M/s. Metrochem Industries Limited, V. The ACIT., Circle4,

ITA 1000/AHD/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8871 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-02-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 01-04-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation; Tax effect
• Section: 80HHC; 115JB; 80IB; 80G; 263

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI T.K. SHARMA, JM AND D.C.AGRAWAL, AM ITA NO. ASST. YEAR 1000/AHD/2004 1999-2000 M/S METROCHEM INDUS. LTD., 505-506, SURYA RATH, NR. PANCHWATI, AHMEDABAD-380006. V/S . CIT-II, AHMEDABAD/ ACIT, CIR-4/ ITO WD- 4(3), AHMEDABAD PAN NO.AABCM 8019K (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M. K. PATEL, AR RESPONDENT BY:- SHRI SHELLEY JINDAL, CIT,DR O R D E R PER D.C.AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT PASSED UNDER SECTION 263 DIRECTING THE AO TO RECALC ULATE DEDUCTION UNDER SECTION 80 HHC AFTER GIVING EFFECT TO SECTION 80IA( 9). 2. THE FACTS OF THE CASE ARE THAT ASSESSMENT ORDER IN THIS CASE WAS PASSED BY AO ON 27.3.2002 FOR ASST. YEAR 1999-2000 WHEREIN THE AO HAS ALLOWED DEDUCTION UNDER SECTION 80 HHC AND 80IA WITHOUT CONSIDERING THE EFFECT OF SECTION 80IA(9). THE INCO ME IN THIS CASE WAS FINALLY COMPUTED AT RS.68,00,583/- WHEREIN THE DEDU CTION UNDER SECS.80HHC AND 80IA WERE ALLOWED AS UNDER :- 2 LESS : DEDUCTION UNDER CHAPTER VIA I) U/S 80G RS.1,13,500/- II) U/S 80HHC RS.3,73,516/- III) U/S 80IA RS.3,81,74,857 /- RS.7,56,59,873/- THE LD. CIT OBSERVED THAT AO FAILED TO REDUCE THE P ROFIT OF THE BUSINESS BY DEDUCTION ALLOWED UNDER SECTION 80IA OF RS.3,81, 74,857/- WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC. IF SAID E XEMPTED PROFIT OF RS.3,81,74,857/- IS EXCLUDED FROM THE GROSS PROFIT OF THE BUSINESS OF RS.5,74,35,678/-, THE NET PROFIT OF THE BUSINESS EN TITLED FOR DEDUCTION UNDER SECTION 80 HHC WOULD BE REDUCED TO RS.1,92,60 ,821/-. IT WAS HELD TO BE AN APPARENT MISTAKE COMMITTED BY THE AO IN TH E ASSESSMENT ORDER AND HENCE HIS ORDER DATED 20.3.2002 WAS CONSIDERED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN RESPONSE TO SHOW CAUSE NOTICE, ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE CIT AND A FTER TAKING INTO CONSIDERATION THE WRITTEN SUBMISSIONS THE LD. CIT H ELD THAT THERE IS A CLEAR VIOLATION OF SECTION 80IA(9). HE ACCORDINGLY DIRECT ED THE AO TO RECALCULATE THE DEDUCTION UNDER SECTION 80 HHC. 3. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ORDER PASSED BY THE AO IS NOT ERRONEOUS AS PROVISIONS OF SECTION 80IA(9) ARE NOT APPLICABLE IN RESPECT OF THE ASST. YEAR UNDER C ONSIDERATION. SECTION 80 HHC IS INDEPENDENT AND THEREFORE, DEDUCTION UNDE R SECTION 80 HHC WILL HAVE TO BE CALCULATED INDEPENDENTLY. LD. AR FU RTHER SUBMITTED THAT AT THAT TIME ISSUE WHETHER PROVISIONS OF SECTION 80IA( 9) WOULD BE APPLICABLE TO CONTROL THE DEDUCTION UNDER SECTION 80 HHC WAS D EBATABLE IN THE SENSE THAT THERE WERE DECISIONS IN FAVOUR OF THE ASSESSEE WHEREIN IT IS HELD THAT DEDUCTION UNDER SECTION 80IA CANNOT BE REDUCED FOR CALCULATING DEDUCTION UNDER SECTION 80 HHC. HE FURTHER SUBMITTED THAT DEC ISION IN ACIT VS. ROGINI GARMETS & ORS. (2007) 108 ITD 49 [CHENNAI (S B)] WAS OVER 3 RULED BY HON. MADRAS HIGH COURT IN S C M CREATIONS VS. ACIT (2008) 304 ITR 319 (MAD) WHEREIN HON. MADRAS HIGH COURT HA D FOLLOWED THEIR DECISION IN DCIT VS. CHOLA TEXTILES LTD. (P) LTD. ( 2008) 304 ITR 256 (MAD). THE LD. AR FURTHER STATED THAT NOTWITHSTANDI NG THAT THE TRIBUNAL, DELHI (SB) IN ACIT VS. HINDUSTAN MINT AND AGRO PROD UCTS 315 (AT) ITR 401 (DEL)(SB), THE DECISION IN ROGINI GARMETS & ORS . (SUPRA) HAS BEEN APPROVED DISTINGUISHING THE DECISION OF HON. MADRAS HIGH COURT IN SCM CREATIONS (SUPRA). BUT THE FACTS REMAIN THAT THERE WAS A DEBATE ON THE ISSUE AND THE DECISIONS HAVE GONE EITHER WAY. THUS THE AO HAS TAKEN ONE OF THE EXISTING VIEWS AT THE RELEVANT TIME THEN LD. CIT CANNOT SET ASIDE THE SAME BY EXERCISING HIS POWERS UNDER SECTION 263. FU RTHER THE LD. AR SUBMITTED THAT SO FAR AS COMPUTATION OF DEDUCTION U NDER SECTION 80 HHC IN REGULAR ASSESSMENT IS CONCERNED THERE IS NOW NO DISPUTE THAT PROVISIONS OF SECTION 80IA(9) WOULD HAVE A CONTROLLING EFFECT IN ACCORDANCE WITH THE DECISION IN ROGINI GARMENTS & ORS. (SUPRA) AND HIND USTAN MINT & AGRO PRODUCTS LTD. (SUPRA). SO FAR AS COMPUTATION OF INC OME UNDER SECTION 115JA IS CONCERNED WHATEVER RECORDED IN THE BOOKS OF ACCOUNT AND APPROVED BY THE AUDITORS UNDER COMPANIES ACT CANNOT BE DISTURBED BY THE AO IN VIEW OF THE DECISION OF HON. SUPREME COUR T IN APPOLLO TYRES LTD. VS. CIT (2000) 255 ITR 273(SC) WHICH IS AFFIR MED BY HON. SUPREME COURT IN MALAYALA MANORAMA CO. VS. CIT (200 8) 300 ITR 251 (SC) AND ALSO BY VARIOUS HIGH COURTS HOLDING THAT N O TINKERING IN THE BOOK PROFIT AS COMPUTED UNDER SCHEDULE-VI OF THE CO MPANIES ACT CAN BE DONE EXCEPT AS PROVIDED IN SECTION 115JA. ACCORDING LY THE LD. CIT CANNOT HAVE HELD THE ORDER OF AO AS ERRONEOUS AS A VIEW FAVOURABLE TO THE ASSESSEE EXISTED. HE REFERRED TO THE DECISION OF HO N. DELHI HIGH COURT IN CIT VS. ANSAL PROPERTIES & INDUS. (P) LTD. (2009), 315 ITR 225 (DEL) AND CIT VS. COCHIN REFINERIES LTD. (1996) 220 ITR 398 ( KER) FOR THE 4 PROPOSITION THAT WHERE THE ISSUE IS DEBATABLE THE L D. CIT CANNOT EXERCISE HIS REVISIONARY JURISDICTION UNDER SECTION 263. 4. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF HON. GUJARAT HIGH COURT IN CIT VS. SMT. MINALBEN S. PARIKH (1995 ) 215 ITR 81 (GUJ) WHEREIN IT HAS BEEN HELD THAT AN ORDER WHICH IS ERR ONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF REVENUE CANNOT BE RE VISED. IT IS HELD THAT UNLESS BOTH THE CONDITIONS I.E. ORDER BEING ERRONEO US AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE, ARE NOT SATISFIED THE C OMMISSIONER DOES NOT GET JURISDICTION TO PASS AN ORDER UNDER SECTION 263 REV ISING THE ASSESSMENT ORDER. IT IS NOT NECESSARY THAT EVERY ORDER OF THE AO IF FOUND ERRONEOUS IS ALSO BY IMPLICATION PREJUDICIAL TO THE INTEREST OF REVENUE. SIMILAR VIEW WAS EXPRESSED BY HON. APEX COURT IN MALABAR INDUSTR IAL CO. LTD. VS. CIT (2000) 243 ITR 83 (SC) WHEREIN IT WAS HELD THAT FOR EXERCISING JURISDICTION UNDER SECTION 263 THE COMMISSIONER SHO ULD BE SATISFIED WITH TWIN CONDITIONS NAMELY (I) ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS AND (II) IT IS PREJUDICIAL TO THE INTERES T OF REVENUE. IF ONE OF THEM IS ABSENT I.E. IF THE ORDER OF THE ITO IS ERRO NEOUS BUT IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE OR WHERE IF IT IS NOT ERRONEOUS BUT ONLY PREJUDICIAL TO THE INTEREST OF REVENUE, RECOUR SE TO SECTION 263(1) OF THE ACT CANNOT BE TAKEN. THE PHRASE PREJUDICIAL TO THE INTEREST OF REVENUE HAS BEEN ELABORATED BY HON. GUJARAT HIGH C OURT IN MINALBEN S. PARIKH (SUPRA). IT IS HELD THEREIN THAT IF INCOME I N QUESTION HAS BEEN TAXED AND LEGITIMATE REVENUE DEMAND IN RESPECT OF THAT IN COME HAS BEEN REALIZED THOUGH AS A RESULT OF AN ERRONEOUS ORDER H AVING BEEN MADE IN THAT RESPECT, THE CIT CANNOT REVISE THE ORDER UNDER SECT ION 263. HON. KERALA HIGH COURT IN MALABAR INDUSTRIAL CO. LTD. VS. CIT ( 1992) 198 ITR 611 (KER) WHICH IS UPHELD BY HON. SUPREME COURT IN MALA BAR INDUSTRIAL CO. LTD. VS. CIT (SUPRA), SIMILAR VIEW HAS BEEN EXPRESS ED. IN THE FACTS OF THE 5 PRESENT CASE, WHETHER ORDER OF THE AO IS REVISED BY CIT OR NOT, THERE WOULD NOT BE ANY DIFFERENCE SO FAR AS TAX EFFECT CA LCULATED ON THE BASIS OF APPLICATION OF SECTION 115JA IS CONCERNED. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT WHEN AO HAD PASSED HIS ORDER ON 23.2.2003 NO DEBATABLE VIEWS EXISTED AND W HATEVER EXISTED WAS THE APPLICATION OF SECTION 80IA(9) WHICH RESTRICTED THE DEDUCTION UNDER SECTION 80 HHC AND A CAPPING WAS REQUIRED TO BE DON E BY THE AO WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC TO THE EXT ENT OF DEDUCTION UNDER SECTION 80IA IN CASE TO AN INDUSTRIAL UNDERTA KING ENTITLED FOR BOTH THE DEDUCTIONS. SECONDLY, ACCORDING TO THE LD. DR P ROVISIONS OF SECTION 115JA ARE CLEAR IN THE SENSE THAT CLAUSE (VI) OF EX PLANATION TO SECTION 115JA PROVIDED FOR ADJUSTMENT IN THE BOOK PROFITS I N RESPECT OF DEDUCTION UNDER SECTION 80IA AS DEFINED IN EXPLANATION TO SUB -SECTION (4) OF SECTION 80IA AND FURTHER SUB-SEC.(8) PROVIDED FOR ADJUSTMEN T OF DEDUCTION UNDER SECTION 80 HHC AS COMPUTED UNDER CLAUSE (A), (B) OR (C) OF SUB-SEC.(3A) OF SECTION 80 HHC. IN ANY CASE ACCORDING TO THE LD. DR SUB-SECTION (4) OF SECTION 115J PROVIDES THE APPLICABILITY OF THE PROV ISIONS OF THE ACT EXCEPT THOSE PROVIDED IN SECTION 115J ITSELF. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE ONLY ISSUE INVOLVED IN THIS APPEAL I S WHETHER APPLICABILITY OF SECTION 80IA(9) FOR CONTROLLING DEDUCTION UNDER SECTION 80 HHC WAS DEBATABLE ISSUE WHILE COMPUTING BOOK PROFIT UNDER S ECTION 115JA AND IF SO WHETHER THE LD. CIT WAS JUSTIFIED IN CANCELING T HE ORDER OF THE AO BY INVOKING HIS POWER UNDER SECTION 263. SO FAR AS THE CAPPING AS PROVIDED UNDER SECTION 80IA(9) IN REGULAR ASSESSMENT IS CONC ERNED LD. AR IS FAIRLY CLEAR THAT 80IA(9) WILL CONTROL DEDUCTION AVAILABLE TO ASSESSEE UNDER SECTION 80 HHC. THERE IS NO DISPUTE ON THIS PROPOSI TION AND, THEREFORE, 6 WHERE AO FAILED TO INVOKE SECTION 80IA(9) WHILE COM PUTING DEDUCTION UNDER SECTION 80HHC HIS ORDER WOULD BE ERRONEOUS AN D HENCE PREJUDICIAL TO THE INTEREST OF REVENUE. 7. IN THE PRESENT CASE, LD. CIT IN HIS ORDER UNDER SECTION 263 HAS GIVEN FOLLOWING FINDINGS:- 3. IN THIS CASE THE AO HAS NOT EXCLUDED THE DEDUCT ION ALLOWED U/S 80IA FROM THE GROSS PROFIT OF THE BUSINESS WHILE CA LCULATING DEDUCTION U/S 80 HHC. SINCE IT IS IN CLEAR VIOLATION OF SECTION 8 0IA(9), THE AO IS DIRECTED TO RE-CALCULATE THE DEDUCTION U/S 80 HHC B Y EXCLUDING THE PROFITS ALLOWED AS DEDUCTION U/S 80 IA FROM THE GRO SS PROFIT OF BUSINESS. IN CASE THE PROFIT OF THE BUSINESS AS COMPUTED BY T HE AO HAS UNDERGONE ANY CHANGE SUBSEQUENTLY, THE LATEST COMPUTED BUSINE SS PROFITS MAY BE ADOPTED FOR WORKING OUT DEDUCTION U/S 80 HHC. THE A O MAY RE-CALCULATE THE DEDUCTION U/S 80 HHC ACCORDINGLY. HOWEVER, WE NOTICE THAT IN THE IMPUGNED ASSESSMENT ORDER LD. AO HAS CARRIED OUT TWO COMPUTATIONS ONE ACCORDING TO INCOM E-TAX ACT WHICH WE MAY CALL REGULAR COMPUTATION OF INCOME AND THE OTHE R UNDER SECTION 115JA. FINDING THAT BOOK PROFIT IS MORE THAN INCOME REGULARLY COMPUTED, HE ADOPTED BOOK PROFIT TO CALCULATE TAXABLE INCOME @ 30% THEREOF. THE ORDER OF LD. CIT UNDER SECTION 263 IS NOT CLEAR AS TO WHETHER HE HAS ISSUED DIRECTIONS TO COMPLY WITH PROVISIONS OF SECTION 80I A(9) IN RESPECT OF REGULAR COMPUTATION OF INCOME OR IN RESPECT OF COMP UTATION OF INCOME AS PER BOOK PROFIT. IT SEEMS THAT LD. CIT HAS DIRECTED TO APPLY PROVISIONS OF SECTION 80IA(9) FOR COMPUTING REGULAR INCOME AS WEL L AS FOR COMPUTING BOOK PROFIT WHICH IS IN ANY CASE MORE THAN INCOME S O COMPUTED IN REGULAR COURSE. IT IS BECAUSE AS PER ORDER OF LD. C IT DATED 31.3.2004, FOR THE SAME ASST. YEAR, EFFECT OF SECTION 80IA(9) ON T HE REGULAR COMPUTATION OF INCOME HAS BEEN GIVEN AND DEDUCTION UNDER SECTIO N 80 HHC HAS BEEN CALCULATED AT RS.1,45,09,811/-, AFTER ALLOWING THE CAPPING UNDER SECTION 7 80IA(9). SIMILAR CALCULATION HAS BEEN DONE BY THE AO IN THE ORDER PASSED UNDER SECTION 250 READ WITH SECTION 263 OF THE IT A CT, 1961, ACCORDING TO WHICH TAXABLE INCOME IN REGULAR COMPUTATION HAS BEE N WORKED OUT AT RS.43,62,832/- AFTER ALLOWING CAPPING AS PER SECTIO N 80IA(9) ON THE DEDUCTION U/S 80 HHC. HOWEVER, INCOME COMPUTED AS P ER BOOK PROFIT IS STILL MORE THAN THE INCOME COMPUTED IN REGULAR COU RSE, EVEN IF EFFECT OF CAPPING AS PROVIDED UNDER SECTION 80IA(9) IS APPLIE D TO COMPUTE DEDUCTION UNDER SECTION 80 HHC WHILE COMPUTING INCO ME AS PER BOOK PROFIT. ACCORDING TO THESE CALCULATIONS TOTAL BOOK PROFIT COMES TO RS.4,55,30,316/- AND TOTAL INCOME @ 30% THEREOF COM ES TO RS.1,36,59,095/- WHICH IS STILL MORE THAN INCOME CO MPUTED IN REGULAR COURSE AT RS.43,62,832/-EVEN AFTER GIVING EFFECT UN DER SECTION 80IA(9) AT BOTH PLACES. IN OTHER WORDS WHEN WE GIVE EFFECT OF CAPPING OF SECTION 80IA(9) INCOMPUTING DEDUCTION UNDER SECTION 80 HHC WHILE COMPUTING INCOME IN NORMAL COURSE OR WHILE COMPUTING INCOME A S PER BOOK PROFIT OR EVEN IF WE DO NOT GIVE EFFECT OF CAPPING AT EITHER PLACE INCOME COMPUTED AS PER BOOK PROFIT WOULD BE MORE THAN INCOME COMPUT ED IN THE NORMAL COURSE. THEREFORE, EVEN THOUGH THERE MAY BE AN ERRO R IN THE ORDER OF AO IN NOT APPLYING CAPPING PROVIDED UNDER SECTION 80IA (9), THE ORDER OF THE AO WILL NOT BE PREJUDICIAL TO THE INTEREST OF REVEN UE AS INCOME AS PER BOOK PROFIT IS ALWAYS MORE THAN INCOME COMPUTED IN THE NORMAL COURSE. 8. WE MAY ALSO CLARIFY HERE THAT EFFECT OF CAPPING UNDER SECTION 80IA(9) IS NOT REQUIRED TO BE GIVEN WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC FOR THE PURPOSE OF COMPUTING INCOME AS PER BOOK PROFIT BECAUSE SECTION 115JA REQUIRES ADJUSTMENT OF DEDUCT ION UNDER SECTION 80 HHC ONLY AND ADJUSTMENT OF DEDUCTION UNDER SECTION 80IA OR 80IB WOULD BE REQUIRED ONLY IN CASE OF AN INDUSTRIAL UND ERTAKING WHICH IS ENGAGED IN INFRASTRUCTURAL FACILITIES. IN OTHER WOR DS BOTH DEDUCTIONS UNDER 8 SECTIONS 80IA/80IB AND 80HHC CAN BE AVAILED OF BY A COMPANY WHICH IS ENGAGED IN PROVIDING INFRASTRUCTURAL FACILITIES AS MENTIONED IN CLAUSE (VI) OF EXPLANATION TO SECTION 115JA READ WITH EXPLANATI ON TO SUB-SEC.(4) OF SECTION 80IA. FOR THE SAKE OF CONVENIENCE WE REPROD UCE EXPLANATION TO SECTION 115JA AND SUB-SECTION(4) CONTAINING EXPLANA TION IN SECTION 80IA AS UNDER :- SEC.115JA EXPLANATION.--FOR THE PURPOSES OF THIS CLAUSE, THE LOSS SHALL NOT INCLUDE DEPRECIATION; OR (IV).. (V) (VI) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF DEVELOPING, MAINTAINING AND OPERATI NG ANY INFRASTRUCTURE FACILITY AS DEFINED UNDER SUB-SECTIO N (12) OF SECTION 80-IA, AND SUBJECT TO FULFILLING THE CONDITIONS LAI D DOWN IN SUB- SECTION (4A) OF SECTION 80-IA; OR (VII).. (VIII).. (IX). SEC. 80IA (1). (2). (3). (4) THIS SECTION APPLIES TO-- (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING, (II) MAINTAINING AND OPERATING OR (III) DEVELOPING, MAIN TAINING AND 9 OPERATING ANY INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY :-- (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA O R BY A CONSORTIUM OF SUCH COMPANIES ; (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENT RAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY O THER STATUTORY BODY FOR (I) DEVELOPING, (II) MAINTAINING AND OPERA TING, OR (III) DEVELOPING, MAINTAINING AND OPERATING A NEW INFRAST RUCTURE FACILITY SUBJECT TO THE CONDITION THAT SUCH INFRASTRUCTURE F ACILITY SHALL BE TRANSFERRED TO THE CENTRAL GOVERNMENT, STATE GOVERN MENT, LOCAL AUTHORITY OR SUCH OTHER STATUTORY BODY, AS THE CASE MAY BE, WITHIN THE PERIOD STIPULATED IN THE AGREEMENT ; (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAI NING THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST DAY OF APRIL, 1995 : PROVIDED THAT WHERE AN INFRASTRUCTURE FACILITY IS TRANSFERR ED ON OR AFTER THE 1ST DAY OF APRIL, 1999 BY AN ENTERPRISE W HICH DEVELOPED SUCH INFRASTRUCTURE FACILITY (HEREAFTER REFERRED TO IN THIS SECTION AS THE TRANSFEROR ENTERPRISE) TO ANOTHER ENTERPRISE (H EREAFTER IN THIS SECTION REFERRED TO AS THE TRANSFEREE ENTERPRISE) F OR THE PURPOSE OF OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILI TY ON ITS BEHALF IN ACCORDANCE WITH THE AGREEMENT WITH THE CENTRAL G OVERNMENT, STATE GOVERNMENT, LOCAL AUTHORITY OR STATUTORY BODY , THE PROVISIONS OF THIS SECTION SHALL APPLY TO THE TRANSFEREE ENTER PRISE AS IF IT WERE THE ENTERPRISE TO WHICH THIS CLAUSE APPLIES AND THE DEDUCTION FROM PROFITS AND GAINS WOULD BE AVAILABLE TO SUCH TRANSF EREE ENTERPRISE FOR THE UNEXPIRED PERIOD DURING WHICH THE TRANSFERO R ENTERPRISE WOULD HAVE BEEN ENTITLED TO THE DEDUCTION, IF THE T RANSFER HAD NOT TAKEN PLACE. EXPLANATION.--FOR THE PURPOSES OF THIS CLAUSE, IN FRASTRUCTURE FACILITY MEANS,-- (A) A ROAD, BRIDGE, AIRPORT, PORT, INLAND WATERWAY S AND INLAND PORTS, RAIL SYSTEM OR ANY OTHER PUBLIC FACIL ITY OF A SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD IN T HIS BEHALF IN THE OFFICIAL GAZETTE ; (B) A HIGHWAY PROJECT INCLUDING HOUSING OR OTHER A CTIVITIES BEING AN INTEGRAL PART OF THE HIGHWAY PROJECT ; AN D 10 (C) A WATER SUPPLY PROJECT, IRRIGATION PROJECT, SA NITATION AND SEWERAGE SYSTEM ; THUS FROM A READING OF TWO PROVISIONS TOGETHER IT I S GATHERED THAT ADJUSTMENT IN THE BOOK PROFIT CAN BE DONE FOR THE D EDUCTION UNDER SECTION 80IA AND 80HHC IN CASE OF AN INDUSTRIAL UNDERTAKING DERIVING PROFIT FROM THE BUSINESS OF DEVELOPING, MAINTAINING AND OP ERATING INFRASTRUCTURAL FACILITIES. ONCE THIS IS SO THAT IS IN THE CASE OF AN INDUSTRIAL UNDERTAKING WHERE BOTH THE DEDUCTIONS ARE AVAILABLE (I.E. BOTH UNDER SECTION 80 HHC AND 80IA IN RESPECT OF INFRASTRUCTUR AL UNDERTAKING) THEN CAPPING OF SECTION 80IA(9) WOULD BE EFFECTIVE. BUT IN A CASE OF OTHER INDUSTRIAL UNDERTAKING, EVEN IF DEDUCTION UNDER SEC TION 80IA IS CLAIMED BY THEM IN THE NORMAL COMPUTATION OF INCOME BUT NO ADJUSTMENT IS REQUIRED TO BE DONE WHILE COMPUTING BOOK PROFIT UND ER SECTION 115JA. ONCE DEDUCTION UNDER SECTION 80IA IS NOT REQUIRED T O BE ADJUSTED WHILE COMPUTING BOOK PROFIT IN CASE OF NON-INFRASTRUCTURA L INDUSTRIAL UNDERTAKING THEN NO CAPPING AS PROVIDED UNDER SECTI ON 80IA (9) IS REQUIRED TO BE DONE WHILE COMPUTING BOOK PROFIT UND ER SECTION 115JA. THE PRESENT ASSESSEE IS ENGAGED IN THE BUSINESS OF INSECTICIDE, DRUGS AND CHEMICAL AND IS NOT ENGAGED IN THE BUSINESS OF DEVE LOPING INFRASTRUCTURAL FACILITIES. THEREFORE, ADJUSTMENT OF CLAIM OF DEDUC TION UNDER SECTION 80IA IS NOT REQUIRED TO BE DONE WHILE COMPUTING BOOK PRO FIT UNDER SECTION 115JA. THUS WHERE NO ADJUSTMENT OF DEDUCTION UNDER SECTION 80IA IS REQUIRED TO BE DONE WHILE COMPUTING BOOK PROFIT THE N CAPPING UNDER SECTION 80IA(9) WILL NOT BE REQUIRED TO BE CARRIED OUT FOR ADJUSTING DEDUCTION UNDER SECTION 80 HHC IN THE BOOK PROFIT. 9. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN I TA NO.39/AHD/2007 FOR ASST. YEAR 2003-04 IN THE CASE O F CELLO PENS & 11 STATIONERY (P) LTD. VS. ACIT, VAPI PRONOUNCED ON 4. 12.2009 WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER :- 12. WHILE AN ASSESSEE IS CLAIMING DEDUCTION UNDER BOTH THE ABOVE PROVISIONS, THE QUESTION THAT AROSE FOR CONSIDERATI ON WAS WHETHER SIMULTANEOUS DEDUCTION COULD BE ALLOWED UNDER BOTH THE ABOVE PRO VISIONS WITHOUT ONE DILUTING THE EXTENT OF THE OTHER. THE ITAT, CHENN AI SPECIAL BENCH IN THE CASE OF ACIT VS. ROGINI GARMENTS, 294 (AT) ITR 15 (CHENN AI)(SB) HELD THAT SUCH LIBERAL DEDUCTION IS NOT AVAILABLE. THE DEDUCTION UNDER SECTION 80IA HAS TO BE MADE PRIOR TO THE GRANTING OF RELIEF UNDER SECTION 80HHC. THEREAFTER AN ECLIPSE PREVAILED ON THE SUBJECT MATTER IN VIEW OF THE SUBSEQUENT JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SCM CR EATIONS VS. ACIT, 304 ITR 319 (MAD). BUT THE ECLIPSE HAS NOW BEEN CLEARE D BY THE DECISION OF LARGER BENCH OF ITAT, DELHI RENDERED IN THE CASE OF ACIT V S. HINDUSTAN MINT AND AGRO PRODUCTS, 315 (AT) ITR 401 (DEL)(SB) IN WHICH THE FIVE MEMBERS BENCH HAS DISTINGUISHED THE JUDGMENT OF HONBLE MADRAS HI GH COURT IN THE CASE OF SCM CREATIONS (SUPRA) FROM THE SPECIAL BENCH DECISI ON OF ITAT, CHENNAI IN ROGINI GARMENTS CASE AND AGREED WITH THE DECISION O F ITAT, CHENNAI SPECIAL BENCH. THEREFORE, THE POSITION OF LAW AS OF NOW IS THAT AN ASSESSEE CANNOT CLAIM MUTUALLY EXCLUSIVE DEDUCTIONS WITH REFERENCE TO THE BENEFITS AVAILABLE UNDER SECTION 80IA AND 80HHC. THIS POSITION IS EQU ALLY APPLICABLE TO A SITUATION ARISING OUT OF SECTION 80IB AS WELL ON TH E GROUND OF ANALOGY. 13. THE ISSUE NOW RAISED IN THE PRESENT CASE HAS TO BE EXAMINED IN THE LIGHT OF THE ABOVE LEGAL POSITION. 14. WE HAVE ALSO TO MAKE A REFERENCE TO THE RELIANC E MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE DECISION OF ITAT, M UMBAI SPECIAL BENCH DECISION IN THE CASE OF SYNCOME FORMULATIONS (I) LT D. (SUPRA). IN THE SAID CASE, THE EXACT QUESTION WAS, WHAT IS THE PROFIT TO BE CONSIDERED FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC; WHETHER THE DEDU CTION HAS TO BE MADE WITH REFERENCE TO THE PROFITS COMPUTED UNDER THE NO RMAL PROVISIONS OF LAW OR WITH REFERENCE TO THE BOOK PROFITS ARRIVED AT UNDER SECTION 115JA. THE SPECIAL BENCH HELD THAT ONCE THE BOOK PROFIT IS ADOPTED FOR THE PURPOSE OF ASSESSMENT, THE DEDUCTION UNDER SECTION 80HHC ALSO HAS TO BE AL LOWED WITH REFERENCE TO THE SAID BOOK PROFIT. THEREFORE, THE SAID DECISI ON RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE DOES NOT DIRECTLY COVER TH E ISSUE RAISED IN THE PRESENT APPEAL BEFORE US. 15. BUT THE ABOVE DECISION OF MUMBAI SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATIONS (I) LTD. HAS RELEVANCE IN CONSIDERING ONE OF THE ARGUMENTS MADE BY THE REVENUE THAT THE TEXTURE OF LAW CONTAINED IN SECTION 115JB IS DIFFERENT FROM THE TEXTURE OF LAW CONTAINED IN EARLIER SECTIO NS 115J AND 115JA. THE SPECIAL BENCH HAS HELD THAT THE REASONING GIVEN FOR SECTION 115J CONTINUOUS TO 12 BE GOOD EVEN IN THE CASE OF SECTION 115JA/115JB. T HEREFORE, THE ARGUMENT ADVANCED BY THE REVENUE ON THE ABOVE LINE DOES NOT HOLD IN THIS CONTEXT. 16. NOW LET US EXAMINE THE EXACT ISSUE RAISED IN TH E PRESENT CASE WHETHER THE QUANTUM OF BOOK PROFIT COULD BE REDUCED BY THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB WHILE COMPUTING TH E DEDUCTION UNDER SECTION 80HHC. AN EXPLANATION REGARDING ADJUSTMENTS PERMIS SIBLE IN LAW PROVIDED UNDER SECTION 115JB TAKES CARE OF SECTION 80HHC ALO NE. IT DOES NOT TOUCH UPON THE BENEFITS AVAILABLE TO AN ASSESSEE UNDER SE CTION 80IB. THEREFORE, ONCE THE BOOK PROFIT IS ARRIVED AT BY THE ASSESSING AUTH ORITY, THE ONLY RELEVANT ADJUSTMENT PERMITTED IS THE DEDUCTION OF BENEFITS A VAILABLE UNDER SECTION 80HHC. IT SHOWS THAT THE BENEFIT AVAILABLE TO AN A SSESSEE UNDER SECTION 80IB HAS NO ROLE TO PLAY IN COMPUTING THE QUANTUM OF DED UCTION AVAILABLE TO AN ASSESSEE UNDER SECTION 80HHC IN THE CONTEXT OF A MA T ASSESSMENT. IN THE PRESENT CASE, IT HAS TO BE AGAIN MADE CLEAR FOR THE PURPOSE OF CLARITY THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION UNDER SECTIO N 80IB. THE ASSESSEE HAS CLAIMED DEDUCTION ONLY UNDER SECTION 80HHC. THE AO HAS DILUTED THE QUANTUM OF DEDUCTION AVAILABLE UNDER SECTION 80HHC BY REDUCING IT WITH THE BENEFITS AVAILABLE UNDER SECTION 80IB. HE HAS INDI RECTLY REDUCED THAT MUCH AMOUNT FROM THE BOOK PROFITS AVAILABLE FOR COMPUTIN G THE DEDUCTION UNDER SECTION 80HHC, RESULTING IN DILUTING THE QUANTUM OF BENEFIT AVAILABLE UNDER SECTION 80HHC. 17. AS THE LAW DOES NOT PERMIT ANY SORT OF ADJUSTME NT WITH REFERENCE TO SECTION 80IB IN THE CONTEXT OF ASSESSMENT UNDER SEC TION 115JB, THE AO HAS ERRED IN DEDUCTING SECTION 80IB BENEFITS FROM THE T RADING PROFIT OF THE ASSESSEE WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THEREFORE, THE DEDUCTION MADE BY THE AO TOWARDS 80IB UNDER THE LAS T PORTION OF THE ASSESSMENT ORDER IS DELETED. THE AO IS DIRECTED TO RE-COMPUTE THE BENEFITS AVAILABLE TO THE ASSESSEE UNDER SECTION 80HHC IN LI GHT OF THE BOOK PROFITS COMPUTED UNDER SECTION 115JB WITHOUT MAKING ANY DED UCTION UNDER SECTION 80IB. THUS WHERE LAW DOES NOT PERMIT ANY ADJUSTMENT WITH REFERENCE TO SECTION 80IB/80IA WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB/115JA THEN DEDUCTING BENEFIT UNDER SECTION 80IA/80IB FROM THE TRADING PROFITS FOR COMPUTING DEDUCTION UNDER SECTION 80HHC WILL NOT BE LEGALLY PROPER. THE LD. CIT, THEREFORE, COULD NOT HAVE DIRECTED TO DO SO WHEN IT IS NOT LEGALLY PERMISSIBLE. THEREFORE, INFERENCE THAT DIRE CTION OF LD. CIT IN HIS ORDER UNDER SECTION 263 COULD RELATE TO GIVE EFFECT OF SECTION 80IA(9) 13 WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC FOR BOOK PROFIT, IS NOT LEGALLY SUSTAINABLE. THEREFORE, ONLY LEGALLY POSSIB LE INFERENCE COULD BE THAT EFFECT OF SECTION 80IA(9) CAN BE GIVEN WHILE C OMPUTING INCOME IN THE NORMAL COURSE. WE HAVE ALREADY OBSERVED ABOVE THAT NOT GIVING EFFECT OF SECTION 80IA(9) IS AN ERROR BUT IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE BECAUSE INCOME AS PER BOOK PROFIT IS HIGHER AS COMP ARED TO INCOME COMPUTED IN NORMAL COURSE EVEN AFTER GIVING EFFECT TO SECTION 80IA(9) WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THER EFORE THERE IS NO REVENUE EFFECT OF THE ERROR COMMITTED BY AO AND HEN CE NO PREJUDICE IS CAUSED TO THE REVENUE. ONCE ORDER OF THE AO IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE EVEN THOUGH IT IS ERRONEOUS THE ORDER OF THE LD. CIT UNDER SECTION 263 CANNOT BE SUSTAINED. THE REQUIREM ENT OF SECTION 263 IS THAT ORDER OF THE AO SHOULD NOT ONLY BE ERRONEOUS B UT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. EVEN OTHERWISE WE FIND THA T LD. CIT(A) FOR ASST. YEAR 1999-2000 HAD ALSO DIRECTED THE AO TO GIVE EFF ECT TO SECTION 80IA(9) WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC BOTH FOR COMPUTING INCOME AS PER BOOK PROFIT AS WELL AS FOR COMPUTING INCOME IN THE NORMAL COURSE. THE LD. AO HAD PASSED AN ORDER U NDER SECTION 250 READ WITH SECTION 263 ON 13.5.2004 WHEREIN HE HAS G IVEN EFFECT TO THE PROVISIONS OF SECTION 80IA(9) IN BOTH THE COMPUTATI ONS. THEREFORE, ON THE FACE OF DIRECTION OF LD. CIT(A) THE ORDER OF LD. CI T PASSED UNDER SECTION 263 BECOMES INFRUCTUOUS. ACCORDINGLY, THE ORDER UND ER SECTION 263, DATED 11.3.2003 DOES NOT SURVIVE AND IS, THEREFORE, CANCE LLED. THE APPEAL IS ALLOWED. 14 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 5/3/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 5/3/2010