2013 (7) TMI 979 - HC - Income Tax

Tax Court: Profits for deductions reduced by losses of another unit

Sintex Industries Ltd. Versus Assistant Commissioner of Income-tax (OSD)

The Court upheld the decisions of the Assessing Officer, Commissioner (Appeals), and Income Tax Appellate Tribunal, ruling that the eligible profits for ... Eligible profits u/s 80IA of CPP unit and section 80IB with respect to Baddi unit - whether the loss from the Baddi unit is required to be adjusted before determining the gross total income of the assessee? - Whether the tribunal erred in upholding the adjustment of loss from eligible unit against the profit of another eligible unit while computing deduction under section 80IA and 80IB of the Income Tax Act? - Held that:- In the case of the very assessee, the very issue arose in the Assessment Years, 2003-04, 2004-05 and 2005-06 wherein the issue was decided against the assessee, however, the same was not challenged further. It is the case on behalf of the assessee that as the amount involved was small, the assessee thought it fit not to challenge the same before higher forum. Be that it may, the fact remains that in the earlier years while considering deduction under sections 80IA and 80IB, loss in another unit was first given set off and only thereafter deduction under section 80IA and 80IB of the Act was given. In view of the above and for the reasons stated above, we are of the opinion that the tribunal was right in law in reducing eligible profits under section 80IA of the CPP unit and under section 80IB of the Baddi unit by losses of Daman unit. Issues Involved:1. Eligibility of deductions under section 80IA and 80IB of the Income Tax Act.2. Adjustment of losses from one unit against the profits of another unit.3. Interpretation of relevant Supreme Court and High Court judgments.Issue-wise Detailed Analysis:1. Eligibility of Deductions under Section 80IA and 80IB:The primary issue revolves around the eligibility of Sintex Industries Limited to claim deductions under section 80IA for its Captive Power Plant (CPP) unit and section 80IB for its Baddi unit. The assessee declared deductions amounting to Rs. 17,93,81,731 under section 80IA and Rs. 8,63,51,359 under section 80IB. The Assessing Officer (AO) disallowed part of these deductions, arguing that the losses incurred by the Daman unit should be adjusted against the profits of the CPP and Baddi units. The Commissioner (Appeals) upheld this decision, and the Income Tax Appellate Tribunal (ITAT) confirmed it.2. Adjustment of Losses from One Unit Against the Profits of Another Unit:The crux of the matter is whether the losses from the Daman unit should be adjusted against the profits of the CPP and Baddi units before computing the deductions under sections 80IA and 80IB. The AO, Commissioner (Appeals), and ITAT all held that such an adjustment was necessary. The assessee argued against this, citing various Supreme Court and High Court judgments, including the cases of Synco Industries Ltd., Canara Workshops (P.) Ltd., Modi Xerox Ltd., Liberty India, and Bharat Heavy Electricals Ltd.3. Interpretation of Relevant Supreme Court and High Court Judgments:The assessee contended that the decision in Synco Industries Ltd. v. Assessing Officer (Income-Tax) [2008] 299 ITR 444 did not apply to their case. They argued that the Supreme Court in Canara Workshops (P.) Ltd. [1986] 161 ITR 320 held that losses from one unit should not be set off against the profits of another for the purpose of computing deductions. However, the Department countered that the Synco Industries Ltd. decision was directly applicable, as it specifically addressed the issue of adjusting losses before computing the gross total income.The Court analyzed the relevant judgments and concluded that the decision in Synco Industries Ltd. was indeed applicable. The Supreme Court in Synco Industries Ltd. held that for calculating deductions under Chapter VI-A, the gross total income must first be determined after adjusting losses. If the gross total income is nil, no deductions under sections 80IA or 80IB can be claimed. The Court further noted that the decision in Canara Workshops (P.) Ltd. pertained to a different context and was not applicable to the present case.The Court also considered the decisions in Liberty India, Bharat Heavy Electricals Ltd., and Modi Xerox Ltd. but found them not directly relevant to the issue at hand. The Court emphasized that the principle laid down in Synco Industries Ltd. governed the present case.Furthermore, the Court noted that in previous assessment years (2003-04, 2004-05, and 2005-06), the same issue was decided against the assessee, and the assessee did not challenge those decisions due to the small amounts involved.Conclusion:The Court upheld the decisions of the AO, Commissioner (Appeals), and ITAT, confirming that the eligible profits under section 80IA for the CPP unit and section 80IB for the Baddi unit must be reduced by the losses of the Daman unit. The appeals were dismissed, and no costs were awarded.