Case Law Details
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.
After considering the submissions and examining the record, the Tribunal observed that the basis on which the Commissioner had treated the assessment order as erroneous and prejudicial to the interests of the Revenue no longer survived in view of the Supreme Court’s authoritative interpretation in Shital Fibers.
The Tribunal held that the interpretation adopted by the Commissioner was not correct. Consequently, the action of the Assessing Officer in allowing the deduction could not be regarded as erroneous or prejudicial to the interests of the Revenue. As a result, the order passed under Section 263 was found unsustainable in law.
Accordingly, the Tribunal allowed the assessee’s appeal and set aside the impugned order.
FULL TEXT OF THE ORDER OF ITAT DELHI
In this case there is an order dated 17.12.2025, passed in MA No.341/Del/2022, through which an earlier appeal of the assessee for AY 2001-02 (being the year under adjudication) was dismissed for non-persuasion with liberty to file for recall as and when the correct address was ascertained. Thereafter, the appeal was recalled through the instant MA and fixed before regular bench.
2. This appeal arises from order u/s 263 of the Income Tax Act, 1961 (hereafter as “the Act”), passed by Ld. CIT(A), Delhi-XI, order dated 14.03.2006. It is seen that through the impugned order the Ld. CIT has set aside the order u/s 250 of the Act dated 20.10.2004, through which deduction u/s 80IB of the Act was allowed on the full gross total income apparently without reducing it by the deduction u/s 80HHC of the Act which was already allowed. The Ld. CIT interpreted the provisions of section 80IA(9) and section 80AB(13) of the Act to arrive at the conclusion mentioned in the last para of the impugned order, whereby he has directed the Ld. AO to re-compute the deduction u/s 80IB of the Act with reference to section 80IB(13) r.w.s. 80IA(9) of the Act.
3.The assessee is aggrieved with this order and has filed the appeal with the following grounds: –
1. “That the Ld. CIT-XI has erred in law and facts of the case while disallowing deduction under section 80-IB on full amount of income, allowed by CIT(A)-XXVI, without reducing deduction under section 80-HHC of Income Tax Act.
2. That in view of facts and circumstances, the action of learned CIT-XI, is erroneous to set aside order under section 250 dated 24.06.2004/20.10.2004 passed by the CIT(A)-XXVI.
3.That the appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.”
4. The Ld. AR stated that since the time of passing of the impugned order the issue has been settled by the Hon’ble Apex Court through the case of Shital Fibers Limited reported in 476 ITR 309 (SC). The Ld. AR pointed out and read from the headnotes of this case as under: –
- “Sub-section (9) of section 80-IA, on its plain reading, does not provide that when a deduction is allowed under section 80-1A, while considering the claim for deduction under any of the provision under heading “C”, the deduction allowed under section 80-1A should be deducted from the gross total income. The restriction under sub-section (9) of section 80-1A is not on computing the total gross income. It restricts deduction under any other provision under heading ‘C’ to the extent of the deduction claimed under section 80-IA. [Para 21]
- The Bombay High Court, in the case of Associated Capsules (P) Ltd. v. Dy. CIT [2011] 9 com 63/197 Taxman 84/332 ITR 42. held that section 80-1A(9) does not affect the computability of deduction under various provisions under heading C of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A, so that the aggregate deduction under section 80-1A and other provisions under heading C of Chapter VI-A do not exceed 100 per cent. of the profits of the business of the assessee. The above view is also supported by the Central Board of Direct Taxes Circular No. 772 dated 23-12-1998 ((1999) 235 TR (St.) 35), wherein it is stated that section 80-1A(9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80-IA(9) being not to curtail the deductions computable under various provisions under heading C of Chapter VI-A, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. [Para 22]
- Hence, it is found that the view taken by the Bombay High Court is correct. [Para 23]
- In view of what has been held above, it is found that the interpretation made by the Bombay High Court in the case of Associated Capsules (P) Ltd. (supra) appears to be logical and correct. [Para 24].”
4.1 The ld. DR relied on the impugned order.
5.We have carefully considered the submissions and have also gone through the records before us. It is seen that the issue on the basis of which the AO’s order has been called erroneous and prejudicial to the interest of the Revenue is no longer a matter of debate due to the interpretation of this issue by the Hon’ble Apex Court in Shital Fibers case (supra). Accordingly, it deserves to be held that the interpretation of law adopted by the Ld. CIT is not correct and conversely the action of Ld. AO cannot be called erroneous or even prejudicial to the interest of the Revenue. Thus the impugned order cannot be sustained under law.
6. In the result, the appeal of the Assessee is allowed.
Order pronounced in the open court on 20.05.2026
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