2008 (5) TMI 327 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement for relief u/s 80-I to the extent of gross total income.
2. Restriction of deduction u/s 80-I to gross total income including income from other sources.
3. Examination of components of gross total income for limiting deduction u/s 80-I.
4. Consideration of specific income items for computing deduction u/s 80-I.
5. Rejection of AO's proposal for enhancement and withdrawal of entire deduction u/s 80-I due to business loss.

Summary:

1. Entitlement for Relief u/s 80-I:
The CIT(A) erred in holding that the assessee is entitled for relief u/s 80-I to the extent of gross total income of Rs. 9.89 crores. The Tribunal found that the CIT(A) correctly allowed the deduction to the extent of the gross total income, confirming the order of the CIT(A).

2. Restriction of Deduction u/s 80-I:
The CIT(A) concluded that deduction u/s 80-I should be restricted not to the profits and gains of business but to the gross total income which includes income from other sources. The Tribunal upheld this view, stating that s. 80A(2) restricts the aggregate of all deductions to the gross total income.

3. Examination of Components of Gross Total Income:
The CIT(A) concluded that the components of the gross total income cannot be examined for limiting deduction u/s 80-I. The Tribunal agreed, noting that once the deduction is determined, the components of the gross total income cannot be re-examined at the stage of applying s. 80A(2).

4. Consideration of Specific Income Items:
The CIT(A) failed to appreciate that when a particular item of income cannot be considered for computing deduction u/s 80-I, the same cannot be considered for limiting the deduction under the said section. The Tribunal found that the AO had excluded dividend income and interest income from TNEB, which was correct as these were not derived from the industrial undertaking.

5. Rejection of AO's Proposal for Enhancement:
The CIT(A) erred in rejecting the proposal for enhancement made by the AO in the course of appeal proceedings for withdrawing the entire deduction u/s 80-I as there was a loss of business of Rs. 4.12 crores in the relevant year. The Tribunal found that the CIT(A) correctly held that the assessee was eligible for deduction u/s 80-I to the extent of the gross total income, confirming the order of the CIT(A).

Reopening of Assessment:
The Tribunal annulled the assessment proceedings, finding that the reopening was beyond four years and there was no failure on the part of the assessee to disclose any material facts. The Tribunal relied on the decisions of the Hon'ble Madras High Court in CIT vs. Elgi Finance Ltd. and CIT vs. Premier Mills Ltd., which held that reassessment beyond four years is not permissible without failure to disclose material facts.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, confirming the order of the CIT(A) and holding that the assessee was entitled to the deduction u/s 80-I to the extent of the gross total income.