Case: Plastiblends India Limited Vs. Addl. Commissioner of Income Tax, Mumbai and Ors

2. The Assessment Years involved in this appeal are1. 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 Years96 respectively. Accordingly, for the year under consideration i.e. Assessment Yearprofits of the business of both the undertakings were eligible for 100% deduction under Sectionof the Act. The assessee did not claim depreciation while computing its income under the head profits and gains of business. Consequently, deduction under Sectionwas 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 Yearthe 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 Yearfrom 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.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 Yeardetermining the gross total income at Rs.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 Sectionof the Act. After reducing the gross total income by the deductions available under Sectionthe 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.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 by the brought forward loss of Rs.he determined the business loss to be carried forward to Assessment Year

Court's reasoning:
6. It is not in dispute that all the assessees in these appeals are those industrial undertakings which fulfil the conditions mentioned in Sectionand, therefore, are entitled to deductions as stipulated in(5) of the said Section. It is also not in dispute that all the assessees fall in that category of industrial undertakings which are entitled to 100% deduction of the profits and gains derived from such industrial undertakings for the specified number of years. It is also an admitted fact that for the Assessment Years in question, they were entitled to the aforesaid deduction and their assessments were completed under Sectionof the Act.Submission of Mr. Pardiwala, the learned senior counsel for the assessees, was that deduction is to be allowed from `such profits and gains and, therefore, in the first instance, profits and gains which are earned by the assessees in the relevant Assessment Year are to be computed. For computation of such profits and gains, one has to go back and apply the provisions from Section 28 onwards contained in Part D of Chapter IV dealing with `profits and gains from business or profession. Section 29 of the Act, in this behalf, specifically stipulates that income referred to in Section 28 shall be computed in accordance with provisions contained in Sections 30 to 43D. In this hue, he argued, when it comes to claiming depreciation, Section 32 of the Act gets attracted and interpreting this Section, it has been held in Mahendra Mills case that whether to claim depreciation or not is the option of the assessees and it cannot be thrusted upon the assessees.The High Court also noted that in Doom Dooma India Ltd., this Court had specifically remarked that Chapterrefers to special deduction. It is a distinct code by itself. It was also held in the said judgment that there was a clear distinction between `deductions/allowances in Section 30 to 43D and `deductions admissible under Chapterinasmuch as deductions/ allowances provided in Sections 30 to 43D are allowed in determining gross total income and are not chargeable to tax because the same constitute a charge on profit, whereas, deductions under Chapterare allowed from gross total income chargeable to tax. After discussing the aforesaid three judgments of this Court, the High Court noticed that Sectionis a code by itself and deduction allowable under Sectionis a special deduction which is linked to profits, unlike deductions contained in Chapter IV of the Act which are linked to investment.17. The aforesaid conclusion of the Full Bench is based on the judgments of this Court and there is no reason to disagree with the same, on finding that the judgments of this Court are rightly analysed and ratio thereof is correctly understood and applied. We, thus, entirely agree with the Full Bench judgment of the Bombay High Court in Plastiblends India Limited v. Additional Commissioner of& Ors., (2009) 318 ITR 352  and the following manner in which the position has been summed up by the HighAs is clear from the arguments advanced by Mr. Pardiwala, main thrust of his argument was predicated on the judgment of this Court in Mahendra Mills, which according to us, cannot be applied while interpreting Sectionof the Act.It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapterof the Act.Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Sectionis a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Sectionof the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Sectionof the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Sectionof the Act which cannot be permitted.19. Having interpreted the provisions of Sectionin the aforesaid manner, it is not necessary to go into the other question, viz., whether Explanation 5 to Section 32 of the Act is declaratory in nature or it is to be applied prospectively. Judgments cited by both the sides on this aspect, therefore, need not be dealt with.