Tribunal Upholds Reopening of Assessment & Clarifies Deduction Rules

The Tribunal upheld the reopening of assessment under section 147 of the Act, finding it valid due to the Assessing Officer's belief that the deduction under section 80HHC was incorrectly granted. Regarding the computation of deduction under section 80HHC, the Tribunal directed the deduction to be granted before setting off any losses or allowances from previous years. Additionally, the Tribunal held that only the gross interest income should be considered for computing the allowance under section 80HHC, not the net interest income. The Tribunal partially allowed the appeal, instructing the Assessing Officer on the proper granting of deductions under section 80HHC.

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Issues:
1. Reopening of assessment under section 147 of the Act.
2. Computation of deduction under section 80HHC.
3. Inclusion of interest income for computing the allowance under section 80HHC.

Issue 1: Reopening of assessment under section 147 of the Act:
The appeal pertains to the assessment year 1994-95 and the first ground concerns the reopening of the assessment under section 147 of the Act. The Assessing Officer had issued a notice under section 148 for the same reason for which a notice under section 154 had been previously issued. The appellant argued that since the question of deduction under section 80HHC was already considered in the proceedings under section 154, the notice under section 148 amounted to a change of opinion. However, the Tribunal found that there was no record of any notice issued under section 154, and as the Assessing Officer believed that the deduction under section 80HHC was incorrectly granted, the reopening of the assessment was deemed valid.

Issue 2: Computation of deduction under section 80HHC:
The primary issue discussed was the computation of deduction under section 80HHC. The appellant contended that the deduction should be calculated before setting off unabsorbed depreciation, business loss, and investment allowance. The Assessing Officer, however, relied on section 80AB to argue that such set-offs should be made before granting the deduction under section 80HHC. The Tribunal analyzed various judgments, including those of the Gujarat High Court, the Bombay High Court, and the Andhra Pradesh High Court, to determine that section 80HHC is a self-contained code that mandates the deduction to be granted before setting off any losses or allowances from previous years. Therefore, the Tribunal directed the Assessing Officer to grant the deduction under section 80HHC before setting off any unabsorbed depreciation, business loss, or investment allowance from earlier years.

Issue 3: Inclusion of interest income for computing the allowance under section 80HHC:
The final issue addressed was the inclusion of interest income for computing the allowance under section 80HHC. The appellant argued that only 90% of the net interest income should be considered for deduction, not the gross interest income. However, the Tribunal referred to a decision by the Madras High Court, which held that interest paid and claimed as a deduction in the computation of business profits cannot be set off against interest received under the head 'Income from other sources.' The Tribunal concluded that only the gross income should be considered for the purpose of reducing 90%, and not the net interest income. Therefore, the Tribunal upheld the decision of the lower authorities on this issue.

In conclusion, the Tribunal partially allowed the appeal, directing the Assessing Officer to grant the deduction under section 80HHC before setting off any unabsorbed depreciation, business loss, or investment allowance from previous years.

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