2006 (3) TMI 298 - AT - Income Tax

Summary

Issues:
- Whether brought forward losses and unabsorbed depreciation of earlier years should be considered for working out the amount deductible under section 80HHC.

Analysis:
The main issue in this judgment revolves around the consideration of brought forward losses and unabsorbed depreciation of earlier years for determining the deductible amount under section 80HHC. The case referred to the decision of the Hon'ble Supreme Court in IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521, which emphasized that the net result of export activities must be considered for deduction under section 80HHC. The Court highlighted the overriding effect of section 80AB over all other sections in Chapter VI-A, including section 80HHC. It was clarified that section 80HHC does not prevail over section 80AB, and thus, losses from non-export activities cannot be set off against export profits under section 80HHC.

The learned counsel argued that only brought forward losses from export activities can be adjusted against export profits of the current year as per the IPCA Laboratory Ltd.'s case. Section 72 was also referenced, stating that brought forward losses of the business are treated as current year's losses for set-off purposes. The Tribunal emphasized that only losses from export activities, whether current year or brought forward, can be adjusted against export profits under section 80HHC, excluding non-export losses.

On the contrary, the Departmental Representative contended that the IPCA Laboratory Ltd. case does not address brought forward losses, which are regulated by section 80AB. The plain reading of sections 80A, 80AB, 80B(5), and 80HHC, according to the DR, defeats the assessee's case. The IPCA Laboratory Ltd. decision was cited to support this argument.

After considering the facts and submissions, the Tribunal analyzed the conflicting interpretations of the IPCA Laboratory Ltd. case and the provisions of section 80AB. The Tribunal acknowledged the Supreme Court's ruling that section 80AB overrides section 80HHC and all other sections in Chapter VI-A. The Tribunal concluded that brought forward losses from non-export activities cannot be ignored for computing the deduction under section 80HHC. Therefore, the Tribunal dismissed the appeal on this ground, aligning with the Supreme Court's decision and rejecting the contention to exclude non-export brought forward losses from the deduction calculation under section 80HHC.