2009 (12) TMI 933 - HC - Income Tax

Disallowance under section 43B - belated payment of PF contribution - addition of prior period expenses - deduction under section 80-IA - HELD THAT - Standing counsel appearing for the Revenue has relied on decision of the Supreme Court in Synco Industries Ltd. vs. AO Anr. 2008 (3) TMI 13 - SUPREME COURT and contended that the claim u/s 80-IA though with reference to the profit of the new industrial limit has to be limited to the net total income computed if the claim amount is higher than such income. We do not think there can be any controversy on this proposition because u/s 80A(2) total deductions under Chapter VI-A have to be limited to the gross total income of the assessee computed under the provisions of the Act. Therefore assessee cannot claim deduction u/s 80-IA in excess of gross total income computed no matter eligible amounts may be higher than such income. However we disapprove the pattern of computation made by the assessee by deducting from the profits of the eligible industrial unit the claim amount and then returning the balance to constitute gross total in the computation of total income. In fact the procedure to be followed for the purpose of granting deduction u/s 80-IA is to first compute the profits and gains of the eligible unit and then to determine the eligible deduction therefrom in terms of section 80-IA(5) of the Act. Thereafter in the computation of total income under the provisions of the Act the eligible deduction has to be reduced and if the total income computed is less than the eligible amount deduction has to be limited to such amount. Since there has been variations in the total income computed by virtue of disallowances and later orders of the higher authorities allowing it we direct the officer to rework total income and therefrom allow eligible deduction u/s 80-IA(5) of the Act with reference to the profits of the eligible unit but limiting it to the total income if the claim amount is higher than such amount. The orders of the Tribunal and the first appellate authority will stand modified as above.

Summary

Issues involved: Disallowance under section 43B of the IT Act, addition of prior period expenses, deduction under section 80-IA of the IT Act.

Disallowance under section 43B of the IT Act: The Tribunal allowed the claim based on the Supreme Court decision in CIT v. Vinay Cement Ltd. as payments were made before the date of filing the return. The issue raised by the Revenue was not considered as it was covered by the Supreme Court decision.

Addition of prior period expenses: The AO disallowed debit entries but treated all credits as income, which was found arbitrary by the Tribunal. The net credit available in the prior period expense accounts was returned by the assessee as income. No question of law was found to arise from the Tribunal's order on this issue.

Deduction under section 80-IA of the IT Act: The assessee, having business in two industrial units, claimed deduction under section 80-IA for the profit derived from a new industrial unit set up at Pondicherry. The AO rejected the pattern adopted by the assessee and granted deduction from the net profit available after setting off loss from one industrial unit against the profit from another. The Tribunal and the first appellate authority held that the assessee is entitled to a higher deduction under section 80-IA in the computation of total income. The Revenue appealed against this order.

The High Court, while agreeing with the limitation of deductions to the gross total income under section 80A(2), disapproved the pattern of computation made by the assessee. The Court directed the officer to rework the total income and allow eligible deduction under section 80-IA with reference to the profits of the eligible unit, but limiting it to the total income if the claim amount is higher than such amount. The orders of the Tribunal and the first appellate authority were modified accordingly.