Rati Enterprises Vs CIT (Allahabad High Court)
Summary: The Allahabad High Court considered an income tax appeal filed under Section 260-A of the Income Tax Act, 1961 against the order dated 18.06.2010 passed by the Income Tax Appellate Tribunal, Delhi Bench “F”, New Delhi in I.T.A. No. 3921/Del/09 for Assessment Year 2002-03. The Tribunal had dismissed the assessee’s appeal. The appeal had originally been admitted on questions of law concerning, inter alia, the treatment of the deduction claimed under Section 80IB and the effect of Section 80IA(9) while computing deductions under other provisions contained in Heading C of Chapter VI-A of the Act.
At the outset of the hearing, learned counsel for the assessee/appellant stated that the appellant was confining the present appeal to question no. 6. That question concerned whether Section 80IA(9) mandated reduction of the amount of profits allowed as deduction under Section 80IA(1) from the profits of the business of the industrial undertaking while computing deduction under another provision under Heading C of Chapter VI-A. The question arose in the context of the Tribunal having followed the Special Bench decision in ACIT, Moradabad Vs. Hindustan Mint and Agro Products (2009) 315 ITR (AT) 401 (Delhi) (SB), contrary to the position taken by the Bombay High Court in Associated Capsules P. Ltd. Vs. DCIT (2011) 332 ITR 42 (Bom).
The assessee submitted that the issue had subsequently been conclusively decided by the larger Bench of the Supreme Court in Shital Fibers Limited Vs CIT, (2025) 476 ITR 309. The Supreme Court, while considering the scope of Section 80IA(9), approved the view taken by the Bombay High Court and also referred to the observations in ACIT Vs M/s. Micro Labs Ltd.
The Supreme Court’s reasoning, as reproduced in the Allahabad High Court order, distinguishes between the computation of a deduction and its allowability. Section 80IA(9) provides that where profits and gains of an undertaking are claimed and allowed as a deduction under Section 80IA, deduction to the extent of such profits and gains shall not be allowed under another provision under Heading C of Chapter VI-A. However, the provision does not require the deduction already allowed under Section 80IA to be reduced from the gross total income while computing the deduction under another provision. The Supreme Court also approved the Bombay High Court’s reasoning in Associated Capsules that the restriction under Section 80IA(9) operates against double deduction and ensures that the aggregate deductions do not exceed the eligible profits and gains, rather than altering the gross total income for the purpose of computing another deduction.
The Allahabad High Court found that the issue raised in question no. 6 was no longer res integra in view of the authoritative decision of the larger Bench of the Supreme Court in Shital Fibers Ltd. Accordingly, the Court answered question no. 6 in the negative and in favour of the assessee, in terms of Shital Fibers Ltd. The Court thereafter disposed of the appeal. The order does not record any adjudication of question no. 2 after the assessee expressly confined the appeal to question no. 6.
Cases Discussed
- Shital Fibers Limited Vs CIT, (2025) 476 ITR 309 — The Allahabad High Court treated the larger Bench Supreme Court ruling as authoritative and applied its interpretation of Section 80IA(9), holding question no. 6 in favour of the assessee.
- ACIT Vs M/s. Micro Labs Ltd. — The Supreme Court decision was referred to within Shital Fibers and its relevant observations distinguishing computation of deduction from allowance of deduction were reproduced and relied upon in resolving the Section 80IA(9) issue.
- Associated Capsules P. Ltd. Vs. DCIT, (2011) 332 ITR 42 (Bom) — The Supreme Court’s reasoning reproduced in the order approved the Bombay High Court’s interpretation that Section 80IA(9) restricts the allowability of overlapping deductions rather than requiring reduction of the Section 80IA deduction while computing the deduction under another Chapter VI-A provision. No independently verified TaxGuru destination for this case was located.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Suyash Agarwal, learned counsel for the assessee/appellant and Sri Ankur Agarwal, learned Senior Standing Counsel for the revenue.
2. Present income tax appeal has been filed under Section 260-A of the Income Tax Act, 1961 arising from the order of the Income Tax Appellate Tribunal, Delhi Bench: ‘F’ New Delhi dated 18.06.2010 in I.T.A. No. 3921/Del/09 for the A.Y. 2002-03. Thereby, the Tribunal has dismissed the assessee appeal.
3. Present appeal was admitted on the following questions of law:-
“2. Whether the deduction claim under Section 80IB of Rs. 7,46,006/- is to be reduced from the profit from business of Rs. 29,84,874/ as from qualified amounts of deduction under Section 8 HIC of Rs. 19,07,138/-.
6. Whether the ITAT was justified in holding that Section 801A(9) of Act mandates that the amount of profits allowed as deduction u/s 80IA(1) of Act has to be reduced from the profit of business of industrial undertaking while computing the deduction from any other provision under heading C in Chapter VI-A of the Act following the decision ACIT, Moradabad Vs. Hindustan Mint and Agro Products (2009) 315 ITR (AT) 401 (Delhi) (SB), contrary to the decision of Associated Capsules P Ltd Vs. DCIT (2011) 332 ITR 42 (Bom)?”
4. At the outset, Sri Suyash Agarwal, learned counsel for the Another assessee/appellant states that presently, the appellant confines the present appeal to question no. 6. In that regard, it has been further stated that the said question is conclusively decided by the larger bench of the Supreme Court in Shital Fibers Ltd. Vs. Commissioner of Income Tax, (2025) 476 ITR 309. Therein, it has been observed as below:-
“23. Hence, we find that the view taken by the Bombay High Court is correct. Dipak Misra, J (as he then was), in paragraphs 47 and 48 of the decision in the case of Assistant Commissioner of Income Tax, Bangalore v. Micro Labs Limited approved the view taken by Bombay High Court in the aforesaid case. Paragraphs 47 and 48 read thus:
“It is in the context of Section 80-HHC that sub-section (9) of Section 80-I has come up for interpretation. There is no dispute that sub-section (9) of Section 80-I would be applicable as the assessee would be entitled to deduction under Section 80-IA as well as under Section 80-HHC. The contention of the Revenue is that the said sub-section mandates that deduction under Section 80-HHC has to be computed not only on the profits of business as reduced by the amounts specified in clause (baa) and sub-section (4-B) of Section 80-HHC but by also reducing the amount of profit and gains allowed as a deduction under Section 80-IA(1) of the Act. In other words, the gross total income eligible for deduction under Section 80-HHC would be less or reduced by the deduction already allowed under Section 80-IA. Thus, the gross total income eligible for deduction would not be the gross total income as defined in sub- section (5) of Section 80-B read with Section 80-B, but would be the gross total income computed under sub-section (5) of Section 80-B read with Section 80-AB less the deduction under Section 80-IA. An example will make the position clear. Supposing an assessee has gross total income of Rs 1000 and is entitled to deduction under Section 80-IA and 80-HHC and the deduction under Section 80-IA is Rs 300, then the gross total income of which deduction under Section 80-HHC is to be computed would be Rs 700, and not Rs 1000.
On the other hand, the case of the assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80-HHC. The two deductions will be computed separately, without the deduction allowed under Section 80-IA being reduced from the gross total income for computing the deduction under Section 80-HHC. The reason being that sub-section (9) of Section 80-IA does not affect computation of deduction under Section 80-HHC, but postulates that the deduction computed under Section 80- HHC so aggregated with the deduction under Section 80-IA does not exceed the profits of the business.” In paragraphs 53 and 54 of the same decision, it is held thus:-
“The first part of sub-section (9) of Section 80-IA refers to the computation of profits and gains of an undertaking or enterprise allowed under Section 80-IA in any assessment year and the amount so calculated shall not be allowed as a deduction under any other provisions of this Chapter. It is in this context that the Bombay High Court has rightly pointed out that there is a difference between allowing a deduction and computation of deduction. The two have separate and distinct meanings. Computation of deduction is a stage prior and helps in quantifying the amount, which is eligible for deduction. Sub- section (9) of Section 80-IA does not bar or prohibit the deduction allowed under Section 80-IA from being included in the gross total income, when deduction under Section 80-HHC(3) of the Act is computed. In this context it has been held that the expression “shall not be allowed” cannot be equated with the words “shall not qualify” or “shall not be allowed in computing deduction”. The effect thereof would be that while computing deduction under Section 80-HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80-IA or other sections of Part C of Chapter VI-A of the Act. But once the deduction under Section 80-HHC has been calculated, it will be allowed, ensuring that the deduction under Section 80-HHC and 80-IA when aggregated do not exceed profits and gains of such eligible business of undertaking and enterprise.
As I find, the legislature has used the expression “shall not qualify” in Section 80-HHB(5) and 80-HHD(7), but the said expression has not been used in sub-section (9) of Section 80- IA. The formula prescribed in sub-section (3) of Section 80- HHC is a complete code for the purpose of the said computation of eligible profits and gains of business from exports of mercantile and goods. It has reference to total turnover, turnover from exports in proportion to profits and gains from business in clause (a) and so forth under clauses (b) and (c) of Section 80-HHC(3) of the Act. In case the gross total income is reduced or modified taking into account the deduction allowed under Section 80-IA, it would lead to absurd and unintended consequences. It would render the formula under sub-section (3) of Section 80-HHC ineffective and unworkable as highlighted in para 30 of the decision in Associated Capsules (P) Ltd. [Associated Capsules (P) Ltd. v. CIT, 2011 SCC OnLine Bom 27: (2011) 332 ITR 42 (Bom)] with reference to clause (b) of Section 80-HHC(3). Even when I apply clause (a) and calculate eligible deduction under Section 80-HHC, it would give an odd and anomalous figure. To illustrate, I would like to expound on the earlier example after recording that the gross total income of Rs 1000 was on assumed total turnover of Rs 10,000 which includes export turnover of Rs 5000 and the deduction allowable under Section 80-IA was 30% and the deduction allowable under Section 80-HHC was 80% of the eligible profits as computed under Section 80-HHC(3). The stand of the Revenue is that without alteration or modification of the figures of total turnover and the export turnover, the gross total income would undergo a reduction from Rs 1000 to Rs 700 as Rs 300 has been allowed as a deduction under Section 80-IA. This would result in anomaly for the said figure would not be the actual and true figure or the true gross total income or profit earned on the total turnover including export turnover and, therefore, would give a somewhat unusual and unacceptable result. There is no logic or rationale for making the calculation in the said impracticable and unintelligible manner.”
5. In view of the issue having been decided authoritatively by the larger bench of the Supreme Court in Shital Fibers Ltd. (supra), the issue has no longer res integra. Accordingly, question no. 6 is answered in negative i.e. in favour of the assessee in terms of Shital Fibers Ltd. (supra).
6. Accordingly, the present appeal is disposed of.
