2015 (1) TMI 823 - HC - Income Tax

Deduction under Section 80 I - losses incurred by the industrial undertaking claiming deduction under Section 80 I, which has been already set off against the profits of the other industrial undertaking should be notionally carried forward and set off against profit generated by the industrial undertaking during the relevant assessment year - Held that - Once the depreciation allowance and development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years, the question of carry forward the same does not arise, more so for the purpose of determining the deduction under Section 80I of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of deduction under Section 80I for losses incurred by industrial undertaking.
2. Consideration of rectification under Section 154 for debatable issues.
3. Application of Section 154 for rectification based on legal issues and extensive investigation.

Issue 1: Interpretation of deduction under Section 80I:
The appellant, engaged in manufacturing, claimed deductions under Section 80I for the assessment year 1992-93. The Assessing Officer issued a notice under Section 154 to set off losses from previous years against profits for 1992-93. The appellant argued that Section 80I deductions should not consider set-off losses. However, the Assessing Officer disagreed and passed a rectification order, leading to the withdrawal of deductions for subsequent years. The Commissioner of Income Tax (Appeals) upheld this decision, prompting the appellant to appeal to the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal, citing the provisions of Section 80I(6) and a previous decision that did not apply to the appellant's case.

Issue 2: Consideration of rectification under Section 154:
The appellant contended that the issue of restricting relief under Section 80I was debatable and not suitable for rectification under Section 154, especially when a previous Tribunal decision favored the appellant. The Tribunal's failure to appreciate the need for deliberation on legal issues and extensive fact investigation before rectification was highlighted.

Issue 3: Application of Section 154 for rectification:
The appellant argued that rectification under Section 154 should only apply to mistakes apparent on the face of the record, not issues requiring legal interpretation and detailed fact analysis from previous years. The appellant emphasized the importance of legal clarity and consistency in applying rectification provisions.

In the judgment, the High Court analyzed the appellant's arguments in light of a previous decision involving a similar issue. The Court referred to the Supreme Court's ruling on the treatment of profits and losses for deduction purposes under Section 80I. The Court emphasized that once losses were set off against other income sources, they should not be carried forward for Section 80I deductions. The Court noted that the Revenue did not challenge its previous decision, making it final. As the issue was identical to the previously decided case, the Court allowed the Tax Case (Appeals) in favor of the appellant.