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TMI Blog2004 (7) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... forward of losses and unabsorbed depreciation of earlier years. u The CIT (Appeals) ought to have appreciated that Hon ble Kerala High Court in the case of CIT v. V.T. Joseph [1997] 225 ITR 731 also held likewise. u The CIT(Appeals) has erred in directing the Assessing Officer to consider the profit of Rs. 36,230 under section 41(1) as profits from eligible business for the purpose of computation of deduction under section 80HHE. u The CIT(Appeals) failed to consider the fact that profit under section 41(1) arose on cessation of liability or provision written back and it is necessary to examine whether such liability was in relation to the eligible business of the assessee. 3. The assessee is engaged in the business of export of software. For the relevant assessment year, he filed return of income declaring total income of Nil which was computed as under : Profits and gains from business 1,02,22,893 Income from other sources : Interest on FD and Income Tax refunds : 1,73,321 Total : 1,03,96,214 Brought forward business losses : 32,29,435 Unabsorbed depreciation : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn by Hon ble Bombay High Court has not been approved by Hon ble Supreme Court in IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521 2 . In the said case, it is specifically mentioned that section 80AB has been given overriding effect over all other sections. Section 80HHC does not provide that its provision have to prevail over section 80AB or any other provisions of the Act. Thus reliance upon the decision of Gogineni Tobacco Ltd. s case ( supra ) by the Learned CIT(A) is not in accordance with law. Since section 80AB overrides the provision of section 80HHC which is in pari materia with section 80HHE, the amount eligible for deduction under section 80HHE can be only after reducing the unabsorbed depreciation and brought forward losses. To this extent the order of Learned CIT(A) needs to be reversed. Sri Datta also relied upon the decision of Hon ble Kerala High Court in the case of CIT v. V.T. Joseph [1997] 225 ITR 731 3 , wherein also deduction under section 80HHC was computed after setting off brought forward losses and depreciation. 6. Learned counsel for the assessee Mr. Ramasubramanian fairly submitted that for the purpose of computing deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter deduction under section 80HHE is to be computed. However, it is trite law that the actual amount of deduction under section 80HHE cannot exceed the gross total income. It is also seen that the provision of section 80HHC and section 80HHE are in pari materia. 8. It is seen that while allowing the appeal, Learned CIT(A) has relied heavily on the decision of AP High Court in Gogineni Tobacco Ltd. s case ( supra ) wherein it was held that : "From a reading of the section, it is clear that the total income is to be computed in accordance with the provisions of the Act first. Thereafter, the deduction under section 80E is to be allowed. Whereas, under section 80HHC which we have already extracted in the earlier paragraphs, the deduction under that section is to be allowed before working out the income under the other provisions of the Act. Section 80HHC does not use the words as computed in accordance with the other provisions of this Act. The section itself says there shall, in accordance with and subject to the provision of this section, be allowed a deduction of the profits derived by the assessee in computing the total income of the assessee. Since the langu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provision of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. [Emphasis supplied] Section 80HHE(1) provides that where the assessee is engaged in the business of export out of India of computer software, he is allowed deduction of the profits derived from such business computed in accor- dance with the provision of sub-section (3). Sub-section (3) of section 80HHE provides that deduction is admissible to the extent of profit derived from business in the proportion to export turnover bears to the total turnover. Clause ( d ) of Explanation below section 80HHE defines the words "profits of the business". As per this definition the "profits of business" means the profits as computed under the head Profits and gains of business or profession under the Act. Such profit has to be further reduced by 90% of the income by way of brokerage, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed gross total income. In other words, the deduction under Chapter VI-A is not to be allowed first and thereafter set off the brought forward losses but for the limited purpose of computing deduction under section 80HHE brought forward losses are not to be reduced. Thus, though section 80AB governs section 80HHE, the effect of section 80AB does not provide that the brought forward losses will first be set off even to compute the profit eligible for deduction. We accordingly hold that brought forward business losses is not to be reduced for computing profits of business eligible for deduction under section 80HHE. In the present example, the eligible profit will be Rs. 72,78,339 and not Rs. 35,15,070 as computed by the Assessing Officer. At the same time, the deduction under section 80HHE will be restricted to the extent of gross total income even though the amount allowable for deduction under section 80HHE is higher than such sum. 11. As regards the ground relating to profit of Rs. 36,230, the profit of eligible business is to be computed as per Explanation to section 80HHE. Since such sum is forming part of profits of business as computed under the head Profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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