1. Appeal against Tribunal order concerning deduction under Sections 80IA/80IB and 80HHC and treatment of additional sales tax as capital cost. (Para 1 , 2 )
Back
Next 
2026 Supreme(Raj) 822
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
PUSHPENDRA SINGH BHATI, PRAVEER BHATNAGAR, JJ.
Secure Meters Ltd. - Appellant
Versus
A.C.I.T. Circle-2-Udaipur – Respondent
D.B. Income Tax Appeal No. 19 of 2008
Decided On : 05-09-2026
Important Points
Deductions under Section 80HHC must be computed independently of Sections 80-IA/80-IB, with restrictions on double deduction applying only at the allowance stage. Additionally, actual cost within the written-down value of an asset block cannot be modified in subsequent years without a specific statutory provision.
Subject
Tax Law - Income Tax
Act Referred
Headnote
(A) Income-tax Act, 1961 - Sections 80-IA, 80-IB, 80HHC(3), 80-IA(9), and 80-IB(13) -Computation versus Allowance of Deduction - The restriction under Section 80-IA(9) is not upon the computation of gross total income but restricts the deduction allowable under another provision to the extent of the deduction already claimed under Section 80-IA - Deductions under respective provisions are to be computed independently using their own statutory formulae, while the aggregate deduction actually allowed cannot exceed the profits of the eligible business to prevent repeated deductions. (Paras 5.3, 5.4 and 5.6)
(B) Income-tax Act, 1961 - Sections 43(1) and 43(6) - Actual Cost and Written Down Value (WDV) - Modification of cost in subsequent years - Once an asset acquired in a preceding year has entered the relevant block and depreciation has been allowed, the written-down value for a subsequent year must be determined in accordance with the statutory mechanism under Section 43(6) - A subsequent liability cannot be inserted into the opening written-down value merely by describing it as part of the actual cost without identifying a specific statutory provision permitting such adjustment. (Paras 6.5 and 6.6)
Facts of the case:
The assessee, engaged in manufacturing electronic energy meters, claimed deductions under Sections 80-IA/80-IB and Section 80HHC for the assessment year 2003-04. The Assessing Officer held that deductions under 80-IA/80-IB must be reduced from the profits before computing the deduction under 80HHC. Additionally, an amount involving additional sales tax and interest from prior purchases was initially disallowed as prior-period expenditure, but the Tribunal later characterized it as part of the actual cost of capital assets for the purpose of allowing depreciation.
Findings of Court:
The Court found that the deduction under Section 80HHC must be computed independently, and the restriction under Section 80-IA(9) operates only at the stage of final allowance. Regarding the asset cost, the Court held that the Tribunal was unjustified in directing depreciation without identifying the statutory mechanism for adjusting the written-down value of the block of assets for a liability crystallizing in a subsequent year.
Issues: (1) Whether the eligible amount of deduction under Section 80IA/80IB of the Act should be reduced for computation of deduction under Section 80HHC(3) of the Act? (2) Whether the ‘actual cost’ of an asset determined under Section 43(1) which forms part of the Written Down Value within the meaning of Section 43(6) can be modified in subsequent years without a specific statutory provision?
Ratio Decidendi: The Court reasoned that computation and allowance are distinct stages; statutory formulae for computation must be applied first, and restrictions against double deduction are applied at the allowance stage. Furthermore, the statutory mechanism for WDV under Section 43(6) precludes the arbitrary addition of subsequent liabilities to the actual cost without expressed statutory authorization.
Result: Appeal allowed.
(B) Income-tax Act, 1961 - Sections 43(1) and 43(6) - Actual Cost and Written Down Value (WDV) - Modification of cost in subsequent years - Once an asset acquired in a preceding year has entered the relevant block and depreciation has been allowed, the written-down value for a subsequent year must be determined in accordance with the statutory mechanism under Section 43(6) - A subsequent liability cannot be inserted into the opening written-down value merely by describing it as part of the actual cost without identifying a specific statutory provision permitting such adjustment. (Paras 6.5 and 6.6)
Facts of the case:
The assessee, engaged in manufacturing electronic energy meters, claimed deductions under Sections 80-IA/80-IB and Section 80HHC for the assessment year 2003-04. The Assessing Officer held that deductions under 80-IA/80-IB must be reduced from the profits before computing the deduction under 80HHC. Additionally, an amount involving additional sales tax and interest from prior purchases was initially disallowed as prior-period expenditure, but the Tribunal later characterized it as part of the actual cost of capital assets for the purpose of allowing depreciation.
Findings of Court:
The Court found that the deduction under Section 80HHC must be computed independently, and the restriction under Section 80-IA(9) operates only at the stage of final allowance. Regarding the asset cost, the Court held that the Tribunal was unjustified in directing depreciation without identifying the statutory mechanism for adjusting the written-down value of the block of assets for a liability crystallizing in a subsequent year.
Issues: (1) Whether the eligible amount of deduction under Section 80IA/80IB of the Act should be reduced for computation of deduction under Section 80HHC(3) of the Act? (2) Whether the ‘actual cost’ of an asset determined under Section 43(1) which forms part of the Written Down Value within the meaning of Section 43(6) can be modified in subsequent years without a specific statutory provision?
Ratio Decidendi: The Court reasoned that computation and allowance are distinct stages; statutory formulae for computation must be applied first, and restrictions against double deduction are applied at the allowance stage. Furthermore, the statutory mechanism for WDV under Section 43(6) precludes the arbitrary addition of subsequent liabilities to the actual cost without expressed statutory authorization.
Result: Appeal allowed.
Legal Category Hierarchy
-
taxation
-
income tax
-
deductions
- section 80-ia
- section 80-ib
- section 80-hhc (Para 3)
-
capital cost and depreciation
- actual cost under section 43(1)
- written down value under section 43(6)
-
deductions
-
practice and procedure
-
appeals
- income tax appeal
- appellate jurisdiction
-
appeals
-
income tax
Advocates Appeared:
For the Appellant :Mr. Sanjay Jhanwar, Sr. Advocate assisted by Mr. Sanjay Nahar & Mr. Karan Pareek
For Respondent: Mr. K.K. Bissa
For the Appellant :Mr. Sanjay Jhanwar, Sr. Advocate assisted by Mr. Sanjay Nahar & Mr. Karan Pareek
For Respondent: Mr. K.K. Bissa
Table of Contents
2. Assessee argued deductions under 80IA/80IB could not be subtracted before computing 80HHC; Revenue argued for reduction and capital treatment of additional tax. (Para 3 , 4 )
3. Appeal allowed; first question answered in favor of assessee; second issue remanded to Assessing Officer for reconsideration. (Para 7 )
JUDGMENT :
Pushpendra Singh Bhati, J.
1. The instant Income Tax Appeal has been preferred by the appellant-assessee under Section 260A of the Income-tax Act, 1961 , assailing the order dated 24.08.2007 passed by the learned Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur in ITA No.457/JU/2006 pertaining to Assessment Year 2003-04. The appellant has claimed the following relief:
“(i) The present D.B. Income Tax Appeal may please be allowed and quash/set aside/modify the order of tribunal dated 24.08.2007 (Annexure-6) and the substantial questions of law raised herein be answered in favour of the Appellant.
(ii) In the meanwhile, the operation of order of Tribunal dated 24.08.2007 (Annexure-6) be kindly stayed or;
(iii) Any other interim relief, as may be deemed appropriate under the facts and circumstances of the case, be allowed to the appellant.”
1.1. The record indicates that vide order dated 13.05.2008, the appeal was admitted on the following substantial questions of law:
“(1) Whether the eligible amount of deduction under section 80IA/80IB of the Act should be reduced for computation of deduction under section 80HHC(3) of the Act?
(2) Whether the ‘actual cost’ of an asset determined under section 43(1) of the Act which forms part of the Written Down Value within the meaning of section 43(6) of the Act can be modified in subsequent years when the same has already formed part of Written Down Value in preceding years and when there is no specific provision permitting the same?”
2. The relevant facts, in brief, are that the appellant-assessee is engaged in the business of manufacturing solid-state electronic energy meters at its units situated at Pratap Nagar Industrial Area, Udaipur, and at Bated and Barotiwala in District Solan, Himachal Pradesh. The appellant filed its return of income for Assessment Year 2003-04 on 02.12.2003, declaring total income of Rs.8,57,28,280/-.
2.1. The learned Assessing Officer, by order dated 31.01.2006, determined the total income of the appellant at Rs.9,27,23,840/-. Two components of the assessment ultimately became material for the present appeal.
2.2. The first component concerned the deduction claimed under Sections 80-IA/80-IB and Section 80HHC of the Act. The assessment order recorded that the appellant had claimed deductions in relation to its Bated, Barotiwala and Udaipur units under Sections 80-IA/80-IB. The appellant had also claimed deduction under Section 80HHC in respect of export turnover of Rs.85,55,056/-.
2.3. While computing the deduction under Section 80HHC, the appellant excluded the profit and turnover of its Bated unit, in respect of which deduction under Section 80-IB had been claimed at the rate of 100%. The appellant, however, computed the deduction under Section 80HHC in relation to the Barotiwala and Udaipur units without first reducing the amount claimed as deduction under Sections 80-IA/80-IB from the profits of the business.
2.4. The learned Assessing Officer held that, by virtue of Section 80-IA(9), read with Section 80-IB(13), the deduction claimed under Sections 80-IA/80-IB was required to be reduced from the profits of the business before computing deduction under Section 80HHC. The learned Assessing Officer accordingly directed recomputation of the deduction.
2.5. The second component concerned an amount of Rs.7,77,607/- comprising additional Central Sales Tax of Rs.6,58,989/- and interest of Rs.1,18,618/-. The amount was claimed on the basis of a debit note/invoice issued by M/s Business Link Automation India Ltd. The learned Assessing Officer observed that the amount related to purchases made during Financial Year 2001-02 and had arisen because Form C had not been furnished within time. Treating the amount as a prior-period expenditure, the learned Assessing Officer disallowed the same.
2.6. Aggrieved by the assessment order, the appellant preferred Appeal No.394/IT/UDR/2005-06 before the learned Commissioner of Income Tax (Appeals), Udaipur. By order dated 26.06.20
