2019 (3) TMI 1578 - AT - Income Tax

Quantum of deduction u/s 80IC - taking each eligible entity separately or after netting the profits/losses of all the eligible entities - HELD THAT - As decided in assessee's own case 2019 (1) TMI 421 - ITAT CHANDIGARH the assessee is entitled to deduction u/s 80IC of the Act with respect to the profits earned by it from the eligible undertakings ignoring the losses from the other eligible undertakings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Calculation of the quantum of deduction under section 80IC of the Income Tax Act, 1961.
2. Whether the deduction should be calculated taking each eligible entity separately or after netting the profits/losses of all eligible entities.

Issue-wise Detailed Analysis:

1. Calculation of the Quantum of Deduction under Section 80IC:

The primary issue in both appeals was the calculation of the quantum of deduction under section 80IC of the Income Tax Act, 1961. The assessee had multiple manufacturing units, some of which were profitable while others incurred losses. The Assessing Officer (A.O.) set off the losses of the eligible units against the profits of other eligible units before allowing the deduction under section 80IC, based on the decision of the Hon'ble High Court of Himachal Pradesh in the case of CIT Shimla Vs M/s Him Teknoforge Ltd.

The assessee contended that the deduction should be calculated separately for each eligible unit without netting the profits and losses of all eligible units. The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s order, leading the assessee to appeal before the ITAT.

2. Separate Calculation for Each Eligible Entity vs. Netting Profits/Losses:

The core of the dispute was whether the deduction under section 80IC should be computed by considering each eligible entity separately or after netting the profits and losses of all eligible entities. The ITAT noted that this issue had already been adjudicated in favor of the assessee in its own case for the assessment years 2010-11 to 2012-13.

The ITAT referred to its previous order, which had analyzed the relevant provisions of sections 80IA and 80IC. It was observed that section 80IC(7) explicitly states that the provisions of section 80IA(5) shall apply to the eligible undertakings, and section 80IA(5) begins with a "notwithstanding" clause, indicating its overriding effect. This clause ensures that the profits of each eligible undertaking are to be treated as the only source of income for determining the quantum of deduction, thereby supporting the assessee's claim for separate computation.

The ITAT distinguished the case from the Him Teknoforge Ltd. decision, noting that the latter was rendered in the context of section 80IA, which is differently worded compared to section 80IC. The ITAT emphasized that section 80IC uses the term "undertaking or enterprise" rather than "business," indicating that each undertaking's profits should be considered separately.

Additionally, the ITAT highlighted that applying the Him Teknoforge Ltd. interpretation to section 80IC would create practical difficulties, especially when different units are entitled to different rates of deduction. This would complicate the determination of the applicable rate for the remaining profits.

Conclusion:

In conclusion, the ITAT directed the A.O. to allow the deduction under section 80IC based on the profits of each eligible undertaking separately, without netting the losses from other eligible undertakings. This decision was consistent with the ITAT's previous ruling in the assessee's case for earlier years and the specific wording of section 80IC, which mandates separate consideration of each eligible undertaking's profits.

Result:

Both appeals filed by the assessee were allowed, affirming the separate calculation of deductions under section 80IC for each eligible entity.