O/TAXAP/25/2002 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 25 of 2002 With TAX APPEAL NO. 109 of 2002 With TAX APPEAL NO. 26 of 2002 With TAX APPEAL NO. 110 of 2002 With TAX APPEAL NO. 27 of 2002 With TAX APPEAL NO. 111 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE KS JHAVERI Sd/- and HONOURABLE MR. JUSTICE K.J.THAKER Sd/- 1 Whether Reporters of Local Papers may be allowed to see No judgment ? 2 To be referred to Reporter or not ? No 3 Whether their Lordships wish to see fair copy of No judgment ? 4 Whether this case involves substantial question of law as No to interpretation of Constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to civil judge ? No GUJARAT ALKALIES & CHEMICALS LTD. Appellant(s) Versus Page 1 of 10 O/TAXAP/25/2002 JUDGMENT DY. C.I.T. (ASSTT.) Opponent(s) Appearance: MR JP SHAH, ADVOCATE for Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 10/10/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this Appeal, appellant has challenged judgment and order of Income Tax Appellate Tribunal as per following details :- Tax Appeal ITA No. Assessment Year 25/2002 3182/Ahd/1993 1989 1990 109/2002 3260/Ahd/1993 1989 1990 26/2002 3537/Ahd/1995 1992 1993 110/2002 3666/Ahd/1995 1992 1993 27/2002 4168/Ahd/1996 1993 1994 111/2002 4103/Ahd/1996 1993 1994 2.While admitting matter on 08.03.2002, Court raised following substantial questions of law :- Tax Appeal No.25/2002 with Tax Appeal No.109/2002 (1) Whether lease rent expenses Page 2 of 10 O/TAXAP/25/2002 JUDGMENT of Rs.1,19,85,261=00 in respect of Soda Ash Project was allowable revenue expenditure? (2) Whether eligible income for 80HHC relief is to be reduced by carry forward loss of Rs.7,49,97,152/-, both for purposes of section 143(3) assessment as also for purposes of section 115J? (3) Whether assessee was entitled to carry forward of this year's unabsorbed depreciation of Rs.2,05,11,385/- as same is not set off under section 115J? Tax Appeal No.26/2002 with Tax Appeal No.110/2002 (1) Whether lease rent expenses of Rs.53,17,0301=00 in respect of Soda Ash Project was allowable revenue expenditure? (2) Whether hire purchase charges of Rs.12,51,008/- in respect of Soda Ash Project was allowable revenue expenditure? (3) Whether eligible income for 80HHC relief is to be reduced by carry forward loss for purposes of section 143 (3) assessment? (4) Whether Tribunal was right in law in excluding above income of Rs.1,49,68,875/- from business income computing relief under section 80HHC? Tax Appeal No.27/2002 with Tax Appeal No.111/2002 (1) Whether eligible income for 80HHC relief is to be reduced by carry forward investment allowance? Page 3 of 10 O/TAXAP/25/2002 JUDGMENT (2) Whether Tribunal was right in law in excluding above income of Rs.22,91,640/- from business income for computing relief under section 80HHC? (3) Whether Tribunal erred in not admitting additional ground regarding sales tax and central sales tax for not being part of total turnover for purposes of section 80HHC? (4) Whether Tribunal erred in not excluding on its own excise component in total turnover for purpose of section 80HHC? 3.The case of appellant in all Appeals is that Income Tax Appellate Tribunal has erred in holding that lease rent expenses in respect of Soda Ash Project was capital expenditure and not allowable revenue expenditure and further that Soda Ash Project was not new business but was part and parcel of same business, and therefore, said expenditure was allowable revenue expenditure. appellant's case is that ITAT failed to appreciate distinction between different project and different business, that though Soda Ash Project was different project it was not different business than existing business, and therefore, expenditure was revenue expenditure. Page 4 of 10 O/TAXAP/25/2002 JUDGMENT For above reasons, it is case of appellant that ITAT erred in holding that hire purchase charges in respect of Soda Ash Project was capital expenditure and not allowable revenue expenditure. Further, it is stated that ITAT erred in reducing 80- HHC relief by carried forward loss, both for purposes of section 143(3) assessment also for purposes of section 115J inspite of direct decisions to contrary and also that ITAT sought not to have considered sales tax and excise duty as part of turnover for purposes of section 80HHC relief. 4.Learned Counsel for appellant Mr. J.P. Shah contended that all three issues are squarely covered by decision of this Court in case of Commissioner of Income- Tax v. Nirma Ltd. reported in [2014] 367 ITR 12 (Guj). Relevant part of decision reads as under :- If facts as recorded by Commissioner of Income-Tax (Appeals) and Tribunal can be said to have achieved finality, it would emerge that assessee through its existing administrative mechanism started new facility for production of soda ash and had also set up facility for production of material called lab for its captive consumption for purpose of its existing manufacturing business. It Page 5 of 10 O/TAXAP/25/2002 JUDGMENT is no doubt that assessee is engaged in business of manufacture of soap and soda ash and lab so produced is used by way of captive consumption. When such facts viewed in light of findings of Commissioner of Income-tax (Appeals) and Tribunal, we have no reason to interfere with ultimate conclusion. Had it been case of entirely new project undertaken by assessee as canvassed by Counsel for Revenue, serious question of claim pre-operative expenditure of interest by way of revenue expenditure would arise. However, when authorities below found that it was expansion of existing business, applying tests laid down by this Court in case of Alembic Glass Industries Ltd. (supra) in view of decision of Supreme Court in case of Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC), fact whether borrowing is capital or revenue expenditure would be of no consequence. It is submitted that question about lease rent is covered by above decision. 5.The question about eligibility of income tax is squarely covered against assessee as reflected in decision in case of Mahalaxmi Fabric Mills Ltd. v. Assistant Comissioner of Income-Tax reported in [2009] 309 Income Tax Report 63 (Gujarat), wherein relevant parts of judgment reads as under :- Page 6 of 10 O/TAXAP/25/2002 JUDGMENT learned advocate for appellant Shri Manish J. Shah very fairly invited attention to decisions of apex court in case of Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444 and CIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380 (SC) to submit that controversy is no longer res integra. According to learned advocate, in light of aforesaid two decisions of apex court, question is required to be answered again against appellant-assessee. In case of Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444, apex Court has discussed scheme of Act with reference to provisions of section 80B(5) of Act which defines gross total income . controversy before Court was in relation to working out deductions under sections 80HH and 80-I of Act whether such deductions are allowable before setting off business losses of earlier years or not. Supreme Court has come to conclusion that if resultant figure, after setting off business losses of earlier years, is nil, no deduction under sections 80HH and 80-I can be granted. In case of CIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380, Supreme Court was called upon to determine whether section 80AB of Act can be applied to section 80HHC of Act and whether profits under section 80HHC of Act are required to be computed Page 7 of 10 O/TAXAP/25/2002 JUDGMENT after setting off unabsorbed business losses of earlier years under section 72 of Act. Supreme Court, after referring to its earlier decision in case of IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521, has reiterated as under (page 530) : Section 80AB is also in Chapter VI- A. It starts with words 'where any deduction is required to be made or allowed under section of this Chapter'. This would included section 80HHC. Section 80AB further provides that 'notwithstanding anything contained in that section'. Thus, section 80AB has been given overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provisions of Act. Section 80HHC would thus be governed by section 80AB. decisions of Bombay High Court and Kerala High Court to contrary cannot be said to be correct law. Section 80AB makes it clear that computation of income has to be in accordance with provisions of Act. If income has to be computed in accordance with provisions of Act, then not only profits but also losses have to be taken into consideration. 6.The third issue regarding loss is covered by decision of Hon'ble Apex Court in case of Karnataka Small Scale Industries Development Corporation Ltd. v. Commissioner of Income-tax reported in [2002] 258 ITR 770 Page 8 of 10 O/TAXAP/25/2002 JUDGMENT and which is against assessee. 7.In premise, Tax Appeals No.25/2002 and 109/2002 is partly allowed qua issues No.2 and 3 and hence, both appeals stand disposed of. 8.In Tax Appeal No.26/2002 with Tax Appeal No.110/2002, issues No.1 and 2 will be covered by decision of this Court in Commissioner of Income-Tax (supra). Issues No.3 and 4 are covered against assessee in light of decisions in case of Mahalaxmi Fabric Mills Ltd. (supra) and Karnataka Small Scale Industries Development Corporation Ltd. (supra). However, Issue No.4 is already remanded back by Tribunal and we are not required to answer said question. 9.In Tax Appeal No.27/2002 with Tax Appeal No.111/2002, issues No.1 and 2 is covered by decision of division Bench of this Court in case of Commissioner of Income- Tax-IV v. Shah Alloys Ltd. reported in [2014] 48 Taxmann.com 51 (Gujarat). As far as issue No.2 is concerned, learned Counsel for appellant has submitted that in view of observations made in Paragraph 16 of decision, questions framed will not arise in view of observations made by Page 9 of 10 O/TAXAP/25/2002 JUDGMENT Income Tax Appellate Tribunal. Issues No.3 and 4 are squarely covered by decision of Supreme Court in Karnataka Small Scale Industries Development Corporation Ltd. (supra). Therefore, Issue No.3 and 4 namely Sales Tax and Central as well as Excise is to be avoided from total turnover. Therefore, issues No.3 and 4 are answered in favour of assessee. 10. In premise, all Appeals are partly allowed. Sd/- (K.S. JHAVERI, J.) Sd/- (K.J. THAKER, J) CAROLINE Page 10 of 10 Gujarat Alkalies & Chemicals Ltd. v. Dy. C.I.T. (Asstt.)