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Facts
The assessee, a partnership firm, declared Nil income after a deduction of Rs. 2,49,74,166 under Chapter VIA. The Assessing Officer (AO) noticed interest income of Rs. 14,32,945 and questioned why a deduction under Section 80IA could not be denied against it. The assessee argued that the interest income was not included in the calculation for 80IA deduction.
Held
The Tribunal held that Section 80AB deals with the determination of deductions based on net income, not total profits. Section 80IA(5) is for determining the quantum of deduction by treating the eligible business as the sole source of income, not for limiting deductions only to business income. Therefore, the deduction under Section 80IA should be allowed against the gross total income.
Key Issues
Whether interest income earned by the assessee can be considered as income from other sources and if it can be disallowed for deduction under Section 80IA.
Sections Cited
250, 143(2), 153(1), 234A, 234C, 80IA, 80AB, 80A, 80C, 80U, 80-I, 80E
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & MS. PADMAVATHY.S
आदेश / O R D E R
PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 ( in short "the Act") dated 18.06.2025 for Assessment Year (AY) 2018-19. The assessee raised the following grounds of appeal: “1. The CIT(A) is erred in upholding the notice issued u/s 143(2) as valid eventhough it is invalid and the consequent assessment is to be set aside for the following reasons. a. Interest income is not the subject matter in the reasons mentioned and no approval u/s 153(1) was obtained from higher authorities.
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b. There was no mention in the notice whether it is for Limited Scrutiny or complete scrutiny. 2. The allegation of the assessing officer and CIT(A) that the assessee claimed the interest income as business income and claimed deduction u/s 801A is factually incorrect and against his own finding in the draft assessment order and CIT(A) is erred in upholding the same. 3. The levy of interest of Rs. 9,320/- u.s 234A and Rs. 51,292/- u.s 234C are not correct and CIT(A) is not correct in not deleting the same. 4. The appellants reserve the right to adduce any additional or alternate grounds. 5. In the circumstances it is prayed to delete the addition of Rs. 14,32,945/- and delete the interest levied u/s 234A and 234C or pass such other order in the interest of justice.”
The assessee is a partnership firm and filed the return of income for A.Y 2018-19 on 23.10.2018 declaring total income at Nil after claiming deduction under Chapter-VIA to the tune of Rs. 2,49,74,166. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The A.O noticed that during the year under consideration, the assessee has earned interest income to the tune of Rs. 14,32,945/- and called on the assessee to show cause why the deduction u/s. 80IA of the Act cannot be denied against the interest income. The assessee submitted before the A.O that the impugned interest is not included while claiming deduction u/s. 80IA of the Act and therefore, no disallowance warranted. The A.O however did not accept the submissions of the assessee and held that interest income which is to be taxed under the head income from other sources cannot be included in the gross total income against which deduction under section 80IA of the Act is to be claimed. Accordingly the AO restricted the deduction u/s.80IA and made addition towards interest income under the head income from other
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sources. Aggrieved, the assessee filed further appeal before the CIT(A), who confirmed the action of the A.O. Aggrieved, the assessee is in further appeal before the Tribunal.
The Ld. AR submitted that while computing the deduction u/s. 80IA of the Act, the assessee has not included the interest income and in this regard our attention was drawn to the below workings of deduction us/. 80IA of the Act.
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The ld AR accordingly argued that the contention of the A.O. that the interest income is included while claiming deduction u/s.80IA is factually incorrect. The ld AR further submitted that the interest income of the assessee pertain to the spinning division which is not eligible for deduction u/s.80IA and therefore the contention of the A.O. is not correct.
The ld DR on the other hand relied on the order of the lower authorities.
We have heard both the parities, perused the material available on record. From the perusal of the computation, we notice that the deduction u/s. 80IA of the Act is computed by the assessee to the tune of Rs. 3,11,21,337/- based on the workings as extracted in the earlier part of this order the actual deduction is claimed is restricted the Gross Total Income of Rs.2,49,74,166 . The A.O. held that the assessee has included the interest income as part of the business income against which the deduction u/s.80IA is claimed and that the assessee cannot claim deduction against interest income. Accordingly the A.O. treated the interest income as income from other sources and denied the claim of 80IA to that extent. The relevant observations of the A.O. is extracted below:
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“Therefore, it is concluded that the interest earned by the undertaking cannot at all be eligible to be included in the gross total income for claiming deduction. Actually, these interest income and interest on income tax refund are to be treated as income under the head 'Income from Other Sources and brought to tax. Therefore, total Rs.14,32,945/- (1322301+ 110644) is treated as assessee's income under the head 'Income from Other Sources'.”
From the perusal of the workings for claiming deduction u/s.80IA we notice that the assessee has not included the interest income while claiming the deduction u/s. 80IA of the Act. Therefore the limited issue for our consideration here is whether the interest income which is included in the Profit & Loss account of the non-80IA unit i.e. Spinning Mill can be considered as part of the gross total income against which the assessee has claimed the deduction u/s.80IA. The issue of whether the deduction u/s.80IA should only be against the business income or whether can be claimed against the gross total income is settled by the Hon'ble Supreme Court in the case of CIT vs. Reliance Energy Ltd [2021] 127 taxmann.com 69 (SC) where it is held that – 9. The controversy in this case pertains to the deduction under section 80-IA of the Act being allowed to the extent of 'business income' only. The claim of the Assessee that deduction under section 80-IA should be allowed to the extent of 'gross total income' was rejected by the Assessing Officer. It is relevant to reproduce Section 80AB of the Act which is as follows: "80AB. Deductions to be made with reference to the income included in the gross total income. — Where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C. — Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income."
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As stated above, Section 80AB was inserted in the year 1981 to get over a judgment of this Court in Cloth Traders (P.) Ltd. (supra). The Circular dated 22-9-1980 issued by the CBDT makes it clear that the reason for introduction of Section 80AB of the Act was for the deductions under Part C of Chapter VI-A of the Act to be made on the net income of the eligible business and not on the total profits from the eligible business. A plain reading of Section 80AB of the Act shows that the provision pertains to determination of the quantum of deductible income in the 'gross total income'. Section 80AB cannot be read to be curtailing the width of Section 80-IA. It is relevant to take note of Section 80A(1) which stipulates that in computation of the 'total income' of an assessee, deductions specified in Section 80C to Section 80U of the Act shall be allowed from his 'gross total income'. Sub-section (2) of Section 80A of the Act provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the 'gross total income' of the Assessee. We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of 'net income'. 10. Sub-section (1) and sub-section (5) of Section 80-IA which are relevant for these Appeals are as under:
"80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.— (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years. ** ** ** (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 up to and including the assessment year for which the determination is to be made." 11. The essential ingredients of Section 80-IA (1) of the Act are: (a) the 'gross total income' of an assessee should include profits and gains; (b) those profits and gains are derived by an undertaking or an enterprise from a business
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referred to in sub-section (4); (c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and (d) in computing the 'total income' of the Assessee, such deduction shall be allowed.
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-
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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 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
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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 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 laid down by the Apex Court is that the restriction under sub- section (5) of section 80IA is only with respect to the quantum of eligible deduction which cannot be extended to restrict the claim of deduction under subsection (1) only against the business income of the assessee and that the deduction u/s.80IA is to be allowed against the gross total income of the assessee. In the present case even if the interest income earned by the assessee is to be considered as income from other sources, the same is part of the gross total income of the assessee. It is an established fact that the assessee for the purpose of arriving at the quantum eligible for deduction u/s.80IA has considered only the income and expenditure of eligible units. Given these facts, when we apply the ratio laid down by the Hon'ble Supreme Court to the present case, we are of the view that the A.O. is not correct in denying the deduction u/s.80IA against the interest income of the assessee. Accordingly
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we hold that the addition made by the A.O. towards interest income as income from other sources is liable to be deleted.
In result, the appeal of the assessee is allowed.
Order pronounced on 07th day of January, 2026 at Chennai.
Sd/- Sd/- (यस यस िव�ने� रिव) (पदमावती यस) (SS Viswanethra Ravi) (Padmavathy.S) लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 07th January, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF