Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following two questions of law to this court under Section 256(1) of the Income-tax Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to deduction under Section 80HH of the Income-tax Act, 1961, for its new freight container unit without setting off past losses of the said unit ?
(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not upholding the order of the Commissioner of Income-tax (Appeals) to the effect that relief under Section 80HH of the Income-tax Act, 1961, should be determined with reference to the working of the new unit only without reference to the profits of other units not eligible for deduction under this section ?" 2. The assessment year involved is 1983-84 for which the relevant accounting year is the financial year 1982-83.
(3.) The facts as narrated by the Tribunal in the statement of the case are as under : The brief facts are that the assessee in this case is a Government of India enterprise. It filed a return declaring a total income of Rs. 74,99,630 and the assessment was completed on a total income of Rs. 1,10,61,470. While completing the assessment, the Assessing Officer worked out the allowable deduction under Section 80HH at a sum of Rs. 2,86,562 as against the assessee's claim of Rs. 11,15,008. The reduction in the allowable deduction under Section 80HH arose due to variation in the allocation of common expenses for deduction while working out the profit of the unit. The assessee filed an appeal against the said computation. In the meanwhile, the Assessing Officer by his order dated March 10, 1988, rectified the order and held that the assessee was not entitled to any deduction under Section 80HH as there was no surplus in the said freight container unit, Cochin, after adjusting the past losses and, therefore, no relief under Section 80HH of the Income-tax Act can be given to the assessee. The assessee thereupon filed another appeal against this order of rectification under Section 154 to the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) considered both the issues in this order. It was claimed before the learned Commissioner of Income-tax (Appeals) that the Assessing Officer was not justified in withdrawing relief of Rs. 2,86,562 already allowed by resorting to Section 154 of the Act. According to the assessee, the Assessing Officer did not correctly appreciate the decisions of the Supreme Court in the case of CIT v. Patiala Flour Mills Co. P. Ltd. and in the case of Rajapalayam Mills Ltd. v. CIT as the said decisions were rendered in the context of the provisions of Section 80-I of the Act. Since there is a fundamental difference in the provisions, it was wrong on the part of the Assessing Officer to have recomputed the profit from the new container unit in Cochin by notionally carrying forward the losses of earlier years and adjusting them against the current year's profit. The losses of the new unit have already been absorbed by the profits attributable to other business and the assessee has already been assessed on a positive income after adjusting the past losses. In such a case, there is no question of adjusting all over again the past losses already adjusted against the profit of the current year while computing the deduction under Section 80HH. The learned Commissioner of Income-tax (Appeals), however, did not accept the contentions. Relying on the decision in the case of CIT v. Kerala Solvent Extraction Ltd. [1987] 165 ITR 174 (Ker) and in the case of CIT v. Canara Workshops P. Ltd. the learned Commissioner of Income-tax (Appeals) held that such industry must be considered on its working in adjudging its entitlement to the deduction on the relief and, therefore, the assessee cannot get the benefit of deduction under Section 80HH of the Act as there was no profit after adjustment of the losses for those earlier years.;