2022 (5) TMI 510 - AT - Income Tax

Deduction u/s.80IC on the profits of Roorkee undertaking - Whether deduction u/s.80IC is required to be restricted to the amount of gross total income ? - HELD THAT - The total amount of deductions under the Chapter VIA cannot breach the amount of gross total income, which, in turn, means the total income computed in accordance with the provisions of the Act immediately before making any deductions under this Chapter. Thus, the procedure is to compute head-wise income under Chapter IV; club incomes of other persons in the assessee s total income as per Chapter V; then apply the provisions of set off and carry forward as per Chapter VI, so as to reach the amount of gross total income. To put it simply, the amount of gross total income is the total income of the assessee immediately before the claim of deductions under Chapter VIA of the Act. Going with the prescription of section 80A(2) of the Act, if the gross total income is more than the aggregate amount of deductions under Chapter VI-A, then such total amount of deductions is reduced from it to find out the total income. If however, the aggregate amount of deductions under this Chapter happens to be more than the gross total income, then such aggregate amount of deductions gets restricted to the amount of the gross total income with the effect that the total income is reduced to Nil and is not converted into loss so as to allow carry forward of the amount of deductions under this Chapter to the next year. The Hon ble Supreme Court in M/s. Synco Industries Ltd. Vs. AO and another 2008 (3) TMI 13 - SUPREME COURT has also laid down to this extent. Adverting to the facts of the instant case, it is seen that the assessee s final gross total income was Rs.3,11,49,011/-. Thus, the total amount of deductions under Chapter VI could not have breached the amount of gross total income. The authorities have rightly restricted the amount of deduction u/s 80IC to the extent of gross total income computed at Rs.3.11 crore. The ld. AR was fair enough to accept this position against the assessee. The ground is thus dismissed. Deduction u/s.80IC be allowed in the computation of book profit u/s.115JB of the Act in the light of sub-section (5) thereto - HELD THAT - It is clear that for the purpose of calculation of tax liability u/s.115JB of the Act, there is no scope for reducing book profit by the amount of deduction u/s.80IC. The Mumbai Tribunal in Neha Home Builders 2018 (10) TMI 922 - ITAT MUMBAI has held that deduction u/s.80IC is permissible in computing book profit u/s.115JB of the Act. Unfortunately, the above referred judgments of the Hon ble Guwahati 2009 (3) TMI 511 - GAUHATI HIGH COURT , Uttarakhand 2010 (11) TMI 671 - UTTARKHAND HIGH COURT and Karnataka High Courts 2013 (6) TMI 310 - KARNATAKA HIGH COURT , which were prevailing on the date of hearing by the Mumbai Bench, were not brought to its notice. In view of the fact that four consecutive High Courts have disentitled the assesses to reduce the amount of deduction u/s.80IB/80IC in the computation of book-profit u/s.115JB of the Act, and not even a single divergent judgment of any Hon ble High Court has been brought to our notice, there is no scope for taking a contrary view. Ex consequenti, the Tribunal, which is an inferior authority, is incapacitated to lay down differently. Reverting to the language of section 115JB(5) making all other provisions of the Act applicable but by saving section 115JB and sub-section (1) of section 115JB containing a non obstante clause qua any other provision of the Act in the manner of computation of income tax liability of a company at 18.5% of its book profit and because of deeming provision in this sub-section regarding the computation of book profit and further Explanation 1 defining book profit in an exhaustive manner, we hold that there is no merit in the contention of the ld. AR in seeking reduction of the book profit u/s 115JB with the amount of deduction u/s 80IC of the Act. The additional ground, therefore, fails.

Summary

Issues Involved
1. Condonation of Delay in Filing Appeal
2. Restriction of Deduction u/s 80IC
3. Deduction u/s 80IC in the Computation of Book Profit u/s 115JB

Detailed Analysis

1. Condonation of Delay in Filing Appeal
The appeal for the A.Y. 2013-14 was delayed by 128 days. The assessee provided an affidavit explaining the reasons for the delay. The Tribunal was satisfied with the reasons and condoned the delay, admitting the appeal for hearing.

2. Restriction of Deduction u/s 80IC
The assessee, engaged in manufacturing auto electrical and electronics components, claimed a deduction u/s 80IC amounting to Rs. 7.57 crore from the profits of its Roorkee unit. However, the Assessing Officer (AO) restricted the deduction to Rs. 3.11 crore, equivalent to the gross total income, due to the loss in the non-eligible Shirwal unit. The CIT(A) upheld this decision. The Tribunal concurred, stating that as per Section 80A(2), the aggregate amount of deductions under Chapter VI-A cannot exceed the gross total income. The Tribunal referenced the Supreme Court decision in M/s. Synco Industries Ltd. Vs. AO, which supports this interpretation. Consequently, the Tribunal dismissed the assessee's ground, affirming the restriction of the deduction to the amount of gross total income.

3. Deduction u/s 80IC in the Computation of Book Profit u/s 115JB
The assessee raised an additional ground, contending that the deduction u/s 80IC should be allowed in the computation of book profit u/s 115JB. The Tribunal admitted this additional ground, noting that it involves a pure question of law and no fresh investigation of facts is necessary.

Upon examining the merits, the Tribunal analyzed Section 115JB, which is a special provision for payment of tax by certain companies. Sub-section (1) of Section 115JB deems the book profit as total income and subjects it to tax at 18.5%. The term "book profit" is defined in Explanation 1 to sub-section (2), which does not include deductions under Chapter VI-A, including Section 80IC.

The Tribunal noted that Section 115JA, the predecessor of Section 115JB, explicitly allowed for deductions under Chapter VI-A, but such provisions were omitted in Section 115JB. This omission, coupled with the reduced tax rate of 18.5%, indicates the legislature's intent to exclude such deductions from the computation of book profit under Section 115JB.

The Tribunal also considered various judicial precedents, including decisions from the Karnataka, Madras, Guwahati, and Uttarakhand High Courts, which have consistently held that deductions under Chapter VI-A are not permissible in the computation of book profit u/s 115JB. The Tribunal found no merit in the assessee's contention and dismissed the additional ground.

Conclusion
The Tribunal dismissed both appeals, upholding the restriction of the deduction u/s 80IC to the gross total income and denying the deduction u/s 80IC in the computation of book profit u/s 115JB. The Tribunal's decision aligns with the legislative framework and judicial precedents, ensuring that the tax liability is correctly assessed in accordance with the law.