Section 80HHC Deduction Must Be Computed Independently Before Section 80-IA Restriction: Rajasthan HC

Secure Meters Ltd. Vs ACIT (Rajasthan High Court)

Summary: The Rajasthan High Court allowed the assessee’s appeal concerning Assessment Year 2003-04 and answered both substantial questions of law, to the extent adjudicated, in favour of the assessee. The assessee, engaged in manufacturing solid-state electronic energy meters, had returned income of Rs.8,57,28,280/-, while the Assessing Officer assessed income at Rs.9,27,23,840/-. The first dispute concerned computation of deduction under Sections 80-IA/80-IB and Section 80HHC. The Assessing Officer had held that, by virtue of Section 80-IA(9) read with Section 80-IB(13), the deduction claimed under Sections 80-IA/80-IB had to be reduced from business profits before computing deduction under Section 80HHC.

The Tribunal agreed, relying on Assistant Commissioner of Income Tax v. Rogini Garments. The High Court applied the three-Judge Bench ruling of the Supreme Court in Shital Fibers Ltd. v. Commissioner of Income Tax, which approved the approach in Associated Capsules (P.) Ltd. v. Deputy Commissioner of Income Tax. It held that Section 80-IA(9) affects the allowability rather than computation of deductions. Consequently, deduction under Section 80HHC had to be computed independently under its own statutory formula, with Section 80-IA(9), read with Section 80-IB(13), operating thereafter at the allowance stage to prevent repeated deduction of the same profits and ensure that aggregate deduction did not exceed eligible business profits.