Simultaneous Deductions u/s 80IB and S. 80HHC can be Deducted from Net Profit: ITAT follows Supreme Court decision, Allows Appeal [Read Order]

The Income Tax Appellate Tribunal (ITAT), Lucknow, examined whether an assessee is entitled to claim simultaneous deductions under Section 80IB and Section 80HHC of the Income Tax Act, 1961. The Tribunal upheld that both deductions can be claimed together, provided the aggregate does not exceed the total profits of the business.

The appellant, M/s Allahdad Tannery, is a partnership firm engaged in the manufacture and sale of finished leather, filed its return of income for the assessment year 2004–05 declaring an income of Rs. 2,17,52,380. The firm operated two units, one in Jajmau, Kanpur, and another in Banthar Industrial Area, Unnao.

It claimed deductions under both Section 80IB and Section 80HHC on the profits of its Banthar unit. The Assessing Officer (AO) disallowed simultaneous claims, holding that the assessee could not claim both deductions together.

On appeal, the Commissioner of Income Tax (Appeals), Kanpur [CIT(A)], partly upheld the assessment, prompting the assessee to approach the Tribunal.

Representing the assessee, Ashish Jaiswal, argued that judicial precedent by the Supreme Court in Shital Fibers Ltd. v. Commissioner of Income Tax, supported its right to claim deductions under both Section 80IB and Section 80HHC simultaneously, subject to the ceiling that the combined deductions do not exceed the total profits of the business.

It was further submitted that where divergent judicial views exist, the view favorable to the taxpayer should be adopted, citing the principle established in Vegetable Products v. CIT.

Representing the Revenue Authorities, Departmental-Representative S.H.Usmani contended that simultaneous deductions were barred under Section 80IA(9), read with Section 80IB(13), of the Income Tax Act, 1961. He argued that profits eligible for deduction under Section 80IB could not again form the basis for computation under Section 80HHC.

To support this, the Revenue cited several precedents, including Broadways Overseas Ltd. v. CIT, SC, which emphasized restrictions on double deductions. The department maintained that the AO’s computation, which reduced profits by the Section 80IB deduction before allowing Section 80HHC, was correct in law.

After hearing both sides, Vice President Kul Bharat and Accountant Member Nikhil Choudhary held that the issue had been conclusively decided by the Supreme Court in Shital Fibers Ltd. v. Commissioner of Income Tax: “Hence, we find that the view taken by the Bombay High Court is correct… Sub-section (9) of Section 80-IA does not bar or prohibit the deduction allowed under Section 80-IA from being included in the gross total income, when deduction under Section 80-HHC(3) of the Act is computed… while computing deduction under Section 80-HHC, the gross total income would mean the gross total income before allowing any deduction under Section 80-IA or other sections of Part C of Chapter VI-A of the Act. But once the deduction under Section 80-HHC has been calculated, it will be allowed, ensuring that the deduction under Sections 80-HHC and 80-IA when aggregated do not exceed profits and gains of such eligible business”

Following this precedent, the Tribunal directed the Assessing Officer to delete the disallowance.

Therefore, allowing the assessee’s appeal in full.

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