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TMI Blog2004 (6) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee from other sources. Thus, we find that the Assessing Officer had rightly denied the deduction u/s 80-IA in respect of these units there being a loss in respect of the said unit as computed within the meaning of section 80-IA(7). As pointed out earlier that the wordings of section 80-IA(7) is clear and there is no ambiguity therein. Therefore, there is no scope for conferring the benefit sought for by the assessee by ignoring or misinterpreting words at section 80-IA(7). Thus, the order of CIT(A) with regard to deduction under section 80-IA is set off thereby and that of Assessing Officer is restored. This ground of revenue is allowed. - HON'BLE I.P. BANSAL, JUDICIAL MEMBER AND R.P. RAJESH, ACCOUNTANT MEMBER For the Appellant : B.R. Vikey, Adv. For the Respondent : H.N. Motiwala, Adv. ORDER Per I.P. Bansal, Judicial Member. 1. This is an appeal filed by the revenue and is directed against the order of CIT(A) dated 5th February, 2001 for assessment year 1998-99. 2. Ground No. 1 of the appeal reads as under:- 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made on account of unutilized MODVAT credit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for this purpose, reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of CIT v. Patiala Flour Mills Co. (P.) Ltd. [1978] 115 ITR 640 to place a proposition that Assessing Officer was not justified in setting-off of brought forward losses of earlier years of eligible units against the current year's profit and gains of eligible units, particularly when, the losses of earlier years of these eligible units were already set off against the profits and gains of other units. The CIT(A), based on these arguments, allowed the claim of the assessee with his observations contained in para 8 of impugned order. For the sake of convenience, the same is reproduced below:- 8. I have considered the facts of the case, the issues raised by the Assessing Officer and the arguments of the appellant. It is well-settled law that deduction under Chapter VI-A was to be allowed after the total income was computed under the other provisions of the Act. Section 80AB of the Income-tax Act states that notwithstanding anything contained in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the claim of the appellant as far as the deduction under section 80-IA is concerned. He should therefore allow a deduction of Rs. 90,95,971 under section 80-IA of the Income-tax Act. Revenue is aggrieved, hence in appeal before us. 6. The Learned DR argued that the calculation made by Assessing Officer regarding deduction under section 80-IA is in accordance with sub-section (7) of section 80-IA. For claiming deduction under section 80-IA, a legal fiction has been created by sub-section (7) by virtue of which, the profit or gains of eligible business of an industrial undertaking shall be computed as if the eligible business were the only business of the assessee right from the date of its establishment. Therefore, he contended that Assessing Officer was right in taking into consideration the brought forward losses and depreciation while computing the profits of eligible business for the purpose of deduction under section 80-IA. The CIT(A) has wrongly allowed the relief to the assessee. 7. On the other hand, the Learned Authorised Representative of the assessee pleaded that sub-section (7) of section 80-IA does not speak specifically for set-off of notional brought forward losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Patiala Flour Mills Co. (P.) Ltd. We have carefully gone through the said decision of Hon'ble Supreme Court. In the said case, assessee was carrying on several businesses and put up a cold storage plant in the assessment year relevant to assessment year 1967-68. The cold storage plant was a new industrial undertaking within the meaning of section 80J of Income-tax Act, 1961 (the Act). The losses, depreciation allowance and development rebate in respect of cold storage plant for the assessment years 1967-68 to 1969-70 were adjusted against the profits from the other businesses in computing the total income of the assessee for those years. No loss or part of depreciation or development rebate remained unabsorbed so as to be available for carry forward and set off in the assessment year 1970-71. In the assessment year 1970-71, a profit of Rs. 1,51,011 was derived from the new industrial undertaking on which deduction under section 80J was claimed. The Assessing Officer did not accept such claim of the assessee by taking a view that in computing the profit of the cold storage business for the purpose of applying the provision contained in sub-sections (1) (3) of section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion contained in that sub-section, the profit or gains of the new industrial undertaking shall be computed as if the new industrial undertaking were the only business of the assessee right from the date of its establishment or the losses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years were not set off against the profit from other business. If the construction of sub-section (1) of section 80J contended for and on behalf of the revenue were accepted, it would lead to the absurd result that there would two species of profits or gains of the new industrial undertaking, one for inclusion in the total income chargeable to tax and the other for determining the availability of the deduction under sub-section (1) of section 80-J. That would be plainly contrary to the express language of sub-section (1) of section 80J.' The proper construction of sub-section (1) of section 80J must, therefore, be taken to be that the profits or gains of the new industrial undertaking must be computed in accordance with the provisions of the Act in the same manner as they would be in determining the total income chargeable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking were the only business of the assessee from the date of its establishment or the losses, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years were not set off against the profits from other business. Thus, in the absence of such legal fiction, the Hon'ble Supreme Court held that the Assessing Officer was wrong in considering notional loss, depreciation or development rebate carrying forward to current year, as there was no such provision in section 80J(1) and (3). Section 80-IA(7) as applicable for the year under consideration is reproduced below:- 80-IA(7). 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 sub-section (5) 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 assessment year and to every subsequent assessment year up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit owned by the assessee concerned and the assessee had no other source of income. Consequently, the unabsorbed losses, unabsorbed depreciation, etc., relating to the eligible industrial undertaking, etc., are to be taken into account in determining the quantum of deduction under section 80-IA even though these may actually have been set off against the profits of the assessee from other sources. 9. From the above discussion, it is clear that the decision in the case of Patiala Flour Mills Co. (P.) Ltd. has wrong been applied by the Learned CIT(A) to the provisions of section 80-IA(7). The language of section 80-IA(7) is clear, according to which, taxable income of eligible business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee and the assessee had no other source of income. It is only consequential that the unabsorbed losses, unabsorbed depreciation, etc., relating to eligible business are to be taken into account in determining the quantum of deduction under section 80-IA, even though these may have actually been set off against the profits of the assessee from other sources. In this view of the situation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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