J.B. CHEMICALS & PHARMACEUTICALS LTD. v. ADDITIONAL COMMISSIONER OF INCOME TAX
[Citation -2006-LL-0424-6]

Citation 2006-LL-0424-6
Appellant Name J.B. CHEMICALS & PHARMACEUTICALS LTD.
Respondent Name ADDITIONAL COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 24/04/2006
Assessment Year 1999-2000
Judgment View Judgment
Keyword Tags profits and gains of business or profession • eligible industrial undertaking • change in method of accounting • changed method of accounting • valuation of closing stock • unutilized modvat credit • value of closing stock • system of accounting • business transaction • method of valuation • computing deduction • valuation of stock • gross total income • business activity • foreign exchange • export turnover • trading account • business profit • cash assistance • housing project • insurance claim • total turnover • profit on sale
Bot Summary: Effect of s. 80-IA(9A) on working of deduction under s. 80HHC. 3.1 The learned CIT(A) erred in not accepting the submission that deduction under s. 80HHC has to be worked out as per the formula given in s. 80HHC(1) and that nothing contained in s. 80-IA(9A) goes to alter the mandatory working of deduction under s. 80HHC(1). Adjustments to be made in accordance with provision of s. 80HHC would then have to be made to arrive at export profit eligible for deduction under s. 80HHC. This deduction under s. 80HHC would then be allowed against the total income of all the units to be taken together calculated net of deduction under s. 80-IA. 12. There is nothing in sub-s. inserted in s. 80-IA to modify working of deduction under s. 80HHC or to reduce the deduction under s. 80HHC by the amount of deduction under s. 80-IA. 1 4. One question arises for consideration is whether amount of deduction allowed under s. 80-IA will be reduced from the business profit while working out deduction under s. 80HHC i.e. reduction would be made in the business profits applying the formula of s. 80HHC as suggested by learned CIT(A), or after applying the formula to the profits of industrial undertaking, working out the deduction under s. 80HHC and then to reduce the deduction already allowed under s. 80-IA. In our considered view, and as per the language used in s. 80- IA(9A), the deduction allowed under s. 80-IA will not be allowed as further deduction under other ss. 80HH to 80RRA. This means that deduction under s. 80HHC will be worked out independently, without reducing the business profits by the deduction under s. 80-IA, that is, effect of deduction under s. 80-IA will be given after applying the formula and working out deduction under s. 80HHC. This is clear from the language of s. 80-IA(9A) that Any amount of profits and gains allowed as deduction under s. 80-IA, shall not be allowed as deduction under other sections. Where deduction under s. 80HHC is more than the deduction under s. 80- IA, the figure of deduction under s. 80-IA will be reduced from the deduction under s. 80-HHC. The balance will be the deduction under s. 80HHC. Where deduction under s. 80-IA is more than the deduction under s. 80HHC calculated for the unit, then no deduction under s. 80HHC will be separately allowed. For the purpose of computing deductions under other sections such as s. 80HHC, no effect of deduction under s. 80-IA will be given but after computing deduction under s. 80HHC, the capping will be done as suggested above in our final conclusions.


D.C. AGRAWAL, A.M.: ORDER In this case assessee has raised following grounds : "1. Modvat 1.1 learned CIT(A)-XXVI [hereinafter referred to as learned CIT(A) ] erred in confirming to value of closing stock without increasing cost of purchases by Modvat element. 1.2 Your appellant submits that s. 145A does not authorize increase in value of closing stock without simultaneous in value of purchases were purchases are debited to P&L a/c net of Modvat credit i.e. excluding Modvat element. 1.3 Your appellant, therefore, prays to order increase to debit to P&L a/c to extent of Modvat credit and consequently nullify addition retained to value of closing stock. 2. Deduction 2.1 learned CIT(A) erred in holding that profit arising out of sale of steam does not constitute profit of business. 2.2 learned CIT(A) erred in upholding exclusion of insurance receipt and miscellaneous income (arising out of sale of ammonia sulphate) from profits of business. 2.2A learned CIT(A) erred in observing that there does not appear (to have) any direct nexus between receipts under head Insurance claim and miscellaneous income and appellant s business activity. 2.2B learned CIT(A) erred in overlooking fact that learned CIT(A)-VI vide para 23 in assessee s own appeal for asst. yr. 1998-99 had held that receipt under head Insurance claim was to be included in profits of business and that vide para 25 of said appeal order had held that ammonia sulphate has to be included in profits of business. 2.2C Your appellant submits that these receipts arise out of appellant s regular business activity and that they cannot be excluded from profits of business as defined in Act. 2.3 Your appellant, therefore, prays to hold that receipts arising under head Insurance claim and sale of ammonia (miscellaneous income) constitute profits of business. 2.4 Your appellant, therefore, prays to adopt profit of business as determined under s. 143(3) as per cl. (baa) of s. 80HHC(4B) for purpose of working out deduction under s. 80HHC. 3. Effect of s. 80-IA(9A) on working of deduction under s. 80HHC. 3.1 learned CIT(A) erred in not accepting submission that deduction under s. 80HHC has to be worked out as per formula given in s. 80HHC(1) and that nothing contained in s. 80-IA(9A) goes to alter mandatory working of deduction under s. 80HHC(1). 3.2 learned CIT(A) erred in not considering submissions made before her as contained in letter dt. 18th July, 2002 submitted before her. 3.3 learned CIT(A) erred in not accepting that provisions of s. 80HHC are not amended along with amendment to ss. 80-IA and 80HHD. 3.4 Your appellant, therefore, prays to direct AO to work out deduction under s. 80HHC strictly in accordance with self-contained code of s. 80HHC. 4. Effect to s. 80-IA(9A) 4.1 learned CIT(A) erred in not appreciating that aggregate of deduction under s. 80HHC and under s. 80-IA in respect of SG4 unit (undertaking) does not exceed profit of business of that undertaking. 4.2 learned CIT(A) erred in not appreciating that aggregate of deduction under ss. 80HHC and 80-IA in respect of L6 unit (undertaking) does not exceed profit of business of that undertaking. 4.3 learned CIT(A) erred in not appreciating that there being no exports from Daman unit, there is no question of aggregate deduction excluding profits of that undertaking. 4.4 CIT(A) erred in interpreting provisions of s. 80-IA(9A) so as to defeat deduction granted under another provision of law. 4.5 Your appellant prays to grant deduction under s. 80-IA as per law." 2 . first issue is whether s. 145A would authorize increase in valuation of closing stock by Modvat. AO had added sum of Rs. 12,95,762 being unutilised Modvat credit to value of closing stock. CIT(A) held that till asst. yr. 1998-99, decision of Hon ble Bombay High Court in CIT vs. Indo Nippon Chemicals Co. Ltd. (2000) 164 CTR (Bom) 78 : (2000) 245 ITR 384 (Bom) [which is affirmed by Hon ble Supreme Court in CIT vs. Indo Nippon Chemicals Co. Ltd. (2003) 182 CTR (SC) 291 : (2003) 261 ITR 275 (SC)], held t h e field and Modvat credit would not be considered anywhere in trading/manufacturing account. But, after amendment by Financed (No. 2) Act, 1998 w.e.f. 1st April, 1999 and thereby introduction of s. 145A, there has been material change. He thus upheld decision of AO. 3. Before us, learned counsel for assessee submitted that AO is bound to account for Modvat credit in purchase, sale and inventory and not merely in closing stock. This will neutralize addition, if any, made on account of Modvat. Learned Authorised Representative further submitted that if Modvat credit is to be added to sale, purchase and inventory, then same should be added in opening stock also. 4. Learned Departmental Representative, on other hand submitted that irrespective of fact whether any addition is called for or not, s. 145A would be applicable w.e.f. asst. yr. 1999-2000. Further, AO has considered this aspect and addition of unutilized Modvat credit has been made by him. Learned Departmental Representative further submitted that no addition to opening stock can be made on account of unutilized Modvat credit of earlier year because opening stock of this year has to be same as closing stock of last year. He has been regularly following system of accounting by excluding Modvat from stock. Hence, opening stock this year based on method of accounting followed i n earlier year cannot be disturbed due to change in method of accounting necessitated due to s. 145A. It is only sale/purchase and closing stock which would be disturbed. He relied on decision of Hon ble Bombay High Court in Melmould Corporation vs. CIT (1993) 111 CTR (Bom) 357 : (1993) 202 ITR 789 (Bom) for above proposition. 5 . We have considered rival submissions and perused material on record. We are of view that provisions of s. 145A would hold field to decide question. Sec. 145A reads as under : "145A. Method of accounting in certain cases. Notwithstanding anything to contrary contained in s. 145, valuation of purchase and sale of goods and inventory for purposes of determining income chargeable under head Profits and gains of business or profession shall be (a) in accordance with method of accounting regularly employed by assessee and (b) further adjusted to include amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by assessee to bring goods to place of its location and condition as on date of valuation. Explanation. For purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for time being in force, shall include all such payments notwithstanding any right arising as consequence to such payment. Inserted by F. (No. 2) Act, 1998, w.e.f. 1st April, 1999." It is clarified by Hon ble Bombay High Court in CIT vs. Indo Nippon Chemicals Co. Ltd. (2000) 164 CTR (Bom) 78 : (2000) 245 ITR 384 (Bom) that provisions of s. 145A are applicable w.e.f. 1st April, 1999 as under : "Held, (i) that s. 145A of IT Act, 1961, was introduced by Finance (No. 2) Bill, 1998. Originally, Bill contemplated proposed amendment to apply from 1st April, 1986, in relation to asst. yr. 1986-87 and subsequent years. However, later on, when said Bill was enacted into law, provision was made applicable from 1st April, 1999, i.e. asst. yr. 1999-2000." Same thing has been stated in Circular No. 772, dt. 23rd Dec., 1998 issued to explain provision of s. 145A. 6. Thus, any tax cess, duty or fee paid or incurred by assessee shall be included in valuation of purchase, sale and inventory. This leaves no doubt that Modvat credit available to assessee shall have to be included while valuing closing stock, sales and purchases. However, it is not necessary that opening stock should also be disturbed. Opening stock being closing stock of previous year has been arrived on basis of method of accounting, in which excise duty/Modvat credit is not included while valuing inventory, sale and purchase. They are separately accounted for, but in changed method of accounting imposed by s. 145A, such Modvat credit has to be included. Thus, opening stock will not be disturbed whereas purchases, sales and closing stock will have to be disturbed by including Modvat credit. For this proposition, we derive support from decision of Hon ble Bombay High Court in Melmould Corpn. s case (supra) relied upon by learned Departmental Representative. headnotes from this decision are as under : "Under s. 145 of IT Act, 1961, assessee can adopt method of valuation which is to be followed by it regularly. It is accepted principle of accountancy that value of stock can be determined at cost price or market price, whichever is lower. two principles applicable with regard to valuation of stock are that assessee is entitled to value closing stock either at cost price or market value, whichever is lower, and that closing stock must be value of opening stock in succeeding year. It is, thus, clear that irrespective of basis adopted for valuation in earlier years, assessee has option to change method of valuation of closing stock at cost or market price, whichever is lower, provided change is bona fide and followed regularly thereafter. Whenever there is change in method of valuation, there is bound to be some distortion in calculation of profits in year in which change takes place. But, if change is brought about bona fide and is in accordance with normally accepted accounting practice, there is no reason why such change should not be permitted. change has to be effected by adopting new method for valuing closing stock which will in its turn, become value of opening stock of next year. If instead, procedure is adopted for changing value of opening stock also, it will lead to chain reaction of changes in sense that closing value of stock of year preceding will also have to change and correspondingly value of opening stock of that year and so on. During previous year relevant to asst. yr. 1969-70, assessee had valued its opening stock on basis of cost plus overheads which was method adopted by assessee in years prior thereto, so that value of closing stock for year ending 31st March, 1968, was carried forward as value of opening stock on 1st April, 1968. assessee, however, decided to change its method of valuation by valuing stock at cost price only excluding overheads. assessee accordingly valued its closing stock for assessment year in question, i.e. as on 31st March, 1969, at cost price. ITO increased GP rate in view of difference in method of valuation of opening stock and closing stock. Tribunal accepted valuation of closing stock at cost price excluding overhead expenses. It, however, directed ITO to redetermine value of opening stock at cost price after excluding all overheads. On reference : Held, that assessee could not be required to revalue opening stock by excluding all overhead expenses when assessee had been permitted to revise method of valuing closing stock for that year, as assessee had decided to adopt this new method of valuation henceforth. CIT vs. Carborandum Universal Ltd. (1984) 39 CTR (Mad) 272 : (1984) 149 ITR 759 (Mad); CIT vs. Mopeds India Ltd. (1988) 173 ITR 347 (AP); and Triveni Engineering Works Ltd. vs. CIT (1987) 167 ITR 742 (All) followed." 7. It was submitted before AO that purchases have also been debited in P&L a/c. Before us also, it was argued that if cess/excise duty/sales-tax, etc. are added into purchases, sales and closing stock then net result would be nil. We, therefore, restore this issue to file of AO to recast trading account after including cess/excise duty/sales-tax in purchases/sales and closing stock (but not in opening stock which shall not be disturbed as discussed above) and work out addition, if any, to total income. Therefore, this issue is allowed for statistical purposes only. 8. Next ground is regarding deduction under s. 80HHC. In this first issue is whether sale of steam and scrap would constitute part of profit and/or turnover. CIT(A) held that sale of steam would not constitute part of profit but sale of scrap would constitute. However, both sale of steam and sale of scrap would constitute part of turnover. We however do not agree. Following is formula to determine deduction under s. 80HHC : (90% of Deduction *Business *Export Export = Export turnover profit + turnover incentives) Total Total turnover turnover This excludes profit on sale of licences acquired from any other person. * For asst. yr. 2001-02, actual deduction would be 80 per cent, for 2002-03 it would be 60 per cent and so on, and no deduction for asst. yr. 2005-06 and any subsequent year. 9 . In above formula, export turnover is fixed as one for which foreign exchange has been received either within six months or within extended period (either by CIT or by RBI). But, concept of business profit and total turnover cannot be looked into from different yardsticks. If business turnover yields profit, it should also form part of business profit. We cannot accept proposition where business transaction is part of turnover, but when it yields profit, such profits would not be part of business profit in formula. Our view finds support from decision in CIT vs. Kantilal Chhotalal (2000) 163 CTR (Bom) 476 : (2000) 246 ITR 439 (Bom). headnotes from that decision are as under : "Sec. 80HHC of IT Act, 1961, has undergone various changes from time to time. Clause (baa) of Explanation to s. 80HHC inserted by Finance (No. 2) Act, 1991, is clarificatory. Memorandum Explaining Provisions has discussed this point in detail. In (1991 ) 190 ITR (St) 300, it has been mentioned that existing formula distorted figure of export profits when receipts like interest, commission, etc. are included in business profits and, therefore, to clarify meaning of business profits for purposes of s. 80HHC, legislature has excluded above items from business profits in formula. Therefore, amendment was clearly intended to remove defect in formula for calculating export profits even before 1st April, 1992. In fact, legislature has clarified that receipts like interest, commission, etc. have no nexus with export activity and by including such receipts in business profits existing formula became unworkable. Hence, by amendment, such receipts were excluded. Reading of cls. (b) and (ba) of Explanation clearly indicates that legislature has brought on par components of export turnover and sale turnover. Both numerator and denominator show that they refer to sale proceeds. Any receipt which does not form part of sale proceeds cannot come within ambit of above ratio. This is also in view of fact that proposition applies to business profits in order to work out export profits. Therefore, numerator and denominator are required to have common element which is sale proceeds. In fact, by proviso in cl. (ba) to Explanation, it is further provided that expression total turnover shall have effect so as to exclude s. 28(iiia), (iiib) and (iiic) which refer to, inter alia, profits on sale of licence granted under Imports (Control) Order, cash assistance, d u t y drawback, etc. This exclusion also shows that legislature clearly intended to exclude all receipts which have no nexus with sale proceeds from export activity. Held accordingly, that for purposes of s. 80HHC total turnover cannot include reassortment charges, labour charges, commission, interest, rent or receipts of similar nature." Thus, we hold that sale of steam will be part of business profit also once it is held by learned CIT(A) that it is part of turnover. In view of this, this issue of assessee is allowed in his favour. 1 0 . Next issue is about insurance claim and sale of ammonia (miscellaneous income) which is not treated as part of business profit. We are of view that both insurance claim and sale of ammonia will form part of business profit as well as total turnover. Any item which does not have element of turnover cannot part of business profit either, as held by Hon ble Bombay High Court in Kantilal Chhotalal s case (supra). In assessee s own case in ITA No. 3689/Mum/2002 for asst. yr. 1998-99, it is held that insurance claim would form part of business profit. Following that decision and decision of Hon ble Bombay High Court in Kantilal Chhotalal s case (supra), we hold that insurance claim would form both part of business profits as well turnover. Similarly, sale of ammonia which is giving rise to miscellaneous income is part of business operation. It will also form part of both business profit as well as total turnover in formula. Thus, this ground of assessee is also allowed as indicated above. 11. third and fourth grounds relate to allowability of deduction under ss. 80HHC and 80-IA together. As per finding given by AO on p. 13 of his order, when assessee has claimed deduction under ss. 80-IA and 80HHC, deduction is not allowable on whole of income on which ss. 80-IA and 80HHC deductions are claimed, therefore, s. 80HHC deduction is not allowed. As business profit after reducing eligible profit is worked out negative, deduction under s. 80HHC is not allowed. However, after considering submissions of assessee, CIT(A) gave following directions to AO : (para 7.6 of AO s order) "By implication, therefore, in case of appellant which has 8 units as well as involved in trading, process of computation of both these deductions together should be as follows : (1) Unit wise profit would have to be calculated in accordance with P&L a/cs maintained separately for each unit. In this exercise, receipts as well as expenses directly attributable to that particular unit only should be included. (2) Consolidation of unit-wise profits would give gross total income of assessee. (3) From this figure to reach total income of assessee, (a) unit wise deduction under s. 80-IA would have to be computed and allowed. (b) result obtained after step (a) above, profit for each unit would have to be consolidated for purposes of calculating total business profit. (4) Adjustments to be made in accordance with provision of s. 80HHC would then have to be made to arrive at export profit eligible for deduction under s. 80HHC. (5) This deduction under s. 80HHC would then be allowed against total income of all units to be taken together calculated net of deduction under s. 80-IA." 12. Against this, contention of learned Authorised Representative for assessee is that sub-s. (9A) of s. 80-IA does not modify working of deduction under s. 80HHC and, therefore, working of deduction under s. 80HHC has to be done independent of any deduction allowed under s. 80-I or s. 80-IA. It is only s. 80A which puts cap over all deductions allowable under Chapter VI-A. 13. According to learned counsel for assessee, Parliament has used different language in different section, to lay out its intention clearly. Wherever legislation wanted to reduce deduction allowed in one section of Chapter VI-A from deduction available under other section of that chapter, then they have so provided. For example, such machinery has been provided in s. 80Q(2) which says that deduction under s. 80Q(1) shall be reduced by deduction under ss. 80HH, 80HHA, 80HHC, 80-I and 80-IA. Similarly, s. 80HHBA was introduced by Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. Sub-s. (4) thereof provided that no part of income payable to assessee for execution of housing project under that sub-section shall qualify for deduction for any assessment year. Furthers s. 80HHF(5) puts restriction to effect that deduction to year. Furthers s. 80HHF(5) puts restriction to effect that deduction to extent allowed under s. 80HHF shall not be allowed in relation to such profits under any other provision of Act. Similar caps are put by ss. 80HHF(5), 80B(5), 80RRB(4) in respective sections to effect that to extent deductions are allowed in these respective sections, no deduction will be allowed under any other section of Act. Sec. 80P(3) provided that gross total income would be reduced by extent deduction is allowed under ss. 80HH, 80HHR, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, 80J and 80JJ, if any, and thereafter deduction under s. 80P would be worked out. As Parliament has used different language to convey its different intentions same intention cannot be imported in s. 80HHC or 80-IA in absence of clear intention of legislature. There is nothing in sub-s. (9A) inserted in s. 80-IA to modify working of deduction under s. 80HHC or to reduce deduction under s. 80HHC by amount of deduction under s. 80-IA. 1 4 . Thus, learned counsel for assessee submitted that authorities below should be directed to work out deduction under s. 80HHC unaffected by deduction granted under s. 80-IA only. Capping is that total deduction under Chapter VI-A shall not exceed gross total income. 1 5 . Against this, learned Departmental Representative submitted that language of s. 80-IA is very clear. Any deduction under s. 80-IA allowed shall not be allowed further to this extent under any other provision to this Chapter (VI-A) under heading C . "Deduction in respect of certain income" and further that in no case exceed profits and gains of such industrial undertaking/hotel. Thus, there are two capping in this sub-section. One is that total deductions under s. 80-IA would not exceed profits and gains of industrial undertaking/hotel and second is that deduction allowed under this section shall not be allowed under any other section, sub Chapter CIT(A) under Chapter VI-A. 16. We have considered rival submissions and material on record. Sub- s. (9A) of s. 80-IA reads as under : "(9A) Where any amount of profits and gains of industrial undertaking or of hotel in case of assessee is claimed and allowed under this section for any assessment year, deduction to extent of such profits and gains shall not be allowed under any other provisions of this Chapter under heading C. Deductions in respect of certain incomes , and shall in no case exceed profits and gains of undertaking or hotel, as case may be." This sub-section was introduced by Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999 to bar double deduction. It covers situation where any amount of profits and gains of industrial undertaking or of hotel, in case of assessee, is claimed and allowed under s. 80-IA for any assessment year, and claim of deduction is also made under another section of Chapter VI-A like 80HHC or 80HH. In such situation deduction to extent of such profits and gains shall not be allowed under any sections of ss. 80HH to 80RR and shall in no case exceed profits and gains of undertaking or hotel, as case may be. Memorandum explaining provisions of Finance Bill reads as under : "Therefore, object of insertion of s. 80-IA(9A), which later became s. 80-IA(9) in present section, was to prevent deductions of more than 10per cent of profits and gains of undertaking by claiming multiple deduction. object of insertion of s. 80-IA(9A) was not to prevent claim of deduction under more than one section, under Chapter VI-A, where assessee satisfies conditions of these sections, but only to ensure that sum total of deductions so claimed by assessee does not exceed profits and gains of undertaking in respect of which deductions are allowable." Thus, there is total capping on claiming deduction from profits and gains of industrial undertaking, which is equal to 10per cent of such profits. While deciding similar issue in ITA Nos. 4472/Mum/2000 and 5289/Mum/2001 in case of Regency Exports (P) Ltd. vs. CIT, Mumbai, Tribunal I Bench, held about implication of sub-s. (9A) of s. 80-IA, vis-a-vis s. 80HHC as under : "It envisages situation where deduction under s. 80-IA is claimed and allowed to eligible industrial undertaking then deduction to that extent shall not be allowed under any other sections of ss. 80HH to 80RRA falling under heading CIT(A) Deduction in respect of certain income . Upper limit of multiple deductions under different sections in heading CIT(A) under Chapter VI-A is total profits and gains of undertaking. Thus, for example, where one industrial undertaking is also exporting, it is entitled to deductions both under s. 80HHC as well as s. 80-IA and where deduction under s. 80-IA is higher than deduction under s. 80HHC, then total deduction under two sections will be limited to deduction under s. 80-IA. On other hand, where deduction under s. 80HHC is higher than deduction under s. 80-IA, then total deductions under two sections will be limited to deduction granted under s. 80HHC. In other words, after allowing one of two deductions under one section, balance would be allowed in other section. If higher of two is already allowed in one section, nothing further will be allowed in other section. But, in no case total deductions under two sections will exceed profits and gains of industrial undertaking." 17. One question arises for consideration is whether amount of deduction allowed under s. 80-IA will be reduced from business profit while working out deduction under s. 80HHC i.e. reduction would be made in business profits applying formula of s. 80HHC as suggested by learned CIT(A), or after applying formula to profits of industrial undertaking, working out deduction under s. 80HHC and then to reduce deduction already allowed under s. 80-IA. In our considered view, and as per language used in s. 80- IA(9A), deduction allowed under s. 80-IA will not be allowed as further deduction under other ss. 80HH to 80RRA. This means that deduction under s. 80HHC will be worked out independently, without reducing business profits by deduction under s. 80-IA, that is, effect of deduction under s. 80-IA will be given after applying formula and working out deduction under s. 80HHC. This is clear from language of s. 80-IA(9A) that "Any amount of profits and gains allowed as deduction under s. 80-IA, shall not be allowed as deduction under other sections (from ss. 80HH to 80RRA)." So, deduction under s. 80HHC has to be calculated independently and then effect of s. 80-IA(9A) has to be given. Where deduction under s. 80HHC is more than deduction under s. 80- IA, figure of deduction under s. 80-IA will be reduced from deduction under s. 80-HHC. balance will be deduction under s. 80HHC. Where deduction under s. 80-IA is more than deduction under s. 80HHC calculated for unit, then no deduction under s. 80HHC will be separately allowed. From this it follows that in case where both deductions are available to assessee, then higher of two will be allowed. 18. upper limit of deductions under ss. 80HH to 80RRA has also been laid down under s. 80-IA(9A). Where it is said that in no case deductions shall exceed profits and gains of undertaking. Thus, in no case deduction under s. 80-IA and other sections from ss. 80HH to 80RRA will exceed 10per cent of profits of undertaking. This issue has also been discussed by Tribunal in Mittal Clothing Co. vs. Dy. CIT (2005) 4 SOT 626 (Bang), wherein it is held as under : "The object of insertion of s. 80-IA(9A), which later became s. 80-IA(9), present section, was to prevent deduction of more than 10per cent of profits and gains of undertaking by claiming multiple deductions. object of insertion of s. 80-IA(9A) was not to prevent claim of deduction under more than one section under Chapter VI-A, where he satisfied conditions of those sections, but only to ensure that sum total of deductions so claimed by assessee does not exceed profits and gains of undertaking in respect of which deductions are allowable." From above, it also follows that deductions under s. 80HHC will have to be calculated unit wise and not for whole of business. Now, last issue in this connection is final capping on deduction under Chapter VI-A. It is covered by s. 80A which reads as under : "80A. Deductions to be made in computing total income. (1) In computing total income of assessee, there shall be allowed from his gross total income, in accordance with and subject to provisions of this Chapter, deductions specified in ss. 80C to 80U. (2) aggregate amount of deductions under this Chapter shall not, in any case, exceed gross total income of assessee. (3) Where, in computing total income of AOP or BOI, any deduction is admissible under s. 80G or s. 80GGA or s. 80HH or s. 80HHA or s. 80HHB or s. 80HHC or s. 80HHD or s. 80-I or s. 80-IA or s. 80J or s. 80JJ, no deduction under same section shall be made in computing total income of member of AOP or BOI in relation to share of such member in income of AOP or BOI." Thus, it is clear from sub-s. (2) that total deductions under Chapter VI-A will not exceed total income computed before giving deduction under Chapter VI-A. Similar decisions have been given by Hon ble Rajasthan High Court in CIT vs. Rochi Ram & Sons (2004) 191 CTR (Raj) 472 : (2004) 271 ITR 444 (Raj); by Hon ble Calcutta High Court in CIT vs. Bhoruka Investments (P) Ltd. (1992) 10 8 CTR (Cal) 344 : (1992) 198 ITR 734 (Cal) and by Hon ble Supreme Court in IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC). As result we hold that : 1. deduction under s. 80-IA or 80HHC will be computed unit-wise and independent of any deduction allowed in any other section of Chapter VI-A. 2. Deductions under s. 80-IA and under any other sections from s. 80HH to 80RRA together will be available to extent of higher of two. 3. Overall deductions in respect of industrial under ss. 80-IA and 80HH t o 80RRA will be limited to 10per cent of profits and gains of that industrial undertaking. 4. In no case, deduction under Chapter VI-A will exceed gross total income before allowing these deductions. Applying above principles, we find that steps at 1, 2 and 3(a) suggested by CIT(A), in para 7.6 of his order and reproduced above are correct. But, for purpose of computing deductions under other sections such as s. 80HHC, no effect of deduction under s. 80-IA will be given but after computing deduction under s. 80HHC, capping will be done as suggested above in our final conclusions. 19. As result, order of CIT(A) is modified as indicated above. Appeal of assessee is allowed partly on this ground. 20. Finally, appeal of assessee is allowed partly. *** J.B. CHEMICALS & PHARMACEUTICALS LTD. v. ADDITIONAL COMMISSIONER OF INCOME TAX
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