TMI Blog2008 (4) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation are set off against any income, under the provisions of the Act there was no provision for notionally carrying forward such absorbed losses. It was so held by the decision of the Supreme Court in Patiala Floor Mills Co. (P.) Ltd. But after insertion in 1980 of the non obstante clause like sub-section (6) in section 80-I and subsequently in sub-section (5) in section 80-IA, it is to be assumed for the purposes of determination of quantum of tax holiday deduction that the eligible business was and is the only source throughout and therefore the question of intra-heads or inter-heads does not arise and consequently one has to assume the unabsorbed depreciation or loss were not set of and have to be notionally bringing forward for setting of the same against the profits of the eligible undertaking for computing deduction under section 80-IA of the Act. There is also no force in the submission that a plain and simple interpretation of sub-section (5) of section 80-IA of the Act nowhere states that losses of the eligible undertaking shall be notionally carried forward to the subsequent year(s) and adjusted against the profits in subsequent year(s) despite the fact that losse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see are pooled together and taxed in the hands of the assessee, if we keep in mind that the object of the fiction is only for determining the quantum of deduction and nothing beyond and therefore one cannot decry an assumption of multiple assessments for the same assessee owning numerous eligible units, by treating each eligible unit as a separate assessee. The mandate to carry forward of losses/depreciation notionally has to be read into sub-section (5) of section 80-IA of the Act by very nature of the language therein and the same would not amount to reading words in the provision or ignoring the settled law that no words could be added or subtracted on ground of legislative intendment or otherwise: V.V.S. Sugars v. Government of AP [ 1999 (4) TMI 519 - SUPREME COURT] (Constitution Bench); Vikrant Tyres Ltd v. First ITO [ 2001 (2) TMI 129 - SUPREME COURT] . In our opinion the only harmonious construction of section 80-IA(5), consistent with the object in allowing deduction only to profits and gains of the eligible business would be that- (a) the deduction under that section would be computed with reference to profits of the eligible unit, unaffected by losses suffered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the cleavage of opinion between the Benches of Tribunal viz., Mumbai and Kolkata the President, Income Tax Appellate Tribunal, has constituted this Special Bench for considering the following issue: Whether in view of the provisions of Section 80IA(5) of the Income Tax Act, 1961, the profit from the eligible business for the purpose of deduction Under Section 80IA 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 years. 2. The decision of the Tribunal, Bombay Benches, in the case of M. Pallonji Co. Pvt. Ltd. v. JCIT 105 TTJ 136 (Bom.) is in favour of the assessee and it held that unabsorbed depreciation of eligible project could not be set off against profit of eligible business for the purposes of deduction Under Section 80IA which unabsorbed depreciation stood already adjusted against profits of assessee from other business. Whereas, another Bench of the Tribunal in ACIT v. Ashok Alco Chem Ltd. 96 ITD 160 (Mum.) is stated to have held against the assessee by observing that for the purpose of applying the provisions conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources. In the return of income for A.Y. 1996-97 the assessee set off the depreciation against other income leaving thereby a balance unabsorbed depreciation at Rs. 9,89,675. A note No. 4 was attached stating: The assessee is entitled to get deduction/benefit Under Section 80IA in respect of income derived by it from undertaking engaged in generation distribution of power. During previous year income derived from said power generation unit has been set off against claim of depreciation Under Section 32(1) hence amount deductible Under Section 80IA is NIL. 5. In the return of income for A.Y. 1997-98, the assessee has claimed deduction Under Section 80IA on power generation income of Rs. 6,40,296/- restricted to gross total income of Rs. 1,59,865 representing Dividend income (business income being Rs. 5,66,219 but set off against unabsorbed depreciation of Rs. 9,89,675, balance Rs. 4,23,456 still carried forward). In subsequent years the method was repeated. 6. Thus in all the Assessment years. 1997-98 to 2000-01 the assessee company claimed deduction Under Section 80IA on the basis of the profits earned in the respective year subject to the maximum of gross total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interpretation and inference about legislative intent for introducing the clause as if such eligible business were the only source of income . It will denoted from various decisions that for computation of deductions based on profits and gains of the IU, various disputes arose. The Deptt. sought to set off losses of other business, loss of other priority industry, unabsorbed depreciation and loss of other business, unabsorbed depreciation and the loss of the concerned IU and loss and depreciation already set off against other income in earlier years to set off against IU's current profit, whereas the assessee took the view that the carried forward losses and depreciation of IU is to be set off against other business of the assessee and then against the profit of the IU. The fiction seems to have been introduced to set at rest these sort of controversies. The fiction also appears to have been created so that the profit of such IU could not be artificially increased or decreased like in the case of deduction Under Section 80J being based on proportion of turnover. It is significant to note that the Sub-section 80IA(7) has not used the fiction or as if the past years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking or the business of a hotel to which this section applied, effect shall first be given to the provisions of this section. In this section, phrase used is deduction Under Section 80I of Section 803 in relation to profits and gains of an IU . It shows that profit and gain of an IU for 80I, 803 and 80HH are not different but has to be the same. If legal fiction as if only source of business is interpreted to permit carried forward and set off of already absorbed loss and depreciation, the profit for 803 and 80HH would be different than for the purpose of Section 80IA. That is for Section 80HH and 803 absorbed loss and depreciation of earlier years would not be set off from current year's profit, whereas it will be artificially set off for Section 80IA. Logically this would not be the intention of the legislative. 10.2.3 As is mentioned by the AR, the Circular No. 657 intended to give benefit to energy sector. The Act allowed 100% depreciation and also exemption of 100% profit from tax for first five years. If the interpretation of the AO is accepted the very objective of incentive is defeated. As is revealed by the statistics of the income generation by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntageous to those assessee who do not have any source of income other than the eligible business. Further, even if the assessee does not have real profits from other activities to set off against the loss of eligible business, then the assessee may buy bogus profits to set off the loss of eligible business so that in the subsequent year the assessee is entitled to 100% deduction Under Section 80IA. It may be mentioned that in this case the assessee has shown exceptionally higher profits of Rs. 96.57 lakhs from share activity in A.Y. 1996-97 as against normal share income of Rs. 25 lakhs shown in A.Y. 1995-96 Rs. 2 lakhs in A.Y. 1997-98. Since the deduction Under Section 80IA is allowable only to an eligible business and not to an assessee, the earlier year loss of the eligible business, even though set off against other type of income in that year has to be set off against the subsequent year income of the eligible business. The following example illustrates the position: 'A' has only activity of eligible business Yr. No. 1st year 2nd year Profit/loss Loss of Rs. 1.5 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the other hand is that the fiction is for that year alone because the concept of initial year is dispensed with in the new provision and in that connection he referred to Section 80IA(1) of the old provision and 80(IA)(2)(iv)(b), Sub sections (5), (6), and (7). He relied upon the decision of Chennai Bench in the case of Mohan Breweries Distilleries Ltd. 114 TTJ 532(Chennai) and submitted that the fiction of the only source is not sacrosanct as it was not applied to all the years of the undertaking but only for the years in which the deduction was claimed. 13. He further submitted that the object of this section, was not that Section 32(2), 70, 71 and 72 would not be applicable and consequently even if an adjustment had been, it has to be assumed not so adjusted or set off, but it is to clarify that the deduction is to be granted only with respect of the profits of the eligible business, if the assessee was carrying many activities and having many sources of income. The argument is that if the loss incurred by the assessee were set off and adjusted against profits of the earlier year, there is no mandate in the section to presume that it should be notionally carry forward a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or a ship or the business of a hotel or the business of repair to ocean going vessels or other powered craft were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. 16. Notes on Clause explaining the scope of Sub-section (6), as appears in ITR 123 ITR 126(Statute) reads as under: Sub-section (6) provides that for the purpose of computing the deduction at the specified percentage for the assessment year immediately succeeding the initial assessment year and any subsequent assessment year, the profits and gains will be computed as if such business were the only source of income of the assessee in all the assessment years for which the deduction at the specified percentage under this section is available. 17. Memorandum explaining provisions dealing with Section 80I, as contained in Clause-30, appeared at Page No. 154 of Volume 123 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to a percentage mentioned in Sub-section (5) of the profits and gains derived from such business for a number of years specified in Sub-section (6). 20. Sub-section (7) of Section 80IA of the Act reads as under: (7) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of Sub-section (1) apply shall, for the purposes of determining the quantum of deduction under Sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. 21. The provisions of Section 80IA were then divided in two parts by Finance Act, 1999 w.e.f. 1-4-2000- one, by the replaced 80IA and other, by the newly inserted Section 80IB. For material p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urth, the fiction is created for the purposes of determining the quantum of deduction; and V) fifth, the fiction is for all the years eligible for the. 25. As regards first sub-head it may be noticed that Section 80IA deduction is admissible in respect of profits and gains derived by eligible business which is included in the Gross Total Income. The Gross Total Income is defined in Sub-section (5) of Section 80B to mean the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A of the Act. It follows, therefore, as held by the Supreme Court in the case of Synco Industries Ltd. (supra), that deductions under Chapter VI-A can be given only if the Gross Total Income is positive and not negative. If the Gross Total Income of the assessee is determined as nil then there is no question of any deduction being allowed under Chapter VI-A in computing the total income. Assessing Officer has to take into account the provisions of Section 71providing for set off of loss from one had against income from another and Section 72 providing for carry forward and set off of business losses. Section 32(2) makes provision for carry for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting losses etc., and if the Gross Total Income so determined is positive then the question of allowing deductions under Chapter VI-A arises, but not otherwise. 27. Referring to provisions of Section 80-I(6), Court observed that while computing quantum of deduction, Assessing Officer no-doubt has to treating the profit derived from an industrial undertaking as the only source of income in order to arrive at the deductions under Chapter VI-A. However, non-obstante clause appearing in Section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the Gross Total Income under Section 80B(5) which is also referred to in Section 80-I(6) is required to be computed in the manner provided under the Act, which presupposes that the gross total income shall be arrived at after adjusting loss of other division against the profits derived from an industrial undertaking. 28. The second sub-head is emanating from the provisions Section 80IA(7)/80IA(5) which starts with non obstante clause reading as Notwithstanding anything contained in any provisions of the Act . It means it overrides all the provisions of the Act. Profits and gains of a business are determined, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 31. It is implicit from the tenor and phraseology implied in Section 80IA(5) that in substance, a legal fiction is created by which the eligible business has been treated as the only source of income. In construe this legal fiction it will be proper and necessary to assume all those facts on which alone the fiction can operate, so, necessarily, all the provisions in the Act in respect of a source of income will apply. As a consequence, the other sources of income of an assessee/undertaking would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the illegible business which could not be set off against the loss of the illegible business itself has to be carried forward or set off of the profits of the very source of illegible business in the subsequent year. 32. The contention on behalf of the assessee that the object of this section, was not that Section 32(2), 70, 71 and 72would not be applicable, in our opinion, has also no force. It amounts to permit your imagination to boggle when it comes to the inevitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the eligible business of any year can be taken into consideration; nor the earlier years' losses of the eligible business can be ignored in computing the profit and gains to determine the quantum of the deduction under this section. Losses of the eligible business are to be set off only against the subsequent years' income of the eligible business, even though these were set off against other income of the assessee in that earlier year. It is evident from and so understood and clarified by, the Notes on Clause and the Memorandum Explaining the Provisions of the Finance Bill as adopted by the CBDT circular aforesaid. The proposition is also recognized by various judgments. Delhi High court in CIT v. Dewan Kraft System (P) Ltd. 210 CTR 124 (Del) held that in view of overriding provisions of Sub-section (7) of Section 80I. for the purpose of determining the quantum of deduction under Section 80-IA, the profits and gains of the eligible unit are to be computed as if such eligible business is the only source of income of the assessee and that Assessing Officer adjusting the profits of the eligible unit against the losses of other units of the assessee and restricting the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see from other sources. In this view of the 'situation, the AO had rightly denied the deduction under Section 80-IA in respect of these units, there being a loss in respect of the said unit as computed within the meaning of Section 80-IA(7). The cases of CIT v. Patiala Flour Mills Co. (P) Ltd. (1978)115 ITR 640 (SC) distinguished. 36. Similarly in Prasad Productions (P) Ltd. v. DCIT. 98 ITD 212 (Chennai) the Tribunal held that Section 80I(6) is a non obstante clause which creates a legal fiction providing that the profits and gains of the new industrial undertaking are to be computed as if the new industrial undertaking were the only business of the assessee from the date of its establishment, and the past years' depreciation and losses are to be set off against the income of the assessee from that undertaking for determining its profits and gains; that therefore, new industrial undertaking is retrospectively quarantined or isolated from other income-producing activity of the assessee for determining profits and gains for the purpose of deduction under Section 80I; and hence, order passed by the AO allowing deduction under Section 80-I without setting off unabsorbed loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther losses or allowances or deductions relating to some sources of income other than the eligible business. The language of Section 80-IA(7) itself showed that there was no scope for a setting off or adjustment of expenses, deductions, losses, earlier years losses or unabsorbed depreciation, etc. arising out of other business activities or related to the other sources of income of the assessee against profits and gains of eligible business to which Section 80-IA applies before the provisions of Section 80-IA were applied.... Consequently, the deductions, expenses and losses, etc., and the unabsorbed losses, unabsorbed depreciation, etc., relating to other non-eligible business or any other source of income cannot be taken into account in computing the gross total income for the purpose of computing the quantum of deduction admissible under Section 80-IA. 39. We concur and are in full agreement with these decisions and hold that, that is the correct interpretation of the Section 80IA(5) of the Act 40. The CIT(A) in our opinion erred in following the decision of Calcutta High Court in the case of Balmer Lawrie Co. Ltd. (supra) which was rendered in connection with the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the word 'initial year' means the year in which the manufacture or production or other activity begins. In the decision of Chennai Bench in Mohan breweries Distillers Ltd. (supra) what is decided is that the deduction is allowed Under Section 80IA for 10 out of 15 years at the option of the assessee which means any ten years not necessarily the beginning 10 years. This case has no relevance in deciding the issue in this case of the assessee because the assessee itself had claimed deduction in the returns starting from the first years. It also does not through any light in construing the provision on the ground that the concept of initial year is dispensed with. It only could mean that the operation of the section starts from the year the deduction is first claimed and the immediately succeeding the initial assessment year or in subsequent assessment year. 42. The fourth sub-head for our consideration is that the provision overrides all other provisions of the Act only for computing profit and gains of the eligible business for the determining the quantum of deduction under the section. This restricts the application of the fiction to a specified purpose and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits from a priority undertaking. While computing the quantum of deduction under Section 80-I(6) of the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. However, the non obstante clause in Section 80-I(6)is applicable only to the quantum of deduction, whereas, the gross total income under Section 80IB(5) which is also referred to in Section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. To say that under Section 80-I(6) the profits derived from one industrial undertaking cannot be set off against the loss suffered from another and that the profit is required to be computed as if the profits making industrial undertaking was the only source of income would almost render the provisions of Section 80A(2) of the Act nugatory. Sections 40A(2) and 80B(5)are declaratory and apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas, the gross total income under Section 80B(5) which is also referred to in Section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking If the interpretation as suggested by the appellant is accepted it would almost render the provisions of Section 80A(2) of the Act nugatory and, therefore, the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under Section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because Sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, Section 80A(2) and Section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore, the non-obstante clause in section80-I(6) cannot-restrict the operation of Sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 by taking the assumption that there was no other source of income. Then for allowing deduction the Court held that it is to be subjected to the provisions of Section 80A(2) and 80B(5) and allowed deduction only of that amount of Rs. 30 which is equivalent to the gross total income of the assessee. These sections, 80A(2) and 80B(5) are not the provisions for determining the quantum of deduction Under Section 80IA. They are for admissibility of the deduction under the Act after computation is made under the respective sections. The Court made it clear and observed: However, the non obstante clause is applicable only to the quantum of deduction whereas the gross total income under Section 80B(5), which is also referred to in Section 80-I(1), is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at by adjusting the losses of the oil division against the profits of the chemical division.... It may also be mentioned that under Section 80-I(6), for the purposes of calculating the deduction, the loss of the oil division cannot be taken into account because Sub-section (6) contemplates that only the profits, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in accordance with the Act, should include profits and gains attributable to the business or the industry mentioned in Section 80E without taking into account the provisions of Section 80E and lastly, from the profits and gains attributable to such business, a deduction has to be allowed of an amount equal to eight per cent, of the profits and effect must be given to that deduction when computing the total income of the company. The Supreme Court held further that the object of Section 80E was properly served only by confining the application of that section to the profits of a single industry. In our view, the controversy before this Court in the present case was not the controversy before the Supreme Court in the case of Canara Workshops (P.) Ltd. [1986] 161 ITR 320. Under Section 80-I(6), the profits of the chemical division are required to be treated as if they were the only source of income. That the losses from the oil division are required to be ignored. That, while calculating the quantum of deduction, the profits of the chemical division alone are to be taken. Up to this stage, there is no dispute. However, after calculating the deduction on the basis that the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nabsorbed depreciation pertaining to the wind mill project relating to the earlier assessment year and notionally bring the same to the account of the impugned assessment year and setting off against the profit of the wind mill project for the impugned assessment year. Such a notional adjustment is not called for and not contemplated in the claim of deduction provided in Section 80-IA. As the entire 100 per cent depreciation claimed by the assessee for the earlier asst. yr. 1996-97 has already been set off against the income from business for the said assessment year, there remains nothing to be brought forward to the account of the impugned asst yr. 1997-98, Therefore, the claim of the assessee has to be allowed by the assessing authority on the basis of the profit of the wind mill project for the impugned assessment year not fettered by any notional amount of unabsorbed depreciation pertaining to the preceding assessment year . The cases of Indian Transformers Ltd. v. CIT and CIT v. L.M. Van Moppes Diamond Tools India Ltd. were applied. 48. There is no discussion at all either in this case or the cases relied therein of kerala and Madras High Courts regarding the fiction as cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA(5) provides that the eligible unit claiming deduction under Section 80-IA of the Act would be treated as a separate source of income and deduction has to be allowed only vis-a-vis profits derived from the eligible unit unaffected by the profits/losses of other units owned by the assessee. This ground on the contrary, in our opinion warrants the view we have taken, instead of holding that Assessing Officer erred in denying the deduction. b. The second ground is that the Revenue, has grossly misconstrued the application of the aforesaid provisions of Sub-section (5) of Section 80-IA of the Act as it does not provide that the losses/ depreciation of the eligible unit relating to any earlier assessment year(s) which are already absorbed against profits of other units/ other incomes in the respective year(s) should once again be notionally brought forward and adjusted against the profits of the current assessment year for computing deduction allowable under Section 80-IA of the Act. We have already held above that when the assumption is that the assessee has that source as the only source of income, one has to assume there could not be any set off of any depreciation or loss of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of its establishment or the losses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years were not set off against the profit from other business. It is so observed in the decision of the Mumbai Bench of the Tribunal in the case of Ashok Alco Chemical Limited (supra) that in Sub-section (7) of Section 80-IA of the Act, the Legislature has created a legal fiction by observing Section 80-IA was introduced in Income-tax Act with retrospective effect from 1-4-1990. Reading the language of Section 80IA(7) with the underlined observations of Supreme Court, it will be clear that Legislature by introducing Sub-section (7) of Section80-IA, has created a legal fiction that for the purpose of applying the provisions contained in that sub-section, the profits or gains of the eligible business shall be computed as if the eligible business were the only business of the assessee right from the initial year and the losses, depreciation allowance or development rebate in respect of such eligible business for the past assessment years were not set off against the profits from other business. Thus, the Legislature has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court decision, directly on the point, it is well settled, is binding on the Bench, as has been held in CIT v. Akshay Kumar Jain 281 ITR 431(MP); SAE Head Office Monthly Paid Employees Welfare Trust: 271 ITR 159 (Del); CIT v. Sarabhai Sons Ltd. 143 ITR 473, 486 (Guj); and that the decision does not lose its binding force merely because Sub-section (6) of Section 80I has not been specifically reproduced/ incorporated in the judgment since: (a) Section 80I has been specifically referred and considered by the Court; and (b) arguments based on the language of Sub-section (6), similar to the one addressed before this Bench, were also very much raised and considered by the Court. Reference, in this regard, was made to Ballabhdas Mathuradas Lakhani AIR 1970 SC 1002, 1003 wherein their Lordships observed in the context of binding effect of decision of Supreme Court on the High Court that: 4. ...The decision was binding on the High Court and the High Court could not ignore it because they thought that relevant provisions were not brought to the notice of the Court. Following the aforesaid decision, the Supreme Court in Director of Settlements, AP v. M.R. Apparao observed: 7. ...T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions were not brought to the notice of the Court. There was actually no ignorance. We, however, find in paragraph-12 of the judgment of the Supreme Court's observation in Apparao' case as under: Mr. Rao then placed reliance on yet another decision of this Court in the case of A-One Granites v. State of U.P. and Ors. (2001) 2 SCC 537 to which one of us (Pattanaik, J.) was a party. In that particular case the applicability of Rule 72 of the U.P. Minor Minerals (Concession) Rules, 1963 was one of the bone of the contention before this Court, and when the earlier decision of the Court in Prem Nath Sharma v. State of U.P., was pressed into service. It was found that in Prem Nath Sharma's case the applicability of Rule 72 had never been canvassed and the only question that had been canvassed was the violation of the said Rules. It is in this context, it was held by this Court in Granite's case as the question regarding applicability of Rule 72 of the Rues having not been even referred to, much less considered by Supreme Court in the earlier appeals, it cannot be said that the point is concluded by the same and no longer res Integra . This dictum will have no applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against other sources and are carried forward to set off against this source of income alone. Though we agree that the origin of the unabsorbed losses/ depreciation carried forward in the hands of the assessee to the year in which the deduction under Section 80-IA of the Act is to be allowed, must be traced and if the unabsorbed losses/depreciation relates to the eligible undertaking, such unabsorbed losses/depreciation must be set off against the profits of the eligible undertaking for computing such deduction, but such unabsorbed losses are to be found out on the hypothesis that the assessee had the eligible source as the only source of income and the absorbed losses against other sources were not absorbed in absence of any other source assumed to be not in existence because of the fiction. 59. We have no quarrel in the proposition of law stated by Mr. Vora that the CBDT Circular, No. 281 explaining the provisions of the Finance (No. 2) Act, 1980: is not binding on the Bench in view of UCO Bank v. CIT 237 ITR 889, 896 (SC); Keshavji Ravji and Co. v. CIT 183 ITR 117(SC) ; J K Synthetics Ltd. v. CBDT 83 ITR 335 (SC); Commissioner of Customs v. IOL 267 ITR 272 (SC), but it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ); ii) Samkrg Pistons Rings Limited: ITA No. 726 727/ Hyd/ 2002. From these decisions also we do not get any assistance as these have not appreciated the true import of the fiction created by the non obstante clause of Sub-section (6) of Section 80I or Sub-section (5) of Section 80IA aforesaid. 63. In our opinion the only harmonious construction of Section 80-IA(5), consistent with the object in allowing deduction only to profits and gains of the eligible business would be that: a. the deduction under that section would be computed with reference to profits of the eligible unit, unaffected by losses suffered in other units; b. in case of loss suffered by the eligible unit, such loss would not be set off against profits of other units / other business / other incomes in the initial year of assessment or subsequent years of eligible years of assessments ; c. where losses of the eligible unit remained to be adjusted against that very source they are to be carried forward to subsequent year(s), and set of in the succeeding year(s), and on the balance profit alone the deduction admissible would be computed; d. where there are no losses of the eligible unit carried for ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
