2014 (10) TMI 742 - HC - Income Tax

Benefit of deduction u/s 80HHC - Whether the benefit of deduction u/s. 80HHC can be claimed on the total income before allowing deduction of the unabsorbed losses, unabsorbed investment allowance and the unabsorbed depreciation Held that - Following the decision in Commissioner of Income-Tax Versus Shirke Construction Equipment Limited 2007 (5) TMI 194 - SUPREME Court - in determining business profits for the deduction under section 80HHC the unabsorbed business losses of earlier years under section 72 should be set off thus, the order of the Tribunal is to be set aside - Decided in favour of revenue.

Summary

Issues:
1. Interpretation of deduction u/s. 80HHC on total income before allowing deduction of unabsorbed losses, investment allowance, and depreciation.
2. Eligibility of a firm engaged in manufacturing detergent powder for deductions under sections 80HH and 80-I.
3. Disagreement between Assessing Officer, CIT (Appeals), and ITAT regarding the manufacturing process of detergent powder.
4. Application of the decision in the case of Commissioner of Income-Tax vs. Shirke Construction Equipment Ltd. (2007) 291 ITR 380 in the present case.

Analysis:
1. The primary issue in this case pertains to the interpretation of Section 80HHC concerning the eligibility for deduction on total income before offsetting unabsorbed losses, investment allowance, and depreciation. The appellant, the Assistant Commissioner of Income Tax, challenged the ITAT's decision regarding this matter. The Honorable Court referenced the decision in the case of Shirke Construction Equipment Ltd. to support the Department's position that unabsorbed business losses of earlier years should be set off when determining business profits for the deduction under Section 80HHC. Consequently, the Court ruled in favor of the Department, quashing the ITAT's judgment.

2. Another crucial aspect of this case involves the eligibility of an assessee firm engaged in manufacturing detergent powder for deductions under sections 80HH and 80-I. Initially, the Assessing Officer rejected the claim, arguing that the detergent powder was not manufactured in the assessee's factory but by another entity on a job work basis. However, the CIT (Appeals) and subsequently the ITAT ruled in favor of the assessee, allowing the relief under the said sections. The Court did not delve into this issue extensively as the decision on the first issue favored the Department.

3. The disagreement between the Assessing Officer, CIT (Appeals), and ITAT regarding the manufacturing process of detergent powder also forms a significant part of this case. While the Assessing Officer disallowed the claim due to job work manufacturing, the higher authorities overturned this decision, leading to the present appeal by the revenue. However, this issue became secondary as the Court's decision on the interpretation of Section 80HHC was decisive in resolving the case.

4. Lastly, the application of the judgment in the case of Commissioner of Income-Tax vs. Shirke Construction Equipment Ltd. played a crucial role in the resolution of the present case. The Court emphasized that this decision, which addressed the set-off of unabsorbed business losses for deductions under Section 80HHC, was pivotal in determining the outcome of the appeal. The absence of any contradictory decision and the alignment of the present case with the principles established in the Shirke Construction Equipment Ltd. case led to a clear ruling in favor of the revenue Department.

In conclusion, the judgment by the Gujarat High Court in this case primarily revolved around the interpretation of Section 80HHC, with the Court ruling in favor of the revenue Department based on the principles established in a relevant precedent.