Court allows deductions under Section 80HHC before adjusting losses, emphasizes Section 80AB in income computation.

The Court held that deductions under Section 80HHC should be allowed before adjusting unabsorbed loss and depreciation. It favored the Revenue's stance, emphasizing the application of Section 80AB in computing income. The Court directed the assessing authority to follow the method of calculation for multi-unit businesses outlined in a previous case. The first appeal was allowed in favor of the Revenue, and the second appeal was remitted for computation following the specified method.

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Issues Involved:
1. Interpretation of Section 80HHC of the Income Tax Act.
2. Correct order of deductions under Section 80HHC and setoff of unabsorbed loss and depreciation.
3. Application of Section 80AB in computing income.
4. Computation of income for single unit vs. multi-unit businesses.

Issue 1: Interpretation of Section 80HHC of the Income Tax Act:
The case involved a dispute regarding the correct interpretation of Section 80HHC of the Income Tax Act. The Assessing Officer initially did not disturb the claim of the assessee under Section 80HHC. However, the Commissioner held that granting relief under this section before setting off unabsorbed loss and depreciation was erroneous. The Tribunal, relying on the judgment of the High Court of Karnataka, held that deductions under Section 80HHC should be allowed first, and then unabsorbed loss and depreciation should be considered.

Issue 2: Correct Order of Deductions under Section 80HHC and Setoff of Unabsorbed Loss and Depreciation:
The main question was whether deductions under Section 80HHC should be allowed before adjusting the brought forward loss and unabsorbed depreciation of the earlier year from the total income. The Tribunal, based on the Karnataka High Court judgment, supported allowing deductions under Section 80HHC first. The Revenue argued that Section 80AB, which had an overriding effect over all other sections in Chapter VI-A, should be considered first. The Court ultimately favored the Revenue's stance, stating that the assessing authority should have followed the provisions of the Act, including Section 80AB.

Issue 3: Application of Section 80AB in Computing Income:
The judgment highlighted the importance of Section 80AB, which provides an overriding effect over other sections in Chapter VI-A, including Section 80HHC. The Court emphasized that the computation of income should be in accordance with the provisions of the Act, with Section 80AB governing the deductions. The Court held that Section 80HHC does not prevail over Section 80AB, contrary to the decisions of the Bombay High Court and the Kerala High Court.

Issue 4: Computation of Income for Single Unit vs. Multi-Unit Businesses:
In the context of multi-unit businesses, the Court referenced the IPCA Laboratory's case, emphasizing the need to compute income with reference to each unit and consider the benefits under relevant sections. The Court directed the assessing authority to follow the method of calculation outlined in the IPCA Laboratory's case for multi-unit businesses. It was clarified that when a business has more than one unit, the income of all units must be considered while allowing deductions for unabsorbed loss and depreciation of previous years.

In conclusion, the Court allowed the first appeal (ITA No.1005/2008) in favor of the Revenue and disposed of the second appeal (ITA No.1007/2008) by remitting the matter back to the assessing authority for computation following the method of calculation specified in the IPCA Laboratory's case for multi-unit businesses.

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