2025 (5) TMI 202 - AT - Income Tax

Section 80IC deduction allowed on Gross Total Income including other sources following Supreme Court precedent

The ITAT Delhi ruled in favor of the assessee regarding deduction under section 80IC. The AO had denied the deduction claiming income was declared under ... Denial of deduction u/s 80IC - income declared under other heads of income other than income from eligible business falling under the heads profit and heads of Business & Profession - CIT(A) allowed claim - HELD THAT:- AO is directed to allow the deduction u/s. 80IC to the extent of GTI including the income from other source as decided in case of CIT vs Reliance Energy Ltd. [2021 (4) TMI 1237 - SUPREME COURT] - Decided against revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal (AT) in this appeal are:Whether the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition on account of deduction claimed under section 80IC of the Income Tax Act, 1961 (the Act), specifically Rs. 11,02,77,516/-.Whether the deduction under section 80IC can be allowed against income declared under other heads of income, apart from income from eligible business falling under the heads 'Profits and Gains of Business or Profession' (PGBP).The proper interpretation and application of section 80IC in conjunction with section 80AB regarding the quantum and source of income eligible for deduction.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of deletion of addition on account of deduction under section 80ICRelevant legal framework and precedents: Section 80IC(1) of the Act provides that where the gross total income of an assessee includes profits and gains derived from any eligible business, a deduction shall be allowed in computing total income as specified under section 80IC(3). Section 80AB deals with the computation of deduction under Chapter VI-A, including restrictions on the aggregate deduction not exceeding gross total income. The Supreme Court's ruling in CIT vs Reliance Energy Ltd. (2021) is a key precedent interpreting the scope of deduction under section 80IA (analogous to 80IC), particularly regarding the inclusion of income from other sources in determining the quantum of deduction.Court's interpretation and reasoning: The Tribunal examined the facts that the Assessing Officer (AO) restricted the deduction under section 80IC to Rs. 4,75,56,981/- despite the assessee claiming Rs. 15,78,34,497/- based on profits from eligible units. The AO's rationale was that deduction is limited to income from business or profession after adjusting losses from other units, applying section 80AB. The CIT(A) reversed this, allowing the full deduction claimed, including against income from other sources.Key evidence and findings: The assessee's computation showed eligible profits from units 2 and 3 amounting to Rs. 15,78,34,497/-, with losses from other units not affecting the eligibility of deduction. The gross total income (GTI) included income from house property and other sources, aggregating Rs. 44,22,65,704/-, exceeding the claimed deduction.Application of law to facts: The Tribunal noted that section 80IC(1) allows deduction where gross total income includes profits from eligible business. The AO's restriction based on section 80AB was interpreted as applicable only to the determination of the quantum of deduction by treating eligible business as the sole source of income, not as a limitation on the source of income for deduction eligibility. The Supreme Court's decision in Reliance Energy Ltd. supported the view that deduction under section 80IA/80IC can be allowed up to the gross total income, including income from other sources.Treatment of competing arguments: The Revenue argued that deduction should be restricted to income under the head 'Profits and Gains of Business or Profession' and not allowed against income from other heads. The assessee contended that the deduction is to be computed on the basis of gross total income, including other sources, citing the Supreme Court ruling. The Tribunal accepted the assessee's submission, finding the Revenue's interpretation unduly restrictive.Conclusions: The Tribunal held that the CIT(A) correctly allowed the deduction under section 80IC to the extent of Rs. 15,78,34,497/-, which is less than the gross total income including income from other sources. The deletion of the addition by CIT(A) was upheld.Issue 2: Allowance of deduction under section 80IC against income from other headsRelevant legal framework and precedents: Section 80IC(1) provides for deduction where gross total income includes profits from eligible business. Section 80AB restricts aggregate deductions under Chapter VI-A to not exceed gross total income. The Supreme Court's decision in CIT vs Reliance Energy Ltd. clarified that deduction under section 80IA is not limited to income from business alone but can be allowed considering gross total income including other sources.Court's interpretation and reasoning: The Tribunal analyzed the language of section 80IC and section 80AB and concluded that subsection (5) of section 80IA (analogous to 80IC) relates only to the determination of the quantum of deduction by treating eligible business as the sole source of income, but does not limit the allowance of deduction only to business income. Therefore, deduction under section 80IC can be allowed against income from other heads, provided the overall gross total income supports it.Key evidence and findings: The assessee's GTI included Rs. 63,00,000 from house property and Rs. 38,84,08,273 from other sources, totaling Rs. 44,22,65,704/-, which exceeded the claimed deduction. The AO's restriction based on business income alone was inconsistent with the statutory scheme and judicial precedent.Application of law to facts: Applying the Supreme Court's ratio, the deduction under section 80IC was allowable up to the gross total income including income from other sources. The Tribunal found no legal infirmity in the CIT(A)'s order allowing the deduction against income from other heads.Treatment of competing arguments: The Revenue's contention that deduction should be restricted to business income was rejected as inconsistent with the statutory provisions and binding judicial precedent.Conclusions: The Tribunal affirmed the CIT(A)'s order allowing deduction under section 80IC against income from other heads, not limited to business income alone.3. SIGNIFICANT HOLDINGSThe Tribunal held:'Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in section 80IC(2), there shall in accordance with and subject to the provisions of this section be allowed in computing total income of the assessee, a deduction as specified in section 80IC(3).''The restriction under section 80AB of the Income Tax Act is confined to the determination of the quantum of deduction by treating the eligible business as the only source of income. Subsection (5) cannot be pressed into service for limiting the deduction under subsection (1) to business income only.''The Hon'ble Supreme Court in CIT vs Reliance Energy Ltd. has held that the assessee is entitled to the deduction under section 80IA to the extent of gross total income including income from other sources.'Core principles established include:The deduction under section 80IC is allowable on profits and gains from eligible business but can be computed considering the gross total income including income from other sources.Section 80AB's restrictions apply to computation of deduction quantum, not to the source of income eligible for deduction.Judicial precedent mandates that deduction under Chapter VI-A cannot be arbitrarily restricted to business income alone when gross total income includes other heads.Final determinations on each issue:The CIT(A) correctly deleted the addition and allowed the deduction under section 80IC of Rs. 15,78,34,497/-, overruling the AO's restriction.The deduction under section 80IC is allowable against income declared under other heads beyond business income, consistent with statutory provisions and Supreme Court precedent.The Revenue's appeal was dismissed for lack of merit.