduction u/s 80HHC calculated for the unit, then no deduction u/s 80HHC will be separately allowed. From this it follows that, in a case where both the deductions are available to an assessee, then higher of the two will be allowed. The upper limit of the deductions under sections 80HH to 80RRA has also been laid down u/s 80-IA(9A). Where it is said that in no case the deductions shall exceed, the profits and gains of the undertaking. Thus in no case deduction u/s 80-IA and other sections from 80HH to 80RRA will exceed 100% of the profits of the undertaking. We find that the steps at 1, 2 and 3(a ) suggested by CIT(A), in his order and reproduced are correct. but for the purpose of computing deductions under other sections such as 80HHC, no effect of deduction u/s 80-IA will be given but after computing deduction u/s 80HHC, the capping will be done as suggested above in our final conclusions. As a result the order of CIT(A) is modified as indicated above. Appeal of the assessee is allowed partly on this ground - Finally, the appeal of the assessee is allowed partly.
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