Industrial undertaking : Deduction u/s.80-IA of Income-tax Act, 1961 : A.Y. 2000-01 : Computation of eligible amount to be on the basis of the profits of the eligible unit : Adjustment of loss of other unit not proper : Deductible amount not to exceed the

[CIT v. Accel Transamatic Systems Ltd., 230 CTR 206
(Ker.)]

The assessee was entitled to deduction u/s.80-I of the
Income-tax Act, 1961. The assessee had two units. In the relevant year i.e.,
A.Y. 2000-01, there was profit from one unit and a loss from the other unit.
The assessee was eligible for deduction of 25% of the profit of the eligible
unit. The assessee computed the eligible amount at Rs.18,12,770 being 25% of
the profit of the first unit and limited the claim for deduction to
Rs.8,51,697 being the total income. The Assessing Officer did not accept the
method of computation adopted by the assessee. The Tribunal accepted the
assessee’s method.

On appeal by the Revenue, the Revenue relied on the
judgment of the Supreme Court in the case of Synco Industries Ltd.; 299 ITR
444 (SC) wherein the disallowance of the claim for deduction was upheld on the
ground that the total income was nil and claimed that the eligible amount
should be computed on the basis of the net figure of first unit after setting
off the loss of the second unit. The Kerala High Court explained the judgment
of the Supreme Court and held as :

“(i) U/s.80A(2) total deduction under Chapter VI-A have to
be limited to the gross total income of the assessee computed under the
provisions of the Act. Therefore, the assessee cannot claim deduction
u/s.80-IA in excess of gross total income computed, no matter eligible amount
may be higher than such income.

(ii) The procedure to be followed for the purpose of
granting deduction u/s.80-IA is to first compute the profits and gains of the
eligible unit and then to determine the eligible deduction therefrom in terms
of S. 80-IA(5). Thereafter, in the computation of total income under the
provisions of the Act, the eligible deduction has to be reduced and if the
total income computed is less than the eligible amount, deduction has to be
limited to such amount.

(iii) Since there have been variations in the total income
computed by virtue of disallowances and later orders of the higher authorities
allowing it, the Assessing Officer is directed to rework the total income and
therefrom allow eligible deduction u/s.80-IA(5) with reference to the profits
of the eligible unit, but limiting it to the total income, if the claimed
amount is higher than such amount.”