Commissioner of Income Tax vs Accel Transmatic Systems Ltd.

C.N. Ramachandran Nair, J.—The appeal is filed by the Revenue against the order of the Tribunal raising three questions for our decision. One of the issues pertains to disallowance u/s 43B of the IT Act which is belated payment of PF contribution. The Tribunal allowed the claim following decision of the Supreme Court in CIT v. Vinay Cement Ltd. (2007) 213 CTR 268 (SC) because payments were found made before the date of filing the return. We, therefore, do not propose to consider this issue raised by the Revenue which is covered by decision of the Supreme Court.

Another issue pertains to addition of prior period expenses claimed by the assessee. The first appellate authority as well as the Tribunal found that AO arbitrarily disallowed debit entries but treated all the credits as income. In fact, the Tribunal found that the net credit available in the prior period expense accounts was returned by the assessee as income. We do not find any question of law arising from the order of the Tribunal on this issue as well. This leaves us with the last question which pertains to assessee''s claim for deduction u/s 80-IA of the IT Act relating to the profit derived from a new industrial unit set up at Pondicherry. The claim pertains to the previous year relevant for the asst. yr. 2000-01 and therefore, the unamended provision of Section 80-IA applies to the assessee. We have heard standing counsel appearing for the appellant and advocate Sri. T.M. Sreedharan appearing for the respondent.

During the previous year assessee carried on business in two industrial units, one at Trivandrum and the other at Pondicherry. Being a new industrial unit set up at Pondicherry, respondent-assessee was entitled to deduction of 25 per cent of the profit of the new industrial undertaking u/s 80-IA of the IT Act. Even though assessee earned a profit of Rs. 60,42,566 from the Pondicherry unit, assessee declared a loss of Rs. 53,22,555 in the Trivandrum unit. While making claim of deduction u/s 80-IA of the Act, the assessee reckoned the profit of the new unit at Pondicherry, reduced therefrom 25 per cent of the profit and treated the net amount as part of profit in the computation of total income. However, the AO rejected the pattern adopted by the assessee and granted deduction u/s 80-IA from the net profit available after setting off loss from one industrial unit against the profit from another. Even though the eligible amount to be claimed u/s 80-IA was Rs. 18,12,770 being 25 per cent of the profit of the eligible unit, in the original return, the assessee limited the deduction to Rs. 8,51,697 which was actually the net total income computed after making disallowance under various provisions. In the reassessment completed u/s 148, the assessee''s claim u/s 80-IA was allowed to the extent of Rs. 13,78,076. The first appellate authority as well as the Tribunal held that assessee is entitled to have higher deduction allowed u/s 80-IA in the computation of total income. It is against this order of the Tribunal the Revenue has filed the appeal.

Standing counsel appearing for the Revenue has relied on decision of the Supreme Court in Synco Industries Ltd. v. AO and Anr. (2008) 215 CTR (SC) 385 : (2008) 4 DTR (SC) 203 and contended that the claim u/s 80-IA though with reference to the profit of the new industrial limit, has to be limited to the net total income computed, if the claim amount is higher than such income. We do not think there can be any controversy on this proposition because u/s 80A(2) total deductions under Chapter VI-A have to be limited to the gross total income of the assessee computed under the provisions of the Act. Therefore, assessee cannot claim deduction u/s 80-IA in excess of gross total income computed, no matter eligible amounts may be higher than such income. However, we disapprove the pattern of computation made by the assessee by deducting from the profits of the eligible industrial unit the claim amount and then returning the balance to constitute gross total in the computation of total income. In fact, the procedure to be followed for the purpose of granting deduction u/s 80-IA is to first compute the profits and gains of the eligible unit and then to determine the eligible deduction therefrom in terms of Section 80-IA(5) of the Act. Thereafter, in the computation of total income under the provisions of the Act, the eligible deduction has to be reduced and if the total income computed is less than the eligible amount, deduction has to be limited to such amount. Since there has been variations in the total income computed by virtue of disallowances and later orders of the higher authorities allowing it, we direct the officer to rework total income and therefrom allow eligible deduction u/s 80-IA(5) of the Act with reference to the profits of the eligible unit, but limiting it to the total income, if the claim amount is higher than such amount. The orders of the Tribunal and the first appellate authority will stand modified as above.