1. As common question of facts and law arise, both these appeals are disposed of by this common judgement and order.
2. Both these Tax Appeals have been preferred by the common assessee - Sintex Industries Limited challenging the impugned order passed by the learned Income Tax Appellate Tribunal (C), Ahmedabad (hereinafter referred to as "the Tribunal") dtd. 25/11/2011 passed in ITA Nos.4091/2008 and 213/2009, by which the tribunal has allowed the appeal preferred by the department and reduced the eligible profits under section 80IA of CPP unit and section 80IB of Income Tax Act with respect to Baddi unit.
3. Facts leading to the present appeals in nut-shell are as under :
3.1 That in both these appeals, the dispute is with respect to the Assessment Year 2006-07. That the assessee filed Return of income for the Assessment Year 2006-07 declaring total income of Rs.43,16,14,095/- on 21/6/2006. The assessee also filed audited final accountants; Directors Report; computation of Income; tax audited report in Form No.3 CD and in Form No.10 CCB. It appears that the case was selected for scrutiny by issuing notice under section 143(2) dtd. 18/9/2007. A detailed questionnaire along with the statutory notice under section 142(1) was issued on 18/10/2007. In response to the same, the representative of the assessee attended from time to time and furnished details called for, which were placed on record. It appears that the assessee Company is a Public Limited Company engaged in the business of manufacturing of thermoplastic mouldings, prefab structures etc. in its plastic division and manufacturing of blended and common fabrics and yarns in its textile division. That approximately 73% of the major business was undertaken in its plastic division under which the assessee Company was manufacturing its various products under the brand name of Sintex. That the assessee Company had two units, one located at Baddi in Himachal Pradesh and another at Daman (U.T.). That during the year the assessee Company claimed deduction under section 80IB of the income derived from the aforesaid two industrial undertakings. In addition to the same, the assessee also claimed deduction under section 80IA of the Income Tax Act (hereinafter referred to as "the Act") on independent captive power plants (CPPs) which were entitled on its main manufacturing site located at kalol. That as per its return of income for the A.Y. 2006-2007 the assessee Company claimed deduction under section 80IA of the Act amounting to Rs. 17,93,81,731/-, on account of the income derived from CPP unit. That the assessee Company also claimed a deduction amounting to Rs. 8,63,51,359/-. Out of the aforesaid deduction, Rs.3,33,091/- was claimed on account of Daman unit at 30% of eligible profit of Rs. 11,10,302/- and Rs.8,60,80,268 @ 100% eligible profit of Rs.8,60,18,268/- on account of Baddi unit. That the Assessing Officer while passing order of assessment disallowed Rs.3,33,091/- under section 80IB for Daman Unit; disallowed Rs.6,90,34,962/- under section 80IB for Baddi Unit; Rs.48,28,944/- under section 80IA for CPP unit and Rs.9,72,326/- under section 40A of the Act, by holding that deduction under section 80IB is to be allowed after adjusting loss worked out in other unit or in other words, deduction under section 80IA for CPP unit and deduction under section 80IB for Baddi unit, are to be allowed only after allocation of loss of Daman Unit of Rs.1,97,47,000/- on proportionate basis in the ratio of sales various units. The Assessing Officer also held that setting off of the loss has been upheld by the CITA in earlier assessment years.
3.2 Being aggrieved by and dissatisfied with the order of assessment passed by the Assessing Officer, the assessee preferred appeal before the Commissioner (Appeals) and by order dtd. 3/10/2008, the Commissioner (Appeals) held against the assessee with respect to deduction under section 80IB of the Act. However, partly allowed the appeal.
3.3 Being aggrieved by the order passed by the Commissioner (Appeals), both, the assessee as well as the Department preferred appeals before the ITAT and by the impugned judgement and order, the tribunal has dismissed the appeal preferred by the assessee and has upheld the direction under section 80IA and 80IB of the Act and considering the loss of Daman Unit allocated to the remaining 2 units i.e. Baddi Unit and CPP unit, the tribunal has allowed the appeal preferred by the Department and has dismissed the Cross Objection of the assessee.
3.4 Being aggrieved by and dissatisfied with the impugned judgement and order passed by the ITAT, the assessee has preferred both these appeals with the following substantial question of law :
"Whether the tribunal was right in law in reducing the eligible profits under section 80IA of CPP unit and section 80IB of Baddi Unit by losses of Daman unit?"
4. Considering the above, the short question which is posed for consideration of this Court is, whether the loss from the Baddi unit is required to be adjusted before determining the gross total income of the assessee? Whether the tribunal erred in upholding the adjustment of loss from eligible unit against the profit of another eligible unit while computing deduction under section 80IA and 80IB of the Income Tax Act?
5. Mr. J.P. Shah, learned counsel appearing on behalf of the assessee has vehemently submitted that as such the decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. v. Assessing Officer (Income-Tax) [2008] 299 ITR 444/168 Taxman 224, as such cannot be said to be against the assessee. It is submitted that even in the said decision it is observed by the Hon'ble Supreme Court that under section 80I(6) for the purpose of calculating deduction, losses sustained in one unit cannot be taken into account, because sub-section (6) contemplates that only profits shall be taken into account as if it was the only source of income.
5.1 Mr. J.P. Shah, learned counsel appearing on behalf of the assessee has vehemently submitted that as such the question in the present appeals is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320/27 Taxman 262 . It is submitted that in the aforesaid decision it is specifically observed and held by the Hon'ble Supreme Court that while computing profits for the purpose of deduction under section 80E of the Income Tax Act, losses incurred by the assessee in a priority nature could not be set off against the profits of the manufacture in another priority and the assessee would be entitled to a deduction @ 8% (in that case) on the entire profits of the automobiles parts industries included in the total income without deducting their losses in the Alloy Steel Manufacture. It is submitted that in the case before the Hon'ble Supreme Court the assessee had 2 units, both priority industries and in one unit the assessee was manufacturing Alloy Steels and in another priority industries the assessee was manufacturing automobile ancillaries and the High Court affirmed the view of the appellate tribunal holding that in computing profits for the purpose of deduction under section 80E of the Income Tax Act, losses incurred in the manufacture of Alloy Steels should not be set off against the profit of manufacture of automobile ancillaries. It is submitted that in the aforesaid decision it is specifically observed by the Hon'ble Supreme Court that in the application of section 80E, profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.
5.2 Mr. J.P. Shah, learned counsel appearing on behalf of the assessee has also relied upon the decision of the Allahabad High Court in the case of CIT v. Modi Xerox Ltd. [2012] 344 ITR 411/[2013] 33 taxmann.com 637 in which the Allahabad High Court had an occasion to consider both these decisions of the Hon'ble Supreme Court, in the case of Canara Workshops (P.) Ltd. (supra) and Synco Industries Ltd. (supra).
5.3 Mr. J.P. Shah, learned counsel appearing on behalf of the assessee has further relied upon the decision of the Hon'ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349.
5.4 Mr. J.P. Shah, learned counsel appearing on behalf of the assessee has also relied upon the decision of the Delhi High Court in the case of CIT v. Bharat Heavy Electricals Ltd. [2013] 352 ITR 88/[2012] 210 Taxman 155/26 taxmann.com 252, by submitting that the Delhi High Court considering the decision of the Hon'ble Supreme Court in the case of Canara Workshops (P.) Ltd. (supra) has held that for the purpose of special deduction under section 80HHB, losses in one unit is not to be set off against the profit in another unit.
5.5 Mr. J.P. Shah, learned counsel appearing on behalf of the assessee has further submitted that even in the case of Synco Industries Ltd. (supra) the Hon'ble Supreme Court has specifically observed in para 13 that while computing the quantum of deduction under section 80-I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. According to him, it is also further observed by the Hon'ble Supreme Court in the said decision that "It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into accounts because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income." it appears that in the case before the Hon'ble Supreme Court as it was found that even after adjusting the loss from all divisions before determining the gross total income, gross total income was nil. The assessee was not entitled to claim deduction under Chapter VI-A which includes section 80I also. Mr. Shah, learned counsel appearing on behalf of the assessee has submitted that while calculating the gross total income and deduction, there can be there eventualities. It is submitted that there may be "nil" gross total income or there may be "loss" while considering the gross total income or there can be "profit". It is submitted that in the case of first two eventualities, there will not be any difference. However, if there is any profit, in that case, while considering the gross total income, loss of one unit is required to be adjusted first. Under the circumstances, it is submitted that despite the decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. (supra), considering the decision of Canara Workshops (P.) Ltd. (supra) present appeals deserve to be allowed .
6. Both these appeals are opposed by Ms. Paurami Sheth, learned counsel appearing on behalf of the Department. It is vehemently submitted that as such the controversy raised in the present appeals is squarely covered by the decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. (supra). It is submitted that after considering various decisions of the other High Courts and considering the provisions and deductions under section 80IA and 80IB of the Act, it is specifically held by the Hon'ble Supreme Court that loss from one unit / division is required to be adjusted before determining the gross total income. Therefore, as such no error and/or illegality has been committed by the learned tribunal so also the Commissioner as well as the Assessing Officer.
6.1 Now, so far as the reliance placed upon the decisions of the Hon'ble Supreme Court in the case of Canara Workshops (P.) Ltd. (supra), in the case of Bharat Heavy Electricals Ltd. (supra) and in the case of Liberty India (supra) and decision of the Allahabad High Court in the case of Modi Xerox Ltd. (supra), are concerned, it is submitted by Ms. Paurami Sheth, learned counsel appearing on behalf of the Department that none of the aforesaid decisions would be applicable to the facts of the present case. It is submitted that in the aforesaid cases the controversy was with respect to granting special deductions which was available to a particular unit of the assessee and therefore, it was held that considering the loss of another unit special deduction in the form of incentive etc. to particular unit cannot be denied. It is submitted that as such the Bombay High Court in the case of Synco Industries Ltd. (formerly known as Synco Textiles (P.) Ltd. v. Assessing Officer [2002] 254 ITR 608/[2001] 119 Taxman 503 (Bom.) against which SLP was preferred before the Hon'ble Supreme Court in the decision of Synco Industries Ltd. (supra) had considered the decision of the Hon'ble Supreme Court in the case of Canara Workshops (P.) Ltd. (supra) and it was held that the decision of Canara Workshops (P.) Ltd. (supra) would not be applicable. It is submitted that the decision of the Bombay High Court has been subsequently confirmed by the Hon'ble Supreme Court in the case of Synco Industries Ltd. (supra).
Ms. Paurami Sheth, learned counsel appearing on behalf of the Department has further submitted that similar issue in earlier Assessment Years 2003-04, 2004-05 and 2005-06 was decided against the assessee which was not further challenged by the assessee.
7. Now, so far as not challenging the decision of the CIT(A) with respect to earlier assessment years is concerned, it is submitted by Mr.Shah, learned counsel appearing on behalf of the assessee that looking to the smallness of the amount involved, the assessee did not thought it fit to challenge the adverse decision before the higher forum.
8. Heard the learned counsel appearing on behalf of the respective parties at length. Short question which is posed for consideration of this Court is "Whether the tribunal was right in law in reducing the eligible profits under section 80IA of CPP unit and section 80IB of Baddi Unit by losses of Daman unit?"
8.1 It appears that while submitting the return of the Assessment Year 2006-07, the assessee claimed deduction under section 80IA of the Act amounting to Rs.17,93,82,731/-on account of income derived from CPP unit. The assessee also claimed deduction under section 80IB of the Act amounting to Rs.8,63,51,359/- and out of the said deduction, Rs.3,33,091/-was on account of the Daman Unit @ 30% of the eligible profits of Rs.11,10,302/- and Rs.8,60,80,268/- on account of Baddi unit. It was found that the Company had incurred loss of Rs.1,97,47,000/- so far as Daman unit is concerned and therefore, considering the provisions of section 80IB(13) read with section 80IA(5), deduction of the assessee Company for Daman unit was further reduced to Rs.1,97,47,000/-. The Assessing Office also held that as per the provisions of section 80AB of the Income Tax Act, deduction under section 80IB is to be allowed after adjusting loss worked out in other units or in other words deduction under section 80IA in the case of CPP unit and deduction under section 80IB for Baddi unit are to be allowed only after allocation of loss of Daman Unit of Rs.1,97,47,000/- on proportionate basis in the ratio of sales of units.
As such the question raised in the present appeals is squarely covered by the decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. (supra). In the said decision, the Hon'ble Supreme Court also noted the decisions of various High Courts taking view that deduction under Chapter VI-A of the Act would be available only if the computation of the gross total income as per the provisions of the Act are setting off carried forward loss and unabsorbed depreciation of earlier years is not "nil". In the said decision the Hon'ble Supreme Court also considered the decision of the Madras High Court in the case of CIT v. Madras Motors (P.) Ltd. [1984] 150 ITR 150/19 Taxman 67 (Mad.), taking view that while considering the gross total income, deduction under Chapter VI-A is contemplated only after total income is computed after setting off of the unabsorbed depreciation as per section 72 is evident and therefore, section 72 has to be applied before total income of the assessee is determined i.e. before deduction under Chapter VI-A are allowed. In the aforesaid decision, the Hon'ble Supreme Court has specifically held that the contention that under section 80I(6) profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merits. Mr. Shah, learned counsel appearing on behalf of the assessee has relied upon the observations made by the Hon'ble Supreme Court in the said decision that "It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into accounts because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income." However, the said decision and the observations are required to be considered as a whole. After observing the above, it is further observed by the Hon'ble Supreme Court that "However, sections 80A(2) and 80B(5) are declaratory in nature. They apply to all sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore, the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier, section 80I(6) deals with only computation of deduction, whereas section 80I(1) deals with treatment to be given to such deductions in order to arrive at the total income of the assessee and therefore, while interpreting section 80I(1) which also refers to gross total income, one has to read the expression "gross total income" as defined in section 80B(5)." After observing so, the Hon'ble Supreme Court confirmed the view expressed by the High Court holding that loss from the Oil division was required to be adjusted before determining the gross total income and as the gross total income was nil, the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80I also. The proposition of law which is laid down by the Hon'ble Supreme Court in the said decision is in the last but one paragraph which reads as under :
'The proposition of law, emerging from the above discussion is that the gross total income of the assessee has first got to be determined after adjusting losses, etc., and if the gross total income of the assessee is "nil" the assessee would not be entitled to deductions under Chapter VI-A of the Act.'
Considering the aforesaid decision of the Hon'ble Supreme Court, as such no error and/or illegality has been committed by the tribunal in reducing eligible profits under section 80IA of CPP unit and under section 80IB of Baddi unit by adjusting loss of Daman unit.
8.2 Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Canara Workshops (P.) Ltd. (supra) is concerned, on considering the controversy in the aforesaid decision and the facts in the said case, we are of the opinion that the said decision would not apply to the present case. In the case before the Hon'ble Supreme Court, the assessee was a Public Limited Company engaged in the business of manufacture of automobile spares. During the assessment year 1965 it commenced another activity, viz. manufacture of Alloy steels. Both the activities falled within Fifth Schedule of the Act. The assessee sustained loss in the manufacture of alloy steels whereas profits were earned from the business of automobile spares. The assessee claimed relief under section 80E as it than stood. The Assessing Officer declined to grant relief on the ground that the assessee has ignored loss incurred in Alloy Steel Industry. He held that the assessee would be entitled to deduction under section 80E on the profits from the manufacture of automobile spares only after setting off loss in Alloy Steel. He accordingly granted a limited relief to the assessee under section 80E. Ultimately, the matter reached the Hon'ble Supreme Court and the Hon'ble Supreme Court held that the legislature under section 80E, it clearly stipulated that while computing deduction, following conditions were required to be satisfied viz., that it must be a Company to which section 80E applied; that total income as computed in accordance with law, should include profits and accounts attributable to the business or the industries mentioned in section 80E without taking into account provisions of section 80E and lastly from the profit and accounts attributable to such business, deduction has to be allowed of an amount equal to 8% of the profits and effect must be given to that deduction without computing total income of the Company. The Hon'ble Supreme Court has further held that the object of Section 80E was properly served only by confining the application of the provisions of that section to the profits and gains of a "single industry". In the present case, under section 80I(6), profit of Baddi unit are required to be treated as if that was the only source of income. That the losses from the Daman unit are required to be ignored. Therefore, while calculating quantum of deduction, profit of the Baddi unit alone are required to be taken. To that there is no difficulty. However, after calculating the deduction on the basis that the profits from the Baddi unit was the only source of income, one has to give effect to the computed deduction in order to arrive at the total income of the Company and while giving effect, one has to consider the provisions of section 80IA and 80IB of the Act. In other words, while considering the gross total income of the assessee, deduction under section 80IA and 80IB of the Act are required to be allowed after adjusting loss out in other units. Under the circumstances and as stated above, the decision of the Hon'ble Supreme Court in the case of Canara Workshops (P.) Ltd. (supra) shall not be applicable to the facts of the case and the controversy in question.
8.3 Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Liberty India (supra) is concerned, on facts, the said decision shall not be applicable. In the case before the Hon'ble Supreme Court, the dispute was with respect to special deduction claimed with respect to a particular unit and one unit was found to be eligible for claiming such special deduction. Thus, on facts, the said decision shall not be applicable to the facts of the present case.
8.4 Now, so far as the reliance placed upon the decision of the Allahabad High Court in the case of Modi Xerox Ltd. (No.2) (supra) is concerned, considering the facts and the special deduction claimed under section 80HH and 80I, the said deduction also would not be of any assistance to the appellant.
8.5 Similarly, on facts, the decision in the case of the Delhi High Court in the case of Bharat Heavy Electricals Ltd. (supra), also shall not be of any assistance to the appellant. It is also required to be noted that before the Delhi High Court, decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. (supra) was not brought to the notice of the Delhi High Court and therefore, the Delhi High Court had no occasion to deal with and/or consider the decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. (supra).
8.6 It is also required to be noted that in the case of the very assessee, the very issue arose in the Assessment Years, 2003-04, 2004-05 and 2005-06 wherein the issue was decided against the assessee, however, the same was not challenged further. It is the case on behalf of the assessee that as the amount involved was small, the assessee thought it fit not to challenge the same before higher forum. Be that it may, the fact remains that in the earlier years while considering deduction under sections 80IA and 80IB, loss in another unit was first given set off and only thereafter deduction under section 80IA and 80IB of the Act was given.
8.7 In view of the above and for the reasons stated above, we are of the opinion that the tribunal was right in law in reducing eligible profits under section 80IA of the CPP unit and under section 80IB of the Baddi unit by losses of Daman unit.
9. In view of the above and for the reasons stated above, both the appeals fail and they deserve to be dismissed and are accordingly dismissed, however, in the facts and circumstances of the case, there shall be no order as to costs.