DCIT Vs Baramati Agro Limited (ITAT Pune)
Summary: The Pune ITAT dismissed the Revenue’s appeal for Assessment Year 2021-22 concerning deduction under Section 80-IA and carried-forward MAT credit. Baramati Agro Ltd. had claimed deduction of ₹47,38,81,024 under Section 80-IA for its Shetphalgade and Kannad power-generation units, whereas the Assessing Officer restricted the deduction to the aggregate book profit of ₹40,95,00,569 and disallowed ₹6,43,80,455. The CIT(A) allowed the full claim by relying upon Section 80AB and the requirement that eligible profits be computed in accordance with the provisions of the Act, including Sections 28 to 43D. The Tribunal found no infirmity in that reasoning and relied upon CBDT Circular No. 37/2016, which addresses Chapter VI-A deductions on enhanced profits resulting from specified statutory disallowances, as well as the decision in Plastiblends India Limited Vs Addl. Commissioner of Income Tax, affirmed by the Supreme Court, concerning computation of Section 80-IA deduction after taking into account deductions allowable under Sections 30 to 43D. On the second issue, the Tribunal upheld the CIT(A)’s direction that the carried-forward MAT credit of ₹13,08,21,618 should not be reduced on the basis of the disputed Assessment Year 2020-21 assessment until the appellate proceedings for that year reach finality, and also upheld the direction to rectify the assessed book profit under Section 115JB after incorporating the relevant amalgamation adjustments and correcting the starting base figure. Accordingly, Grounds 1 to 3 and Ground 4 raised by the Revenue were dismissed and the Revenue’s appeal was dismissed in its entirety.
Section 80-IA Deduction Is Based on Tax-Adjusted Profits, Not Restricted to Book Profits: Pune ITAT Upholds ₹47.39 Crore Claim
The Pune ITAT held that deduction under Section 80-IA must be computed on eligible profits determined in accordance with the Income-tax Act and cannot be restricted merely to the commercial or book profits appearing in the separate accounts of the eligible undertaking.
Baramati Agro Ltd. claimed a deduction of ₹47,38,81,024 under Section 80-IA for its two power-generation units at Shetphalgade and Kannad. Their aggregate book profits were ₹40,95,00,569, and the AO restricted the deduction to that amount, disallowing the excess claim of ₹6,43,80,455.
The CIT(A) allowed the full claim, holding that Section 80AB requires eligible income to be computed in accordance with the provisions of the Act. Therefore, book profits must be adjusted by substituting tax depreciation and applying other relevant provisions of Sections 28 to 43D.
The Tribunal affirmed this reasoning. It observed that statutory disallowances and tax adjustments connected with the eligible business enhance its taxable profits, and the profit-linked deduction under Chapter VI-A must be allowed on those enhanced profits.
The Tribunal relied upon CBDT Circular No. 37/2016, which recognises that disallowances under provisions such as Sections 32, 40(a)(ia), 40A(3) and 43B increase the profits of the eligible business and consequently qualify for the corresponding Chapter VI-A deduction.
Following Plastiblends India Ltd. v. ACIT, as affirmed by the Supreme Court, the Tribunal reiterated that the quantum of Section 80-IA deduction must be determined after considering all deductions and adjustments allowable under Sections 30 to 43D, irrespective of the book profit disclosed by the eligible unit. Accordingly, the full deduction of ₹47.39 crore was upheld.
On the second issue, the Tribunal upheld the CIT(A)’s direction that the assessee’s carried-forward MAT credit of ₹13.08 crore should not be reduced based on the disputed assessment for AY 2020-21 until the appellate proceedings for that year attain finality. It also upheld the direction to correct the Section 115JB book profit after incorporating the relevant amalgamation adjustments.
The Tribunal consequently dismissed the Revenue’s appeal in its entirety.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Revenue is directed against the order dated 28 November, 2025 of the Ld. CIT(A), Pune – 13 relating to assessment year 2021-22.
2. Grounds raised by the Revenue are as under:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified by allowing deduction under Section 80-IA amounting to Rs.47,38,81,024/, without appreciating that the deduction is allowable only on the profits and gains of the eligible undertaking as per its commercial/book profits and not on income recomputed after making tax adjustments.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in ignoring the fact that the profits of the eligible undertaking for the purpose of Section 80-IA are required to be computed strictly in accordance with Sections 28 to 44 of the Act, ignoring the specific wording of Section 80-IA which restricts the deduction to “profits and gains derived from” the eligible business, and relying upon Section 80AB for computation of deduction under Section 80-IA, without appreciating that Section 80-IA is a self-contained code and the profits eligible for deduction must be derived directly from the eligible business and not enhanced by artificial tax adjustments.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified by accepting the assessee’s method of computing eligible profits by adding back book depreciation, substituting tax depreciation, and including other non-operational incomes, thereby disregarding the principle that deduction under Section 80-IA cannot exceed the actual profits of the eligible undertaking as reflected in the separate books of account maintained for such undertaking.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified by directing the Assessing Officer not to reduce the carried-forward MAT credit of Rs.13,08,21,618/- by holding that the adjustment based on the assessment order for A.Y. 2020-21 was premature merely because the said assessment order is pending in appeal, without appreciating that the Assessing Officer is statutorily bound to compute and allow MAT credit under section 115JAA on the basis of assessment orders in force as on the date of assessment, and that the pendency of an appeal does not render such assessment order inoperative or non est.
5. The appellant craves to add amend, alter or delete the above grounds of appeal during the course of appellate proceeding before the Hon’ble Tribunal.
3. Grounds of appeal No.1 to 3 raised by the Revenue relate to the order of the Ld. CIT(A) in allowing the claim of deduction u/s.80-IA amounting to Rs.47,38,81,024/ as against Rs.40,95,00,569/- allowed by the Assessing Officer.
4. Facts of the case, in brief, are that the assessee is a company primarily engaged in the business of Poultry activities which includes Hatchery, Layer, Contract Farming and other Agricultural activities alongside sectors like sugar, ethanol manufacturing and co-generation of power. It filed its return of income on 14.03.2022 declaring total income of Rs.63,27,52,360/-. The return was processed u/s.143(1) of the Income Act 1961 (hereinafter referred as ‘the Act’) on 22.09.2022. Subsequently, the case of the assessee was selected for scrutiny on the issue of “Refund claim and Specified Domestic Transactions” (SDT). A reference was also made to the Transfer Pricing Officer (TPO) referring the Specified Domestic Transactions who passed an order without any upward/downward adjustment. During the course of assessment proceedings, the Assessing Officer noted that assessee has claimed deduction u/s.80IA in respect of its two units viz., Shetphalgade at Rs.28,31,05,135/- and Kannad at Rs.19,07,75,889/-. He noted that assessee has claimed deduction u/s.80IA which is more than the book profit of the company which he summarized as under:
| Unit | Name | As per profit/gain of books | As claimed u/s.80IA | Difference |
|---|---|---|---|---|
| 1 | Shetphalg ade | 25,39,67,861 | 28,31,05,135 | 2,91,37,274 |
| 2 | Kannad | 15,55,32,708 | 19,07,75,889 | 3,52,43,181 |
| Total | 6,43,80,455 |
5. Thus, the profit derived from the eligible business worked out at Rs 25,39,67,861/- and Rs.15,55,32,708/- totaling to Rs.40,95,00,569/- which is eligible for deduction u/s.80IA(4)(iv) being 100% of the book profit. However, assessee has claimed an amount of Rs.28,31,05,135/- and Rs.19,07,75,889/- respectively as deduction u/s.80IA of the Act for the 2 units. He therefore asked the assessee to explain as to why the excess claim of deduction at Rs.6,43,80,455/- over the book profit should not be disallowed. Rejecting the various explanations given by the assessee, he made disallowance of Rs.6,43,80,455/- u/s.80IA by observing as under :
“The net profit decreased by you due to amalgamation adjustment comes to 30,97,38,160/- which is based on the order passed by NCLT. Further, as per online data, both the Transferor Company has filed its Financial Statements for the year ended 31.03.2021 which shows that respective companies have filed their return of income considering the said impact. Furthermore, the amalgamation adjustment has also been made on the Book Profit calculation as required u/s 115JB of the Act. You are, therefore, requested to explain with documentary evidences like ROIs, computation of income, treatment given in the account(s) etc. of amalgamated company and also show cause as to why the proposed disallowance should not be made.
6. In appeal, the ld.CIT(A) allowed the claim of deduction u/s.80IA of the Act by observing as under:
“D.4 Findings and Reason:
13. I have carefully analyzed the submissions and the underlying statutory scheme governing deductions under Chapter VI-A of the Act. The central point of contention revolves around the definition and computation of “profits and gains derived from such business” under Section 80IA(1).
14. The argument advanced by the AO, relying on the commercial sense of “profits and gains” and thereby restricting the deduction merely to the book profit maintained for the separate unit, exhibits a deficiency in understanding the computation mechanism mandated by the Act.
15. Chapter VI-A deductions are “profit-linked incentives”. While Section 80-IA is considered a code by itself, Section 80AB mandates the manner of calculating the income eligible for deduction. Section 80AB states:
“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.”
16. Therefore, the profits eligible for deduction must be those computed “in accordance with the provisions of this Act”. This implies that the net profit of the eligible unit (derived from business/profession) must be computed after incorporating all relevant provisions of Chapter IV-D, including Sections 30 to 43D, irrespective of whether the assessee claims or disclaims certain deductions like current depreciation.
17. The judicial principle established by the Hon’ble Bombay High Court, which was affirmed by the Hon’ble Supreme Court in Plastiblends India Ltd. v. Additional Commissioner of Income-Tax & Ors. 178 Taxman 397 (Bombay), settles this matter. The Hon’ble Supreme Court confirmed the Full Bench view that the quantum of deduction allowable under section 80-IA has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act.”.
18. Furthermore, the Hon’ble Bombay High Court in Betts India (P.) Ltd. v. Assistant Commissioner of Income-tax 114 taxmann.com 509 (Bombay) held similarly, confirming that “it was mandatory to deduct depreciation allowable under section 32 while determining assessee’s entitlement to deduction under section 80-IB, even though assessee had not claimed such depreciation”. Although this specific case related to Section 80IB, the computation principle is identical across Chapter VI-A deductions.
19. Thus, the Appellant’s approach of calculating the ‘Taxable Profit of Units’ by adjusting the book profit with items like depreciation u/s 32 and other allowable/disallowable items specified in Sections 28 to 44 is compliant with the requirements of Section 80AB and settled judicial precedent. The AO’s reliance on restricting the deduction solely to the ‘Book Profit’ ignores the statutory mechanism as well as judicial precedents for computing taxable profits, and is therefore legally unsustainable.
Furthermore, the Appellant has placed reliance on CBDT circular no 37/2016. The said Circular explicitly acknowledges that statutory disallowances or adjustments, such as those related to Section 32 (depreciation), Section 40(a), Section 40A(3), or Section 43B, enhance the profits of the eligible business, and the deduction under Chapter VI-A is admissible on the profit so enhanced by the disallowance. Although the Appellant’s primary contention related to substituting depreciation (a Section 32 matter), this adjustment is conceptually aligned with the Circular’s acceptance that resultant enhanced profit(s) is/are amenable to deduction under section 801A, as has been sought/done by the Appellant in the instant case. In any case, the proposition that CBDT Circulars are binding on revenue authorities need no authority to cite.
The argument of the AO based on prior year consistency (AY 2018-19) is weak, particularly since the current year involves applying the correct legal ratio upheld by superior courts, irrespective of the non-applicability of res judicata.
20. I, therefore, accept the Appellant’s contention that the deduction claimed under Section 801A amounting to Rs. 47,38,81,024/- is correctly calculated. The proposed disallowance of Rs. 6,43,80,455/- is unwarranted.”
7. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
8. The ld. Departmental Representative strongly challenged the order of ld.CIT(A) in allowing the enhanced claim of deduction u/s.80IA of the Act as claimed by the assessee. He submitted that the deduction is allowable only on the profits and gains of the eligible undertaking as per its commercial/book profits and not on income recomputed after making tax adjustments. He submitted that the Ld. CIT(A) is not justified in ignoring the fact that the profits of the eligible undertaking for the purpose of Section 80-IA are required to be computed strictly in accordance with Sections 28 to 44 of the Act. He referred to the provisions of section 80-IA and submitted that the said provision restricts the deduction to “profits and gains derived from the eligible business”. He submitted that the Assessing Officer while passing the order has given elaborate reasons while restricting the deduction u/s 80IA to Rs.40,95,00,569/- as against Rs.47,38,81,024/- claimed by the assessee. He accordingly submitted that the order of the Ld. CIT(A) be reversed and that of the Assessing Officer be restored.
9. The ld. Counsel for the assessee submitted that although the Assessing Officer has accepted that the company is entitled to deduction u/s.80IA, however, he held that deduction is allowable only to the extent of profits and gain derived by the company from the eligible business undertaking. He accordingly reworked the deduction u/s.80IA of the Act in respect of the two units by considering the book profit as per the profit and loss account of the two units. Relying on the order of ld.CIT(A), he submitted that ld.CIT(A) has given justifiable reasons while allowing the claim of deduction. He has held that as per provisions of section 80AB the profit eligible for deduction must be computed in accordance with the provisions of the Act. He has also held that net profit of the eligible unit must be computed in accordance with the provisions of section 28 to 43D of the Act. Relying on the decision of Hon’ble Supreme Court in the case of Plastiblends India Ltd. Vs. ACIT reported in 178 Taxman 397, the decision of Hon’ble Bombay High Court in the case of Betts India (P) Ltd. Vs. ACIT reported in 114 taxmann.com 509 (Bombay) and the CBDT Circular No.37/2016, ld.CIT(A) has correctly and rightly allowed the claim of deduction u/s.80IA of the Act. He accordingly submitted that the order of ld.CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue should be dismissed.
10. We have heard the rival arguments made by both the sides and perused the record. We find the assessee in the impugned assessment year has claimed deduction u/s.80IA of the Act in respect of the two units namely Shetphalgade and Kannad which are engaged in the business of Power Generation. The total deduction claimed u/s.80IA of the Act in respect of the two units are as under:
| Name of the undertaking | Amount of deduction in (Rs.) |
|---|---|
| Shetphalgade | Rs.28,31,05,135/- |
| Kannad | Rs.19,07,75,889/- |
| Total | Rs.47,38,81,024/- |
11. We find the Assessing Officer, applying the provisions of section 80IA, restricted the deduction only to the extent of profits and gains derived by an undertaking from the eligible business and accordingly reworked the deduction u/s.80IA in respect of the two units by considering the profit as per the profit and loss account of the two units and accordingly restricted the disallowance to Rs.40,95,00,569/- as against Rs.47,38,81,024/- claimed by the assessee, the details of which are as under:
| Unit | Name | As per profit/gain of books | As claimed u/s.80IA | Difference |
|---|---|---|---|---|
| 1 | Shetphalgade | 25,39,67,861 | 28,31,05,135 | 2,91,37,274 |
| 2 | Kannad | 15,55,32,708 | 19,07,75,889 | 3,52,43,181 |
| Total | 6,43,80,455 |
12. We find the ld.CIT(A) allowed the claim of deduction made by the assessee, the reasons of which have already been reproduced in the preceding paragraph. We do not find any infirmity in the order of ld.CIT(A) on this issue. In our opinion, as per the provisions of section 80AB, the profits eligible for deduction must be computed in accordance with the provisions of the Act. The net profit of the eligible unit must be computed in accordance with the provisions of section 28 to 43D of the Act.
13. We find the CBDT Circular No.37/2016 dated 02.11.2016 reads as under:
“Subject: Chapter VI-A deduction on enhanced profits- Reg.
Chapter VI-A of the Income-tax Act, 1961 (“the Act”), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.
2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows:
(i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee’s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases:
Income-tax Officer – Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court.¹
Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.2
(ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case:
Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court.3
The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.
3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.
4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned.”
14. A perusal of the above circular shows that statutory disallowances or adjustments such as those related to sections 32, 40(a)(ia), 40A(3), 43B of the Act enhances the profits of the eligible business and that deduction under Chapter VIA is admissible on the profits so enhanced by the disallowance.
15. We find the Hon’ble Bombay High Court in the case of Plastiblends India Ltd. v. ACIT (Supra) while allowing deduction u/s.80IA of the Act has held that quantum of deduction u/s.80IA of the Act has to be determined by computing total income from business after deducting all deductions allowable under sections 30 to 43D. Relevant observations of the decision is reproduced as under:
“44. To summarise, firstly, the Apex Court decision in the case of Mahendra Mills (supra) cannot be construed to mean that by disclaiming deprecia-tion, the assessee can claim enhanced quantum of deduction under section 80-IA. Secondly, the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra) and in the case of Liberty India (P.) Ltd. (supra) has clearly held that the special deduction under Chapter VI-A has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected. Thirdly, this Court in the case of Albright Morarji & Pandit Ltd. (supra), Grasim Industries Ltd.’s case (supra) and Asian Cable Corpn. Ltd.’s case (supra) has only followed the decisions of the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra). Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. Therefore, whether the assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of deduction under section 80-IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act.
45. Apart from the above, in the present case, as fairly stated by Mr. Dastur, the assessee is disclaiming depreciation neither with a view to be charitable nor with a view to pay more tax than what is legally payable. In the present case, the assessee by disclaiming depreciation, seeks deduction under section 80-IA at Rs. 100 instead of Rs. 20 which is legally permissible as per the illustration at para 33 above. Once it is held that the quantum of deduction allowable under section 80-IA after deducting all deductions allowable under sections 30 to 43D is Rs. 20 only (as per the illustration at para 33), then, by disclaiming current depreciation, the assessee would be worse off, because by disclaiming depreciation the assessee would have to pay tax on Rs. 80 and if depreciation is allowed, then there would be no tax liability. In these circumstances, disclaiming depreciation being not in the interest of the assessee, the Assessing Officer was justified in allowing depreciation to the assessee, so that no tax liability is fastened upon the assessee by disclaiming depreciation.
46. Now, let us consider the argument as to whether the observations made by this Court in the case of Indian Rayon Corpn. Ltd. (supra) which is followed in the case of Scoop Industries (P.) Ltd. (supra) are contrary to the dictum laid down by the Apex Court in the case of Mahendra Mills (supra) and Distributors (Baroda) (P). Ltd.’s case (supra). It is true that in the case of Indian Rayon Corpn. Ltd. (supra) the assessee therein had claimed depreciation and the observations of this Court relating to cases where the assessee has not claimed depreciations were only general observations. Considerable argument was advanced by the Counsel for the assessee on the binding nature of such general observations. However, we do not consider it necessary to deal with those arguments, because in our opinion, those general observations are in consonance with the ratio laid down by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra) and reiterated again in the case of Liberty India (supra). Even in the case of Grasim Industries Ltd. (supra), this Court has held that deduction under section 80HH in Chapter VI-A has to be computed after deducting development rebate allowable under section 33 of the Act. Thus, in our opinion, there is no conflict whatsoever in the decisions of this Court in the case of Grasim Industries Ltd. (supra) and Indian Rayon Corpn. Ltd. (supra) and the ratio laid down in both the above cases are in consonance with the ratio laid down by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra) and other cases referred to hereinabove.
47. Thus, the common thread passing through the above decisions of the Apex Court as well as the decisions of this Court including the decision in the case of Indian Rayon Corpn. Ltd. (supra) is that the deductions under Chapter VI-A are linked to profits and the profits for the purposes of deduction under Chapter VI-A have to be determined after considering all deductions allowable under the Act (except deductions allowable under Chapter VI-A). Therefore, whether the assessee has claimed current depreciation or not has no bearing in determining the quantum of deduction allowable under section 80-IA of the Act and once it is found that disclaiming depreciation is not in the interest of the assessee, the Assessing Officer was justified in allowing current depreciation to the assessee.
48. For all the aforesaid reasons, we hold that the quantum of deduction under section 80-IA is not dependent upon the assessee claiming or not claiming depreciation, because, under section 80-IA the quantum of deduction has to be determined by computing total income from business after deducting all deductions allowable under sections 30 to 43D of the Act
49. In the result, we answer the question referred to us set out at para 1 above in the affirmative, that is, for the purposes of deduction under Chapter VI-A, the gross total income has to be computed inter alia by deducting the deductions allowable under sections 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation.”
16. We find the Hon’ble Supreme Court has affirmed the above decision of the Hon’ble Bombay High Court and held that quantum of deduction u/s.80IA of the Act is to be allowed by computing the income of the eligible business after taking into consideration the deductions allowable under sections 28 to 43D of the Act. Respectfully following the decisions cited (supra) and in view of the detailed reasoning given by the ld.CIT(A), we do not find any infirmity in his order allowing the claim of deduction u/s.80IA of the Act. Accordingly, the grounds of appeal No.1 to 3 raised by the Revenue are dismissed.
17. Ground No.4 raised by the Revenue relates to the order of ld.CIT(A) in directing the Assessing Officer not to reduce the carried forward MAT credit of Rs.13,08,21,618/-.
18. Facts of the case, in brief, are that the Assessing Officer in the assessment order reduced the claim of carried forward MAT credit of Rs.13,08,21,618/- on the basis of income assessed for assessment year 2020-21 at Rs.9,63,92,470/- and observing that the tax on normal income exceeded the tax u/s 115JB of the Act thereby neutralizing the MAT credit carried forward from prior years.
19. Before the Ld. CIT(A) it was submitted that the assessment order for 2020- 21 which resulted in the reduction of MAT credit to Nil is pending before the Ld. CIT(A). Hence, the current assessment cannot give effect to an adjustment that is sub-judice particularly when the calculation hinges entirely on the disputed prior year figure. It was further argued that the Assessing Officer failed to correct the book profit figure adopted from the 143(1) intimation to the correct figure reported in the ITR.
20. Based on the arguments advanced by the assessee, the Ld. CIT(A) directed the Assessing Officer not to reduce the carried forward MAT credit of Rs.13,08,21,618/- based on the outcome of the assessment year 2020-21 until the appellate proceedings pertaining to assessment year 2020-21 reaches finality. He also directed the Assessing Officer to rectify the assessed book profit u/s 115JB by adopting the book profit figure that results after incorporating the amalgamation adjustments determined in para 25 of his order and correcting the starting base figure of book profit adopted in the 143(3) order. The relevant observations of the Ld. CIT(A) read as under:
F.4 Findings and Reason:
29. I shall first address the reduction of MAT credit (Ground 3.1). The AO’s action of giving effect to the AY 2020-21 order, which determined the quantum of carried forward MAT credit, is premature and fundamentally flawed because the underlying assessment order is pending appeal before the appellate authority.
30. The principle established in precedents concerning recurring issues is highly relevant here. In C and E Ltd. v. Principal Commissioner of Income-tax 154 taxmann.com 226 (Calcutta), the High Court held that “As long as the benefit granted under Section 80IC for the first year of substantial expansion remains unaltered, the assessing officer would have no jurisdiction to revisit the same issue in the subsequent assessment years.” While the specific facts relate to 80IC, the underlying judicial principle—that an issue settled or currently challenged in an earlier year should not be disturbed in a subsequent year merely to maintain consistency with the lower authority’s view when the issue itself is sub-judice—must be applied. The denial of MAT credit hinges on a preceding year’s determined tax liability which is currently under appeal. Therefore, the AO was unjustified in giving final effect to this denial in AY 2021-22 while the basis of the denial is still pending resolution.
31. I shall next address the inconsistency regarding Book Profit (Ground 4). The AO acknowledged that the assessee provided detailed explanations regarding the computation of book profit under Section 115JB, particularly concerning the effects of amalgamation. Although the AO concluded that “no adverse inference are drawn” regarding amalgamation related issues concerning book profit, the AO failed to rectify the erroneous starting figure of Book Profit adopted from the 143(1) processing. This action is patently erroneous, as the AO conducted a full scrutiny assessment and implicitly validated the methodology involving amalgamation effects, yet consciously failed to correct the primary mathematical error stemming from the intimation stage. The AO cannot rely on the finding of “no adverse inference” while simultaneously ignoring the necessary correction to the base income figure.
F.5 Decision:
32. Ground No. 3.1 & 4 are hereby allowed. The Assessing Officer is directed not to reduce the carried forward MAT credit of Rs. 13,08,21,618/- based on the outcome of the assessment year 2020-21, until the appellate proceedings pertaining to AY 2020-21 reach finality. Further, the AO is directed to rectify the assessed book profit under Section 115JB by adopting the book profit figure that results after incorporating the amalgamation adjustments determined in paragraph 25 of this order and correcting the starting base figure of book profit adopted in the 143(3) order, as prayed for by the Appellant.
21. Aggrieved with such order of the Ld. CIT(A) the Revenue is in appeal before the Tribunal.
22. After hear ing both the sides, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. We find the Ld. CIT(A) has directed the Assessing Officer not to reduce the claim of carried forward MAT credit to Rs.13,08,21,618/- based on the outcome of the assessment year 2020- 21 until the appellate proceedings pertaining to assessment year 2020-21 reaches finality. While doing so he relied on the decision of Ltd. vs. PCIT (supra) according to which as long as the benefit granted u/s 80IC for the first year of substantial expansion remains unaltered, the Assessing Officer would have no jurisdiction to revisit the same issue in the subsequent assessment years. Although he has relied on the decision of Hon’ble Calcutta High Court on the issue that relates to the provisions of section 80IC, however, in our opinion the same ratio is applicable to the provisions of section 115JB of the Act. We find, the Ld. CIT(A) has also given a finding regarding the inconsistency in the book profit. He has observed that the Assessing Officer has acknowledged that the assessee provided detailed explanations regarding the computation of book profit u/s 115JB particularly concerning the effects of amalgamation. The Ld. DR could not controvert the factual finding given and the reasoned order passed by the Ld. CIT(A). Therefore, in absence of any contrary material brought to our notice, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, the same is upheld. Ground No.4 raised by the Revenue is accordingly dismissed.
23. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 25th August, 2026.
List of Cases Discussed / Relied Upon
- Plastiblends India Ltd. v. Additional Commissioner of Income-Tax & Ors.,178 Taxman 397 (Bombay) — relied upon concerning computation of the quantum of deduction under Section 80-IA after taking into account deductions allowable under Sections 30 to 43D.
- Betts India (P.) Ltd. v. Assistant Commissioner of Income-tax,114 taxmann.com 509 (Bombay) — relied upon concerning deduction of depreciation allowable under Section 32 while determining entitlement to deduction under Section 80-IB.
- C and E Ltd. v. Principal Commissioner of Income-tax,154 taxmann.com 226 (Calcutta) — considered concerning the principle relating to an issue arising in a subsequent assessment year while the basis of the earlier-year determination remains under appeal.
- Income-tax Officer – Ward 5(1) vs. Keval Construction,Tax Appeal No. 443 of 2012, dated 10.12.2012 (Gujarat High Court) — cited in CBDT Circular No. 37/2016 concerning Chapter VI-A deduction on enhanced profits resulting from disallowance under Section 40(a)(ia).
- Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari,IT Appeal No. 2 of 2011, dated 11.09.2015 (Bombay High Court) — cited in CBDT Circular No. 37/2016 concerning Chapter VI-A deduction on enhanced profits.
- Principal CIT, Kanpur vs. Surya Merchants Ltd.,I.T. Appeal No. 248 of 2015, dated 03.05.2016 (Allahabad High Court) — cited in CBDT Circular No. 37/2016 concerning deduction on enhanced profits after disallowance under Section 40A(3).
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Revenue is directed against the order dated 28 November, 2025 of the Ld. CIT(A), Pune – 13 relating to assessment year 2021-22.
2. Grounds raised by the Revenue are as under:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified by allowing deduction under Section 80-IA amounting to Rs.47,38,81,024/, without appreciating that the deduction is allowable only on the profits and gains of the eligible undertaking as per its commercial/book profits and not on income recomputed after making tax adjustments.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in ignoring the fact that the profits of the eligible undertaking for the purpose of Section 80-IA are required to be computed strictly in accordance with Sections 28 to 44 of the Act, ignoring the specific wording of Section 80-IA which restricts the deduction to “profits and gains derived from” the eligible business, and relying upon Section 80AB for computation of deduction under Section 80-IA, without appreciating that Section 80-IA is a self-contained code and the profits eligible for deduction must be derived directly from the eligible business and not enhanced by artificial tax adjustments.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified by accepting the assessee’s method of computing eligible profits by adding back book depreciation, substituting tax depreciation, and including other non-operational incomes, thereby disregarding the principle that deduction under Section 80-IA cannot exceed the actual profits of the eligible undertaking as reflected in the separate books of account maintained for such undertaking.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified by directing the Assessing Officer not to reduce the carried-forward MAT credit of Rs.13,08,21,618/- by holding that the adjustment based on the assessment order for A.Y. 2020-21 was premature merely because the said assessment order is pending in appeal, without appreciating that the Assessing Officer is statutorily bound to compute and allow MAT credit under section 115JAA on the basis of assessment orders in force as on the date of assessment, and that the pendency of an appeal does not render such assessment order inoperative or non est.
5. The appellant craves to add amend, alter or delete the above grounds of appeal during the course of appellate proceeding before the Hon’ble Tribunal.
3. Grounds of appeal No.1 to 3 raised by the Revenue relate to the order of the Ld. CIT(A) in allowing the claim of deduction u/s.80-IA amounting to Rs.47,38,81,024/ as against Rs.40,95,00,569/- allowed by the Assessing Officer.
4. Facts of the case, in brief, are that the assessee is a company primarily engaged in the business of Poultry activities which includes Hatchery, Layer, Contract Farming and other Agricultural activities alongside sectors like sugar, ethanol manufacturing and co-generation of power. It filed its return of income on 14.03.2022 declaring total income of Rs.63,27,52,360/-. The return was processed u/s.143(1) of the Income Act 1961 (hereinafter referred as ‘the Act’) on 22.09.2022. Subsequently, the case of the assessee was selected for scrutiny on the issue of “Refund claim and Specified Domestic Transactions” (SDT). A reference was also made to the Transfer Pricing Officer (TPO) referring the Specified Domestic Transactions who passed an order without any upward/downward adjustment. During the course of assessment proceedings, the Assessing Officer noted that assessee has claimed deduction u/s.80IA in respect of its two units viz., Shetphalgade at Rs.28,31,05,135/- and Kannad at Rs.19,07,75,889/-. He noted that assessee has claimed deduction u/s.80IA which is more than the book profit of the company which he summarized as under:
| Unit | Name | As per profit/gain of books | As claimed u/s.80IA | Difference |
|---|---|---|---|---|
| 1 | Shetphalg ade | 25,39,67,861 | 28,31,05,135 | 2,91,37,274 |
| 2 | Kannad | 15,55,32,708 | 19,07,75,889 | 3,52,43,181 |
| Total | 6,43,80,455 |
5. Thus, the profit derived from the eligible business worked out at Rs 25,39,67,861/- and Rs.15,55,32,708/- totaling to Rs.40,95,00,569/- which is eligible for deduction u/s.80IA(4)(iv) being 100% of the book profit. However, assessee has claimed an amount of Rs.28,31,05,135/- and Rs.19,07,75,889/- respectively as deduction u/s.80IA of the Act for the 2 units. He therefore asked the assessee to explain as to why the excess claim of deduction at Rs.6,43,80,455/- over the book profit should not be disallowed. Rejecting the various explanations given by the assessee, he made disallowance of Rs.6,43,80,455/- u/s.80IA by observing as under :
“The net profit decreased by you due to amalgamation adjustment comes to 30,97,38,160/- which is based on the order passed by NCLT. Further, as per online data, both the Transferor Company has filed its Financial Statements for the year ended 31.03.2021 which shows that respective companies have filed their return of income considering the said impact. Furthermore, the amalgamation adjustment has also been made on the Book Profit calculation as required u/s 115JB of the Act. You are, therefore, requested to explain with documentary evidences like ROIs, computation of income, treatment given in the account(s) etc. of amalgamated company and also show cause as to why the proposed disallowance should not be made.
6. In appeal, the ld.CIT(A) allowed the claim of deduction u/s.80IA of the Act by observing as under:
“D.4 Findings and Reason:
13. I have carefully analyzed the submissions and the underlying statutory scheme governing deductions under Chapter VI-A of the Act. The central point of contention revolves around the definition and computation of “profits and gains derived from such business” under Section 80IA(1).
14. The argument advanced by the AO, relying on the commercial sense of “profits and gains” and thereby restricting the deduction merely to the book profit maintained for the separate unit, exhibits a deficiency in understanding the computation mechanism mandated by the Act.
15. Chapter VI-A deductions are “profit-linked incentives”. While Section 80-IA is considered a code by itself, Section 80AB mandates the manner of calculating the income eligible for deduction. Section 80AB states:
“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.”
16. Therefore, the profits eligible for deduction must be those computed “in accordance with the provisions of this Act”. This implies that the net profit of the eligible unit (derived from business/profession) must be computed after incorporating all relevant provisions of Chapter IV-D, including Sections 30 to 43D, irrespective of whether the assessee claims or disclaims certain deductions like current depreciation.
17. The judicial principle established by the Hon’ble Bombay High Court, which was affirmed by the Hon’ble Supreme Court in Plastiblends India Ltd. v. Additional Commissioner of Income-Tax & Ors. 178 Taxman 397 (Bombay), settles this matter. The Hon’ble Supreme Court confirmed the Full Bench view that the quantum of deduction allowable under section 80-IA has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act.”.
18. Furthermore, the Hon’ble Bombay High Court in Betts India (P.) Ltd. v. Assistant Commissioner of Income-tax 114 taxmann.com 509 (Bombay) held similarly, confirming that “it was mandatory to deduct depreciation allowable under section 32 while determining assessee’s entitlement to deduction under section 80-IB, even though assessee had not claimed such depreciation”. Although this specific case related to Section 80IB, the computation principle is identical across Chapter VI-A deductions.
19. Thus, the Appellant’s approach of calculating the ‘Taxable Profit of Units’ by adjusting the book profit with items like depreciation u/s 32 and other allowable/disallowable items specified in Sections 28 to 44 is compliant with the requirements of Section 80AB and settled judicial precedent. The AO’s reliance on restricting the deduction solely to the ‘Book Profit’ ignores the statutory mechanism as well as judicial precedents for computing taxable profits, and is therefore legally unsustainable.
Furthermore, the Appellant has placed reliance on CBDT circular no 37/2016. The said Circular explicitly acknowledges that statutory disallowances or adjustments, such as those related to Section 32 (depreciation), Section 40(a), Section 40A(3), or Section 43B, enhance the profits of the eligible business, and the deduction under Chapter VI-A is admissible on the profit so enhanced by the disallowance. Although the Appellant’s primary contention related to substituting depreciation (a Section 32 matter), this adjustment is conceptually aligned with the Circular’s acceptance that resultant enhanced profit(s) is/are amenable to deduction under section 801A, as has been sought/done by the Appellant in the instant case. In any case, the proposition that CBDT Circulars are binding on revenue authorities need no authority to cite.
The argument of the AO based on prior year consistency (AY 2018-19) is weak, particularly since the current year involves applying the correct legal ratio upheld by superior courts, irrespective of the non-applicability of res judicata.
20. I, therefore, accept the Appellant’s contention that the deduction claimed under Section 801A amounting to Rs. 47,38,81,024/- is correctly calculated. The proposed disallowance of Rs. 6,43,80,455/- is unwarranted.”
7. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
8. The ld. Departmental Representative strongly challenged the order of ld.CIT(A) in allowing the enhanced claim of deduction u/s.80IA of the Act as claimed by the assessee. He submitted that the deduction is allowable only on the profits and gains of the eligible undertaking as per its commercial/book profits and not on income recomputed after making tax adjustments. He submitted that the Ld. CIT(A) is not justified in ignoring the fact that the profits of the eligible undertaking for the purpose of Section 80-IA are required to be computed strictly in accordance with Sections 28 to 44 of the Act. He referred to the provisions of section 80-IA and submitted that the said provision restricts the deduction to “profits and gains derived from the eligible business”. He submitted that the Assessing Officer while passing the order has given elaborate reasons while restricting the deduction u/s 80IA to Rs.40,95,00,569/- as against Rs.47,38,81,024/- claimed by the assessee. He accordingly submitted that the order of the Ld. CIT(A) be reversed and that of the Assessing Officer be restored.
9. The ld. Counsel for the assessee submitted that although the Assessing Officer has accepted that the company is entitled to deduction u/s.80IA, however, he held that deduction is allowable only to the extent of profits and gain derived by the company from the eligible business undertaking. He accordingly reworked the deduction u/s.80IA of the Act in respect of the two units by considering the book profit as per the profit and loss account of the two units. Relying on the order of ld.CIT(A), he submitted that ld.CIT(A) has given justifiable reasons while allowing the claim of deduction. He has held that as per provisions of section 80AB the profit eligible for deduction must be computed in accordance with the provisions of the Act. He has also held that net profit of the eligible unit must be computed in accordance with the provisions of section 28 to 43D of the Act. Relying on the decision of Hon’ble Supreme Court in the case of Plastiblends India Ltd. Vs. ACIT reported in 178 Taxman 397, the decision of Hon’ble Bombay High Court in the case of Betts India (P) Ltd. Vs. ACIT reported in 114 taxmann.com 509 (Bombay) and the CBDT Circular No.37/2016, ld.CIT(A) has correctly and rightly allowed the claim of deduction u/s.80IA of the Act. He accordingly submitted that the order of ld.CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue should be dismissed.
10. We have heard the rival arguments made by both the sides and perused the record. We find the assessee in the impugned assessment year has claimed deduction u/s.80IA of the Act in respect of the two units namely Shetphalgade and Kannad which are engaged in the business of Power Generation. The total deduction claimed u/s.80IA of the Act in respect of the two units are as under:
| Name of the undertaking | Amount of deduction in (Rs.) |
|---|---|
| Shetphalgade | Rs.28,31,05,135/- |
| Kannad | Rs.19,07,75,889/- |
| Total | Rs.47,38,81,024/- |
11. We find the Assessing Officer, applying the provisions of section 80IA, restricted the deduction only to the extent of profits and gains derived by an undertaking from the eligible business and accordingly reworked the deduction u/s.80IA in respect of the two units by considering the profit as per the profit and loss account of the two units and accordingly restricted the disallowance to Rs.40,95,00,569/- as against Rs.47,38,81,024/- claimed by the assessee, the details of which are as under:
| Unit | Name | As per profit/gain of books | As claimed u/s.80IA | Difference |
|---|---|---|---|---|
| 1 | Shetphalgade | 25,39,67,861 | 28,31,05,135 | 2,91,37,274 |
| 2 | Kannad | 15,55,32,708 | 19,07,75,889 | 3,52,43,181 |
| Total | 6,43,80,455 |
12. We find the ld.CIT(A) allowed the claim of deduction made by the assessee, the reasons of which have already been reproduced in the preceding paragraph. We do not find any infirmity in the order of ld.CIT(A) on this issue. In our opinion, as per the provisions of section 80AB, the profits eligible for deduction must be computed in accordance with the provisions of the Act. The net profit of the eligible unit must be computed in accordance with the provisions of section 28 to 43D of the Act.
13. We find the CBDT Circular No.37/2016 dated 02.11.2016 reads as under:
“Subject: Chapter VI-A deduction on enhanced profits- Reg.
Chapter VI-A of the Income-tax Act, 1961 (“the Act”), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.
2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows:
(i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee’s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases:
Income-tax Officer – Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court.¹
Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.2
(ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case:
Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court.3
The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.
3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.
4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned.”
14. A perusal of the above circular shows that statutory disallowances or adjustments such as those related to sections 32, 40(a)(ia), 40A(3), 43B of the Act enhances the profits of the eligible business and that deduction under Chapter VIA is admissible on the profits so enhanced by the disallowance.
15. We find the Hon’ble Bombay High Court in the case of Plastiblends India Ltd. v. ACIT (Supra) while allowing deduction u/s.80IA of the Act has held that quantum of deduction u/s.80IA of the Act has to be determined by computing total income from business after deducting all deductions allowable under sections 30 to 43D. Relevant observations of the decision is reproduced as under:
“44. To summarise, firstly, the Apex Court decision in the case of Mahendra Mills (supra) cannot be construed to mean that by disclaiming deprecia-tion, the assessee can claim enhanced quantum of deduction under section 80-IA. Secondly, the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra) and in the case of Liberty India (P.) Ltd. (supra) has clearly held that the special deduction under Chapter VI-A has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected. Thirdly, this Court in the case of Albright Morarji & Pandit Ltd. (supra), Grasim Industries Ltd.’s case (supra) and Asian Cable Corpn. Ltd.’s case (supra) has only followed the decisions of the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra). Thus, on analysis of all the decisions referred hereinabove, it is seen that the quantum of deduction allowable under section 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. Therefore, whether the assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of deduction under section 80-IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act.
45. Apart from the above, in the present case, as fairly stated by Mr. Dastur, the assessee is disclaiming depreciation neither with a view to be charitable nor with a view to pay more tax than what is legally payable. In the present case, the assessee by disclaiming depreciation, seeks deduction under section 80-IA at Rs. 100 instead of Rs. 20 which is legally permissible as per the illustration at para 33 above. Once it is held that the quantum of deduction allowable under section 80-IA after deducting all deductions allowable under sections 30 to 43D is Rs. 20 only (as per the illustration at para 33), then, by disclaiming current depreciation, the assessee would be worse off, because by disclaiming depreciation the assessee would have to pay tax on Rs. 80 and if depreciation is allowed, then there would be no tax liability. In these circumstances, disclaiming depreciation being not in the interest of the assessee, the Assessing Officer was justified in allowing depreciation to the assessee, so that no tax liability is fastened upon the assessee by disclaiming depreciation.
46. Now, let us consider the argument as to whether the observations made by this Court in the case of Indian Rayon Corpn. Ltd. (supra) which is followed in the case of Scoop Industries (P.) Ltd. (supra) are contrary to the dictum laid down by the Apex Court in the case of Mahendra Mills (supra) and Distributors (Baroda) (P). Ltd.’s case (supra). It is true that in the case of Indian Rayon Corpn. Ltd. (supra) the assessee therein had claimed depreciation and the observations of this Court relating to cases where the assessee has not claimed depreciations were only general observations. Considerable argument was advanced by the Counsel for the assessee on the binding nature of such general observations. However, we do not consider it necessary to deal with those arguments, because in our opinion, those general observations are in consonance with the ratio laid down by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra) and reiterated again in the case of Liberty India (supra). Even in the case of Grasim Industries Ltd. (supra), this Court has held that deduction under section 80HH in Chapter VI-A has to be computed after deducting development rebate allowable under section 33 of the Act. Thus, in our opinion, there is no conflict whatsoever in the decisions of this Court in the case of Grasim Industries Ltd. (supra) and Indian Rayon Corpn. Ltd. (supra) and the ratio laid down in both the above cases are in consonance with the ratio laid down by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. (supra) and other cases referred to hereinabove.
47. Thus, the common thread passing through the above decisions of the Apex Court as well as the decisions of this Court including the decision in the case of Indian Rayon Corpn. Ltd. (supra) is that the deductions under Chapter VI-A are linked to profits and the profits for the purposes of deduction under Chapter VI-A have to be determined after considering all deductions allowable under the Act (except deductions allowable under Chapter VI-A). Therefore, whether the assessee has claimed current depreciation or not has no bearing in determining the quantum of deduction allowable under section 80-IA of the Act and once it is found that disclaiming depreciation is not in the interest of the assessee, the Assessing Officer was justified in allowing current depreciation to the assessee.
48. For all the aforesaid reasons, we hold that the quantum of deduction under section 80-IA is not dependent upon the assessee claiming or not claiming depreciation, because, under section 80-IA the quantum of deduction has to be determined by computing total income from business after deducting all deductions allowable under sections 30 to 43D of the Act
49. In the result, we answer the question referred to us set out at para 1 above in the affirmative, that is, for the purposes of deduction under Chapter VI-A, the gross total income has to be computed inter alia by deducting the deductions allowable under sections 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation.”
16. We find the Hon’ble Supreme Court has affirmed the above decision of the Hon’ble Bombay High Court and held that quantum of deduction u/s.80IA of the Act is to be allowed by computing the income of the eligible business after taking into consideration the deductions allowable under sections 28 to 43D of the Act. Respectfully following the decisions cited (supra) and in view of the detailed reasoning given by the ld.CIT(A), we do not find any infirmity in his order allowing the claim of deduction u/s.80IA of the Act. Accordingly, the grounds of appeal No.1 to 3 raised by the Revenue are dismissed.
17. Ground No.4 raised by the Revenue relates to the order of ld.CIT(A) in directing the Assessing Officer not to reduce the carried forward MAT credit of Rs.13,08,21,618/-.
18. Facts of the case, in brief, are that the Assessing Officer in the assessment order reduced the claim of carried forward MAT credit of Rs.13,08,21,618/- on the basis of income assessed for assessment year 2020-21 at Rs.9,63,92,470/- and observing that the tax on normal income exceeded the tax u/s 115JB of the Act thereby neutralizing the MAT credit carried forward from prior years.
19. Before the Ld. CIT(A) it was submitted that the assessment order for 2020- 21 which resulted in the reduction of MAT credit to Nil is pending before the Ld. CIT(A). Hence, the current assessment cannot give effect to an adjustment that is sub-judice particularly when the calculation hinges entirely on the disputed prior year figure. It was further argued that the Assessing Officer failed to correct the book profit figure adopted from the 143(1) intimation to the correct figure reported in the ITR.
20. Based on the arguments advanced by the assessee, the Ld. CIT(A) directed the Assessing Officer not to reduce the carried forward MAT credit of Rs.13,08,21,618/- based on the outcome of the assessment year 2020-21 until the appellate proceedings pertaining to assessment year 2020-21 reaches finality. He also directed the Assessing Officer to rectify the assessed book profit u/s 115JB by adopting the book profit figure that results after incorporating the amalgamation adjustments determined in para 25 of his order and correcting the starting base figure of book profit adopted in the 143(3) order. The relevant observations of the Ld. CIT(A) read as under:
F.4 Findings and Reason:
29. I shall first address the reduction of MAT credit (Ground 3.1). The AO’s action of giving effect to the AY 2020-21 order, which determined the quantum of carried forward MAT credit, is premature and fundamentally flawed because the underlying assessment order is pending appeal before the appellate authority.
30. The principle established in precedents concerning recurring issues is highly relevant here. In C and E Ltd. v. Principal Commissioner of Income-tax 154 taxmann.com 226 (Calcutta), the High Court held that “As long as the benefit granted under Section 80IC for the first year of substantial expansion remains unaltered, the assessing officer would have no jurisdiction to revisit the same issue in the subsequent assessment years.” While the specific facts relate to 80IC, the underlying judicial principle—that an issue settled or currently challenged in an earlier year should not be disturbed in a subsequent year merely to maintain consistency with the lower authority’s view when the issue itself is sub-judice—must be applied. The denial of MAT credit hinges on a preceding year’s determined tax liability which is currently under appeal. Therefore, the AO was unjustified in giving final effect to this denial in AY 2021-22 while the basis of the denial is still pending resolution.
31. I shall next address the inconsistency regarding Book Profit (Ground 4). The AO acknowledged that the assessee provided detailed explanations regarding the computation of book profit under Section 115JB, particularly concerning the effects of amalgamation. Although the AO concluded that “no adverse inference are drawn” regarding amalgamation related issues concerning book profit, the AO failed to rectify the erroneous starting figure of Book Profit adopted from the 143(1) processing. This action is patently erroneous, as the AO conducted a full scrutiny assessment and implicitly validated the methodology involving amalgamation effects, yet consciously failed to correct the primary mathematical error stemming from the intimation stage. The AO cannot rely on the finding of “no adverse inference” while simultaneously ignoring the necessary correction to the base income figure.
F.5 Decision:
32. Ground No. 3.1 & 4 are hereby allowed. The Assessing Officer is directed not to reduce the carried forward MAT credit of Rs. 13,08,21,618/- based on the outcome of the assessment year 2020-21, until the appellate proceedings pertaining to AY 2020-21 reach finality. Further, the AO is directed to rectify the assessed book profit under Section 115JB by adopting the book profit figure that results after incorporating the amalgamation adjustments determined in paragraph 25 of this order and correcting the starting base figure of book profit adopted in the 143(3) order, as prayed for by the Appellant.
21. Aggrieved with such order of the Ld. CIT(A) the Revenue is in appeal before the Tribunal.
22. After hear ing both the sides, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. We find the Ld. CIT(A) has directed the Assessing Officer not to reduce the claim of carried forward MAT credit to Rs.13,08,21,618/- based on the outcome of the assessment year 2020- 21 until the appellate proceedings pertaining to assessment year 2020-21 reaches finality. While doing so he relied on the decision of Ltd. vs. PCIT (supra) according to which as long as the benefit granted u/s 80IC for the first year of substantial expansion remains unaltered, the Assessing Officer would have no jurisdiction to revisit the same issue in the subsequent assessment years. Although he has relied on the decision of Hon’ble Calcutta High Court on the issue that relates to the provisions of section 80IC of the Act, however, in our opinion the same ratio is applicable to the provisions of section 115JB of the Act. We find, the Ld. CIT(A) has also given a finding regarding the inconsistency in the book profit. He has observed that the Assessing Officer has acknowledged that the assessee provided detailed explanations regarding the computation of book profit u/s 115JB particularly concerning the effects of amalgamation. The Ld. DR could not controvert the factual finding given and the reasoned order passed by the Ld. CIT(A). Therefore, in absence of any contrary material brought to our notice, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, the same is upheld. Ground No.4 raised by the Revenue is accordingly dismissed.
23. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 25th August, 2026.
