2015 (3) TMI 312 - AT - Income Tax

Tribunal upholds Revenue's deduction restriction under Section 80-IA for incorrect income calculation.

Deepi Arora Versus ITO-19 (1) (3), Mumbai

The tribunal dismissed the assessee's appeal, upholding the Revenue's restriction of the deduction under Section 80-IA to Rs. 2,83,720. The tribunal found ... Deduction u/s.80-IA - assessee claims that no part of the brought forward unabsorbed depreciation of ₹ 75.07 lacs pertains to the any of the two eligible undertakings, i.e., Tex International (TI) and Royal Energy Company Unit-1, the profit from which is admittedly at ₹ 39.03 lacs and ₹ 0.36 lacs respectively - in the view of the Revenue, the income of the eligible undertakings, being the TI unit and Royal Energy Unit No.1, as included in the GTI, cannot exceed ₹ 2,83,720/-, i.e., the amount assessable u/s.28 (Rs.77,90,882 - ₹ 75,07,162). Further, this would be irrespective of whether the brought forward unabsorbed depreciation of ₹ 75.07 lacs is in respect of the eligible or the non-eligible undertakings - Held that:- If the unabsorbed depreciation exceeds the business income of ₹ 77.91 lacs, the same would stand to be set off against the income assessable u/s.22 and/or section 56 in-as-much as the same, per the deeming of section 32(2), forms part of the current years’ depreciation, and is to be given effect to, save for a precedence to the provision of sections 72(2) & 73(3), which are inapplicable in the present case in-asmuch as there is no brought forward business loss. There is no occasion or need for the set off of unabsorbed deprecation against income assessable under other heads of income, i.e., under Chapters IV-C and IV-F, as the assessee claims or does. How, for instance, s. 70 come into play without first determining the income assessable u/s. 28, and which would only be after giving effect to the provision of s. 32. The charge of depreciation u/s.32, it must be appreciated, is one, single charge, i.e., irrespective of the different sources of income where-under it may arise and, accordingly, would, in terms of section 32(1) r/w s. 32(2), allowable under the income assessable u/s.28, which per section 29 is to be computed in accordance with the provisions contained in sections 30 to 43D. The provision of section 32(2) itself does not admit of such a course in-as-much as the brought forward depreciation claim merges with the current year’s depreciation, so that it is a single charge, to be allowed to the extent of the available profit. The profit of Units B-2 and B-3, therefore, cannot be, on account of unabsorbed depreciation, negative, but at best at nil. The said depreciation, in view of the available income from the other units (being Units A & B1), and in-as-much as it forms part of the current years’ depreciation allowance, has to be set off there-against. - Decided against assessee. Issues Involved:1. Quantum of deduction under Section 80-IA of the Income Tax Act, 1961.2. Computation of Gross Total Income (GTI) and its constituents.3. Set-off of brought forward unabsorbed depreciation.Issue-wise Detailed Analysis:1. Quantum of Deduction under Section 80-IA:The primary issue in this appeal was the quantum of deduction under Section 80-IA in respect of the profit of the assessee's eligible undertakings. The assessee claimed a deduction of Rs. 37,80,034/-, while the Revenue restricted it to Rs. 2,83,720/-. The assessee argued that no part of the brought forward unabsorbed depreciation of Rs. 75.07 lakhs pertained to the eligible undertakings, Tex International (TI) and Royal Energy Company Unit-1. The Revenue, however, contended that the income of the eligible undertakings included in the Gross Total Income (GTI) could not exceed Rs. 2,83,720/-, irrespective of whether the unabsorbed depreciation pertained to the eligible or non-eligible undertakings.2. Computation of Gross Total Income (GTI) and its Constituents:The tribunal emphasized that the GTI must be computed in accordance with the provisions of the Income Tax Act, which includes the aggregation of income from different sources and heads of income. The GTI, as defined under Section 80B(5), means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. The tribunal delineated that the GTI of Rs. 37.80 lakhs was computed after reducing the brought forward unabsorbed depreciation, and the income from the eligible undertakings included in the GTI could not exceed Rs. 2,83,720/-. The tribunal referred to various judicial precedents, including the decision in Synco Industries Ltd. vs. Assessing Officer, to affirm that the GTI must be computed by giving effect to all applicable provisions of the Act.3. Set-off of Brought Forward Unabsorbed Depreciation:The tribunal discussed the set-off of brought forward unabsorbed depreciation under Section 32(2) against the income assessable under other heads of income. It was noted that the brought forward unabsorbed depreciation merges with the current year's depreciation and is to be allowed to the extent of the available profit. The tribunal rejected the assessee's claim that the entire GTI of Rs. 37.80 lakhs could be comprised of the profit of Tex International, and emphasized that the GTI must be computed following the provisions of the Act, including the set-off of brought forward unabsorbed depreciation.Discussion and Findings:The tribunal clarified that the deduction under Section 80-IA is only on the profits of the eligible undertaking as included in the GTI. The GTI must be computed in accordance with the provisions of the Act, which includes the set-off of brought forward unabsorbed depreciation. The tribunal found the assessee's manner of computing GTI to be incorrect and not in conformity with the provisions of the Act. The tribunal emphasized that the GTI must be computed by aggregating income from different sources and heads of income, and the income of the eligible undertakings included in the GTI could not exceed Rs. 2,83,720/-.Decision:The tribunal dismissed the assessee's appeal, finding it to be without merit and against the well-settled law on the computation of income under the Act. The tribunal concluded that the assessee's claim for deduction under Section 80-IA was not in accordance with the provisions and scheme of the Act, and upheld the Revenue's restriction of the deduction to Rs. 2,83,720/-.Order Pronouncement:The order was pronounced in the open court on February 18, 2015.