Income Tax Deduction u/s 80HHC Had to Be Given Without Reducing S. 80IB Deduction: Madras HC Follows SC Ruling [Read Order]

The Madras High Court has reaffirmed that deduction under Section 80HHC of the Income Tax Act, 1961 must be granted without reducing the amount allowed under Section 80IB.

The first question raised before the Court was whether the deduction under Section 80HHC could be computed independently of the deduction under Section 80IB. Dismissing the Revenue’s contention, the Division Bench comprising Chief Justice K.R. Shriram and Justice Sunder Mohan held that the issue was no longer res integra.

In Shital Fibers Ltd. v. CIT, the Court referenced the decision of the Supreme Court that supported the Bombay High Court's position in Associated Capsules (P) Ltd. and was later upheld by the highest court in ACIT v. Micro Labs Ltd. These cases explicitly stated that the Section 80HHC deduction must be granted without reducing the Section 80IB deduction.

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The Court also ruled on a second issue concerning the inclusion of scrap sales in total turnover for computing 80HHC benefits. Referring to the Supreme Court’s judgment in CIT v. Punjab Stainless Steel Industries, it held that proceeds from scrap sales cannot form part of total turnover for the purpose of 80HHC computation.

With these findings, the High Court answered both substantial questions of law in favour of the assessee and dismissed the appeal filed by the Revenue.

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