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2018 (11) TMI 1049 - AT - Income TaxComputation of deduction u/s 80IB(9) - profit of eligible and non-eligible units - Held that - The deduction u/s 80IB(9) has to be computed in terms of sec.80IB of the Act. Sec. 80IB(13) of the Act provides that the provisions of sec. 80IA(5) shall apply and under the provisions of sec.80IA(5) the profits and gains of eligible business for the purposes of sec. 80IB shall be computed as if such eligible business were the only source of income of the assessee. In view of these provisions the deduction u/s 80IB(9) has to be computed after ascertaining profits and gains of eligible business in terms of sec 80IA(5) of the Act. Hence there is no scope to adjust expenses relating to other undertakings while computing deduction u/s 80IB(9) of the Act. Hence we are of the view that the decision rendered by CIT(A) does not call for any interference and accordingly we uphold the same.
Issues Involved:
1. Withdrawal of Grounds 1 to 6 and 8 & 9 by the assessee. 2. Contesting Ground No. 7 regarding the deduction under Section 42(1)(a) and Section 80IB(9) of the Income Tax Act, 1961. Detailed Analysis: 1. Withdrawal of Grounds 1 to 6 and 8 & 9 by the Assessee: The appellant's counsel informed the tribunal that the assessee wished to withdraw Grounds 1 to 6 and 8 & 9 of the appeal. A letter dated 12-11-2018 was filed, stating the intention to withdraw these grounds. Consequently, only Ground No. 7 remained for consideration. 2. Contesting Ground No. 7: Ground No. 7 pertains to the deduction under Section 42(1)(a) and Section 80IB(9) of the Income Tax Act, 1961. 2.1. Deduction under Section 42(1)(a): The assessee claimed a deduction under Section 42(1)(a) for expenses incurred on blocks allotted for the discovery and commercial production of oil in the KG Basin, which were surrendered to the Central Government. The CIT revised the assessment, reducing the profit eligible for deduction under Section 80IB(9) by the expenses related to these aborted blocks. 2.2. Tribunal's Previous Decision: The Tribunal, in the assessee’s own case for previous assessment years, allowed the claim of the assessee on merits. The Tribunal held that the expenses related to unsuccessful exploration in contract areas covered by other contracts should not be deducted from the profits of the successful undertaking. The AO had disallowed the depreciation claimed on intangible assets and deducted expenses related to aborted blocks from the profit of the KG Basin undertaking, which the Tribunal found incorrect. 2.3. Analysis by CIT(A): The CIT(A) decided in favor of the assessee, stating that each contract area constitutes an independent undertaking. Therefore, the costs related to unsuccessful exploration in other contract areas should not be deducted from the profits of the successful undertaking (KGD) for the purpose of computing deduction under Section 80IB(9). 2.4. Tribunal's Final Decision: The Tribunal upheld the CIT(A)’s decision, reiterating that the deduction under Section 80IB(9) should be computed as if the eligible business were the only source of income of the assessee, as per Section 80IA(5). Hence, expenses related to other undertakings should not be adjusted while computing the deduction. The Tribunal concluded that the issue on merits is covered in the assessee’s favor based on the cited Tribunal’s order and allowed Ground No. 7 raised by the assessee. Conclusion: The appeal of the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on Ground No. 7, allowing the deduction under Section 42(1)(a) and Section 80IB(9) without reducing the profit by the expenses related to unsuccessful exploration in other contract areas. The order was pronounced in the open court on 16th November 2018.
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