TaxTMI 
TaxTMI 
2019 (1) TMI 421
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (A.Y. 2010-11): 2.Brief background relating to the case is that the assessee company is engaged in the manufacturing of automotive gears and has five manufacturing units, namely; *Unit-I at plot No.58, Sector 1, Parwanoo, *Unit-II at KK-II, 12, 16 & 16 HPSIDC, Indl. Estate Kalka, *Unit-III at Plot No.8, Industrial Area Barotiwala, * Unit-IV at Opposite Himachal Fibre Ltd., Industrial Area Barotiwala and *Unit-V at Plot No.22-24, Sector-1, Industrial Area, Parwanoo. Unit-I, III, IV and V were eligible for deduction u/s 80IC of the Act. The assessee had claimed the said deduction but the A.O. found that in respect of unit III the assessee having already claimed deduction @ 100% for the first five years, had again claimed deduction @ 100% on account of substantial expansion carried by it, though, as per the AO ,it was entitled to only 30% thereafter as per the Act. The A.O. accordingly restricted the deduction claimed by the assessee in such unit to 30% of the eligible profits. Moreover the A.O. also found that while the eligible undertakings had earned both profits and losses the assessee had claimed de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....543) Eligible for 100% being oss no deduction was claimed 5. With respect to Unit-III the A.O. found that the assessee had already claimed deduction u/s 80IC to the extent of 100% of the profits, for five years period starting from assessment years 2005-06 to 2009-10 and the assessee had again claimed 100% deduction in the impugned year which was 6th year of production by claiming to have carried out substantial expansion in financial year 2007-08 relevant to assessment year 2008-09. The A.O. held that the assessee was eligible for deduction u/s 80IC of the Act in respect to the said undertaking only @ 30% as per law and accordingly restricted the deduction claimed to 30% of the eligible profits. The CIT(A) upheld the order of the A.O. following the decision of the ITAT Chandigarh Bench in the case of Hycron Electronics Vs. ITO in ITA No.798/Chd/2012 and other related cases. 6. Before us the Ld. counsel for assessee fairly conceded that the issue was now settled and covered against the assessee by the decision of the Hon'ble Apex Court in the case of CIT Vs. M/s Classic Binding Industries & Others in Civil Appeal No.7208 & Others of 2018 dated 20..8.2018. 7. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....read with respect to each eligible undertaking only and ratio laid down in the case of Him Teknoforge Ltd. (supra) being eligible business specific would, therefore, not apply in the present case. The second contention raised by the Ld. counsel for assessee was that by applying the ratio laid down in Him Teknoforge Ltd. (supra) to 80IC unit, it would lead to an anomalous situation. It was pointed out that section 80IC provides for graded deduction i.e. 100% of the eligible profits for first five years and 30% for remaining five years, for unit set up in specified areas and if the profits and losses of all units are clubbed, where the rates of deduction of different units are different, it would be difficult to determine the rate to be applied on the eligible profits remaining after setting off of profits and losses of all eligible units. The Ld. counsel for assessee filed his arguments in writing in this regard as under: "Arguments : a. The issue of clubbing of profits and losses of eligible industrial undertaking has been considered solely on the interpretation of the judgment in the aforementioned case of Him Techno forge Ltd. b. At the outs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trial undertaking u/s 80IC where the rates of deduction may be different for different industrial undertaking in the same year. d. Besides the above, the salient feature of the afore mentioned judgment are under: In the captioned judgment - three ratios have been laid down : i. While calculating the Gross Total Income - the profit/loss of non priority units be taken. The assessee company has considered the same while computing the Gross Total Income - Refer to the Computation of Total Income. ii. While calculating the deduction under Chapter VI A only the profits or loss of priority income shall be taken. The assessee company has considered the profits of the eligible industrial undertaking in terms of section 80IC(7) which mentions that the concept of eligible business under section 80IA needs to be applied to the eligible undertaking or enterprise. Further the losses were to be carried forward for eligible industrial undertaking which has incurred losses for set off against the profits of that undertaking in terms of section 80IA(5) as mentioned hereinabove and repeated as below: 801A(5) Notwithstanding anything conta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trial undertaking." 11. The Ld. DR, on the other hand, contended that the arguments of the Ld. counsel for assessee were totally devoid of merits and the issue was squarely covered by he decision of the Hon'ble Jurisdictional High Court in the case of Him Teknoforge Ltd. (supra) and there was no distinction as pointed out by the Ld. counsel for assessee between the wording in sections 80IA and 80IC of the Act as such. 12. We have heard the contentions of both the parties carefully and have even carefully gone through the orders of the Hon'ble Jurisdictional High Court in the case of Him Teknoforge Ltd. (supra) which have been heavily relied upon by the Revenue in support of the order of the lower authorities on the proposition that the profits and losses of all the eligible undertakings are to be netted and on the balance of profits the deduction is to be calculated u/s 80IC of the Act. 13. The facts before the Hon'ble Jurisdictional High Court were that the assessee was having separate units, some of which were entitled to benefit in terms of section 80HH and 80IA of the Act and which were referred to as priority units. In all the cases none ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.]" 15. Reading the same, the Hon'ble High Court held that there can be no manner of doubt that only income from a priority undertaking is to be taken into consideration while making the deduction and the profits or losses of non priority undertakings are not to be considered. Going further, the Hon'ble High Court held that if there were more than one priority undertaking, the profits and losses of all the priority undertakings had to be clubbed together and deduction was to be calculated on the profits remaining. While laying down this proposition the Hon'ble High Court stated that though the Hon'ble Apex Court in the case of CIT(Civil) Madras Vs. Canara Workshops Pvt. Ltd. (1986) 61 ITR 120 has clearly held that no clubbing of profits and losses of priority undertaking shall to be done for calculating the quantum of eligible deduction, the later decisions of the Hon'ble Apex Court in IPCA Laboratories Ltd. Vs. DCIT (2004) 266 ITR 521, ITO Vs. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....there being no such corresponding clause provided for in section 80HHC the provision of section 80AB would override the provisions of section 80HHC of the Act. This is a very important observation of the Hon'ble High Court and it is from this that a distinction can be drawn vis-à-vis deduction claimed u/s 80IC of the Act, which is the fact in the present case. For clarity the relevant provisions of section 80IA & 80IC of the Act are being reproduced hereunder: "80-IA [(1) 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 sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years.]" "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uction will have to be calculated as provided for in section 80IC(7) of the Act, as per which for the purpose of determining the quantum of deduction the eligible undertaking is to be treated as the only source of income of the assessee during the previous year, thus treating each eligible undertaking or enterprise as a separate unit for the purpose of calculating deduction. 18. Even otherwise as correctly pointed out by the Ld.Counsel for the assessee, while the decision in the case of Him Teknoforge Ltd. (supra) was rendered in the context of section 80IA, the assessee in the present case has claimed deduction u/s 80IC and the relevant provisions of two sections which deal with the calculation of quantum of deduction are differently worded in the two sections having an impact of the interpretation of the same. 19. Section 80IA(5) states that the profits and gains of eligible "business" shall be computed as if such eligible "business" were the only source of income of a during previous years. Thus section 80IA(5) applies to eligible "business", the meaning for which can be gathered from section 80IA(1) wherein business carried out by eligible undertaking have bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for calculating the quantum of deduction, since as rightly pointed out by the Ld. counsel for assessee, the section provides for different rates of deduction of profits for different years in case of specific undertakings and if netting of profits and losses of all eligible undertakings are resorted to, as laid down in the decision of Him Teknoforge Ltd. (supra), in a situation where the different eligible units are entitled to different rates of deduction of profits, it would be difficult to determine the rate to be applied to the remaining profits since there is no section or provision in the entire Act dealing with such a situation. We therefore, agree with the Ld. counsel for assessee that the decision in the case of Him Teknoforge Ltd. (supra) having been rendered in the context of section 80IA does not apply in the present case which deals with deduction u/s 80IC of the Act and since as per section 80IC it is the profit on each undertaking which is to be treated as separately, the profits and losses of all the eligible undertakings are not to be netted for the purpose of calculating deduction u/s 80IC and are to be taken on a stand alone basis. 22. In view of the above, w....