Income Tax Appellate Tribunal - Ahmedabad
Rajratna Metal Industries,, Ahmedabad vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B"
[BEFORE SHRI T K SHARM A,JM & SHRI A N P AHUJ A, AM]
ITA No.1467/Ahd/2006
(Assessment Year:-2002-03)
A N D
ITA No.546 and 3242/Ahd/2007
(Assessment Years:-2003-04 and 2004-05)
Assistant Commissioner of V/s Rajratna Metal Industries
Income-tax, Circle-5, Ltd., 11, 1 s t floor, Sona
Ahmedabad Roopa Apartments, C G
Road, Ahmedabad
[PAN: AAACR 9980 M]
[Appellant] [Respondent]
ITA No.1089/Ahd/2008
(Assessment Year:-2002-03)
A N D
ITA No.1242 and 3557/Ahd/2007
(Assessment Years:-2003-04 and 2004-05)
Rajratna Metal Industries V/s Assistant Commissioner of
Ltd., 11, 1 s t floor, Sona Income-tax, Circle-5,
Roopa Apartments, C G Ahmedabad
Road, Ahmedabad
[Appellant] [Respondent]
Assessee by :- Shri S N Soparkar, with
Ms. Urvashi Shodhan ,ARs
Revenue by:- Smt. Neeta Shah, DR
O R D E R
A N Pahuja: These cross appeals have been filed against four separate orders of the ld. CIT(Appeals)-XI, Ahmedabad , detailed hereunder:-
Sr. ITA No. Against Date of Asst. Year Filed by
No. the order Order of
of CIT(A) CIT(A)
1 1467/A/06 CIT(A)-XI, 16-03-06 2002-03 Revenue.
A'bad
2 546/A/07 CIT(A)-XI, 22-11-06 2003-04 Revenue.
A'bad
ITA No.1467/A/06 and others
for AYs 2002-03, 2003-04 and 2004-05
Rajratna Metal Industries Ltd., Ahmedabad
3 3242/A/07 CIT(A)-XI, 31-05-07 2004-05 Revenue.
A'bad
4 1089/A/08 CIT(A)-XI, 04-01-08 2002-03 Assessee
A'bad
5 1242/A/07 CIT(A)-XI, 22-11-06 2003-04 Assessee
A'bad
6 3557/A/07 CIT(A)-XI, 31-05-07 2004-05 Assessee
A'bad
2. In these appeals by the Revenue & the assessee, following grounds have been raised :
ITA No.1467/ Ahd/2006[Revenue] for AY 2002-03:
1 "The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts while directing assessing officer to allow depreciation of Rs.3,77,59,296/- on the basis of findings given in earlier years and to consider the depreciation for computing the book profit u/s 115JB of the Act.
2 The Ld. CIT(A)-XI, Ahmeabad has erred in law and on fact while directing assessing officer to recomputed the deduction u/s 80HHC of the Act, after giving effect to the appellate order and reduce the same from the book profit.
3 The Ld. CIT(A)-XI, Ahmedabad has further erred in law and on fact while deleting the addition of Rs.1,11,75,348/- made by AO while computing the book profit u/s 115JB of the I.T. Act.
4 The Ld. CIT(A)-XI, Ahmedabad has also erred in law and on facts while deleting the disallowance of Rs.14,075/- made on account of ESI payment.
5 The Ld. CIT(A)-XI, Ahmedabad has further erred in law and on fact while directing AO to verify and determine the claim of long term capital loss and allow the same for carry forward and to set-off in the succeeding years.
6 The Ld. CIT(A)-XI, Ahmedabad has also erred in law and on fact while directing AO to compute the interest u/s 234B & 234C after giving credit available u/s 115JAA of the Act.
7 The Ld. CIT(A)-XI, Ahmedabad has also erred in law and on fact while directing AO to exclude the sales and excise duty from total turnover for computing deduction u/s 80HHC.2 ITA No.1467/A/06 and others
for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 8 On the facts and in he circumstances of the case, the Ld. CIT(A)-XI, Ahmedabad ought to have upheld the order of the Assessing Officer.
9 It is, therefore, prayed that the order of the Ld. CIT(A)-XI, Ahmedabad may be set aside and that of the Assessing Officer be restored."
ITA No.546/ Ahd/2007[Revenue]-AY 2003-04 "1. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in deleting the addition made of Rs.3,01,060/- on account of disallowance of employer's and employees contribution towards ESIC which were paid after the due date.
2 The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in allowing the depreciation of Rs.3,29,46,344/-as against Rs.2,65,43,551/- allowed by the Assessing Officer keeping in view the Written Down Value of the assets as per Income tax records.
3 The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in allowing the additional depreciation of Rs.16,93,246/- under the Companies Act for the purpose of calculating the book profit under section 115JB of the 1.T. Act, 1961 although the change in the method for calculating the depreciation from SLM to WDV method in the A.Y. 1997- 98 was not accepted.
4. On the facts and in he circumstances of the case, the Ld. CIT(A)-XI, Ahmedabad ought to have upheld the order of the Assessing Officer.
5. It is, therefore, prayed that the order of the Ld. CIT(A)-XI, Ahmedabad may be set aside and that of the Assessing Officer be restored."
ITA No.3242/ Ahd/2007[ Revenue]-AY 2004-05 "1. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in allowing the depreciation of Rs.5,82,09,336/-as per WDV worked out by the assessee as against Rs.5,30,09,521/- allowed by the Assessing Officer keeping in view the Written Down Value of the assets as per Income tax records.
2. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in deleting the addition made of Rs.27,075/- on account of disallowance of employees contribution towards ESI which were paid after the due date.
3 .On the facts and in he circumstances of the case, the Ld. CIT(A)-XI, Ahmedabad ought to have upheld the order of the Assessing Officer.
3 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
4. It is, therefore, prayed that the order of the Ld. CIT(A)-XI, Ahmedabad may be set aside and that of the Assessing Officer be restored."
ITA No.1089/ Ahd/2008[Assessee]-AY 2002-03
1. "That the learned CIT(A) has erred in law and facts by confirming the disallowance of claim of deduction under section 80HHC of the Act, as the amendment in the Act is retrospective, discriminative, against the constitution and the operation of the amendment has been stayed by the various Courts, and therefore the Assessing officer be directed to allow the deduction under section 80HHC as claimed, while computing the total income.
2. Without prejudice to Ground No.1, the deduction under section 80HHC of the Act is to be correctly computed.
3. That the learned CIT (A) has erred in law and facts by not reducing the amount of deduction under section 80HHC of the Act, while computing Book profit under section 115JB of the Act and accordingly the learned AO be directed to reduce the amount of deduction under section 80HHC while computing book profit under section 115JB of the Act.
4. Your appellant craves a leave to add,alter or amend any ground at the time of hearing"
ITA No.1242 / Ahd/2007[Assessee]-AY 2003-04 1 "That the learned CIT(A) has erred in law and facts by confirming the disallowance of claim of deduction under section 80HHC of the Act and therefore the AO be directed to allow the same while computing the total income.
2 That the learned CIT(A) has erred in law and facts by not reducing the amount of deduction under section 80HHC of the Act, while computing Book Profit under section 115JB of the Act and accordingly the learned AO be directed to reduce the amount of deduction under section 80HHC while computing book profit under section 115JB of the Act.
3 Your appellant craves a leave to add,alter or amend any ground at the time of hearing"4 ITA No.1467/A/06 and others
for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad ITANo.3557/ Ahd/2007[Assessee]-AY 2004-05
1. "That the learned CIT(A) has erred in law and facts by confirming the disallowance of claim of deduction under section 80HHC of the Act, as the amendment in the Act is retrospective, discriminative, against the constitution and the operation of the amendment has been stayed by the various Courts, and therefore the AO be directed to allow the deduction under section 80HHC, as claimed while computing the total income.
2. That the learned CIT(A) has erred in law and facts by not reducing the amount of deduction under section 80HHC of the Act, while computing Book Profit under section 115JB of the Act and accordingly the learned AO be directed to reduce the amount of deduction under section 80HHC while computing book profit under section 115JB of the Act.
3.Your appellant craves a leave to add, alter or amend any ground at the time of hearing."
3 Adverting first to ground no.1 in ITA no.1467/A/06, ground nos.2 & 3 in ITA no.546/A/2007 and ground no.1 in ITA no.3242/Ahd./2007 in the three appeals of the Revenue , facts, in brief, as per relevant orders for the AY 2002-03 are that return declaring nil income filed on 31.10.2002 by the assessee, manufacturing SS wires ,bright bars and trading in metals and chemicals, after being processed on 11.3.2003 u/s 143(1) of the Income-tax Act,1961[hereinafter referred to as the 'Act'] was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 27.10.003. During the course of assessment proceedings, the Assessing Officer[ AO in short] noticed that during the previous year relevant to AY 1997-98, the assessee had claimed additional depreciation not pertaining to AY 1997-98 by changing the method of calculating the depreciation from SLM to W DV method. Since the change adopted by the assessee in method of calculating depreciation was not accepted as the sole purpose for doing so was to reduce tax liability arising due to MAT u/s. 115JA of the Act, the additional depreciation claimed as per companies Act from the date of commissioning of the asset due to change in the method of calculation, was disallowed. Since in the year under consideration, 5 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad the assessee worked out depreciation as per Companies Act, without taking into consideration the depreciation disallowed in the order passed for the A.Y.I997-98 and onwards and the MAT u/s l15JB of the Act was also calculated on the basis of depreciation calculated without adjusting the disallowance made in the immediately preceding year, the AO, therefore disallowed excess depreciation Rs.70,70,879 [3,23,68,662-2,52,97,783], resulting in increase in book profit by that amount.
3.1 The AO further noticed that the assessee claimed depreciation of Rs.11,69,760/- on trading unit and Rs.3,65,89,536/- on manufacturing unit, totaling to Rs.3,77,59,296/- while it was entitled to depreciation of Rs. 2,98,98,977 ,calculated as under:
A) Manufacturing Unit.
Factory building Rs. 58,19,761
Office building Rs. 9,81,728
Plant & Machinery Rs 1,81,95,929
Office-Equipment Rs 1,40,857
Furniture & Fixtures Rs 15,32,427
Computer Rs 4,80,488
Vehicles Rs 15,32,026
-------------------
Total Rs 2,87,29,217
B) Trading Unit Rs. 11,69,760
-------------------
Total dep. Available (A+B) Rs. 2,98,98,977
3.2 Like wise in the AY 2003-04, the AO restricted the claim to
depreciation of Rs.2,65,45,551/- as against claim of Rs.
3,29,46,344/- while in the AY 2004-05, it was restricted to Rs.5,30,09,521/- as against claim of Rs. 5,82,09,336/-.
6 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 4 On appeal, the ld. CIT(A) while following the appellate order dated 29-06-2006 of his predecessor in appeal No. CIT(A)-XI/91/2004-05 for the AY 2001-02 directed the AO in these three assessment years to go through the appellate orders for the earlier years and allow the depreciation on the WDV which is worked out after giving effect to the above orders. As regards ground no.3 in ITA no.546/A/2007 for the AY 2003-04 relating to direction to allow additional depreciation of Rs.16,93,246/- while computing book profit u/s 115JB, the ld. CIT(A) allowed the claim while relying upon the appellate orders of the earlier years.
5 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR pointed out that issue of depreciation raised in AY 1997-98 has not become final since appeal by the Revenue in AY 1997-98 in second round is pending before the ITAT. On the other hand, the ld. AR on behalf of the assessee contended that the ld. CIT(A) relied upon the order of his predecessor for the AY 2001-02 in these three assessment years. On appeal by the Revenue in that year, the ITAT vide their order dated 20.2.2009 following their decision in ITA No.215/Ahd/2002 for the AY 1998-99 ,upheld the findings of the ld. CIT(A).
6 W e have heard both the parties and gone through the facts of the case as also the decisions of the ITAT relied upon. W e find that the ITAT in the assessee's own case for AY 1998-99 in ITA No.215/Ahd/2002, adjudicated a similar issue in the following terms:
" 2.1 So far as issues involved in ground Nos.1 & 2 are concerned, the DR relied on the order of the AO, whereas, ld. counsel for the assessee has supported the order of the CIT(A), after relying on the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (255 ITR
273) (SC) and in the case of CIT vs. Kwality Biscuits Ltd. (2006) 284 ITR 434 (SC).7 ITA No.1467/A/06 and others
for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
3. We have considered the rival submissions, facts and circumstances of the case, decisions of Hon'ble Supreme Court (supra) and the findings of the CIT(A) contained in paragraph No.5 of the appellate order, which are in the following terms:
"5 I have considered the contentions of the appellant and the judgments relied upon by the ld. counsel. The Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd. it has concluded that "amount written back to the Profit and Loss account of an earlier year on account of change in method of depreciation cannot be excluded for the purposes of computation of profits under section 115J r.w.s. 205 of the Companies Act. The various ITAT have held that if the change in the method of computation of depreciation is bonafide and not a colorable device the AO is not entitled to interfere with the profit and loss accounts. Thus, I am fully in agreement with the ld. AR respectfully the decisions (already cited above) of Hon'ble Karnataka High Court and jurisdictional ITAT and the decision in the case of the appellant for the AY 1997-98 by my predecessor, it is held that the AO was not correct in disturbing the Book Profit of the appellant for the AY 1998-99. He is directed to recomputed the Book Profit under sec. 115JA, after allowing additional depreciation of Rs.1,37,96,295/- of the current year, resulting on account of change in the method of depreciation."
4 After careful consideration of the rival submissions, facts and circumstances of the case and the decision (supra), we are of the opinion that the order of the CIT(A) requires no interference and, therefore, Revenue's ground Nos.1 & 2 are rejected and order of the CIT(A) on these points are sustained."
6.1 The aforesaid decision was followed while adjudicating a similar issue in ITA no.2529/Ahd./2002 for the AY 1999-2000, ITA no.3702/Ahd./2003 for the AY 2000-01,& ITA no.2556/Ahd./2004 in the AY 2001-02. W hile adjudicating the issue in ITA no.2556/Ahd./2004 , the Tribunal incorrectly referred to ground no.5 of ITA No.215/Ahd/2002 instead of ground no.1 & 2 in para 52 of their order. In the light of view taken in these decisions, we have no alternative but to reject ground no.1 in ITA no.1467/A/06, ground nos.2 & 3 in ITA no.546/A/2007 and ground no.1 in ITA 8 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad no.3242/Ahd./2007.As regards plea of the ld. DR in relation to pendency of appeal for the AY 1997-98, we have gone through that appeal and the impugned order of the ld. CIT(A). In that connection, we may clarify that in the event there is any change in W DV on account adjudication of claim of depreciation in the AY 1997-98 by the ITAT, consequent effect should be percolated in these three assessment years.
7 Ground no.2 in ITA no.1467/A/06 relates to direction of the ld. CIT(A) to re-compute deduction u/s 80HHC after giving effect to appellate order and reduce the same from book profit. The AO noticed that during the year under consideration, the assessee claimed deduction u/s 80HHC of Rs.3,55,38,688/- as per the report submitted in form no. 10CCAC. For the purpose of calculating the said deduction, the assessee adopted turnover of Rs.44,41,09,117/- and profit of the business at Rs.5,07,69.555/- in respect of only manufacturing division, excluding the profit / loss and turnover of trading unit . However, the AO while referring to his own order in the preceding assessment year and the definitions of the total turnover and adjusted profits of the business as also profits of the business, observed that nowhere it was defined in the Act that the profit / loss of any other business or turnover of trading activities was to be excluded for the purposes of determining the deduction u/s.80HHC of the Act.Inter alia, the AO included excise duty/sales tax while determining total turnover and further held that only the net outcome is to be considered by taking consolidated figure and not by excluding the negative figure of income.
8. On appeal, the learned CIT(A) directed the AO in para 13.5 of the impugned order for the AY 2002-03 to compute the said deduction as per the prevailing law after giving opportunity to the assessee.
9 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
9. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR appearing before us did not point out any infirmity in the directions of the ld. CIT(A) to recompute deduction u/s 80HHC of the Act in the light of amended provisions while the ld. AR supported the findings of the ld. CIT(A) 10 W e have heard both the parties and gone through the facts of the case. Since the relevant provisions of sec. 80HHC of the Act were amended only after the assessment order was passed, we see no infirmity in the directions of the ld. CIT(A) to compute the said deduction in terms of the amended provisions prevailing during the year after allowing sufficient opportunity to the assessee. W ith these observations, ground no. 2 in ITA no.1467/A/06 is dismissed..
11 Ground No.3 in the ITA no.1467/Ahd./06 relates to deletion of the addition of Rs.1,11,75,348/- while computing book profits in terms of provisions of sec. 115JB of the Act. During the course of assessment proceedings, the AO added an amount of Rs. 1,11,75,348/- on account of write back of excess provision of income-tax of earlier year while determining book profits u/s 115JB(2) of the Act. On appeal, the learned CIT(A) concluded as under:-
"7.1 The submissions of the AR of the appellant have been perused. It is seen that the appellant had made provision for income-tax for the AY 2001-02 at Rs.1,11,75,348/-. The AO had added back the said provision while computing the book profit for the assessment year 2001-02.
7.2 It is further seen that for the assessment year under consideration the appellant has written back the said provision which was made for the previous year.
7.3 As it could be seen that excess provision made by the appellant towards income-tax was already considered by the AO for previous assessment year, therefore, the same issue cannot be considered for computation of book profit u/s 115JB of Income-tax even it is refunded or 10 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad provision is written back. The fact is that the said excessive provision has already been considered for the previous assessment year while computing income u/s 115JB of I.T. Act. Therefore, the addition of Rs.1,11,75,348/- while computing book profit u/s 115JB of IT Act is deleted."
12 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee supported the findings of the ld. CIT(A).
13. W e have heard both the parties and gone through the facts of the case. Undisputedly and as pointed out by the ld. CIT(A), the provision of Rs.1,11,75,348/-. for income-tax for the AY 2001-02 made by the assessee was added back by the AO while computing the book profit for the assessment year 2001-02.In the year under consideration, the assessee wrote back the excess provision and credited to the profit and loss account. However, while determining book profits, the assessee reduced the amount written back . In terms of provisions of clause (i) of explanation to sec. 115JB(2) of the Act, the assessee is entitled to reduce any excess provision written back if the amount had been added in the earlier years while determining book profits. Since the ld. CIT(A) found that the amount had been added in the AY 2001-02, accordingly, he permitted reduction of the corresponding amount in the year under consideration in the light of aforesaid clause(i) of explanation to sec. 115JB(2) of the Act. Since the ld. DR did not point out any infirmity in these findings of the ld. CIT(A) , we are not inclined to take a different view in the matter, in the absence of any material before us. Therefore, ground no. 3 in the ITA no.1467/Ahd./06 is dismissed.
14 Ground no.4 in the ITA no.1467/Ahd./06 relates to deletion of disallowance of Rs.14,075/- on account of belated payment of ESI. Similarly ground no. 1 in ITA no. 546/Ahd./2007 relates to disallowance of Rs.3,01,060/- and ground no.2 in ITA no.3242/Ahd./2007 relates to disallowance of Rs.27,075/-, on 11 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad account of belated payment of ESI .The AO noticed from the Annexure-3 of the Audit Report that following payments were made belatedly in the period relevant to the AY 2002-03:
Employees Employer Due date of Date of
Contribution Contribution payment payment
554 1505 21-5-01 22-5-01
533 1501 21-6-01 22-6-01
578 1568 21-7-01 23-7-01
591 1604 21-8-01 28-8-01
822 2233 21-9-01 10-10-01
696 1890 21-3-02 26-3-02
3744 10301 Total 14075
14.1 To a query by the AO, the assessee stated that since there
there was slight delay in these payments, delay may be condoned in view of the decision quoted in Note-4 to STI. Inter alia, the assessee relied upon the judgments in the case of Fluid Air (India) Ltd. vs. DCIT,63 ITD 182 (Bom) and Madras Radiators and Pressing Ltd. vs. DCIT,59 ITD 515 (Mad) and contended that disallowance u/s 36(1)(va) could not be made for minor delay in payment of the amount to the PF/ESI authorities. However, the AO rejected these contentions of the assessee while referring to provisions of sec. 43B(b), section 2(24)(x) and the explanation below clause (va) of sub-section (1) of Sec.36 of the Act as also decision in the case of CIT vs. South India Corpn. Ltd [(108 Taxman 322 (Ker.)] and disallowed the claim ,resulting in addition of an amount of Rs.3,774/- being employees' contribution and Rs.10,301/- as being employer's contribution to the total income.
15. Similarly in the AY 2003-04, the AO disallowed an amount of Rs.3,01,060/- and in the AY 2004-05, Rs. 27,075/- on account of belated payments of ESI .
12 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 16 On appeal, the learned CIT(A) while relying upon his own decision for the preceding assessment year, allowed the claim in the AY 2002-03. In AY 2003-04 & 2004-05 , the ld. CIT(A) accepted the plea of the assessee that payments having been made before filing of the return are admissible.
17 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The learned DR supported the order of the AO and the learned AR on behalf of the assessee supported the order of the CIT(A) while relying upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC).
18 We have heard both the parties and gone through the facts of the case. We find that in the preceding assessment year, the ITAT vide their order dated 20.10.2009 in ITA no. 2556/Ahd./ 2004 upheld disallowance on accunt of employees' contribution in para 56 of their order. However, on a similar issue, the ITAT Ahmedabad Benches now have been consistently following the decision of the Hon'ble Delhi High Court in the case of CIT v. P.M.Electronics Ltd., 220 ITR635 (Delhi), in favour of the assessee. In the case of Gujarat Containers Ltd. v. ACIT in ITA No.2609/Ahd/2008 for the Assessment Year 2004-05 in their decision dated 2.3.2009 as also in the case of Shri Omarsingh B. Rawat Vs ITP ITA No.1908/Ahd/2009 vide their order dated 18-09-2009, the Tribunal allowed the appeal of the assessee on the issue of employees' contribution relying upon the aforesaid decision of the Hon'ble Delhi High Court. We find that the Hon'ble Delhi High Court in the case of P.M.Electronics Ltd.(supra), following the decision of Hon'ble Apex Court in the case of Vinay Cement Ltd.(supra), allowed the claim of the assessee for deduction of the employees' contribution towards PF.
18.1 Moreover, recently, Hon'ble Apex Court in the case of CIT vs Alom Extrusions Ltd 319 ITR 306 (SC) held that the omission of the second proviso to 13 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad section 43B of the Act by the Finance Act, 2003, operated, retrospectively, with effect from, April 1, 1988 and not prospectively from April 1, 2004. Hon'ble Court observed that earlier under the second proviso to section 43B as amended by the Finance Act, 1989, the assessees were entitled to deduction only if the contribution stood credited on or before the due date given in the Provident Funds Act. This created further difficulties and on a representation made to the Finance Ministry one more amendment was made by the Finance Act, 2003. Though this amendment was made applicable with effect from April 1, 2004, the amendment was curative in nature and applied retrospectively with effect from April 1, 1988.It was clarified that when a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole.
18.2 Even more recently, Hon'ble Delhi High Court in their decision dated 23.12.2009 in CIT Vs. AIMIL Ltd.(Delhi)in ITA no. 1063/2008 observed that S. 2(24) (x) provides that amounts received by an assessee from employees towards PF contributions etc shall be "income". S. 36 (1) (va) provides that if such sums are contributed to the employees account in the relevant fund on or before the due date specified in the PF etc legislation, the assessee shall be entitled to a deduction. The second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident etc fund shall be allowed as a deduction only if paid on or before the due date specified in 36(1)(va). After the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income. The Hon'ble High Court while considering whether the benefit of s. 43B can be extended to employees' contribution as well which are paid after the due date under the PF law but before the due date for filing the return, held that
(i) Though the Revenue has argued that a distinction is to be made between "employers' contribution" and "employees' contribution" and that employees' contribution being in the nature of trust money in the hands of the assessee 14 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad cannot be allowed as a deduction if not paid on or before the due date specified in the PF etc law, the scheme of the Act is that employees' contribution is treated as income u/s 2 (24) (x) on receipt by the assessee and allowed as a deduction u/s 36 (1) (va) on making deposit with the concerned authorities. S. 43B (b) stipulates that such deduction would be permissible only on actual payment;
(ii) The question as to when actual payment should be made is answered by Vinay Cements 213 CTR 268 where the deletion of the second Proviso to s. 43B w.e.f 1.4.2004 was held applicable to earlier years as well. As the deletion of the 2nd Proviso is retrospective, the case has to be governed by the first Proviso. Dharmendra Sharma 297 ITR 320 (Del) & P.M. Electronics 313 ITR 161 (Delhi) followed;
(iii) If the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down in Vinay Cement. "
18.3 In view of the foregoing, we have no hesitation in holding that the both employer's as well as employees' contribution towards ESI having been made by the assessee within the due date of filing of return u/s 139(1) of the Act for the assessment years under consideration, there is no ground for disallowing the same. Therefore, ground no.4 in ITA no. 1467/Ahd./2006, ground no. 1 in ITA no. 546/Ahd./2007 and ground no.2 in ITA no.3242/Ahd./2007 are dismissed.
19 Ground no.5 ITA no. 1467/Ahd./2006 relates to direction to determine claim of long term capital loss and allow the same to be carried forward and set off in the succeeding years. There is no discussion on this aspect in the assessment order. On appeal, the learned CIT(A) has dealt with the issue as under:-
"11 In the seventh ground, it is submitted by the appellant that the AO has erred in law and facts by not determining the Long Term Capital Loss for carried forward in the next assessment year(s). It is submitted by the AR that by mistake the AO has not allowed the same.15 ITA No.1467/A/06 and others
for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 11.1 Having considered the facts and circumstances of the case, in this regard, the AO is directed to verify the appellant's claim, if any, from his record and determine the Long Term Capital loss and allow the same for carried forward and set off in next assessment years in accordance with law."
20. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A).After hearing both the parties, we find that the learned CIT(A) has merely directed the AO to verif y the assessee's claim, if any, and determine the long term capital loss as also allow the same to be carried forward and set off in succeeding assessment years in accordance with law. The Revenue having failed to point out any infirmity in these directions, we are not inclined to interfere. Thus, this ground in ITA no. 1467/Ahd./2006 is dismissed.
21 Ground no.6 in ITA no. 1467/Ahd./2006 relates to computation of interest u/s 234B and 234C after allowing credit available u/s 115JAA of the Act. The AO ,inter alia, while assessing the income under the normal provisions of the Act, levied interest u/s 234B &234C of the Act. On appeal, the learned CIT(A) vide para-16 of his order upheld such levy, levy of interest u/s 234B and 234C of the Act being mandatory and consequential in nature. In para 14 of his order, the ld. CIT(A) also directed to allow, inter alia, credit u/s 115JAA of the Act .
22 The Revenue is now in appeal against the directions of the ld. CIT(A) to levy interest u/s 234B & 234C of the Act after allowing credit u/s 115JAA of the Act. The ld. DR did not point out any infirmity in the directions of the ld. CIT(A).On the other hand, the learned AR on behalf of the assessee submitted that the issue is covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of CIT vs. Jindal Exports Ltd. (2009) 314 ITR 137 (Delhi) and the decision of the Hon'ble Madras High 16 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad Court in the case of CIT vs. Chemplast Sanmar Ltd. (2009) 314 ITR 231 (Mad).
23 W e have heard the parties and gone through the facts of the case. W e find that the Hon'ble Delhi High Court in the case of CIT vs. Jindal Exports Ltd. (2009) 314 ITR 137 (Delhi), while adjudicating a similar issue, held that interest under ss. 234B and 234C is to be charged after the tax credit (MAT credit) available under s. 115JAA is set off against tax payable on the total income of the year in question. Likewise, Hon'ble Madras High Court in the case of CIT vs. Chemplast Sanmar Ltd. (2009) 314 ITR 231 (Mad), held that the credit under section 155JAA should be given effect to before charging of interest under sections 234A, 234B and 234C of the Act. Even more recently, while agreeing with the view taken in the aforesaid two decisions, Hon'ble Bombay High Court in the case of CIT Vs. Apar Industries Ltd.,323 ITR 411(Bom.) held that amendment of section 234B w.e.f. 1.4.2007 being clarificatory, in computing interest u/s 234B of the Act, minimum alternate tax credit has to be taken in to account.
23.1 In the light of view taken in the aforesaid decisions and no contrary decision having been pointed out by the Revenue before us, we are not inclined to interfere with the directions of the ld. CIT(A). Therefore, ground no.6 in ITA no. 1467/Ahd./2006 is dismissed.
24 Ground no.7 in ITA no. 1467/Ahd./2006 relates to direction to exclude sales-tax and excise duty from total turnover for computing deduction u/s 80HHC of the Act. The AO while following his own order in the preceding assessment year, observed that the amount of sales tax and excise duty were required to be added in the total turnover as laid down by Hon'ble Supreme Court in the case of Chowranghee Sales Bureau Pvt. Ltd. v/s. CIT 87 TTR 542 and Sinclare Murray & Co. Pvt. Ltd. v/s. CIT 97 ITR 615. Inter alia, the AO relied upon decision of the Ahmedabad Bench of the ITAT in IT A No.231/Ahd/2000 dated 24.8.2000 in the case of Gujarat Fluro Chemicals 17 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad Ltd. for A.Y.96-97, following the decision of Britania Industries Ltd. 71 ITD 14 (Cal) & Ponds (India) Ltd. 64 ITO 33 (Mumbai), holding that sales tax and excise are integral part of the total turnover .
25 On appeal, the learned CIT(A) following his predecessor's order directed to exclude the sales-tax and excise duty from total turnover for computing deduction u/s 80HHC of the Act.
26 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO in the light of provisions of sec. 145A of the Act while the ld. AR on behalf of the assessee relied upon the order of the AO in view of judgment of the Hon'ble Supreme Court in the case of CIT vs Lakshmi Machine Works 290 ITR 667 (SC).
27. We have heard both the parties and gone through the facts of the case. We are not inclined to accept the plea of the ld. DR that the provisions of sec. 145A were applicable to the concept of total turnover even while determining the deduction u/s 80HHC of the Act, in view of the following observations of the Hon'ble Apex Court in the case of Laxmi Machine Works(supra), wherein it was held as under:
".........We have to read the words "total turnover" in section 80HHC as part of the formula which sought to segregate the "export profits" from the "business profits". Therefore, we have to read the formula in entirety. In that formula the entire business profits is not given deduction. It is the business profit which is proportionately reduced by the above fraction/ratio of export turnover + total turnover which constitutes section 80HHC concession (deduction). Income in the nature of "business profits" was, therefore, apportioned. The above formula fixed a ratio in which "business profits" under section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words "total turnover" but also to the words "export turnover", "total export turnover" and "business profits". That is the reason why we have quoted hereinabove extensively the illustration from the Direct Taxes (Income-tax) Ready Reckoner of the relevant word. In the circumstances, we cannot interpret the words "total turnover" in the above formula with reference to the definition of the word "turnover" in other laws like Central Sales Tax or as defined in accounting principles. Goods for export do not incur excise duty liability. As stated above, even commission and interest formed a part of the profit and loss account, however, they were not eligible for deduction under section 80HHC. They were not eligible even without the clarification 18 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad introduced by the Legislature by various amendments because they did not involve any element of turnover. Further, in all other provisions of the Income- tax Act, profits and gains were required to be computed with reference to the books of account of the assessee. However, as can be seen from the Income- tax Rules and from the above Form No. 10CCAC in the case of deduction under section 80HHC a report of the auditor certifying deduction based on export turnover was sufficient. This is because the very basis for computing section 80HHC deduction was "business profits" as computed under section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the Legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under the Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover". Similarly, "interest" emanates from exports and yet "interest" does not involve an element of turnover. The object of the Legislature in enacting section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, "turnover" was the requirement. Commission, rent, interest, etc. did not involve any turnover. Therefore, 90 per cent. of such commission, interest etc. was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in section 80HHC(3) for the simple reason that they did not emanate from the" export turnover", much less any turnover. Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the" turnover". Just as interest, commission etc. did not emanate from the "turnover", so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and" therefore, they were not includible in the "total turnover". The above discussion shows that income from rent, commission, etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. In fact, in Civil Appeal No. 4409 of 2005, the above proposition has been accepted by the Assessing Officer, if so, then excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc. It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under section 80HHC would 19 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad become unworkable. The view which we have taken is in the light of the amendments made to section 80HHC from time to time."
27.1 Section 80HHC of the Income-tax Act, 1961 is a beneficial section and was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. As observed by the Hon'ble Apex Court, one cannot interpret the words "total turnover" with reference to the definition of the word "turnover" in other laws like the Central sales tax or as defined in accounting principles. The words "total turnover" in section 80HHC have to be read as part of the formula which sought to segregate the "export profits" from the "business profits . Therefore, we are of the opinion that excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3) of the Act.
27.2 In the case of Sony India Pvt. Ltd. Vs. DCIT, in ITA no. 1181/Del/2005 dated 23/9/2008 for the AY 2001-02 ,ITAT Delhi Bench ,following the aforesaid decision of the Hon'ble Supreme Court directed to exclude excise duty while working out total turnover for the purpose of deduction u/s 80HHC of the Act.
27.3. In view of aforesaid decision of the Hon'ble Supreme Court, we are of the opinion that the ld. CIT(A) was justified in directing the AO to exclude excise duty and sales tax while working out total turnover for the purpose of deduction u/s 80HHC of the Act. Thus, ground no.7 in ITA no. 1467/Ahd./2006 is dismissed..
28. Now adverting to ground nos.1& 2 in the assessee's appeal in ITA no.1089/Ahd/2008 for AY 2002-03, ground no.1 in ITA no. 1242/Ahd./2007 for the AY 2003-04 and ground no. 1 in ITA no.3557/Ahd./2007 for the AY 2004-05 relating to confirmation of disallowance on account of claim of deduction u/s 80HHC of the Act, AO noticed during the reassessment proceedings in the AY 2002-03 that the assessee had been allowed excess deduction u/s 80HHC of the Act on DEPB credit of Rs.6.9 crores and DEPB premium of Rs.29.5 lacs even when the assessee did not fulfill the conditions stipulated in third proviso to sec. 80HHC(3) of the Act, introduced by the Taxation Laws (Second Amendment) Act, 2005,w.e.f 20 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 1.4.1998. The conditions required to fulfill are that the assessee should have necessary and sufficient evidence to prove that;
a) he had an option to choose either the duty drawback or the duty entitled pass book scheme being duty remission scheme and
b) the rate of drawback credit attributable to the custom duty was higher than the rate of credit available under Duty Entitlement Pass book scheme being duty remission scheme.
W hile referring to his own order for the AY 2003-04 , the AO denied the claim since (i) the export turnover was more than Rs.10 Crore (ii) the entire sale value was the profit, as there was no cost of the DEPB entitlement (iii) newly amended definition of Business Profit, as per explanation (baa) of section 80HHC(1) stipulated that the amount of DEPB is required to be reduced from the business profit for the deduction of claim under section 80HHC and the assessee failed to justify that the two conditions as enumerated in the amended provisions have been fulfilled by it.
28.1 Like wise, the AO disallowed the claim for deduction u/s 80HHC of the Act in the AY 2003-04, business profits after reduction of DEPB amount of Rs.7,39,51,432/-, being negative. In AY 2004-05 also similar findings were recorded by the AO.
29. On appeal, the learned CIT(A) held in the AY 2002-03 that since the assessee was having turnover exceeding Rs.10 crores and it did not fulfill the other conditions as per the provisions of the section 80HHC of Act, 1961, the AO has rightly computed the book profit as well as normal income u/s 143(3) of Income-tax Act. Similar findings were recorded in the AY 2003-04 & AY 2004-05 while upholding the order of the AO and consequently, other grounds relating to deduction u/s 80HHC of the Act were not adjudicated by the ld. CIT(A) in the AY 2003-04 & 2004-05.
21 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
30. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A) . The learned AR on behalf of the assessee while reiterating their submissions before the ld. CIT(A) contended that that deduction u/s 80HHC needs to be recomputed in the light of decision dated 11.8.2009 in the case of M/s Topman Exports,318 ITR(AT) 87(Mumbai) (SB). On the other hand, the learned DR supported the findings of the ld. CIT(A).
31. W e have heard both the parties and gone through the facts of the case as also the decision relied on . The relevant provisions of sec. 28(iiid) applicable w.e.f 1.4.1998 read as under :
"(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992)"
31.1 The third proviso to sec.80HHC(3) of the Act as introduced by the Taxation Laws (Second Amendment) Act, 2005, w.e.f 1.4.1998 reads as under:
"Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, -
(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme : "
31.2 As regards plea of the assessee in their ground that amendment is discriminative, against the constitution and had been 22 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad stayed by various courts, the ld. AR did not make any submissions on these aspects nor brought to our notice any decision, staying the aforesaid amendments. In any case, it is not within our jurisdicton to decide the constitutionality of any amendment under the Act and therefore, this plea has to be rejected. As is apparent from the aforesaid provisions, only ninety percent of profit on transfer of DEPB license falling within the provisions of sec. 28(iiid) has to be increased in terms of the aforesaid third proviso while determining deduction u/s 80HHC of the Act. In this connection, in the aforesaid decision dated 11.8.2009 in the case of M/s Topman Exports,318 ITR(AT) 87(Mumbai) (SB)., the following question was referred to the Special Bench:
Whether the entire amount received on sale of DEPB entitlements represents profit chargeable under section 28(iiid) of the Income Tax Act or the profit referred to therein requires any artificial cost to be interpolated?
31.21 The Special Bench adjudicated the aforesaid question in following terms:
i) The argument of the Revenue that DEPB is a post export event and has no relation with the purchase of goods cannot be accepted. There is a direct relation between DEPB and the customs duty paid on the purchases. For practical purposes, DEPB is a reimbursement of the cost of purchase to the extent of customs duty;
(ii) The DEPB benefit (face value) accrues and becomes assessable to tax when the application for DEPB is filed with the concerned authority.
Subsequent events such as sale of DEPB or making imports for self consumption etc are irrelevant for determining the accrual of the income on account of DEPB;
(iii) Though s. 28 (iiib) refers to a "cash assistance against exports", it is wide enough to cover the face value of the DEPB benefit;
(iv) S. 28 (iiid) which refers to the "profits on transfer of the DEPB" obviously refers only to the "profit" element and not the gross sale proceeds of the DEPB. If the Revenue's argument that the sale proceeds should be considered is accepted there would be absurdity because the face value of the DEPB will then get assessed in the year of receipt of the DEPB and also in the year of its transfer;
23 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
(v) Consequently, only the "profit" (i.e. the sale value less the face value) is required to be considered for purposes of s. 80HHC.
31.3 Since the ld. CIT(A) have not recording any findings as to how the DEPB licenses utilized for own use/import of raw material fall within clause (iiid) of the sec. 28 of the Act and the provisions of third proviso to sec. 80HHC(3) have been invoked in respect of the entire amount nor the ld. CIT(A) had the benefit of the aforesaid decision in the case of Topman Exports(supra), we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue relating to claim for deduction u/s 80HHC of the Act in relation to the amount of DEPB, afresh in accordance with law, after allowing sufficient opportunity to both the parties and keeping in view the aforesaid decision of the Special Bench. Inter alia, the assessee shall place all the necessary evidence before the ld. CIT(A) as to how it fulfills the conditions stipulated in the third proviso to sub-section (3) of sec. 80HHC of the Act. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act as also record his specific findings on the grounds connected with deduction u/s 80HHC of the Act and not adjudicated by him separately in the AY 2003-04 & 2004-05. W ith these directions, ground nos.1 & 2 in ITA no.1089/Ahd/2008, ground no.1 in ITA nos. 1242&3557/Ahd./2007 are disposed of.
32. As regards ground no.3 in ITA no.1089/Ahd/2008, ground no.2 in ITA no. 1242/Ahd./2007 and ground no. 2 in ITA no.3557/Ahd./2007 relating to reduction of deduction u/s 80HHC while computing book profits u/s 115JB of the Act, the AO rejected the claim of the assessee since the profits of the business resulted in a negative figure due to reduction of DEPB amounts. On appeal, the ld. CIT(A) merely upheld the findings of the AO.
24 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
33. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR relied upon the decision dated 20-10-2009 of the Tribunal in the assessee's own case in ITA No.2529/Ahd/2002 for AY 1999-2000,wherein it was held in para 21 to 23 as under:-
"21 Coming to issue involved in Ground No.2, it is observed that the CIT(A) has decided the same as per his findings contained in paragraph No.7 of the appellate order, which read as under:
"7 The third ground of appeal relates to deduction of amount of 80HHC for the purpose of determination of book profit under section 115JA of the Act. This is a consequential ground depending upon the amount of deduction under section 80HHC and therefore the AO is directed to recomputed the amount of 80HHC after giving effect to this order and reduce the same from the book profit under section 115JA of the Act."
22 The ld. DR has supported the order of the AO, whereas the ld. counsel for the assessee has supported the order of the CIT(A), after relying on the decision of ITAT Mumbai Bench "H" (Special Bench) in the case of Dy. CIT vs. Syncome Formulations (I) Ltd. (2007) 106 ITD 193 (Mum) (SB) and in the case of CIT vs. Atul Products (255 ITR 85) (Guj) 23 After careful consideration of the rival submissions, facts and circumstances of the case and the decisions (supra), we are of the opinion that this issue is now covered in favour of the Assessee and against the Revenue as per the decision of ITAT Mumbai Bench (Special Bench) in the case of Syncome Formulations (I) Ltd. and, therefore, following the same, we uphold the order of the CIT(A) and Revenue's ground is rejected."
The ld. AR also relied upon decision of the Hon'ble Madras High Court in CIT Vs. Rajnikant Schnelder & Associates P Ltd.,302 ITR 22(Mad) and pointed out that SLP had been dismissed by the Hon'ble Apex Court in 320 ITR 21(ST).
33.1 The ld. DR on the other hand supported the order of the ld. CIT(A).
25 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
34. W e have heard both the parties and gone through the facts of the case as also the decisions relied upon. W e find that while adjudicating the claim for deduction u/s 80HHC of the Act from the book profits determined u/s 115JB of the Act ,the Mumbai Special Bench of ITAT in the case of Syncome Formulations (I) Ltd.(supra) held that the deduction under section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profits 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.
34.1 However, subsequently, Hon'ble Bombay High Court in their aforesaid decision in CIT Vs. Ajanta Pharma Ltd.,223 CTR(Bom.)441 overruled the decision in the case of Syncome Formulations (I) Ltd.(supra), holding as under:
23. Until s. 115JB was introduced, the whole of the profits computed under s.
80HHC were eligible for reduction for computing the book profits. Pursuant to sub-s. (1B) of s. 80HHC the deduction available to the extent provided in s. (1B) and after 1st April, 2005 the deduction of export profits is discontinued. The assessee's argument is that only in case of companies not covered by s. 115JB to then sub-s. (1B) of s. 80HHC would apply. Insofar as MAT companies are concerned, the profits eligible for deduction are as computed under sub-s. (3) or (3A) of s. 80HHC without applying sub-s. (1B). This argument is based on the expression "computed under sub-s. (3) or sub-s. (3A) as the case may be".
24. For that purpose, we will have to examine the true scope and effect of s. 80HHC. In s. 80HHC, the relevant provisions to which we have earlier reproduced is sub-s. (1), which provides, that in computing the total income of the assessee, a deduction is to be made to the extent of profits referred to in sub-s. (1B) derived by the assessee from the export of such goods. The section as amended has brought in the words "deduction to the extent of profits" referred to in sub-s. (1B) by Finance Act, 2000 w.e.f. 1st April, 2001. If the construction sought to be given by counsel for assessee is accepted it would make sub-s. (1B) irrelevant for the purpose of s. 115JB. Sub-s. (1B) provides for deduction in terms set out therein. Sub-s. (3) sets out the method of computation of profits. The computation of profits is, therefore, for the purpose of working out the deduction of profits available under s. 80HHC(1B). Earlier it was in terms of sub-s. (1). Now s. 80HHC(1) in term refers to sub-s. (1B). All the provisions are inter-related and cannot be read de hors one and other. If sub-s. (1B) is not read in sub-s. (1) then the expression "no deduction shall be allowed in respect of the assessment 26 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad beginning on the 1st day of April, 2005 and any subsequent year", shall be rendered otiose.
25. Insofar as s. 115JB(2), Expln. 1(iv) is concerned, in computing the book profits the export profits under s. 80HHC had to be reduced. The object of s. 115JB was to impose tax on companies which are known as zero tax companies. These companies though making huge profits and paying handsome dividends, were not paying any tax. The object of the section was, therefore, that they pay tax not in a manner of total income computed by other companies, but on the book profits which had to be calculated in terms of s. 115JB(2). The assessee's do not dispute this. Their argument is that reduction must be of the whole of the book profits computed under sub-s. (3) or (3A) of s. 80HHC. The object of s. 80HHC as originally introduced was to exempt the whole of the export profits. By virtue of sub-s. (1B) introduced w.e.f. 1st April, 2001 the deduction is only a percentage of the export profits as allowed therein and no reduction after 1st April, 2005. This benefit of reduction was initially not made available to MAT companies, but the benefit was extended from 1st April, 1989.
26. It is then sought to be contended that the expression "conditions" in cl. (iv) of Expln. 1 of s. 115JB cannot be referable to sub-s. (1B) of s. 80HHC as sub-s. (1B) is not a condition but in the nature of computation. We have referred to the dictionary meaning of the word "conditions". Even if we accept that sub-s. (1B) of s. 80HHC is not a condition and proceed on that footing, nevertheless it is impossible of reading s. 80HHC(3) or (3A) independent of s. 80HHC(1B). To our mind, the language is clear. The literal meaning does not in any way defeat the object of the section and/or lead to an absurdity. The object of s. 115JB is to allow even MAT companies to avail of the benefit of deduction. If we consider the assessee's arguments that MAT companies are entitled to full deduction of export profits it will lead to anomaly, whereby the companies which are paying tax on total income under the normal rules, for them the deduction of export profits will be lesser than what MAT companies are entitled to. Is this a possible view? When s. 115J was originally introduced, MAT companies were not entitled to deduction of profits under s. 80HHC while working out the book profits. That came to be introduced by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989 a year later. Parliament, therefore, initially had even denied to MAT companies deduction under s. 115J. When s. 115JA was introduced w.e.f. 1st April, 1997, s. 80HHC benefits were once again not available for MAT companies. The amendment by Finance Act, 1997 to give the benefit was w.e.f. 1st April, 1998. Can it now be argued that MAT companies considering s. 115JB(2) Expln. 1 (iv) are entitled to be placed in a better position than the other companies entitled to the export deduction under s. 80HHC though earlier they constituted one class? No rule of construction nor the language of the s. 80HHC r/w s. 115JB, in our opinion, will permit such construction. If such construction is not possible then both the classes of companies will be entitled to the same deduction. This would contemplate that both would be entitled to deductions of profits in terms of s. 80HHC(1B). So read, it would be a harmonious construction. A class of companies covered by s. 80HHC cannot be sub-classified into two 27 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad classes, when more so, for intermittent periods Parliament had even denied the benefit of s. 80HHC to MAT companies. If the argument of the assessee is to be accepted, what then is the mischief, that s. 115JB sought to avoid? What s. 115JB did was to continue the deductions also to the MAT companies. The only difference was that instead of calculating tax at 30 per cent of the book profits as in the case of ss. 115J, 115JA, it was made 7.5 per cent and from 1st April, 2007 it is 10 per cent. The language used in cl. (iii) to Expln. 1 to sub-s. (2) of s. 115J or cl. (vii) to Expln. 1 of s. 115JA(2) or cl. (iv) of Expln. 1 of s. 115JB(2) is "eligible for deduction".
27. The argument of the assessee is basically based on the memorandum of understanding in the Finance Bill, 2000 which we have earlier reproduced. It only says that export profits under s. 80HHC and others are kept out of the purview of the provision during the period of phasing out of deductions available under the provisions. At the same time, in the Notes of Clauses it is clearly stated that the profits will be as reduced by the certain adjustments which are eligible for deduction under s. 80HHC. The profits eligible for deduction are export profits in terms of s. 80HHC(1B). There is nothing in the Finance Minister's speech of 29th Feb., 2000, [(2000) 159 CTR (St) 1 : (2000) 242 ITR (St) 1] to hold otherwise. We have earlier referred to rules of construction as set out in the judgments earlier quoted. The Notes of Objects and Reasons is only an aid to construction. That aid to construction is only when the literal reading leads to ambiguous result or absurdity. To our mind considering the literal language there is no absurdity or ambiguity being caused or any mischief sought to be remedied. The language used in s. 115JB is deduction available under s. 80HHC. It is difficult to conceive of any rational reason as to why the legislature should have thought to give MAT companies additional benefits than the other companies who are paying tax on total income and not the tax based on book profit as calculated under s. 115JB. Is it possible to conceive of any degree of fairness and/or justice that MAT companies, who for some periods were denied the benefit of s. 80HHC, because of the introduction of s. 115JB Expln. 1(iv) are entitled to have their entire export profits reduced? The object of s. 115JB or for that matter s. 115J or s. 115JA was to impose tax on those companies which otherwise considering various exemptions or deductions available under the Act, though making huge profits and paying large dividends were not paying any tax. It is therefore, not possible to accept the construction as sought to be advanced on behalf of the assessee, that they should be treated on a different footing in computing export profits under s. 80HHC, for the purpose of s. 115JB.
28. We have had the benefit of going through reasoning and the orders of Tribunal in Syncome as also in the case of Dy. CIT vs. Govind Rubber (P) Ltd. It is not possible to agree with the view taken by the Benches. Those decisions in view of this judgment stand overruled.
29. Our attention was also invited to the judgment of the Kerala High Court in the case of CIT vs. GTN Textiles Ltd. In the first instance, the Kerala High Court was considering the provisions of s. 115J. Sec. 115JB was not under consideration.
28 ITA No.1467/A/06 and othersfor AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad The High Court noted that original s. 115J of the Act did not contain exemption under s. 80HHC. That section as we have noted, did not originally include exemption allowed to exporters under s. 80HHC. By the virtue of the Explanation and cl. (iii) thereto, which came into effect from 1st April, 1989, the reduction under s. 80HHC became available. The issue before the Kerala High Court was, what is profit that should be taken into consideration considering the accounting system that have to be followed while working out the book profits. Therefore, the judgment would be of no assistance in considering the question framed for consideration.
30. It was also sought to be then contended that if two views are possible then the construction of s. 115JB, Expln. 1(iv) considering the decided law, the view in favour of the assessee should be accepted. The question is whether there are two views possible. In our opinion, no two views are possible. The only view as explained earlier is that the MAT companies are entitled to the same deduction of export profits under s. 80HHC as any other company involved in export in terms of s. 80HHC(1B). Once that be the case, this argument is also devoid of merit. "
34.2 However in the case of Rajnikant Schnelder & Associates P Ltd.(supra) , the Hon'ble Madras High Court held that the AO was not entitled to alter the profit and loss account prepared by the assessee under the provisions of the Companies Act while arriving at book profits u/s 115JA of the Act and the computation u/s 80HHC should be limited to the case of profits of eligible category only. This decision has been reiterated in CIT Vs. SPEL Semiconductor Ltd.,323 ITR 488(Mad.) and SLP filed by the Revenue has been dismissed as reported in 320 ITR(ST)21.
34.3 In the instant case, we find that neither the AO nor the ld. CIT(A) have passed a speaking order on this issue. Since the AO and ld. CIT(A) did not have the benefit of the views in the aforecited decisions and thus, could not record any findings on the pleas now raised on behalf of the assessee before us on their claim for deduction u/s 80HHC of the Act while determining book profits u/s 115JB of the Act , we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue of claim for deduction u/s 80HHC of the Act in terms of clause (iv) of the explanation to sec. 115JB of the Act in accordance with law in the light of various judicial 29 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad pronouncements including the aforecited decisions, after allowing sufficient opportunity to both the parties . Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act and ensuring that the conditions of section 80HHC are satisfied in the instant case while computing the deduction allowable to the assessee .With these directions, ground no. 3 in ITA no.1089/Ahd/2008, ground no.2 in ITA nos. 1242&3557/Ahd./2007 are disposed of.
35 Ground nos. 8 & 9 in ITA No.546/Ahd/2007, ground nos. 4 & 5 in ITA no. 546/Ahd./2007 and ground nos. 3 & 4 in ITA
no.3242/Ahd./2007, being general in nature, do not require any separate adjudication while no additional ground having been raised in terms of residuary ground no. 4 in ITA no.1089/Ahd/2008, ground no.3 in ITA no. 1242& 3557/Ahd./2007 in these appeals, all these grounds are ,therefore, dismissed.
36. In the result, these three appeals of the Revenue are dismissed while those of the assessee are partly allowed, but for statistical purposes.
Order pronounced in the open court today on 31-05-2010 Sd/- Sd/-
(T K SHARMA) (A N P AHUJA) JUDICI AL MEMBER ACCOUNTANT MEMBER Date : 31 -05-2010 Copy of the order forwarded to :
1. Rajratna Metal Industries Ltd., 11, 1 s t floor, Sona Roopa Apartments, C G Road, Ahmedabad 30 ITA No.1467/A/06 and others for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad
2. The ACIT, Circle-5, Ahmedabad
3. CIT concerned
4. CIT(A)-XI, Ahmedabad
5. The DR, ITAT, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 31