Income Tax Appellate Tribunal - Ahmedabad
H.K. Finechem Ltd.,, Ahmedabad vs Department Of Income Tax on 20 April, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A "
Before Shri MUKUL Kr. SHRAWAT, JUDICIAL MEMBER and
Shri D.C. AGRAWAL, ACCOUNTANT MEMBER
Date of hearing : 20/04/2011 Drafted on: 20/04/2011
Sl. ITA No(s) / Assessment Appeal(s) / CO(s) by
No(s). CO No(s) Year(s)
Appellant (s) Respondent(s)
1. 2557/Ahd/2009 2000-01 ITO M/s.H.K.Finchem
Ward-4(3) Ltd.
Ahmedabad 201, 2nd Floor
"ANIKET"
C.G.Road,
Navrangpura
Ahmedabad
PAN:AAACH 5113 Q
2. CONo.212/Ahd/ 2000-01 Assessee Revenue
2009
o/o ITA2557/A/09
3. 2487/Ahd/2009 2000-01 Assessee Revenue
4. 2559/Ahd/2009 2005-06 Revenue Assessee
5. CONo.214/Ahd/ 2005-06 Assessee Revenue
2009
o/o.ITA2559/A/09
Assessee by : Shri Sanjay R.Shah, A.R.
Revenue by : Shri R.K.Dhanesta, Sr.D.R.
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
For A.Y. 2000-01 the Assessee as also the Revenue both are in cross appeals arising out of the order of the CIT(A)-VIII dated 20th May-2009. The assessee has also filed a cross objection. We shall first take up the appeal of the Revenue.
ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -2- (A) Revenue's appeal; ITA No.2557/Ahd/2009 for A.Y. 2000-01
2. Ground No.1 :
1. The Ld. CIT(A) has erred in law and on facts in allowing the claim of deduction U/s.80HHC of the Act without deducting the depreciation.
Ground No.2
2. The Ld. CIT(A) has erred in law and on facts in holding that the provisions of explanation 5 to section 32 did not apply retrospectively in spite of the fact that the provisions are clarificatory in nature.
Ground No.3
3. The Ld. CIT(A) has erred in law and on facts in not accepting the method adopted by the Assessing Officer for computation of special deduction U/s.80HHC by deducting current year depreciation for arriving at the profit and gains of business for the purpose of this section in spite of such mandate given by the Hon'ble Delhi High Court in the case of Dabur India Ltd. Vs. CIT Retrun of 219 CTR (Del.) 152.
2.1. All the above three grounds are in connection of a single issue of computation of deduction u/s.80HHC of the Act whether to be computed with or without reduction of depreciation. Assessee Company is in the business of manufacturing of Oleo Chemicals.
Return of income was filed at Nil income. A return U/s 115JA was filed declaring book profit of Rs. 3,63,173/-. Gross total income of the assessee was at Rs. 2,95,91,474/- and against that claimed a deduction U/s. 80HHC of Rs. 1,98,75,983/- plus set-off of ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -3- unabsorbed depreciation of Rs. 97,15,491/-, which resulted into Nil income. In respect of the issue in hand the A.O. had given a finding that the assessee had not claimed current depreciation nor set-off the unabsorbed depreciation for the purpose of computation of deduction U/s 80HHC. On the basis of those factual findings the A.O. had drawn a conclusion that as prescribed U/s 80AB the depreciation is required to be set-off first to arrive at the business income and if there is income then only the deduction U/s 80HHC shall be granted. However, after set-off of unabsorbed depreciation against the current income, it was noted by the A.O., that there was no gross total income left hence held that the assessee should not be eligible for deduction U/s 80 HHC.
3. While dealing with the issue, the ld.CIT(A) has remarked in the beginning itself that the ground was raised against the action of the A.O. for granting current year's depreciation to the assessee though the depreciation was not claimed in the return. It was noted by the ld.CIT(A) that while computing the assessed income, the A.O. has reduced the current year's depreciation from the profit for the relevant period by invoking the provisions of section 32(2) of the Act for the purpose of working out the deduction u/s.80HHC of the Act. From the side of the assessee, it was contested that in view of Mahendra Mills 243 ITR 56 depreciation could not be thrust upon the assessee if not claimed. The ld.CIT(A) has ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -4- concluded that in terms of the order of the ITAT Ahmedabad in assessee's own case for A.Y. 2002-03, the depreciation should not be thrust upon the assessee. Following the said decision of the Tribunal for A.Y. 2002-03, it was directed by Ld. CIT(A) to work out the income without deducting current year's depreciation.
4. On hearing the submissions of both the sides and after careful reading of the orders of the authorities below, we have noted that the issue of allowance of depreciation has two aspects, one is in connection of the provisions of the section 32 read with Explanation-5 of I.T.Act( the issue as raised in Grd. No. 2 by the Revenue) and the second aspect is allowance of depreciation as per Chapter VI-A of I.T.Act, presently the question is about the admissibility of depreciation while computing the deduction u/s.80HHC of the Act.( the issue is raised vide Grd. No. 1 & 3 by the Revenue ). It is also appropriate to mention at this stage of beginning that the contention of Ld. AR is incorrect that Ground No. 1 did not arise from the order of the CIT(A) because that was one of the grievance arising from the order of the A.O. which was addressed to him.
4.1. As far as the impugned order of ld.CIT(A) is concerned, we have noted that he has simply followed the decision of Respected Coordinate Bench "A" Ahmedabad in assessee's own case bearing ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -5- ITA No.2806/Ahd/2006 for A.Y. 2002-03 titled as H.K. Finchem Ltd. vs. ITO order dated 06/03/2009, wherein it was held that the Explanation to 32 is effective from 01/04/2002 and shall accordingly apply to 2002-03 and subsequent years. It is worth to mention that the year under appeal before us is A.Y. 2000-01. On the basis of the said decision of the Tribunal, ld.CIT(A) has held that the AO was not empowered to thrust upon the depreciation on the assessee. Relevant portions of the Tribunal Judgement are reproduced below:-
"4. Turning to the question whether Explanation-5 to section 32(1) applies to the present case, we find that the aforesaid Explanation was inserted by the Finance Act, 2001 w.e.f. 1-4-2002. It says that, "for the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee ha claimed the deduction in respect of the depreciation in computing this total income". A perusal of the circular issued by the CBDT to explain the aforesaid Explanation (Circular No.14 of 2001 dated 12-12- 2001 reported in 252 ITR Statues 65) shows that this is what has been observed in para-30.2 of the circular:
"The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory".
In para 30.5 of the circular it was stated that the Explanation will take effect from 1-4-2002 and will accordingly apply in relation to the A.Y. 2002-03 and subsequent years. In our ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -6- opinion, what the Explanation means is that on and from A.Y. 2002-03 which is the year under appeal, it will be open to the AO to compulsorily allow depreciation to the assessee whether the assessee has claimed it or not. The Explanation cannot apply to the present case for the simple reason that the assessee, as already noted, has claimed depreciation of Rs.2,86,85,879/- in the return. In light of the claim, there is no question of the AO thrusting depreciation on the assessee.
5. It was however contended on behalf of the department that the Explanation is retrospective in nature because it has been inserted for the removal of doubts and it is also expressed to be declaratory. It is contended that it gives authority to the AO to thrust depreciation upon the assessee even in respect of the earlier years. It is therefore argued that it was open to the AO to re-compute the WDV of the assets for the earlier years by thrusting depreciation upon the assessee and follow it up in the assessment for the year in question. We are unable to accept these submissions. The question whether the Explanation is retrospective came up before the Kerala High Court in CIT Vs. Kerala Electric Lamp Works Ltd., (2003) 261 ITR 721. It was held that the Explanation does not apply retrospectively and applies only prospectively. It was noticed that even the circular (cited supra) stated that the Explanation would apply only in respect of A.Y. 2002-03 onwards. In CIT vs. Sree Senhavalli Textiles P.Ltd., (2003) 259 ITR 77 the Madras High Court dealing with the same question held that the words "for the removal of doubts"
cannot apply to give retrospective effect to the Explanation since there was a judgment of the Supreme Court in CIT vs. Mahendra Mills (200) 243 ITR 56 in which it was held that the AO had no power to thrust depreciation upon the assessee when it was not claimed, and that it cannot be said that a judgement of the Supreme Court merely gave rise to doubts, because the judgment of the Supreme Court declares the law right from the inception and the same is binding under Article ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -7- 141 of the Constitution. The Madras High Court has also referred to the circular to hold that the Explanation was only prospective in nature. It is therefore not possible to accept the argument of the revenue that the aforesaid Explanation has retrospective effect."
5. On perusal of the order of the Tribunal, it is abundantly clear that the said decision remained confined to examine the applicability of Explanation-5 to section 32 only. There was no clear cut finding in respect of the allowbility of the depreciation while computing a deduction under Chapter VI-A of I.T.Act. It is also worth to note that the decisions considered by the Respected co-ordinate Bench have also revolved around the claim of depreciation as prescribed u/s.32 of I.T. r.w. Explanation-5. Such as, the decision of CIT vs.Kerala Electric Lamp Works Ltd. 261 ITR 721 (Ker.) and the decision of Sree Senhavalli Textiles P.Ltd. 259 ITR 77 (Mad.) as well as the decision of Mahendra Mills 243 ITR 56, all revolved around the allowability of depreciation as prescribed u/s.32 of I.T. Act. Only in the context of regular assessment being framed under the normal provisions of I.T. Act, the Hon'ble Courts have expressed that uptill the introduction of Explanation-5 (w.e.f.1.4.2002) the depreciation must not be thrust upon the assessee. As far as this legal proposition is concerned, since it was decided in unequivocal terms, therefore, we have nothing much to add but to pronounce that Explanation-5 to section 32 has no retrospective effect and the said introduction in the statute was ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -8- prospective in nature, hence, applicable from A.Y. 2002-03 and not for assessment year under consideration i.e. A.Y.2000-01. Resultantly, ground No.2 of the Revenue being covered by the decision of the respected coordinate Bench Tribunal and few decisions of the Hon'ble High Court, hence, it is hereby decided in favour of the Assessee and against the Revenue.
5.1. The next question and the issue as raised through Ground Nos.1 and 3 by the Revenue is significant and arises from the orders of the authorities below. The question is that while computing the deduction u/s.80HHC whether the assessee is at liberty to claim or not to claim the depreciation for the purpose of computing the eligible profit for claim of deduction u/s.80HHC of I.T. Act. Vide Ground No.3 the Revenue has cited a decision of Dabar India Ltd. 219 CTR 152 (Delhi) and agitated that ld.CIT(A) has erred in not allowing the reduction of current year's depreciation from the business profits for the purpose of deduction u/s.80HHC of the Act. It has also vehemently pleaded before us that inspite of a mandate given by the Hon'ble Delhi High Court, the ld.CIT(A) has erred in directing the AO to work out the income without giving effect to the current year's depreciation. The said decision of Delhi High Court on the issue of allowance of depreciation for the purpose of computation of deduction u/s.80HHC is a landmark decision, wherein it was held that where the assessee seeks to claim a "special ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06 -9- deduction" under Chapter VIA, there is no option available to the assessee but to provide for depreciation allowable, while calculating the eligible profits and gains on which deduction is permissible under the provisions specified in Chapter VIA of I.T. Act. From the said decision of Dabar India Ltd. vs. CIT reported at (2008) 219 CTR 152 (Delhi); relevant portions are reproduced below:-
"In arriving at the extent of the permissible deduction under s. 80- IB and s. 80HHC, the income which is to be considered is that which is calculated in accordance with the provisions of the Act alone. Thus, in calculating profits and gains of business "derived"
from the industrial undertakings i.e., eligible businesses, under s. 80-IB or export business under s. 80HHC, one would have to bear in mind the provisions of ss. 30 to 43D as referred to in s. 29, s. 80AB and s. 80B(5). A conjoint reading of these provisions leads to the conclusion that depreciation allowance under s. 32 will have to be deducted in arriving at the "profits and gains" of business derived by an assessee, from an industrial undertaking specified under s. 80-IB or export business under s. 80HHC. In the instant case as noticed by the AO, the assessee while claiming depreciation for all its units except six units had attempted to seek a dual benefit, not envisaged under the provisions of the Act. Firstly, by opting out of a claim for depreciation allowance under s. 32 which resulted in enhancement of profits and gains derived from the industrial undertakings and/or businesses specified under s. 80-IB and s. 80HHC, and consequent thereto led to an enhancement of the quantum of deduction under the said provisions. Secondly, by this methodology the assessee ensured that it could avail the benefit of depreciation allowance on a higher written value of the assets in the years subsequent to the period over which the deductions under ss. 80-IB and 80HHC would be available. It is, thus, important to bear in mind the scheme of the Act which envisages that, while computing normal profits which do not involve relief by way of special deduction ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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provided for under Chapter VI-A, an assessee is entitled to opt out of a claim for depreciation allowance. In other words, the assessee can choose to declare and pay tax on a greater amount of income. Where, however, the assessee seeks to claim "special deductions"
under Chapter VI-A, there is no option available to the assessee, but to provide for depreciation allowance while calculating the eligible profits and gains on which deduction is permissible under the provisions specified in Chapter VI-A.--Indian Rayon Corpn. Ltd. vs. CIT (2003) 182 CTR (Bom) 247 : (2003) 261 ITR 98 (Bom) concurred with; Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) relied on; CIT vs. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC) distinguished.
(Paras 11 to 13)"
5.2. The above decision has settled this controversy and interestingly in the said decision, the decision of the ITAT Ahmedabad (Special Bench) pronounced in the case of Vahid Paper Converters 100 TTJ 532 [Ahd.](SB), has been approved.
5.3. The aforecited decision of Special Bench Ahmedabad pronounced in the case of Vahid Paper Converters( supra) has streamlined the entire controversy. An observation is worth mentioning that the depreciation and other deductions falling within sections 32, 43A will have to be deducted before making any deduction u/s.80I, however, if the depreciation is not claimed the resultant income would be more and, consequently, more deduction would be available to the assessee under Chapter VIA. The Respected Bench has said that it could not be the privilege of the ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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assessee to claim more deduction than what he is entitled to. By not claiming depreciation in the year in which the assessee is entitled to deduction under Chapter VI-A, results into claiming double advantage. In the sense that claiming higher deduction under Chapter VIA then the entitlement and side by side keeping WDV of the assets at the high figure and claiming higher depreciation in subsequent years tentamount to double benefit. The relevant portion of the decision of Special Bench ITAT Ahmedabad in the case of Vahid Paper Converters vs. ITO reported at [2006] 98 ITD 165 (AHD.) (SB)( 100 TTJ 532); reproduced below:-
"When the assessee is entitled to certain deduction or exemption by claiming the deduction his income is reduced. Therefore, if such deduction is not claimed, the interest of the Revenue is not prejudicially affected. Therefore, it could be the privilege of the assessee to claim such deduction or not to claim. However, the position is not same when the income of the assessee is to be determined for the purpose of computing deduction under Chapter VI-A. Under this Chapter either whole or a certain percentage of the income is exempt. Therefore, if the depreciation is not claimed, the resultant income would be more and consequently more deduction would be available to the assessee under Chapter VI-A. Certainly, therefore, it cannot be privilege of the assessee to claim more deduction than what he is entitled to. The assessee is entitled to deduction under Chapter VI-A on the basis of income computed in accordance with the provisions of the Act. Therefore, the income is to be computed taking into account all the provisions applicable while computing the business income including allowance of depreciation. By not claiming the depreciation, the assessee is in fact claiming higher deduction under Chapter VI-A, and at the same time keeping WDV of their assets high (because if ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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depreciation is claimed, WDV would be reduced by the amount of depreciation actually allowed). The assessee would claim depreciation on such high WDV in the subsequent year. Thus, by not claiming depreciation in the years in which assessee is entitled to deduction under Chapter VI-A, assessees are claiming double advantage, (i) claiming higher deduction under Chapter VI-A than their entitlement, (ii) keeping WDV of assets high resulting in higher claim of depreciation in subsequent years. This cannot be privilege of the assessee."
(Para 49) "It is the duty cast upon the AO to apply the relevant provisions of the IT Act for the purpose of determining the true figure of the eligible income for the purpose of deduction under Chapter VI-A. The relevant provisions of the IT Act include s. 32 under which deduction for depreciation has to be allowed. Therefore, while computing the income for the purpose of deduction under Chapter VI-A, the depreciation has to be allowed whether it is claimed by the assessee or not."
(Para 54) "It is thus evident that for the purpose of Chapter VI-A, the AO has to compute the profits and gains of business separately. Of course, the computation has to be made as per the provisions of the IT Act meaning thereby, while computing the profits and gains of the eligible business, the AO has to give effect to all the relevant provisions of the IT Act, which include s. 32 also. Therefore, while computing the profits and gains of the eligible business the AO has to give effect to the provisions of s. 32 also and work out the profits and gains after allowing the depreciation."
(Para 59) "In view of the aforesaid discussion we, therefore, hold that the depreciation, which is though allowable but not claimed in the return for normal computation of income, has to be allowed while ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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computing the deductions under Chapter VI-A, viz., ss. 80HH, 80- IA, 80-IB, etc. of an industrial undertaking."
(Para 69) 5.4. The distinction so drawn by the Special Bench is an important distinction that the depreciation though allowable in the normal computation but if not claimed by the assessee then for the purposes of computation of deduction under Chapter VIA the depreciation has to be accounted for and to be deducted from the eligible profit. This distinction has duly been approved by the Hon'ble Delhi High Court as reproduced above. Even the view expressed by us get the support of an order of Ho'nbe Gujarat H.C. in the case of Mahalaxmi Fabrics Mills vs. ACIT 309ITR 63 ( Guj), wherein following Shrike Construction Equipment 291 ITR 380 (SC) and IPCA Laborary Ltd. 266 ITR 521 (SC) it was held that it was justified in reducing the profits by the amount of carried forward depreciation and investment allowance before allowing deduction u/s.80HHC .Therefore to conclude the above detailed discussion, we hereby hold that up to A.Y. 2001-02 a depreciation can not be thrust upon the assessee while computing the normal income under the heading ' Computation of Total Income' as per Chapter IV-D i.e. Profits & Gains of business & profession. But while computing a deduction under Chapter VI-A viz. 80 HHC the assessee has no such option and therefore has to reduce the eligible profit by the amount of Depreciation. In case an assessee has not deducted the amount of ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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Depreciation then the A.O. is empowered to make such adjustment by reducing the Book-Profit or the eligible profit by the amount of Depreciation. For the sake of clarification we can add that on and from the A.Y 2002-03 after the insertion of Expl.5 to Sec.32 it is now synchronized that either in the computation of Total income under Chapter IV or for the purpose of computation of deduction under Chapter VI-A an assessee has no option but to reduce the prescribed depreciation. In view of this Ground No.1 & 3 of the Revenue has substance and, therefore, hereby decided in its favour.
6. Ground No.4 reads as under:
4. The Ld. CIT(A) has erred in law and on facts in directing not exclude 90% of excess provision for calculation of deduction u/s.80HHC of the I.T. Act.
6.1. The observation of the AO was that as per clause (baa) to Explanation u/s.80HHC(4A) 90% of export incentive, received by commission, brokerage, etc. if included in the profits have to be excluded. The AO has found that the assessee has credited such amount i.e. excess provision, which were covered under the expression "other receipts of similar nature". The AO has, thus, concluded that those amounts were required to be excluded to the extent of 90% while computing the deduction u/s.80HHC of the I.T. Act. Against the said decision of the AO, the matter was carried before the ld.CIT(A).
ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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7. The ld.CIT(A) has referred a decision of the Tribunal for A.Y. 2001-02 in assessee's own case and directed not to exclude 90% of such income while computing the deduction u/s.80HHC; relevant portion is reproduced below :
"8.4. The Ld. A.R. also pointed out that Hon'ble ITAT in the appellant's case in A.Y. 2001-02 decided the issue regarding excess provision written back. Therefore, it was contended that the amount under reference has not required to be excluded for the purposes of deduction u/s.80HHC.
8.5. I have considered the facts of the case and the submissions of the Ld. A.R. carefully. I have also gone through the decision of Hon'ble ITAT in the appellant's case for the A.Y. 2001-02. It is sent hat the Hon'ble ITAT while deciding the issue of exclusion of excess provision written back observed that "In our opinion, the excess provision written back cannot be regarded to be the independent income. This is connected with the business of the assessee and, there, clause (baa) of Explanation cannot be applied. The A.O. is accordingly directed not to exclude 90% of the excess provision written back while computing the deduction u/80HHC. Our aforesaid view is duly supported by the decision of the Hon'ble Supreme Court in the case of CIT vs. K.Ravindranathan Nair (2007) 295 ITR 228 (SC)."
8. On hearing the submissions of both the sides, we have found that ITAT "A" Bench in ITA No.109/Ahd/2005 for A.Y. 2001-02 vide an order dated 17/10/2008 titled as M/s.H.K. Finechem Ltd. has decided the issue in the following manner:
ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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"9. After considering the rival submissions, we are of the view that the decision of the Hon. Madras High Court in the case of CIT v. Abdul Rahman Industries (2007) 293 ITR 475 (Mad) will not be applicable in the case of the assessee as in that case the issue before the High Court was whether the income from unclaimed balance written back should be assessed under the head "income from other sources" or under the head "income from business" so that the assessee may be entitled for the deduction u/s.80HHC. In the case before us such income has duly been assessed under the head "income from business" and the AO has also allowed the deduction to the assessee but the only question remains whether Explanation (baa) to section 80HHC is applicable or not. In our opinion, the excess provision written back cannot be regarded to be the independent income. This is connected with the business of the assessee and, therefore, clause (baa) of Explanation cannot be applied. The AO is accordingly directed not to exclude 90% of the excess provision written back while computing the deduction u/s.80HHC. Our aforesaid view is duly supported by the decision of the Hon'ble Supreme Court in the case of CIT v K Ravindranathan Nair (2007) 295 ITR 228 (SC)."
9. Once the Tribunal has followed the decision of Hon'ble Apex Court, therefore, the same view has to be adopted for the year under consideration and in consequence thereof this ground of the Revenue is dismissed.
10. In the result, Revenue's appeal for A.Y. 2000-01 (ITA No.2557/Ahd/2009) is partly allowed.
ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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(B) Assessee's appeal; ITA No.2487/Ahd/2009 for A.Y. 2000-01
11. Ground No.1 reads as under:
1. The learned CIT(Appeals) erred in law and on facts in upholding deduction of 90% of commission income of Rs.21,82,480/- and miscellaneous income of Rs.9,22,608/-
while calculating adjusted book profit for the purpose of working of deduction u/s.80HHC of the Act. It is submitted that it be so held now.
11.1 This issue has already been decided against the assessee in A.Y. 2001-02 by ITAT "A" Bench Ahmedabad order dated 17/10/2008(supra) vide para-7; reproduced below:-
"7. We have carefully considered the rival submissions and, perused the material on record. In our opinion, no interference is called for in the order of the authorities below as the issue is duly covered by the decision of the Hon'ble Supreme Court in the case of CIT v K. Ravindranathan Nair (2007) 295 ITR 228 (SC). In view of clause (baa) of Explanation, 90% of the commission income assessed under the had "income from business" has to be reduced while computing the profits of business for the purpose of computing the deduction u/s.80HHC. Our aforesaid view is duly supported by the findings of the Hon'ble Supreme Court which have been reproduced in the preceding paragraph while disposing of the issue relating to the Sundry Balance written off. Thus, this ground also stands dismissed."
12. Once the Tribunal has followed the Hon'ble Supreme Court, therefore, now this ground stood covered against the assessee, hence, dismissed.
ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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13. Ground No.2 reads as under:
2. The learned CIT (Appeals) erred in law and on facts in not granting deduction u/s.80HHC on the basis of book profit while working out the computation of adjusted book profit for calculation of MAT liability of the appellant. It is submitted that the appellant be granted deduction u/s.80HHC by applying formula laid down u/s.80HHC on the book profit for the year under consideration in terms of clause (viii) of Explanation of section 115JA of the Act. It is submitted that it be so held now.
13.1. The AO was of the view that no positive figure of profit was available for deduction after the adjustment of the depreciation, therefore, the assessee was not entitled to claim of the said deduction against the amount of book profit. He has concluded that after set off of unabsorbed losses, depreciation, etc. the gross total income remained NIL, hence, there was no admissible amount remained for deduction u/s.80HHC. While computing the book profit format he has not reduced the deduction of section 80HHC.
The matter was carried before the first appellate authority.
14. The ld.CIT(A) has observed that there was no dispute that after giving effect to the provisions of section 80AB, i.e. the set off of loss and set off of unabsorbed depreciation against the business income, there was no positive profit remained on which the deduction u/s.80HHC could be allowed. Ld.CIT(A) has made a ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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reference IPCA Laboratories Ltd. 266 ITR 521(SC). It was concluded by him that since the assessee was not entitled for deduction u/s.80HHC on the basis of the profit computed under the regular provisions of I.T.Act, therefore, the assessee was also not entitled for deduction out of "book profit" calculated for the purpose of the provisions of section 115JB of the I.T. Act. At that point of time, there was a decision of Hon'ble Bombay High Court in the case of CIT vs. M/s.Ajanta Pharma Ltd. reported at (2009) 223 CTR 441 (Bom.) which was in favour of the Revenue. In that decision, the observation of the Hon'ble Bombay High Court was that there could not be separate provisions of working out the provisions of section 80HHC, one for the profit under the normal provisions of I.T. Act and the other for the book profit to be worked out under the provisions of section 115JB of the Act. It is also worth to mention that at that point of time, there was a decision of Special Bench, ITAT Mumbai in the case of DCIT vs. Syncome Formulations (I) Ltd. reported at (2007)106 ITD 193 (Mum.)[SB] which was also overruled. Ld.CIT(A) has, thus, concluded that though for A.Y. 2001-02 the ITAT Ahmedabad has decided the issue in favour of the assessee following Syncome Formulations (I) Ltd.(supra), but in view of the decision of the Hon'ble Bombay High Court the said decision of the Tribunal have been overruled, therefore, that decision of the Tribunal would not render any help to the assessee.
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The assessee's claim was rejected and the AO's decision was approved. Now, the assessee is in appeal before us.
15. Heard both the sides. The legal position has now again changed. The Hon'ble Supreme Court in the case of Ajanta Pharma Ltd. vs. CIT (2010)327 ITR 305 has held that clause(iv) of the Explanation to section 115JB covers full export profits of 100% as "eligible profits" and the same cannot be reduced to 80% by relying on section 80HHC(1B) of the Act. Therefore, the argument of the Department that both "eligibility" as well as "deductibility" of the profit have to be considered together for working out the deduction as mentioned in clause(iv) has no merit. In section 115JB, it is clearly stated that the relief will be computed u/s.80HHC subject to the conditions of section (4) and section (4A) of that section. The observation of the Hon'ble Court was those conditions are in respect of the compliance and not in respect of the qualifying amount. Relevant held portion is reproduced below :-
"10. One of the contentions raised on behalf of the Department was that if cl. (iv) of Explanation to s. 115JB is read in entirety including the last line thereof (which reads as " subject to the conditions specified in that section"), it becomes clear that the amount of profits eligible for deduction under s. 80HHC, computed under cl. (a) or cl.(b) or cl.(c) of sub-s. (3) or sub-s. (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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provisions of s. 80HHC in isolation whereas as per cl.(iv) of Explanation to s. 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under s. 80HHC as computed under cl. (a) or cl.(b) or cl.(c) of sub-s. (3) or sub-s. (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of s. 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in cl.(iv) of Explanation to s. 115JB. We find no merit in this argument. If the dichotomy between "eligibility"
of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a self-contained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department."
16. In view of the latest decision of the Hon'ble Supreme Court, the law is settled in favour of the assessee. We hold accordingly and this ground is allowed.
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17. In the result, Assessee's appeal for A.Y. 2000-01 (ITA No.2487/Ahd/2009) is partly allowed.
(C) Cross Objection No.212/Ahd/2009 for A.Y. 2000-01
18. Ground No.1 reads as under:
(1) The learned Commissioner of Income-tax(Appeals) erred in law and on facts in upholding the assessment under section 147 of the Act. It is submitted that the learned Assessing Officer had wrongly assumed jurisdiction u/s.147 of the Act and also the procedure laid down by Hon'ble Supreme Court in the case of G.K.N. Drive Shaft Ltd., 259 ITR 90 were also not followed.
18.1. In view of the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri reported at 291 ITR 500 (SC) it has been settled that u/s.147, as substituted with effect from 01/04/1989, if the AO, for whatever reason, has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment where the case is not covered by proviso. Respectfully following this decision, we find no force in this cross objection (i.e.CO No.212/Ahd/2009), hence, dismissed.
19. For A.Y. 2005-06 Revenue is in appeal and the assessee is in cross objection arising from the order of the CIT(A)-VIII Ahmedabad dated 01/05/2009.
(D) Revenue's appeal; ITA No.2559/Ahd/2009 for A.Y. 2005-06 ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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Ground No.1 reads as under:
1. The Ld. CIT(A) has erred in law and on facts in allowing the assessee to claim depreciation on W.D.V. of assets on which no depreciation was claimed in A.Y. 2000-01 to 2001-
02. 19.1. From the order of the AO, it was found that the depreciation for A.Ys. 2000-01 and 2001-02 was not claimed. However, for A.Y. 2002-03 the depreciation was claimed on the basis of W.D.V. computed as on 01/04/1999. In the past for AY 2002-03 the depreciation was allowed by adjusting the WDV to the extent of depreciation required to be adjusted for those two years in which it was not claimed, i.e. A.Ys. 2000-01 and 2001-02. As far as the year under consideration was concerned, the assessee has claimed the depreciation at Rs.1,81,99,029/-. A show-cause notice was issued as to why the depreciation be not allowed on the WDV which was worked as on 31/03/2004 as per the assessment record. In compliance the assessee has discussed the provisions of section 43(6) of the I.T. Act and argued that since no depreciation was claimed for 2001-02 and, therefore, as per the depreciation of "actual cost" the depreciation "actually allowed" be taken into account to compute the WDV for the year under consideration. The AO was not convinced and on the basis of the WDV as determined in the assessment orders was taken for computing the depreciation for the year under consideration. The matter was carried before the ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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first appellate authority and the ground was allowed as per the following observation:
"5.5. I have considered the facts of the case and the submissions of the Ld.A.R. carefully. I have also gone through the order of Hon'ble ITAT for the A.Y. 2002-03, the copy thereof has been filed by the Ld. A.R. during the appellate proceedings. The Hon'ble ITAT has allowed appellant's claim for depreciation for the A.Y. 2002-03 as claimed by it in that year. Therefore, respectfully following the decision of Hon'ble ITAT, the A.O. is directed to work out the depreciation on the W.D. as claimed by the appellant accordingly. However, while giving effect to this order the A.O. will have to take into consideration the depreciation allowed by the Hon'ble ITAT in the A.Y. 2002-03 as referred above. This ground of appeal is therefore, allowed to the extent stated above."
20. On hearing the submissions both the sides, we have found that in assessee's own case for AY 2002-03 ITAT "A" Bench Ahmedabad in ITA No.2806/Ahd/2006 vide order dated 06/03/2009 titled as H.K. Finechem Ltd. vs. ITO (supra), as already discussed, the depreciation must not be thrust upon the assessee and even in respect of the earlier years whose assessment years have already been completed, therefore, in the light of these decisions of the Tribunal, the WDV has finally been determined at the beginning of the year under consideration ought to be taken into account for the claim of depreciation for AY 2005-06. We order accordingly. This ground is dismissed. Revenue's appeal is dismissed.
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21. In the result, the Revenue's appeal for A.Y. 2005-06 is dismissed.
(E) Assessee's Cross Objection No.214/Ahd/2009 for AY2005-06
22. Ground No.1 reads as under:
(1) The learned Commissioner of Income-tax(Appeals) erred in law and on facts in upholding the charging of interest u/s.234B and u/s.234C while working out tax liability u/s.115JB of the Act. It is submitted that when the income is determined under the provisions of MAT u/s.115JB, no such interest should be leviable. It is submitted that it be so held now.
22.1. The issue of charging of interest u/s.234B of the Act stood settled in favour of the Revenue by the decision of Hon'ble Supreme Court in the case of Rolta India Ltd. reported at 330 ITR 470 (SC), wherein it has held that interest can be charged on tax calculated on book profit and the expression "assessed tax" is defined to the tax assessed on regular assessment which means the tax determined on the application of section 115J or 115JA in the regular assessment. Therefore, interest u/s.234B is payable on failure to pay advance tax in respect of tax payable u/s.115JB of the Act. This ground of the Cross Objecton is dismissed.
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23. Ground No.2 reads as under:-
(2) The learned Commissioner of Income-tax(Appeals) erred in law and on facts in upholding the charging of interest u/s.234D of the Act. It is submitted that provisions of section 234D are not applicable for the year under consideration and hence the same should have been deleted in toto.
23.1. As regards charging of interest u/s.234D, we find that this issue is duly covered by the decision of the ITAT Special Bench in the case of ITO vs. Ekta Promoters (P) Ltd. (2008) 113 ITD 719 (Delhi)[SB], in which the Special Bench of this Tribunal has clearly held that section 234D which has been brought on the statute from 01-06-2003 cannot be applied to the Assessment Year 2003-04 and earlier years but it will have application only with effect from Assessment Year 2004-05. Respectfully following the aforesaid decision since the A.Y. under consideration was A.Y. 05-06 , therefore this ground of the assessee has no force hence dismissed.
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24. We summarize the result as under:-
1. Revenue's appeal for AY 2000-01 (ITA No.2557/Ahd/2009) is partly allowed.
2. Assessee's appeal for AY 2000-01 (ITA No.2487/Ahd/2009) is partly allowed.
3. Assessee's C.O. for AY 2000-01 (CO No.212/Ahd/2009) is dismissed.
4. Revenue's appeal for AY 2005-06 (ITA No.2559/Ahd/2009) is dismissed.
5. Assessee's C.O. for AY 2005-06 (CO No.214/Ahd/2009) is dismissed.
Order signed, dated and pronounced in the Court on 29th April, 2011.
Sd/- Sd/-
( D.C. AGRAWAL) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 29 / 04 /2011
T.C. NAIR, Sr. PS
Copy of the Order forwarded to :
1. The Assessee.
2. The Department.
3. The CIT Concerned
4. The ld. CIT(Appeals)-VIII, Ahmedabad
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad ITA Nos.2557&2559/Ahd/09(By Revenue) And ITA No.2487/A/09, CO Nos.212&214/A/09(By Assessee) Asst.Years -2000-01 & 2005-06
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1. Date of dictation.......................20/04/2011
2. Date on which the typed draft is placed before the Dictating Member 21/04/2011.................. Other Member.....................
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S......29/4/2011
6. Date on which the file goes to the Bench Clerk.................. 29/4/2011
7. Date on which the file goes to the Head Clerk..................................
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................