M/S SHOGHI COMMUNICATIONS LTD.,SHIMLA vs. DCIT, SHIMLA

आदेश/ORDER PER DIVA SINGH

The present appeal has been filed by the assessee assailing the correctness of the order dated 17/01/2017 of CIT(A) Faridabad pertaining to 2004–05 assessment year on the following grounds : 1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax, Faridabad is against law and facts on the file in as much he was not justified to arbitrarily uphold action of the Ld. Assessing O f f i c e r i n r e s t r i c t i n g t h e c l a i m o f d e d u c t i o n u / s 8 0 - I B t o Rs. 13,47,105/- as against claimed at Rs. 27,09,074/-. 2. That he was not justified to uphold the action of the Ld. Assessing Officer in recomputing the gross total income at Rs. 44,19,351/- as against the entire profit of Rs. 90,30,248/- for the purpose of working out the amount of deduction u/s 80-IB 2. The relevant facts of the case are that the deduction allowed under section 80 IB @ 30% of the net profit of Rs. 90,30,248 was considered by the CIT Shimla in proceedings under section 263. It was noticed that deduction under section 80 IB should have been allowed with reference to the gross total income, which would be arrived at after setting off the losses of the trading as well as training activities against profitably alleged manufacturing activity. Thus the deduction should have been allowed at 30% of Rs. 44,19,251/- which would work out to Rs. 13,47,105/- as against Rs.27,97,074/- allowed to the assessee. Consequently ACIT,

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Shimla passed order under section 263 dated 27/03/2009 holding as under : "in view of the clear position of law laid down by the Hon'ble Supreme Court and reiterated by the jurisdictional High Court in their very recent judgement dated 12.08.2008, it is held that the action of the AO in not restricting the deduction u/s 80IB to 30% of the gross total income of Rs.44,19,351/- constituted patent error of law. Since, the action of the-AO was not at all in accordance, with the law laid down by the Supreme. Court and resulted in a loss of legitimate revenue, the error was also prejudicial to the interests of revenue. The order assed by the AO on 22.12.2006 and 21.03.2007 in the assesses case for A.Y. 2004-05 are therefore, set aside u/s 263 on this limited issue. The AO is directed to recomputed the income after allowing deduction 80'IB only at 30% of the net resultant profit and gross total income of Rs. 44,19,351/-." 3. It is seen that the AO in pursuance to the above direction after hearing the assessee rejected the assessee’s submissions who had argued that the decision of the Apex Court in the case of Ipca Laboratories Ltd. Versus CIT 266 ITR 521 (SC) was not applicable. The assessing officer relying upon the mandate of the above decision held that Section 80AB has an overriding effect over all provisions contained in Chapter-VI including Section 80IB. Thus, as a result thereof the excess deduction of Rs. 13,47,105/- was disallowed and added back to the income of the assessee. 4. The assessee carried the issue in appeal before the CIT(Appeals). The CIT(A) upheld the assessment order. Pursuant to the dismissal of the said appeal, the present appeal has been filed. 5. The Ld. AR reiterated the submissions advanced before the tax authorities stating that he would like to keep the issue alive, however on facts, it was conceded that there is no dispute. The Ld. Sr.DR relies upon the impugned order. 6. We have heard the submissions and perused the material available on record. The relevant facts of the case are that the assessee has shown profits of Rs. 90,30,248/- from Development of Software (Manufacturing activity) and losses of Rs. 35,77,715/- & Rs. 9,62,182/- from trading activity & from training activity respectively. However, while claiming deduction u/s 80-IB, the assessee didn't take into consideration its losses and claimed deduction @ 30% on the entire profit of Rs. 90,30,248/-. Hence, the basic issue which boils down is whether the deduction u/s 80-IB is to be allowed on the gross total income after factoring in all the losses notwithstanding whether derived from manufacturing activities or non-manufacturing activities. In the instant case, the AO has relied upon the judgment of