2007 (7) TMI 226 - HC - Income Tax

Export - Tribunal hold that deduction u/s 80HHC shall be granted before set off of the unabsorbed depreciation, unabsorbed business loss and unabsorbed investment allowance of the earlier years before grant of depreciation in view of apex Court decision in various cases held that in determining business profits for the deduction under section 80 HHC, the unabsorbed business losses of earlier years u/s 72 should be set off tribunal order set aside

Summary

Issues:
Interpretation of deduction under section 80HHC before setoff of unabsorbed losses and depreciation.

Analysis:
The case involved a dispute regarding the entitlement to deduction under section 80HHC of the Income Tax Act, 1961, before setting off unabsorbed depreciation, business losses, and investment allowances of earlier years. The assessee, an exporter of leather footwear, filed a 'Nil' return of income for the relevant assessment year, which was later reopened due to claimed excess deduction leading to income escapement. The assessing officer restricted the deduction under section 80HHC, considering the carried forward losses, which was upheld by the Commissioner of Income-tax (Appeals). The Appellate Tribunal, however, ruled in favor of the assessee, allowing the deduction under section 80HHC before setoff of unabsorbed losses. The Revenue appealed this decision, raising the substantial question of law on the correct order of granting deductions.

The High Court referred to previous decisions, including Asvini Cold Storage P. Ltd. v. Commissioner of Income-tax, where it was held that the deduction under section 80HHC should be computed based on profits and losses as per the provisions of the Act. The Court emphasized that the computation for deduction must align with the total income computed under section 80AB, ensuring that income from profits and gains of business conforms to the Act's provisions, including setoff and carry forward.

Furthermore, the Court cited another case, Commissioner of Income Tax-III v. M/s. Sharon Vaneers P. Ltd., where it was reiterated that section 80AB prevails over section 80HHC, and unabsorbed losses and depreciation should be considered while computing income for the purpose of deduction under section 80HHC. The Court highlighted that the provisions of section 80AB must be applied while determining business profits under section 80HHC, as clarified by the Supreme Court in IPCA Laboratory Ltd. v. Deputy Commissioner of Income-tax.

The judgment also referenced the decision of the Apex Court in Commissioner of Income-tax v. Shirke Construction Equipments Ltd., where it was established that unabsorbed business losses of earlier years should be set off in determining business profits for the deduction under section 80HHC. The High Court, considering the settled law and the Apex Court's ruling, answered the substantial question of law in the negative, in favor of the Revenue and against the assessee, allowing the tax case appeal.