Income Tax Appellate Tribunal - Mumbai
Addl C.I.T., Spl. Rg 15 vs Ashok Alco Chem Ltd. on 30 June, 2004
Equivalent citations: (2005)96TTJ(MUM)1000
ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by the revenue and is directed against the order of CIT(A) dated 5th February 2001 for Assessment Year 1998-99.
2. Ground No. 1 of the appeal reads as under :-
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made on account of unutilized MODVAT credit of Rs. 25,93,773."
3. Both the parties admitted that this ground is admitted in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd., 261 ITR 275. Therefore, we find no merit in this ground and the same is dismissed.
4. Ground No. 2 of the appeal reads as under :-
"On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the A.O to allow deduction Under Section 80-I of Rs. 90,95,971 as claimed by assessee ignoring the fact that the deduction claimed pertain to three units as under and there was no profit in respect of 2nd and 3rd units after adjusting the set-off of brought forward losses of the same.
-Acidic Acid Unit, Malad Rs. 13,49,626 -Distillery Unit Walchandnagar Rs. 6,61,500 -Bio Gas Unit Walchandnagar Rs. 70,84.833 Rs. 90,95,971"
The source of assessee's earning is income from following three industrial units.
All of them are eligible for deduction Under Section 80-IA :-
1. Acidic Acid Unit, Malad
2. Distiliery Unit Walchandnagar
3. Bio Gas Unit Walchandnagar
5. The A.O. disallowed deduction on units mentioned at Serial No. 2 & 3 on the basis of interpretation of Section 80IA(7). As per A.O, unless particular industrial unit in a 'tax holiday period' (total number of years for which particular industrial unit is eligible for deduction Under Section 80-IA) earns profit is not eligible for deduction. Whereas before CIT(A), it is the case of assessee that Section 80IA is non-obstante provision, therefore, provisions of Section 32, 70, 71 & 72 are not to be considered while calculating the deduction Under Section 80-IA of the Act. Each year is an independent year. The losses of industrial units (for which deduction has been denied) have already been set off in earlier years against the income of 3rd unit, therefore, denial of deduction in respect of these two units is unwarranted under the provisions of Section 80IA(7). The provision is beneficial provision, therefore, should be liberally interpreted. For this purpose, reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Strawboard Manufacturing Co., 177 ITR 431. It was also pleaded that when two interpretations are possible, the interpretation favourable to assessee should be followed and for this purpose, reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd, 88 ITR 192 (SC). Reliance was also placed on the decision of Hon'ble Supreme Court in the case of CIT v. Patiala Flour Mills Co. (P.) Ltd, 115 ITR 640 (SC) to place a proposition that A.O was not justified in setting off of brought forward losses of earlier years of eligible units against the current year's profit and gains of eligible units, particularly when, the losses of earlier years of these eligible units were already set off against the profits and gains of other units. The CIT(A), based on these arguments, allowed the claim of the assessee with his observations contained in para 8 of impugned order. For the sake of convenience, the same is reproduced below :-
"8. I have considered the facts of the case, the issues raised by the assessing officer and the arguments of the appellant. It is well settled law that deduction under chapter VIA was to be allowed after the total income was computed under the other provisions of the Act Section 80AB of the Income-tax Act states that not withstanding anything contained in the section under which the deduction is allowable, the deduction under the relevant section has to be limited to the amount included in the total income. Further every assessment year is separate and the computation of total income has to be made separately in each year. In the past years for the units eligible for deduction Under Section 80IA of the Income-tax Act, the appellant had no income. In fact, there were losses which were allowed to be set off against the income of other units. The appellant therefore lost the claim of Section 80IA in respect of the eligible units in the past years. Section 80IA(7) just states that for computing the deduction Under Section 80IA(5) in any succeeding year immediately following the initial year, the deduction had to be computed as if the eligible business was the only source of income of the assessee. The stipulation is made not withstanding anything contained in any other provision of the Act. The appellant has interpreted the provision to mean that for a particular assessment year the losses of other business, unabsorbed depreciation and business losses of the past years have to be ignored while computing deduction Under Section 80IA of the Income-tax Act on account of the eligible business. A similar issue had come up before the Supreme Court in the case of Patiala Flour Mills Co.(P) Ltd. (supra). This issue was the allowance of deduction Under Section 80J of the Income-tax Act. The assessing officer in the assessment order has held that as the wording of the provisions Under Section 80J were different, the case law would not be applicable. In any case, the view of the assessing officer is not correct. If the legislature wanted that the past losses of the eligible business was required to be set off then the section would have mentioned it. This is not the case. Further, the concept of treating the eligible business is borrowed from the old Section 80J of the Income-tax Act though the wording in Section 80IA is different. The understanding of the wording by the appellant is correct. The ratio laid down in Patiala Flour Mills Co. (P) Ltd case is applicable in this case. Further each assessment year is separate and in view of the provisions of Section 80AB of the Income-tax Act, the deduction would be available to the extent of the profits included in the total income. The assessing officer is therefore directed to allow the claim of the appellant as far as the deduction Under Section 801A is concerned. He should therefore allow a deduction of Rs. 90,95,971/- Under Section 80IA of the Income-tax Act."
Revenue is aggrieved, hence in appeal before us.
6. The Learned D.R argued that the calculation made by A.O. regarding deduction Under Section 80-IA is in accordance with Sub-section (7) of Section 80-IA. For claiming deduction Under Section 80IA, a legal fiction has been created by Sub-section (7) by virtue of which, the profit or gains of eligible business of an industrial undertaking shall be computed as if the eligible business were the only business of the assessee right from the date of its establishment. Therefore, he contended that A.O. was right in taking into consideration the brought forward losses and depreciation while computing the profits of eligible business for the purpose of deduction Under Section 80IA. The CIT(A) has wrongly allowed the relief to the assessee.
7. On the other hand, the Learned Authorised Representative of the assessee pleaded that Sub-section (7) of Section 80IA does not speak specifically for set off of notional brought forward losses or unabsorbed depreciation for the purpose of calculating eligible income for deduction Under Section 80-IA. He further pointed out that such brought forward losses in respect of other units were already set off in earlier years. He submitted that Sub-section (7) is non-obstante Section and therefore, provisions of Section 32, 70, 71 and 72 of I.T. Act 1961 are not to be considered while calculating deduction Under Section 80-IA. Further, he relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Patiala Flour Mills Co. Pvt. Ltd (Supra) and contended that the CIT(A) has rightly given the relief to the assessee. He also contended that Section 80IA is beneficial provision, therefore, should be construed liberally.
8. We have carefully considered the rival submissions in the light of material placed before us. Before proceeding further, we may mention that the A.O. while computing profit/loss in respect of two units for which the deduction has been denied for the tax holiday period i.e. consisting initial year upto the end of financial year under consideration computed losses at Rs. 58,77,899/- and Rs. 38,90,530/- in respect of distillery unit, Walchandnagar and bio-gas unit, Walchandnagar respectively. This calculation has been reproduced in the order of C(T(A) at page 4, which is reproduced below :-
a. Distillery Unit A.Y.95-96 A.Y.96-97 A.Y.97-98 A.Y.98-99
-------------- -------------- ------------- --------------
Profits of the year (-)63,07,607 15,83,799 (-)74,54,207 63,00,116
Less:B/F Losses Nil (-)63,07,607 (-)47,23,808 (-)1,21,78,015
-------------- -------------- ------------- --------------
Total losses to be
Carried forward (-)63,07,607 (-)47,23,808 (-)1,21,78,015 (-)58,77,899
-------------- -------------- ------------- --------------
b. Bio-gas Unit
Profits of the year (-)1,06,93,360 (-)56,20,202 53,38,199 70,84833
Less:B/F Losses NIL (-)1,06,93,360 (-)1,63,13,652 (-)1.09,75,363
-------------- -------------- ------------- --------------
Total losses to be
Carried forward (-)1,06,93,360 (-)1,63,13,652 (-)1,09,75,363 (-)38,90,530"
-------------- -------------- ------------- --------------
The above computation of loss is not disputed by assessee as the figures have been taken by A.O. from assessee's computation as submitted along with returns of income filed for respective years. As figures are not disputed, the issue before us for this ground of appeal is narrow and is regarding interpretation of Section 80-IA(7). The Learned CIT(A) while giving relief to the assessee has relied upon the decision of Hon'ble Supreme Court in the case of Patiala Flour Mills Co. Pvt. Ltd. (Supra). We have carefully gone though the said decision of Hon'ble Supreme Court. In the said case, assessee was carrying on several businesses and put up a cold storage plant in the Asstt. Year relevant to A.Y. 1967-68. The cold storage plant was a new industrial undertaking within the meaning of Section 80J of IT. Act 1961 (the Act). The losses, depreciation allowance and development rebate in respect of cold storage plant for the A.Ys. 1967-68 to 1969-70 were adjusted against the profits from the other businesses in computing the total income of the assessee for those years. No loss or part of depreciation or development rebate remained unabsorbed so as to be available for carry forward and set off in the A.Y. 1970-71. In the A.Y. 1970-71, a profit of Rs. 1,51,011/- was derived from the new industrial undertaking on which deduction Under Section 80J was claimed. The A.O. did not accept such claim of the assessee by taking a view that in computing the profit of the cold storage business for the purpose of applying the provision contained in Sub-sections (1) & (3) of Section 80J, the losses as well as the depreciation allowance and development rebate in respect of that business for the past assessment years should be adjusted against the profit of Rs. 1,51,011/-, since there was no profit at all from that business in the past assessment years, against which, any part of such losses, depreciation allowances or development rebate should be absorbed. While interpreting Section 80J, the Hon'ble Supreme Court observed at pages 646-647 of the report as under :-
"Now, it is clear from the language of Sub-section (1) of Section 80-J that the profits or gains of a new industrial undertaking from which deduction of the relevant amount of capital employed during a particular assessment year is allowable under that provision, are the profits or gains includible in the computation of the total income chargeable to tax. Therefore, whatever be the profits or gains of the new industrial undertaking computed for the purpose of arriving at the total income chargeable to tax, would have to be taken to be the profits or gains for applying the provision contained in Sub-section (1) of Section 80-J. There are no two modes of computation of the profits or gains of the new industrial undertaking contemplated by Sub-section (1) of Section 80-J, one for determining the total income chargeable to tax and the other for applying the provision contained in that sub-section. The language of Sub-section (1) of Section 80-J is clear and explicit and leaves no doubt that the profits or gains of the new industrial undertaking for the purpose of allowing the deduction provided in that sub-section, have to be computed in the same manner in which they would be in determining the total income chargeable to tax and a deduction has then to be made from such profits or gains, of the relevant amount of capital employed during the assessment year in question. It is impossible to see how, by any process of construction, even by turning and twisting the language of Sub-section (1) of Section 8--J, it can be held that for the purpose of allowing of deduction contemplated under that section the profits or gains of the new industrial undertaking must be computed in a manner different from that in which they would be computed in determining the total income chargeable to tax. " Sub-section (1) of Section 80-J does not create a legal fiction that for the purpose of applying the provision contained in that sub-section, the profit or gains of the new industrial undertaking shall be computed as if the new industrial undertaking were the only business of the assessee right from the date of its establishment or the tosses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years were not set off against the profit from other business. If the construction of Sub-section (1) of 80-J contended for and on behalf of the revenue were accepted, it would lead to the absurd result that there would two species of profits or gains of the new industrial undertaking, one for inclusion in the total income chargeable to tax and the other for determining the availability of the deduction under Sub-section (1) of Section 80-J. That would be plainly contrary to the express language of Sub-section (1) of Section 80-J." The proper construction of Sub-section (1) of Section 80-J must, therefore, be taken to be that the profits or gains of the new industrial undertaking must be computed in accordance with the provisions of the Act in the same manner as they would be in determining the total income chargeable to tax and it must follow a fortiori that if the losses, depreciation allowance and development rebate in respect of the new industrial undertaking for the past assessment years have been fully set off against the profit of the assessee from other business or for the matter of that, against the income of the assessee under any other head by reason of Sections 70 and 71 read with Sub-section (2) of Section 32 and Sub-section (2) of Section 32A, no part of such losses, depreciation allowance or development rebate would be liable to be adjusted over again in computing the profits or gains of the new industrial undertaking for applying the provision contained in Sub-section (1) of Section 80-J. The same mode of computation must prevail a/so in applying the provision contained in Sub-section (3) of Section 80-J, because that sub-section provides for setting off the carried forward amount of deficiency of the past assessment years against "the profits and gains referred to in Sub-section (1) " of Section 80-J, as computed after allowing, inter alia, the deduction admissible under that sub-section and, therefore, if, for the purpose of Sub-section (1) of Section 80-J, the profits or gains of the new industrial undertaking are to be computed in accordance with the provisions of the Act and no part of the losses, depreciation allowance or development rebate for the past assessment years which has been fully set off against the profit from other business or income under any other head is liable to be adjusted over again in computing the profits or gains of the new industrial undertaking, no such adjustment would equally be permissible in applying the provision contained in Sub-section (3) of Section 80-J."
(Underlining ours) It has been observed by Hon'ble Supreme Court that Section 80J does not prescribe two modes of computation of profit or gains of new industrial undertaking, therefore, the profits as computed for determining the total income chargeable to tax can be the only computation which could be considered for the purpose of granting deduction Under Section 80J(1). Referring to the provisions of Section 80-J, Hon'ble Supreme Court observed that Sub-section (1) of Section 80J does not create any legal fiction for the purpose of applying the provision contained in that Sub-section, so the profit and gains of new industrial undertaking shall be computed as new Industrial Undertaking were the only business of the assessee from the date of its establishment or the losses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past asstt. years were not set off against the profits from other business. Thus, in the absence of such legal fiction, the Hon'ble Supreme Court held that the A.O was wrong in considering notional loss, depreciation or development rebate carrying forward to current year, as there was no such provision in Section 80J(1) and (3). Section 80-IA(7) as applicable for the year under consideration is reproduced below :-
"80-IA(7). 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 Sub-section (5) 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."
Section 80-IA was introduced in Income-Tax Act with retrospective effect from 1.4.90. Reading the language of Section 80IA(7) with the underlined observations of Hon'ble Supreme Court, it will be clear that Legislature by introducing Sub-section (7) of Section 80IA, has created a legal fiction that for the purpose of applying the provisions contained in that Sub-section, the profit or gains of the eligible business shall be computed as if the eligible business were the only business of the assessee right from the initial year and the losses, depreciation allowance or development rebate in respect of such eligible business for the past asstt. years were not set off against the profits from other business. Thus, the legislature has covered the lacuna, as it was in Section 80J by creating a legal fiction by introducing Sub-section (7) of Section 80IA. This will become more clear from the commentary at pages 3637 and 3638 of Chaturvedi and Pithisaria's 5th addition (Volume 2), which is reproduced below :-
"Special mode prescribed for computation of the profits and gains eligible for deduction under Section 80-IA.-Section 80-IA(7) enacts provisions of overriding nature and lays down a special mode for computation of the profits and gains eligible for deduction under Section 80-IA. According to that Section 80-IA(7), the profits and gains of an eligible business are,-
-for the purposes of determining the quantum of deduction under Section 80-IA(5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, to be computed as if-
-such eligible business of the industrial undertaking or eligible business of the operation of the ship or eligible business of the hotel or eligible business of the enterprise of infrastructure facility 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.
In other words, for the purposes of determining the quantum of 'tax holiday' profits under Section 80-IA, the taxable income of the eligible business of the industrial undertaking, etc., is to be ascertained as if such undertaking were an independent unit owned by the assessee concerned and the assessee had no other source of income. Consequently, the unabsorbed losses, unabsorbed depreciation, etc., relating to the eligible industrial undertaking, etc., are to be taken into account in determining the quantum of deduction under Section 80-IA even though these may actually have been set off against the profits of the assessee from other sources."
[Underlining Ours]
9. From the above discussion, it is clear that the decision in the case of Patiala Flour Mills Co.(Supra) has wrongly been applied by the Learned CIT(A) to the provisions of Section 80IA(7). The language of Section 80IA(7) is clear, according to which, taxable income of eligible business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee and the assessee had no other source of income. It is only consequential that the unabsorbed losses, unabsorbed depreciation etc., relating to eligible business are to be taken into account in determining the quantum of deduction Under Section 80IA, even though these may have actually been set off against the profits of the assessee from other sources. In this view of the situation, we find that the A.O. had rightly denied the deduction Under Section 80-IA in respect of these units there being a loss in respect of the said unit as computed within the meaning of Section 80IA(7).
10. Now coming to the argument of Learned Authorised Representative of the assessee that Section 80IA is beneficial provision, therefore, it should be construed liberally, In this regard, we may point out that even though liberal interpretation has to be given to such a provision, the interpretation has to be as per the wordings of the Section. This principle has been laid down by Hon'ble Apex Court in recent case of IPCA Laboratory Ltd. v. DCIT, 266 ITR 521 (SC). The following observations from the said report are relevant :-
"12. We are unable to accept the submission of Mr. Dastur, Undoubtedly Section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wordings of this Section. If the wordings of the Section are clear then benefits, which are not available under the Section, cannot be conferred by ignoring or misinterpreting words in the Section."
As pointed out earlier that the wordings of Section 80IA(7) is clear and there is no ambiguity therein. Therefore, there is no scope for conferring the benefit sought for by the assessee by ignoring or misinterpreting words at Section 80IA(7).
11. In view of our discussion, the order of CIT(A) with regard to deduction Under Section 80-IA is set off thereby and that of A.O. is restored. This ground of revenue is allowed.
12. In the result, the appeal filed by the revenue is partly allowed.