SRF Ltd., V. Addl. CIT, Range-9,

ITA 2698/DEL/2004

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97913 (ITAT-DELHI)
• Duration Of Justice: 11 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 14-09-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 03-06-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M ALAM
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Retrospective amendment; Unabsorbed depreciation; Revenue expenditure
• Section: 80HHC; 14A; 37(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: H NEW DELHI BEFORE SMT . DIVA SINGH, JUDICIAL MEMBER AND SH.O.P.KANT, ACCOUNTANT MEMBER I.T.A .NO. - 2698 /DEL/20 04 (ASSESSMENT YEAR - 2000 - 01 ) SRF LIMITED, EXPRESS BUILDING, 9 - 10, BAHADUR SHAH ZAFAR MARG, NEW DELHI - 110002. (APPELLANT) VS ADDL. CIT, RANGE - 9, CENTRAL REVENUE BUILDING, INDRAPRASTHA MARG, NEW DELHI - 110002. (RESPONDENT ) APPELLANT BY SH.SATYEN SETHI, ADV. RESPONDENT BY SH.M.ALAM, CIT DR ORDER PER DIVA SINGH, JM BY THE PRESENT APPEAL THE ASSESSEE ASSAILS THE CORRECTNESS OF THE ORDER DATED 19.03.2004 OF CIT(A) - XII, NEW DELHI PERTAINING TO 2000 - 01 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE COMMISSIONER OF INCOME TAX (APPEALS), NEW DELHI {BRIEFLY 'THE CIT(A)}ERRED IN UPHOLDING THE DISALLOWANCE MADE BY ASSESSING OFFICER OF ES PS EXPENSES OF RS.9,18,48,400/ - TOWARDS THE COMPENSATION TO THE EMPLOYEES. 1.1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE CIT(A)' ERRED IN NOT APPRECIATING THAT THE ESPS EXPENSES ARE REVENUE EXPENDITURE ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT, 1961. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE CIT(A)' ERRED IN SUSTAINING THE DISALLOWANCE MADE BY ASSESSING OFFICER OF A SUM OF RS.1,85,064/ - I.E. 5% OF THE DIVIDEND INCOME, TOWARDS THE EXPENSES FOR E ARNING THE DIVIDEND INCOME. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE CIT(A)' ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE DEDUCTION OF RS.12,44,50,878/ - U/S 80HHC BEFORE THE ADJUSTMENT OF THE UNA BSORBED DEPRECIATION / ACCUMULATED LOSSES. DATE OF HEARING 14 .0 9 .2015 DATE OF PRONOUNCEMENT 09 .11 .2015 I.T.A .NO. - 2698/ DEL/20 04 PAGE 2 OF 8 3.1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE CIT(A)' ERRED IN APPLYING THE DECISION OF THE APEX COURT IN IPCA LABORATORIES LIMITED VS. DCIT, MUMBAI REPORTED IN (2004) TAXINDIAONLINE - 2 6 - SC - IT IN WHICH THE HON'BLE SUPREME COURT HAS GIVEN AN OBSERVATION REGARDING THE ADJUSTMENT OF BROUGHT FORWARD LOSSES . ASSESSEE PRAYS FOR LEAVE TO ADD, ALTER, AMEND OR VARY ANY OF THE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING THE APPEAL. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION DECLARED NIL INCOME AFTER ADJUSTING THE BROUGHT FORWARD UNABSORBED DEPRECIATION U/S 115JA INCOME OFFERED FOR TAXATION WAS RS.1,74,83,870/ - . APART FROM THAT LONG TERM CAPITAL LOSS HAD BEEN SHOWN AS RS.7,36,63,180/ - . THE SAID RETURN WAS FILED ON 30.11.2000 AND WAS DULY PROCESSED U/S 143(1). THEREAFTER IT WAS SELECTED FOR SCRUTINY ASSESSMENT WHEREIN CERTAIN ADDITIONS WERE MADE. AS A RESULTING THESE ADDITIONS THE NORMAL INCOME OF THE ASSESSEE WAS ASSESSED AT RS.1,74,83,870/ - . HOWEVER SINCE THE RETURNED INCOME U/S 115JA WAS HIGHER THAN THE ASSESSED INCOME, THE INCOME OF THE ASSESSEE WAS TAKEN AT RS.1,74,83,870/ - . THE ADDITIONS WERE UNSUCCESSFULLY CHALLENGED BY THE ASSESSEE IN APPEAL BEFORE THE CIT(A) . 3. AGGRIEVED BY THIS THE PRESENT APPEAL HAS BEEN FILED. THE LD.AR AT THE TIME OF HEARING INVITING ATTENTION TO PARA 3 TO 3.2 OF THE ASSESSMENT ORDER SUBMITTED THAT THE DISALLOWANCE OF ESPS EXPENSES AMOUNT ING TO RS.9,18,48,000/ - I S ASSAILED BY THE ASSESSEE IN GROUND NO.1. THE REASONS FOR MAKING THE DISALLOWANCE AS SET OUT IN THE ASSESSMENT ORDER IT WAS SUBMITTED WERE THAT THE AO AS PER THE SAID PARAS WAS OF THE VIEW THAT THE CLAIM OF EXPENDITURE U/S 37(1) COULD NOT BE ALLOWED ON A CCOUNT OF THE FACT THAT FIRSTLY THE ASSESSEE HAD NOT INCURRED THE EXPENSES AND SECONDLY EVEN OTHERWISE NOTIONAL EXPENSES ON ISSUE OF STOCK OPTIONS TO THE EMPLOYEES IT WAS CONCLUDED WOULD RELATE TO THE SHARE CAPITAL OF THE ASSESSEE AND THUS IT WOULD BE CAPI TAL IN NATURE. REFERRING TO THE SAID PARAS IT WAS SUBMITTED THAT THE ASSESSEE HAD CLAIMED THE EXPENDITURE AS A BUSINESS EXPENDITURE U /S 37(1) OF THE INCOME TAX ACT. THE SAID VIEW OF THE AO IT WAS SUBMITTED HAD BEEN UPHELD BY THE CIT(A). THE ISSUE IT WAS SUBMITTED IS NO LONGER RES INTEGRA AND INVITING ATTENTION TO THE DECISION OF THE SPECIAL BENCH RENDERED IN THE CASE OF BIOCON LTD. VS DCIT [2013] 155 TTJ (BANG) (SB) 649 IT WAS HIS PRAYER THAT FOR VERIFICATION OF FACTS, THE ISSUE MAY BE RESTORED. I.T.A .NO. - 2698/ DEL/20 04 PAGE 3 OF 8 3.1. LD. CIT DR, MR. M. ALAM CONSIDERING THE DECISION OF THE SPECIAL BENCH STATED THAT HE HAD NO OBJECTION IF THE ISSUE IS RESTORED FOR VERIFICATION ON FACTS. 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT IN THE FACTS OF THE PRESENT CASE THE ASSESSEE IN ITS P&L A/C DEBITED AN AMOUNT OF RS.9,18,48,000/ - CLAIMING IT TO BE AN EXPENDITURE INCURRED FOR BUSINESS PURPOSES. IN JUSTIFICATION OF ITS CLAIM IT WAS SUBMITTED THAT 28,43,100 EQUITY SHARES OF RS.10/ - EAC H HAD BEEN ISSUED TO THE EMPLOYEES OF THE COMPANY UNDER THE EMPLOYEES STOCK PURCHASE SCHEME (HEREINAFTER REFERRED TO AS ESPS ) @ RS.15/ - EACH. THE EXPENSES IT WAS CLAIMED REPRESENTED THE AMOUNT OF DISCOUNT BETWEEN THE ISSUE PRICE OF SHARES AND THE PREV AILING MARKETING PRICE OF THE SHARE MADE TO THE EMPLOYEES UNDER THE EMPLOYEE STOCK PURCHASE SCHEME. IT WAS SUBMITTED THAT THE EXPENSES WERE DEBITED TO THE PROFIT & LOSS ACCOUNT ACCORDINGLY TO THE GUIDELINES ISSUED BY STOCK EXCHANGE BOARD OF INDIA (HEREIN AFTER REFEREED TO SEBI ). IT WAS STATED THAT SINCE THE ISSUED SHARES @ 15 PER SHARE WAS BELOW THE MARKET PRICE, THEREFORE, THE DIFFERENCE BETWEEN THE MARKET PRICE AND THE ISSUE PRICE IS THUS A N THE EXPENSE/LOSS TO THE COMPANY AND HENCE CLAIMED AS AN EXP ENDITURE. THE AO CONSIDERING THE SEBI GUIDELINES WAS OF THE VIEW THAT A FULL DISCLOSURE NECESSITATED THAT THE ISSUE PRICE OF THE ESOP AND THE PREVAILING MARKET PRICE WAS TO BE CREDITED TO THE SHARES PREMIUM ACCOUNT AND WAS TO BE TREATED AS EMPLOYEE S COMPENSATION EXPENSES. ACCORDINGLY HOLDING THAT ON FACTS WHERE THE ASSESSEE HAD NOT INCURRED ANY EXPENSES IN ALLOWING STOCK OPTIONS TO THE EMPLOYEES AT A CONCESSIONAL RATE, RESULTING IN A BENEFIT TO THE EMPLOYEES WHERE EXPENSES HAD NOT BEEN INCURRED IT WA S CONCLUDED THAT THE ASSESSEE S CLAIM COULD NOT BE ALLOWED. HE ALSO EXAMINED THE ISSUE FROM THE ASPECT OF ALLOWABILITY OF NOTIONAL EXPENSES INCURRED BY THE ASSESSEE ON ISSUE OF STOCK OPTION TO THE EMPLOYEES AND HELD THAT IT WOULD RELATE TO THE SHARE CAPIT AL OF THE ASSESSEE AND, THEREFORE, CAPITAL IN NATURE. CONSIDERING THE ISSUE FROM THE ASPECT THAT HAD THE ASSESSEE SOLD HIS SHARES AT THE PREVAILING MARKET PRICE, THE DIFFERENCE BETWEEN THE ISSUE PRICE AND THE PREVAILING MARKET PRICE WOULD HAVE GONE TO SH ARE PREMIUM MARKET AND WOULD NOT HAVE AFFECTED THE P&L ACCOUNT IN ANY WAY EVEN OTHERWISE THE AO CONCLUDED THAT THE CLAIM COULD NOT BE ALLOWED. THE SAID ISSUE HAS BEEN CONSIDERED BY THE SPECIAL BENCH WHERE CONSIDERING THE IDENTICAL ARGUMENTS OF THE REVENUE, IT HAS BEEN HELD THAT THE DISCOUNT ON SHARES I.T.A .NO. - 2698/ DEL/20 04 PAGE 4 OF 8 UNDER ESOP IS AN ALLOWABLE DEDUCTION AND THEREAFTER THE ISSUE HAS BEEN RESTORED TO THE AO AFTER LAYING DOWN T H E GUIDELINES . THES E HAVE BEEN SUMMED UP IN PARA 11.3 A ND ARE EXTRACTED HEREUNDER FOR READY - REFERENCE : - 11.3. WE THEREFORE, SUM UP THE POSITION THAT THE DISCOUNT UNDER ESOP IS IN THE NATURE OF EMPLOYEES COST AND IS HENCE DEDUCTIBLE DURING THE VESTING PERIOD W.R.T THE MARKET PRICE OF SHARES AT THE TIME OF GRANT OF OPTIONS TO THE EMPLOYEES. THE AMOUNT OF DISCOUNT CLAIMED AS DEDUCTION DURING THE VESTING PERIOD IS REQUIRED TO BE REVERSED IN RELATION TO THE UNVESTING/LAPSING OPTIONS AT THE APPROPRIATE TIME. HOWEVER, AN ADJUSTM ENT TO THE INCOME IS CALLED FOR AT THE TIME OF EXERCISE OF OPTION BY THE AMOUNT OF DIFFERENCE IN THE AMOUNT OF DISCOUNT CALCULATED WITH REFERENCE THE MARKET PRICE AT THE TIME OF GRANT OF OPTION AND THE MARKET PRICE AT THE TIME OF EXERCISE OF OPTION. NO AC COUNTING PRINCIPLE CAN BE DETERMINATIVE IN THE MATTER OF COMPUTATION OF TOTAL INCOME UNDER THE ACT. THE QUESTION BEFORE THE SPECIAL BENCH IS THUS ANSWERED BY HOLDING THAT DISCOUNT ON ISSUE OF EMPLOYEE STOCK OPTIONS IS ALLOWABLE AS DEDUCTION IN COMPUTING T HE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . 4. 1. ACCORDINGLY, IN THE AFORE - MENTIONED PECULIAR FACTS AND CIRCUMSTANCES, CONSIDERING THE LIMITED PLEA OF THE PARTIES BEFORE THE BENCH, WE DEEM IT APPROPRIATE TO SET ASIDE THE IMPU GNED ORDER AND RESTORE THE ISSUE BACK TO THE FILE TO THE AO WITH THE DIRECTION TO PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 5 . ADDRESSING GROUND NO.2 RAISED BY THE ASSESSEE IN THE PRESEN T APPEAL, THE LD. AR INVITING ATTENTION TO PAGE 4 PARA 6 OF THE ASSESSMENT ORDER SUBMITTED THAT THE DISALLOWANCE OF RS.1,85,064/ - HAS BEEN MADE WITHOUT ANY DISCUSSION AND INFACT WITHOUT RECORDING ANY SATISFACTION THE ADDITION WAS MADE WHICH HAS BEEN SUSTAI NED BY THE CIT(A ) . REFERRING TO THE ORDER IT WAS SUBMITTED THAT SINCE THE REVENUE DID NOT HAVE THE BENEFIT OF THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. 347 ITR 272 THE ISSUE MAY ALSO BE SENT BACK TO THE AO . 6 . CONSID ERING THE FACTS LD. CIT DR HAD NO OBJECTION IF THE ISSUE IS RESTORED. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS THE PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSMENT YEAR UNDER CONSIDERATION I S 2000 - 01. THE HON BLE DELHI HIGH COURT IN MAXOPP INVESTMENT PVT. LTD. (CITED SUPRA) VIDE PARAS 40 TO 43 CONSIDERING THE LEGAL POSITION WHERE SUB - SECTIONS (2) A ND ( 3 ) OF S ECTION 14A WERE INTRODUCED WITH RETROSPECTIVE EFFECT FROM THE ASSESSMENT YEAR 2007 - 08 ONWARDS NOTED THAT SUB - SECTION ( 2 ) OF SECTION 14A REMAINED AN EMPTY SHELL UNTIL I.T.A .NO. - 2698/ DEL/20 04 PAGE 5 OF 8 THE INTRODUCTION OF RULE 8D ON 24.03.2008 WHICH GAVE CONTENT TO THE EXPRESSION SUCH METHOD AS MAY BE PRESCRIBED APPEARING IN SECTION 14A (2) OF THE ACT. THUS STRIKING AT TH E RETROSPECTIVELY THE HON BLE COU RT DIRECTED THE AO TO VERIFY THE CORRECTNESS OF THE ASSESSEE S CLAIM IN REGARD TO INCURRING EXPENDITURE FOR INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND INCASE HE IS NOT SATISFIED BY THE CORRECTION OF THE CLAIM HE IS REQUIRED TO DO SO ON THE BAS IS OF REASONABLE AND ACCEPTABLE METHOD. THE SAID EXERCISE IN THE FACTS OF THE PRESENT CASE OBVIOUSLY HAS NOT BEEN DONE. ACCORDINGLY IN VIEW OF THE ABOVE AND IN THE LIGHT OF THE SUBMISSIONS OF THE PARTIES BEFORE THE BENCH THE ISSUE IS RESTORED BACK TO THE AO AND GROUND NO.2 RAISED BY THE ASSESSEE ACCORDINGLY STANDS ALLOWED FOR STATISTICAL PURPOSES. 8 . THE FACTS RELATABLE TO GROUND NO.3 RAISED BY THE ASSESSEE ARE FOUND DISCUSSED IN PARA 5 OF THE ASSESSMENT ORDER. A PERUSAL OF THE SAME SHOWS THAT THE ASSESS EE CLAIMED DEDUCTION U/S 80HHC AMOUNTING TO RS.39,83,994/ - ON ISD(M) DIVISION AND AMOUNTING TO RS.12,04,66,881/ - ON FCD DIVISION TOTALING TO RS.12,44,50,878/ - . CONSIDERING THE SAME THE AO OBSERVED THAT THE ASSESSEE HAS FIRST CLAIMED THE DEDUCTION AND THER EAFTER SET OFF THE UNABSORBED BROUGHT FORWARD DEPRECIATION. ACCORDINGLY THE ASSESSEE WAS SHOW - CAUSED IN TERMS OF SECTION 80A AND 80AB TO EXPLAIN WHY BEFORE ALLOWING THIS DEDUCTION BROUGHT FORWARD DEPRECIATION SHOULD NOT BE REDUCED FROM THE PROFITS OF THE CURRENT YEAR IN ORDER TO ARRIVE AT THE GROSS TOTAL INCOME. THE ASSESSEE AS PER RECORD RELIED UPON CIT VS SHIRKE CONSTRUCTION EQUIPMENTS LTD. (BOM.) [2000] 246 ITR 429,. THE ISSUE WAS UNSUCCESSFULLY CHALLENGED IN APPEAL BEFORE THE CIT(A WHO DISMISSED IT HOLDING AS UNDER: - 5.1. I HAVE CAREFULLY CONSIDERED THE ENTIRE ISSUE AND THE CONTENTIONS OF THE APPELLANT SECTION 80B(5) DEFINES 'GROSS TOTAL INCOME' FOR THE PURPOSE OF CHAPTER VI - A AS, 'IT MEANS THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISION OF THE I.T. ACT WITHOUT MAKING ANY DEDUCTION UNDER CHAPTER VIA.' THIS DEFINITION IS VERY RELEVANT IN THE CONTEXT OF CHAPTER VIA. THE PHRASE 'COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T ACT IN SECTION 80B(5) IMPLIES; THAT UNABSORBED BUSINESS LOSS ES, ETC. UNABSORBED DEPRECIATION, UNABSORBED INVESTMENT ALLOWANCE, ETC. HAVE TO BE SET OFF FIRST TO ARRIVE AT THE GROSS TOTAL INCOME THIS VIEW FINDS SUPPORT FROM THE JUDICIAL DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASES OF DISTRIBUTORS BARODA (P)LTD . VS CIT (1985) 155 1TR 120 (SC), H.H SIR RAMA VERMA VS CJT, 205 ITR 433(SC) AND CIT VS KOTAGIRI INDUSTRIAL COOPERATIVE TEA FACTORY LTD., 224 ITR 604 (SC). A COMBINED READING OF THE PROVISIONS OF SECTION 80A, 80B(5) AND 80HHC MAKES IT CLEAR THAT WHILE COMPUTING 'TOTAL INCOME' OF AN I.T.A .NO. - 2698/ DEL/20 04 PAGE 6 OF 8 ASSESSEE, DEDUCTIONS SPECIFIED UNDER CHAPTER VIA ARE TO BE ALLOWED FROM THE 'GROSS TOTAL INCOME', AS HELD IN THE CASE OF MONARCH FOODS .PVT. LTD. VS ACIT(1995) 214 ITR 64 (AHD.). THE CUMMALATIVE DEDUCTIONS UNDER CHAPTER VI - A SHALL NOT EXCEED THE 'GROSS TOTAL INCOME', WHICH IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTIONS UNDER CHAPTER VIA OF THE ACT. IT HAS BEEN HELD IN THE CASE OF MONARCH F OODS (P)LTD. VS ACIT(1995) 214 ITR 64 (AHD.), 54 TTJ 405 (AHD.TRIB) THAT, THE MANDATE CONTAINED IN SECTION 80A & 80B(5), CLEARLY REQUIRES THAT THE GROSS TOTAL INCOME IS TO BE COMPUTED AFTER SETTING OFF THE BROUGHT FORWARD DEFICIENCIES OF BUSINESS LOSS, UNA BSORBED DEPRECIATION ETC. THIS IS THE FIRST STEP TO COMPUTE THE TOTAL INCOME THE SECOND STEP, THEN WOULD BE TO ALLOW DEDUCTIONS UNDER CHAPTER VIA FROM THE RESULTANT POSITIVE INCOME, IF ANY WHICH IS LEFT AFTER SET OFF OF THE UNABSORBED LOSSES, UNABSORBED DE PRECIATION ETC. SIMILARLV IN THE CASE OF CIT VS FLEX INDUSTRIES (2003) 32 DTC 356(DELHI HC) AND CAPT A N FERNANDAS VS ITO (2002) 80 ITD 203(BOMBAY TRIBUNAL) [TM], IT HAS BEEN HELD THAT UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSSES ETC WERE TO BE FIRST ADJUSTED IN DETERMINING THE TOTAL INCOME OF AN INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80I. 1 HAVE ALSO CAREFULLY GONE THROUGH THE JUDICIAL DECISIONS IN THE CASE OF GOGINENI TOBACCO CO LTD AND SHIRKE CONSTRUCTION EQUIPMENT LTD. RELIED ON BY THE APPELLANT. IN THE GOGINENI CASE, THE HON'BLE COURT WAS SEIZED WITH THE ISSUE OF PRIORITY OF SET - OFF OF UNABSORBED LOSSES AND UNABSORBED DEPRECIATION ETC. VIS - - VIS DEDUCTION COMPUTED U/S 80HHC OF THE ACT. THE QUESTION FOR CONSIDERATION WAS ''WHETHER DEDUC TION U/S 80HHC SHOULD BE ALLOWED FIRST FROM THE 'GROSS TOTAL INCOME , BEFORE ADJUSTMENT OF BROUGHT FORWARD DEFICIENCIES ? THE QUESTION BEFORE THE HON'BLE COURT IN THE SHIRKE CONSTRUCTION CASE WAS, 'WHETHER, IN DETERMINATION OF BUSINESS PROFITS U/S 80HHC, T HE UNABSORBED BUSINESS LOSSES OF THE EARLIER YEARS U/S 72 SHOULD BE SET - OFF'? THE HON'BLE COURT IN THE FORMER CASE (GOGINENI) HELD, THAT DEDUCTION U/S 80HHC IS TO BE ALLOWED FIRST BEFORE ALLOWING UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION. THE HO N'BLE COURT, FOR THE REASON THAT THE LANGUAGE USED IN SECTION 80HHC WAS DIFFERENT FROM THE LANGUAGE USED IN SECTION 80E, HELD FURTHER, THAT THE RATIO OF THE DECISION IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO.LTD. VS CIT 113 ITR 84 (SC), WAS NOT A PPLICABLE TO THE INTERPRETATION OF SECTION 80HHC. IN THE LATTER CASE, IT WAS HELD THAT SECTION 80HHC WAS COMPLETE CODE IN ITSELF AND THAT IT IS NOT CONTROLLED BY SECTION 80AB. IT WAS HELD THAT BROUGHT FORWARD LOSSES COULD NOT BE SET OFF IN COMPUTING PROFIT S FOR THE PURPOSES OF SECTION 80HHC. THE CONTROVERSY ARISEN OUT OF THE SAID DECISIONS HAS BEEN SET AT REST BY THE HON'BLE SUPREME COURT BY ITS' DECISION DATED 13.03,2004, IN CIVIL APPEAL NO. 1697 OF 2003 IN THE CASE OF IPCA LABORATORIES LTD. VS DCIT MUMBAI , REPORTED IN 2004, TAXINDIAONLINE - 26 - SC - IT. THE APEX COURT HAS EXPRESSLY OVERRULED THE DECISIONS OF THE MUMBAI HIGH COURT IN THE SHIRKE CONSTRUCTION CASE AND THAT OF KERALA HIGH COURT IN CIT VS SMT. TC USHA, (2003) 137 TAXMAN 297, WHICH WAS ALSO ON TH E SAME FOOTING THAT SECTION 80HHC IS A COMPLETE CODE IN ITSELF. THE HIGHEST COURT OF LAND HAS OBSERVED THAT, 'UNDER SECTION 80HHC(1) THE DEDUCTION IS TO BE GIVEN IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE BOTH PROFITS AS WELL AS LOSSES WILL HAVE TO BE TAKEN INTO CONSIDERATION. SECTION 80AB IS RELEVANT. IT READS AS FOLLOWS '80 AB. WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER ANY SECTION INCLUDED IN THIS CHAPTER UNDER THE HEADING 'C - DEDUCTIONS IN I.T.A .NO. - 2698/ DEL/20 04 PAGE 7 OF 8 RESPECT OF CERTAIN INCOMES' IN RESPECT OF ANY INCOME OF THE NATURE SPECIFIED IN THAT SECTION WHICH IS INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE, THEN, NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION, FOR THE PURPOSE OF COMPUTING THE DEDUCTI ON UNDER THAT SECTION, THE AMOUNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER) SHALL ALONE BE DEEMED TO BE THE AMOUNT OF INCOME OF THAT NATURE WHICH IS DERIVED BY THE AS SESSEE AND WHICH IS INCLUDED IN HIS GROSS TOTAL INCOME.' SECTION 80B(5) IS ALSO RELEVANT. SECTION 80B(5) PROVIDES THAT 'GROSS TOTAL INCOME' MEANS TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT. SECTION 80AB IS ALSO IN CHAPTE R VL - A IT STARTS WITH THE WORDS 'WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER ANY SECTION OF THIS CHAPTER' THIS WOULD INCLUDE SECTION 80HHC. SECTION 80AB FURTHER PROVIDES THAT 'NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION' THUS SECTION 80AB HAS BEEN GIVEN AN OVERRIDING EFFECT OVER ALL OTHER SECTIONS IN CHAPTER VIA. SECTION 80HHC DOES NOT PROVIDE THAT ITS PROVISIONS ARE TO PREVAIL OVER SECTION 80AB OR OVER ANY OTHER PROVISION OF THE ACT. SECTION 80HHC WOULD T HUS BE GOVERNED BY SECTION 80AB. 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. IF THE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, THEN NOT ONLY PROFITS BUT ALSO LOSSES HAVE TO BE TAKEN INTO CONSIDERATION;' THIS DECISION OF THE HON'BLE SUPREME COURT HAS N OW SETTLED THAT SECTION 80A, 80AB & 80B( 5) ARE THE GOVERNING SECTIONS FOR DEDUCTIONS AVAILABLE UNDER CHAPTER VIA OF THE ACT. SECTION 80HHC IS ONLY A MACHINERY SECTION. FOR THE PURPOSES OF DEDUCTION UNDER CHAPTER VI A, FIRST THE GROSS TOTAL INCOME IS TO FEE COMPUTED UNDER THE ACT, AFTER SETT ING OFF BROUGHT FORWARD BUSINESS LOSSES, UNABSORBED DEPRECIATION ETC AND OTHER DEFICIENCIES. THEREAFTER, THE DEDUCTION UNDER SECTION 80HHC, WILL BE ALLOWED, FROM THE RESULTANT POSITIVE INCOME, IF ANY, ARRIVED AT AFTER SETTING OFF THE BROUGHT FORWARD D EFICIENCIES. THE ARGUMENTS OF THE APPELLANT THEREFORE, FAIL; AND THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. THERE IS HOWEVER, MERIT IN THE SUBMISSION OF THE APPELLANT THAT, IN CASE AFTER THE APPEAL AND GIVING EFFECT TO THE PROVISIONS OF SECTIO N 80A, 80AB AND 80B (5) (EMPHASIS ADDED) POSITIVE INCOME SURVIVES, THEN THE APPELLANT WOULD BE WITHIN HIS RIGHTS TO MAKE A CLAIM FOR DEDUCTION U/S 80HHC. 9 . CONSIDERING THE POSITION OF LAW AS FINALLY SETTLED BY THE APEX COURT IN IPCA LABORA TORIES IN 266 I TR 521 (SC) THE L D. AR THOUGH RELIED ON THE GROUND ADVANCED NO FURTHER ARGUMENTS. THE LD. DR PLACED RELIANCE UPON THE IMPUGNED ORDER. ACCORDINGLY HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD WHEREIN ADMITTEDLY THE ISSUE IS NO LONGER RES INTEGRA AS THE JUDGEMENT OF THE HON BLE BOMBAY HIGH COURT HAS BEEN SET ASIDE BY THE AFORE - I.T.A .NO. - 2698/ DEL/20 04 PAGE 8 OF 8 MENTIONED DECISION OF THE HON BLE APEX HIGH COURT WHICH FACT HAS BEEN TAKEN INTO CONSIDERATION BY THE WELL - REASONED AND SPEAKING ORDER PASSED BY THE LD. CIT(A). BEING SATISFIED BY THE REASONING AND FINDING ARRIVED AT IN THE IMPUGNED ORDER, GROUND NO.3 OF THE ASSESSEE IS DISMISSED. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 0 9 T H OF NOVEMBER , 2015. S D / - S D / - (O.P.KANT) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 0 9 /11 /2015 * AMIT KUMAR * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI