1990 (9) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Withdrawal of deduction under Section 80HH of the Income-tax Act, 1961.
2. Carry forward of unabsorbed deduction under Section 80HH.
3. Rectification of assessment orders under Section 154 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Withdrawal of Deduction under Section 80HH:

The assessee, a company engaged in manufacturing various products, set up a cement unit in a backward area and claimed a deduction of Rs. 24,21,501 under Section 80HH for the assessment year 1976-77. Initially, this deduction was not claimed in the return filed on 30-6-1976 but was later claimed through a letter dated 11-5-1978. The Income-tax Officer (ITO) allowed this deduction in the assessment order dated 24-9-1979 but noted that it could not be allowed as there were no taxable profits for the year, and thus it would be carried forward and adjusted in subsequent years.

2. Carry Forward of Unabsorbed Deduction under Section 80HH:

The assessee contended that the deduction under Section 80HH should be carried forward to the subsequent year due to the lack of taxable income in the initial year. However, the ITO realized that there is no provision in Section 80HH for the carry forward of unabsorbed deductions, unlike Section 80J, which explicitly provides for such carry forward. Consequently, the ITO took action under Section 154 to rectify the mistake of allowing the carry forward of Rs. 24,21,501 for the assessment year 1976-77 in the subsequent year.

3. Rectification of Assessment Orders under Section 154:

The ITO's action under Section 154 was challenged by the assessee, who argued that the rectification for the assessment year 1977-78 could not be done without first rectifying the assessment for the year 1976-77. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the ITO's action, stating that Section 80HH does not allow for the carry forward of deductions, and the ITO's mistake in the assessment year 1976-77 did not necessitate rectification before correcting the subsequent year's assessment. The CIT(A) relied on the Supreme Court decision in CIT v. Manmohan Das, which held that the determination of carry forward and set off of losses is to be made by the ITO dealing with the subsequent year's assessment.

Tribunal's Decision:

The Tribunal agreed with the CIT(A) and the ITO, emphasizing that Section 80HH does not provide for the carry forward of unabsorbed deductions. The Tribunal noted several distinguishing features between Sections 80HH and 80J, particularly that Section 80HH provides deductions based on profits and does not contemplate a scenario where deductions are carried forward in the absence of profits. The Tribunal concluded that the ITO's initial acceptance of the carry forward was without authority of law and that the rectification under Section 154 for the assessment year 1977-78 was appropriate, even without amending the assessment for the year 1976-77 first.

Conclusion:

The appeal was dismissed, upholding the ITO's rectification action under Section 154 to withdraw the deduction of Rs. 24,21,501 for the assessment year 1977-78, as the carry forward of such deduction was not permissible under Section 80HH of the Income-tax Act, 1961.