VIJAY SOLVEX LTD.

Facts

This is an Income Tax Appeal filed by Vijay Solvex Ltd. (the assessee) against the Commissioner of Income Tax, Alwar (the revenue) concerning assessment year(s) not explicitly stated but implied to be prior to 2004. The appeal challenges an order passed under Section 143(1)(a) of the Income Tax Act, 1961. The core dispute revolves around the computation of deductions under Sections 80HH and 80I. The assessee had claimed these deductions based on profits computed after reducing depreciation allowance. The revenue, through a prima facie adjustment under Section 143(1)(a), disallowed the deduction before current year's depreciation was adjusted. The High Court notes that a similar question was decided against the assessee in a previous appeal (D.B. Income Tax Appeal No.125/2004) decided on 24.02.2015.

Held

The High Court held that the first question regarding the computation of deduction under Sections 80HH and 80I was already decided in favour of the revenue and against the assessee in a previous appeal (D.B. Income Tax Appeal No.125/2004), following an earlier judgment of the same court. Therefore, this question was decided against the assessee. Regarding the second question, the Court found the assessee's argument untenable. It noted that the Assessing Officer, CIT(A), and ITAT had consistently held that deductions under Sections 80HH and 80I were admissible only after adjusting current year's depreciation. The Court found this to be a clear method from a plain reading of the Act and supported by the jurisdictional High Court's decision in CIT Vs. Loonkar Tools Pvt. Ltd. The Court stated that something obvious and clearly spelt out from the statute does not become arguable simply because the assessee's counsel claims it to be so. Therefore, a prima facie adjustment under Section 143(1)(a) was permissible as the method of computation was clear and not debatable. The question of law was decided in favour of the revenue and against the assessee. The appeal was dismissed.

Key Issues

The Tribunal had to decide two substantial questions of law: 1. Whether the "Profits and Gains" of the current year of an eligible undertaking are relevant for computing deduction under Sections 80HH and 80I of the Act, or if the income computed after reducing depreciation allowance under Section 32(1) is relevant for these deductions? 2. Whether a "prima facie adjustment" under Section 143(1)(a) of the Act can be made in respect of the quantum of deduction under Sections 80HH and 80I of the Act when there are more than one arguable methods of computing these deductions? Assessee's arguments: For question 1, the assessee argued that the method of computation adopted was based on decisions of various Tribunals and High Courts, and relied on CBDT Instruction No. 1814 and the Supreme Court judgment in T.S. Balaram ITO Vs. M/s.Volkart Brothers, 80 ITR 50 (SC) to argue that adjustments under Section 143(1)(a) should only be for patent or obvious errors, not debatable ones. For question 2, the assessee contended that since there were conflicting judgments on the interpretation of Sections 80HH & 80I, a prima facie adjustment under Section 143(1)(a) was not applicable, citing Kvaverner John Brown Engg.(India) (P) Ltd. Vs. Assistant Commissioner of Income Tax, (2008) 170 Taxman 304 (SC) and M/s. Vijay Industries Vs. Commissioner of Income Tax (Civil Appeal Nos.1581-1582 of 2005). Revenue's arguments: The revenue argued that the deduction under Sections 80HH and 80I was admissible only after adjustment of current year's depreciation, and this was not a debatable issue. They relied on the jurisdictional High Court's decision in CIT Vs. Loonkar Tools Pvt. Ltd., (1995) 213 ITR 721.