Income Tax Appellate Tribunal - Delhi
Moser Baer India Ltd. vs Dy. Cit on 18 July, 2007
ORDER
Deepak R. Shah, Accountant Member
1. This appeal by the assessee is directed against the order of learned Commissioner (Appeals)-VIÏÏ, New Delhi dated 25-4-2006. In ground Nos. 1 and 2 the assessee challenges validity of assumption of jurisdiction for framing reassessment under Section 147 of the Income Tax Act Income Tax Act. In ground Nos. 3 to 3.5 the assessee challenges manner of computing book profit under Section 115 JB whereby the action of assessing officer in computing profit of the unit eligible for exemption under Section 10A is challenged.
2. The appellant, a company incorporated under the Companies Act, 1956 is engaged in the business of manufacture and sale of optical/magnetic storage media products, viz,, CDs and floppies. The appellant is eligible for deduction under Section 10A/ 10B of the Income-tax Act Income Tax Act for its100 per cent EOU units. For the relevant previous year the return of the appellant was filed on declaring loss of Rs. 8,73,72,570 under the normal provisions of the Act and at book profit of Rs. 5,10,41,286 under Section 115J B of the Act. The return of income was assessed under Section 143 (3)of the Act at the returned loss under the normal provisions of the Act and at book profit of Rs. 5,41,97,900 under Section 115 JB of the Act. Thereafter, notice under Section 148 of the Act dated 18-7-2005 was issued seeking tore open the assessment. Pursuant to the request made by the appellant, the assessing officer vide letter dated 23-8-2005 communicated the reasons recorded for reopening the assessment as under:
1. The assessee filed its return of income on 30-10-2002 declaring a loss of Rs. 8,73,72,570. The assessment in this case was completed under Section 143(3) on 20-2-2004 at total loss of Rs. 8,60,18,990 and assessed at book profit of Rs. 5,41,97,900 under Section 115JB.
2. Section 115 JB of the Income Tax Act, 1961, provides that where in the case of an assessee being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after 1-4-2001 is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven of one-half per cent. For this purpose, book profit means the net profit as per P&L a/c subject to certain additions/deletions. According to proviso (ii) to Explanation given under Sub-section (2) of Section 115JB, the amount of income to which any of the provisions of Section 10 or Section 10A or Section 10B or Section 11 or Section 12 apply, if any such amount is credited to the P&L a/c is to be reduced from the net profit.
3. It is noted from the assessment records that the assessee has computed exemption of Rs. 9,825.14 lakhs under Section 10A and nil exemption under Section 10B. Therefore, while computing the book profit under Section 115JB, deduction under Sections 10A and 10B should have been restricted to Rs. 9,825.14 lakhs as against Rs. 13,343.61 lakhs actually allowed to the assessee.
4. It is noted from the assessee's computation of book profit under Section 115 JB that assessee had itself taken the amount of deduction pertaining to Section 10B which had to be added back to the net profit as per P & L a/c at Rs. 13,343.61 lakhs instead of Rs. 9,825.14 lakhs which was the claimed exemption being income pertaining to 10A Unit.
5. Wrong presentation of facts regarding the income pertaining to 10A Unit while computing book profit under Section 115JB has resulted in under assessment of the book profit of the assessee by Rs. 3,518.47 lakhs.
6. It is noted from the assessment records that the assessee's in its P& La/c at Schedule 15 has show nother income of Rs. 15,82,92,709. The details of this income is as under:
Details of Income Amount in (Rs.) Interest on deposits with banks 14,36,77,259 Interest on others 3,48,176 Excess provisions and unclaimed credit balance written back 9,89,596 Diff erence in exchange rates 64,18,465 Profits on sale on forward contracts 17,22,535 Misc. Income 21,70,517 Dividend on Investments 26,66,161 Total 15,82,92,709
7. The above income has not been 'derived from' the industrial undertaking. At most they can be attributable to the blueness of the assessee barring interest income which is clearly income from other sources.
8. It has been judicially held by the Supreme court in the cases of CIT v. Sterling Foods 237 ITR 579, Cambay Electric Supply Industrial Co. Ltd. v. CIT 113 ITR 84, CIT v. Pandian Chemicals Ltd 233 ITR 497 and by Madras High Court in the case of CIT v. Sundaram Industries Ltd 253 ITR 396 and in the case of CIT v. Menon Impex (P.) Ltd. and by Kerala High Court in the case of CIT v. Cochin Refineries Ltd. that the used of the term 'derived from' in the relevant provisions of the Act indicates the restricted meaning to cover only the profits and gains directly accruing from the conduct of business undertaking.
9. From a reading of the Section 10A coupled with the above case laws,it is evident that the other income of Rs. 15,82,92,709 has not beenderived from the industrial undertaking and hence is not eligible tobe considered for exemption under Section 10A.
10. But it is seen from assessee's computation of deduction under Section 10A that, the assessee has only deducted Rs. 14,09,71,819 of interest out of the other income of Rs. 15,82,92,709 from the business profits for the computation of deduction under Section 10A.
11. Thus, in this process, the assessee has claimed excess deduction under Section 10A amounting to Rs. 51,96,267 (30 per dent of the difference of Rs. 15,82,92,709 and Rs. 14,09,71,819).
12. Hence, because of the wrong f acts stated by the assessee as to the nature of income of the miscellaneous income in computing deduction under Section 10A, there was an under-assessment Rs. 51,96,267 in form of excess deduction under Section 10A.
13. Theref ore, I have reason to believe that on account on the part of the assessee to disclose truly and fully all material facts necessary for its assessment, for that year, the income chargeable to tax amounting to Rs. 3,518.47 lakhs under Section 115JB and Rs. 51.96 lakhs under Section 10A have escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 because of wrong computation of deduction under Section 10A and wrong computation of book profit under Section 115JB.
In the preliminary objections to the reopening of the assessment vide letter dated 10-9-2005 it was submitted that reopening of the assessment was based on reappraisal of the same f acts which were available at the time of assessment completed under Section 143(3) of the Act, and the reassessment proceedings initiated merely on the basis of change of opinion were, bad in law. It was submitted on the basis of the aforesaid that the reassessment proceedings initiated were beyond jurisdiction and called for being dropped. The assessing officer however disposed of the appellant's preliminary objections to the reassessment vide order dated 21-9-2005 and proceeded to frame the reassessment under Section 147 of the Act.
The assessing officer while completing reassessment under Section 147 of the Act computed book profit under Section 115JB of the Act at Rs. 40,34,22,680 as against Rs. 5,41,97,900, computed in the assessment completed under Section 143(3) of the Act by restricting deduction under Section 10B of the Act at Rs. 9,825.14 lakhs as against Rs. 13,343.61 lakhs actually allowed in the original assessment.
2. In the assessment framed under Section 147, the assessing officer rejected the contention of assessee that reassessment is merely on the change of opinion. In the assessment order the assessing officer held that in computing book profit under Section 115JB the amount to be reduced is the income which is eligible for exemption under Sections 10A and 10B as computed under the provision of Income Tax Act, and not on the basis of book profit.
The same was upheld by learned Commissioner (Appeals) and hence this appeal.
3. Learned Counsel submitted that the reassessment is not valid in eye of law. The reassessment is initiated merely on the change of opinion and reappraisal of information and document available at the time of original assessment. No fresh facts came to the knowledge of assessing officer after the original assessment was framed under Section 143(3). The assessee filed the complete details as to how the book profit is calculated. The computation of book profit was duly supported by the report of auditor as required to be obtained under Section 115JB of the Act. As per the computation, the net profit as per profit and loss account was Rs. 138.56 crores. In such book profit the amount of profit eligible for exemption under Section 10A was Rs. 133.43 crores. As per the regular computation of income, the assessee declared loss of Rs. 8.73 crores. This f act was considered while framing original assessment. On the perusal of reasons recorded it can be seen that no fresh facts have came to the knowledge of assessing officer. Whether the deduction permissible under Section 10B should be on the basis of income forming part of book profit or as available under the regular pro vision was very much available while framing original assessment. In the original assessment the Assessing Officer has consciously adopted the figure of deduction at a sum of Rs. 133.43 crores while computing book profit. In the reassessment the assessing officer has relied upon the decisions of Hon'ble Gujarat High Court in the cases of Praful Chunilal Patel v. MJ. Makwana, Asstt. CIT and that in Gruh Finance Ltd. v. Jt. CIT (2002) 123 Taxman 196. Both these decisions have not been approved by the jurisdiction of Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (2002) 256 ITR 11 (FB). The decision rendered by Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) is reaffirmed in following cases:
1. CIT v. EicherLtd. (2007) 163 Taxman 259 (Delhi).
2. K.L.M RoyalDutch Airlines v. Asstt. DIT (2007) 159 Taxman 191 (Delhi)
3. He accordingly pleaded that there is novalid assumption of jurisdiction for framing reassessment under Section 147.
4. As regards merits of addition Shri Vohra submitted that Section 115JB is a special provision for computation of book profit as chargeable to tax. While computing book profit under Section 115JB the profit is to be computed as per Parts II & III of Schedule VI to the Companies Act, 1956. In such accounts the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts as laid before the company at its Annual General Meeting. In the books of account the assessee has provided depreciation as per Straight Line Method (SLM). While computing income under the Income Tax Act depreciation is allowable as per Written Down Value Method (WDV). However when the book profit is to be computed only that depreciation which was charged to profit and loss account is to be adopted even Section 147 of the Act authorizes and permits an assessing officer to assess or reassess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. It is settled law that reason to believe can never be the outcome of a change of opinion. Thus, where the reasons recorded by the assessing officer disclose no more than mere change of opinion, the reassessment proceedings are invalid and void ab initio and are liable to be quashed.
In the following decisions it has been unanimously held that the initiation of reassessment proceedings, even under the provisions of Section 147 of the Act, as amended with effect from 1-4-1989, which were applicable to the assessment order
- Kaira District Co-operative Milk Producers Union Ltd. v. Asstt. CIT .
-Jindat Photo Films Ltd v. Dy. CIT (1998) 234 ITR 1702 (Delhi).
-Berger Paints India Ltd v. Jt. CIT (2000) 245 ITR 6453 (Cal.).
-Kelvinator of India Ltd 's case (supra).
-Foramer v. CIT, CIT v. Foramer France (2003)264 ITR 5665 (SC).
CIT v. Smt Binda Devi (2005) 197 CTR (Punj. & Har.) 447.
German Remedies Ltd v. Dy. CIT (2006) 150 Taxman 398 (Bom.).
-KLM Royal Dutch Airlines'case (supra).
-Eicher Ltd 's case (supra).
The appellant in the return of income while computing book profit under Section 115JB of the Act in terms of Sub-clause (ii) of Explanation to that Section reduced the net profit as shown in the profit and loss account by a sum of Rs. 13,343.61 lakhs, being the income net of expenses in relation to units to which the provisions of Section 10A/ 10B of the Act applied. The computation of book profit under Section 115JB of the Act, as aforesaid, was also supported by the certificate issued by the Chartered Accountant enclosed with the return of income. The appellant made fuil and complete disclosure of all the material facts relevant for the assessment along with original return of income.
The assessment was completed under Section 143(3) of the Act, after considering facts on record and after due application of mind by the assessing officer. The assessing officer applied his mind to the return of income and accompanying documents while assessing the appellant at book profits at Rs. 5,41,97,900, after adjustments to the returned book profits, in the order passed under Section 143(3) of the Act. The reopening of the concluded assessment was on reappraisal of the same material forming part of the record. The aforesaid f act is evident from the reasons for reopening the assessment which clearly records that "It is noted from that the assessee's computation of book profit under Section 115JB that assessee had itself taken the amount of deduction pertaining to Section 10B which had to be added back to the net profit as per P & L a/c at Rs. 13,343.61 lakhs instead of Rs. 9,825.14 lakhs which was the claimed exemption being income pertaining to 10A Unit." The assessing officer in the impugned reassessment has only varied the conscious stand originally taken while concluding the original assessment under Section 143(3) of the Act af ter due application of mind, without any fresh material/information coming his possession such circumstances, the reopening is based on mere change of opinion and cannot be sustained as held in the judgments referred to earlier including the decisions from the jurisdictional High Court.
At this juncture it is apt to quote from the judgment of Full Bench of the B Delhi High Court in the case of Kelvinator of India Ltd. (supra):
The scope and effect of Section 147 as substituted with effect from 1-4-1989, by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989, as also of Sections 148 to 152 have been elaborated in Circular No. 549, dated 31-10-1989. A perusal of Clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression "reason to believe" from Section 147 would give arbitrary powers to the assessing officer to reopen past assessments on a mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment.
A statute conferring an arbitrary power may be held to be ultra vires article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality should be favoured. In the event it is held that by reason of Section 147 the Income Tax Officer may exercise his; jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional.
An order of assessment can be passed either in terms of Sub-section (1) of Section 143 oir Sub-section (3) of Section 143. When a regular order of assessment is passed in terms of the Sub-section (3) of Section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of Clause (e) of Section 114 of the Indian Evidence Act, 1872, judicial and official acts have been regularly perf ormed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the assessing officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising-quasi judicial function to take benefit of its own wrong. Hence, it is clear that Section 147 of the Act does not postulate conferment of power upon the assessing officer to initiate reassessment proceedings upon a mere change of opinion.
Hon'ble Delhi High Court did not concur with the view adopted by Hon'ble Gujarat High Court in the case of Praful Chunilal Patel (supra), Hon'ble Delhi High Court in the case of KLM Royal Dutch Airlines (supra) did not approve its own judgment in the case of Consolidated Photo & Finvest Ltd v. Asstt. CIT and held the same as not laying down the correct law. We accordingly find merit in the submission of learned Counsel for assessee that the impugned reassessment was without any fresh material/information in the possession of assessing officer and only on the mere change of opinion. Thus there is no valid assumption of jurisdiction under Section 147 and hence reassessment framed under Section 147 has to be cancelled. We hold so.
5. As regards merits of the computation of book profit under Section 115JB it would be relevant to consider the relevant provision of Section 115JB. For purpose of computing, book profit under Section 115JB profit is to be first arrived at as computed under Parts II & III of Schedule VI, Companies Act, 1956. In so computing the accounting policies the accounting standards adopted for preparing such accounts and the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts and rate before the company at its Annual General Meeting. The profit is so computed which is not in dispute. Explanation to Section 115JB(2) provides as under:
For the purposes of this Section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under Sub-section (2) as increased by
(a) to (e) () the amount or amounts of expenditure relatable to any income to which Section 10 or Section 10A or Section 10B or Section 11 or Section 12 apply. If any amount referred to in Clauses (a) to () is debited to the profit and loss account, and as reduced by
(i) ** ** **
(ii) the amount of income to which any of the provisions ofsection10 or Section WA or Section 10B or Section 11 or Section 12 apply, if any such amount is credited to the profit and loss account; or
(iii) to (via) ** ** ** Under the scheme of provisions of Section 115JB of the Act, Minimum Alternate Tax (MAT) is levied with reference to the book profit disclosed in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of Companies Act, as opposed to 'profits or gains of business or profession' as computed as per the provisions of the Act.
The book profit gets substituted for the total income as computed under the Act. The book profit has therefore to be wholly quarantined from the said total income. For the determination of book profits thus any mode and manner of computation of total income under the Act has not to be applied unless specifically provided, as held by the Apex court in Apollo Tyres Ltd. v. CIT and as clarified in the Memorandum explaining Provisions of the Finance Bill 2000 (242 ITR (St.) 117, 138. In other words, f or the purpose of levy of MAT, reference is to be made only to the annual accounts as prepared for the purpose of Companies Act as would be clearly borne out from the scheme of Section 115JB of the Act inasmuch as:
(i) MAT is levied with reference to the book profit, which is deemed to be the total income of the assessee (Sub-section (1) of Section 115JB)
(ii) For the purpose of Section 115JB profit and loss account is to be prepared as per Parts II and III of Schedule VI of the Companies Act (Sub-section (2) of Section 115JB)
(iii) While preparing the annual accounts, (i) accounting policies, (ii) accounting standards and even (Ui) methods and rules adopted for calculating depreciation ought to be same as adopted for the purpose of preparing such accounts as laid before the company at its annual general meeting. (Proviso to Section 115JB(2)) Explanation to Section 115JB of the Act provides the manner of computation of book profit. The starting point is the book profit as disclosed in the profit and loss account prepared in accordance with Parts II and III of Schedule VI of the Companies; Act, 1956. Such profit is subject to adjustments specified in the Explanation to said Section.
In terms of Explanation (ii) of Section 115JB the amount of income to which provisions, inter alia, Section 10A/10B apply if such amount is credited to profit and loss account, is to be reduced from the profit as per profit and loss account.
Similarly Explanation(f) of Section 115 JB of the Act provides that profit as shown in the profit and loss account be increased by the amount of E expenditure relatable to any income to which, in ter alia, Section 10A or 10B apply.
The amount of income to which, inter alia, Section 10A/10B of the Act apply, if such amount is credited to the profit and loss account would only refer to such amount as appearing in the books of account. Similarly the amount of expenditure, including depreciation relatable to any income to which Section 10A/10B apply would certainly refer to the expenses and depreciation debited to the profit and loss account and not computed in the manner provided under Sections 28 to 44 of the Act.
The appellant, accordingly, while computing book profit under Section 115JB, on which tax was paid, deeming the same to be the total income chargeable to tax in the hands of the appellant, adjusted the profit as shown in the profit: and loss account to the following extent:
(i) Expenditure and book depreciation in relation to CDR A-164 Unit and Floppy III unit were added back to the profit.
(ii) The income of the aforesaid two units minus other income, interest dividend, etc, was reduced from the profit.
The assessing officer on the other hand reduced the book profit by deduction admissible under Section 10A/10B of the Act in respect of the aforesaid units, calculated in accordance with the provisions of the Act.
The major difference in the basis adopted by the appellant and the assessing officer is on account of adjustment of depreciation. In the books of account, depreciation has been calculated on Straight Line Method (SLM) and the book profit has been computed taking into account the aforesaid basis of book depreciation in terms of clear and unambiguous mandate contained in Clause (iii) of the proviso to Sub-section (2) of Section 115JB providing that methods and rates adopted for calculating depreciation would be the same as have been adopted for preparing the accounts that are laid before annual general meeting convened as per the provisions of Section 210 of the Companies Act.
The assessing officer on the other hand has sought to exclude depreciation calculated on the basis of written down value as provided in Section 32 of the Act while adding back book depreciation. As a consequence of the aforesaid, exclusion of income net of expenses relatable to units eligible for deduction under Section 10A/10B of the Act has been taken by the assessing officer at Rs. 9,825.14 lakhs as against Rs. 13,343.61 lakhs excluded by the appellant. The action of the assessing officer is contrary to the scheme of Section 115JB of the Act, the unambiguous provisions of Clauses (f) and (ii) of Explanation thereto and the settled judicial precedent in this regard.
The Central Board of Direct Taxes vide Circular No. 559 : 184 ITR (St.) 91, dated 4-5-1990 and also Circular No. 680 : 206 ITR (St.) 297, dated 21-2-1994, clarified that for the purpose of Section 115J (which is pari materia to Section 115JB of the Act) deduction under Section 80HHC of the Act that needs to be excluded (from book profits) in terms of Clause (iii) of Explanation is to be calculated with reference to book profits.
In CIT v. G.T.N. Textile Ltd. , the Hon'ble Kerala High Court, while considering Clause (iii) of Explanation to Section 115J of the Act, held that the deduction under Section 80HHC of the Act excluded for purpose of the said Section had to be computed as per the books of account and not calculated under the provisions of the Act. The Special Bench of Tribunal in the case of Dy. CIT v. Syncome Formulations (India) Ltd (2007) 106 ITD 193 (Mum.) considering provisions of Sections 115 JA and 115JB held that the assessing officer is not permitted to deviate from the book profit while computing the deduction under Section 80HHC of the Act that is to be excluded in terms thereof.
The relevant findings of the Special Bench are extracted as under:
53...The circular clarified that the quantum of computation is to be worked out on the basis of the adjusted book profit. The revenue has also accepted the above position for the purpose of Section 115J. Now the question is whether the subsequent changes brought in the words andexpressions in Sections 115JA and 115JB have brought any deviationfrom the position existed under Section 115J
56...Therefore, it is clear from the successive changes brought in the statute that the relief with reference to book profit tax erstwhile given under Section 115J has been extended in more clearly spoken words in subsequent Sections 115JA and 115JB. In Section 115JA, it has been clearly stated that the relief will be computed under Section 80HHC(3)/(3A), subject to the conditions under Sub-clauses (4) and (4A) of that Section. The conditions are only that the relief should be certified by a Chartered Accountant. As for the manner of calculation, it is very necessary to see that the reference is made only to Sub-sections (3) and (3A), where there is Explanation (b) to Sub-section (3) referring to the adjusted profit of the business, which is required for the purposes of ascertaining proportionate profits in respect of manufactured goods to be understood by the definition of adjusted profits of business....
60. The concept of book profit is the product of MAT, introduced in Section 115 J, similar to the concept of Alternate Minimum Tax under the United State Federal Laws. The intention was to tax zero tax companies on the basis of book profit so that those companies which declare dividend out of their book profit and which do not pay taxes on the basis of the reliëfs claimed by them, begins to pay some amount of tax to the Government. This is on the principle of ability to pay tax which is based on the principle of equity. When it was initially introduced in Section 115 J, it was a steel-frame that the tax shall be payable on the book profit subject to certain adjustments of additions and deductions. No f urther deductions were available from the said adjusted book profit. It was the ultimate amount on which the company has to pay taxes. But later on, the Legislature itself thought it fit to protect the concessions given to exporters, etc, so that the exporters are not compelled to pay tax under MAT. Therefore, even the steel-frame of Section 115J was mended by the Legislature by providing exemption to export profits. The Legislature itself has thus declared that the adjusted book profit worked out under MAT scheme need not be the ultimate amount on which an assessee has to pay tax but deductions are still available in respect of export incentives, etc.
61. Once the law itself has declared that the adjusted book profit is amendable for further deductions on specified grounds, in a case where Section 80HHC is operational, it becomes vei7 clear that the computation for the deduction under Section 80HHC needs to be worked out on the basis of the very same adjusted book profit. The above proposition is manifest in the fact that the deduction under Section 80HHC has been provided in Sections 115J, 115JA and 115JB themselves instead of making a reference in Section 80 Hon'ble High Court itself. It is made so because the nexus between the deduction under Section 80HHC and the profit in a MAT regime is between the deduction and the adjusted book profit.
66. The deduction under Section 80HHC in a MAT scheme is from the taxable income, which is otherwise the adjusted book profit. If no deduction is available to an assessee, the gross total income itself is the taxable income of the assessee. MAT scheme does not provide for deductions. Therefore, the interpretation is that the adjusted book profit of a company itself is the gross total income of the assessee-company. The deduction under Section 80HHC is in that way given out of gross total income in a case falling under MAT. This in turn means that Section 80HHC should be computed on the adjusted book profit. Sections 115J, 115JA and 115JB come into operation, as the regular profits has been substituted by the book profit. Once the substitution is over, there is no way to go back to the normal computation process of statutqry profit, which has already been overwhelmed by Sections 115J, 115JA and 115JB. This reconciles the alleged incompatibility pointed out by the revenue that the deduction available to an assessee under Chapter VI-A is subject to Section 80-AB. Therefore, we find that the deduction under Section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profit and gains of business or profession.
To the same effect are the following decisions of various Benches of the Tribunal holding that the exclusion of deduction under Section 80HHC, while computing book profits under Section 115JA/115JB is the amount calculated as per the book profits and not the deduction admissible in terms of the provisions of the Act:
- Dy. CIT v. GovindRubber (P.) Ltd. (2004) 89ITD 457 (Mum.)
- Starchik Specialities Ltd. v. Dy. CIT (2004) 90 ITD 34 (Hyd.)
-Smruthi Organics Ltd v. Dy. CIT (2006) 101 ITD 205 (Pune).
The Bombay Bench of Tribunal in the case of Tushako Pumps Ltd. v. Asstt. CIT (2005) 2 SOT 556 while considering Clause (v) of Explanation to Section 115JA, held that the profit of industrial undertaking eligible for exemption under Section 80-IA must be computed as per books of account. It was further held that the provisions of the Act cannot be applied and no adjustment can be made which is not permissible for the purpose of computation of book profit as per Section 115 JA of the Act. The Bombay Bench held as under:
From the above provisions, it is notable that under the Explanation, the book profits cannot be increased by making any adjustment on account of depreciation. Further, the book profits are required to be reduced by the amount of profit derived by the industrial undertaking which is eligible for exemption under Section 80-IA. Under Clause (v), there is no mention that the profit derived by the industrial undertaking must be calculated as per the provisions of the Income Tax Act. Therefore in our view, the logical interpretation would be that the profits derived by the industrial undertaking as per the books of account have to be reduced from the book profits. In the present case, while computing book profits, which is in consonance with the profit and loss account prepared in accordance with the provisions of Parts II and Hl of Schedule VI of the Companies Act, the depreciation as provided in the books of account has been considered. If while computing the profits derived by the industrial undertaking, which is required to be reduced f rom the book profits as per Clause (v), the provisions of the Income Tax Act are applied and depreciation as admissible under Income Tax Act is deducted, it would result into an anomalous situation. While the profit derived frorn the industrial undertaking, which is included in the book profits has been computed as per the books and no adjustment for depreciation has been made, while computing the income eligible for exemption under Section 80-IA, the quantum of depreciation as per the provisions of the Income Tax Act would be substantially enhanced. This would violate the very purpose of Section 115JA. The cases which have been relied upon by the learned Counsel for the assessee support this view. We, therefore, hold that the profit of the industrial undertaking eligible for exemption under Section 80-IA must be computed as per the books of account and the provisions of Income Tax Act cannot be applied and no adjustment can be made which is not permissible under the Section. We, therefore, reverse the order of the revenue authorities on this point and direct the assessing officer to re-compute the book profits in the light of the observations made above.
In the case of Asstt. CITv. Varinder Agro Chemicals Ltd. (2007) 161 Tax man 134, the Chandigarh Bench of the Tribunal following the decision of Kerala High Court in the case of G. T.N. Textile Ltd. (supra), held that for the purpose of Clause (iv) of Section 115 JA(2) of the Act, what is deductible from the net profits, is not the actual deduction of the eligible undertaking under Section 80-IA of the Act, but the profit of the eligible undertaking computed as per the profit and loss account prepared in accordance with Parts II & III of Schedule VI to the Companies Act, 1956.
The Tribunal also held that Clause (iv) of the Explanation to Section 115JA of the Act merely allows deduction of the amount of profit derived by the industrial undertaking while computing book profit and not the amount of deduction computed under Section 80-IA of the Act.
The Chandigarh Bench additionally held as follows:
(11) We also find the action of the assessing officer as untenable on another angle. The Hon'ble Supreme court in the case of Apollo Tyres Ltd (supra) has held, in the context of Section 115J, that the assessing officer had no power to make adjustment to the 'net profit' as shown in the P & L a/c for the relevant Section itself. The permissible adjustments to the 'net profit' as shown in the P & L a/c have been listed in the Explanation below Section 115J(1A) of the Act. The analogy of the decision of the Supreme court in the case of Apollo Tyres Ltd. (supra) is also squarely applicable to the Section, we are presently dealing with ie., Section 115 JA of the Act. As noted earlier, both the Sections stand on equal footing insofar as they relate to the controversy on hand. In the scheme of Section 115JA also, the adjustments to the 'net profit' declared in the P & L a/c which are permissible, to compute book profits are so provided for in the Explanation below Section 115 JA(2) of the Act. Clause (iv) of the Explanation merely allows reduction of amount of profits and not the amount of deduction computed under Section 80-IA of the Act. Theref ore, the assessing officer while reducing the amount of deduction allowed under Section 80-IA from the net profits shown in the P & L a/c for the instant year prepared in accordance with the provisions of Parts II and III of the Schedule VI of the Companies Act in order to compute book profit squarely feil in error. The said action of the assessing officer is clearly not warranted by the statutory provisions. Hence in terms of the ratio of the decision of the Apex court also, in the instant case, the assessing officer exceeded his jurisdiction while computing book profits under Section 115JA of the Act by seeking to exclude the actual amount of deduction allowable under Section 80-A in contract to the actual profits of the eligible unit.
The aforesaid decisions squarely apply to the case of the appellant and the adjustment, in terms of Clause (ii)/(from) of Explanation to Section 115JB of the Act has to be for the amounts credited/debited to the profit and loss account. As the case may be.
We accordingly hold that while computing book profit the amount of Rs. 133.43 crores as claimed by the assessee shall be reduced from the book profit and not the sum of Rs. 98.25 crores as computed by the assessing officer.
In the result the appeal is allowed.