TaxTMI 
TaxTMI 
2024 (12) TMI 764
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....ut by the ld. AR that following grounds remained to be decided while disposing the above appeals. 3. Ground No. 3 in A.Y. 2002-03 and ground nos. 3(a) and 3(b) in the A.Ys. 2003-04 to 2005-06. 4. We have gone through the orders of the Tribunal and found that the above grounds remained to be decided, which is a mistake apparent from the record. Accordingly, we recall the order only for deciding ground no. 3 in A.Y. 2002-03 and ground nos. 3(a) and 3(b) in A.Ys 2003-04 to 2005-06. We direct accordingly." 4. Following the aforementioned directions of the Co-ordinate Bench, the captioned appeals were heard on the ground of enhancement of income done by the ld. CIT(A) on the ground that loss should have been adjusted from exempt income of the Daman Units. 5. Representatives of both the sides were heard at length. Case records carefully perused. 6. The entire quarrel revolves around the following observations of the ld. CIT(A):- "4.0. During the course of appellate proceedings, it was noticed that the appellant had incurred a loss of Rs. 15.89 lakhs in the Asstt.Year 2002-03 from Daman Unit- I. Such business loss of Rs. 15.89 lakhs derived from Daman U....
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.... was not necessary that loss of one industrial undertaking should necessarily be adjusted against the profit of another eligible industrial undertaking. In support, strong reliance was placed on the decisions of the Hon'ble Delhi High Court in the case of CIT vs. Dewan Kraft System (P.) Ltd. in 297 ITR 305 (Delhi). The ld. CIT(A) was of the opinion that the decision of the Hon'ble Supreme Court in the case of Synco Industries Limited vs. AO, Income tax, Mumbai (2008) 299 ITR 444 (SC), squarely applies on the facts of the case in hand wherein the Hon'ble Supreme Court has emphatically ruled that the assessee's contention that the profits derived from one industrial undertaking cannot be set off against the loss suffered from another industrial undertaking in view of Section 80-I(6) has no merits. The ld. CIT(A) observed that the Hon'ble Supreme Court upheld that loss from the oil division of the assessee was required to be adjusted against the profits of the chemical division. The ld. CIT(A) further observed that the principle decided in the case of Dewan Kraft System (P.) Ltd. (supra), was considered and not approved by the Hon'ble Supreme Court in the case of Synco Industries Ltd.....
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.... division in earlier years. The appellant claimed deductions under sections 80HH and 80-I of the Act, claiming that each unit should be treated separately and the loss suffered by the oil division in earlier years is not adjustable against the profits of the chemical division while considering the question whether deductions under sections 80HH and 80-I were allowable. The Assessing Officer noticed that the gross total income of the appellant before deductions under Chapter VI-A was 'nil'. Therefore, he concluded that the assessee was not entitled to the benefit of deductions under Chapter VI-A. Feeling aggrieved the appellant carried the matters in appeal before the Commissioner of Income-tax (Appeals)-V, Mumbai who confirmed the view of the Assessing Officer by dismissing the same. Therefore, the appellant preferred two appeals before Income-tax Appellate Tribunal Mumbai Bench 'B', Mumbai. The Tribunal held that gross total income of the appellant had got to be computed in accordance with the Act before allowing deductions under any section falling under Chapter VI-A and as the gross total income of the appellant after setting off the business losses of the earlie....
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....s. It was also receiving income from dividend from investments with other cooperative societies. In the previous year relevant to the assessment year 1972-73, the assessee had earned a total income of Rs. 85,150. The losses of the earlier year which had been carried forward to the said assessment year were Rs. 1,82,744. The assessee claimed a deduction of Rs. 53, 386 under section 80P(2) from the income of Rs. 85,150. The ITO first set off the losses of previous years that had been carried forward against the income and since the losses were in excess of the income, he held that no deduction was permissible under section 80P. The said view was not accepted by the Appellate Authority. The decision of the Appellate Authority was affirmed by the Income-tax Appellate Tribunal and the High Court. While reversing the decision of the High Court, the Supreme Court has held that in view of the express provision defining the expression "gross total income" in clause (5) of section 80B, for the purpose of Chapter VI-A, the gross total income must be determined by setting off, against the income, the business losses of the earlier years as required by section 72, before allowing deduction unde....
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....nder sections 80L and 80M of the Act are to be allowed after setting off of losses under sections 71 and 72 because section 80A(2) limits the aggregate of the deduction allowable to the amount of the gross total income of the assessee which means that the deduction allowable cannot result in a negative figure of loss. What is held in the said decision is that where the gross total income is found to be a net loss there is no question of any further deductions under sections 80L and 80M. In G. Atherton & Co. v. CIT [1987] 165 ITR 527 (Cal.), it is held that the gross total income and also the dividend income of the assessee had to be computed in accordance with the provisions of the Act without making any deduction under section 80M contained in Chapter VI-A of the Act and as the gross total income was computed to be a loss, no relief was available to the assessee under section 80M. In CIT v. Mercantile Bank Ltd. [1988] 169 ITR 44 (Bom.) after examining the scheme envisaged by sub-section (1) of section 80A, sub-section (2) of section 80A and subsection (5) of section 80B, the Calcutta High Court has held that the gross total income defined by section 80B(5) is the total income comp....
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....ction 80A(2) and section 80A(5) in order to put a ceiling on the claim for deduction which indicates that if the deductions under Chapter VI-A are to be claimed then the gross total income should be sufficient to absorb such deductions i.e. if the gross total income is 'nil' then deduction under sections 80HH and 80-I cannot be claimed because it would mean that aggregate amount of the deduction would exceed the gross total income of the assessee. In CIT v. Atam Ballabh Finance (P.) Ltd. [2002] 258 ITR 485 after noticing the definition of gross total income as given under section 80B(5) the Delhi High Court has held that while computing the income, all provisions are required to be applied and only thereafter the deductions have to be allowed. In IPCA Laboratory Ltd. v. Dy. CIT [2004] 12 SCC 742 the appellant was a holder of an Export House Certificate. It exported self-manufactured goods as well as goods manufactured by supporting manufacturers. It had earned a profit from the export of self-manufactured goods and had suffered loss from the export of trading goods. In its return for assessment year 1996-97, it claimed deduction under section 80HHC contending that profits f....
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....urt is of the opinion that the High Court was justified in holding that gross total income must be determined, by setting off against the income, the business losses of earlier years, before allowing deduction under Chapter VI-A and if the resultant income is 'nil', then the assessee cannot claim deduction under Chapter VI-A. 12. The contention that under section 80-I (6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit-making industrial undertaking was the only source of income, has no merits. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand, section 80-I(6) deals with determination of the quantum of deduction. Section 80-I (6) lays down the manner in which the quantum of deduc....
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....on 80- I(1), which also refers to gross total income one has to read the expression 'gross total income' as defined in section 80B(5). Therefore, this Court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was 'nil' the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80-I also. 13. The proposition of law, emerging from the above discussion is that the gross total income of the assessee has first got to be determined after adjusting losses etc., and if the gross total income of the assessee is 'Nil' the assessee would not be entitled to deductions under Chapter VI-A of the Act." 10. In our understanding, the Hon'ble Supreme Court was seized with the question, whether a person is eligible for deduction under Chapter-VIA, when the gross total income of the assessee is determined as Nil. The Hon'ble Supreme Court was of the opinion that if the gross total income of the assessee is Nil, there is no question of any deduction being allowed under Chapter VIA in computi....
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.... to arrive at a finding as to whether the two units are independent units. While computing the income under the head profits and gains of business under section 28 of the Act. Even though the profits of business may contain certain receipts so long as such receipt is not "profit derived from industrial undertaking". Deduction under section 80-I is not available. The profit of such industrial undertaking is to be computed as if it is a separate assessee by itself. Thus, the test laid down as to whether two businesses are same business cannot be applied industrial undertaking or are extension of one of another. Even, in a situation, where the assessee was carrying on a business of a particular product and another distinct industrial unit is set up to manufacture the very same product, though it can be held that the new units is for carrying on the same business yet it is a distinct industrial undertaking for the two units were capable of functioning autonomously without relying on another unit. The two units are functioning distinctly inasmuch as they manufacture different products using different technology and located in separate premises although in the same compound. In the insta....
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....against him, the latter decision of the Supreme Court in the case of Synco Industries Ltd. (supra) is clearly in his favour and, therefore, the question ought to be answered in favour of the revenue and against the assessee. 6. On the other hand, the learned counsel appearing on behalf of the assessee, submitted that the decision of this Court in Dewan Kraft Systems (P.) Ltd.'s case (supra) is clearly in favour of the assessee and there is nothing in the Supreme Court decision in Synco Industries Ltd.'s case (supra) which would enable us to detract from that position. Consequently, he submitted that the question be answered in favour of the assessee and against the revenue. 7. Section 80-I(1) reads as under:- "80-I. Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.-(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which this section applies, there shall, in accordance with and subject to the provisions of this section, be ....
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....o be made in case the gross total income includes any profits and gains derived from an industrial undertaking, etc., in case such profits and gains are included in the gross total income of the assessee. The deduction in the case of a company, in view of the proviso to section 80-I(1), is to be given to the extent of 25 per cent of such profits and gains of such an industrial undertaking. It is also clear that in view of section 80-I(6), which begins with a non obstante clause, the quantum of deduction is to be computed as if the industrial undertaking were the only source of income of the assessee during the relevant years. In other words, each industrial undertaking or unit is to be treated separately and independently. It is only those industrial undertakings, which have a profit or gain, which would be considered for computing the deduction. The loss making industrial undertaking would not come into the picture at all. The plain reading of the provision suggests that the loss of one such industrial undertaking cannot be set off against the profit of another such industrial undertaking to arrive at a computation of the quantum of deduction that is to be allowed to the assessee ....
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....uction under Chapter VI-A and that if the resultant income is 'Nil', then the assessee cannot claim any deduction under Chapter VI-A. While coming to the aforesaid conclusion, the Supreme Court was also confronted with an argument which had been raised on the basis of the provisions of section 80-I(6) that the profits of one industrial undertaking cannot be set off against the losses suffered by the other industrial undertaking. The Supreme Court was of the view that the provisions of section 80-I(6) were only for the purposes of computing the quantum of deduction, whereas the gross total income was to be computed in terms of the Act as provided in section 80B(5). It is apparent that the Supreme Court distinguished the provisions of section 80-I(6) which was for the purposes of computing the quantum of deduction from the provisions of section 80- I(1) and section 80B(5) which deal with the manner in which the gross total income is to be considered. The Supreme Court observed as under:- "13. . . . While computing the quantum of deduction under section 80-I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the onl....
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.... would not be entitled to deductions under Chapter VI-A of the Act." [Emphasis supplied] 11. From the above extract, it is apparent that the Supreme Court did not at all hold that while computing the deduction under section 80-I(6), the loss of one eligible industrial undertaking is to be set off against the profit of another eligible industrial undertaking. All that the Supreme Court said was that in computing the gross total income of the assessee, the same has to be determined after adjusting the losses and that, if the gross total income of the assessee so determined turns out to be 'Nil', then the assessee would not be entitled to deduction under Chapter VI-A of the said Act. 12. We agree with the submissions made by the learned counsel for the assessee that there is nothing in the decision in the case of Synco Industries Ltd. (supra) which would enable us to detract from the position indicated by this court in Dewan Kraft Systems (P.) Ltd.'s case (supra) and, as indicated by us above. In fact, the Supreme Court clearly held that while computing the quantum of deduction under section 80- I(6), the Assessing Officer, no doubt, has to treat the prof....