C HAPTER VI A DEDUCTIONS - SPECIAL PROVISIONS FOR CASES COVERED U / S 10 A,10B

F UNDAMENTALS OF THE D EDUCTIONS (A) The aggregate of the deductions shall not exceed the gross total income ( B) The amount deductible under any of the provisions of the Chapter is the net amount computer under the Income Tac Act, before making any deduction under Chapter VI A

C ASE L AWS Factory destroyed in fire, new machinery installed, no reconstruction of old business, assessee entitled to deduction 167 ITR 586 CIT v. U Foam Private Limited (Andhra Pradesh) Common expenditure to be proportionately distributed 243 ITR 26, (SC) Motilal Perticides (I) Pvt Ltd. Vs CIT, s 80AA,80AB,80HH 95 TTJ 139 ITAT Chennai C Bench Alstom Ltd. Vs Deputi CIT 84 TTJ 241 (Del) DCIT vs. Catvision Products Ltd.

Whether the profit of a unit eligible for deduction u/s 10A/ 10B has to be first set-off against the loss suffered by an ineligible unit before computing the available deduction u/s 10A/10B-Circular dated 16th July 2013 “The CBDT has expressed the view that as s. 10A/10B is now a "deduction" provision, first, the income/loss from various sources i.e. eligible and ineligible units, under the same head have to be aggregated in accordance with s. 70 of the Act and thereafter, the income from one ahead has to be aggregated with the income or loss of the other head in accordance with section 71 of the Act ”

A UDIT OF COMPANY CASES - S ECTION 80A,80AB,80AC

S ECTION 80 A D EDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME Assessee will be allowed deduction specified under section 80 C to 80U from his Gross Total Income (GTI) The aggregate amount of deduction shall not exceed, in any case, the GTI If any deduction is allowed under Chapter VI A to any AOP or BOI, then no deduction shall be allowed to any member of such AOP or BOI from share of income from such AOP or BOI If deduction allowed under section 10A, 10AA, 10B and 10BA, it should not exceed GTI and further no deduction shall be allowed under any other provision of the Act

Section 80AC Deduction not to be allowed unless return furnished No deduction under section 80IA, 80IAB, 80IB, 80IC, 80ID, 80IE, shall be allowed unless return is furnished on or before due date u/s 139 (1) Section 80AB Deduction to be made with reference to the income included in the gross total income

C ASE L AWS Profit and gain are to be reduced by current depreciation including initial depreciation relating to new undertaking 318 ITR 352 ( Bom) (FB) Plastiblends India Ltd vs. ACIT 213 ITR 721 (Raj) CIT vs Loonkar Tools Pvt. Limited s. 80AB, s. 80HH

Computation of deduction only with reference to profits of the undertaking and not total profit of the business and without adjusting loss of other units 161 ITR 320 (SC) CIT, (Central) Madras vs Canara Workshops Pvt. Limited s. 80E 160 Taxman 343 (Delhi) CIT vs. Dewan Kraft System P LTD. [2008] 297 ITR ITR 471 (A.P.) CIT vs Visakha Industries Ltd s. 80AB, s. 80B, s. 80HH, s. 80J

Section 80AB has overriding effect over all other sections in Chapter VI- A Section 80AB starts with the words ‘where any deduction is required to be made or allowed under any section of this Chapter’. Section 80AB further provides that ‘notwithstanding anything contained in that section’ IPCA Laboratory Ltd. v. Dy. CIT [2004] 135 Taxman 594/266 ITR 521 (SC)

The apex court held that section 80HHC is not independent of section 80AB and would be governed by section 80AB; and losses are to be set off against the profits earned from export of self-manufactured goods. CIT v. Shirke Construction Equipment Ltd. (2007) 161TAX212

G ROSS T OTAL I NCOME & T OTAL I NCOME

G ROSS T OTAL I NCOME Total income computed as per the provisions of the Act before deductions under Chapter VIA & after reducing LTCG [S 80B(5) & 112(2)]. Unabsorbed loss or depreciation carried forward from earlier years should be adjusted for determining GTI.

COMPUTATION OT TOTAL INCOME 1. Income from Salaries 2. Income from House property 3. Profits and Gains of Business and Profession 4. Income from capital gains 5. Income from other sources Gross Total Income Less: Deduction under Chapter VI-A (80C TO 80U) Total income

S ECTION 80IA,80IB

R ELEVANT C IRCULARS ON S ECTION 80IA Circular No. 1 dated Jan 12, 2006 clarifies that the ‘effluent treatment and conveyance system’ treated as ‘Infrastructure Facility Circular No.7 dated August 26, 2002 provides that benefit under section 80-IA would be available in respect of infrastructure facilities for which agreement was executed between to & notified by Central Board of Direct Taxes prior to March 31, Circular No. 4/2010 dated May 18, 2010 clarifies that widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility.

R ELEVANT C IRCULAR ON S ECTION 80IB Circular No.788 dated clarifies that the Word “State” in sub-section (4) of section 80-IB includes Union Territories specified I Eighth Schedule. “The expression process is wider than manufacture, production” Conversion of Polymer Granules into powder amounts to manufacture u/s 80 IB 300 ITR 115 (MAD) CIT vs. Shri Swasan Chemicals ( M) Pvt. Ltd.

Past depreciation/ business losses already set off against other income of that year, are not to be set off against the income of the unit in subsequent year 115 ITR 640 (SC) CIT, Patiala vs Patiala Flour Mills Co. Pvt. Limited s. 80J 96 ITD 160 (Mum.) ACIT vs. Ashok Alco Chem Ltd., 80-IA(7) 2010 (231) CTR 0368 MAD Velayudhaswamy spining Mills (P) Ltd.

Deduction u/s 80IB is allowable still the return filed after expiry of time specified in section 139 (4) Vanshree Builders and Developers Pvt Ltd v. CIT Blending & bottling of IMFL would amount to manufacture u/s 80 IB 218 CTR ( Mad) 634 CIT vs. Vinbros & Co.

Both 80HHC and 80IB may be claimed but not to exceed GTI 292 ITR 1 (SC) JCIT vs. Mandideep Eng. & Pkg Ind. (P) Ltd. s. 80HH, 80I 285 ITR 423 (Del) CIT vs S. K. G. Engineering P. Limiteds. 80HH, s. 80I Contract labourer, job worker etc can not be counted for determination of the number of worker 279 ITR 536 (ALL) R & P Exports vs CIT s. 80HH, s. 80I

Filing of audit report with return is not a mandatory condition 317 ITR 249 (Delhi) CIT vs. Contimeters Electricals Pvt. Ltd s. 80 IA (7) 209 ITR 63 (BOM) CIT vs Shivanand Electronics. s. 80J 238 ITR 257 (Calcutta) Murali Export House And Others vs CIT s. 80HHC

DISCLAIMER The contents in this presentation are merely for reference and must not be taken as having authority of or binding in any way on the author. For authoritative information please refer to the relevant provisions of the Income Tax Act, Rules, Circulars and Judicial Precedents.

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