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2004 (6) TMI 246 - AT - Income TaxDeduction u/s 80-IA - brought forward losses - U nabsorbed depreciation and business losses of the past years to be ignored while computing deduction under section 80-IA? - unutilized MODVAT credit - HELD THAT - It is clear that the decision in the case of Patiala Flour Mills Co. (P.) Ltd. 1978 (10) TMI 3 - SUPREME COURT has wrong been applied by the Learned CIT(A) to the provisions of section 80-IA(7). The language of section 80-IA(7) is clear, according to which, taxable income of eligible business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee and the assessee had no other source of income. It is only consequential that the unabsorbed losses, unabsorbed depreciation, etc., relating to eligible business are to be taken into account in determining the quantum of deduction u/s 80-IA, even though these may have actually been set off against the profits of the assessee from other sources. Thus, we find that the Assessing Officer had rightly denied the deduction u/s 80-IA in respect of these units there being a loss in respect of the said unit as computed within the meaning of section 80-IA(7). As pointed out earlier that the wordings of section 80-IA(7) is clear and there is no ambiguity therein. Therefore, there is no scope for conferring the benefit sought for by the assessee by ignoring or misinterpreting words at section 80-IA(7). Thus, the order of CIT(A) with regard to deduction under section 80-IA is set off thereby and that of Assessing Officer is restored. This ground of revenue is allowed.
Issues Involved:
1. Deletion of addition made on account of unutilized MODVAT credit. 2. Direction to allow deduction u/s 80-I despite brought forward losses. Summary: Issue 1: Deletion of Addition Made on Account of Unutilized MODVAT Credit The revenue's appeal against the deletion of the addition made on account of unutilized MODVAT credit of Rs. 25,93,773 was dismissed. Both parties agreed that this issue was settled in favor of the assessee by the Hon'ble Supreme Court in CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275. Issue 2: Direction to Allow Deduction u/s 80-I Despite Brought Forward Losses The CIT(A) directed the Assessing Officer to allow a deduction u/s 80-I of Rs. 90,95,971 for three units, despite there being no profit in two units after adjusting the set-off of brought forward losses. The CIT(A) held that each assessment year is separate, and the losses of the industrial units had already been set off in earlier years against the income of the third unit. The CIT(A) relied on the Supreme Court's decisions in CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431, CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, and CIT v. Patiala Flour Mills Co. (P.) Ltd. [1978] 115 ITR 640, interpreting section 80-IA as a beneficial provision to be liberally construed. The revenue argued that the Assessing Officer's calculation was correct as per section 80-IA(7), which creates a legal fiction that the eligible business should be treated as the only source of income from the date of its establishment. The CIT(A) was said to have wrongly allowed the relief. The Tribunal, after considering the rival submissions and the material placed, found that the CIT(A) had wrongly applied the decision in Patiala Flour Mills Co. (P.) Ltd. to section 80-IA(7). The Tribunal noted that section 80-IA(7) explicitly creates a legal fiction for computing the profits of the eligible business as if it were the only business of the assessee. Consequently, unabsorbed losses and depreciation must be taken into account, even if they were set off against other business profits in earlier years. The Tribunal concluded that the Assessing Officer correctly denied the deduction u/s 80-IA for the units with computed losses. The Tribunal also referenced the Supreme Court's decision in IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521, emphasizing that even beneficial provisions must be interpreted as per their clear wording. Conclusion: The Tribunal set aside the CIT(A)'s order regarding the deduction u/s 80-IA and restored the Assessing Officer's decision, allowing the revenue's appeal on this ground. The appeal was partly allowed.
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