THE ACIT (ASST.), SR-1, BARODA V. CHEMICAL & DYESTUFF INDUSTRIES

TAX APPEAL NO. 166 of 2008

AI Insights

The case involves multiple tax appeals by the Assistant Commissioner of Income-Tax (ACIT), Baroda, against Chemical & Dyestuff Industries concerning the assessment years 1993-1994 to 1998-1999. The primary legal issue was whether the deduction under Section 80HHC should be calculated without excluding the profit of a new unit under Section 80IA of the Income Tax Act. The Income Tax Appellate Tribunal had previously dismissed the department's appeals, leading to the current appeals in the Gujarat High Court. The court examined the applicability of deductions under Sections 80HHC and 80IA, referencing several precedents and the interpretations of these sections by different benches of the Income Tax Appellate Tribunal and the Supreme Court.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 368931 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Department
• Assessment Year: 1993-1994
• Other Referred Cases: Assistant Commissioner of Income-Tax v. Micro Labs Ltd., Commissioner of Income-tax v. Amod Stamping, Commissioner of Income-Tax v. Atul Intermediates, Joint Commissioner of Income-Tax v. Mandideep Eng. and Pkg. Ind. P. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MIHIR THAKORE; H S MUNSHAW
• Assessee Lawyers: K M PARIKH
• Keywords: Assessment Year; Deduction; Income Tax; Section 80HHC; Section 80IA; Tribunal
• Section: 80HHC; 80IA

Judgement Text

"O/TAXAP/166/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 166 of 2008 With TAX APPEAL NO. 167 of 2008 With TAX APPEAL NO. 168 of 2008 With TAX APPEAL NO. 169 of 2008 With TAX APPEAL NO. 170 of 2008 With TAX APPEAL NO. 594 of 2008 FOR APPROVAL AND SIGNATURE : HONOURABLE MR.JUSTICE KS JHAVERI Sd/- and HONOURABLE MR.JUSTICE G.R.UDHWANI Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ================================================================ THE ACIT (ASST.), SR-1, BARODA NOW REPRESENTED BY THE....Appellant(s) Versus Page 1 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT CHEMICAL & DYESTUFF INDUSTRIES....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR MIHIR THAKORE, SENIOR COUNSEL with MR HS MUNSHAW, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE G.R.UDHWANI Date : 01/08/2016 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these Appeals, the Appellant – Department has challenged the order dated 16.03.2007 of the Income Tax Appellate Tribunal, Ahmedabad Bench 'D' as per the following details :- Tax Appeal ITA No. Assessment Year 166/2008 1754/Ahd./2001 1993-1994 167/2008 1755/Ahd./2001 1995-1996 168/2008 1756/Ahd./2001 1996-1997 169/2008 1757/Ahd./2001 1997-1998 170/2008 1986/Ahd./2001 1998-1999 2. By way of Tax Appeal No.594/2008, the Appellant – Department has Page 2 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT challenged the order dated 22.06.2007 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “A” in ITA No.3061/Ahd./2002 for the Assessment Year : 1994-1995. In all the above Appeals, the Tribunal dismissed the Appeals preferred by the Department and confirmed the order of CIT (Appeals). 3. While admitting Tax Appeals No.166/2008 to 169/2008 on 19.03.2008, the following common substantial question of law was framed by the Court for consideration :- “Whether the ITAT was right in law and on facts in confirming the order passed by the CIT (A) holding that the deduction u/s. 80HHC should be calculated without excluding the profit of new unit under Section 80IA of the IT Act?” 4. While admitting Tax Appeal No.170/2008 on 19.03.2008, the following substantial questions of law were framed by the Court for consideration :- “I. Whether the ITAT was right in Page 3 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT law and on facts in confirming the order passed by the CIT(A) holding that the deduction u/s. 80HHC should be calculated without excluding the profit of new unit under Section 80IA of the IT Act? II. Whether on the facts and in the circumstances of the case, the Tribunal was right in law to exclude the excise duty at the time of valuing closing stock at the end of accounting period?” 5. While admitting Tax Appeal No.594/2008 on 12.08.2008, the following substantial question of law was framed by the Court for consideration :- “Whether the ITAT was right in law and on facts in confirming the order passed by the CIT (A) directing the Assessing Officer to allow the claim under Section 80IA without reducing deduction under Section 80HHC of the Income-tax Act?” 6. Learned Counsel for the appellant – Department Mr. K.M. Parikh has drawn the attention of this Court to the decision of the Hon'ble Supreme Court in the case of Assistant Commissioner of Income-Tax v. Micro Labs Ltd. reported in [2016] Page 4 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT 380 ITR 1 (SC) wherein on the question whether, while considering the deduction under the provisions of Section 80IA or 80IB of the Income Tax act, the assessee is also entitled to the deduction in respect of the profits and gains under the provisions of Section 80HHC of the Act or whether the assessee is entitled to deductions under all three sections in respect of the same profits, there being a difference of opinion among their Lordships, the matter was referred for consideration by a larger Bench. Therefore, at present it is submitted that the issue may be held in favour of the assessee subject to the decision of the larger Bench or the question/s may be referred back to the Tribunal. 7. Learned Senior Counsel Mr. Mihir Thakore appearing for the assessee company has also relied on the above decision in the case of Assistant Commissioner of Income-Tax v. Micro Labs Ltd. (supra), especially Paragraphs 13 and 43 of the above which reads as Page 5 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT under:- “So far as section 80-IA is concerned, it pertains to deduction in respect of profits and gains from industrial undertakings or enterprises engaged in the business of infrastructure development. Section 80-IA(9) of the Act specifically provides that when any deduction is claimed and allowed under the provisions of section 80- IA of the Act, deduction to the extent of such profits and gains cannot be allowed under any other provisions under heading “C. - Deductions in respect of certain incomes“ of the Chapter in which section 80HHC has been included. Similarly, it had been submitted by the learned counsel that so far as section 80-IB is concerned, it pertains to deduction in respect of profits and gains from certain industrial undertakings other than the business of infrastructure development. He had further submitted that section 80-IB(13) also provides that certain provisions of section 80-IA would also apply to section 80-IB, like the provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA. It is beyond cavil that the aforesaid legal position continued to exist up to March 31, 1999. With Page 6 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT effect from April 1, 1999, amendments were made by inserting sub-section (9) to section 80-IA and sub-section (13) to section 80-IB. These provisions read as under : “80-IA. (9) Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading 'C – Deductions in respect of certain incomes', and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be. 80-IB. (13) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section-80IA shall, so far as may be, apply to the eligible business under this section.” 7.1. Learned Senior Counsel Mr. Mihir Thakore has taken this Court to the definition of Section 80-IA of the Act, both prior to the amendment and after the amendment. 7.2. It is further submitted that Page 7 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT considering the decision in the case of Assistant Commissioner of Income-Tax v. Micro Labs Ltd. (supra), the issue needs to be decided in favour of the assessee. 7.3. Learned Senior Counsel Mr. Mihir Thakore has relied upon the decision of this Court in the case of Commissioner of Income-tax v. Amod Stamping reported in [2005] 274 ITR 176 and paragraph 4 is reproduced hereunder :- “Although the controversy in the present case is in the context of availing of deduction under section 80-I and section 80HH, the same principle would apply because sub- section (5) of section 80-I also permits carry forward of the deduction upto seven assessment years after the initial assessment year. In fact, the assessee's case is strengthened in the context of availing of deduction under section 80HH and section 80-I.” 7.4. Further reliance is also placed on the decision of this Court in the case of Commissioner of Income-Tax v. Atul Intermediates reported in [2015] 373 ITR 638 (Guj.) and paragraph 15 of the said Page 8 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT decision reads as under :- “The question of interpretation of sub-section (9) of section 80-IA has occupied judicial minds on more occasions than one. As expected, various Benches of the Income-tax Appellate Tribunal were the first to express their opinions. The issue was considered by a Special Bench of the Tribunal in case of Rogini Garments reported in (2007) 294 ITR (AT) 15 (Chennai) (SB). The Tribunal held that the restriction placed on claim of repetitive deduction contained in section 80IA(9) of the Act is to be made applicable in respect of all deductions under Chapter VIA. Full effect of such a provision is to be given, and wherever an assessee wants to claim deduction, restriction contained in section 80IA(9) is to be read in every provision providing for deduction under Part `C' of Chapter VIA. Despite this pronouncement by the Special Bench of the Tribunal, different Benches of the Tribunal adopted different interpretations. The question was, therefore, referred to a Larger Bench, which constituted of five members, and its decision was rendered in the case of Asst. C.I.T. v. Hind. Mint and Agro Products reported in (2009) 315 ITR 401 (Delhi) (SB). The Tribunal went deep into the issues, and traced the background for introduction of sub- Page 9 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT section (9) of section 80IA. It was noticed that in case of J.P. Tobacco Products Private Limited v. CIT reported in 229 ITR 123 Madhya Pradesh High Court considered the question, whether deduction under section 80I is to be allowed only on the balance of income after deducting the relief under section 80HH from the gross total income, and not from gross total income as defined under section 80B(5) of the Act. The question pertained to the assessment year 1984-85. It was held that the provision of law is clear. So far as the benefit of section 80I is concerned, it has to be granted on gross total income, and not on the income deducted under section 80HH. It was further held that section 80HH and section 80I of the Act are independent, and therefore, deductions can be claimed by newly established industrial undertakings both under section 80HH and 80I on the gross total income. The Revenue challenged the decision of theMadhya Pradesh High Court before the Supreme Court. The Supreme Court, however, noticed that such view is followed repeatedly by different High Courts in number of cases, against which no special leave petitions were filed, thus, the Department has accepted the view taken in these judgments. The Supreme Court, therefore, observed that the Department having accepted the view taken in these judgments Page 10 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT cannot be permitted to take a contrary view in the present case involving the same point. Special leave petition was thus dismissed in the case of Joint Commissioner of Income-Tax v. Mandideep Eng. And Pag. Ind. P. Ltd. Reported in (2007) 292 ITR 1 (SC). The Tribunal noted that sub-section (9) of section 80IA seems to have been introduced taking note of the decision of Madhya Pradesh High Court in J.P. Tobacco Products Private Limited (supra) and other similar decisions of the High Courts. Therefore, amendment was made to remove the mischief. The Tribunal approved the decision in the case of Rogini Garments (supra) and observed as under: “66. After careful consideration of rival submissions, we find that above arguments were considered and rejected in Rogini Garments for good reasons. We are not persuaded to take a view different from the one taken by the Special Bench. On consideration of provisions of Section 80-IA(9), we find that there are two restrictions in the statutory provision under consideration. These are :- a) where an assessee is allowed deduction under this section (80-IA or 80-IB), deduction to the extent of such profit and gain shall not be allowed under any other provision of this chapter (Heading “C –Deduction in respect of certain incomes”), AND Page 11 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT b) deduction shall in no case exceed the profit and gain of the undertaking or hotel as the case may be.” 67. The contention on behalf of the assessee and intervener is that total deductions under various sections should not exceed profits and gains of undertaking. We are unable to accept this contention. It is seen that CBDT Circular No. 772 clarified and only dealt with (b) above and did not deem it necessary to make reference to restriction (a). In order to accept the contention of the assessee, we would have to exclude portion of the provision covered by (a) and ignore the restriction placed therein. Why such course should be adopted when words used by the legislature, “claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions” are quite clear and unambiguous and are to be given effect to as rightly contended by the revenue. The profit or gains of industrial undertaking, which has already been allowed as a deduction u/s 80-IA, such profit (to the extent) cannot be taken into consideration for allowing deduction under any other provision of this Chapter ‘C’. If profit which has already been allowed as a deduction is again taken into consideration for computing deduction under any Page 12 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT other provision referred to above, then restriction (a) above is disregarded and ignored. It cannot be done without doing violence to the language of the provision. We see no justification for adopting a course prohibited by the legislature. It is not possible to ignore the restriction placed as (a) nor it is possible to accept that in Circular No. 772, there is a suggestion to ignore restriction (a) mentioned above. As per the settled law, courts and Tribunals must see the mandate of the legislature and give effect to it as rightly argued by the revenue. Therefore, restriction (a) above has to be respected and followed.” 7.5. In addition, learned Senior Counsel Mr. Mihir Thakore has referred to another decision of the Hon'ble Supreme Court in the case of Joint Commissioner of Income-Tax v. Mandideep Eng. and Pkg. Ind. P. Ltd. reported in [2007] 292 ITR 1 (SC) wherein Paragraph 2 of the said decision reads as under :- “The Madhya Pradesh High Court in J.P. Tobacco Products P. Ltd. v. CIT reported in [1998] 229 ITR 123 took the view that both the sections are independent and, therefore, the deductions could be claimed both Page 13 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT under sections 80HH and 80-I on the gross total income. Against this judgment a special leave petition was filed in this court which was dismissed on the ground of delay on July 21, 2000 (see [2000] 245 ITR (St.) 71). The decision in J.P. Tobacco Products P. Ltd. [1998] 229 ITR 123 (MP) was followed by the same High Court in the case of CIT v. Alpine Solvex P. Ltd. in I.T.A. No.92 of 1999 decided on May 2, 2000. Special leave petition against this decision was dismissed by this court on January 12, 2001, (see [2001] 247 ITR (St.) 36). This view has been followed repeatedly by different High Courts in a number of cases against which no special leave petitions were filed meaning thereby that the Department has accepted the view taken in these judgments....” 8. We have heard learned Counsel for the respective parties. Taking into account the above referred decision of this court in the case of Commissioner of Income-Tax v. Atul Intermediates (supra) and the decision of the Hon'ble Supreme Court in the case of Assistant Commissioner of Income-Tax v. Micro Labs Ltd. (supra), we are of the view that the assessee is entitled to deduction under Section 80IA of the Income Tax Page 14 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION O/TAXAP/166/2008 JUDGMENT Act. Consequently, the issues raised in the above Appeals are answered favour of the assessee and against the Department. All the above Appeals stand disposed of in the aforesaid terms. Sd/- (K.S. JHAVERI, J.) Sd/- (G.R. UDHWANI, J.) Caroline Page 15 of 15 Downloaded on : Thu Jun 05 14:56:41 IST 2025 Uploaded by CAROLINE ANTHONISWAMY(HC00212) on Tue Aug 09 2016 2016:GUJHC:27351-DB NEUTRAL CITATION "