Microlabs Limited, Bangalore v. DCIT, Bangalore

ITA 1162/BANG/2009 | 2005-2006
Pronouncement Date: 25-02-2011 | Result: Dismissed

Appeal Details

RSA Number 116221114 RSA 2009
Bench Bangalore
Appeal Number ITA 1162/BANG/2009
Duration Of Justice 1 year(s) 2 month(s) 16 day(s)
Appellant Microlabs Limited, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 25-02-2011
Date Of Final Hearing 16-11-2010
Next Hearing Date 16-11-2010
Assessment Year 2005-2006
Appeal Filed On 09-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO. 1162/BANG/2009 ASSESSMENT YEAR : 2005-06 MICROLABS LTD. NO.27 KCN TOWERS RACE COURSE ROAD BANGALORE 560 001. : APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX - LTU BANGALORE. : RESPONDENT APPELLANT BY : SHRI H. MURALIDHARAN ADVOCATE RESPONDENT BY : SMT. SWATHI S. PATIL CIT-II(DR) O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE COMPANY MICRO LABS L IMITED IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A)-LTU BANGALORE IN ITA NO: 13/CIT(A)-LTU/08-09 DATED: 15.10.2009 FOR THE ASSESSMENT YEAR 2005- 06. 2. THE ASSESSEE COMPANY (THE ASSESSEE IN SHORT) H AD RAISED FOUR GROUNDS IN WHICH GROUND NOS: 1 & 4 BEING GENERAL THEY HAVE BEEN ITA NO.1162/BANG/09 PAGE 2 OF 11 TREATED AS NON-CONSEQUENTIAL. IN THE REMAINING GRO UNDS THE CRUXES OF THE ISSUES ARE REFORMULATED IN A CONCISE MANNER AS UN DER: (I) THAT THE LD. CIT (A) HAD ERRED IN JUSTIFYING THE AOS ACTION FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT; & (II) THAT THE CIT (A) HAD ERRED IN JUSTIFYING THE A LLOWANCE OF DEDUCTION U/S 80-IB AFTER ADJUSTING THE SETTING OFF OF PREVIOUS YEARS LOSS. 3. BRIEFLY STATED THE ASSESSEE A MANUFACTURER OF PHARMACEUTICAL PRODUCTS FURNISHED ITS RETURN OF INCOME ON 31.10.2 005 ADMITTING ITS TOTAL INCOME AT RS. 21.41 CRORES WHICH WAS REVISED THRICE AND FINALLY ARRIVED AT THE FIGURE OF RS 31.75 CRORES. THIS WAS ACCEPTED A ND THE ASSESSMENT WAS CONCLUDED U/S 143(3) OF THE ACT. SUBSEQUENTLY IT WAS NOTICED BY THE AO THAT DEDUCTION U/S 80-IB AMOUNTING TO RS.34.25 CROR ES AS CLAIMED BY THE ASSESSEE WAS ALLOWED WHICH ACCORDING TO THE AO WA S CONTRARY TO THE PROVISIONS OF S.80-IB(13) R.W.S.80-IA(5) OF THE ACT AND THAT THERE WAS AN ESCAPEMENT OF INCOME TO THE TUNE OF RS.1.92 CRORES. 3.1. CORRECTIVE STEPS WERE FLOATED BY ISSUANCE OF A NOTICE U/S 148 OF THE ACT BY THE AO AND SUBSEQUENTLY CONCLUDED THE ASSE SSMENT BRUSHING ASIDE THE ASSESSEES OPPOSITION TO REOPEN THE ASSES SMENT BY DETERMINING THE ALLOWABLE DEDUCTION U/S 80-IB OF THE ACT AT RS. 32.32 CRORES FOR THE REASONS RECORDED IN HIS IMPUGNED ORDER. 4. ON AN APPEAL THE STAND OF THE AO WAS VEHEMENTLY CONTESTED BY THE ASSESSEE BEFORE THE CIT (A) ON THE GROUNDS THAT (I) THE AO HAD ERRED IN ISSUANCE OF NOTICE U/S 148 WITH OUT ANY NEW INFORMATION FOR THE ESCAPEMENT OF INCOME; EVEN THOU GH ALL THE DETAILS WERE AVAILABLE ON RECORDS AT THE TIME OF CO NCLUDING THE ORIGINAL ASSESSMENT; ITA NO.1162/BANG/09 PAGE 3 OF 11 (II) THAT THE AO HAD ERRED IN ALLOWING DEDUCTION U/S 80- IB AFTER ADJUSTING THE LOSSES OF PREVIOUS YEAR AND THAT HE S HOULD HAVE ACCEPTED THE ASSESSEES CLAIM AND ALLOWED FULL BENE FIT UNDER THE SAID SECTION. 4.1. AFTER THOROUGHLY EXAMINING THE ASSESSEES VERS ION AS WELL AS THE REASONING OF THE AO THE LD CIT (A)-LTU HAD REASON ED THUS (I) VALIDITY OF ACTION U/S 148 : ANALYZING THE JUDICIAL PRONOUNCEMENTS ON A SIMILAR ISSUE IN THE CASES OF (I) ACIT V. RAJESH JHAVERY STOCK BROKERS P VT. LTD. (2007) 291 ITR 500 (SC); (II) UNION OF INDIA V. PRIYANKA SHARAN (2 008) 9SCC 15(2008) 10 JT 421 (SC) & (III) YUVARAJ V. UNION OF INDIA AND ANOTHER (2009) 315 ITR 10 ( BOM ) IT WAS OBSERVED THAT 3.2.(I)(G) FURTHER THE PROVISIONS REGARDING REOPE NING OF ASSESSMENT HAVE BEEN AMENDED WITH EFFECT FROM APRIL 1 1989. UNDER THE AMENDED PROVISIONS THE PRE-REQUISITE CONDITIONS FOR REOPEN ING NAMELY (I) FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS AND (II) POSSESSION OF INFORMATION WITH THE AO HAVE BEEN DON E AWAY WITH AND UNDER THE AMENDED PROVISIONS THE ONLY CONDITION WHICH IS NOW REQUIRED TO BE MET IN REOPENING IS THAT THE AO SHOULD HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. UNDER THE NEW PROVISIONS WITHI N FOUR YEARS OF THE END OF THE RELEVANT ASSESSMENT YEAR THE AO HAS WIDE PO WERS TO REOPEN THE ASSESSMENT. IN THE APPELLANTS CASE THE NOTICE U/ S 148 WAS ISSUED ON 11.5.2008 WHICH IS WELL WITHIN THE PERIOD OF FOUR Y EARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. AS SUCH IN THE APPELLAN TS CASE THE ONLY CONDITION TO BE SATISFIED BY THE AO FOR REOPENING T HE ASSESSMENT WAS THAT THERE SHOULD BE A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. AS MENTIONED ABOVE THE AO FOUND THAT THE APPELLANT CO MPANY HAD CLAIMED DEDUCTION U/S 80-IB WITHOUT ADJUSTING THE LOSS FOR THE IMMEDIATE PRECEDING ASSESSMENT YEAR. AS PER THE PROVISIONS OF THE ACT THE LOSS FOR ELIGIBLE UNITS SHOULD BE FIRST SET OFF AGAINST THE PROFIT OF THE R ELEVANT YEAR AND IF THE RESULTANT FIGURE IS POSITIVE DEDUCTION IS ALLOWABL E TO THAT EXTENT. THESE FACTS PROVIDED A PRIMA FACIE BASIS TO THE AO FOR BELIEVIN G THAT INCOME HAD ESCAPED ASSESSMENT. IN THE LIGHT OF THE RATIO OF T HE DECISION OF THE HONBLE BOMBAY HIGH COURT AND ON THE FACTS OF THE CASE I F IND THAT THE AO WAS JUSTIFIED IN ISSUING THE NOTICE U/S 148 OF THE I.T. ACT. ITA NO.1162/BANG/09 PAGE 4 OF 11 (II) ALLOWABILITY OF DEDUCTION U/S 80-IB : TAKING INTO ACCOUNT THE VOCIFEROU S CONTENTIONS OF THE ASSESSEE AS WELL AS THE REASONING OF THE AO AND ALSO EXTENSI VELY QUOTING THE FINDING OF THE HONBLE TRIBUNAL AHMEDABAD SPECIAL BENCH IN THE CASE OF ACIT V. GOLDMINE SHARES AND FINANCE P. LTD. REPORTED IN 302 ITR (AT) 208 IT WAS AVERRED THAT 4.4. FROM A PERUSAL OF THE RECORDS FOR THE ASSES SMENT YEAR 2004-05 THAT THE PROFIT AND LOSS INCURRED AND THE DEDUCTION CLAI MED OF THE UNIT WERE AS UNDER: NO UNIT PROFIT/LOSS (RS) 1 BANGALORE + 4 71 44 709 2 GOA - 2 60 20 031 3 PONDICHERRY III - 53 34 311 4 PONDICHERRY III +58 93 43 997 5 R & D - 1 47 33 368 TOTAL +59 02 89 996 LESS: DEDUCTION U/S 0-IB 58 92 32 997 BALANCE + 1 05 69 999 LESS: DEDN. U/S 80HHC RESTRICTED TO 1 05 69 999 TAXABLE INCOME NIL 4.5. THE UNIT-WISE FIGURES STATED ABOVE ARE ALTHOUG H AFTER SETTING OFF THE LOSSES OF THE ELIGIBLE UNITS AGAINST NO ELIGIBLE UN ITS THERE WOULD BE POSITIVE INCOME. HOWEVER IN VIEW OF SECTION 80IB (13) READ WITH SECTION 80-IA(5) AND IN THE LIGHT OF THE LEGAL POSITION LAID DOWN IN THE CASE OF ACIT V. GOLDMINE SHARES AND FINANCE LTD. (SUPRA) I DO NOT FIND INFIRMITIES IN THE ORDER OF THE AO FOR RECALCULATING THE DEDUCTION U/S 80-IB 5. BEFORE US THE LD. A R HAD REITERATED MORE OR L ESS WHAT WAS PORTRAYED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE IT WAS SUBMITTED THAT (I) THE CIT (A) HAD GROSSLY ERRED IN RATIFYING THE STAND OF THE AO FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT WITHO UT EXAMINING THE FACTS OF THE ISSUE; AND (II) THAT HE HAD ERRED IN JUSTIFYIN G THE ALLOWANCE OF DEDUCTION U/S 80IB AFTER ADJUSTING THE SETTING OFF PREVIOUS Y EAR LOSSES. TO DRIVE HOME HIS POINT THE LD. AR HAD PLACED HIS FAITH ON THE F OLLOWING JUDICIAL PRONOUNCEMENTS: ITA NO.1162/BANG/09 PAGE 5 OF 11 (I) RAJAPALYAM MILLS LTD. V. CIT 115 ITR 777 (SC); (II) RANGAMMA STEELS & MALLEABLES V. ACIT (2010)6 TAXAMM N.COM 47 (CHENNAI - ITAT) & (III) IN THE CASE IBM IN ITA NO:555/B/2005 DT: 29.2.2008 5.1. ON HER PART THE LD. D R HAD SUPPORTED THE FI NDING OF THE LD. CIT (A) WHICH ACCORDING TO THE LD. D.R. VINDICATE D THE STAND OF THE AO ON THE ISSUE. IT WAS THEREFORE PLEADED THAT THE IMP UGNED ORDER OF THE LD. CIT (A) REQUIRES NO INTERFERENCE AT THIS STAGE. TO JUS TIFY HER SUBMISSION THE LD. D.R. HAD PLACED FAITH ON THE FINDING ON THE HONBLE ITAT AHMEDABAD SB IN THE CASE OF ACIT V. GOLDMINE SHARES AND FINANCE P. LTD REPORTED IN (2008) 302 ITR (AT) 208 (AHMD SB). 6. WE HAVE SCRUPULOUSLY TAKEN NOTE OF THE RIVAL SU BMISSIONS PERUSED THE IMPUGNED ORDER OF THE LD. CIT (A) UNDER CHALLENGE RELEVANT RECORDS AND ALSO THE JUDICIAL PRONOUNCEMENTS ON WHI CH THE EITHER PARTY HAVE PLACED THEIR TRUST. 7. THE FIRST GRIEVANCE OF THE ASSESSEE BEING THAT THE AO WAS NOT JUSTIFIED FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT . THE ASSESSEE AS PER RECORDS HAD RAISED A SIMILAR ISSUE BEFORE THE FIRS T APPELLATE AUTHORITY WHO AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTIO N AND ALSO REASONING OF THE AO IN DOING SO AND ANALYZING THE SAME COUPLED W ITH THE RULINGS OF THE HONBLE SUPREME COURT AND HONBLE BOMBAY HIGH COURT IN THE CASES (I) ACIT V. RAJESH JHAVERY STOCK BROKERS PVT. LTD. (200 7) 291 ITR 500 (SC) AND (II) YUVARAJ V. UNION OF INDIA & ANR. (2009) 315 ITR 10 (BOM) RESPECTIVELY AT A GREATER LENGTH HAD OBSERVED THUS 3.2.(G) FURTHER THE PROVISIONS REGARDING REOPENI NG OF ASSESSMENT HAVE BEEN AMENDED WITH EFFECT FROM APRIL 1 1989 . UNDER THE AMENDED ITA NO.1162/BANG/09 PAGE 6 OF 11 PROVISIONS THE PRE-REQUISITE CONDITIONS FOR REOPEN ING NAMELY (I) FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS AND (II) POSSESSION OF INFORMATION WITH THE AO HAVE BEEN DON E AWAY WITH AND UNDER THE AMENDED PROVISIONS THE ONLY CONDITION WHICH IS NOW REQUIRED TO BE MET IN REOPENING IS THAT THE AO SHOULD HAVE REASON TO B ELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. UNDER THE NEW PROVISIONS WITHI N FOUR YEARS OF THE END OF THE RELEVANT ASSESSMENT YEAR THE AO HAS WIDE PO WERS TO REOPEN THE ASSESSMENT. IN THE APPELLANTS CASE NOTICE U/S 14 8 WAS ISSUED ON 11/5/2008 WHICH IS WELL WITHIN THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. AS SUCH IN THE APPELLANTS CASE THE ONLY CONDITION TO BE SATISFIED BY THE AO FOR REOPENING THE ASSESSMENT WA S THAT THERE SHOULD BE A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T. AS MENTIONED ABOVE THE AO FOUND THAT THE APPELLANT COMPANY HAD CLAIMED DEDUCTION U/S 80-IB WITHOUT ADJUSTING THE LOSS FOR THE IMMEDIATE PRECED ING ASSESSMENT YEAR. AS PER THE PROVISIONS OF THE ACT THE LOSS FOR ELIGIBL E UNITS SHOULD BE FIRST SET OFF AGAINST THE PROFIT OF THE RELEVANT YEAR AND IF THE RESULTANT FIGURE IS POSITIVE DEDUCTION IS ALLOWABLE TO THAT EXTENT. THESE FACTS PROVIDED A PRIMA FACIE BASIS TO THE AO FOR BELIEVING THAT INCOME HAD ESCAP ED ASSESSMENT. IN THE LIGHT OF THE RATIO OF THE DECISION OF THE HONBLE B OMBAY HIGH COURT AND ON THE FACTS OF THE CASE I FIND THAT THE AO WAS JUSTI FIED IN ISSUING NOTICE U/S 148 OF THE I.T. ACT. 7.1. BEFORE US NO NEW TANGIBLE FACTS HAVE BEEN PL ACED BY THE LD. A R TO JUSTIFY THE ASSESSEES GRIEVANCE AGAINST THE CIT(A)S STAND. IN VIEW OF THE ABOVE WE ARE OF THE FIRM VIEW THAT THERE WE RE NO INFIRMITIES IN THE FINDINGS OF THE LD. CIT (A) CITED SUPRA WHICH REQUI RE OUR INTERFERENCE. IT IS ORDERED ACCORDINGLY. 8. THE OTHER ISSUE WAS WITH REGARD TO THE ALLOWABI LITY OF DEDUCTION UNDER SECTION 80-IB OF THE ACT. IT WAS A FACT THAT THE ASSESSEE HAD UNITS AT FOUR DIFFERENT LOCATIONS WHICH WERE EN TITLED TO CLAIM DEDUCTION U/S 80-IB. DURING THE PERIOD UNDER DISPUTE ALL TH E FOUR UNITS OF THE ASSESSEE WERE ON THE PATH OF PROFITS SPREE AND ACC ORDINGLY THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IB AT RS.34.25 CRORES BUT DURING THE IMMEDIATELY PRECEDING A.Y. ITS TWO UNITS LOCATED AT GOA AND PONDICHERRY-III ITA NO.1162/BANG/09 PAGE 7 OF 11 HAD TURNED LOSSES TO THE TUNE OF RS.1.47 CRORES AND RS.45.07 LAKHS RESPECTIVELY. IT WAS THE STAND OF THE AO THAT ACCO RDING TO THE PROVISIONS OF S.80-IB(13) READ WITH S.80-IA(5) INCOME OR LOSS OF EACH UNIT SHOULD BE TREATED INDEPENDENT OF THE OTHER FOR PURPOSES OF CL AIMING DEDUCTION U/S 80- IB AND THAT WHEN A UNIT INCURS LOSS SUCH LOSS SHOU LD BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF THE SAME UNIT IN THE SUBSEQUENT AY IRRESPECTIVE OF WHETHER SUCH A LOSS WAS SET OFF AGA INST THE INCOME OF OTHER UNITS IN THE YEAR OF OCCURRENCE OF LOSS FOR ACCOUNT ING PURPOSES. ACCORDINGLY THE AO WHILE COMPUTING THE TAXABLE IN COME OF THE ASSESSEE HAD ALLOWED DEDUCTION U/S 80-IB FOR RS.32.32 CRORES AS AGAINST RS.34.25 CRORES CLAIMED IN THE RETURN OF INCOME AFTER ADJUS TING THE LOSSES OF THE PREVIOUS YEAR AS A RESULT OF WHICH THE ASSESSEES INCOME WAS INCREASED BY RS.1.92 CRORES. THIS HAS BEEN HOTLY OBJECTED TO BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY. 8.1. AFTER CONSIDERING THE PROS AND CONS OF THE IS SUE CITED SUPRA [4.1.(II)] THE LD. CIT (A) COULD NOT FIND ANY INFI RMITY IN THE FINDING OF THE AO AND ACCORDINGLY SUSTAINED THE RECALCULATION OF DE DUCTION U/S 80-IB WORKED OUT BY THE AO. 8.2. THE BRIEF OBJECTION OF THE ASSESSEE BEING THA T THE METHOD OF CALCULATION ADOPTED BY THE AO WAS WRONG AND PASSION ATELY PLEADED THAT THE CLAIM HAD BEEN MADE AS PER PLAIN READING OF THE SECTION AND THEREFORE FULL BENEFIT SHOULD HAVE BEEN ALLOWED TO IT. ITA NO.1162/BANG/09 PAGE 8 OF 11 8.3. WE HAVE ATTENTIVELY CONSIDERED THE ASSESSEES SUBMISSION AND ALSO JUDICIOUSLY PERUSED THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED ITS FAITH. (I) RAJAPALAYAM MILLS LTD. V. CIT MADRAS 115 ITR 777 (SC) : THE ISSUE BEFORE THE HONBLE SUPREME COU RT WAS WHETHER THE TERM 'PROFITS AND GAINS DERIVED FROM NEW INDUST RIAL UNDERTAKINGS' MEANS COMMERCIAL PROFIT OR THAT CHARGEABLE TO TAX? WHEN T HE PROFITS ARE TO BE COMPUTED UNDER S. 10 CURRENT DEPRECIATION IS DEDUC TIBLE. BUT THE ALLOWANCE OF EARLIER YEAR WILL BE TAKEN INTO ACCOUNT ONLY TO THE EXTENT IT IS NOT ABSORBED BY THE TOTAL INCOME UNDER DIFFERENT HEADS FOR THESE ASSESSMENT YEARS. WITH DUE RESPECTS WE WOULD LIKE TO POINT OUT THAT THE ISSUE BEFORE THE HONBLE COURT WAS ENTIRELY ON A DIFFEREN T TRACK WHICH HAS NO RELEVANCE TO THE PRESENT ISSUE. (II) RANGAMMA STEELS & MALLEABLES V. ACIT (2010) 6 TAXMA NN.COM 47(CHENNAI- ITAT : AT THE OUTSET WE WOULD LIKE TO RECORD OUR CONSIDERED VIEW THAT THE ISSUE BEFORE THE HONBLE TRIBUNAL WAS WITH REGA RD TO THE APPLICABILITY OF S.80-IA(5) OF THE ACT AND WOULD COME INTO OPERATION ONLY FROM THE YEAR IN WHICH THE ASSESSEE STARTED CLAIMING DEDUCTION FROM THE INITIAL YEAR ETC. WHICH HAS NO DIRECT RELEVANCE TO THE ISSUE ON HAND. 8.4. LET US NOW TURN OUR ATTENTION TO HAVE A GLIMP SE AT THE CASE LAW ON WHICH THE REVENUE HAD HEAVILY RELIED UPON. (I) ACIT V. GOLDMINE SHARES AND FINANCE P. LTD. ITAT AHMEDABAD SPECIAL BENCH : WITH HIGH RESPECTS WE HAVE PERUS ED THE FINDING OF THE HONBLE SPECIAL BENCH WHICH IN OUR CONSIDERED VIEW IS DIR ECTLY ON THE POINT. FOR ITA NO.1162/BANG/09 PAGE 9 OF 11 THE APPRECIATION OF FACTS WE VENTURE TO EXTRACT TH E RELEVANT PORTIONS OF THE FINDING OF THE HONBLE BENCH AS UNDER: IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 80-I A (5) OF THE INCOME-TAX ACT 1961 THE PROFITS FROM THE ELIGIBLE BUSINESS FOR TH E PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT HAVE TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FO RWARD LOSSES AND DEPRECIATION OF THE ELIGIBLE BUSINESS EVEN THOUGH T HEY HAVE BEEN SET OFF AGAINST OTHER INCOME IN EARLIER YEARS. THE ONLY HARMONIOUS CONSTRUCTION OF SECTION 80-IA(5 ) CONSISTENT WITH THE OBJECT OF ALLOWING DEDUCTION ONLY PROFITS AND GAINS OF THE ELIGIBLE BUSINESS WOULD BE THAT: (A) . (C) WHERE LOSSES OF THE ELIGIBLE UNIT REMAIN TO BE ADJU STED AGAINST THAT VERY SOURCE THEY ARE TO BE CARRIED FORWARD TO SUBSEQUENT YEAR(S) AND SET OFF IN THE SUCCEEDING YEAR(S) AND ON THE BALANCE PROFIT AL ONE WOULD THE DEDUCTION ADMISSIBLE BE COMPUTED; (D)WHERE THERE ARE NO LOSSES OF THE ELIGIBLE UNIT C ARRIED FORWARD (IN VIEW OF HAVING BEEN SET OFF AGAINST PROFITS OF THAT VERY SO URCE) THE LOSSES OF EARLIER YEARS THOUGH ALREADY ABSORBED AGAINST OTHER SOURCE S ARE ONCE AGAIN TO BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST PROF ITS OF THE ELIGIBLE UNIT TO COMPUTE ELIGIBLE DEDUCTIONS; THE NON OBSTINATE CLAUSE IN SUB-SECTION (5) MEANS I T OVERRIDES ALL THE PROVISIONS OF THE ACT. SINCE THE PROFITS AND GAINS OF A BUSINESS ARE DETERMINED BY ALLOWING ALL DEDUCTIONS INCLUDING UND ER SECTION 32 AND SETOFF UNDER THE PROVISIONS OF SECTIONS 70 71 AND 72 IT IS ON THE BALANCE THAT THE DEDUCTION UNDER CH. VI-A IS ALLOWED. HOWEVER BY T HE OVERRIDING PROVISION THESE SECTIONS TO THE EXTENT PROVIDED OTHERWISE IN S.80-IA(5) ARE NOT TO BE TAKEN INTO CONSIDERATION. IN S.80-IA(7) A LEGAL FICTION IS CREATED BY WHICH T HE ELIGIBLE BUSINESS HAS BEEN TREATED AS THE ONLY SOURCE OF INCOME. IN CONST RUING THIS LEGAL FICTION IT WILL BE PROPER AND NECESSARY TO ASSUME ALL THOSE FA CTS ON WHICH ALONE THE FICTION CAN OPERATE SO NECESSARILY ALL THE PROVI SIONS IN THE ACT IN RESPECT OF A SOURCE OF INCOME WILL APPLY. AS A CONSEQUENCE T HE OTHER SOURCES OF INCOME OF AN ASSESSEE WOULD HAVE TO BE ASSUMED AS N OT EXISTING AND CONSEQUENTLY ANY DEPRECIATION OR LOSS CANNOT BE SE T OFF AGAINST ANY OTHER SOURCE WHICH IS ASSUMED TO HAVE NOT BEEN IN EXISTEN CE AND THEREFORE THE DEPRECIATION OR THE LOSS OF THE ELIGIBLE BUSINESS W HICH COULD NOT BE SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS ITSELF HAS TO BE CARRIED FORWARD AND SET OFF AGAINST THE PROFITS OF THE VERY SOURCE OF ELIGIBLE BUSINESS IN THE SUBSEQUENT YEAR. BECAUSE OF THE FICTION EVEN IF A NY SET OFF OF ELIGIBLE ITA NO.1162/BANG/09 PAGE 10 OF 11 BUSINESS LOSS WAS MADE AGAINST OTHER SOURCES OF INC OME IT HAS TO BE ASSUMED NOT SO SET OFF. AS IF THAT WERE THE ONLY S OURCE OF INCOME MEANS AS IF THERE WAS NO OTHER SOURCE OF INCOME IF THAT BE SO THE DEPRECIATION AND LOSS COULD NOT BE ABSORBED AND BE SET OFF AGAINST ANY OT HER SOURCE OR HEAD OF INCOME. LOSSES OF THE ELIGIBLE BUSINESS ARE TO BE SET OFF ONLY AGAINST THE SUBSEQUENT YEARS INCOME OF THE ELIGIBLE BUSINESS EVEN THOUGH THESE WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE IN THA T EARLIER YEAR THE PROVISION OVERRIDES ALL OTHER PROVISIONS OF THE ACT ONLY FOR COMPUTING THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR DETERMINING THE QUANTUM OF DEDUCTION UNDER THE SECTION. THIS RESTRICTS THE AP PLICATION OF THE FICTION TO A SPECIFIED PURPOSE AND THEREFORE IT CANNOT BE EXTE NDED BEYOND THE OBJECT FOR WHICH THE FICTION IS CREATED. ONCE THAT PURPOSE I. E. DETERMINATION OF THE QUANTUM OF DEDUCTION IS OVER ONE HAS TO FALL BACK ON THE PROVISIONS OF THE ACT FOR COMPUTING THE TOTAL INCOME. THE CONTENTION THAT IF THE INTENTION WAS TO PRESUME OTHER SOURCES OF INCOME AS NOT IN EXISTENCE SECTIONS 80A(2) AND 80B(5) ALS O SHOULD BE NOT APPLICABLE IN RESTRICTING THE DEDUCTION TO THE TOTA L INCOME OF THE ASSESSEE AND THAT THESE SECTIONS CAN BE APPLICABLE ONLY WHEN THERE ARE OTHER SOURCES OF INCOME IS NOT TENABLE. THE DEEMING FICTION IN SECTION 80-IA(5) OF THE ACT NOT ONLY PROVIDES THAT PROFITS OF THE ELIGIBLE UNIT HAVE TO BE CONSIDERED ON A STAND ALONE BASIS AND DOES NOT REQUIRED TO BE ADJUSTED AGAINST LOSS IN OT HER UNIT(S) BUT ALSO THAT ITS OWN LOSSES ARE TO BE ASSUMED AS NOT ADJUSTED AGAINS T OTHER SOURCES AND ARE CARRIED FORWARD TO SET OFF AGAINST THIS SOURCE OF I NCOME ALONE. 8.5. IN CONFORMITY WITH THE FINDING OF THE HONBLE SPECIAL BENCH REFERRED SUPRA AND ALSO WELL REASONING OF THE REVEN UE AS DELIBERATED IN THE FORE-GOING PARAGRAPHS WE ARE OF THE UNANIMOUS VIEW THAT THERE WERE NO INFIRMITIES IN THE ORDERS OF THE AUTHORITIES BELOW IN RECALCULATING THE DEDUCTION U/S 80-IB OF THE ACT WHICH SEEK OUR INTER FERENCE. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSED . ITA NO.1162/BANG/09 PAGE 11 OF 11 PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 25 TH FEBRUARY 2011. DS/- COPY TO: BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE. 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE