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TMI Blog2010 (10) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 80IA - If such deduction was claimed and allowed in any earlier year then clearly there was reduction of profit in those earlier years and once the creditors remit the liability or liability ceased to exist and assessee declared it as part of the profit then nexus of such profit written back with the industrial undertaking is not severed - The deduction under section 80IA or 80IB is available on profits and gains computed in accordance with section 20A- 43D which includes section 41(1) also - Accordingly this ground of assessee is allowed for statistical purposes The ld. AO disallowed the claim of sum of Rs. 3,10,000/- by holding that it is not derived from business or industrial undertaking - Thus like interest receipt of FDR insurance claims also cannot be said to be derived from business of industrial undertaking and thus they are not eligible for deduction under section 80IA - In the result, appeal filed by the assessee is partly allowed but for statistical purposes X X X X Extracts X X X X X X X X Extracts X X X X ..... o arrived at the beginning of Asst. Year 2004-05 and then calculated depreciation thereon. The relevant calculation given by the AO is as under :- Asst. Year Opening WDV Addition during the year [net] Total Depreciation Closing WDV 00-01 0 2199543 2199543 274943 1924600 01-02 1924600 4143542 6068142 1043607 5024535 02-03 5024535 295401 5319936 1167429 4152507 03-04 4152507 914801 5067308 1050634 4016674 04-05 4016674 1241042 5257716 934071 4323645 While allowing such notional depreciation AO followed the decision of Hon. Supreme Court in Cambay Electric Supply Co. vs. CIT (1978) 113 ITR 84 and that of Indian Rayon Corporation Ltd. vs. CIT (2003) 261 ITR 98. On the other hand the assessee relied on judgments for the proposition that such depreciation which has not been claimed by the assessee cannot be thrust upon him and then calculate WDV depreciation thereon as against adopting of WDV of the initial Asst. Year, and without further reducing depreciation therefrom in subsequent years. According to the AO the Tribunal has affirmed in Asst. Year 2001-02 the action of AO in allowing notional depreciation even though it was not so claimed. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself and deduction allowable under these sections is a special deduction which is linked to profits. Deduction under section 80IA is allowed at a percentage of the basic profits computed in the manner specified in that section and other provisions contained in Chapter VIA. Section 80IA contains both substantive and procedural provisions for computing such special deduction and any device adopted to reduce or inflate the profits of eligible business has to be rejected. In the present case the assessee by not claiming depreciation in earlier years has sought to inflate profits linked incentive provided under section 80IA of the Act. In this regard we refer to summary of the judgment given by Hon. Bombay High Court as under: "To summarise, firstly, the apex court decision in the case of Mahendra Mills [2000] 243 ITR 56 cannot be construed to mean that by disclaiming depreciation, the assessee can claim enhanced quantum of deduction under section 80-IA. Secondly, the apex court in the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 and in the case of Liberty India [2009] 317 ITR 218 has clearly held that the special deduction under Chapter VI-A has to be computed on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court is that the deduction under Chapter VI-A is a special deduction and the quantum of deduction there-under has to be computed by ascertaining that part of the total income which represents the profits and gains derived by an undertaking after deducting all the deductions allowable under sections 30 to 43D of the Act. Therefore, assuming that in the assessment year in question the assessee has an option to disclaim depreciation, that would not have any bearing on the computation of quantum deduction under section 80-IA of the Act. The decision of the Supreme Court in the case of Mahendra Mills [2000] 243 ITR 56 has to be understood in the context in which the decision was rendered, i.e., of determining the total income of an industrial undertaking under Chapter IV of the Act and not in the context of determining the deduction under Chapter VI-A of the Act. The court in the case of Mahendra Mills [2000] 243 ITR 56 has not laid down any proposition of law that by disclaiming depreciation, the assessee can claim enhanced deduction allowable under any other provision in the Act." It is clear that quantum of deduction under section 80IA would be calculated after deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after deducting allowable deductions under section 28 to 43D. Accordingly, we hold following the decision of Hon. Bombay High Court in Plastiblends India Ltd. (supra) that deduction under section 80IA/80IB should be calculated after deducting all allowable deductions under sections 28 to 43D. When the matter was put up in the fresh hearing before the parties, the ld. AR pointed out that the decision of Hon. Bombay High Court in Plastiblends India Ltd. (supra) pertains to claim of deduction u/s 80IB in the current year and, therefore, if depreciation is not claimed in the current year still then for the purpose of deduction under section 80IB depreciation should be calculated and only thereafter deduction under section 80IB should be allowed. The present case according to the ld. AR pertains to earlier years where matter is concluded inasmuch as assessed income has become final on the basis of not-claiming depreciation. Therefore, such finally assessed income could not be disturbed by considering notionally allowable depreciation and then work out WDV for the current year. According to the ld. AR this is a vital difference and, therefore decision of Hon. Bombay High Court in Plastib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any earlier year. If such deduction was claimed and allowed in any earlier year then clearly there was reduction of profit in those earlier years and once the creditors remit the liability or liability ceased to exist and assessee declared it as part of the profit then nexus of such profit written back with the industrial undertaking is not severed. It is because while allowing deduction the eligible profits of the business derived from the industrial undertaking were reduced as they were allowable expenditure. Once the liability ceased to exist in favour of the assessee then they become profits of the assessee in the current year as per provisions of section 41(1). When we examine the nexus of the profit with the industrial undertaking it is not to be seen as to from whom the profit is derived but it is to be seen whether it is derived from the business. So long money is recoverable from the parties or payable to the parties during the course of business the transactions have a direct nexus with the business and one cannot view these transactions away from the business. Such transactions include receipts and payment of money in cash or in kind immediately or on credit and are part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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