2014 (1) TMI 1587 - HC - Income Tax

Whether deduction u/s 80HHC be allowed without reducing therefrom deduction u/s 80IB - Held that - Section 80HHC of the Act is not a self contained provision - The deduction cannot be allowed ignoring the restrictive clause contained in Section 80-IA(9)- The restrictive clause in Section 80IA makes it abundantly clear that wherever deduction under any other section of Chapter VI-A(C) is claimed, the computation will be subject to the restrictions laid down in Section 80-IA (9) - When provisions of Section 80IB(13) are read in conjunction with Section 80IA(9) of the Act, it becomes clear that deduction under Section 80HHC of the Act is to be computed on the eligible business profits only after reducing therefrom the portion of profit on which deduction has already been availed by the assessee under section 80IB - Decided against assessee.

Issues:
1. Justification of CIT's action under Section 263 of the Income Tax Act.
2. Interpretation of deductions under Sections 80HHC and 80IB of the Income Tax Act.
3. Applicability of Section 80IB(13) read with Section 80IA(9) in computing deductions.
4. Validity of ITAT's concurrence with CIT's order.
5. Allegation of ITAT sustaining CIT's order on different grounds.
6. Legal sustainability of Tribunal and CIT's orders.

Detailed Analysis:

1. Justification of CIT's action under Section 263 of the Income Tax Act:
The appellant-assessee argued that the CIT's invocation of Section 263 was unjustified as the Assessing Officer (AO) had adopted one of the possible views. The appellant cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which stated that an AO's order cannot be deemed erroneous if it is one of the possible views. However, the court found that the AO's failure to apply the provisions of Section 80IB(13) read with Section 80IA(9) rendered the order erroneous and prejudicial to the revenue's interest.

2. Interpretation of deductions under Sections 80HHC and 80IB of the Income Tax Act:
The appellant contended that deductions under Sections 80HHC and 80IB are independent and should not be reduced by each other. However, the court noted that Section 80IA(9) clearly mandates that deductions under Section 80HHC should be computed after reducing the profits on which deductions under Section 80IB have already been claimed. This interpretation was consistent with the judgments in Rogini Garments and other cases.

3. Applicability of Section 80IB(13) read with Section 80IA(9) in computing deductions:
The court emphasized that the AO's order did not consider the provisions of Section 80IB(13) read with Section 80IA(9). The AO's notice had mentioned these provisions, but the final assessment order failed to apply them. This omission made the AO's order erroneous and prejudicial to the revenue, justifying the CIT's revision under Section 263.

4. Validity of ITAT's concurrence with CIT's order:
The ITAT upheld the CIT's order, agreeing that the AO's failure to apply Section 80IB(13) read with Section 80IA(9) was erroneous and prejudicial to the revenue. The court supported this view, stating that the AO's order was unsustainable in law due to the omission of these provisions.

5. Allegation of ITAT sustaining CIT's order on different grounds:
The appellant claimed that the ITAT sustained the CIT's order on different grounds. However, the court found no merit in this argument, noting that the reasons for invoking Section 263 in the show cause notice and the detailed discussion in the ITAT's order were consistent.

6. Legal sustainability of Tribunal and CIT's orders:
The court referred to consistent views of the High Court in similar cases, which supported the interpretation that deductions under Section 80HHC should be computed after reducing the profits on which deductions under Section 80IB have been claimed. The court concluded that the orders of the CIT and ITAT were legally sustainable and dismissed the appellant's appeal.

Conclusion:
The court held that deductions under Section 80HHC should be computed on eligible business profits after reducing the portion of profits on which deductions under Section 80IB have been claimed. All questions posed by the appellant were decided in favor of the revenue, and the AO was directed to recompute the total income of the assessee accordingly. The appeals were dismissed.

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