TMI Blog2008 (9) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... y adjust the losses of plain toffee unit arising in AY's 1997-98 and 1998-99, though absorbed in those years against the profits of the year under consideration for computing the deduction allowable u/s. 80-IA of the Act. The brought forward losses for AY's 1997-98 and 1998-99 being higher than the profits for the year under consideration, the assessee is not entitled to any deduction u/s. 80-IA of the Act against the profits of its plain toffee unit. We confirm the order of CIT(A) in this regard. The ground Nos. 2 to 3.1 raised by the assessee are dismissed. Setting off of losses of the trading unit - whether against the profit of bubblegum unit or against the plain toffee unit? - CIT(A) held that the set off of loss of the trading unit against the profits of the bubblegum unit and not against the profits of the plain toffee unit - HELD THAT:- The bubblegum unit enjoys tax holiday u/s 80IA of the IT Act and as such the profits arising in the bubblegum unit are exempt from tax. The profits arising in the plain toffee unit though enjoying tax holiday are not entitled to the deduction claimed u/s. 80IA of the Act in view of our decision hereinabove. The assessee cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66,770 claimed by the appellant. 3. That the CIT(A) erred on facts and in law in confirming the action of the AO in not allowing deduction under s. 80-IA of the Act on the profits derived by the appellant from the plain toffee unit. 3.1 That the CIT(A)/AO erred in holding that the losses of the plain toffee unit suffered in the asst. yrs. 1997-98 and 1998-99, which actually stood absorbed in those years, should first be notionally adjusted against the profits of the year under consideration for computing deduction allowable under s. 80-IA of the Act. 4. That the CIT(A) erred on facts and in law in confirming the set off of loss of the trading unit against the profits of the bubblegum unit and not against the profits of the plain toffee unit. 5. That the CIT(A) erred on facts and in law in confirming the assessment of interest income amounting to ₹ 2,96,816 and miscellaneous income to the extent of ₹ 38,916 of the bubblegum unit under the head 'Income from other sources' against the same being declared as business income by the appellant. 6. That the CIT(A) erred on facts and in law in confirming the denial of deduction under s. 80-IA of the Act on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after the notional adjustment of the losses of asst. yrs. 1997-98 and 1998-99 against the profits for the year under consideration, there was no resultant profit, thus, the assessee was not entitled to any deduction under s. 80-IA of the Act. The CIT(A) confirmed the order of AO. The assessee is aggrieved and has raised the ground Nos. 2 to 3.1 against the computation of deduction allowable under s. 80-IA of the Act. 7. The learned Authorised Representative for the assessee submitted that the issue is covered directly by the judgment of Hon'ble Rajasthan High Court in CIT vs. Mewar Oil General Mills Ltd. (2004) 186 CTR (Raj) 141 : (2004) 271 ITR 311 (Raj), wherein it had been held that losses of earlier years already set off against income of previous year should not be reopened against for computing the deduction under s. 80-IA of the Act. The learned Authorised Representative pointed out that there is no merit in denying the deduction under s. 80-IA in respect of profits of plain toffee unit by notionally adjusting the absorbed losses relating to the earlier assessment years by invoking the provisions of sub-s. (5) of that section. The learned Authorised Representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision. The plea of the learned Authorised Representative for the assessee was that the issue before the Special Bench was squarely covered in favour of the assessee by the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Mewar Oil General Mills Ltd. 9. The learned Departmental Representative for the Revenue submitted that the issue in the present case is squarely covered by the decision of Special Bench in the case of Asstt. CIT vs. Gold Mine Shares Finance (P) Ltd. which in turn had referred to the judgment of Rajasthan High Court in CIT vs. Mewar Oil General Mills Ltd. 10. We have heard the rival submissions and perused the records. The assessee was an intervenor before the Special Bench in Asstt. CIT vs. Gold Mine Shares Finance (P) Ltd. The issue before the Special Bench was as under: Whether in view of the provisions of s. 80-IA(5) of the IT Act, 1961, the profit from the eligible business for the purpose of deduction under s. 80-IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Supreme Court decisions on the High Court, Tribunal and others. The learned Authorised Representative had also relied on the decision of Special Bench of Delhi Tribunal in Pearl Polymers Ltd., wherein it was held that if subsequent to Special Bench there is some decision of the High Court or the Supreme Court, then Division Bench would be at liberty to take an independent view. The said decision is applicable in case there are any subsequent decisions of the High Court or Supreme Court after the Special Bench decision. In the facts of the present case before us the Special Bench has referred to the decision of Rajasthan High Court in Mewar Oil General Mills Ltd. and has held that even where no losses of the eligible unit are carried forward after being set off against profits of that source in the year itself, it is the mandate of law that such losses of earlier years though already adjusted are once again to be notionally brought forward and set off against profits of the eligible unit, while computing deduction under s. 80-IA of the Act. 13. In line with the ratio laid down by the Special Bench in Asstt. CIT vs. Gold Mine Shares Finance P. Ltd., we uphold the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 6,58,38,079. The profit of plain toffee unit was adjusted against the brought forward losses of the unit itself. The taxable income was determined at ₹ 8,20,899. The CIT(A) upheld the order of AO. 16. The learned Authorised Representative for the assessee stated that the limited issue was that in that absence of any provision in the Act, the option was with the assessee to adjust its losses from its trading against the profits from the unit of its choice. The learned Authorised Representative further stated that the losses from trading unit were to be adjusted against the profits from plain toffee unit and not against the profits from bubblegum unit The learned Departmental Representative admitted that there were no specific provisions for set off of losses against business profits and s. 80AB of the Act provides that the deductions under Chapter VI-A are to be allowed against the gross total income. The learned Departmental Representative placed reliance on the order of CIT(A). 17. We have heard the rival submissions and perused the records. Under s. 28 of the IT Act profits and gains of a business carried on by the assessee during the year are includible as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,816 The details of miscellaneous income amounting to ₹ 38,916 are as under: Interest on late payment from customers Rs. 19,837 Interest received from employees Rs. 19,079 Total ₹ 38,916 19. The AO was of the view that the said income does not qualify for the benefit under s. 80-IA of the Act, as these are not derived from the industrial undertaking, though they are attributal,1e to the industrial undertaking. Reliance was placed on the decision of Hon'ble Supreme Court in CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) and Ashok Leyland Ltd. vs. CIT (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC) by the AO. Accordingly, he recomputed the deduction under s. 80-IA of the Act by excluding the other income from the profits of the business eligible for the said deduction. The CIT(A) upheld the order of AO. 20. The learned Authorised Representative for the assessee submitted that the interest received on employees loan is assessable as business income following the ratio laid down by Delhi Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be allowable in respect of all incidental activities l1l1dertaken till the delivery of manufacturer goods was affected. 25. In the facts of the present case the miscellaneous income received by the assessee comprises of interest on late payments, received from the customers and also interest received from the employees. The interest income includes the interest on employee loan and bank interest. The interest received on employees loan and on late payment from customers being linked to the business of the industrial undertaking and being included as business income was eligible for the benefit of deduction under s. 80-IA of the Act. following the ratio laid down by Delhi High Court in CIT vs. Eltek SGS (P) Ltd. The provisions of 80-IA and 80-IB are similar. The judgment of apex Court relied upon by AO is regarding deduction under s. 80HH of the IT Act. The interest income received by the assessee from bank is not eligible for the said deduction under s. 80-IA of the Act. Thus. the ground Nos. 5 and 6 are partly allowed and ground No. 7 is allowed. 26. The issue in ground Nos. 8 and 9 is regarding charging of interest under s. 234B of the Act and withdrawal of interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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