M/S. BRIGADE ENTERPRISES LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 2(3), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.2364/Bang/2019 Assessment Year : 2013-14 M/s. Brigade Enterprises Ltd., 26/1, 30th Floor WTC, The Dy. Commissioner of Dr. Rajkumar Road, Income-tax, Malleshwaram, Circle-2(3), Rajajinagar, Bengaluru. Vs. Bengaluru-560 100. PAN – AAACB 7459 F APPELLANT RESPONDENT Assessee by : Shri P.C Kincha, C.A Revenue by : Ms. Neera Malhotra, CIT(DR) Date of Hearing : 20-07-2021 Date of Pronouncement : 11-10-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 30/08/2019 passed by the Ld.CIT(A)-11, Bangalore for assessment year 2013-14 on following grounds of appeal: “1. General Ground 1.1. The order passed by the learned Commissioner of Income Tax (Appeals) ["CIT(A) for short hereinafter"] to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2. Disallowance under section 14A r.w. Rule 8D 2.1. The learned Deputy Commissioner of Income Tax Central Circle - 2(3), Bangalore ["AO" for short hereinafter] has erred in making a disallowance of Rs. 2,02,22,837/- under se tion 14A comprising of disallowa,,Ø-1s. 1,73,98,969/- under Rule 8D(2)(ii) and Rs. 28,23,868/- under Rule 8D(2)(iii) and the learned CIT(A) has erred in confirming the said disallowance.

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2.2. The learned CIT(A) has erred in rejecting the claim of the appellant on the basis of conjectures and surmise that there were some expenses incurred in relation to exempt income. 2.3. The learned CIT(A) has erred in not appreciating the submissions made by the appellant with regard to non-incurrence of expenditure in managing the exempted investments. 2.4. On facts and circumstances of the case and law applicable, disallowance amounting to Rs. 2,02,22,837/- is to be deleted. 3. Disallowance under section 36(1)(iii) 3.1. The learned AO has erred in making a disallowance of indirect proportional interest amounting to Rs. 5,32,41,623/- claimed as a deduction under section 36(l)(iii) and the learned CIT(A) has erred in confirming the said disallowance. 3.2. The learned CIT(A) has erred in not appreciating that the appellant has advanced amounts to sister concerns who are also engaged in the same business as the appellant for the purposes of commercial expediency. 3.3. The learned CIT(A) has erred in not appreciating the fact that the acquisition of land and formation of Joint Development Agreements for carrying out specific projects is the main business of the appellant. 3.4. On facts and circumstances of the case and law applicable, interest expenditure amounting to Rs. 5,32,41.623/- is to be allowed as claimed in the return of income. 4. Disallowance under section 35D 4.1. The learned AO has erred in making a disallowance of Rs. 13,20,000/- claimed as a deduction under section 35D and the leaned CIT(A) has erred in confirming the said disallowance. 4.2. The learned AO and CIT(A) has erred in not appreciating the fact that expenditure incurred towards initial public offer is eligible for deduction under section 35D. 4.3. The learned CIT(A) has erred in concluding that expenses incurred towards initial public offer is outside the ambit of section 35D as specific expenses fall within its ambit. 4.4. On facts and circumstances of the case and law applicable, expenditure incurred towards initial public offer amounting to Rs. 13,20,000/- is to be allowed as claimed in the return of income. 5. Disallowance of deduction under section 80-lB 5.1. The learned AO has erred in making a disallowance of Rs. 1,00,17,863/- claimed as a deduction under section 80-lB and the learned CIT(A) has erred in confirming the said disallowance. 5.2. On facts and circumstances of the case and law applicable, deduction amounting to Rs. 1,00,17,863/- is to be allowed as claimed in the return of income.

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16/03/2016 calling upon assessee to explain the allowability of deduction on those projects that had resulted in loss as per the project completion method that is by the end of the project tenure under section 80IA(15). 2.1 The Ld.AO observed that, assessee reported income of Rs.19.95 crore under profit and gains from business, which consisted income/loss of all the projects, eligible as well as normal projects undertaken by assessee. 2.2 The Ld.AO was of the opinion that, assessee was eligible for deduction under section 80IB(10) only to the extent of Rs.19,95,90,524/-, as against claim of assessee at Rs.29,03,88,814/-. The Ld.AO however discounted the ineligible claims disallowed at Rs.1,00,17,860/- and computed the disallowance under section 80IB(10) at Rs.8,07,80,427/-. 2.3 The Ld.AO further observed that assessee has claimed 1/5th of expenses incurred towards increase in authorised share capital amounting to Rs.13,20,000/- as deduction under section 35D of the act. The Ld.AO called upon assessee to explain why the same should be allowed as an admissible expenditure. He placed reliance on decision of Hon’ble Supreme Court in case of Punjab State Industrial Development Corporation Ltd. vs CIT reported in (1997) 225 ITR 792 and Broke Bond India Ltd. vs CIT reported in (1997) 225 ITR 178. 2.4 The assessee submitted that these expenses were incurred for raising the public issue 1st time which was raised in financial year 2007-8 pertaining to assessment year 2008-09 and the same is rightly claimed by assessee company. Assessee relied on

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the decision of CIT vs Multi-Metals Ltd., reported in 188 ITR 151 in support of its claim. 2.5 The Ld.AO rejected the submissions advanced by assessee and disallowed the claim of Rs.13,20,000/- by placing reliance on the decision of Hon’ble Supreme Court in case of Bond India Ltd. (supra). 2.6 The Ld.AO further observed that during the year under consideration assessee has made certain nonbusiness advances as well as capital advances to sister concern for purchase of properties amounting to Rs.3,05,66,25,039/-. 2.7 The Ld.AO was of the opinion that nexus has not been established between the advancing of funds in the business interest of the assessee. The Ld.AO disallowed the interest under section 36(1)(iii) of the act at Rs.5,32,41,623/- for lack of commercial expediency. 2.8 The Ld.AO during the assessment proceedings observed that assessee has received dividend of Rs.12,95,000/- that was claimed exempt under section 10(35) of the act. Assessee however had not disallowed any amount as expenditure attributable to the earning of exempt income. Ld.AO accordingly computed disallowance under Rule 8D(ii)(iii) amounting to Rs.2,02,22,837/- 2.9 Aggrieved by the additions made by the Ld.AO, assessee preferred appeal before the Ld.CIT(A). 2.10 The Ld.CIT(A) sustained the addition made under section 14A read with Rule 8D, disallowance of the expenses incurred towards initial public offer as not eligible under section 35D of

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the act and the disallowance made under section 80IB(10) of the act, by the Ld.AO. 2.11 Aggrieved by the additions made by the Ld.AO assessee is in appeal before us now. 2.12 The Ld.AR submitted that, Ground No.1 is general in nature and therefore do not require any adjudication. 3. Ground No.2 is in respect of disallowance under section 14A read with Rule 8D of the rules 1961. 3.1 Before us, Ld.AR submitted that the investment for relevant year was only 32.67 crores. He submitted that, total assets of assessee for year under consideration was Rs.2,752.36 crores. He submitted that the share capital, reserve and surplus an advance from customers was to the extent of Rs.1,327.56 crores. He submitted that, the assessee had sufficient money of its own for making all the investments. It has been thus argued by the Ld.AR that no disallowance could be made under Rule 8D(ii) of the Act. Insofar as applicability of Rule 8D(iii) of the Act is concerned Ld.AR submitted that the disallowance at the most could be restricted to 0.5% of the investments that has yielded dividend income. In support of he had placed reliance on the decision of Hon’ble Karnataka High Court in assessee’s own case for assessment year 2009-10 in ITA No.373 of 2014 by order dated 22/10/2020 as well as decision of Hon’ble Bombay High Court in case and CIT vs Reliance Utilities and Power Ltd. reported in 313 ITR 340. 3.2 On the contrary, Ld.CIT.DR placed reliance on orders passed by authorities below.

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3.3 We have perused submissions advanced by both sides in light of records placed before us. 3.4 It has been submitted that identical issue for assessment years 2009-10 before Hon’ble Karnataka High Court in assessee’s own case on identical facts observed as under: “11. The 'CIT VS RELIANCE UTILITIES AND POWER LTD', .313 ITR 340 (Born), the Bombay High Court has held that where interest free funds exceed the value of investments, it can safely be inferred that investments have been made out of interest free funds and no disallowance under Section 14A towards any interest expenditure can be made. Similar view was taken in CIT VS. HDFC BANK LTD., 366 ITR 505 (Born). The aforesaid decisions were followed by a bench cf this court in 'PRINCIPAL COMMISSINOEI? OF INCOME TAX AND ANOTHER VS. GOLDMEN SACHS SERVICES P. LTD.':, 409 ITR 258 (KARN) In the light of the aforesaid legal position, we may advert to the findings recorded by the Commissioner of Income Tax (Appeals). In par 4.5, the Commissioner of Income Tax (Appeals) has held that there is no material on record to show that overdraft amount has directly been used for tax exempt investments. It has also noted that in fact, tax free investmentshave come down to Rs 34,78,31,00/- as on 31 03 2009 from Rs.405,21,54,000/- as on 31.03.2008. On perusal of the balance sheet the finding has been recorded that assessee has received an amount of Rs.146.52 Crores as advances from customers, which are interest free and the reserves and surpluses are to the tune of Rs.882,67 Crores. Thus, it has been held that all the aforesaid amounts are interest free funds and are sufficient to make tax free investments and therefore, the finding o the Assessing Officer that overdraft facility was directly used for making tax exempt investments have been reversed. The tribunal has affirmed the aforesaid finding in para 8.4.3 of its order. Thus, concurrent findings of fact have been recorded on the aforesaid issue, which could not be demonstrated to be perverse. Therefore, no interference is called with the aforesaid concurrent findings of fact in this appeal under Section 260A of the Act. [SEE: SYEDA RA HIMUNNISA VS. MA LA N BI BY L.RS.AND ORS. (2016)10 SCC 315 and PRINCIPAL COMMISSIONER OF INCOME TAX, BANGAL ORE & ORS VS. SOFTBRANDS INDIA P. LTD., (2018) 406 ITR 513].” 3.5 We are in agitation with the contention of the ld. AR. However, assessee should prove the availability of interest free funds to make such investments by filing necessary cash flow statements on the date of investment in view of para 7 of the

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decision by the Hon’ble Supreme Court in the case of Reliance Industries Ltd., reported in (2019) 102 taxmann.com 52/307 CTR 121. 3.6 Respectfully following the same, we direct the Ld.AO to carry out necessary verification based on the documents filed by assessee in accordance with law. 3.7 For disallowance under section Rule 8D(iii) needs to be computed as assessee has not even disallowed suo moto expenditure that could be attributable to earning of such income. In our view it would be fair enough to restrict the disallowance at 0.5% of investment that yielded dividend income. Ld.AO is directed to compute the disallowance under Rule 8D (iii) as directed here in above. Accordingly this ground raised by assessee stands partly allowed. 4. Ground No.3 is in respect of disallowance of proportionate interest under section 36 (1) (iii) of the Act. 4.1 It has been submitted by the Ld.AR that the advances were given to the sister concern due to commercial expediency who also engaged in the same business as that of assessee. He submitted that this issue also stands covered by the decision of Hon’ble Karnataka High Court for assessment year 2009-10 (supra). He placed reliance on the decision of Hon’ble Supreme Court in case of Munjal sales Corporation vs CIT reported in (2008) 168 Taxmann.43. 4.2 On the contrary, Ld.CIT.DR placed reliance on orders passed by authorities below.

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4.3 We have perused submissions advanced by both sides in light of records placed before us. 4.4 We note that the Ld.AO disallowed interest expenditure incurred on bank overdraft and interest payable to financial institutions amounting to Rs.5,32,41,623/- under section 36(1)(iii) of the Act. The Ld.AR submitted that the sister concerns of assessee are also engaged in similar businesses that of assessee and that they have acquired land for joint development to carry out specific projects of the main business. It was submitted by the Ld.AR that, assessee had sufficient own funds to advance loan to its sister concern. 4.5 The language of section 36(1)(iii) of the Act is very clear and unambiguous. As per the section any amount paid as interest in respect of capital borrowed “for the purpose of business” is allowable. The Ld. AR relied on the judgment of the Supreme Court in the case of S.A. Builders v. CIT (2007) 158 Taxman 74 and submitted that money has been advanced to the sister concerns on account of commercial expediency and it is to be allowed. Further, the Ld.AR relied on the judgment of the Supreme Court in the case of Munjal Sales Corporation v. CIT (2008) (Supra) wherein it was held as follows: "Under the Income-tax Act, 1961, after amendment of the Act by the Finance Act, 1992 in order that interest paid on borrowings can be allowed as a deduction in computing the business profits, every assessee, including a firm, has to establish, in the first instance, that it was allowable under section 36(1)(iii); and in the case of a firm, further that the amount does not exceed the limit fixed by section 40(b)(iv). 4.6 The audited accounts filed by assessee revealed that there were sufficient funds with assessee as on 31/03/2013. The

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argument that assessee had sufficient own funds cannot be the only reason to allow the claim of assessee. And we also note that, when assessee had sufficient funds, why should it depend on borrowed funds. In any case, if at a given point of time assessee has own funds and they have advanced it as interest-free loans to sister concerns for meeting their business needs, in which assessee also has an interest, then such advances should not lead to disallowance of interest paid on borrowings. In other words, unless the assesses establishes with cash flow statements about availability of its own funds at the time of making the interest-free advances. 4.7 For this reason a cash flow statement needs to be verified for the period under consideration. We therefore remit this issue back to Ld.AO for due verification. Assessee is directed to file the cash flow statement during the period under consideration which shall be verified by the Ld.AO in accordance with law. In the event it is found that at a given point of time when assessee had advanced monies to its sister concern sufficient funds were available no disallowance is to be made in respect of interest paid on borrowed funds by assessee. 4.8 Accordingly this ground raised by assessee stands allowed for statistical purposes. 5. Ground no.4 is against disallowance under section 35D 5.1 The Ld.AR submitted that Ld.AO disallowed 1/5TH of the total expenditure incurred towards initial public offer at the time of conversion of Brigade Enterprises Pvt.Ltd., to Brigade Enterprises Ltd., treating it to be not eligible under section 35D

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of the Act. The Ld.AR relied on decision of Hon’ble Supreme Court in case of Shasun Chemicals & Drugs Ltd. vs CIT reported in (2016) 73 Taxmann.com 239 he submitted that this year is the 1st year of claim and that earlier years assessing officer has not disputed the expenses claimed under section 35D of the act.. On the contrary the Ld. CIT DR placed reliance on orders passed by authorities below. 5.2 We have perused submissions advanced by both sides in light of records placed before us. 5.3 Section 35D of the Act is clear to state that an expenditure that is incurred for expansion or extension of the undertaking shall be allowed in proportionate manner for a period of 10 years. In the present facts of the case, the expenses claimed by assessee is 1/5 of total expenses which has been amortised over a period of time. These expenses were incurred by assessee during financial year 2008-09 towards converting Brigade Enterprises Pvt.Ltd., to Brigade Enterprises Ltd., that is conversion of private limited company into public limited company. 5.4 Authorities below have rejected the claim of assessee by following the decision of Hon’ble Supreme Court in case of Brooke Bond India Ltd. (supra). We note that in the said case it was also held that the expenditure incurred on public issue for the purpose of expansion of the companies are to be treated as capital expenditure. However by virtue of the provision of section 35D of the Act, amortisation of such capital expenditure is allowable.

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5.5 We note that in the preceding four assessment years, the Ld.AO did not disallow the expenses under section 35D. As the nature of expenditure is not disputed by the Ld.AO, and that the section allows amortisation of such expenses that have been incurred towards expansion/extension of the undertaking, it could not be denied in the subsequent period also. Accordingly this ground raised by assessee stands allowed. 6. Ground No.5-6 is in respect of disallowance of deduction claimed under section 80 IB of the Act. 6.1 Following two issues arises from these grounds: Issue (a) Whether loss of one eligible undertaking is to be set off against the profits of another eligible undertaking? Issue (b) Whether the deduction claimed can be only against the business profits or can it be against the other heads of income? 6.2 The Ld.AR submitted that assessee follows percentage completion method consistently that is in conformity with the accounting standard. During the year under consideration assessee claimed deduction of Rs.29,03,88,814/- under section 80 IB of the Act and the project wise detail are as under:

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6.3 The Ld.AR relied on page 159 wherein the period during which the project started and the last claim has been tabulated as under:

6.4 It was submitted by the Ld.AR that all these above projects satisfies following conditions: 1. That it is an undertaking carrying on with activities of developing and building houses; 2. That the construction of the projects are approved by the local authorities prior to 31/03/2008 and after 31/03/2005; 3. That the aforestated housing projects were completed within the period of 5 years from the date of approval; and 4. The area of all the units is less than 1500 ft.²

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6.5 It has been submitted that the Ld. AO did not allow the set off of losses incurred by assessee from some of the approved projects before arriving at the gross total income. The Ld.AR placed reliance on the direct tax instruction No. 4 dated 30/06/2019 and the CBDT extract of circular No. 1 of 2011 dated 06/04/2011 in support of his contention. He also placed reliance on the decision of coordinate bench of this Tribunal in case of ACIT vs Sterling developers Pvt. Ltd. reported in (2013) 32 Taxmann.com 16. He also placed reliance on the decision of Hon’ble Karnataka High Court in case of CIT vs Anil.H.Lad reported in (2014) 45 taxmann.com 98. 6.6 On the contrary, the Ld.DR submitted that the projects that earned loss cannot be considered along with those which had earned profits. He submitted that the set off of loss as argued by the Ld.AR would give double benefit to assessee he emphasised on the phrase eligible business under section 80IA(5) of the Act to mean the undertaking that has earned the profits during the relevant period. He also submitted that sub section 13 of 80IB emphasises that subsection 5 to section 80IA shall apply, “so far as may be to the eligible business” under section 80 IB of the Act. We have perused submissions advanced by both sides in light of records placed before us. 6.7 We have considered the submissions advanced by the Ld.Sr.DR in consonance with the relevant provisions applicable for the year under consideration. It is the argument of the 6.8 Ld.CIT.DR that as contemplated under section 80IA(5) of the Act, income from eligible business is to be treated as a single

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source of income for purpose of computing deduction u/s. 80IB and loss from eligible business could not be set-off against business income from other business in view of provision of section 80IA(5). Our attention was been drawn to page 536 of paper book, wherein an identical issue is considered by coordinate bench of this Tribunal in ACIT vs Sterling Developers Pvt Ltd (supra). The relevant extract of the decision that dealt with the similar objections raised by the Ld. DR is as under: “5.3.1 We have heard both parties and have carefully perused and considered the material on record. At the outset it must be mentioned here that the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) was concerned with not withstanding anything contained in any other provisions of Section 80-I(6) of the Act, as it existed at that relevant point of time and the same is extracted hereunder for clarity : "Section 80-I(6) - Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking on a ship or the business of a hotel (or the business of repairs to ocean going vessels or other powered craft) to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or business of the hotel (or the business of repairs to ocean going vessels or other powered craft) were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made." Let us also peruse and consider the provisions of section 80-IA(5) of the Act which is relied on by the Assessing Officer which is also extracted hereunder : "Section 80-IA(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

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up to and including the assessment year for which the determination is to be made." 5.3.2 From a perusal and comparison of both these provisions, namely sections 80-I(6) and 80-IA(5) of the Act, it is seen that the provisions of section 80-IA(5) of the Act, it is seen that the provisions of section 80- IA(5) of the Act are couched in similar language to the erstwhile provisions of section 80I(6) of the Act. In other words, the restriction contemplated under section 80I(6) of the Act, is the same as the restriction contemplated under section 80-IA(5) of the Act. It is in this context that the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) held after an elaborate analysis of the provisions at paras 12 and 13 of its order which are extracted and reproduced hereunder : "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 deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words "includes any profits" used by the legislature in section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. 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 only source of income in order to arrive at the deduction under Chapter VI-A. However, this court finds that the non obstante clause appearing in section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions

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of section 80A(2) of the Act nugatory and therefore the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier section 80-I(6) deals with actual computation of deduction whereas section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and therefore while interpreting section 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." 5.3.3 The above decision of the Hon'ble Apex Court squarely supports the case of the assessee that the provisions of section 80 IA(5) of the Act would not restrict the operation of the provisions of section 70(1) of the Act with respect to the set off of the loss. The operation of the provision of section 80 IA(5) of the Act is restricted to the computation of the quantum of deduction for which it has to be considered that the eligible business is the only source of income. That restriction, however, cannot be applied to render the concept of gross total income in terms of section 80B(5) to be determined before the set off of the losses under section 70(1) of the Act. We are, therefore, of the view that the learned CIT (Appeals) has rightly applied the decision of the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) and that there is no merit in the plea of revenue that the said judgment is not applicable to the facts of the present case of the assessee. 5.3.4 That apart, the learned counsel for the assessee has rightly contended that the provisions of section 80IA(5) of the Act applies in computing the profits of an eligible business for the purposes of working out the quantum of deduction for the initial assessment year and for every subsequent year thereafter. The incentive deductions

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both under section 80 IA and 80 IB of the Act have the concept of initial assessment year in respect of almost all eligible business. However, with respect to the eligible business to which the provisions of section 80IB(10) of the Act apply, there is no concept of "initial assessment year." The deduction is granted to undertakings engaged in the business of developing and building housing projects on certain conditions being fulfilled. The provisions of section 80IB(13) of the Act, that makes the provisions of section 80IA(5) applicable to section 80 IB also, applies only 'so far as may be'. Thus, by virtue of the fact that there is no concept of initial assessment year under section 80IB(10) of the Act, we are also of the view that the provisions of section 80IA(5) of the Act would not be applicable to the deduction claimed under section 80IB(10) of the Act. From this angle of the matter also, we find no merit in the view taken by revenue.” 6.8.1 In the present case, the assessee returned positive income for the assessment year under consideration. By necessary implication, gross total income before the deduction claimed under chapter VIA, is been positive. So, the only question that remain is, when the gross total income is positive, the deduction u/s. 80IA can be worked out independently without setting off of losses of other eligible units. This question stands already answered by the Hon’ble Madras High Court in the case of Chamundi Textiles (Silk Mills) Ltd. Vs. CIT, reported in 341 ITR 488. The question considered by the Hon’ble Court was regarding claim of deduction u/s. 80HHC, and whether such deduction could be allowed without considering the result of a unit, which was not having profits. Their Lordships relying on decision of the Hon’ble Supreme Court in the case of IPCA Laboratories Ltd. Vs. CIT, reported in 266 ITR 521(SC), held that only an assessee having positive profits from eligible undertaking could claim such deduction. Their Lordships also held that, for arriving at such profit, income from various units had to be calculated, and if one of the unit was running at loss, gross total

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income had to be arrived at considering such loss also. In the present case, the table extracted at page 14 of this order shows that there were loss in certain eligible units. However, the gross total income computed after setting off losses from eligible units was positive, amounting to Rs. 29,03,88,814/-. In our view, the computation of gross total income in respect of the eligible units u/s. 80IB in the present facts of the case is to be consonance with the above principles approved by the Hon’ble Supreme Court in the case of IPCA Laboratories Ltd. Vs. CIT (supra). 6.9. Respectfully following the same, we direct the Ld.AO to compute the profits under the head ‘business income’ from eligible undertaking by netting of the losses earned by assessee from other eligible undertaking for determining the deduction to be computed under section 80IB(10) of the act. Accordingly this issue is decided against assessee. 6.10. Issue(b): It is argued by the Ld.AR that, while computing “total income”, deduction is available under section 80IA/80IB is to be set off against the gross total income. He placed reliance on decision of Hon’ble Supreme Court in case of CIT vs Reliance Energy Ltd. reported in (2012) 127 Taxmann.com 69. On the contrary, the Ld.CIT.DR argued that it is only the profits under the head ‘business income’ from eligible undertaking that has to be taken into account for purposes of determining the deduction available under section 80IA/80IB of the Act. 6.11. We have perused the submissions advanced by both sides in the light of the records placed before us.

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We note that Hon’ble Supreme Court in recent decision in case of CIT vs Reliance Energy Ltd. (supra) held as under: “12. The import of Section 80-IA is that the 'total income' of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the 'eligible business'. With respect to the facts of this Appeal, there is no dispute that the deduction quantified under section 80-IA is Rs. 492,78,60,973/-. To make it clear, the said amount represents the net profit made by the Assessee from the 'eligible business' covered under sub-section (4), i.e., from the Assessee's business unit involved in generation of power. The claim of the Assessee is that in computing its 'total income', deductions available to it have to be set-of against the 'gross total income', while the Revenue contends that it is only the 'business income' which has to be taken into account for the purpose of setting- off the deductions under sections 80-IA and 80-IB of the Act. To illustrate, the 'gross total income' of the Assessee for the assessment year 2002-03 is less than the quantum of deduction determined under section 80-IA of the Act. The Assessee contends that income from all other heads including 'income from other sources', in addition to 'business income', have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of 'gross total income'. The Appellate Authority was of the view that there is no limitation on deduction admissible under section 80-IA of the Act to income under the head 'business' only, with which we agree. 13. The other contention of the Revenue is that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from 'eligible business' by taking it as the only source of income. It is contended that the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from 'eligible business' which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the 'business income'. On the other hand, it is the case of the Assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the 'eligible business' as the only source of income. It was submitted by Mr. Vohra, learned Senior Counsel, that the final computation of deduction under section 80-IA for the assessment year 2002-03 as accepted by the Assessing Officer, was arrived at by taking into account the profits from the 'eligible business' as the 'only source of income'. He submitted that, however, sub-section (5) is a step antecedent to the treatment to be given to the deduction under sub-section (1) and is not concerned with the extent to which the computed deduction be allowed. To explain the interplay between sub-section (5) and sub-section (1) of Section 80-IA, it will be useful to refer to the facts of this Appeal. The amount of deduction from the 'eligible business' computed under section 80-IA for the assessment year 2002-03 is Rs. 492,78,60,973/-. There is no

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dispute that the said amount represents income from the 'eligible business' under section 80-IA and is the only source of income for the purposes of computing deduction under section 80-IA. The question that arises further with reference to allowing the deduction so computed to arrive at the 'total income' of the Assessee cannot be determined by resorting to interpretation of sub-section (5). 14. It will be useful to refer to the judgment of this Court relied upon by the Revenue as well as the Assessee. In Synco Industries (supra), this Court was concerned with Section 80-I of the Act. Section 80-I(6), which is in pari materia to section 80-IA(5), is as follows: "80-I(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of 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 the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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." It was held in Synco Industries (supra) that for the purpose of calculating the deduction under section 80-I, loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking shall be taken into account as it was the only source of income. Further, the Court concluded that Section 80-I(6) of the Act dealt with actual computation of deduction whereas Section 80-I(1) of the Act dealt with the treatment to be given to such deductions in order to arrive at the total income of the assessee. The Assessee also relied on the judgment of this Court in Canara Workshops (P.) Ltd. (supra) to emphasize the purpose of sub-section (5) of Section 80-IA. In this case, the question that arose for consideration before this Court related to computation of the profits for the purpose of deduction under section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80- E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. This Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit

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under section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. 15. In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it has a bearing on the interpretation of sub-section (1) of Section 80-IA of the Act. We hold that the scope of sub-section (5) of Section 80-IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating 'eligible business' as the 'only source of income'. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to 'business income'. An attempt was made by the learned Senior Counsel for the Revenue to rely on the phrase 'derived … from' in Section 80-IA (1) of the Act in respect of his submission that the intention of the legislature was to give the narrowest possible construction to deduction admissible under this sub-section. It is not necessary for us to deal with this submission in view of the findings recorded above. For the aforementioned reasons, the Appeal is dismissed qua the issue of the extent of deduction under Section 80-IA of the Act” The ratio of Hon’ble Supreme Court could be explained with following illustration: Income Under the Head Business & Profession: Unit A( Eligible undertaking) Rs.100 Unit B ( Not Eligible) (Rs.50) Rs.50 Income from Other sources Rs.20 Gross Total Income Rs.70 Computation of deduction under section 80IA Eligible Amount Rs.100 Restricted to GTI Rs.70 Computation of deduction from eligible undertaking as computed hereinabove is what has been upheld by Hon’ble Supreme Court. 6.12. Thus if the gross total income was loss, deduction u/s. 80IA/IB was to be rejected. Section 80IA/IB for that matter, are controlled by 80AB of the Act. Gross total income means gross total income computed as per the provisions of the Act. This was clearly interpreted by the Hon’ble Supreme Court in the case of Synco Industries Ltd. Vs. AO (supra) and it was held that gross total income had to be arrived at after making deduction as per

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appropriate computation provisions including income u/s. 60 to 64, adjustment of interest losses and after setting off of brought forward losses and unabsorbed depreciation. Only if resultant gross total income is positive the assessee was entitled for deduction under chapter VIA of the Act. Same proposition is upheld by the Hon’ble Supreme Court in the case of Reliance Energy Ltd. (supra). Respectfully following the ratio laid down by Hon’ble Supreme Court, we remand this issue back to the Ld.AO to recompute the deduction under section 80IB(10) of the Act, on the principles laid down in case of Reliance Energy Ltd. (supra), as explained hereinabove. Accordingly, this ground raised by assessee stands partly allowed. In the result appeal filed by assessee stands partly allowed. Order pronounced in the open court on 11th October, 2021

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 11th Oct., 2021. /Vms/

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Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.