2009 (12) TMI 15 - HC - Income Tax

Allowance for brought forward losses - Claim of deduction u/s 80HH and 80-I - The business income held that The Assessing Officer has to take into account the provisions of Section -71 providing for set off of loss from one head against income from another and Section -72 providing for carry forward and set off of the business loss. Section 32(2) makes provision for carry forward and set off of the unabsorbed depreciation of a particular year. The effect of the above mentioned provisions is that while computing the total income the losses carried forward and depreciation have to be adjusted and thereafter the Assessing Officer has to work out the gross total income of the assessee - . Sub-section (2) of section 80A specifically enacts that the aggregate of deductions under Chapter VI-A should not exceed the gross total income of the assessee. If the gross total income is found to be a net loss on account of the adjustment of losses of the earlier years or nil no deduction under this Chapter can be allowed - Synco Industries Limited 2008 -TMI - 3485 - Supreme court followed

Summary

Issues:
Interpretation of Sections 80-I and 80-HH for deductions and adjustment of brought forward losses.

Analysis:
The appeal under Section 260-A of the Income Tax Act, 1961 was filed by a private limited company against the order passed by the Income Tax Appellate Tribunal relating to the Assessment Year 1987-1988. The company filed an income tax return declaring a loss but claimed deductions under Sections 80 HH and 80-I, which were not allowed by the authorities, leading to the appeal.

The substantial questions of law framed in the appeal revolved around whether the brought forward unabsorbed losses and deficiencies of earlier years should be adjusted against the current year's profits before granting deductions under Sections 80-I and 80-HH. The main issue was whether the deductions could be claimed before allowing for the adjustment of losses.

The interpretation of "Gross Total Income" under Section 80 B(5) was crucial in determining the eligibility for deductions. The Apex Court's decision in the case of Synco Industries Limited clarified that deductions under Chapter VI-A would only be available if the gross total income, after setting off carried forward losses and unabsorbed depreciation, is not "nil". This interpretation was supported by the majority of High Courts.

The Tribunal's decision, based on the authoritative pronouncements of the Apex Court, was upheld by the High Court. The judgment emphasized that deductions under Chapter VI-A are contingent upon the computation of gross total income after adjusting for losses. The Court also highlighted the precedence of the Apex Court's decision in resolving any conflicts among lower court judgments.

In conclusion, the appeal was dismissed as the Court found no merit in the arguments presented by the assessee. The judgment reaffirmed the precedence of interpreting Section 80 B(5) to determine the eligibility for deductions under Sections 80-I and 80-HH, emphasizing the importance of adjusting losses before granting such deductions.