The DCIT, Circle-1(1), Baroda V. Gulbrandsen Chemicals Pvt.Ltd., Baroda

ITA 1102/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6121 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2003-2004
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SRDR
• Keywords: Depreciation
• Section: 80HHC; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1102/AHD/2010 ASSESSMENT YEAR:2003-04 DATE OF HEARING:4.6.10 DRAFTED:4.6.10 DCIT CIRCLE-1(1), BARODA V/S . GULBRANDSEN CHEMICALS PVT. LTD. ON COASTAL HIGHWAY, MUJPUR, TAL- PADRA-BARODA, PAN NO.AABCG0812A (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI C.K. MISHRA, SR-DR RESPONDENT BY:- SHRI MUKUND BAKSHI, AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-I, BARODA IN APPEAL NO.CAB-I/58 /2006-07 DATED 29-12- 2010. THE ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-1(1 ) BARODA U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 28-03-2006 FOR ASSESSMENT YEAR 2003-04. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING THE DEDUCTION U/S.80HHC OF THE A CT ON THE BOOK PROFITS COMPUTED U/S.115JB OF THE ACT. FOR THIS, REVENUE HA S RAISED THE FOLLOWING GROUND NO.1 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(APPEALS) ERRED IN ALLOWING THE DEDUCTION U/S.80 HH AS PER BOOKS WHILE COMPUTING BOOK PROFIT U/S.115JA WITHOUT APPRE CIATION THE FACT THAT DEDUCTION U/S..80HHC IS AVAILABLE TO THE ASSESSEE W HILE COMPUTING THE ITA NO.1102/AHD/2010 A.Y. 2003-04 DCIT CIR-1() BRD V. GULBRANDSEN CHEMICALS PVT. LTD. PAGE 2 BOOK PROFIT U/S.115JA BUT THE DEDUCTION IS SUBJECT TO THE PROVISIONS OF SECTION 80HHC. UNDER SECTION 80HHC FOR HE PURPOSE O F COMPUTATION DEDUCTION, THE PROFITS OF THE BUSINESS MEANS THE PR OFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUS INESS OR PROFESSION. SINCE PROFIT OF THE BUSINESS AS COMPUT ED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION IN THE CASE OF THE ASSESSEE IS NEGATIVE, THE QUESTION OF ALLOWANCE OF DEDUCTION U/S.80HHC DOES NOT ARISE BOTH UNDER THE NORMAL PROVISIONS AND SECTION U/S.115JA OF THE ACT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING OFFICER DENIED U/S.80HHC OF THE ACT AMOUNTING TO RS.30,21,568/- WHILE COMPUT ING BOOK PROFIT U/S.115JB OF THE ACT. THE ASSESSING OFFICER NOTED THAT ASSES SEE IN ITS COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT HAS REDUCED THE PR OFIT BY QUANTUM OF DEDUCTION U/S.80HHC OF THE ACT BUT ACTUALLY ASSESSE E HAS DISCLOSED GROSS LOSS AMOUNTING TO RS.1,91,52,891/-. ACCORDING TO A SSESSING OFFICER THE PROFIT OF BUSINESS WAS NEGATIVE. ACCORDINGLY, DEDUCTION U /S.80HHC CANNOT BE ALLOWED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFO RE CIT(A). THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWI NG FINDING IN PARA-3.3 OF HIS APPELLATE ORDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A R AND THE FACTS OF THE CASE. IN THIS REGARD THE DECISIONS OF THE MUMBAI SP ECIAL BENCH OF ITAT IN SYNCOME FORMULATIONS (I) LTD AND OF MUMBAI HIGH COURT IN THE CASE OF CIT V AJANTA PHARMA LTD., 223 CTR 441, ARE RELEVANT. CONTRARY VIEWS HAVE BEEN TAKEN IN THESE TWO DECISIONS. IN SYNCOME FORMULATIONS, THE SPECIAL BENCH HELD THAT THE ASSESSEE WOULD BE ENTIT LED TO GET THE BENEFIT OF DEDUCTION U/S.80HHC ON THE BASIS OF ADJU STED BOOK PROFIT I.E., GROSS TOTAL INCOME IN A CASE FALLING UNDER MAT. THE REFORE, THE DEDUCTION U/S.80HHC IN A CASE OF MAT ASSESSMENT IS TO BE WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROFIT AND NOT ON THE BASIS OF THE PROFIT COMPUTED UNDER THE REGULAR PROVISIONS OF THE ACT. O N THE OTHER HAND, THE MUMBAI HIGH COURT DECLARED IN AJANTA PHARMAS CASE THAT THE ITATS DECISION IN SYNCOME FORMULAIONS STANDS OVERRULED. IT IS, HOWEVER, PERTINENT TO NOTE THAT IN A RECENT DECISIO N OF THE MUMBAI ITAT VIDE ORDER DT. 9.11.2009 IN THE CASE OF DCIT V GLENMARK LABORATORIES LTD. IN ITA NO.4155/MUM/2007 FOR AY 2004-2005, THE HON BLE BENCH HAS DISTINGUISHED THE DECISION IN AJANTA PHARMA. AS OBSERVED BY THE ITAT, THE HIGH COURT HAD NO RENDERED ITS OPINION WI TH REGARD TO THE ISSUE IN QUESTION HERE BUT RATHER ON A DIFFERENT IS SUE RELATING TO THE ITA NO.1102/AHD/2010 A.Y. 2003-04 DCIT CIR-1() BRD V. GULBRANDSEN CHEMICALS PVT. LTD. PAGE 3 RESTRICTION CONTAINED IN SUB-SECTION (1B) OF SECTIO N 80HHC. REFERRING TO THE DECISION OF THE APEX COURT IN THE CASE SUN ENGINEERING WORKS, 1988 ITR 297, WHEREIN IT WAS HELD THAT ANY OBSERVATION O F A COURT HAS TO BE UNDERSTOOD IN THE LIGHT OF THE QUESTION PLACED BEFO RE THEM AND INTERPRETATION OF AN EXPRESSION SHOULD NOT BE DIVES TED FROM ITS CONTEXT. THE METHOD OF COMPUTATION OF DEDUCTION U/S.80HHC, W HICH IS THE POINT AT ISSUE IN THE PRESENT APPEAL, WAS HELD TO BE DIST INGUISHABLE FROM THE ISSUE FOR DETERMINATION BEFORE THE MUMBAI HIGH COUR T IN AJANTA PHARMA. THE DECISION OF THE ITAT SPECIAL BENCH IN THE CASE OF SYNCOME FORMULAIONS HAS THUS BEEN REAFFIRMED BY THE MUMBAI BENCH. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THOSE BEFORE THE ITAT IN GLENMARK LABORATORIES. HENCE, FOLLOWING THE DECISION CONTAINED THEREIN, IT IS HELD THAT THE AO WAS NO JUSTIFIED IN DENYING THE DEDUCTION OF RS.30,21,568/- BEING THE PROFITS ELIGIBLE FOR DEDUC TION U/S.80HHC. WHILE DETERMINING THE BOOK PROFITS FOR THE PURPOSE OF SEC . 115JB, THE AO IS DIRECTED TO RE-COMPUTE THE BOOK PROFITS U/S.115JB A FTER ALLOWING DEDUCTION UNDER CLAUSE (III) OF THE EXPLANATION OF THE AMOUNT OF DEDUCTION U/S.80HHC. 4. WE FIND FROM THE CASE LAW RELIED ON BY LD. COUNS EL FOR ASSESSEE OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. FUTURA POLYESTER LTD. (2010) 186 TAXMAN 51 (MAD), WHEREIN THE ISSUE WAS CONSIDER ED AS UNDER:- 4. THIS WAS CONFIRMED BY THE TRIBUNAL ON THE APPEA L TAKEN OUT BY THE REVENUE. THE CORRECTNESS OF THE SAME IS NOW CANVASS ED BEFORE THIS COURT BY THE REVENUE BY FORMULATING THE FOLLOWING Q UESTION OF LAW : WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE TRIBUNAL WAS RIGHT IN ALLOWING DEDUCTION UNDER S. 80HHC ON T HE BASIS OF BOOK PROFITS UNDER S. 115JB AND NOT ON THE BASIS OF ELIGIBLE PROFITS UNDER S. 80HHC AS PER NORMAL COMPUTATION? 5. WE HAVE HEARD THE ARGUMENT OF THE LEARNED COUNSE L FOR THE REVENUE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. 6. THE ISSUE INVOLVED IN THE PRESENT CASE IS SQUARE LY COVERED BY THE DECISION OF A DIVISION BENCH OF THIS COURT IN WHICH ONE OF US (K. RAVIRAJA PANDIAN, J.) WAS A PARTY IN THE CASE OF CI T VS. RAJANIKANT SCHNELDER & ASSOCIATES (P) LTD. (2008) 302 ITR 22 ( MAD), WHEREIN IT HAS BEEN OBSERVED AS FOLLOWS:- 4. WE ARE NOT ABLE TO SUBSCRIBE OUR VIEW TO THE GR OUNDS TAKEN IN THE APPEAL THAT THE DEDUCTION UNDER S. 80HHC IS ALL OWABLE ONLY ON THE PROFITS AND GAINS ARRIVED AT UNDER SS. 28 TO 44B OF THE IT ACT. IN THE CASE ON HAND, IT IS THE STAND OF THE AS SESSEE THAT THE ITA NO.1102/AHD/2010 A.Y. 2003-04 DCIT CIR-1() BRD V. GULBRANDSEN CHEMICALS PVT. LTD. PAGE 4 RELIEF UNDER S. 80HHC SHOULD BE BASED ON THE PROFIT ASCERTAINED UNDER S. 115JA ONLY BUT NOT ON INCOME COMPUTED UNDE R SS. 28 TO 44 OF THE ACT. THE TRIBUNAL AFTER CONSIDERING THE J UDGMENTS OF THE SUPREME COURT IN THE CASE OF SURANA STEELS (P) LTD. . VS. DY. CIT (1999) 153 CTR (SC) 193; (1999) 237 ITR 777 (SC) AN D IN THE CASE OF APOLLO TYRES LTD. VS. CIT (2002) 174 CTR (S C) 521 : (2002) 255 ITR 2773 (SC) AND ANALYZING THE ORDER IM PUGNED FOUND THAT THE PROVISIONS OF S. 115J ARE SIMILAR TO THE PROVISIONS OF S. 115JA OF THE ACT. IN ORDER TO COME TO THE CONCLU SION THE TRIBUNAL HAS ALSO TAKEN NOTE OF SUB-S. (4) OF S. 11 5JA AND REFERRED TO THE DICTUM LAID DOWN BY THE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (SUPRA) WHEREIN IT WAS HE LD THAT THE AO WHILE COMPUTING THE BOOK PROFITS OF A COMPANY UNDER S. 115J OF THE IT ACT, 1961, HAS ONLY THE POWER TO EXAMINE WHE THER SUCH BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES U NDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE AO THEREAFTE R HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO S. 115J. THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE P&L A/C. EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. T HE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS I I AND III OF SCH. VI TO THE COMPANIES ACT TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE AO HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE CO MPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY THE STATUTORY AUDITORS AND APPROVED BY THE COMPA NY IN THE GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE T HE ROC, WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE S ATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCOR DANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. SUB-S.(1A) O F S. 115J DOES NOT EMPOWER THE AO TO EMBARK UPON A FRESH ENQU IRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. 5. THE AO IS NOT ENTITLED TO TOUCH THE P&L A/C PREP ARED BY THE ASSESSEE AS PER THE PROVISIONS CONTAINED IN THE COMPANIES AC T, WHILE ARRIVING AT THE BOOK PROFIT UNDER S. 115J AND HE BOOK PROFIT SO ARRIVED AT SHOULD BE THE BASIS FOR TAXATION AND THEREFORE, THE COMPUTATI ON UNDER S. 800HHC SHOULD BE LIMITED TO THE CASE OF PROFITS OF ELIGIBL E CATEGORY ONLY. THE TRIBUNAL HAS ALSO COME TO THE CONCLUSION THAT IN VI EW OF THE NON OBSTANTE CLAUSE AVAILABLE IN S. 115JA IT WAS CLEAR THAT THE PROVISION IS A SELF-CONTAINED ONE AND NO OTHER PROVISION WOULD HAV E EFFECT ON IT AND THEREBY IT WAS TO BE IMPLEMENTED AS CONTAINED IN TH E SAID PROVISION. ITA NO.1102/AHD/2010 A.Y. 2003-04 DCIT CIR-1() BRD V. GULBRANDSEN CHEMICALS PVT. LTD. PAGE 5 THE TRIBUNAL HAS ALSO FURTHER GIVEN A REASON TO THE EFFECT THAT S. 80HHC IS CLEAR ABOUT THIS ASPECT THAT PROFIT ONLY IS TO B E TAKEN INTO ACCOUNT BUT NOT INCOME AND SUB-S.(3) OF S. 115JA ITSELF TOOK CA RE OF THE PROVISIONS RELATING TO THE ADJUSTMENT OF LOSS OR DEPRECIATION AND CARRY FORWARD OF THE INCOME. THE FINDING ARRIVED AT BY THE TRIBUNAL IS CORRECT AND FOLLOWED THE DECISION OF THE SUPREME COURT. WE ARE OF THE VIEW THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNAL CANNOT BE COM PLAINED OF. 5. AS THE CASE LAW IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN THE PRESENT CASE ALSO AND THE ASSESSEE HAS RIGHTLY COMP UTED THE DEDUCTION ON THE BASIS OF BOOK PROFIT U/S.115JB OF THE ACT. IN VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE DISMISS THIS ISSUE OF THE REVENUES APPEAL. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 04/06/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 04/06/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD