Industrial Undertaking – Deduction u/s. 80 HH and 80-I – Neither section 80HH nor section 80-I (as it stood in assessment year 1992-93) statutorily obliged an assessee to maintain its accounts unit-wise and it was open to maintain accounts in a consolidated form from which unit-wise profits could be worked out for computing deduction u/s. 80HH/80I.

Bongaigaon Refinery and Petrochemical Ltd. (for short “BRPL”) (before it merged in IOC) was a public sector undertaking engaged in refinery, petrochemical and polyester staple fibre business. Three different and separate units were set up by BRPL in the financial year 1979-80, 1985-86 and 1988-89 respectively. The three units were engaged in the production of separate and distinct types of products. They were three different industrial undertakings. BRPL was entitled to claim deduction u/s. 80HH and 80-I of the Income-tax Act, 1961, during the relevant assessment year 1992-93. BRPL could not claim such deduction till the assessment year 1992-93, as its net taxable income for earlier assessment years was nil. It was only in the assessment year 1992-93 when the gross total became positive that BRPL claimed relief for its petrochemical unit u/s. 80HH and u/s. 80-I of the Income-tax Act 1961. However, BRPL could not claim such deduction for its refinery unit, as the period for which such relief could be claimed had expired. Further, it could not claim such deduction for its polyester staple fibre unit as it had negative income during the accounting year ending 31st March, 1992, corresponding to the assessment year 1992-93.

The Assessing Officer while framing assessment had allowed the claim of deduction u/s. 80HH and 80I. Subsequently, the Commissioner of Income Tax revised the assessment u/s. 263 on the grounds that the assessee had not maintained its accounts unit-wise for claiming deduction u/s. 80HH and 80-I. On an appeal, the Tribunal held that there was no s tatutory requirement u/s. 80HH(5)/80-I(7) to maintain unit-wise accounts, but to put an end to the litigation directed the assessee to submit unit-wise accounts. The assessee went in an appeal before the High Court which set aside the direction of the Tribunal. On an appeal to the Supreme Court by the Department, the Supreme Court held that though neither section 80HH nor section 80-I (as it stood) statutorily obliged assessee to maintain its accounts unit-wise and that it was open to assessee to maintain the accounts in a consolidated form, however in order to put an end to the litigation between the Tax Department and PSU, it remitted the case to the Assessing Officer, to ascertain whether the assessee had correctly calculated its net profits for the assessment year in respect of its petrochemical units for the purposes of claiming deduction u/s. 80HH and 80-I. The Supreme Court observed that in the present case, the assessee had prepared its financial statements on consolidated basis from which it had worked out unit-wise net profits. If not done, it could be done by the Auditors even today from the Consolidated Books of Accounts. Once such working is certified by the Auditors, the net profit computation (unit-wise) could be placed before the Assessing Officer, who can find out whether such profits are properly worked out and on that basis compute deduction u/s. 80HH/80-I.