2019 (1) TMI 421 - AT - Income Tax

Netting of profits and losses of the eligible units of the assessee for the purpose of calculating deduction u/s 80IC - Held that - The section provides for different rates of deduction of profits for different years in case of specific undertakings and if netting of profits and losses of all eligible undertakings are resorted to, as laid down in the decision of Him Teknoforge Ltd. 2012 (9) TMI 162 - HIMACHAL PRADESH HIGH COURT in a situation where the different eligible units are entitled to different rates of deduction of profits, it would be difficult to determine the rate to be applied to the remaining profits since there is no section or provision in the entire Act dealing with such a situation. We therefore, agree with assessee that the decision in the case of Him Teknoforge Ltd. (supra) having been rendered in the context of section 80IA does not apply in the present case which deals with deduction u/s 80IC and since as per section 80IC it is the profit on each undertaking which is to be treated as separately, the profits and losses of all the eligible undertakings are not to be netted for the purpose of calculating deduction u/s 80IC and are to be taken on a stand alone basis - We direct the A.O. to allow deduction to the assessee u/s 80IC with respect to the profits earned by the assessee from the eligible undertakings ignoring the losses from other eligible undertakings. Ground of appeal No.1 raised by the assessee is allowed. Benefit of MAT credit as eligible and allowable u/s 115JAA - The limited prayer of the Ld. Counsel for the assessee was that the A.O. be directed to granted the same as per law.

Summary

Issues Involved:
1. Restriction of Deduction Claimed u/s 80IC to 30% for Unit III.
2. Netting of Profits and Losses of Eligible Units for Deduction Calculation u/s 80IC.
3. Grant of Minimum Alternate Tax (MAT) Credit u/s 115JAA.

Detailed Analysis:

1. Restriction of Deduction Claimed u/s 80IC to 30% for Unit III:
The assessee, engaged in manufacturing automotive gears, claimed a 100% deduction u/s 80IC for Unit III due to substantial expansion. The AO restricted this to 30% post the initial five-year period, citing legal provisions. The CIT(A) upheld this decision, referencing the ITAT Chandigarh Bench ruling in Hycron Electronics Vs. ITO. The assessee's counsel conceded that the issue was settled against them by the Hon'ble Apex Court in CIT Vs. M/s Classic Binding Industries & Others. Consequently, the Tribunal found no reason to interfere with the CIT(A)'s order, dismissing the grounds raised by the assessee.

2. Netting of Profits and Losses of Eligible Units for Deduction Calculation u/s 80IC:
The AO netted the profits and losses of eligible units before allowing the deduction u/s 80IC, following the Himachal Pradesh High Court's decision in CIGT, Shimla Vs. Him Teknoforge Ltd. The CIT(A) upheld this approach. The assessee argued that section 80IC should be interpreted differently from section 80IA, as it specifies "eligible undertaking" rather than "eligible business." They contended that deduction should be undertaking-specific, not business-specific, to avoid anomalies, especially given the graded deduction rates under section 80IC.

The Tribunal analyzed the distinction between sections 80IA and 80IC, noting that section 80IC(7) incorporates section 80IA(5) but applies it to "eligible undertaking or enterprise." They emphasized the significance of the notwithstanding clause in section 80IA(5) and its applicability to section 80IC. The Tribunal concluded that section 80IC's provisions prevail over section 80AB, necessitating separate treatment of profits for each eligible undertaking. They agreed with the assessee's interpretation, rejecting the netting approach and directing the AO to allow deductions based on individual unit profits.

3. Grant of Minimum Alternate Tax (MAT) Credit u/s 115JAA:
The assessee contended that the CIT(A) erred in not quantifying the brought forward MAT credit of ?1,28,87,280 eligible for credit u/s 115JAA. The Tribunal directed the AO to examine the facts and grant the MAT credit as per law.

Conclusion:
The appeals were partly allowed. The Tribunal upheld the restriction of the 80IC deduction to 30% for Unit III but ruled in favor of the assessee on the netting of profits and losses, directing separate treatment for each eligible unit. The AO was also directed to grant the MAT credit as per law.