2023 (11) TMI 236 - HC - Income Tax

Disallowance u/s 80IA/80IB - profits of two (2) eligible units were not adjusted against unabsorbed losses of the other (3) eligible units and brought forward losses of earlier years - view taken by the CIT(A) that, while calculating deductions u/s 80IA/80IB, only profits of the eligible businesses had to be considered is the correct view - HELD THAT - Section 80IA(5) provides that to quantify the deduction under Section 80IA(1) of an assessee for an AY post the initial AY in which such deduction is claimed , the profits and gains of the eligible business should be computed as if it is the only source of income of the assessee. It does not mandate that losses that have been adjusted against the profits of other non-eligible businesses have to be, once again, adjusted against the profits of the eligible business, or that absorbed losses against the eligible businesses of the time before the second AY in which deduction is claimed must be notionally carried forward and adjusted. See M/S STERLING AGRO INDUSTRIES LTD 2023 (8) TMI 768 - DELHI HIGH COURT There is no requirement u/s 80IA(5) of the Act to adjust profits derived from the eligible units against the losses that stand absorbed against profits of the 'other non-eligible businesses or losses that have already been adjusted against the profits of the eligible businesses in the years before the previous year in relation the first assessment year in which the deduction was claimed. Therefore, in this case, the respondent/assessee was not required to set off losses of other units against its profitable units. Disallowance u/s 80M - dividend received by assessee had not been distributed to its shareholders - HELD THAT - As assessee can only claim a deduction to the extent of the dividend it distributed to its shareholders. Although revenue sought to place reliance on the assessment order to submit that the dividend was not distributed by the respondent/assessee, it appears to be based on an erroneous factual foundation. CIT(A) has returned the finding of fact, which was sustained by the Tribunal, that the respondent/assessee had placed the relevant material before the AO which showed that dividend to the extent of Rs. 3,97,34,475/- had been distributed by it to its shareholders -This is a finding of fact that remains undisturbed and, therefore, in our view, the deletion of disallowance ordered by the CIT(A) and the Tribunal under Section 80M was correct. Revenue appeal dismissed.

Summary

Issues Involved:
1. Condonation of delay in re-filing the appeal.
2. Deletion of disallowance under Section 80IA/80IB of the Income-tax Act, 1961.
3. Deletion of disallowance under Section 80M of the Income-tax Act, 1961.

Summary:

Issue 1: Condonation of Delay in Re-filing the Appeal

1. The appellant/revenue filed an application seeking condonation of delay of 310 days in re-filing the appeal. The respondent/assessee did not oppose this application. Consequently, the delay was condoned, and the application was disposed of.

Issue 2: Deletion of Disallowance under Section 80IA/80IB

7.1 The appellant/revenue challenged the Tribunal's order deleting the disallowance of Rs. 4,32,65,725/- under Section 80IA/80IB. The respondent/assessee had declared income of Rs. 1,14,29,476/- and paid tax as per Section 115JB on book profit of Rs. 10,63,49,082/-. The AO, in an assessment order dated 01.11.2010, computed the respondent's income at Rs. 5,11,63,951/- after disallowing the deduction under Section 80IA/80IB, stating that profits of two eligible units were not adjusted against unabsorbed losses of other units.

10. The CIT(A) deleted the disallowance, noting that Section 80IA(5) does not permit adjusting profits of eligible units against losses of other units. This view was sustained by the Tribunal.

17. The court upheld the CIT(A)'s view, stating that Section 80IA(5) requires computing profits of the eligible business as if it is the only source of income, without adjusting losses of non-eligible businesses or absorbed losses of previous years.

18. The court referred to the decision in Pr. Commissioner of Income Tax-7 v. Sterling Agro Industries Ltd., which clarified that Section 80IA(5) does not mandate adjusting profits of eligible units against losses of non-eligible businesses or previously absorbed losses. The court disagreed with the Karnataka High Court's decision in Microlabs Ltd. and followed the Madras High Court's decision in Velayudhaswamy Spinning Mills (P.) Ltd.

Issue 3: Deletion of Disallowance under Section 80M

7.2 The appellant/revenue also challenged the deletion of disallowance of Rs. 3,97,34,475/- under Section 80M, arguing that the dividend received was not distributed to shareholders.

11. The CIT(A) found that the respondent/assessee had distributed Rs. 3,97,34,475/- out of Rs. 5,09,19,998/- received as dividend, and thus the disallowance was uncalled for. This finding was sustained by the Tribunal.

19. The court noted that Section 80M allows deduction to the extent of the dividend distributed to shareholders. The CIT(A) and Tribunal found that the respondent/assessee had distributed the dividend, and this finding remained undisturbed.

21. The court upheld the deletion of disallowance under Section 80M, as the factual finding that the dividend was distributed was not contested.

Conclusion:

22. The court concluded that no substantial question of law arose for consideration and closed the appeal. Parties were directed to act based on the digitally signed copy of the order.