2024 (12) TMI 764 - AT - Income Tax

Enhancement of income done by the ld. CIT(A) - loss should have been adjusted from exempt income of the Daman Units - Section 80IB deductions in light of the losses incurred by one unit - HELD THAT - CIT(A) was of the firm belief that such loss from priority undertaking should have been set off against the profits from other priority undertaking at Daman Unit-II or III. The stand of the assessee was that it was not necessary that loss of one industrial undertaking should necessarily be adjusted against the profit of another eligible industrial undertaking. In support, strong reliance was placed on the decisions of CIT vs. Dewan Kraft System (P.) Ltd. 2007 (2) TMI 149 - DELHI HIGH COURT CIT(A) was of the opinion that the decision of Synco Industries Limited 2008 (3) TMI 13 - SUPREME COURT squarely applies on the facts of the case in hand wherein the Hon ble Supreme Court has emphatically ruled that the assessee s contention that the profits derived from one industrial undertaking cannot be set off against the loss suffered from another industrial undertaking in view of Section 80-I(6) has no merits. CIT(A) observed that the Hon ble Supreme Court upheld that loss from the oil division of the assessee was required to be adjusted against the profits of the chemical division. CIT(A) further observed that the principle decided in the case of Dewan Kraft System (P.) Ltd. 2007 (2) TMI 149 - DELHI HIGH COURT was considered and not approved by the Hon ble Supreme Court in the case of Synco Industries Ltd. (supra). Drawing support from the decision of the Hon ble Supreme Court (supra), the ld. CIT(A) was of the firm belief that the assessee was bound to set off the loss from one priority undertaking at Daman against profit from another priority undertaking at Daman. In our understanding, the Hon ble Supreme Court was seized with the question, whether a person is eligible for deduction under Chapter-VIA, when the gross total income of the assessee is determined as Nil. The Hon ble Supreme Court was of the opinion that if the gross total income of the assessee is Nil, there is no question of any deduction being allowed under Chapter VIA in computing the total income. This view has been followed by the Hon ble High Court wherein the High Court has also taken the view that deduction under Chapter VIA would be available only if the computation of gross total income as per the provisions of the Act, after setting off carried forward and unabsorbed depreciation of earlier years, is not Nil. The chart exhibited elsewhere clearly shows that in all the captioned assessment years under consideration, the assessee had positive gross total income from which it claimed deduction under Chapter VIA u/s 80I of the Act, in respect of eligible profits of Daman Units. In our considered opinion, the facts are totally distinguishable. We are of the considered view that enhancement done by the ld. CIT(A) is not correct and deserves to be set aside. The AO is directed to delete the impugned additions - Decided in favour of assessee.

Summary

Issues Involved:

1. Non-adjustment of business loss from Daman Unit-I against profits from Daman Unit-II and III.
2. Applicability of Section 80IB deductions in light of the losses incurred by one unit.
3. Interpretation of relevant case laws, particularly the Supreme Court decision in Synco Industries Ltd. and its applicability to the current case.

Issue-wise Detailed Analysis:

1. Non-adjustment of Business Loss:

The central issue in the appeals was whether the business loss of Rs. 15.89 lakhs incurred by Daman Unit-I should have been set off against the profits of Rs. 98.74 lakhs from Daman Unit-II and Rs. 167.47 lakhs from Daman Unit-III. The CIT(A) was of the firm belief that the loss should be adjusted against the profits of the other units, leading to a reduction in the deduction under Section 80IB by Rs. 15.89 lakhs, thereby increasing the taxable income by the same amount. The appellant argued against this adjustment, citing the decision of the Delhi High Court in CIT vs. Dewan Kraft System (P.) Ltd., which supported the view that losses from one industrial undertaking need not be set off against the profits of another eligible undertaking.

2. Applicability of Section 80IB Deductions:

The CIT(A) relied on the Supreme Court's decision in Synco Industries Ltd., which held that losses from one division must be adjusted against profits from another when computing gross total income. This would affect the deductions under Chapter VI-A, including Section 80IB. The CIT(A) concluded that the deduction should be based on the net income derived from all units, considering the provisions of Sections 80AB, 80A(3), and 80B(5). The appellant contested this, arguing that the deduction should be based on the profits of each unit independently, without offsetting losses from other units.

3. Interpretation of Relevant Case Laws:

The Tribunal examined the Supreme Court's decision in Synco Industries Ltd., which emphasized that if the gross total income is determined as 'nil', no deduction under Chapter VI-A can be allowed. The Supreme Court clarified that while computing the quantum of deduction under Section 80-I(6), the profits of an industrial undertaking should be treated as the only source of income. However, the gross total income must be computed after adjusting losses from other divisions. The Tribunal also considered the Delhi High Court's decision in ITO vs. Sona Koyo Steering Systems Ltd., which supported the view that deductions should be computed separately for each unit without setting off losses from other units.

The Tribunal noted that in the present case, the assessee had positive gross total income in all the assessment years under consideration, distinguishing it from the scenario in Synco Industries Ltd. The Tribunal concluded that the enhancement by the CIT(A) was incorrect and directed the AO to delete the impugned additions.

Conclusion:

The Tribunal allowed the appeals filed by the assessee, setting aside the enhancement of income by the CIT(A). It held that the losses from Daman Unit-I should not be set off against the profits of Daman Unit-II and III for the purpose of computing deductions under Section 80IB. The Tribunal's decision was based on the interpretation of relevant case laws and the factual matrix of the case, emphasizing the independent computation of deductions for each unit.