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J.B. Chemicals And … vs Addl. Cit on 24 April, 2006

Income Tax Appellate Tribunal – Mumbai
J.B. Chemicals And … vs Addl. Cit on 24 April, 2006
Bench: T Sharma, D Agrawal


ORDER

D.C. Agrawal, A.M.

1. In this case the assessee has raised following grounds:

1. Modvat

1.1 The learned Commissioner (Appeals)-XXVI (hereinafter referred to aslearned Commissioner (Appeals)) erred in confirming to the value of closing stock without increasing the cost of purchases by Modvat element.

1.2 Your appellant submits that Section 145A does not authorize the increase in value of closing stock without simultaneous in value of purchases were purchases are debited to profit & loss account net of Modvat credit i.e., excluding Modvat element.

1.3 Your appellant therefore, prays to order increase to the debit to Profit & Loss account to the extent of Modvat credit and consequently nullify the addition retained to the value of closing stock.

2. Deduction.

2.1 The learned Commissioner (Appeals) erred in holding that profit arising out of sale of steam does not constitute profit of the business.

2.2 The learned Commissioner (Appeals) erred in upholding exclusion of insurance receipt and Misc. income (arising out of sale of ammonia sulphate) from profits of the business.

2.2A The learned Commissioner (Appeals) erred in observing that there does not appear (to have) any direct nexus between the receipts under the head Insurance Claim and Misc. Income and the appellants business activity.

2.2B The learned Commissioner (Appeals) erred in overlooking the fact that the learned Commissioner (Appeals)-VI vide para 23 in assessees own appeal for assessment year 1998-99 had held that receipt under the headInsurance Claimwas to be included in the profits of the business and that vide para 25 of the said appeal order had held that the ammonia sulphate has to be included in the profits of the business.

2.2C Your appellant submits that these receipts arise out of appellants regular business activity and that they cannot be excluded from the profits of the business as defined in the Act.

2.3 Your appellant, therefore, prays to hold that receipts arising under the head Insurance claim and sale of ammonia (Misc. income) constitute profits of the business.

2.4 Your appellant, therefore, prays to adopt the profit of the business as determined under Section 143(3) as per Clause (baa) of section SOHHC(4B) for the purpose of working out deduction under Section 80HHC.

3.0 Effect of Section 80-IA(9A) on working of deduction under Section 80HHC.

3.1 The learned Commissioner (Appeals) erred in not accepting the submission that deduction under Section 80HHC has to be worked out as per the formula given in Section 80HHC(l) and that nothing contained in Section 80-IA(9A) goes to alter the mandatory working of deduction under Section 80HHC(l).

3.2 The learned Commissioner (Appeals) erred in not considering the submissions made before her as contained in letter dated 18-7-2002 submitted before her.

3.3 The learned Commissioner (Appeals) erred in not accepting that provisions of Section 80HHC are not amended along with amendment to sections 80-IA and 80HHD.

3.4 Your appellant, therefore, prays to direct the assessing officer to work out the deduction under Section 80HHC strictly in accordance with the self-contained Code of Section 80HHC.

4.0 Effect to Section 80-IA(9A)

4.1 The learned Commissioner (Appeals) erred in not appreciating that aggregate of deduction under Section 80HHC and under Section 80-IA in respect of SG4 unit (undertaking) does not exceed the profit of the business of that undertaking.

4.2 The learned Commissioner (Appeals) erred in not appreciating that aggregate of deduction under sections 80HHC and 80-IA in respect of L6 unit (undertaking) does not exceed the profit of the business of that undertaking.

4.3 The learned Commissioner (Appeals) erred in not appreciating that there being no exports from Daman unit, there is no question of aggregate deduction excluding the profits of that undertaking.

4.4 The Commissioner (Appeals) erred in interpreting the provisions of Section 801A(9A) so as to defeat the deduction granted under another provision of law.

4.5 Your appellant prays lo grant deduction under Section 80-IA as per law.

2. The first issue is whether Section 145A would authorize the increase in valuation of closing stock by Modvat. The assessing officer had added a sum of Rs. 12,95,762 being unutilised Modvat credit to the value of closing stock. The Commissioner (Appeals) held that till assessment year 1998-99, the decision of Honble Bombay High Court in CIT v. Indo Nippon Chemicals Co. Ltd. (which is affirmed by Honble Supreme Court in CIT v. Indo Nippon Chemicals Co. Ltd. , held the field and Modvat credit would not be considered anywhere in trading/manufacturing account. But after amendment by F.A. (No. 2) 1998 with effect from 1-4-1999 and thereby introduction of Section 145A, there has been a material change. He thus upheld the decision of the assessing officer.

3. Before us the learned Counsel for the assessee submitted that the assessing officer is bound to account for Modvat credit in purchase, sale and inventory and not merely in closing stock. This will neutralize the addition, if any, made on account of Modvat. Learned authorised representative further submitted that if Modvat credit is to be added to sale, purchase, and inventory, then same should be added in opening stock also.

4. Learned Departmental Representative on the other hand submitted that irrespective of the fact whether any addition is called for or not, Section 145A would be applicable with effect from assessment year 1999-2000. Further assessing officer has considered this aspect and addition of unutilized Modvat credit has been made by him. Learned Departmental Representative further submitted that no addition to opening stock can be made on account of unutilized Modvat credit of earlier year because opening stock of this year has to be the same as closing stock of last year. He has been regularly following a system of accounting by excluding Modvat from stock. Hence opening stock this year based on method of accounting followed in earlier year cannot be disturbed due to change in method of accounting necessitated due to Section 145A. It is only the sale/purchase and closing stock which would be disturbed. He relied on the decision of Honble Bombay High Court in Melmould Corpn. v. CIT for the above proposition.

5. We have considered rival submissions and perused the material on record. We are of the view that provisions of Section 145A would hold the field to decide the question. Section 145A reads as under:

145A.Method of accounting in certa in cases.Notwithstanding anything to the contrary contained in Section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be-

(a) in accordance with the method of accounting regularly employed by the assessee ; and

(b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

Explanation.-For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.

Inserted by F. (No. 2) Act, 1998, w.e.f. 1-4-1999.

It is clarified by Honble Bombay High Court in CIT v. Indo Nippon Chenticals Co. Ltd. that provision of Section 145A are applicable with effect from 1-4-1999 as under:

Held, (i) that Section 145A of the Income Tax Act, 1961, was introduced by the Finance (No. 2) Bill, 1998. Originally, the Bill contemplated the proposed amendment to apply from 1-4-1986, in relation to the assessment year 1986-87 and subsequent years. However, later on, when the said Bill was enacted into law, the provision was made applicable from 1-4-1999, i.e., assessment year 1999-2000.

Same thing has been stated in the Circular No. 772 dated 23-12-1998 issued to explain the provision of Section 145A.

6. Thus, any tax cess, duty or fee paid or incurred by the assessee shall be included in the valuation of purchase sale and inventory. This leaves no doubt that Modvat credit available to the assessee shall have to be included while valuing the closing stock sales and purchases. However, it is not necessary that opening stock should also be disturbed. Opening stock being closing stock of previous year has been arrived on the basis of a method of accounting, in which excise duty/Modvat credit is not included while valuing the inventory, sale and purchase. They are separately accounted for, but in a changed method of accounting imposed by Section 145A, such Modvat credit has to be included. Thus, opening stock will not be disturbed whereas purchases, sales and closing stock will have to be disturbed by including Modvat credit. For this proposition we derive support from the decision of Honble Bombay High Court in Melmould Corpn.s case (supra) relied upon by the learned Departmental Representative. The head notes from this decision are as under:

Under Section 145 of the Income Tax Act, 1961, the assessee can adopt a method of valuation which is to be followed by it regularly. It is an accepted principle of accountancy that value of the stock can be determined at cost price or market price, whichever is lower. The two principles applicable with regard to the valuation of stock are that the assessee is entitled to value the closing stock either at cost price or market value, whichever is lower, and that the closing stock must be the value of the opening stock in the succeeding year. It is, thus, clear that irrespective of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price, whichever is lower, provided the change is bona fide and followed regularly thereafter. Whenever there is a change in the method of valuation, there is bound to be some distortion in the calculation of profits in the year in which the change takes place. But, if the change is brought about bona fide and is in accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted. The change has to be effected by adopting the new method for valuing the closing stock which will in its turn, become the value of the opening stock of the next year. If, instead, a procedure is adopted for changing the value of the opening stock also, it will lead to a chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change and correspondingly the value of the opening stock of that year and so on.

During the previous year relevant to the assessment year 1969-70, the assessee had valued its opening stock on the basis of cost plus overheads which was the method adopted by the assessee in the years prior thereto, so that the value of the closing stock for the year ending 31-3-1968, was carried forward as the value of the opening stock on 1-4-1968. The assessee, however, decided to change its method of valuation by valuing the stock at cost price only excluding the overheads. The assessee accordingly valued its closing stock for the assessment year in question, i.e., as on 31-3-1969, at cost price. The Income Tax Officer increased the gross profit rate in view of the difference in the method of valuation of opening stock and closing stock. The Tribunal accepted the valuation of the closing stock at cost price excluding overhead expenses. It, however, directed the Income Tax Officer to redetermine the value of the opening stock at cost price after excluding all overheads. On a reference:

Held, that the assessee could not be required to revalue the opening stock by excluding all overhead expenses when the assessee had been permitted to revise the method of valuing the closing stock for that year, as the assessee had decided to adopt this new method of valuation henceforth.

CIT v. Carborandum Universal Ltd. ; CIT v. Mopeds India Ltd. and Triveni Engg. Works Ltd. v. CIT followed.

7. It was submitted before the assessing officer that purchases have also been debited in the Profit & Loss account. Before us also it was argued that if cess/excise duty/sales tax etc. are added into purchases, sales and closing stock then net result would be nil. We, therefore, restore this issue to the file of assessing officer to re-cast trading account after including cess/excise duty/sales tax in the purchases/sales and closing stock (but not in the opening stock which shall not be disturbed as discussed above) and work out the addition if any, to the total income. Therefore this issue is allowed for statistical purposes only.

8. Next ground is regarding deduction under Section 80HHC. In this first issue is whether sale of steam and scrap would constitute part of profit and/or turnover. The Commissioner (Appeals) held that sale of steam would not constitute part of profit but sale of scrap would constitute. However, both sale of steam and sale of scrap would constitute part of turnover. We however do not agree. Following is the formula to determine deduction under Section 80HHC:

Deduction

=

Export turnover

*Business Profit

+

(90% of Export

 
 
 

Total turnover
 

Incentives)

*Export turnover

Total turnover

This excludes profit on sale of licences acquired from any other person.

*For the assessment year 2001-02 actual deduction would be 80%, for 2002-03 it would be 60% and so on and no deduction for the assessment year 2005-06 and any subsequent year.

9. In the above formula export turnover is fixed as the one for which foreign exchange has been received either within six months or within extended period (either by CIT or by RBI). But the concept of business profit and total turnover cannot be looked into from different yardsticks. If a business turnover yields profit, it should also form part of business profit. We cannot accept a proposition where a business transaction is a part of turnover but when it yields profit, such profits would not be part of Business profit in the formula. Our view finds support from the decision in CIT v. Kantilal Chhtalal . The head notes from that decision are as under:

Section 80HHC of the Income Tax Act, 1961, has undergone various changes from time to time. Clause (baa) of the Explanation to Section 80HHC inserted by the Finance (No. 2) Act, 1991, is clarificatory. The memorandum explaining the provisions has discussed this point in detail. In (1991) 190 ITR (St.) 300, it has been mentioned that the existing formula distorted the figure of export profits when receipts like interest, commission, etc., are included in the business profits and, therefore, to clarify the meaning of the business profits for the purposes of Section 80HHC, the Legislature has excluded the above items from business profits in the formula. Therefore, the amendment was clearly intended to remove the defect in the formula for calculating export profits even before 1-4-1992. In fact, the Legislature has clarified that receipts like interest, commission, etc., have no nexus with the export activity and by including such receipts in the business profits the existing formula became unworkable. Hence, by the amendment, such receipts were excluded. A reading of clauses (b) and (ba) of the Explanation clearly indicates that the Legislature has brought on par the components of export turnover and sale turnover. Both the numerator and denominator show that they refer to sale proceeds. Any receipt which does not form part of sale proceeds cannot come within the ambit of the above ratio. This is also in view of the fact that proposition applies to business profits in order to work out the export profits. Therefore, the numerator and the denominator are required to have a common element which is the sale proceeds. in fact, by the proviso in Clause (ba) to the Explanation, it is further provided that the expression total turnover shall have effect so as to exclude Section 28(iiia),(iiib)and (iiic) which refer to, inter alia, profits onsale of a licence granted under the Imports (Control) Order, cash assistance, duty drawback, etc. This exclusion also shows that the Legislature clearly intended to exclude all receipts which have no nexus with sale proceeds from export activity.

Held accordingly, that for the purposes of Section 80HHC total turnover cannot include reassortment charges, labour charges, commission, interest, rent or receipts of similar nature.

Thus, we hold that sale of steam will be part of Business profit also once it is held by learned, Commissioner (Appeals) that it is part of turnover. In view of this, this issue of the assessee is allowed in his favour.

10. Next issue is about insurance claim and sale of ammonia (Misc. income) which is not treated as part of business profit. We are of the view that both insurance claim and sale of ammonia will form part of Business profit as well as total turnover. Any item which does not have element of turnover cannot part of business profit either as held by Honble Bombay High Court in Kantilal Chhotalals case (supra). In the assessees own case in ITA No. 3689/M/02 for the assessment year 1998-99 it is lield that insurance claim would form part of business profit. Following that decision and the decision of Honble Bombay High Court in Kantilal Chhotalals case (supra) we hold that insurance claim would form both part of business profits as well turnover. Similarly, sale of ammonia which is giving rise to misc. income is part of business operation. It will also form part of both business profit as well as total turnover in the formula. Thus this ground of the assessee is also allowed as indicated above.

11. The third and fourth grounds relate to allow ability of deduction under sections 80HHC and 80-IA together. As per finding given by assessing officer on pg. 13, of his order, when the assessee has claimed deduction under sections 80-IA, 80HHC deduction is not allowable on whole of income on which sections 80-IA and 80HHC deductions are claimed, therefore Section 80HHC deduction is not allowed. As business profit after reducing eligible profit is worked out negative, deduction under Section 80HHC is not allowed. However after considering the submissions of the assessee, the Commissioner (Appeals) gave following directions to the assessing officer: (para 7.6 of AOs order)

By implication, therefore, in the case of the appellant which has 8 units as well as involved in trading, the process of computation of both these deductions together should be as follows:

(1) Unit-wise profit would have to be calculated in accordance with the profit and loss accounts maintained separately for each unit. In this exercise receipts as well as expenses directly attributable to that particular unit only should be included.

(2) Consolidation of unit-wise profits would give the gross total income of the assessee.

(3) From this figure to reach total income of the assessee,

(a) unit-wise deduction under Section 80-IA would have to be computed and allowed.

(b) result obtained after step (a) above, profit for each unit would have to be consolidated for the purposes of calculating total business profit.

(4) Adjustments to be made in accordance with provision of Section 80HHC would then have to be made to arrive at export profit eligible for deduction under Section 80HHC.

(5) This deduction under Section 80HHC would then be allowed against the total income of all the units to be taken together calculated net of deduction under Section 80-IA.

12. Against this, the contention of the learned authorised representative for the assessee is that subsection (9A) of Section 80-IA does not modify the working of deduction under Section 80HHC and, therefore, working of deduction under Section 80HHC has to be done independent of any deduction allowed under Section 80-I or 80-IA. It is only Section 80A which puts the cap over all the deductions allowable under Chapter VI-A.

13. According to learned Counsel for the assessee Parliament has used different language in different section to lay out its intention clearly. Wherever the Legislation wanted to reduce the deduction allowed in one section of Chapter VI-A from the deduction available under other section of that chapter then they have so provided. For example, such machinery has been provided in Section 80Q(2) which says that deduction under Section 80Q(l) shall be reduced by deduction under sections 80HH, 80HHA, 80HHC, 80-I and 80-IA. Similarly Section 80HHBA was introduced by Finance (No.2) Act, 1998 with effect from 1-4-1999. Sub-section (4)-thereof provided that no part of income payable to the assessee for the execution of a housing project under that sub-section shall qualify for a deduction for any assessment year. Further Section 80HHF(5) puts a restriction to the effect that deduction to the extent allowed under Section 80HHF shall not be allowed in relation to such profits under any other provision of the Act. Similar caps are put by sections 80HHF(5), 8013(5), 8ORRB(4) in respective sections to the effect that to the extent deduction are allowed in these respective sections, no deduction will be allowed under any other section of the Act. Section 80P(3) provided that gross total income would be reduced by the extent deduction is allowed under sections 80HH, 80HHR, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, 80J and 80JJ, if any, and thereafter deduction under Section 80P would be worked out. As Parliament has used different language to convey its different intention the same intention cannot be imported in Section 80HHC or 80-IA in absence of clear intention of the Legislature. There is nothing in Sub-section (9A) inserted in Section 80-IA to modify working of deduction under Section 80HHC or to reduce the deduction under Section 80HHC by the amount of deduction under Section 80-IA.

14. Thus the learned Counsel for the assessee submitted that the authorities below should be directed to work out deduction under Section 80HHC unaffected by deduction granted under Section 80-IA only. Capping is that total deduction under Chapter VI-A shall not exceed gross total income.

15. Against this learned Departmental Representative submitted that language of Section 80-IA is very clear. Any deduction under Section 80-IA allowed shall not be allowed further, to this extent under any other provision to this Chapter (VI-A) under the heading C. “Deduction in respect of certain income” and further that in no case exceed the profits and gains of such industrial undertaking/hotel. Thus there are two capping in this sub-section. One is that total deduction under Section 80-IA would not exceed the profits and gains of industrial undertaking/hotel and second is that deduction allowed under this section shall not be allowed under any other section, sub chapter Commissioner (Appeals) under Chapter VI-A.

16. We have considered the rival submissions and material on record. Sub-section (9A) of Section 80-IA reads as under

(9A) Where any amount of profits and gains of an industrial undertaking or of a hotel in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading C.Deductions in respect of certain incomes, and shall in no case exceed the profits and gains of the undertaking or the hotel, as the case may be.

This sub-section was introduced by Finance (No.2) Act, 1998 with effect from 1-4-1999 to bar double deduction. It covers a situation where any amount of profits and gains of an industrial undertaking or of a hotel, in the case of an assessee, is claimed and allowed under Section 80-IA for any assessment year, and claim of deduction is also made under another section of Chapter VI-A like 80HHC or 80HH. In such a situation the deduction to the extent of such profits and gains shall not be allowed under any sections of 80HH to 80RR and shall in no case exceed the profits and gains of the undertaking or the hotel as the case may be. Memorandum explaining the provisions of the Finance Bill reads as under:

Therefore, the object of insertion of Section 80-IA(9A), which later became 80-IA(9) in the present section, was to prevent deductions of more than 100 per cent of profits and gains of the undertaking by claiming multiple deduction. The object of insertion of Section 80-IA(9A) was not to prevent claim of deduction under more than one section, under Chapter VI-A, where the assessee satisfies conditions of these sections, but only to ensure that the sum total of the deductions so claimed by the assessee does not exceed the profits and gains of the undertaking in respect of which deductions are allowable.

Thus, there is a total capping on claiming deduction from profits and gains of industrial undertaking, which is equal to 100% of such profits. While deciding a similar issue in IT Appeal Nos. 4472 (Mum.) of 2000; 5289 (Mum.) of 2001; in the case of Regency Exports (P) Ltd. v. CIT, Mumbai, ITAT I Bench held about implication of Sub-section (9A) of Section 80-IA, vis-a-vis Section 80HHC as under:

It envisages a situation where deduction under Section 80-IA is claimed and allowed to an eligible Industrial Undertaking then deduction to that extent shall not be allowed under any other sections of 80HH to 80RRA falling under heading Commissioner (Appeals)-Deduction in respect of certain income. Upper limit of the multiple deductions under different sections in heading Commissioner (Appeals)under chapter VI-A is the total profits and gains of the undertaking. Thus for example, where one industrial undertaking is also exporting, it is entitled to deductions both under Section 80HHC as well as 80-IA and where deduction under Section 80-IA is higher than deduction under Section 80HHC, then total deduction under two sections will be limited to deduction under Section 80-IA. On the other hand, where deduction under Section 80HHC is higher then deduction under Section 80-IA then total deductions under two sections will be limited to the deduction granted under Section 80HHC. In other words, after allowing one of the two deductions under one section, the balance would be allowed in other section. If higher of the two is already allowed in one section, nothing further will be allowed in other section. But in no case the total deduction under two sections will exceed the profits and gains of the industrial undertaking.

17. One question arises for consideration is whether amount of deduction allowed under Section 80-IA will be reduced from the business profit while working out deduction under Section 80HHC i.e., reduction would be made in the business profits applying the formula of Section 80HHC as suggested by learned Commissioner (Appeals), or after applying the formula to the profits of industrial undertaking, working out the deduction under Section 80HHC and then to reduce the deduction already allowed under Section 80-IA. In our considered view, and as per the language used in Section 80-IA(9A), the deduction allowed under Section 80-IA will not be allowed as further deduction under other sections 80HH to 80RRA. This means that deduction under Section 80HHC will be worked out independently, without reducing the business profits by the deduction under Section 80-IA. That is, effect of deduction under Section 80-IA will be given after applying the formula and working out deduction under Section 80HHC. This is clear from the language of Section 80-IA(9A) that “Any amount of profits and gains allowed as deduction under Section 80-IA, shall not be allowed as deduction under other sections (from 80HH to 80RRA).” So deduction under Section 80HHC has to be calculated independently and then effect of Section 80-IA(9A) has to be given. Where deduction under Section 80HHC is more than the deduction under Section 80-IA, the figure of deduction under Section 80-IA will be reduced from the deduction under Section 80HHC. The balance will be the deduction under Section 80HHC. Where deduction under Section 80-IA is more than the deduction under Section 80HHC calculated for the unit, then no deduction under Section 80HHC will be separately allowed. From this it follows that, in a case where both the deductions are available to an assessee, then higher of the two will be allowed.

18. The upper limit of the deductions under sections 80HH to 80RRA has also been laid down under Section 80-IA(9A). Where it is said that in no case the deductions shall exceed, the profits and gains of the undertaking. Thus in no case deduction under Section 80-IA and other sections from 80HH to 80RRA will exceed 100% of the profits of the undertaking. This issue has also been discussed by ITAT in Mittal Clothing Co. v. Dy. CIT (2005) 4 SOT 626 (Bang.) wherein it is held as under:

The object of insertion of Section 80-IA(9A), which later became Section 80-IA(9), the present section, was to prevent deduction of more than 100 per cent of profits and gains of the undertaking by claiming multiple deduction. The object of insertion of Section 80-IA(9A) was not to prevent the claim of deduction under more than one section under Chapter VI-A, where he satisfied the conditions of those sections, but only to ensure that the sum total of the deduction so claimed by the assessee does not exceed the profits and gains of the undertaking in respect of which deductions are allowable.

From the above it also follows that deductions under Section 80HHC will have to be calculated unit-wise and not for whole of the business. Now the last issue in this connection is the final capping on the deduction under Chapter VI-A. It is covered by Section 80A which reads as under:

80A.Deductions to be made in computing total income.(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U.

(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.

(3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under Section 80G or Section 80GGA or Section 80HH or Section 80HHA or Section 80HHB or Section 80HHC or Section 80HHD or Section 80-I or Section 80-IA or Section 80J or Section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.

Thus it is clear from Sub-section (2) that total deductions under Chapter VI-A will not exceed total income computed before giving deduction under Chapter VI-A. Similar decisions have been given by Honble Rajasthan High Court in CIT v. Rochiram & Sons ; by Honble Calcutta High Court in CIT v. Bhoruka Investments (P)Ltd. and by Honble Supreme Court in IPCA Laboratory Ltd. v. Dy. CIT . As a result we hold that:

1. The deduction under Section 80-IA or 80HHC will be computed unitwise and independent of any deduction allowed in any other section of Chapter VI-A.

2. Deductions under Section 80-IA and under any other sections from 80HH to 80RRA together will be available to the extent of higher of the two.

3. Overall deductions in respect of an industrial under sections 80-IA and 80HH to 80RRA will be limited to 100% of profits and gains of that industrial undertaking.

4. In no case deduction under Chapter VI-A will exceed gross total income before allowing these deductions.

Applying above principles we find that the steps at 1, 2 and 3(a) suggested by Commissioner (Appeals), in para 7.6 of his order and reproduced above are correct. But for the purpose of computing deductions under other sections such as 80HHC, no effect of deduction under Section 80-IA will be given but after computing deduction under Section 80HHC, the capping will be done as suggested above in our final conclusions.

19. As a result the order of Commissioner (Appeals) is modified as indicated above. Appeal of the assessee is allowed partly on this ground.

20. Finally, the appeal of the assessee is allowed partly.

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