Revenue appeal dismissed as profits under sections 80IA/80IB need not adjust against unabsorbed losses of other units

The Delhi HC dismissed the revenue's appeal regarding disallowances under sections 80IA/80IB and 80M. The court held that under section 80IA(5), profits of eligible units need not be adjusted against unabsorbed losses of other eligible units or brought forward losses from earlier years, as eligible business profits should be computed as if it were the sole income source. Regarding section 80M, the court upheld the CIT(A) and Tribunal's factual finding that the assessee had distributed dividends worth Rs. 3,97,34,475 to shareholders, making the deduction allowable. Both disallowances were correctly deleted by lower authorities.

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Issues Involved:
1. Condonation of delay in re-filing the appeal.
2. Deletion of disallowance under Section 80IA/80IB of the Income-tax Act, 1961.
3. Deletion of disallowance under Section 80M of the Income-tax Act, 1961.

Summary:

Issue 1: Condonation of Delay in Re-filing the Appeal

1. The appellant/revenue filed an application seeking condonation of delay of 310 days in re-filing the appeal. The respondent/assessee did not oppose this application. Consequently, the delay was condoned, and the application was disposed of.

Issue 2: Deletion of Disallowance under Section 80IA/80IB

7.1 The appellant/revenue challenged the Tribunal's order deleting the disallowance of Rs. 4,32,65,725/- under Section 80IA/80IB. The respondent/assessee had declared income of Rs. 1,14,29,476/- and paid tax as per Section 115JB on book profit of Rs. 10,63,49,082/-. The AO, in an assessment order dated 01.11.2010, computed the respondent's income at Rs. 5,11,63,951/- after disallowing the deduction under Section 80IA/80IB, stating that profits of two eligible units were not adjusted against unabsorbed losses of other units.

10. The CIT(A) deleted the disallowance, noting that Section 80IA(5) does not permit adjusting profits of eligible units against losses of other units. This view was sustained by the Tribunal.

17. The court upheld the CIT(A)'s view, stating that Section 80IA(5) requires computing profits of the eligible business as if it is the only source of income, without adjusting losses of non-eligible businesses or absorbed losses of previous years.

18. The court referred to the decision in Pr. Commissioner of Income Tax-7 v. Sterling Agro Industries Ltd., which clarified that Section 80IA(5) does not mandate adjusting profits of eligible units against losses of non-eligible businesses or previously absorbed losses. The court disagreed with the Karnataka High Court's decision in Microlabs Ltd. and followed the Madras High Court's decision in Velayudhaswamy Spinning Mills (P.) Ltd.

Issue 3: Deletion of Disallowance under Section 80M

7.2 The appellant/revenue also challenged the deletion of disallowance of Rs. 3,97,34,475/- under Section 80M, arguing that the dividend received was not distributed to shareholders.

11. The CIT(A) found that the respondent/assessee had distributed Rs. 3,97,34,475/- out of Rs. 5,09,19,998/- received as dividend, and thus the disallowance was uncalled for. This finding was sustained by the Tribunal.

19. The court noted that Section 80M allows deduction to the extent of the dividend distributed to shareholders. The CIT(A) and Tribunal found that the respondent/assessee had distributed the dividend, and this finding remained undisturbed.

21. The court upheld the deletion of disallowance under Section 80M, as the factual finding that the dividend was distributed was not contested.

Conclusion:

22. The court concluded that no substantial question of law arose for consideration and closed the appeal. Parties were directed to act based on the digitally signed copy of the order.

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