TMI Blog2014 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is required to be set off while computing the income chargeable under the head "Profits and gains of business or profession” – Decided in favour of revenue. - Tax Appeal No. 4 of 2006 - - - Dated:- 13-8-2014 - Rajit More and U. V. Bakre, JJ For the Appellant : Ms. Asha Dessai, Adv. For the Respondents : Mr. P. J. Pardiwalla, Mr. A. F. Diniz JUDGMENT (Per Ranjit More,J.) The substantial questions of law as raised by the Revenue are: (1) whether on the facts and in the circumstances of the case, the ITAT was justified in holding that unabsorbed investment allowances cannot be deducted while computing the profits of business or profession, particularly in view of special benefits claimed by the Assessee under Chapter VI-A? and (2) Whether in the facts and in the circumstances of the case the Revenue is entitled to set off of unabsorbed investment allowances from the profits of the business for the purpose of computing benefits under Section 80HHC claimed by the Assessee, particularly in view of the mechanism set up in explanation (bba) to Section 80HHC for computing profits of the business? 2. Brief facts giving rise to filing of the present appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndingly the deduction available under Section 80HHC would also stand reduced because the basis for calculation of the said deduction is the income chargeable under the head Profits and gains of business or profession . The respondent preferred an appeal to the Commissioner of Income-tax (Appeals) who, by his order dated 21st February, 1994, was pleased to reject the respondent's challenge to the computation of the deduction under Section 80HHC as well as its challenge to the action of the Assessing Officer in setting off the unabsorbed investment allowance against the income under the head Profits and gains of business or profession . The Commissioner of Income-Tax (Appeals) concurred with the view expressed by the Assessing Officer. The respondent being aggrieved by the order of the Commissioner of Income-tax (Appeals), preferred an appeal to the Income Tax Appellate Tribunal (ITAT). The ITAT by its order dated 25th August, 2005, which is impugned in this appeal, was pleased to partly allow the respondent's appeal. In so far as the challenge to the action of the Assessing Officer in reducing the deduction available under Section 80HHC by setting off the unabsorbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which decision, according to him, has been accepted by the Revenue. Mr. Pardiwalla submitted that Chapter IV-D deals with the chargeability of income under the head Profits and gains of business or profession . He submitted that Section 29 provides that the income referred to in Section 28 i.e. the income chargeable to income tax under the head Profits and gains of business or profession shall be computed in accordance with the provisions contained in Sections 30 to 43B. Since Section 32A falls within the conspectus of these Sections, there can be no doubt that the investment allowance for the year has to be taken into consideration in determining the profits chargeable under the head Profits and gains of business or profession . However, when it comes to an adjustment of the unabsorbed investment allowance brought forward from the earlier years, the language of sub-section (3) of Section 32A indicates that the set off of such unabsorbed investment allowance has to be against the total income and not against the income chargeable under the head Profits and gains of business or profession . Mr. Pardiwalla submitted that Section 80AB has no application to computation of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil ; and (ii) the amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year. Explanation : ... 80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the relief under Section 80HHC. The Division Bench of Madras High Court relied upon the Apex Court decision in the case of IPCA Laboratory Ltd. (supra), more particularly, the following observations: section 80AB has been given an overriding effect over all other sections, in Chapter VI-A. Section 89HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. The Division Bench of the Madras High Court relying on above observations of the Supreme Court, held that Section 80HHC provides for deduction of profits from the gross total income. Sub-Section (3) is a machinery provision to lay down the manner of calculating the profits which constitutes deduction under section 80HHC(1). Further the Division Bench of the Madras High Court, relying upon the said decision of the Apex Court, held thus : It must be seen that section 80HHC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and gains of business in accordance with the provisions of the Act as stated under Section 80AB. 10. In the Full Bench Judgment of this Court in Plastiblends India Limited vs. additional Commissioner of Income-Tax and others, [2009] 318 ITR 352 (Bom.), the question of law which fell for consideration was whether, in the facts and circumstances of the case, for the purpose of availing of allowable special deduction under Chapter VI-A of the Income-tax Act, the gross total income is required to be computed by deducting allowable depreciation even though the assessee had disclaimed the same for the purposes of regular assessment ? In that case, the Full Bench observed that the Apex Court in the case of Distributors (Baroda) P. Ltd. v. Union of India, [1985] 155 ITR 120. and in case of Liberty India vs. CIT, [2009] 317 ITR 218 has clearly held that the special deduction under Chapter VI-A has to be computed on the gross total income determined after taking all deductions allowable under Sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has to be rejected. The Full Bench after taking survey of the relevant decisions, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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