IMPORTANT POINT
Quantum of deduction u/s 80IA has to be determined on total income computed after deducting all deductions allowable under sections 30 to 43D irrespective of whether assessee avails of these deductions or not.

JUDGMENT :

A.K. SIKRI, J.

The singular issue which needs to be considered in these appeals pertains to claim of depreciation under Section 80-IA of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Interpreting the provisions of Section 32 of the Act (which prevailed in the relevant Assessment Years [Section 32 was amended by Finance Act, 2001 and Explanation 5 was added to nullify the effect of Mahendra Mills case.]) this Court in CIT v. Mahendra Mills, (2000) 243 ITR 56 held that it is a choice of an assessee whether to claim or not to claim depreciation. As aforesaid, that decision was rendered in the context of assessing business income of an assessee under Chapter IV of the Act which is regulated by Sections 28 to 43D of the Act. Section 32 deals with depreciation and allows the deductions enumerated therein from the profits and gains of business or profession. Section 80-IA of the Act, on the other hand, contains a special provision for assessment of industrial undertakings or enterprises which are engaged in infrastructure development etc. This provision allows certain specific kind of deductions in respect of depreciation. The issue is as to whether claim for deduction on account of depreciation under Section 80-IA is the choice of the assessees or it has to be necessarily taken into consideration while computing the income under this provision. For better understanding of the aforesaid issue, the factual environment in which the aforesaid question has germinated, needs to be recapitulated. For the sake of convenience, facts appearing in Civil Appeal No. 238 of 2012 are taken note of.

2. The Assessment Years involved in this appeal are 1997-98 to 2000-01. The assessee is engaged in the business of manufacture of master batches and compounds. For this purpose, it had manufacturing undertakings at Daman Units I and II. Units I and II began to manufacture article or things in the previous years relevant to Assessment Years 1994-95 and 1995-96 respectively. Accordingly, for the year under consideration i.e. Assessment Year 1997-98 profits of the business of both the undertakings were eligible for 100% deduction under Section 80-IA of the Act. The assessee did not claim depreciation while computing its income under the head profits and gains of business. Consequently, deduction under Section 80-IA was also claimed on the basis of such profits i.e. without reducing the same by depreciation allowance. This position was accepted by the Assessing Officer (AO) in an intimation made under Section 143(1)(a) of the Act. Likewise, for the Assessment Year 1996-97, the assessee did not claim deduction on account of depreciation. Though, this position was not accepted by the AO, the claim of the assessee was upheld by the Tribunal.

3. Coming to the Assessment Year 1997-98, from which Assessment Year the dispute has arisen, the annual accounts prepared by the assessee for the year disclosed that it earned a net profit of Rs.1,80,85,409/-. This was arrived at after charging depreciation of Rs.64,98,968/-in accordance with the Companies Act, 1956. The assessee filed its return of income for Assessment Year 1997-98 determining the gross total income at Rs.2,46,04,962/-. The gross total income included profits and gains derived from business of undertakings I and II at Daman aggregating to Rs.2,46,04,962/-which profits were eligible for deduction under Section 80-IA of the Act. After reducing the gross total income by the deductions available under Section 80-IA, the total income was computed at Rs. Nil. The AO initiated reassessment proceedings and passed an assessment order under Section 143(3) read with Section 147 computing the gross total income at Rs.34,15,583/-. Though, the assessee had disclaimed deduction in respect of depreciation, the AO allowed deduction on this account as well in respect of the same in the sum of Rs.2,13,89,379/-while computing the profit and gains of business. After reducing the gross total income b