1995 (4) TMI 98 - AT - Income Tax

Summary

Issues:
1. Validity of assessments under section 263 of the IT Act for the assessment years 1986-87 and 1987-88.
2. Correct computation and allowance of deductions under sections 80HH and 80-I of the IT Act.
3. Interpretation of "total income" and "such profits and gains derived from an industrial undertaking."

Analysis:
1. The appeals by the assessee were against the orders of the CIT setting aside assessments made under section 263 of the IT Act for the assessment years 1986-87 and 1987-88, deeming them erroneous and prejudicial to the interests of the Revenue. The CIT held that brought forward losses of earlier years should have been set off before allowing deductions under sections 32A, 80HH, and 80-I. The CIT set aside the assessment orders and directed the AO to make fresh assessments after providing the assessee with an opportunity to be heard.

2. The assessee contended that deductions under sections 80HH and 80-I were correctly allowed, citing precedents and decisions. However, the CIT disagreed, relying on the decision of the Hon'ble Kerala High Court and holding that deductions under section 80HH cannot be allowed without setting off unabsorbed depreciation and unabsorbed development rebate of earlier years. The Tribunal noted conflicting opinions among High Courts regarding the computation of deductions under section 80HH. It held that if the AO took a possible view in the assessment order, it cannot be considered erroneous for the purposes of section 263 of the Act.

3. The Tribunal delved into the interpretation of "total income" and "such profits and gains derived from an industrial undertaking." It emphasized that these two expressions have distinct meanings and must be understood differently. The Tribunal referred to various court decisions to support its analysis. It concluded that for the assessment year 1986-87, as the assessee had a "nil" total income after considering brought forward losses, deductions under sections 32A, 80HH, and 80-I were wrongly allowed. However, for the assessment year 1987-88, where the total income was positive before allowing deductions, the deductions under sections 80HH and 80-I were deemed to be correctly allowed. The matter was remanded to the AO for fresh computation of deductions for both assessment years.

In conclusion, the Tribunal partly allowed the assessee's appeals based on the above analysis and findings.