2014 (5) TMI 987 - AT - Income Tax

Allowability of deduction u/s 80HHC of the Act Deduction u/s 80IB of the Act not deducted Held that - Following Associated Capsules Pvt. Ltd. vs. DCIT 2011 (1) TMI 787 - BOMBAY HIGH COURT - the reasonable construction of section 80-IA(9) would be that where the deduction is allowed u/s 80-IA(1), then the deduction computed under other provisions under heading C of Chapter VI-A have to be restricted to the profits of the business that remain after excluding the profits allowed as deduction u/s 80-IA, so that the total deduction allowed under the heading C of Chapter VI-A does not exceed the profits of the business thus, the assessee is eligible for deduction u/s 80HHC of the Act Decided against Revenue.

Summary

Issues:
1. Appeal against the order dated 25-5-2011 passed by the ld. CIT(A)- 18, Mumbai for the assessment year 2000-01.
2. Claim of deduction u/s 80HHC and disallowance of expenses.
3. Direction to recompute the deduction u/s 80HHC.
4. Interpretation of Section 80-IA(9) of the Income-tax Act, 1961.

Analysis:
1. The appeal was filed by the Revenue against the order of the ld. CIT(A) for the assessment year 2000-01. The assessee company was engaged in trading, manufacturing of bio-medical equipments, and exports. The assessment under section 143(3) of the Income Tax Act, 1961 was completed, resulting in an income assessment discrepancy. The Tribunal previously set aside the issue of deduction u/s 80HHC and disallowance of expenses, leading to a reassessment by the Assessing Officer (A.O.).

2. The A.O. disallowed the deduction u/s 80HHC due to negative profit and sustained the disallowance of expenses without supporting bills. The ld. CIT(A) directed the A.O. to recompute the deduction u/s 80HHC based on previous Tribunal decisions and the Hon'ble Bombay High Court ruling in a similar case. The Revenue contested this direction in the appeal, arguing that the deduction u/s 80HHC should be allowed only after reducing the deduction allowed under section 80IA.

3. During the hearing, the ld. counsel for the assessee cited relevant judgments supporting their claim for deduction u/s 80HHC. The Tribunal considered the arguments and upheld the decision of the ld. CIT(A) based on the judgment of the Hon'ble jurisdictional High Court, which clarified the interpretation of Section 80-IA(9) of the Income-tax Act, 1961. The Tribunal held that the assessee was eligible for the deduction under section 80HHC as per the binding decision of the High Court.

4. The Tribunal emphasized that Section 80-IA(9) restricts the allowance of deduction but does not affect the computation of deduction under other provisions. The decision highlighted that deductions under heading C of Chapter VI-A should be restricted to profits remaining after excluding profits allowed under section 80-IA(1). As the Revenue failed to provide any distinguishing features, the Tribunal rejected their grounds and dismissed the appeal.

In conclusion, the Tribunal upheld the decision of the ld. CIT(A) and directed the A.O. to allow the deduction u/s 80HHC as per the interpretation of Section 80-IA(9) by the Hon'ble jurisdictional High Court, ultimately dismissing the appeal filed by the Revenue.