AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (11) TMI 236
X X X X Extracts X X X X
X X X X Extracts X X X X
....is appeal concerns Assessment Year (AY) 2003-04. 6. Via the instant appeal, the appellant/revenue seeks to assail the order dated 16.07.2021 passed by the Income Tax Appellate Tribunal [in short, "Tribunal"]. 7. According to the appellant/revenue, two issues emanate for consideration by this court. 7.1 First, whether the deletion of disallowance by the Tribunal under Section 80IA/80IB of the Income-tax Act, 1961 [in short, "Act"], amounting to Rs. 4,32,65,725/-, was in order. 7.2 Second, whether the deletion of disallowance of the claim made by the respondent/assessee under Section 80M of the Act, amounting to Rs. 3,97,34,475/-, was sustainable in law. 8. The broad facts that are required to be noticed to adjudicate the present appeal are as follows: 8.1 The respondent/assessee filed its Return of Income (ROI) for AY 2003-04 on 27.11.2003, whereby, it declared income amounting to Rs. 1,14,29,476/-. However, the respondent/assessee paid tax as per Section 115JB on the book profit amounting to Rs. 10,63,49,082/-. The ROI was processed under section 143(1) of the Act. 8.2 The respondent's/assessee's case was, thereafter, picked up for scrutiny, and an assessment o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erned said two (2) eligible units would be required to be adjusted against losses of the other three (3) eligible units, the CIT(A) concluded that section 80IA(5) does not permit such a computation. 11. Insofar as the disallowance of the claim made by the respondent/assessee under Section 80M of the Act was concerned, the CIT(A) noticed that the total amount received by the respondent/assessee in the form of dividend was Rs. 5,09,19,998/-, out of which Rs. 3,97,34,475/- was distributed to its shareholders. Therefore, the disallowance was uncalled for. 11.1 A finding of fact was also returned by the CIT(A) that, although this aspect was brought to the notice of the AO, it was not discussed by her while dealing with the claim made by the respondent/assessee. Resultantly, the CIT(A) deleted the disallowance of the claim made by the respondent/assessee, both under Sections 80IA/80IB and 80M of the Act. 12. Both these findings of fact and law were confirmed by the Tribunal in the appeal preferred by the appellant/revenue. 13. Mr Puneet Rai, learned senior standing counsel, who appears on behalf of the appellant/revenue, in support of the appeal filed by the appellant/revenue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cent of the profits and gains derived from such business for ten consecutive assessment years. xxx xxx xxx (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 shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." [Emphasis is ours] 18. Section 80IA(5) provides that to quantify the deduction under Section 80IA(1) of an assessee for an AY [post the initial AY in which such deduction is claimed], the profits and gains of the 'eligible' business should be computed as if it is the only source of income of the assessee. It does not mandate that losses that have been adjusted against the profits of 'other' non-eligible businesses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case, being relevant, are extracted hereafter: "16. From a reading of sub-section (1), it is clear that it provides that 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), i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent, of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of current income under section 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view. 20. The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and the same reads as follows: "Clause 30(iii). In computing the quantum of 'tax holiday' profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such units were an independent unit owned by a taxpayer who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-1 even though they may have been set off against the profits of the taxpayer from other sources." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tand absorbed against profits of the 'other' non-eligible businesses or losses that have already been adjusted against the profits of the eligible businesses in the years before the previous year in relation the first assessment year in which the deduction was claimed. Therefore, in this case, the respondent/assessee was not required to set off losses of other units against its profitable units. 18.3 In so far as the decision of the Karnataka High Court in Microlabs is concerned, the coordinate bench in Sterling Agro respectfully disagreed with the view held in Microlabs. The court held: "14.4 A perusal of the judgment rendered in the Microlabs Ltd. case would show that the Karnataka High Court gave weight to the fact that sub-section (5) of Section 80IA commenced with a non-obstante clause. It was based on this singular fact that the Karnataka High Court chose to veer away from the view expressed by the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case. This aspect emerges on an appraisal of paragraph 6 of the judgement of the Karnataka High Court rendered in Microlabs Ltd. case. 14.5 We have read the aforementioned portion of the judge....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... [Emphasis is ours] 19. Insofar as the second aspect is concerned i.e., disallowance of the claim made by the respondent/assessee under Section 80M of the Act, we may note that Section 80M [as inserted by the Finance Act, 2002, with effect from 1.4.2003] read as follows: Deduction in respect of certain inter-corporate dividends. 80M. (1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date. (2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year. Explanation-For the purposes of this section,....