Sarla Fashion Garments Vs CIT (ITAT Delhi)
The appeal arose from an order passed under Section 263 of the Income Tax Act, 1961, whereby the Commissioner set aside an earlier appellate order that had allowed deduction under Section 80IB on the full gross total income without reducing the deduction already allowed under Section 80HHC.
The Commissioner interpreted Section 80IA(9) read with Section 80IB(13) and concluded that the deduction under Section 80IB required recomputation after considering the deduction already granted under Section 80HHC. Accordingly, the Assessing Officer was directed to recompute the deduction.
The assessee challenged this order, contending that the Commissioner had erred in disallowing deduction under Section 80IB on the full amount of income and in setting aside the earlier appellate order.
During the hearing, the assessee submitted that the issue had subsequently been settled by the Supreme Court in the case of Shital Fibers Limited. Reliance was placed on the Supreme Court’s interpretation of Section 80IA(9), wherein it was held that the provision does not require deduction allowed under Section 80IA to be reduced from the gross total income while computing deductions under other provisions under Heading “C” of Chapter VI-A.
The Supreme Court had clarified that the restriction contained in Section 80IA(9) is not on the computation of deductions but on their allowability. The provision ensures that aggregate deductions claimed under Section 80IA and other provisions under Heading “C” do not exceed 100% of the eligible business profits. The Court approved the view of the Bombay High Court in Associated Capsules (P) Ltd., holding that Section 80IA(9) affects the allowability of deductions and not the manner of their computation. The objective of the provision was identified as preventing repeated deductions on the same income in excess of eligible profits, rather than curtailing the computation of deductions under different provisions.
