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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether borrowed moneys and debts owed by the assessee were to be included in the capital employed for deduction under section 80J; (ii) whether half of the profits earned by the unit could be added while computing capital employed on the basis of rule 19(5) of the Income-tax Rules, 1962.
Issue (i): Whether borrowed moneys and debts owed by the assessee were to be included in the capital employed for deduction under section 80J.
Analysis: The governing principle was that borrowed capital could not be treated as part of capital employed for the purpose of section 80J. The relevant Supreme Court authority had settled the position against inclusion of borrowed funds in the computation.
Conclusion: The issue was answered in the negative and against the assessee.
Issue (ii): Whether half of the profits earned by the unit could be added while computing capital employed on the basis of rule 19(5) of the Income-tax Rules, 1962.
Analysis: Rule 19 of the Income-tax Rules governed computation under the earlier section 84 regime and had no application to the assessment years in question after section 84 had ceased to operate. The reliance on that rule and the earlier authority based on section 84 was therefore misplaced for the relevant assessment years under section 80J.
Conclusion: The issue was answered in the negative and against the assessee.
Final Conclusion: The reference was answered wholly in favour of the Revenue, and the assessee's claim on both questions failed.
Ratio Decidendi: For the purpose of deduction under section 80J, borrowed capital is excluded from capital employed, and a rule framed for a superseded statutory regime cannot be applied to a later assessment period governed by a different provision.
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