M/S.rane Brake Linings Ltd.,'Maithri' v. The Deputy Commissioner Of Income-Tax,Company Circle V(3), Chennai-600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 27.06.2018 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SESHASAYEE Tax Case (Appeal) No.810 of 2008 M/s.Rane Brake Linings Ltd.,'Maithri', 32, Cathedral Road, Chennai-600 086. -vs- ... Appellant/Appellant The Deputy Commissioner of Income-tax,Company Circle V(3), Chennai-600 034.... Respondent/Respondent Tax Case (Appeal) filed under Section 260A of the Income-tax Act, 1961 against the common order of the Income TaxAppellate Tribunal, “B” Bench, Chennai dated 12.01.2007 inI.T.A.Nos.1953 for the assessment years 1994-95 & 1998-99preferred against the order dated 21.10.2002 made in I.T.A.90/2002-2003 by the Commissioner of Income Tax(Appeals)V,Chennai against the assessment order of Deputy Commissioner ofIncome Tax, Company Circle, V(3) Chennai 34 made inPAN/GIR/53036-R, dated 21.03.2002 for the assessment year 1994-1995. For Appellant:Mr.R.Venkatanarayanan For Respondent :Mr.T.Ravikumar J U D G M E N T(Delivered by T.S.Sivagnanam, J.) Heard Mr.R.Venkatanarayanan, learned counsel for theassessee and Mr.T.Ravikumar, learned counsel for the Revenue. 2. This appeal, by the assessee, is directed against thecommon order passed by the Income Tax Appellate Tribunal, “B”Bench, Chennai dated 12.01.2007, in I.T.A.Nos.1953 &1954/Mds/2002 for the assessment years 1994-95 & 1998-99. https://hcservices.ecourts.gov.in/hcservices/ 3. The above appeal has been admitted on the followingsubstantial question of law:- “Whether on the facts and in the circumstances ofthe case, the Tribunal was right in law in holdingthat the appellant is not entitled to deductionunder Section 80HH of the Act in respect ofHyderabad unit?” 4. The facts, which are necessary, could be culled outfrom the assessment order dated 21.03.2002, which reads asfollows:- “In the return of income, the assesseecompany claimed deduction under Section 80HH forRs.12,34,430/- in respect of Hyderabad divisionwhich was acquired by the assessee company onamalgamation of M/s.Sri Auto Parts on 01.04.1992.The profit of the unit for the assessment year1994-95 has been worked out at Rs.61,72,149/- and20% thereof is claimed as deduction under Section80HH. Such deduction claimed is Rs.12,34,424/-.The income returned by the assessee is only afterset off of earlier years unabsorbed losses ofRs.98,47,757/-. This represents only unabsorbeddepreciation and unabsorbed investment allowance ofSri Auto Parts (as seen from the assessment orderdated 22.02.1996 of assessment year 1993-94).Hence this has to be first set off against incomeof the Hyderabad division Sri Auto Parts and onlythe balance has to be adjusted against the incomeof the other division. The net amount afteradjusting the unabsorbed losses of earlier yearsalone qualifies for deduction under Section 80HH.If this exercise is done, there would not be anyincome from Hyderabad Unit and the assessee is noteligible for deduction under Section 80HH. Apartfrom this, It is also pertinent to mention that itis a unit of the assessee only with effect from01.04.1992 due to amalgamation. The benefit underSection 72A is applicable only for unabsorbedlosses, depreciation and investment allowance. Forthe other deduction, it is only the transfer of theexisting unit and it has stated after 01.04.1992only. On this account also, deduction underSection 80HH is not admissible. The assessee inhis reply has stated that it has claimed deductionunder Section 80HH in line with the judgment in thecase of Hindustan Electro Graphics Ltd (41 ITD 223 Ind), Beta Napthol Pvt Ltd (59 TTJ 375 Ind), HMT(199 ITR 235 Kar) and CIT vs. Tarun Udyog (191 ITR688 OR). Facts of the assessee company are notidentical with that of the case laws mentioned bythe assessee company. Further, facts of theassessee company are identical to that of the caselaws viz., VIT vs. Kerala Solvent Exclusions.According to this case law, the assessee is noteligible for deduction under Section 80HH. In viewof the above, the explanation offered by theassessee company is not satisfactory and hencestands rejected following the decision in the caseof CIT vs. Kerala Solvent Exclusions. Thededuction claimed by the assessee under Section80HH of Rs.12,34,429/- is disallowed and added.” 5. The said assessment order was confirmed by theCommissioner of Income Tax (Appeals)-V by order dated21.10.2002, as against which, the assessee preferred appealbefore the Tribunal, which has been dismissed. Hence, theassessee is before us by way of this appeal under Section 260Aof the Income-tax Act, 1961 (hereinafter referred to as “theAct”). 6. The learned counsel for the assessee vehementlycontended that deduction under Section 80HH has to be computedafter setting off of the unabsorbed loss of earlier years.Further, the Tribunal ought to have appreciated that the losswas set off against the income of the business and there is noloss to be carried forward notionally for setting off againstthe income of the undertaking. Thus, it is submitted that theassessee is entitled to the deduction under Section 80HH of theAct in respect of the Hyderabad unit. 7. The learned counsel appearing for the Revenue contendedthat the issue has been settled by this Court in severaldecisions and the issue is squarely covered against the assesseeand in favour of the Revenue. In this regard, it is relevant torefer to the decision in the case of Commissioner of Income Taxvs. Sundaravel Match Industries (P) Ltd. reported in (2000) 245ITR 0605. One of the questions, which was framed forconsideration in the said appeal was whether the Tribunal wasright in law in holding that the assessee was entitled to thededuction under Section 80HH in respect of the profit earned bythree profit-making units without setting off the lossessustained by the other three units? The Division Bench, in thesaid appeal, held as follows:- https://hcservices.ecourts.gov.in/hcservices/ “2............... Recently in the assessee'sown case for an earlier assessment year in anunreported judgment in T.C.Nos.498 of 1983 and 444of 1986, by our judgment dt. 25[th] Feb., 1998,[reported as CIT vs. Macmillan Co. of India Ltd.(1999) 151 CTR (Mad) 175] we have held that thelosses should be set off against the profits ofthe industrial undertaking before granting thededuction under Section 80HH of the Act, in viewof the specific provision found in s. 80AB of theAct. In view of the said decision, the Tribunalwas not correct in holding that the losses shouldnot set off and accordingly we answer the firstquestion of law referred to us in the negative andin favour of the Revenue.” 8. In the case of Commissioner of Income Tax vs. ShirkeConstruction Equipment Ltd. reported in (2007) 291 ITR 0380, oneof the questions, which was framed for consideration waswhether, in determination of business profit under Section80HHC, the unabsorbed business losses of the earlier years underSection 72 of the Act should be set off? The Court answered thesaid question in favour of the Revenue and the appeal wasallowed. 9. Thus, the substantial question of law, framed forconsideration, is necessarily to be answered against theassessee and in favour of the Revenue. Accordingly, the appealstands dismissed. No costs. -s/d- Assistant Registrar(CS-II) True Copy abr Sub-Assistant Registrar To 8. In the case of Commissioner of Income Tax vs. ShirkeConstruction Equipment Ltd. reported in (2007) 291 ITR 0380, oneof the questions, which was framed for consideration waswhether, in determination of business profit under Section80HHC, the unabsorbed business losses of the earlier years underSection 72 of the Act should be set off? The Court answered thesaid question in favour of the Revenue and the appeal wasallowed. 9. Thus, the substantial question of law, framed forconsideration, is necessarily to be answered against theassessee and in favour of the Revenue. Accordingly, the appealstands dismissed. No costs. -s/d- Assistant Registrar(CS-II) True Copy abr Sub-Assistant Registrar To 1.The Deputy Commissioner of Income-tax, Company Circle V(3), Chennai-600 034. Company Circle V(3), Chennai-600 034. 2.The Income Tax Appellate Tribunal, “B” Bench, Chennai. “B” Bench, Chennai. 3.The Commissioner of Income Tax (Appeals-V), 121, Mahatma Gandhi Road, Chennai-600 034. +1 CC to Mr.J. Ravikumar, Advocate sr 41131.+1 CC to Mr.Subbaraya Aiyar Padmanabhan , Advocate sr 41810(02/08/2018)+1 CC to Mr.Subbaraya Aiyar Padmanabhan , Advocate sr 41810(02/08/2018) Tax Case (Appeal) No.810 of 2008 GSP(24/07/2018)