Supreme Court clarifies PSU deductions under Income Tax Act, stresses accurate profit calculations

The Supreme Court remitted a case involving a PSU's entitlement to deductions under Sections 80HH and 80I of the Income Tax Act for the assessment year 1992-93 back to the Assessing Officer. The Court clarified that while maintaining unit-wise accounts was not mandatory, the PSU could opt for consolidated accounts. The Court emphasized the importance of accurate net profit calculations for the petrochemical unit and directed the PSU to provide certified unit-wise net profit computations for assessment. The civil appeal was disposed of without costs, aiming to resolve the dispute between the Tax Department and the PSU.

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Issues:
Assessment of deduction under Sections 80HH and 80I for a PSU with multiple units - Requirement of maintaining unit-wise accounts for claiming deduction - Challenge to High Court decision on maintaining segregated accounts.

Analysis:
The case involved a civil appeal by the Department regarding the assessment year 1992-93, challenging the decision of the Gauhati High Court in ITR No. 4 of 2001. The appellant, a PSU formerly known as BRPL, had three separate units engaged in different businesses. It was entitled to claim deductions under Sections 80HH and 80I of the Income Tax Act, 1961 for the relevant assessment year. The controversy arose when the CIT issued a show cause notice under Section 263, alleging excessive deductions allowed by the Assessing Officer without proper unit-wise profit bifurcation. The High Court set aside the Tribunal's decision, prompting the Department to file a civil appeal.

During the proceedings, it was debated whether the PSU was required to maintain unit-wise accounts to claim deductions under Sections 80HH and 80I. The Tribunal had ruled that there was no statutory obligation to maintain such accounts but recommended unit-wise audited accounts to end the litigation. However, the High Court overturned this decision, leading to the current appeal. The Supreme Court noted the cryptic nature of the High Court's order and decided to remit the case to the Assessing Officer for verification of the net profits calculation for the petrochemical unit. The Court clarified that while there was no statutory requirement to maintain unit-wise accounts, the PSU could opt for consolidated accounts to resolve the dispute.

In conclusion, the civil appeal was disposed of with no order as to costs, emphasizing the need for accurate net profit calculations for the petrochemical unit to claim deductions under Sections 80HH and 80I. The Court directed the PSU to provide unit-wise net profit computations certified by auditors for assessment by the Assessing Officer, aiming to bring an end to the ongoing litigation between the Tax Department and the PSU.

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