2007 (7) TMI 225 - HC - Income Tax

Tribunal hold that for computation of profit u/s 80 HHC business profit should be adopted without considering unabsorbed depreciation carried forward SC has held that Sec. 80AB specify that profits as determined for purpose of the Act will apply for determining profits from export business for purposes of deduction u/s 80 HHC hence in determining business profits for deduction u/s 80 HHC unabsorbed business losses of earlier years u/s 72 should be set off tribunal order set aside

Summary

Issues involved:
1. Computation of profit under Section 80 HHC without considering unabsorbed depreciation carried forward from the earlier year.

Detailed Analysis:
The judgment of the Madras High Court dealt with the issue of whether the Income Tax Appellate Tribunal was correct in holding that for the computation of profit under Section 80 HHC, business profit should be adopted without taking into account unabsorbed depreciation carried forward from the earlier year. The case involved assessment years 1993-94 and 1994-95. The assessing officer initially worked out the deduction under Section 80HHC after deducting unabsorbed depreciation carried forward from the earlier year. The Commissioner of Income-tax (Appeals) upheld this method, but the Income-tax Appellate Tribunal allowed the claim of the assessee based on a decision of the Bombay High Court. The Revenue challenged this decision, leading to the present appeals.

The Madras High Court referred to a previous case where it was held that unabsorbed depreciation and unabsorbed investment allowance of earlier years should be set off while computing the profits of business for determining relief under Section 80 HHC. This interpretation was further supported in another case where it was emphasized that both profits and losses in export trades must be considered to determine eligibility for deduction under Section 80 HHC. The court highlighted the importance of Section 80AB, which specifies that profits are those as determined for the purpose of the Act, in determining business profits for the deduction under Section 80 HHC.

The court noted that the Bombay High Court's decision, which previously supported the assessee's position, had been reversed by the Apex Court. The Apex Court clarified that in determining business profits for the deduction under Section 80 HHC, unabsorbed business losses of earlier years should be set off. Therefore, the Madras High Court concluded that the law on the issue was well settled, as per the Apex Court's decision, and ruled in favor of the Revenue, allowing the tax case appeals.