Deduction u/s 80IA and 80HHC are to be calculated independently on the eligible profits

2. After hearing both the parties, we find that Mumbai Bench of the Tribunal in ITA no.1901 and 1902 /Mum./2003, vide order dated 18^th August 2009, at Para-9, followed the order of another Bench of the Tribunal in the case of Geetanjali Chemicals Pvt. Ltd. in ITA no.1385/Mum./2004 and directed the Assessing Officer to compute independently deduction under sections 80IA and 80HHC of the Income Tax Act, 1961 (for short “the Act”). After such computation, it was directed that the Assessing Officer should ensure that total deduction does not exceed the profit and gains of the undertaking. The Assessing Officer has not followed these directions.

3. At Para-3.3.1, the Commissioner (Appeals) observed as follows:-

3.3.1 Therefore, from the above, it is explicitly made clear that the deduction under section 80IB and 80HHC are to be computed independently on the eligible profit of the undertaking. The deduction under section 80IB is to be allowed first and deduction under section 80HHC is to be allowed on the remaining profit and gains of the industrial undertaking. The Honourable ITAT has nowhere held that the deduction under section 80HHC is to be allowed on the profit of the business including deduction under section 80IB. On the other hand, as noted above the Honourable ITAT has clearly held that deduction under section 80HHC is to be allowed on the remaining profit and gains of the undertaking i.e., on the profit of the business reduced by the deduction allowed under section 80IB. Therefore, on account of these specific directions of the Honourable ITAT, I find that there is no mistake or wrong calculation of deduction under section 80IB and 80HHC on the part of the A.O. The claim of the appellant as mentioned above is misplaced. On the other words, the claim made is against the order of the Honourable ITAT. Therefore, I find no inconsistency or incorrect computation of deduction under section 80IB and 80HHC of the Act on the part of A. 0. The same is accordingly confirmed. Therefore, ground of appeal for both the assessment years is dismissed.”

4. On plain reading of the above paragraph, it is clear that there is a contradiction in the order of the Commissioner (Appeals). In the first line, the Commissioner (Appeals) says that deductions under section 80IB and 80HHC are to be computed independently, whereas, in the next sentence, he says that the Assessing Officer is right.

5. Honourable Jurisdictional High Court in Associated Capsules Pvt. Ltd. v/s DCIT, 2011-TIOL-28-HC-MUM, has held as follows:-

“S. 80-IA (9) cannot be interpreted to mean that s. 80-IA deduction has to be reduced for computing s. 80HHC deduction

S. 80-IA (9) inserted w. e. f. 1.4.1989 provides that where any amount of profits and gains of an undertaking is claimed and allowed under s. 80-IA for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter VI-A (C) and shall in no case exceed the profits and gains of such eligible business. The Court had to consider whether the deduction allowed u/s 80-IA had to be reduced from the profits for computing deduction u/s 80HHC. HELD dissenting from Rogini Garments 108 ITD 49 (Che)(SB), Hindustan Mint & Agro Products 119 ITD 107 (Del) (SB), Great Eastern Exports (Del) & Olam Exports (India) Ltd 184 TM 373 (Ker) & deciding in favour of the assessee:

(i) The argument of the Revenue that s. 80IA(9) mandates that the deduction u/s 80HHC has to be computed by reducing the amount of profits and gains allowed as deduction u/s 80IA(1) is not acceptable. S. 80IA(9) uses the words ‘shall not be allowed’ and not the words ‘shall not qualify’ or ‘shall not be allowed in computing deduction’. Accordingly,the restriction in s. 80IA(9) relates to the allowance of deduction and not computation of deduction. The manner of computation of deduction u/s 80HHC(1) is set out in s. 80HHC(3). S. 80IA(9) does not disturb the mechanism of computing the deduction provided u/s 80HHC (3). S. 80IA(9) comes into operation only at the stage of allowing the deduction computed u/s 80HHC so that the combined deduction u/s 80IA and 80HHC does not exceed the total profits of the business of the undertaking. S. 80IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading ‘C’ of Chapter VIA;

(ii) The reasonable construction of s. 80IA(9) is that where deduction is allowed u/s 80IA(1), then the deduction computed under other provisions under heading ‘C’ of Chapter VIA has to be restricted to the profits of the business that remains after excluding the profits allowed as deductions u/s 80IA, so that the total deduction allowed under the heading ‘C’ of Chapter VIA does not exceed the profits of business.”