2019 (5) TMI 884 - AT - Income Tax

Separate profits for deduction! ITAT rules no netting under Income Tax Act - Individual unit profits matter

M/s Alliance India Versus The D.C.I.T., Parwanoo.

M/s Alliance India Versus The D.C.I.T., Parwanoo. - TMI Issues Involved:1. Whether for the purpose of quantification of deduction under section 80IC of the Income Tax Act, the profits and losses of the eligible units were to be netted.Detailed Analysis:1. Background and Common Issue:The assessee, a manufacturer of soaps operating two units eligible for deduction under section 80IC of the Income Tax Act, faced adjustments by the Assessing Officer (A.O.) who netted the loss of one unit against the profit of another. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this adjustment, following the decision in M/s Him Teknoforge Ltd. vs. DCIT. The sole issue in the appeals was whether the profits and losses of eligible units should be netted for the purpose of quantifying the deduction under section 80IC.2. Assessee's Argument and ITAT's Previous Decisions:The assessee's counsel referred to the ITAT Chandigarh Bench's decision in M/s Milestone Gears Pvt. Ltd. vs. DCIT, which held that no netting of profits and losses of eligible units was required under section 80IC. The ITAT had distinguished the decision in M/s Him Teknoforge Ltd. and allowed the deduction on a per-unit basis.3. Jurisdictional High Court's Interpretation:The Hon'ble Jurisdictional High Court in M/s Him Teknoforge Ltd. interpreted section 80HH and 80IA, stating that only the profits of priority units should be considered for deductions, and losses of non-priority units should not be included. The High Court relied on the Supreme Court's decisions in IPCA Laboratories Ltd. and others, which emphasized that section 80AB had an overriding effect, requiring the netting of profits and losses for calculating deductions.4. Distinction Between Section 80IA and 80IC:The ITAT noted that section 80IC(7) incorporates section 80IA(5), which contains a notwithstanding clause, indicating its provisions prevail over section 80AB. This distinction was crucial as section 80IC specifically applies to eligible undertakings, treating each as a separate unit for deduction purposes, unlike section 80IA which refers to eligible businesses.5. Legislative Intent and Statutory Interpretation:The ITAT emphasized that the legislative intent must be derived from the statute's language, and section 80IC's wording necessitates treating each eligible undertaking separately for deduction purposes. This interpretation avoids the anomalous situation of applying different deduction rates to netted profits, which section 80IC does not address.6. Conclusion and Order:The ITAT concluded that the decision in M/s Him Teknoforge Ltd. does not apply to section 80IC, as the latter requires treating each eligible undertaking's profits separately. Consequently, the A.O. was directed to allow the deduction under section 80IC based on the profits of each eligible unit, ignoring the losses from other units.7. Result:All appeals by the assessee were allowed, affirming that the deduction under section 80IC should be calculated without netting the profits and losses of eligible units.Order Pronounced in the Open Court.