NATIONAL BULK HANDLING CORPORATION LTD,NAVI MUMBAI vs. DCIT CEN CIR 46, MUMBAI

ORDER PER BENCH:

The captioned appeal filed by the assessee pertaining to assessment year 2009-10 is directed against an order passed by CIT(A)-38, Mumbai dated 26/12/2013, which in turn arises out of an order passed by the Assessing Officer under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) dated 15/10/2012.

“1) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the action of the assessing officer in restricting the deduction u/s 80IB(11A) to business income of the assessee instead of restricting the same to gross total income of the assessee.

2) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in applying provisions of 80AB of the act which is not relevant to the facts of the case and erred in not applying provisions of section 80A of the act.

3) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in following judicial decisions, the facts of which are totally different from facts of the assessee.

4) The appellant prays that: i) Deduction u/s SOIB(llA) be allowed from gross total income of the assessee and not restricting the same to profits and gain from business and profession; ii) Any other relief your honours may deem fit.”

reveal the solitary issue relates to the grievance of the assessee that the Income-tax authorities have wrongly restricted the deduction u/s.80IB(11A) of the Act to the business income of the assessee instead of restricting the same to the gross total income.

4. Briefly put, the relevant facts are that the appellant is, inter-alia, engaged in the business of providing various services in the nature of handling of food grains and agricultural produce entailing handling of such items, transportation, warehousing and distribution thereof. The assessee had quantified its deduction u/s 80IB (11A) of the Act of Rs.13,66,43,375/-, but had restricted its claim in the return of income to Rs.11,12,65,675/-, which was the gross total income. In the assessment finalized u/s. 143(3) of the Act dated 12/12/2011, the gross total income was computed at Rs.11,76,21,841/- and the Assessing Officer restricted the claim of deduction u/s. 80IB(11A) of the Act to Rs.6,51,07,858/-, which was equivalent to the business income assessed by him. The CIT(A) vide his order dated 30/12/2012 allowed certain relief and, thereafter, the deduction u/s. 80IB(11A) of the Act came to Rs.12,76,67,701/-. In the impugned order passed by the Assessing Officer giving effect to the order of the CIT(A), the gross total income has been arrived at Rs.11,12,65,675/- and the deduction u/s. 80 IB(11A) of the Act has been restricted to the business income assessed thereof, which is Rs.10,22,65,300/-. This action of the Assessing Officer has since been upheld by the CIT(A), against which assessee is in further appeal before us.

5. Before us the short point raised by the assessee is that the claim of deduction u/s. 80 IB(11A) of the Act is allowable to the extent of the availability of gross total income, which is Rs.11,12,65,675/- and that restricting it to the extent of business income assessed of Rs.10,22,65,300/- is erroneous. The Ld. Representative for the assessee vehemently pointed out that the CIT(A) is wrong in relying on section 80AB of the Act in affirming the action of the Assessing Officer. The Ld. Representative for the assessee pointed out that in fact assessee’s claim is in accordance with section 80AB of the Act , inasmuch as, the deduction amounts to Rs.12,76,67,101/- but assessee has restricted the claim to the available gross total income i.e. Rs.11,12,65,655/-. It is pointed out that the stand of the assessee is fully covered by the ratio of the judgment of the Hon’ble Bombay High Court in the case of V.M.Salgaonkar & Brothers (P) Ltd. vs. ACIT, 81 Taxmann.com 357(Bom).

6. On the other hand, the Ld. Departmental representative has defended the order of the CIT(A) and pointed out that the restriction placed in section 80AB of the Act is fully applicable and, therefore, assessee’s claim of deduction u/s.80IB(11A) of the Act has been correctly restricted to the existence of business income.

7. We have carefully considered the rival submissions and perused the relevant material on record. In the instant case, in principle there is no dispute between the assessee and the Revenue that the benefit of section 80IB(11A) of the Act is available to the assessee. The only point made out by the appellant is that once the quantum of deduction entitled to the assessee is more than the assessed gross total income, it is wrong on the part of the income-tax authorities to restrict the deduction to the extent of profits of business. The CIT(A) has relied on the restriction contained in Section 80AB of the Act to scale down assessee’s claim for deduction. Ostensibly, the provisions of section 80AB of the Act had been pressed into service by the Assessing Officer also, though the same has not been explicitly stated so in the impugned order passed by him dated 15/10/2012 giving effect to the order passed by the CIT(A) dated 30/08/2012. Be that as it may, we find that the manner in which the provisions of section 80AB of the Act are to be understood in the context of the instant controversy, came up before the Hon’ble Bombay High Court in the case of V.M.Salgaonkar & Brothers (P) Ltd.(supra). The issue before the Hon’ble High Court was as to whether deduction allowable u/s. 80 HHC of the Act can be restricted to the extent of business profits and not to the extent of the gross total income in view of the construction of section 80HHC, 80A(2), 80AB and 80B(5) of the Act. The Hon’ble High Court noted that while computing the deduction u/s. 80HHB, 80HHC, 80HHD, 80I,80IB, 80IA, etc. one would have to apply section 80 ÀB of the Act . So however, according to the Hon’ble High Court, the restriction in terms of section 80AB(2) is to the gross total income and not to the total profits of business. Hon’ble High Court came to such conclusion after referring to its earlier judgments in: (i) CIT v. Tridos Laboratories Limited, 328 ITR 448(Bom) (ii) CIT v. Eskay Knit India Ltd. of 2007 dated 25/03/2010)(Bom) (iii)CIT v. J.B. Boda & Co. Pvt. Ltd., ITA No.3224 of 2009, dated 18/10/2010(Bom)

7.1 In our considered opinion, the aforesaid ruling of the Hon’ble Bombay High Court clearly covers the controversy in favour of the assessee and the income-tax authorities are not justified in restricting assessee’s claim for deduction u/s. 80IB(11A) of the Act to the extent of business income; and, rather the claim of the assessee is allowable to the extent of the assessed gross total income. Thus, assessee succeeds on this aspect.

7.2 Before parting, we may refer to the decisions relied upon by the CIT(A) in para 5.1 of his order. Notably, the decisions referred therein do not help the case of the Revenue in the instant case. In the case of Chemical & Metallurgical Design Co. Ltd. vs. CIT, 114 Taxmann 463(Del), relied upon by the CIT(A), the issue related to as to whether the deduction u/s 80-O of the act was to be computed on gross or net basis. It was held that the deduction was to be computed on net basis after allowing the expenses incurred. The said decision is of no consequence, so far as the instant controversy is concerned, since the only issue before us is as to whether the deduction u/s. 80IB(11A) of the Act once computed is to be restricted to gross total income or business income. Secondly, the decision of the Hon’ble Supreme Court in the case of H.H. Sir Rama Varma v. CIT, 71 Taxmann, 237 (SC) relied upon by the CIT(A) is also of no avail as the issue therein was whether capital gains were required to be set-off against capital loss before allowing relief u/s. 8OT of the Act. Ostensibly, the issue before us is not relating to the set-off of any loss against eligible income. Thus, the said decision has no application to the instant controversy before us. Thirdly, the judgment of the Hon’ble Bombay High court in the case of Grasim Industries Ltv. v ACIT, 158 Taxmann 278(Bom), relied upon by the CIT(A) merely held that the deduction computable u/s. 80HH was with reference to the profits after making deductions available u/s.30 to 43A of the Act. Ostensibly, the controversy before us is on a different footing and the said judgment is of no help to the Revenue in the instant case. Fourthly, reference made by the CIT(A) of the judgment of Hon’ble Karnataka High Court in the case of R.P.G. Telecoms Ltd. vs. CIT, 160 Taxmann 365 (Kar) is for the proposition that the provisions of section 80AB would override all other sections for the purposes of deductions specified in Chapter VI-A of the Act. There is no quarrel with the said proposition, inasmuch as, while upholding assessee’s plea in the instant case, it is only due to the operation of section 80AB of the Act that the deduction u/s. 80IB(11A) of the Act has been found to be restricted to the assessed gross total income. Therefore, the said decision does not help the case of the Revenue in the instant case. Thus, in our view, the decisions relied upon by the CIT(A) do not help the sustenance of the order passed by the Assessing Officer dated 15/10/2012 restricting the deduction u/s 80IB 11(A) of the Act to the extent of business income only. 7.3 In view of the aforesaid discussion, we hereby set-aside the order of the CIT(A) and direct the Assessing Officer to allow the deduction u/s.80 IB(11A) of the Act to the extent of assessed gross total income. Thus, on this aspect, assessee succeeds.