2006 (6) TMI 252 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) erred in confirming the action of the Assessing Officer in holding that appellant is entitled to deduction under section 80HHC only after reducing the deduction under section 80-IA as per section 80-IA(9A) of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

Issue 1: Applicability of Section 80-IA(9A)
The primary issue in this appeal is whether the CIT(A) erred in confirming the Assessing Officer's (AO) decision that the appellant's deduction under section 80HHC should be reduced by the amount of deduction claimed under section 80-IA, in accordance with section 80-IA(9A).

Analysis:
- Background: The appellant claimed a deduction under section 80HHC amounting to Rs. 83,01,210, which the AO restricted to Rs. 50,13,116 after reducing Rs. 32,88,094 claimed under section 80-IA, invoking section 80-IA(9A).
- Appellant's Argument: The appellant contended that deductions under sections 80-IA and 80HHC should be computed independently, as the eligible profits for each section are different. They cited the Bombay High Court judgment in CIT v. Nima Specific Family Trust [2001] 248 ITR 291, arguing that section 80-IA(9A) should not reduce the deduction under section 80HHC.
- Respondent's Argument: The respondent relied heavily on the orders of the lower authorities.

Tribunal's Findings:
- Prospective Application: The Tribunal referred to the case of Regency Exports (P.) Ltd., where it was held that section 80-IA(9A) is prospective, effective from 1-4-1999, and not declaratory. Therefore, for assessment years prior to 1-4-1999, deductions under sections 80HHC and 80-IA are mutually exclusive.
- Independent Computation: The Tribunal agreed that deductions under sections 80HHC and 80-IA should be computed independently. However, the total deductions should not exceed the total profits and gains of the industrial undertaking, as per section 80A.
- Capping Mechanism: After 1-4-1999, the capping mechanism under section 80-IA(9A) applies, ensuring that the combined deductions under sections 80HHC and 80-IA do not exceed the total profits of the industrial undertaking.

Computation Errors:
- Assessee's Computation: The assessee computed deductions under sections 80HHC and 80-IA independently but claimed the deduction under section 80HHC first.
- AO's Computation: The AO reduced the deduction under section 80HHC by the amount claimed under section 80-IA, which was also incorrect.

Tribunal's Decision:
- The Tribunal set aside the CIT(A)'s order and directed the AO to re-compute the deductions under sections 80-IA and 80HHC correctly. The deductions should be computed independently, with section 80-IA being applied first, followed by section 80HHC on the remaining profits.

Conclusion:
The appeal was allowed for statistical purposes, and the matter was remanded to the AO for re-computation of deductions under sections 80-IA and 80HHC in accordance with the Tribunal's guidelines. The Tribunal emphasized that the total deductions should not exceed the total profits and gains of the industrial undertaking, aligning with the legislative intent to prevent double deductions exceeding 100% of the profits.