M/S. VENKATESWARA HOSPITALS,,CHENNAI vs. ACIT, NCC - 2 (1),, CHENNAI

The order of the Commissioner of Income Tax (Appeals) -2, Chennai dated 31.07.2019 in I.T.A.No.7-/CIT(A)-2/2018-19 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the Case.

In an intimation issued by Centralized Processing Center (CPC) to the assessee u/s 143(1), the deduction of Rs.27.58 as claimed by the assessee u/s 80-IA was denied. This was apparently due to the fact that there was a business loss to the assessee from hospital and one wind- mill unit but profits from eligible windmill-unit which was eligible business 3 - u/s 80-IA. During appellate proceedings, the assessee submitted that such adjustment could not be denied u/s 143(1). However, the same was rejected by Ld. CIT(A) on the ground that deduction u/s 80-IA could be denied in case of belated return and in case of incorrect claim also. The Ld. CIT(A) concurred with assessee’s submissions that the return was filed within extended due date.

On merits, the assessee relied on the decision of Hon’ble Supreme Court in CIT V/s Yokogawa India Ltd. (391 ITR 274) as well as the decision of Hon’ble High Court of Madras in Sundaram Fasteners Ltd V/s CIT (TCA No.408 of 2009; 18.06.2019) for the argument that the profits from an eligible undertaking u/s 80-IA could not be set-off against other business losses. The attention was drawn to sub-section (5) of 80- IA which provide that the profits of eligible business need to be computed as if such eligible business were the only source of income of the assessee. However, both these case laws were held to be not applicable to the case of the assessee. Rather the decision of Hon’ble Supreme Court in Synco Industries Ltd. (299 ITR 444) was relied upon to conclude that the gross total income was to be determined after adjusting the losses. If gross total income was ‘nil’, the assessee would not be entitled for deduction under Chapter-VI-A. Since the assessee had net loss from business for Rs.51.53 Lacs, the said deduction was rightly denied. Aggrieved the assessee is in further appeal before us.

The Ld. AR has submitted that the issue of deduction u/s 80-IA being debatable one, could not be denied in an intimation u/s. 143(1) of the Act. However, in this regard, we concur with the findings of Ld. CIT(A) that such deduction could be denied to the assessee in case of 4 - belated return and in case of incorrect claim also. The plea raised by Ld. AR stand rejected.

On merit, the Ld. AR has submitted that the assessee’s gross total income was not ‘Nil’ and therefore, the deduction could not be denied to the assessee as per the decision of Hon’ble Madras High Court in the case of M/s. Sundaram Fasteners Ltd vs CIT (TCA No. 408 of 2009 dated 18-06-2019). A copy of the decision has been placed on record. It has been submitted that this decision considers the decision of Synco Industries Ltd. (299 ITR 444) as relied upon by Ld. CIT(A) in denying the claim.

We find that the assessee’s has incurred net business loss of Rs.51.53 Lacs. The eligible unit has earned profit of Rs.27.58 Lacs whereas the other businesses have earned losses. The assessee has earned capital gains also for Rs.248.55 Lacs and accordingly, the net business loss of Rs.51.53 Lacs has been adjusted as per the provisions of the Act. Thus, the gross total income turns out to be Rs.197.02 Lacs against which the assessee has claimed deduction u/s 80-IA. Thus, quite clearly, it is not the case where the gross total income of the assessee has become ‘nil’ rather the assessee has positive gross total income. This being the case, the case law of Hon’ble Madras High Court in M/s. Sundaram Fasteners Ltd vs CIT (TCA No. 408 of 2009 dated 18-06- 2019) would apply. This case law has already considered the decision of Synco Industries Ltd. (299 ITR 444) as relied upon by Ld. CIT(A) in denying the claim. The adjudication of Hon’ble Court was as under: - 6. Identical issue came up for consideration before High Court of Delhi in the case of The Commissioner of Income Tax III Vs. Sona Koyo Steering Systems Limited in I.T.A.No.1279/2008 dated 10.02.2010, the Court after taking into consideration the decision in the case of Synco Industries Ltd., (Supra) and the decision in the case of Commissioner Income Tax Vs. Kotagiri Industrial Co- operative Tea Factory Ltd., reported in 224 ITR 605 held as follows: “From the above extract, it is apparent that the Supreme Court did not at all hold that while computing the deduction under Section 80-I(6), the loss of one eligible industrial undertaking is to be set off against the profit of another eligible industrial undertaking. All that the Supreme Court said was that in computing the gross total income of the assessee, the same has to be determined after adjusting the losses and that, if the gross total income of the so determined turns out to be 'Nil', then the assessee would not be entitled to deduction under Chapter VI-A of the said Act.”

The above referred decision is a clear answer to the case of the Revenue before us. To be noted that the Assessing Officer failed to consider that the gross total income of the assessee before deduction was Rs.78,90,64,628/-, whereas in the case of Synco Industries Ltd., (Supra) as noted by Hon'ble Supreme Court, the factual position was different. In the said case, the Assessing Officer, noticed that the gross total income of assessee therein before deductions under Section 80 IB is nil.

Therefore, in our considered view, the Tribunal was right in reversing the order passed by Commissioner of Income Tax (Appeals). Therefore, the appeal filed by the assessee is allowed and the order passed by the Tribunal dated 17.12.2008 is set aside and the order of Commissioner of Income Tax (Appeals) is restored and the substantial questions of law are answered in favour of the assessee.