2017 (1) TMI 1326 - AT - Income Tax

Eligibility to deduction u/s 80IC - Held that - We find that the CIT (A) had called for a remand report and on the basis of the remand report has accepted that the assessee has filed the original return of income on 30.09.2011 and thereafter the return filed on 30.03.2011 is the revised the return of income and hence the assessee has satisfied the condition for claiming deduction u/s 80IC. Therefore, we do not see any reason to interfere with the findings of the CIT (A) on this issue. As regards the computation of deduction u/s 80IC we find that the assessee has accepted that the profit attributable to smaller components of the sale kit is not eligible for deduction u/s 80IC of the Act and has worked out the disallowance at ₹ 80.00 lakhs and accordingly apportioned it amongst the three eligible units. The Revenue is challenging the said allocation on the ground that the AO has not been given an opportunity to verify the said allocation. We find that during the assessment proceedings itself, the assessee had given the computation, but the AO has not gone into the said computation and the allocation on the ground that the assessee is not eligible for deduction u/s 80IC as it has filed the return after the stipulated time u/s 139(1). Therefore, we remit the issue of computation of allocation of both the common expenditure and also the profit attributable to the smaller components of the eligible unit to the AO for verification and allowance thereafter in accordance with law. Whether the losses of the earlier years which has already been set off against the other incomes can be notionally brought forward and set off from the income of the eligible unit before allowing the deduction u/s 80IA is covered in favour of the assessee by the decision of the Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills Private Limited vs. ACIT, reported in 2010 (3) TMI 860 - Madras High Court

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IC of the Income Tax Act.
2. Allocation of common expenditure between taxable and exempt units.
3. Notional set-off of losses from earlier years for the purpose of deduction under Section 80IC.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IC:
The assessee company, engaged in manufacturing water purifiers, filed its return of income for the A.Y 2009-10 on 30.03.2011, claiming a deduction under Section 80IC. The AO observed that the return was filed beyond the prescribed time limit under Section 139(1), thus disqualifying the assessee from availing the deduction. The assessee contended that the original return was filed within the stipulated time, and the return filed on 30.03.2011 was a revised return. The CIT (A) called for a remand report, and the AO confirmed that the original return was filed on 30.09.2009, within the time limit. Consequently, the CIT (A) accepted the revised return and allowed the deduction under Section 80IC. The Tribunal upheld the CIT (A)'s findings, rejecting the Revenue's ground of appeal.

2. Allocation of Common Expenditure:
The AO noted that the assessee had not properly allocated common expenditure between taxable and exempt units. The CIT (A) directed the AO to bifurcate the common expenditure among all four units in proportion to their turnover. The Revenue challenged this, arguing that the AO was not given an opportunity to verify the allocation. The Tribunal found that the assessee had provided the computation during the assessment proceedings, but the AO did not verify it due to the initial disqualification on the timing of the return. The Tribunal remitted the issue back to the AO for verification and proper allocation of common expenditure and profit attributable to smaller components of the eligible unit.

3. Notional Set-off of Losses from Earlier Years:
The AO held that for the purpose of deduction under Section 80IC, losses from earlier years, already set off against other income, should be notionally brought forward and set off against the current year's income. The CIT (A) confirmed this view. The assessee appealed, citing the Madras High Court decision in Velayudhaswamy Spinning Mills, which held that such losses should not be notionally set off. The Tribunal noted that the issue was covered in favor of the assessee by the decision of the Coordinate Bench in Hyderabad Chemicals Supply Ltd and the dismissal of the Revenue's SLP by the Supreme Court in the Velayudhaswamy case. Therefore, the Tribunal allowed the assessee's appeal on this ground.

Conclusion:
The Tribunal upheld the CIT (A)'s decision regarding the eligibility of the deduction under Section 80IC, remitted the issue of allocation of common expenditure back to the AO for verification, and allowed the assessee's appeal on the notional set-off of earlier years' losses. The assessee's appeal was allowed, and the Revenue's appeal was partly allowed for statistical purposes.