Income Tax Appellate Tribunal - Pune
Brook Crompton Greaves Ltd. vs The Income-Tax Officer on 10 March, 2006
Equivalent citations: [2007]105ITD146(PUNE), (2007)107TTJ(PUNE)642
ORDER
K.G. Bansal, Accountant Member
1. This appeal of the assessee arises out of the order of CIT(A)-I, Pune. passed on 30.12.2004. The corresponding order of assessment was passed by the ITO, Ward 1, Ahmednagar (hereinafter called the AO), under the provisions of Section 143(3) of the IT Act, 1961, on 28.01.2004. The assessee has taken up five grounds of appeal. Ground No. 5 is against the charging of interest under Sections 234B & 234C in respect of the tax payable by the assessee Under Section 115JB of the Act. This ground was withdrawn in the course of hearing by the learned Counsel of the assessee.
2.1 Before dealing with the other grounds of appeal, we may record in brief the contents of the orders of the AO and the learned CIT(A). The assessee had filed its return of income on 25.10.2001, declaring total income of Rs. 2,07,675/-. The AO computed the income of the assessee at Rs. 2,07.675/-. He also computed the book profits, Under Section 115JB of the Act at Rs. 23,17,154/-. While doing so, he inter-alia reduced from the book profits an amount of Rs. 1,06,92,643/-, representing 80% of the profits derived from the exports business, as against the claim of the assessee of Rs. 1.33,65.804/-. In this connection, the AO mentioned in paragraph 9 of his order, that for AY 2001-02, only 80% of the export profits was eligible for deduction Under Section 80HHC(1) read with Section 80HHC(1B). For the sake of ready reference, para 9 of his order is reproduced below:
9. In view of the above, it is clear that the assessee's claim of deduction Under Section 80 HHC in its working given above in the para 3 above is excess by 20% and the same is not acceptable. The assessee is entitled for deduction only to the extent of 80% of the profit derived from the export business. The computation of the tax under MAT in view of Section 115 JB rws 80 HHC is made as under :
Book profit before tax us per books 3,28,11.709
Less: Least of unabsorbed
depreciation and unabsorbed
business losses 1.71.28.751
Deduction Under Section 80 HHC 1.06,92.643 2.78,21.394
Adjusted book profit 49.90.315
Tax on adjusted book profit 3,74.273
2.2 Aggrieved by this order, the assessee filed appeal before the learned CIT(A), Pune. The learned CIT(A) was of the view that the AO was right in applying the provisions of Section 80HHC(1B) while deducting the amount of profits eligible for deduction Under Section 80HHC under Clause (iv) of the Explanation to Section 115JB. He was also of the view that the deduction under the aforesaid clause has to be made in accordance with the provisions of Section 80HHC. The assessee had unabsorbed depreciation and carried forward business losses whose aggregate was more than the gross total income of the assessee for the relevant previous year. He referred to the decision of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. 266 ITR 521, in which it was inter-alia held that deduction Under Section 80HHC is also controlled by the provisions contained in Sections 80A & 80AB. In view thereof, he came to the conclusion that the assessee was not entitled to any deduction Under Section 80HHC in computation of its income under the other provisions of the Act. For the sake of ready reference paragraph 2.3 of his order, dealing with this issue, is reproduced below:
2.3 I have considered the submissions of the appellant and the facts of the case. As far as the normal computation of income is concerned, the appellant is entitled to allowance Under Section 80HHC of the Income-tax Act. 1961 only if the gross total income of the appellant is positive figure. There is no dispute that the current years income would be wiped off by setting off of the carry forward business losses/unabsorbed depreciation of the earlier years. The appellant therefore before claiming the allowance Under Section 80HHC of the Income-tax Act, 1961 in the normal computation of income should have first of all given effect to the set off of the carry forward business losses/unabsorbed depreciation of the earlier years and then if there was a positive income was entitled to claim the deduction Under Section 80HHC of the Income-tax Act, 1961. The appellant has objected to the proposed enhancement stating that the powers of enhancement are not in substitution of the provisions of reassessment and could not be so utilized in a manner that such enhancement proceedings result in over riding or by-passing the definite provisions of reassessment. This is an absurd proposition. The powers and functions of the CIT(A) are quite wide and have not been restricted to decide an appeal only in favour of the appellant. If there are mistakes committed by the AO, then it is incumbent rather a duty assigned to a CIT(A) to rectify such mistakes. As per the provisions of the Income-tax Act, 1961 and the judicial pronouncements of the Hon'ble Supreme Court in the case of IPCA Laboratories Ltd.. 266 ITR 521, the deduction allowable Under Section 80HHC cannot be granted overriding the provisions of Section 80A and 80AB of the Income-tax Act, 1961. In the case under consideration, the gross total income of the appellant would be computed after applying all the provisions of the Act leading up to Chapter VIA and this includes the provisions mentioned in Sections 71 and 72 of the Income-tax Act. 1961. May be the carry forward losses would not affect the determination of the quantum of allowance Under Section 80HHC of the Income-tax Act, 1961, but the allowability of the deduction Under Section 80HHC would only arise if there is a positive income after the effect to the set off of carry forward business losses or unabsorbed depreciation is given to the income of a particular assessment year. In the year under consideration, it is an admitted position that the profits in this year would be wiped off by setting off of the carry forward business losses and hence there would be no question of any allowance of deduction Under Section 80HHC of the Income-tax Act, 1961. The AO by accepting the results declared by the appellant had in effect allowed a deduction Under Section 80 HHC of the Income-tax Act, 1961 which was not permissible and in the process the AO did not disturb the claim of the carry forward business losses/unabsorbed depreciation of the appellant. Having failed to apply the correct provisions of law, it was considered necessary that the mistakes committed in the assessment order be rectified which would result in enhancement of income and accordingly the appellant was given an opportunity of stating its objection. Having considered the objections and finding no merits therein, I direct the AO to withdraw the allowance granted Under Section 80HHC of the Income-tax Act, 1961 in the normal computation of income and re-work out the total income by taking into consideration the carry forward business losses/unabsorbed depreciation of the earlier years.
2.3 Coming to the computation of payment of tax by certain companies, Under Section 115JB, he referred to the provisions contained in aforesaid Clause (iv) of the Explanation under this section. He was of the view that deduction under this clause has to be made as per the provisions of Section 80HHC. In view thereof, he upheld the decision of the AO that only 80% of the amount of export profits, computed in accordance with Section 80HHC, can be deducted under the aforesaid clause form the book profits. Since the amount deductible Under Section 80HHC was nil, he came to the conclusion that no deduction was admissible to the assessee under the aforesaid Clause (iv). Accordingly, he worked out the adjusted book profits at Rs. 1,56,82,958/-. The calculation made by him is reproduced below:
Book profits before tax as per books Rs. 3,28,11,709
Less: Least of unabsorbed depreciation
And Unabsorbed business losses Rs. 1,71,28,751
(as per Books)
Adjusted book profits Rs. 1,56,82,958
2.4 Aggrieved by the order of the learned CIT(A) regarding enhancement of adjusted book profits and denial of exemption Under Section 80HHC under the other provisions of the Act, the assessee filed appeal before the Tribunal.
3. Ground Nos. 1 & 2 of the appeal are in relation to the denial of exemption Under Section 80HHC in computing the income of the assessee. Ground Nos. 3 & 4 are regarding enhancement of adjusted book profits by holding inter-alia that - I) only 80% of the amount computed in accordance with the provisions of Section 80HHC is deductible under the aforesaid Clause (iv), and ii) the computation of deduction under Clause (iv) has to be made Under Section 80HHC and not with reference to the book profits.
4.1 Before us, the learned Counsel of the assessee pointed out that the assessee is primarily engaged in the export business and such export constituted about 98.8% of its total turnover. Therefore, the assessee was entitled to deduction Under Section 80HHC. Such deduction was claimed in computing total income as well as adjusted book profits. However, the AO was of the view that only 80% of eligible profits were to be allowed while computing adjusted book profits. The learned CIT(A) came to the conclusion that the carried forward losses and unabsorbed depreciation exceeded the gross total income of the assessee. Therefore, the assessee was not entitled to any deduction Under Section 80HHC in view of provisions contained in Sections 80A and 80AB. He was also of the view that provisions of Clause (iv) permitted the deduction of only that amount from the book profits as computed Under Section 80HHC. Therefore, he came to the conclusion that no amount was deducible under the aforesaid Clause (iv). He referred to pages 50 & 51 of the paper book filed by the assessee, in which deduction Under Section 80HHC for this year was computed at Rs. 1,06,92,643/-, which was duly certified by SHARP TANAN, Chartered Accountants on 17.10.2001. It was pointed out by the learned Counsel that unabsorbed depreciation amounted about Rs. 7.16 crorc, and thus, it was fairly conceded that the gross total income of the assessee was lesser in amount than the aggregate of carried forward losses and unabsorbed depreciation.
4.2 Coming to the legal issues, the case of the learned Counsel was that it was entitled to deduction under the Clause (iv) of the full amount of admissible deduction Under Section 80HHC, as claimed by the assessee. In this connection, reliance was placed on the decision of Hon'ble Kerala High Court in the case of CIT v. GTN Textiles Ltd. , a case decided Under Section 115J of the Act. The decision of the Hon'ble Court, material for our discussion, is that the Tribunal was correct in interpreting that Under Section 115J(1A)(iii) of the Act, book profit will be taken into consideration as per the books of account and not the income calculated under other provisions of the Act. In other words, it was to be computed in the manner provided in Sub-section (3) of Section 80HHC but with reference to the book profits and not the income computed under the Act.
4.3 The learned Counsel also relied on the decision of ITAT, Mumbai "E" Bench in the case of DCIT v. Govind Rubber (P.) Ltd. 82 TTJ(Mum.) 615, a case decided Under Section 115J. In this order, the decision of Hon'ble Kerala High Court in the aforesaid case of GTN Textiles Industries was referred to and that decision was followed for the purpose of computing deduction Under Section 115J(1A)(iii). The case of IPCA Laboratories Ltd. decided by the Hon'ble Supreme Court and Bombay High Court (2002) 253 ITR 568 and (2001) 170 CTR (Bom.) 568, were also considered in that decision. In that case, the Hon'ble Bombay High Court had laid down that disclaiming export benefits in favour of supporting manufacturers can be done only when there is a profit. The assessee had shown a net loss from export of goods. Under these circumstances, the Hon'ble Court held that the net result should be profits for the computation of claiming deduction Under Section 80HHC. As the profit was nil, therefore, there was no question of allowing deduction Under Section 80HHC. However, the Hon'ble Tribunal further mentioned that we are unable to understand how this case is relevant to the issue under consideration. The question before the Tribunal was regarding determination of book profits Under Section 115J and the issue was whether the assessee was entitled to deduct from the book profits the amount attributable to exports Under Section 80HHC in a circumstance when deduction Under Section 80HHC was denied because of provisions of Section 80A. This section was not of any relevance to decide the question at hand.
4.4 The learned Counsel also relied on the decision of Hon'ble I TAT, Hyderabad "B" Bench in the case of Starchik Specialities Ltd. v.
DCIT (2004) 90 ITD 34. The burden of this decision is that provisions of Section 80A(2) are not applicable for working out deduction Under Section 80 HHC, eligible for reduction to arrive at adjusted book profits Under Section 115JA.
4.5 The learned Counsel relied on the decision of Hon'ble ITAT, Delhi "A" Bench in the case of ITO v. Selchem Engineers (P.) Ltd. (2004) 84 TTJ (Del) 101. The question before the Hon'ble Tribunal was whether in view of amendment in Section 32 by Finance (No.2) Act, 1996, with effect from 01.04.1997, unabsorbed depreciation of earlier years could be allowed to be set-off against income from house property for AY 1997-98. The Hon'ble Tribunal took recourse to the Budget Speech of the Finance Minister while moving the Finance Bill and Board Circular No. 762, dated 18.02.1998, the intent of which was that the amendment will have the effect that the cumulative unabsorbed depreciation brought forward as on 01.04.1997 could be set-off against the income under any other head in AY 1997-98 and seven subsequent years, while the depreciation for AY 1997-98, remaining unabsorbed, will be governed by the amended provisions.
4.6 The learned Counsel relied on Circular No. 559 dated 04.05.1990, being the Explanatory Notes on the provisions of Direct Tax Law (Amendment) Act, 1989. In regard to deduction under Section 80 HHC, it was inter-alia mentioned that under the old provisions of Section 115J, it was provided that where the total income of the assessee in respect of any previous year, computed under this Act, was less than 30% of 'book profits' the total income chargeable for previous year shall be taken to be 30% of such 'book profits'. This provision took away 100% exemption which was to be allowed in respect of export profits. Since the intention was that 100% profit should be exempt, it was decided that profits, which were exempt Under Section 80HHC, should be excluded from the purview of Section 115J. With a view to obtain this objective Clause (iii) was inserted in the Explanation so as to exclude from the book profits, the profits derived from the export of goods, which are eligible for deduction Under Section 80HHC. The learned Counsel also relied on Circular No. 680, dated 21.02.1994, which deals with Clause (iii) of the Explanation Under Section 115J, in which it was clarified that the deduction had to be computed in the manner provided in Section 80 HHC(3) or Section 80HHC(3A). The learned Counsel also relied on the Circular No. 794, dated 09.08.2000, being Explanatory Notes on the provisions relating to Direct Tax Acts in Finance Act, 2000. This Circular explains the provisions of Section 115JA in paragraph 43. In paragraph 43.5. it is inter-alia mentioned that the export profits Under Section 80HHC are kept out of the purview of this provision as these are being phased out. The learned Counsel also relied on the Memorandum explaining the provisions in the Finance Bill, 2000, in which sunset clause was introduced in the provisions of MAT, so that they were not applicable to assessment years after AY 2000-01. It was pointed out that the company shall be liable to pay a Minimum Alternate Tax at lower ale of 7.5% against the existing rate of 10.5% of the book profits. It was further pointed out that export profits Under Section 80HHC etc. are kept outside the purview of this provision during the period of phasing out of the deduction available under the provision. The learned Counsel also referred to the Finance Minister's speech. In para 169, it was stated that the exporters would continue to enjoy exemption from MAT till it is fully phased out.
4.7. It was also the case of the learned Counsel that if there was any doubt in interpretation of the provisions of aforesaid Clause (iv), benefit of doubt should go to the assessee. It was sought to be argued that the decision of Hon'ble Bombay High Court in the case of IPCA Laboratories was considered by the Hon'ble ITAT, wherein it was pointed out that provisions of Section 80A are applicable only when there is no loss from the export activities. If that is not the case, then, deduction Under Section 80HHC has to be computed on the basis that export activities constitute a separate business and only such losses etc. can be considered as are attributable to the export business. It was also argued that Section 115JB is complete code unto itself and it also contains provisions which are in the nature of charging provisions. Therefore, these provisions are to be strictly construed. It was also argued that the learned CIT(A) did not have any power to enhance the income and for this purpose he relied on the decision of Hon'ble Supreme Court in the case of CIT v. Late Manmohan Das . We find that the decision is to the effect that when the loss in any year is carried forward to the following year and is to be set-off against the profits and gains of the subsequent year Under Section 24(2) of the 1922 Act, it is the ITO who deals with the assessment of the subsequent year who has to decide the matter. A decision recorded by the ITO who computed the loss in the previous year that the loss cannot be set-off against the income of the subsequent year is not binding on the assessee.
4.8. As against the aforesaid, the learned DR pointed out that issues of allowance of deduction Under Section 80HHC as well as deduction under the aforesaid Clause (iv) were before the AO. Therefore, the learned CIT(A) could examine both these issues. If upon examination, the learned CIT(A) came to the conclusion that deduction under one or both sections was excessive, he could withdraw the same in full or in part and thereby enhance the income. It was further pointed out that the provisions of Sections 115J and 115JA on one hand and Section 115JB on the other hand, in so far as we are concerned, are materially different. Therefore, the decisions of Tribunal or Courts given Under Section 115J and Section 115JA will not be applicable to the provisions contained in Section 115JB. In this connection, he referred to the decision of Hon'ble Supreme Court in the case of CIT v. Vadilal Lallubhai v. CIT and CIT v. Sakarlal Balabhai . The Hon'ble Court pointed out that in order to find out the legislative intent, we have to find out what was the mischief that the legislature wanted to remedy. The Act was extensively amended in the year 1939. Section 44F was not there in the Draft Bill. That section was recommended by the Select Committee consisting of very eminent lawyers. It will not be inappropriate to find out the reasons which persuaded the Select Committee to recommend the inclusion of Section 44F if the section is considered as ambiguous. In this connection the Hon'ble Court referred to the decision in the case of CIT v. Sodradevi . It was further pointed out that Sections 44E and 44F were designed to prevent the avoidance of tax by "bond washing transactions". Section 45 was more or less reproduction of Section 33 of the English Finance Act, 1927. The intent of Section 44F can also be found from marginal note which reads "avoidance of tax by sale-cum-dividend". Based upon this decision, the case of the learned DR was that the intent of the legislature has to be found out by comparative reading of Clause (iv) of Section 115JB and Clause (iii) of Section 115J.
4.9 The learned DR also referred to the decision of Hon'ble Supreme Court in the case of IPCA Laboratories v. DCIT . There were two limbs of judgment. The first limb dealt with deduction Under Section 80HHC and the Hon'ble Court pointed out that in arriving at profits earned from exports of manufactured goods and trading goods, the profit and loss in both trades will have to be taken into consideration. If after such inter-se set-off, there is a positive profit, only then the assessee is entitled to deduction Under Section 80 HHC(1). If there is a loss, the assessee would not be entitled to any deduction. The second limb deals with the provisions of Section 80AB on one hand and Section 80 HHC on the other. The Hon'ble Court held that the provisions of Section 80 AB have overriding effect over all other sections in Chapter VIA. Section 80 HHC nowhere provides that its provision shall prevail over the provisions of Section 80AB or over any other provision of the Act. Therefore, the case of the learned DR was that the learned CIT(A) has correctly interpreted the provisions contained in Explanation (iv) of Section 115JB as also the provisions contained in Section 80HHC.
5.1 We have considered the facts of the case and rival submissions. In so far as the controversy regarding Section 115JB is concerned, it is substantive in nature for this year in as much as the interpretation placed by the AO and the learned CIT(A) on Clause (iv) of the Explanation enhance the tax liability of the assessee. Therefore, we proceed to deal with this controversy in the first place.
5.2 Broadly speaking Section 115JB provides for ascertainment of adjusted book profits. The exercise starts from ascertainment of profits from the Profit & Loss a/c prepared in accordance with the provisions of Parts II & III of Schedule VI of the Companies Act, 1956. There is no dispute about the profit in this case. Thereafter, adjusted book profits are to be found by increasing net profits by the items mentioned in Clauses (a) to (f) of the Explanation. The sum so arrived at has to be reduced by the items mentioned in caluses (i) to (vii) of the Explanation of Section 115JB. Clause (iv) of this section reads as under:
(iv) the amount of profits eligible for deduction under section 80HHC, computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A), as the case may be. of that section, and subject to the conditions specified in that section;
At this juncture, it may also be appropriate to reproduce the provisions of Clause (iii) of the Explanation of Section 115J, frequently referred to by the learned Counsel of the assessee. The provision reads as under:
(iii) the amounts as arrived at after increasing the net profit by the amounts referred to in Clauses (a) to (f) and reducing the net profit by the amounts referred to in Clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHC; so, however, that such amounts are computed in the manner specified in Sub-section (3) or Sub-section (3A) of section 80HHC or Sub-section (3) of section 80HHC, as the case may be;
5.3 Clause (iii) of Section 115J states that the profits which are eligible for deduction Under Section 80HHC shall be reduced from the net profit so, however, that such amount is computed in the manner specified in Sub-section (3) or Sub-section (3A) of Section 80 HHC. This clause does not state that the deduction will be equivalent to the deduction computed in Sub-section (3) or Sub-section (3A) of Section 80 HHC, but that it shall be computed in the manner provided in those sections. This peculiar language led to interpretation that this clause provides the ratio of the book profit to be the same as mentioned in Sub-section (3) or Sub-section (3A), but the profits of the business contemplated in Section 80 HHC shall be replaced by the book profits while computing deduction under this clause. On the other hand, Clause (iv) of Section 115JB is quite different when it states that the amount to be deducted under this clause shall be the amount of profits eligible for deduction Under Section 80 HHC and computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A) of that section and subject to the conditions specified in that section. The language of this clause is quite different form the language of Clause (iii) of Section 115J. The clause is also clear in its content in two respects, namely, that - i) only such amounts as are deductible Under Section 80 HHC shall be reduced, and (ii) conditions specified in that section shall be applicable. Coming to the provisions of Dub-section (i) and Sub-section (1B) of Section 80 HHC, it is clear that only 80% of the normal deduction Under Section 80 HHC is admissible for AY 2001-02. As only that amount which is eligible for deduction Under Section 80 HHC is to be reduced under the aforesaid Clause (iv). Thus, it is quite clear that as per the statutory language, only 80% of the amount mentioned in Sub-section (i) can be deducted for this year. Therefore, we are of the view that the action of the AO in restricting the deduction to 80% of the amount deductible Under Section 80 HHC (1) was right on the basis of the clear language of the statute.
5.4 The second issue in this case is whether the learned CIT(A) could enhance book profits as well as the total income of the assessee. We find that the matters regarding computation of book profits and computation of total income were before the AO and the relevant documents etc. were also there before the AO. Section 251(1)(a), dealing with the powers of CIT(A), provides that in disposing of an appeal, he may confirm, reduce, enhance or annul the assessment. Thus, the power of enhancement has been vested in CIT(A) in disposal of an appeal. The learned Counsel did not refer to any decision or authority or any special circumstance in his case which mitigated against the power of the learned CIT(A) to enhance the assessment. Accordingly, we are of the view that the learned CIT(A) could have enhanced the assessment.
5.5 In regard to enhancement of the book profits, the case of the learned Counsel was that since it was engaged mainly in export business, the whole of export profits should have been deducted under Clause (iv). As against that the case of the learned DR was that the assessee was exporting goods as well as trading in the Indian market. Therefore, deduction under the aforesaid Clause (iv) had to be made of the same amount which was deductible Under Section 80 HHC, and all the provisions of that section will apply with full force. The learned Counsel had relied on the decision of Hon'ble Kerala High Court reported at 248 ITR 372. The judgment in that case was given in the context of the provisions of Section 115J. We have seen that the language of that section and Section 115JB are materially different. Therefore, the ratio of that and other cases decided by the Tribunal Under Section 115J or Section 115JA will not be applicable while interpreting Clause (iv) of Explanation to Section 115JB. The learned Counsel also referred to various circulars of the Board to canvass its case that export profits are outside the purview of MAT. In first place, these circulars were issued in the context of Sections 115J or 115JA. That point apart, circulars never stated that export profits shall be excluded from the book profits without having regard to various provisions of Section 80 HHC. Circular No. 559, clearly mentions that Clause (iii) has been inserted in Explanation to provide that for the purpose of computation of "book profits", the net profit shall be reduced by the amount of net profits derived from export business, which are eligible for deduction Under Section 80HHC. It appears that the learned Counsel wants us to ignore the words "which are eligible for deduction Under Section80HHC" in the Circular. Circular No. 680 is also worded in the same manner. Circular No. 794 also states that export profits Under Section 80HHC are kept out of the purview of the provisions. Therefore, what is kept out of the purview is not export profits perse but export profits computed Under Section 80HHC. We may also refer to the Budget speech of the Finance Minister, which primarily deals with the issue of phasing out deduction Under Section 80HHC. It is also mentioned that the exporters would continue to enjoy exemption from MAT. This sentence has to be seen in the context of provisions of Section 115JB and not in the isolation as the words are not the words of statute. If we take this factor into account, it is no doubt true that 100% exporters would be outside the purview of MAT, but in a case of mixed sales, that is where the sales are by way of exports as well as inland sales, the persons cannot be said to be exporters only and, therefore, the question of applicability of provisions of Section 80HHC(3) will come into operation by dint of the language of Clause (iv). It is also an accepted proposition that the aid in construction of statutes is required only when language of statute as unclear or ambiguous. When the language is clear, there is no reason to invoke any aid for the reason that no such aid is required for arriving at the true meaning of the statute. We are of the view that provisions of Clause (iv) are quite clear and can be distinguished from the provisions of Clause (iii) of Explanation to Section 115J or 115JA. The instant clause clearly provides that what is to be reduced is the amount of profits eligible for deduction Under Section 80HHC, computed under Sub-section (3) or Sub-section (3A), as the case may be, and subject to the conditions specified in that sub-sections. As pointed out earlier, it is clear that the pre-conditions for grant of deduction as well as mode and method of computing the deduction under Clause (iv) are the same as mentioned in Section 80 HHC. Therefore, question to be seen now is whether the learned CIT(A) was right in computing deduction Under Section 80 HHC at nil. The learned CIT(A) mentioned that as per the decision of Hon'ble Supreme Court in the case of IPCA Laboratories, (2004) 266 ITR 521, Section 80AB has been given an overriding effect over all other sections in Chapter VIA. Section 80 HHC does not any where provide that provisions of this section are to prevail over Section 80AB. As the gross total income of the assessee is nil, no deduction Under Section 80AB can be allowed.
5.6 As against the aforesaid, the case of the learned Counsel was that Section 80AB speaks about the inclusion of certain incomes in the gross total income. The gross total income of the assessee included the income eligible for deduction Under Section 80HHC. Therefore, his case was that the assessee was eligible for deduction Under Section 80 HHC. His alternative argument was that only so much of unabsorbed depreciation and brought forward losses can be set-off for the purpose of computing gross total income as are attributable to the export activities. Therefore, it was contended that the assessee was entitled to deduction Under Section 80HHC on the first premise or in the alternative on the second premise.
6.1 We have considered the facts of the case and submissions made before us. The assessee has been exporting goods and also selling goods in the inland market. Therefore, provisions of Sub-section (3) are applicable to the facts of the case. In Clause (ba) of the Explanation below Section 80HHC, 'profits of the business' have been defined to mean the profits of the business as computed under the head 'profits and gains of business or profession' as reduced by certain amounts. Therefore, in the case of the assessee, the profits of the business will have to be calculated under Sections 28 to 44DA. Section 32 is a part and parcel of Chapter IV-D regarding 'profits and gains of business or profession'. Section 32 provides that the unabsorbed depreciation brought forward from earlier years will be taken to be the depreciation of the current year. Therefore, unabsorbed depreciation and the current depreciation will have to be deducted in computing the profits and gains of business. In other words, such deductions will have to be made for computing 'profits of the business' also. We have already seen if only that is done, the income of the assessee under Chapter IV-D becomes nil. In this context, we may also examine the provisions of Section 80AB, which read as under:
Where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C.-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.
Assuming that the arguments of he assessee to the effect that we have to find out the income of the specie referred to in Section 80 HHC, which has been included in the gross total income, one thing is clear that the gross total income is nil. In a nullset, we cannot see any thing which could be said to be the income of a particular nature. To put it figuratively an empty box cannot be said to be containing any thing. Therefore, in the instant case it cannot be said that any income from exports of goods or merchandize is included in the nil gross total income of the assessee. The argument of the assessee that only that portion of unabsorbed depreciation or brought forward loss can be set off while computing gross total income for the purpose of finding out the export income included therein seems to be based upon the premise that Section 80HHC enjoins upon the authorities to make two sets of calculations, one regarding the export income and the other regarding inland income from year to year. Such premise is not validated by the provisions of Section 80HHC particularly when we see the definitions of 'total turnover' and 'profits of business' as furnished in Clauses (ba) and (baa) of the Explanation below Section 80HHC. Therefore, we are clearly of the view that with reference to provisions of Section 80HHC as also because of overriding provisions of Section 80AB, the assessee is not entitled to any deduction under Section 80HHC, especially in view of the expressed decision of Hon'ble Supreme Court in the case of IPCA Laboratories(supra). For this very reason, we uphold the decision of the learned CIT(A) that unabsorbed depreciation and brought forward losses, to the extent absorbed in profits of this year to arrive at the gross total income, cannot be carried forward.
6.2 In the light of the aforesaid discussion, various grounds of appeal are decided as under:
(1) Ground No. 1 reads as under:
(a) The learned CIT(A) erred in law and on facts in initiating enhancement proceedings in the case of the appellant and further erred in
(i) re-computing the total income
(ii) denying deduction Under Section 80 HHC altogether and
(iii) enhancing the book profit of the appellant assessed Under Section 143(3).
(b) Your appellants submit that:
(i) The enhancement proceedings were not possible in respect of computation of total income for the year under consideration in as much that the computation of total income or deduction Under Section 80 HHC were not the subject matter of appeal
(ii) The learned AO had computed the total income of the assessee under the normal provisions of the Act, correctly after the application of mind and the prevalent law and judicial pronouncements.
(iii) The appellant before the CIT(A) was for computation of book profit only and not for computation of deduction Under Section 80 HHC nor for total income.
(c) Your appellant pray that the order passed by initiating the enhancement proceedings be quashed.
This ground is dismissed and we may only add at this juncture that the powers of the learned CIT(A) are co-terminus with the powers of the AO and, therefore, on the facts and in the circumstances of the case, he was competent to examine all the matters which the AO could have examined.
(2) Ground No. 2 reads as under:
(a) The learned CIT(A) erred in law and in facts in denying the deduction Under Section 80 HHC of the Act by reducing the export profit for the year by amount of brought forward unabsorbed depreciation/unabsorbed losses and holding that the appellant did not have any export profit thereafter.
(b) Your appellant submits that deduction Under Section 80 HHC is to be computed in respect of the export profits of the current year without reducing the same by the unabsorbed depreciation/unabsorbed losses.
(c) Your appellants pray that the deduction Under Section 80 HHC be allowed in full at Rs. 1,06,92,643/- as claimed by the appellant in computing the total income under the regular provisions of Income-tax Act.
This ground is dismissed in view of discussion in the body of this order.
(3) Ground No. 3 reads as under:
(a) The learned CIT(A) further erred in law and on facts in not allowing deduction of Rs. 1,33,65,804/- on account of profits eligible for deduction Under Section 80 HHC as per explanation (iv) to Section 115JB while computing book profits Under Section 115JB of the Act by holding that the appellant was not entitled to deduction Under Section 80 HHC at all ignoring the finding of the learned AO that the appellant was entitled to deduction Under Section 80 HHC of Rs. 1.06,92,643/- being 80% such deduction of Rs. 1,33.65.804/-.
(b) Your appellant submits that
(i) Book profit is to be computed strictly in accordance with the provisions of Section 115JB.
(ii) Under Explanation (iv) to Section 115JB. the expo/1 profits eligible for deduction Under Section 80HHC of the Act is to he excluded in computation of book profit.
(iii) The appellant had profits of Rs. 1,33,65,804/- eligible for deduction Under Section 80 HHC of the Act and the same was to be excluded under the said explanation while computing book profits.
(c) Your appellant pray that an amount of Rs. 1,33,65.804/-representing of profits eligible for deduction Under Section 80 HHC be allowed and deduction under explanation (iv) to Section 115JB. Alternatively without prejudice to the claim for relief the deduction Under Section 80 HHC be computed on the basis of Net Profit as per books of account and not as per income determined under the head "profits and gains of business" which net profit cannot be reduced by unabsorbed depreciation under the Income-tax Act.
This ground is also dismissed. We may add at this juncture that the provisions of Clause (iv) of Explanation to Section 115JB are quite distinct from the provisions of Clause (iii) of Section 115J. Under the new provisions the amount deductible under Clause (iv) is the same as the amount deductible Under Section 80HHC.
(4) Ground No. 4 reads as under:
(a) The learned CIT(A) erred in law and on facts In not dealing with appeal against the action of the learned AO's in increasing the book profit as computed by the appellant by an amount of Rs. 26,73,161/- by holding that the deduction adjustment permissible under Clause (iv) of Explanation to Section 115JB of export profit from book profit was to be allowed at Rs. 1,06,92,643/- instead of Rs. 1,33.65,804/- as claimed by your appellant.
(b)Your appellant submit that:
(i) The eligible export profits for purposes of deduction permissible Under Section 115JB read with Clause (iv) of Explanation to the said section is the actual expo/1 profit and not the deduction eligible Under Section 80 HHC.
(ii) The quantum of deduction by virtue of Section 80 HHC (1B) is 80% of the expo/1 profit for AY 2001-02. This has the effect of reducing the quantum of deduction Under Section 80 HHC but not the export profits eligible for deduction Under Section 115JB.
(c) Your appellants pray that the deduction/adjustment of Rs. 1,33,65,804/- on account of export profit as claimed by your appellant as per Clause (iv) of Explanation 115JB.
This ground is also dismissed. It may be added at this juncture that deduction under Clause (iv) of Explanation Under Section 115 JB is the same as the deduction admissible Under Section 80 HHC and, therefore, what could have been deducted was 80% of the deduction computed Under Section 80 HHC. which is nil in this case.
(5) Ground No. 5 reads as under:
(a) The learned CIT(A) erred in law and on facts in confirming the act of the learned AO in levying interest Under Section 234-B, 234-C and 234-D on payment of income tax in pursuance of provisions of Section 115JB on the book profit and further erred in levying interest without giving any opportunity of hearing and without passing a speaking order.
(b) Your appellant submits that interest Under Section 234-B and 234-C cannot be levied on taxes payable on the deemed income Under Section 115JB. Your appellant further submits that the Karnataka High Court in the case of Kwality Biscuits Ltd., 243 ITR 519 had held that no interest under the said sections could be levied were tax was payable on book profit and in any case it had paid taxes as per the provisions of Income-tax Act.
(c) Your honour appellant prays that the said interest be deleted.
This ground is dismissed as withdrawn. It may be added at this juncture that provisions of Section 115 JB provide that all other provisions of this Act apply save as otherwise provided in this section. Therefore, provisions of Section 234-B and Section 234-C are applicable and thus, there was no merit in the case of the assessee that interest under these sections cannot be charged on the liability Under Section 115JB.
(6) Ground No. 6, being residuary in nature does not require any decision from us.
7. In result, the appeal of the assessee is dismissed.
This Judgment was Pronounced in the open Court on 10.03.2006.