SUBBIAH CHETTIAR NARAYANAN,CHENNAI V. INCOME TAX OFFICER - NON CORPORATE CIRCLE-7(1)CHE, CHENNAI

ITA 3096/CHNY/2025

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The case involves Subbiah Chettiar Narayanan, who appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the disallowance of a deduction claimed under Section 80-IA of the Income Tax Act, 1961. The deduction was initially claimed on profits from wind mills but was restricted by the Assessing Officer to the extent of business income only, disallowing Rs. 14,49,330. The Tribunal examined whether the deduction under Section 80-IA could be claimed against the gross total income or was restricted to business income alone. Citing the Supreme Court's decision in CIT v. Reliance Energy Ltd., the Tribunal concluded that the deduction should be allowed against the gross total income.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835377 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 23-10-2025
• Other Referred Cases: CIT v. Reliance Energy Ltd. ([2021] 127 taxmann.com 69 (SC))
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: KM SETHU; C.A
• Keywords: Business income; Rule of consistency
• Section: 80C

Judgement Text

"आयकर अपीलीय अिधकरण, ‘सी’ ा यपीठ, चे\u0012ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI \u0015ी एबी टी. वक\u001a, ा ियक सद एवं सु\u0015ी पदमा वती यस, लेखा सद क े सम\" BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND MS. PADMAVATHY.S, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.3096/Chny/2025 िनधा $रण वष$ /Assessment Year: 2018-19 Subbiah Chettiar Narayanan, D1, Lotus Colony, Chamiers Road, Chennai – 600 035. PAN: AABPN 5962D Vs. The Income Tax Officer, Non Corporate Circle-7(1), Chennai. (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीला थ\u001a की ओर से/ Appellant by : Mr. Km Sethu, C.A ()थ\u001a की ओर से /Respondent by : Ms. R. Anitha, Addl. CIT सुनवा ई की ता रीख/Date of Hearing : 05.02.2026 घोषणा की ता रीख /Date of Pronouncement : 11 .02.2026 आदेश / O R D E R PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short \"CIT(A)\") passed u/s. 250 of the Income Tax Act, 1961 (in short \"the Act\") dated 26.08.2025 for Assessment Year (AY) 2018-19. The assessee raised the following ground of appeal: “1. The learned CIT(A) erred in confirming the restriction of deduction under Section 80-IA only to business income, disallowing *14,49,330. 2. The deduction was rightly claimed against the Gross Total Income, well within the scope of Section 80-IA. 3. Sub-section (5) of Section 80-IA is a computational provision and does not limit the deduction to business income alone. Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 2 -: 4. The action of the AO and CIT(A) violates the principle of consistency, especially when the same issue was resolved in favor of the appellant in AY 2020-21. 5. The disallowance is contrary to the legislative scheme of Chapter VIA and the intent of Section 80-IA. 6. The appellant seeks deletion of the disallowance and allowance of the full deduction as claimed. 7. The appellate wish is reserved to amend, modify, or add further grounds at the time of hearing.” 2. The assessee is an individual and filed return of income for the A.Y 2018-19 on 13.10.2018 declaring total income of Rs. 19,43,210/-. The A.O noticed that the assessee has claimed deduction u/s. 80IA of the Act to the tune of Rs. 70,39,050/- from wind mills and that the assessee has declared income chargeable under the head \"profits and gains\" from business or profession to the tune of Rs.55,41,919/-. The A.O held that the deduction u/s. 80IA cannot exceed the business income of the assessee and accordingly disallowed the deduction claimed by the assessee u/s. 80IA to the tune of Rs.14,49,330/-. Aggrieved, the assessee filed further appeal before the CIT(A), who upheld the disallowance made by the A.O. The assessee is in appeal before the Tribunal against the order of the CIT(A). 3. The Ld. Authorized Representative (AR) of the assessee submitted that out of the five wind mills, the assessee has earned profit from three units and loss from two units. The details of the wind mills and the profits/loss are tabulated as under: Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 3 -: 4. The Ld. AR submitted that the assessee has claimed the deduction u/s. 80IA of the Act only for the eligible units and that there is no restriction under the Act to claim the deduction against the total income of the assessee. The Ld. AR submitted that the A.O has restricted the addition considering the provisions of section 80A(2) which is misplaced. The Ld. AR placed reliance on the decision the Hon'ble Supreme Court in the case of CIT v. Reliance Energy Ltd. ([2021] 127 taxmann.com 69 (SC)) 5. The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities. 6. We have heard both the parities, perused the material available on record. From the perusal of the computation, we notice that the deduction u/s. 80IA of the Act is computed by the assessee to the tune of Rs. 70,39,050/- towards profits from eligible units in Mannur and Kalspura. From the perusal of the computation of income we notice that the gross total income of the assessee amounting to Rs.91,06,961/- which includes income from other heads of income such as salaries, income from house property etc., and also includes the business income of Rs. 55,41,919/-. The A.O. held that the assessee cannot claim the deduction u/s.80IA against the gross total income that includes income under other heads and that the deduction u/s.80IA should be restricted to the Business income of the assessee. Accordingly the A.O. made the addition for the differential claim of Rs. 14,49,330/-. 7. From the perusal of the workings for claiming deduction u/s.80IA, we notice that the assessee has computed the deduction u/s. 80IA of the Act towards profits derived from the eligible units and this fact is not disputed by the revenue. Therefore, the limited issue for our consideration here is whether Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 4 -: the deduction u/s.80IA can be claimed against the income from other heads or should only be claimed against the business income. The issue of whether the deduction u/s.80IA should only be against the business income or whether can be claimed against the gross total income is settled by the Hon'ble Supreme Court in the case of Reliance Energy Ltd (supra) where it is held that – 9. The controversy in this case pertains to the deduction under section 80-IA of the Act being allowed to the extent of 'business income' only. The claim of the Assessee that deduction under section 80-IA should be allowed to the extent of 'gross total income' was rejected by the Assessing Officer. It is relevant to reproduce Section 80AB of the Act which is as follows: \"80AB. Deductions to be made with reference to the income included in the gross total income. — Where any deduction is required to be made or allowed under any section included in this Chapter under the heading \"C. — Deductions in 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 deduction 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 or received by the assessee and which is included in his gross total income.\" As stated above, Section 80AB was inserted in the year 1981 to get over a judgment of this Court in Cloth Traders (P.) Ltd. (supra). The Circular dated 22-9-1980 issued by the CBDT makes it clear that the reason for introduction of Section 80AB of the Act was for the deductions under Part C of Chapter VI-A of the Act to be made on the net income of the eligible business and not on the total profits from the eligible business. A plain reading of Section 80AB of the Act shows that the provision pertains to determination of the quantum of deductible income in the 'gross total income'. Section 80AB cannot be read to be curtailing the width of Section 80-IA. It is relevant to take note of Section 80A(1) which stipulates that in computation of the 'total income' of an assessee, deductions specified in Section 80C to Section 80U of the Act shall be allowed from his 'gross total income'. Sub-section (2) of Section 80A of the Act provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the 'gross total income' of the Assessee. We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of 'net income'. 10. Sub-section (1) and sub-section (5) of Section 80-IA which are relevant for these Appeals are as under: Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 5 -: \"80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.— (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance 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 hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years. ** ** ** (5) 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 that sub-section 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 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.\" 11. The essential ingredients of Section 80-IA (1) of the Act are: (a) the 'gross total income' of an assessee should include profits and gains; (b) those profits and gains are derived by an undertaking or an enterprise from a business referred to in sub- section (4); (c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and (d) in computing the 'total income' of the Assessee, such deduction shall be allowed. 12. The import of Section 80-IA is that the 'total income' of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the 'eligible business'. With respect to the facts of this Appeal, there is no dispute that the deduction quantified under section 80-IA is Rs. 492,78,60,973/-. To make it clear, the said amount represents the net profit made by the Assessee from the 'eligible business' covered under sub- section (4), i.e., from the Assessee's business unit involved in generation of power. The claim of the Assessee is that in computing its 'total income', deductions available to it have to be set-of against the 'gross total income', while the Revenue contends that it is only the 'business income' which has to be taken into account for the purpose of setting-off the deductions under sections 80-IA and 80-IB of the Act. To illustrate, the 'gross total income' of the Assessee for the assessment year 2002-03 is less than the quantum of Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 6 -: deduction determined under section 80-IA of the Act. The Assessee contends that income from all other heads including 'income from other sources', in addition to 'business income', have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of 'gross total income'. The Appellate Authority was of the view that there is no limitation on deduction admissible under section 80-IA of the Act to income under the head 'business' only, with which we agree. 13. The other contention of the Revenue is that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from 'eligible business' by taking it as the only source of income. It is contended that the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from 'eligible business' which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the 'business income'. On the other hand, it is the case of the Assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the 'eligible business' as the only source of income. It was submitted by Mr. Vohra, learned Senior Counsel, that the final computation of deduction under section 80-IA for the assessment year 2002-03 as accepted by the Assessing Officer, was arrived at by taking into account the profits from the 'eligible business' as the 'only source of income'. He submitted that, however, sub- section (5) is a step antecedent to the treatment to be given to the deduction under sub-section (1) and is not concerned with the extent to which the computed deduction be allowed. To explain the interplay between sub- section (5) and sub-section (1) of Section 80-IA, it will be useful to refer to the facts of this Appeal. The amount of deduction from the 'eligible business' computed under section 80-IA for the assessment year 2002-03 is Rs. 492,78,60,973/-. There is no dispute that the said amount represents income from the 'eligible business' under section 80-IA and is the only source of income for the purposes of computing deduction under section 80-IA. The question that arises further with reference to allowing the deduction so computed to arrive at the 'total income' of the Assessee cannot be determined by resorting to interpretation of sub-section (5). 14. It will be useful to refer to the judgment of this Court relied upon by the Revenue as well as the Assessee. In Synco Industries (supra), this Court was concerned with Section 80-I of the Act. Section 80-I(6), which is in pari materia to section 80-IA(5), is as follows: \"80-I(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-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 ship or the business of the hotel or the business of repairs to Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 7 -: ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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.\" It was held in Synco Industries (supra) that for the purpose of calculating the deduction under section 80-I, loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking shall be taken into account as it was the only source of income. Further, the Court concluded that Section 80-I(6) of the Act dealt with actual computation of deduction whereas Section 80- I(1) of the Act dealt with the treatment to be given to such deductions in order to arrive at the total income of the assessee. The Assessee also relied on the judgment of this Court in Canara Workshops (P.) Ltd. (supra) to emphasize the purpose of sub-section (5) of Section 80-IA. In this case, the question that arose for consideration before this Court related to computation of the profits for the purpose of deduction under section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80-E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. This Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit under section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. 15. In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it has a bearing on the interpretation of sub-section (1) of Section 80-IA of the Act. We hold that the scope of sub-section (5) of Section 80-IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating 'eligible business' as the 'only source of income'. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to 'business income'. An attempt was made by the learned Senior Counsel for the Revenue to rely on the phrase 'derived … from' in Section 80-IA (1) of the Act in respect of his submission that the intention of the legislature was to give the narrowest possible construction to deduction admissible under this sub-section. It is not necessary for us to deal with this submission in view of the findings recorded above. For the aforementioned reasons, the Appeal is dismissed qua the issue of the extent of deduction under Section 80-IA of the Act.” Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 8 -: 8. The ratio laid down by the Apex Court is that the restriction under sub- section (5) of section 80IA is only with respect to the quantum of eligible deduction which cannot be extended to restrict the claim of deduction under subsection (1) only against the business income of the assessee and that the deduction u/s.80IA is to be allowed against the gross total income of the assessee. It is an established fact in the present case that the assessee for the purpose of arriving at the quantum eligible for deduction u/s.80IA has considered only the income and expenditure of eligible units. Given these facts, when we apply the ratio laid down by the Hon'ble Supreme Court to the present case, we are of the view that the A.O. is not correct in denying the deduction u/s.80IA against the gross total income of the assessee. Section 80A(2) which is considered by the AO to restrict the addition, also states that the deduction under the Chapter shall exceed the Gross Total Income of the assessee which is not the case here. The Gross Total Income of the assessee is Rs. 91,06,961/- and the deduction claimed u/s.80IA and other deductions under Chapter VIA is Rs.72,11,550. Therefore the contention of revenue in this regard is not tenable. Accordingly we hold that the addition made by the A.O. towards the difference of Rs. 14,49,330 deserves to be deleted. 9. In the result, the appeal of the assessee is allowed. Order pronounced on 11th day of February, 2026 at Chennai. Sd/- Sd/- (एबी टी. वक\u001a) (ABY. T. Varkey) \u0001याियक \u0001याियक \u0001याियक \u0001याियक सद\bय सद\bय सद\bय सद\bय / Judicial Member (पदमा वती यस) (Padmavathy.S) लेखा लेखा लेखा लेखा सद\u0011य सद\u0011य सद\u0011य सद\u0011य /Accountant Member चे\u0013नई/Chennai, \u0016दनांक/Dated: 11th February, 2026. EDN, Sr. P.S Printed from counselvise.com ITA No.3096/Chny/2025 Subbiah Chettiar Narayanan :- 9 -: आदेश क\u0019 \bितिल प अ े षत/Copy to: 1. अपीलाथ\u0007/Appellant 2. \b थ\u0007/Respondent 3. आयकर आयु\u000f/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय \bितिनिध/DR 5. गाड\u0018 फाईल/GF Printed from counselvise.com "