Commissioner of Income Tax vs E.I. Forge Ltd.

A. Subbulakshmy, J.—At the instance of the Revenue, the following question of law has been referred to us :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the relief u/s 80HH of the Income Tax Act, 1961, computed by the Commissioner of Income Tax in his order u/s 263 of the Act was wrong and cancelling the same and thereby restoring the deduction allowed in the order dated February 17, 1987 ?"

The assessee-company has three plant units one at Madras and two at Hosur. The plant owned at Madras and one at Hosur incurred losses and the other plant at Hosur incurred profit. The Assessing Officer treated Plant II at Hosur separately as an industrial undertaking and determined Section 80HH deduction. The Commissioner on revision took the entire business income of the assessee into account and allowed some relief and directed the Assessing Officer to modify the assessment and recompute the total income by allowing deduction u/s 80HH only with reference to the profit of Rs. 25,230 from Hosur Plant No. II. The Tribunal held that the quantification of deduction u/s 80HH was required to he made with reference to the profits of Plant II at Hosur, it being an industrial undertaking by itself and so the relief u/s 80HH computed by the Commissioner u/s 263 was wrong.

This court in its order in Tax Case No. 1047 of 1987, dated April 28, 1998 ( Commissioner of Income Tax Vs. Sundaravel Match Industries (P.) Ltd., ) considered an identical question and held that deduction u/s 80HH is allowable only after setting off the losses and answered the question in favour of the Revenue.

Following the above decision and for the reasons stated therein, we answer the question of law referred to us in favour of the Revenue and against the assessee.