Kerala High Court
The Commissioner Of Income-Tax vs M/S Accel Transmatic Systems Ltd on 2 December, 2009
Bench: C.N.Ramachandran Nair, V.K.Mohanan
IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 1679 of 2009()
1. THE COMMISSIONER OF INCOME-TAX,
... Petitioner
Vs
1. M/S ACCEL TRANSMATIC SYSTEMS LTD,
... Respondent
For Petitioner :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
For Respondent :SRI.T.M.SREEDHARAN
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :02/12/2009
O R D E R
C.N.RAMACHANDRAN NAIR &
V.K.MOHANAN, JJ.
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I.T. Appeal No.1679 of 2009
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Dated this the 2nd day of December, 2009.
JUDGMENT
Ramachandran Nair, J.
The appeal is filed by the Revenue against the order of the Tribunal raising three questions for our decision. One of the issues pertains to disallowance under Section 43B of the Income Tax Act which is belated payment of Provident Fund contribution. The Tribunal allowed the claim following decision of the Supreme Court in COMMISSIONER OF INCOME-TX V. VINAY CEMENTS reported in 213 ITR 268 because payments were found made before the date of filing the return. We, therefore, do not propose to consider this issue raised by the Revenue which is covered by decision of the Supreme Court.
2. Another issue pertains to addition of prior period expenses claimed by the assessee. The first appellate authority as well as the Tribunal found that Assessing Officer arbitrarily disallowed debit entries but treated all the credits as income. In fact, the Tribunal found 2 that the net credit available in the prior period expense accounts was returned by the assessee as income. We do not find any question of law arising from the order of the Tribunal on this issue as well. This leaves us with the last question which pertains to assessee's claim for deduction under Section 80IA of the Income Tax Act relating to the profit derived from a new industrial unit set up at Pondicherry. The claim pertains to the previous year relevant for the assessment year 2000-2001 and therefore, the unamended provision Section 80IA applies to the assessee. We have heard Standing Counsel appearing for the appellant and Adv. Sri.T.M.Sreedharan appearing for the respondent.
3. During the previous year assessee carried on business in two industrial units, one at Trivandrum and the other at Pondicherry. Being a new industrial unit set up at Pondicherry, respondent-assessee was entitled to deduction of 25% of the profit of the new industrial undertaking under Section 80IA of the Income Tax Act. Even though assessee earned a profit of Rs.60,42,566/- from the Pondicherry unit, assessee declared a loss of Rs.53,22,555/- in the Trivandrum unit. 3 While making claim of deduction under Section 80IA of the Act, the assessee reckoned the profit of the new unit at Pondicherry, reduced therefrom 25% of the profit and treated the net amount as part of profit in the computation of total income. However, the Assessing Officer rejected the pattern adopted by the assessee and granted deduction under Section 80IA from the net profit available after setting off loss from one industrial unit against the profit from another. Even though the eligible amount to be claimed under Section 80IA was Rs.18,12,770/- being 25% of the profit of the eligible unit, in the original return, the assessee limited the deduction to Rs.8,51,697/- which was actually the net total income computed after making disallowance under various provisions. In the reassessment completed under Section 148, the assessee's claim under Section 80IA was allowed to the extent of Rs.13,78,076/-. The first appellate authority as well as the Tribunal held that assessee is entitled to have higher deduction allowed under Section 80IA in the computation of total income. It is against this order of the Tribunal the Revenue has filed the appeal.
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4. Standing Counsel appearing for the Revenue has relied on decision of the Supreme Court in SYNCO INDUSTRIES LTD. V. ASSESSING OFFICER & ANOTHER reported in (2008) 215 CTR 385 and contended that the claim under Section 80IA though with reference to the profit of the new industrial limit, has to be limited to the net total income computed, if the claim amount is higher than such income. We do not think there can be any controversy on this proposition because under Section 80A(2) total deductions under Chapter A has to be limited to the gross total income of the assessee computed under the provisions of the Act. Therefore, assessee cannot claim deduction under Section 80IA in excess of gross total income computed, no matter eligible amounts may be higher than such income. However, we disapprove the pattern of computation made by the assessee by deducting from the profits of the eligible industrial unit the claim amount and then returning the balance to constitute gross total in the computation of total income. In fact, the procedure to be followed for the purpose of granting deduction under Section 80IA is to first compute the profits and gains of the eligible unit and then to determine 5 the eligible deduction therefrom in terms of Section 80IA(5) of the Act. Thereafter, in the computation of total income under the provisions of the Act, the eligible deduction has to be reduced and if the total income computed is less than the eligible amount, deduction has to be limited to such amount. Since there has been variations in the total income computed by virtue of disallowances and later orders of the higher authorities allowing it, we direct the Officer to rework total income and therefrom allow eligible deduction under Section 80IA(5) of the Act with reference to the profits of the eligible unit, but limiting it to the total income, if the claim amount is higher than such amount. The orders of the Tribunal and the first appellate authority will stand modified as above.
C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms