The court remits the case back to the Assessing Officer to reconsider deferred sales tax liabilities and deductions under Sections 80HHC and 80IB.
The Telangana High Court has directed a fresh assessment for Krebs Biochemicals & Industries Ltd. regarding its claims related to deferred sales tax liabilities and deductions under Sections 80HHC and 80IB of the Income Tax Act, 1961. The bench, comprising Justices P. Sam Koshy and Suddala Chalapathi Rao, remanded the matter back to the Assessing Officer for a fresh determination of the issues in light of new statutory adjustment orders.
In a judgment passed on June 19, 2026, the court addressed several substantial questions of law raised by the appellant, Krebs Biochemicals. The primary issues revolved around whether the deferred sales tax liability could be disallowed under Section 43B, and whether deductions under Section 80HHC should be reduced by the deductions under Section 80IB.
The court noted that the initial disallowance of Krebs Biochemicals' claims was due to the absence of evidence demonstrating the conversion of deferred sales tax liabilities into loans. However, recent adjustment orders from the Commercial Tax Officer, issued in 2016, 2017, and 2022, provide new evidence that could substantiate the appellant's claims. The court emphasized that these statutory orders should be considered by the Assessing Officer for a thorough re-evaluation.
Furthermore, the court addressed the deduction issue under Sections 80HHC and 80IB, citing the Supreme Court's decision in Shital Fibers Ltd., which clarified that deductions under different sections of Chapter VI-A must be computed separately. The court held that the deductions under Section 80IB should not reduce the deductions calculated under Section 80HHC, a principle that was overlooked by the lower authorities.
The court has mandated that the Assessing Officer re-examine the adjustment orders and recompute the deductions, ensuring compliance with the Supreme Court's interpretation. This exercise is to be completed within three months, providing Krebs Biochemicals an opportunity to establish its claims with the new evidence.
Bottom line:-
Income Tax - Deferred sales tax liability - Conversion into a loan under a government scheme must be substantiated through cogent evidence such as statutory adjustment orders or agreements with the tax authority - Adjustment orders issued subsequently must be considered by the Assessing Officer for fresh determination under Section 43B of the Income Tax Act, 1961.
Statutory provision(s): Income Tax Act, 1961 - Sections 43B, 80HHC, 80IB.
