TaxTMI 
TaxTMI 
2010 (10) TMI 772
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....f the AO in not allowing the deduction under section 80IA of the Act on Rs. 3,98,386 being the amount written back by your appellant on account of the amount deducted while making payment for various expenses which has been debited to the profit and loss account either of the same year or of earlier year. (3) The order of the ld. CIT(A) Valsad in confirming the action of the AO in not allowing the deduction under section 80IA of the Act for insurance claim or not allowing set off of this claimed amount against the expenses incurred to restore the loss, which has already been debited to the profit and loss account of Rs. 3,10,000/-. 2. In this case the assessee has challenged the order of ld. CIT(A) in confirming the order of AO in not allowing deductions under section 80IB on following three amounts :- (i) Insurance claim Rs. 3,10,000 (ii) Sundry balance written back Rs. 3,98,386 (iii) Depreciation as per discussed Rs. 9,34,071 Rs. 16,43,457 In support of the third amount being depreciation the AO found that assessee has claimed depreciation of Rs. 12,79,784/- while computing profits for deduction under section 80IB wher....
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....e submitted that for calculating deduction under section 80IB, the Tribunal has been accepting the claim of the assessee that depreciation should be worked on the basis of WDV without adjusting it by notional depreciation. In other words only the actual claim of depreciation should be deducted while computing WDV and not notional depreciation. She referred the order of the Tribunal dated 30.6.2010 in ITA No.3166/Ahd/2007 for Asst. Year 2004-05 in the case of M/s Well Tuff Safety Glass vs. ACIT. The aforesaid decision dated 28.11.2008 was subsequently followed by another Bench in the case of M/s Siddharth Corporation in ITA Nor866/And/2007 and in the case of M/s Gautam Enterprises in ITA No.867/And/2007 and in ITA No.1885/Ahd/2005 Asst. Year 2002-03 in the case of Khemani Distilleries (P) Ltd. vs. ACIT pronounced on 28.11.2008. As per ld. AR since depreciation should be allowed on actual WDV and not on notional WDV the decision of ld. CIT(A) should be reversed. 5. On the other hand, ld. DR relied on the decision of the Tribunal, Ahmedabad Bench in Vahid Paper Converters vs. ITO & ors (2007) 289 (AT) 10(Ahd) and the decision of Hon. Bombay High Court Plastiblends India Ltd. ....
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....f the apex court in the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120. Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. Therefore, whether the assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of deduction under section 80-IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act." The head notes from that decision reads as under :- "Computation of business income chargeable to income-tax under the head "Profits and gains of business or profession" in Chapter IV of the Income-tax Act, 1961 has to be made by deducting from the business income specified in section 28, various deductions allowable under sections 30 to 43D of the Act. Section 80-IA of the Act is a code by itself and the deduction allowable under section 80-IA is a special deduction which is linked to profits, unlike deduc....
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....here is apparently a case of reducing deduction under section 80IA by adopting a device by deferring the claim of depreciation to subsequent years by keeping the WDV intact and when suits to bring forward that WDV to 4th or 5th Asst. Year (by not claiming depreciation in the intervening Asst. Year and thus keeping WDV intact and carry forward the same to the Asst. Year where it suits to inflate the claim of higher deduction u/s 80IA). By not claiming depreciation in intervening period the assessee has sought to inflate the profits in those years and, therefore, claimed higher amount of deduction under section 80IA. In the current Asst. Year assessee has sought to reduce available deduction under section 80IA by claiming higher amount of depreciation by adopting WDV at the beginning of Asst. Year 2000-01. Hon. Supreme Court in Liberty India vs. CIT (2009) 317 ITR 218 (SC) has clearly laid down that any attempt to inflate or reduce available deduction under section 80IA or 80IB under Chapter VIA should be discouraged and rejected in view of the provisions of sub-section (5) of section 80IB which is similar to section 80IA(7). 7. The claim of higher depreciation or lower depreciati....
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....WDV in the beginning of the current year. If judgment of Hon. Bombay High Court is applicable for calculating deduction under section 80IB considering allowable depreciation even though not claimed then there is no reason why this principle will not be applied for calculating WDV by considering allowable depreciation for the intervening period. Accordingly, we hold that the judgment of Hon. Bombay High Court is applicable to the facts of the present case also. Thus we uphold the order of ld. CIT(A) on this issue. This ground of assessee is rejected. 8. The next issue relates to claim of deduction under section 80IA on amount written back by the assessee. During the course of assessment proceedings the AO found that assessee has claimed deduction under section 80IA on a sum of Rs. 3,98,386/- being the amount written back which were due to be paid to four parties. The assessee had given party wise narration of amount so written off. According to the AO, majority of the expenditure written off are of capital in nature. He disallowed the claim under section 80IA on the ground that they did not pertain to manufacturing profits and, therefore,....
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....as profit under section 41(1) which has been so done by the assessee. There is a clear and direct business connection of such cessation or remission and such profits taxable under section 41(1) can be held as derived from industrial undertaking. The arguments of the ld. DR that they are not current year's profit from manufacturing activity is devoid of any merit because deduction under section 80IA is available only on profits derived from industrial undertaking which is carrying on manufacturing activities and it is not confined to only current year's profit as per P & L account. The deduction under section 80IA or 80IB is available on profits and gains computed in accordance with section 20A- 43D which includes section 41(1) also. 12. Thus where AO finds that claim has already been allowed in the earlier year then such benefit under section 80IA should be given to the profits taxed u/s 41(1). The argument of ld. AR is that once it has declared profits under section 41(1) it would mean that assessee has already claimed and allowed deduction thereof in earlier years but in our considered view it requires verification and for that matter we restore the matter to the file of....