9911796707
TMI Blog2019 (1) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the case is that the assessee company is engaged in the manufacturing of automotive gears and has five manufacturing units, namely; *Unit-I at plot No.58, Sector 1, Parwanoo, *Unit-II at KK-II, 12, 16 & 16 HPSIDC, Indl. Estate Kalka, *Unit-III at Plot No.8, Industrial Area Barotiwala, * Unit-IV at Opposite Himachal Fibre Ltd., Industrial Area Barotiwala and *Unit-V at Plot No.22-24, Sector-1, Industrial Area, Parwanoo. Unit-I, III, IV and V were eligible for deduction u/s 80IC of the Act. The assessee had claimed the said deduction but the A.O. found that in respect of unit III the assessee having already claimed deduction @ 100% for the first five years, had again claimed deduction @ 100% on account of substantial expansion carried by it, though, as per the AO ,it was entitled to only 30% thereafter as per the Act. The A.O. accordingly restricted the deduction claimed by the assessee in such unit to 30% of the eligible profits. Moreover the A.O. also found that while the eligible undertakings had earned both profits and losses the assessee had claimed deduction vis-à-vis profits earned by the eligible undertakings without s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction u/s 80IC to the extent of 100% of the profits, for five years period starting from assessment years 2005-06 to 2009-10 and the assessee had again claimed 100% deduction in the impugned year which was 6th year of production by claiming to have carried out substantial expansion in financial year 2007-08 relevant to assessment year 2008-09. The A.O. held that the assessee was eligible for deduction u/s 80IC of the Act in respect to the said undertaking only @ 30% as per law and accordingly restricted the deduction claimed to 30% of the eligible profits. The CIT(A) upheld the order of the A.O. following the decision of the ITAT Chandigarh Bench in the case of Hycron Electronics Vs. ITO in ITA No.798/Chd/2012 and other related cases. 6. Before us the Ld. counsel for assessee fairly conceded that the issue was now settled and covered against the assessee by the decision of the Hon'ble Apex Court in the case of CIT Vs. M/s Classic Binding Industries & Others in Civil Appeal No.7208 & Others of 2018 dated 20..8.2018. 7. In view of the above we find no reason to interfere in the order of the CIT(A) and ground Nos.2 and 3 raised by the assessee are, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c would, therefore, not apply in the present case. The second contention raised by the Ld. counsel for assessee was that by applying the ratio laid down in Him Teknoforge Ltd. (supra) to 80IC unit, it would lead to an anomalous situation. It was pointed out that section 80IC provides for graded deduction i.e. 100% of the eligible profits for first five years and 30% for remaining five years, for unit set up in specified areas and if the profits and losses of all units are clubbed, where the rates of deduction of different units are different, it would be difficult to determine the rate to be applied on the eligible profits remaining after setting off of profits and losses of all eligible units. The Ld. counsel for assessee filed his arguments in writing in this regard as under: "Arguments : a. The issue of clubbing of profits and losses of eligible industrial undertaking has been considered solely on the interpretation of the judgment in the aforementioned case of Him Techno forge Ltd. b. At the outset it is clarified that the concept of priority units which is considered in the above judgment may be there in 80HH but it is certainly not there and not envisaged un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment are under: In the captioned judgment - three ratios have been laid down : i. While calculating the Gross Total Income - the profit/loss of non priority units be taken. The assessee company has considered the same while computing the Gross Total Income - Refer to the Computation of Total Income. ii. While calculating the deduction under Chapter VI A only the profits or loss of priority income shall be taken. The assessee company has considered the profits of the eligible industrial undertaking in terms of section 80IC(7) which mentions that the concept of eligible business under section 80IA needs to be applied to the eligible undertaking or enterprise. Further the losses were to be carried forward for eligible industrial undertaking which has incurred losses for set off against the profits of that undertaking in terms of section 80IA(5) as mentioned hereinabove and repeated as below: 801A(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business (to be replaced by industrial undertaking in terms of section 80IC(7)) to which the provisions of sub-section (I) apply shall for the purposes of determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no distinction as pointed out by the Ld. counsel for assessee between the wording in sections 80IA and 80IC of the Act as such. 12. We have heard the contentions of both the parties carefully and have even carefully gone through the orders of the Hon'ble Jurisdictional High Court in the case of Him Teknoforge Ltd. (supra) which have been heavily relied upon by the Revenue in support of the order of the lower authorities on the proposition that the profits and losses of all the eligible undertakings are to be netted and on the balance of profits the deduction is to be calculated u/s 80IC of the Act. 13. The facts before the Hon'ble Jurisdictional High Court were that the assessee was having separate units, some of which were entitled to benefit in terms of section 80HH and 80IA of the Act and which were referred to as priority units. In all the cases none of the priority units were running in losses and the Revenue had contended that the losses of the non priority units had also to be taken into consideration for working out the income of priority units for the purpose of calculation of deduction u/ss 80HH and 80IA of the Act. It was the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; only income from a priority undertaking is to be taken into consideration while making the deduction and the profits or losses of non priority undertakings are not to be considered. Going further, the Hon'ble High Court held that if there were more than one priority undertaking, the profits and losses of all the priority undertakings had to be clubbed together and deduction was to be calculated on the profits remaining. While laying down this proposition the Hon'ble High Court stated that though the Hon'ble Apex Court in the case of CIT(Civil) Madras Vs. Canara Workshops Pvt. Ltd. (1986) 61 ITR 120 has clearly held that no clubbing of profits and losses of priority undertaking shall to be done for calculating the quantum of eligible deduction, the later decisions of the Hon'ble Apex Court in IPCA Laboratories Ltd. Vs. DCIT (2004) 266 ITR 521, ITO Vs. Induflex Products Pvt. Ltd. (2006) 280 ITR 1 and the decision of the Hon'ble Apex Court in the case of Synco Industries Ltd. Vs. AO & Another (2008) 299 ITR 444, diluted the said decision and relying on the later decisions of the Hon'ble Apex Court, the Hon'ble High Court held that the profits and losses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IC of the Act, which is the fact in the present case. For clarity the relevant provisions of section 80IA & 80IC of the Act are being reproduced hereunder: "80-IA [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years.]" "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculating deduction. 18. Even otherwise as correctly pointed out by the Ld.Counsel for the assessee, while the decision in the case of Him Teknoforge Ltd. (supra) was rendered in the context of section 80IA, the assessee in the present case has claimed deduction u/s 80IC and the relevant provisions of two sections which deal with the calculation of quantum of deduction are differently worded in the two sections having an impact of the interpretation of the same. 19. Section 80IA(5) states that the profits and gains of eligible "business" shall be computed as if such eligible "business" were the only source of income of a during previous years. Thus section 80IA(5) applies to eligible "business", the meaning for which can be gathered from section 80IA(1) wherein business carried out by eligible undertaking have been referred to as eligible business. Section 80IC, on the other hand, has no reference to business and uses only the work "undertaking or enterprise". This distinction, in our view, is very critical and important. Literally interpreting the applicability of the provisions of section 80IA(5) is "business specific" and, therefore, includes all eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), 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 the Ld. counsel for 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 of the Act 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. 22. In view of the above, 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. 23. Ground No.4 raised by the assessee reads as under: "4. As per facts and circumstances of the case and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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