Judgment: Ranjit More, J. 1. The substantial questions of law as raised by the Revenue are: (1) whether on the facts and in the circumstances of the case, the ITAT was justified in holding that unabsorbed investment allowances cannot be deducted while computing the profits of business or profession, particularly in view of special benefits claimed by the Assessee under Chapter VI-A? and (2) Whether in the facts and in the circumstances of the case the Revenue is entitled to set off of unabsorbed investment allowances from the profits of the business for the purpose of computing benefits under Section 80HHC claimed by the Assessee, particularly in view of the mechanism set up in explanation (bba) to Section 80HHC for computing profits of the business? 2. Brief facts giving rise to filing of the present appeal are as follows: The respondent is engaged in the business of export of processed iron ore and, therefore, its profits derived from such activities are eligible for deduction in accordance with section 80HHC. The respondent filed its return of income for the Assessment Year 1991-92 on 5/2/1992 and the respondent determined its income chargeable under the head "Profits and gains of business or profession" at Rs. 13,82,78,371/-, the income under the head "Income from house property" at Rs.13,008/-, the income under the head "Capital gains" at Rs.17,112/- and the income under the head "Income from other sources” at Rs.6,82,696/-. From the aggregate of the aforesaid figure of Rs.13,89,91,187/-, the respondent reduced the unabsorbed investment allowance pertaining to the earlier years amounting to Rs.4,02,64,638/- and determined the gross total income at Rs.9,87,26,549/-. The deductions under Chapter VI-A were worked out at Rs.10,23,75,288/-which included the deduction under Section 80HHC of Rs.10,16,92,592/-. But the same was restricted to the amount of gross total income of Rs.9,87,26,549/- and accordingly, the return declaring a Nil income was filed. The Assessing Officer, by his order dated 26th March, 1993, determined the respondent's income chargeable to tax at Rs.4,23,76,240/-. In so doing, he determined the income chargeable under the head "Profits and gains of business or profession" at Rs.9,18,47,162/- from which he reduced the unabsorbed investment allowance of Rs.3,11,87,060/- and, accordingly, determined the income chargeable under that head at Rs.6,06,60,102/-. The Assessing Officer, by his order dated 26th March, 1993, determined the respondent's income chargeable to tax at Rs.4,23,76,240/-. In so doing, he determined the income chargeable under the head "Profits and gains of business or profession" at Rs.9,18,47,162/- from which he reduced the unabsorbed investment allowance of Rs.3,11,87,060/- and, accordingly, determined the income chargeable under that head at Rs.6,06,60,102/-. To this, he added the income under the head "House Property" at Rs.13,008/-, capital gains of Rs.17,112/- and income from other sources at Rs.2,72,89,215/-and accordingly, determined the gross total income at Rs.8,79,79,437/-. He determined the deduction under section 80HHC at Rs.4,45,12,000/- under Section 80M of Rs.6,82,696/-and under Section 80G of Rs.4,08,500/- aggregating Rs.4,56,03,196/- and therefore, determined the total income at Rs.4,23,76,241/-. According to the Assessing Officer, the unabsorbed investment allowance has to be set off in computing the income chargeable under the head "Profits and gains of business or profession" and, therefore, correspondingly the deduction available under Section 80HHC would also stand reduced because the basis for calculation of the said deduction is the income chargeable under the head "Profits and gains of business or profession". The respondent preferred an appeal to the Commissioner of Income-tax (Appeals) who, by his order dated 21st February, 1994, was pleased to reject the respondent's challenge to the computation of the deduction under Section 80HHC as well as its challenge to the action of the Assessing Officer in setting off the unabsorbed investment allowance against the income under the head "Profits and gains of business or profession". The Commissioner of Income-Tax (Appeals) concurred with the view expressed by the Assessing Officer. The respondent being aggrieved by the order of the Commissioner of Income-tax (Appeals), preferred an appeal to the Income Tax Appellate Tribunal (ITAT). The ITAT by its order dated 25th August, 2005, which is impugned in this appeal, was pleased to partly allow the respondent's appeal. In so far as the challenge to the action of the Assessing Officer in reducing the deduction available under Section 80HHC by setting off the unabsorbed investment allowance against the income chargeable under the head "Profits and gains of business or profession" is concerned, the ITAT accepted the contention of the respondent in the light of its earlier two decisions in Z.F. Steering Gear (India) Limited vs. Deputy CIT, 77 ITD 279 and Allana Frozen Foods Private Limited Vs. Deputy, CIT 78 ITD 23. 3. Deputy, CIT 78 ITD 23. 3. During the course of hearing, the learned Counsel appearing for the respective parties agreed that the substantial questions of law as raised by the Revenue, mentioned hereinabove, are not correctly worded, however, the same convey the objections raised by the Revenue to the impugned order. In that view of the matter and in the light of the facts mentioned hereinabove, the issue that arises for determination by this Court is, whether the Assessing Officer was justified in setting off the unabsorbed investment allowance while computing the income chargeable under the head "Profits and gains of business or profession", or whether the unabsorbed investment allowance has to be adjusted against the business income or total income? 4. Ms. A. Dessai, learned Counsel appearing for the Revenue, took us through the provisions of Section 28 to 43-C which fall under Chapter IV-D -Profits and gains of business or profession, Section 80AB and Section 80 HHC of the Income Tax and submitted that the unabsorbed investment allowance is required to be set off while computing the income chargeable under the head "Profits and gains of business or profession". She further submitted that the ITAT committed an error in holding that the unabsorbed investment allowance has to be set off against the total income of the subsequent year and not against the business profit. She relied upon the decisions in the case of Ashwini Cold Storage Pvt. Ltd. vs. Commissioner of Income Tax, (2007) 290 ITR 183 (MAD) and the Commissioner of Inome Tax vs. Vishwas Foot Wear Co. Ltd. (2008) 304 ITR 127 (MAD) and the decision of the Apex Court in IPCA Laboratory Ltd. vs. Deputy Commissioner of Income-tax, (2004) 266 ITR 521 (SC). 5. Mr. Pardiwalla, learned Senior Counsel appearing for the respondent, on the other hand, supported the impugned order. He submitted that the impugned order passed by the ITAT is in consonance with its earlier decisions, namely Z.F. Steering Gear (India) Limited (supra) and Allana Fronzen Foods Private Limited (supra), which decision, according to him, has been accepted by the Revenue. Mr. Pardiwalla submitted that Chapter IV-D deals with the chargeability of income under the head "Profits and gains of business or profession". Mr. Pardiwalla submitted that Chapter IV-D deals with the chargeability of income under the head "Profits and gains of business or profession". He submitted that Section 29 provides that the income referred to in Section 28 i.e. the income chargeable to income tax under the head "Profits and gains of business or profession" shall be computed in accordance with the provisions contained in Sections 30 to 43B. Since Section 32A falls within the conspectus of these Sections, there can be no doubt that the investment allowance for the year has to be taken into consideration in determining the profits chargeable under the head "Profits and gains of business or profession". However, when it comes to an adjustment of the unabsorbed investment allowance brought forward from the earlier years, the language of sub-section (3) of Section 32A indicates that the set off of such unabsorbed investment allowance has to be against the total income and not against the income chargeable under the head "Profits and gains of business or profession". Mr. Pardiwalla submitted that Section 80AB has no application to computation of deduction under Section 80HHC as the same was already on the statute book when Section 80HHC was introduced. Mr. Pardiwalla, distinguished the judgments cited by the Revenue, and submitted that the same are not applicable to the facts and circumstances of the present case. He lastly submitted that the appeal is without any substance and, therefore, no interference is called for. 6. Having considered the submissions of the rival parties, along with the compilation of the appeal, including the impugned order, and the ratio of the judgments cited supra, we find merit in the appeal. 7. The short question which falls for consideration of this Court is, while computing deduction under Section 80HHC(1) and (3) unabsorbed investment allowance is to be adjusted against the total income or income under the head "Profits and gains of business or profession" ? 7. The short question which falls for consideration of this Court is, while computing deduction under Section 80HHC(1) and (3) unabsorbed investment allowance is to be adjusted against the total income or income under the head "Profits and gains of business or profession" ? To answer this question, it would be advantageous to reproduce the provisions of Section 32A(1) and (3) and Section 80HHC(1) and (3), which read thus: “Section 32A (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee : Provided … Provided [further]... (3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year (the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A) is nil or is less than the full amount of the investment allowance,— (i) the sum to be allowed by way of investment allowance for that assessment year under subsection (1) shall be only such amount as is sufficient to reduce the said total income to nil ; and (ii) the amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year. Explanation : ... 80HHC. Explanation : ... 80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or mechandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the [profits] derived by the assessee from the export of such goods or mechandise: Provided … (3) For the purposes of sub- section (1), profits derived from the export of goods or merchandise out of India shall be the amount which bears to the profits of the business (as computed under the head “Profits and gains of business or profession”), the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.” 8. In section 32A(3) as well as Section 80HHC(3), reference is made to the profits computed under the business head. Perusal of Section 80HHC(3) makes it further clear that the deduction under Section 80HHC(1) is to be allowed on the profits and gains as computed under the head "Profits and gains of business or profession" . Mr. Pardiwalla relied upon the wording of provisions of Section 32A(3) to contend that unabsorbed allowance can be set off from total income before allowing the deduction under Chapter VIA. This submission of Mr. Pardiwalla cannot be accepted in view of the fact that Section 32A(3) is placed in Chapter IVD and, therefore, it is clear that unabsorbed investment allowance is to be considered under the head "Profits and gains of business or profession". In that view of the matter, we are of the considered view that the deduction under Section 80HHC (3) is required to be computed after setting off of the unabsorbed investment allowance under Section 32A(3) from profits of the business. 9. In Asvini Cold Storage (P) Ltd. (supra), the question that fell for consideration of the Division Bench was, whether on the facts and in the circumstances, the Tribunal was right in holding that the unabsorbed depreciation and unabsorbed investment allowance of earlier years should be set off while computing the profits of business for the purpose of determining the relief under Section 80HHC? This question was answered in the affirmative and against the assessee. This question was answered in the affirmative and against the assessee. In this case, the Tribunal, in the light of the provisions of Section 80AB held that unabsorbed depreciation and the unabsorbed investment allowance were to be deducted from the profits and gains of the business for the purpose of determining the relief under Section 80HHC. The Division Bench of Madras High Court relied upon the Apex Court decision in the case of IPCA Laboratory Ltd. (supra), more particularly, the following observations: "section 80AB has been given an overriding effect over all other sections, in Chapter VI-A. Section 89HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act." The Division Bench of the Madras High Court relying on above observations of the Supreme Court, held that Section 80HHC provides for deduction of profits from the gross total income. Sub-Section (3) is a machinery provision to lay down the manner of calculating the profits which constitutes deduction under section 80HHC(1). Further the Division Bench of the Madras High Court, relying upon the said decision of the Apex Court, held thus: "It must be seen that section 80HHC provides for deduction of profits from the gross total income. Sub-section (3) is a machinery provision to lay down the manner of calculating the profits which constitutes deduction under section 80HHC(1). Consequently, section 80HHC(3) aids in the working of the deduction under section 80HHC(1). Considering the fact that section 80HHC is a section which comes under Chapter VI-A providing for special deduction in gross total income, necessarily, the computation for deduction has to be in accordance with the total income computed in a manner provided for under section 80AB. It is relevant to note that section 80A deals with deduction to be made under Chapter VI-A in computing the total income. It may also be noted that section 80A(2) lays down that the aggregate amount of the income under Chapter VI-A shall not exceed the gross total income of the assessee. It is relevant to note that section 80A deals with deduction to be made under Chapter VI-A in computing the total income. It may also be noted that section 80A(2) lays down that the aggregate amount of the income under Chapter VI-A shall not exceed the gross total income of the assessee. Read in the context of section 80A and section 80AB, the scheme of deduction under Section 80HHC has to be computed out of the income from profits and gains of business in accordance with the provisions of the Act, as stated so under section 80AB. A reading of this provision does not yield any other interpretation as suggested by the assessee.” The decision of the Division Bench of Madras High Court in Asvini Cold Storage (P) Ltd. (supra) was followed by subsequent Division Bench of that Court in Viswas Footwear Co. Ltd. (supra). Mr. Pardiwalla, in this regard, tried to distinguish the above judgments of the Madras High Court, contending that the provisions of Section 80AB has no application in the present case. He submitted that Section 80AB was already in the statute book when the provisions of Section 80HHC were introduced and, therefore, the provisions of Section 80AB cannot be taken support of to compute the deduction under Section 80HHC. This submission cannot be accepted as the decisions of the Madras High Court are based on the decisions of the Apex Court. As stated hereinabove, the Apex Court in IPCA Laboratory Ltd., (supra) in terms held that Section 80HHC would be governed by Section 80AB. In our considered opinion, the ratio of the decision of the Madras High Court in Asvini Cold Storage (P) Ltd., (Supra) is, therefore, squarely applicable to the facts and circumstances of the present case and, therefore, we hold that deduction under Section 80HHC has to be computed out of the income of profits and gains of business in accordance with the provisions of the Act as stated under Section 80AB. 10. 10. In the Full Bench Judgment of this Court in Plastiblends India Limited vs. additional Commissioner of Income-Tax and others, [2009] 318 ITR 352 (Bom.), the question of law which fell for consideration was "whether, in the facts and circumstances of the case, for the purpose of availing of allowable special deduction under Chapter VI-A of the Income-tax Act, the gross total income is required to be computed by deducting allowable depreciation even though the assessee had disclaimed the same for the purposes of regular assessment?” In that case, the Full Bench observed that the Apex Court in the case of Distributors (Baroda) P. Ltd. v. Union of India, [1985] 155 ITR 120. and in case of Liberty India vs. CIT, [2009] 317 ITR 218 has clearly held that the special deduction under Chapter VI-A has to be computed on the gross total income determined after taking all deductions allowable under Sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has to be rejected. The Full Bench after taking survey of the relevant decisions, including the above decisions, held that the quantum of deductions allowable under Section 80-IA of the Act has to be determined by computing the gross total income from business after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. A perusal of the Full Bench decision in Plastiblends India Limited (supra), makes it clear that the deductions under Chapter VI-A in which Section 80HHC falls, has to be computed on the gross total income from business determined after deducting all deductions allowable under sections 30 to 43D of the Act. In our considered view, the ratio of this decision of the Full Bench is aptly applicable to the facts and circumstances of the present case. 11. In the facts and circumstances of the case, we hold that for the purpose of computing the benefits under Section 80HHC, unabsorbed investment allowance is required to be set off while computing the income chargeable under the head “Profits and gains of business or profession”. The question of law is thus answered in favour of the Revenue and against the assessee. 12. The appeal is, accordingly, allowed. In the facts and circumstances of the case, there shall be no order as to costs.