TECNIMONT ICB PVT. LTD, MUMBAI V. The ACIT,CIRCLE 9(3), MUMBAI

ITA 1380/MUM/2009

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0844 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 28-07-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 02-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Keywords: Depreciation; Services rendered outside India; Revised return; Unabsorbed depreciation
• Section: 80HHC; 115JB; 10B; 32; 263; 28; 11

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./1380/MUM/2009, /ASSESSMENT YEAR: 2004-05 ./I.T.A./3874/MUM/2010, /ASSESSMENT YEAR: 2004-05 TECHNIMONT ICB PVT.LTD. 504 LINK ROAD, CHINCHOLI BUNDER MALAD (W),MUMBAI-400 064. PAN:AAACI 2628 B VS. ACIT-9 MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI MANJUNATHA SWAMY-CIT-DR ASSESSEE BY: SHRI NITESH JOSHI / DATE OF HEARING: 16.03.2017 / DATE OF PRONOUNCEMENT:19.04.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DTD.16.12.2008 OF THE CIT-9,P ASSED U/S. 263 OF THE ACT,THE ASSESSEE HAS FILED THE APPEAL FOR THE ABOVE MENTIONED YEAR.ASSES SEE- COMPANY,ENGAGED IN THE BUSINESS OF ENGINEERING DESIGN AND CONSTRUCTION ACTIVITIES, FIL ED ITS RETURN OF INCOME ON 29/10/2004, DECLARING LOSS AT RS.93.92 LAKHS AND BOOK PROFIT U/ S.115 JB AT RS.18.18 LAKHS.SUBSEQUENTLY,A REVISED RETURN WAS FILED ON 28/09/2005,DECLARING LOSS OF RS.1.67 CRORESAND BOOK PROFIT AT RS. 18,18,098/-.THE ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT U/S. 143 (3) OF THE ACT, ON 08/12/2006,DETERMINING ITS LOSS AT RS.1.63 CRORES. DURING THE COURSE OF HEARING BEFORE US,GROUNDS OF A PPEAL NO.12 AND 13 WERE NOT PRESSED. HENCE,SAME STAND DISMISSED AS NOT PRESSED. BRIEF FACTS: 2. THE CIT CALLED FOR AND EXAMINED THE ASSESSMENT RECO RDS.VIDE HIS NOTICE, ISSUED U/S. 263 (1) OF THE ACT,ON 28/11/2007,HE OBSERVED THAT ORDER PAS SED BY THE AO FOR THE YEAR UNDER APPEAL, WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE,THAT IN THE COMPUTATION OF TOTAL INCOME THE DEDUCTION U/S.10B AS PER THE NORMAL PROV ISIONS OF THE INCOME TAX FOR COMPUTING TOTAL INCOME AS WELL AS U/S.115JB OF THE ACT HAD BE EN CLAIMED IN EXCESS, THAT WHILE COMPUT - ING THE TOTAL INCOME DEPRECIATION ON EXPORT ORIENTE D UNITS ASSETS WERE EXCLUDED, THAT WHILE SAME WERE ADDED BACK TO PROFIT IN THE PROFIT AND LO SS ACCOUNT, THAT THE CLAIM OF THE DEPRECIATION DUE TO CHANGE IN WRITTEN DOWN VALUE SH OULD HAVE BEEN ADOPTED ON YEARLY BASIS, THAT FOR COMPUTATION OF BOOK PROFIT U/S.115JB THE D EDUCTION U/S.10B SHOULD HAVE BEEN RESTRICTED TO 90% OF THE PROFIT OF EXPORT ORIENTED UNIT IN VIEW OF THE 2 ND PROVISO TO SECTION 10B,THAT IT HAD RESULTED IN UNDER ASSESSMENT TO THE EXTENT OF RS. 1.92 LAKHS.ON 10/10/2008, 2 THE CIT ISSUED A FRESH NOTICE U/S. 263 WHEREIN HE M ENTIONED TWO MORE REASONS FOR HOLDING THE ORDER OF THE AO ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF REVENUE.ON 05/12/2008,HE ISSUED ONE MORE NOTICE FOR REVISING THE ORDER PASSED BY TH E AO AND OBSERVED THAT SERVICE CHARGES OF RS.6.27 LAKHS WERE ERRONEOUSLY CONSIDERED AS PART O F EXPORT TURNOVER,THAT THE TURNOVER OF RS. 27.65 CRORES HAD TO BE REDUCED BY THE SUM OF RS.6,2 7, 180/-,THAT TOTAL TURNOVER WAS ADAPTED AT RS.27.69 CRORES AS AGAINST THE ACTUAL TURNOVER OF R S.27. 93 CRORES.THE ASSESSEE FILED DETAILED REPLY ON ALL THE THREE OCCASIONS. 3. AFTER CONSIDERING ITS SUBMISSIONS,THE CIT HELD THAT THE ASSESSEE HAD SHOWN LOSS OF RS. 1.67 CRORES IN THE REVISED COMPUTATION OF INCOME AGAINST WHICH THE AO HAD ASSESSED THE LOSS OF RS.1.63 CRORES,THAT AS PER THE AMENDED PROVISIONS O F SECTION 10B WITH EFFECT FROM 01/04/ 2001,THE DEDUCTION OF SUCH PROFIT AND GAINS AS COMP UTED U/S.10B(4)OF THE ACT HAD TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, THAT WHILE COMPUTING THE LOSS THE ASSESSEE HAD FIRST DEDUCTED A SUM OF RS.12.85 CRORES U/S.10B WHI CH HAD BEEN COMPUTED AS PROFIT DERIVED FROM 100% EOU AND UNABSORBED DEPRECIATION OF RS. 2. 03 CRORES CARRIED FORWARD FROM THE AY.2002-03 HAD BEEN DEDUCTED FROM THE AMOUNT OF INC OME REMAINING AFTER TRIMMING EXEMPTION U/S.10B, THAT THE CLAIM OF EXEMPTION U/S. 10B MADE BY THE ASSESSEE FROM THE GROSS TOTAL INCOME WAS NOT IN ACCORDANCE WITH THE PROVISI ONS OF SECTION 10B OF THE ACT, THAT SECTION PROVIDED FOR DEDUCTION OF PROFIT AND GAINS OF EXPOR T ORIENTED UNIT FROM THE TOTAL INCOME OF THE ASSESSEE,THAT IN SPITE OF UNAMBIGUOUS PROVISIONS TH E ASSESSEE HAD CLAIMED DEDUCTION OF RS. 12.85 CRORES FROM THE GROSS TOTAL INCOME COMPUTED B EFORE SET OFF OF UNABSORBED DEPRECIATION, THAT THE ORDER PASSED BY THE AO,ACCEPTING THE COMPU TATION OF DEDUCTION UNDER THE SAID SECTION,CLAIMED BY THE ASSESSEE,UNDER THE NORMAL PR OVISIONS OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE.HE REFERRED TO THE CASE OF SWORD GLOBAL (I)P LTD. (306 ITR-AT-286) AND HELD THAT THERE WAS NO PROVISION FO R ALLOWING CARRY FORWARD OF UNABSORBED DEDUCTION U/S.10B OF THE ACT.WITH REGARD COMPUTATIO N OF INCOME U/S. 115 JB OF THE ACT ,HE HELD THAT DEDUCTION U/S.10B WAS WORKED OUT AT RS.12 .85 CRORES,THAT CLAUSE II TO EXPLANATION 115 JB PROVIDED THAT AMOUNT OF INCOME -TO WHICH ANY OF THE PROVISIONS OF SECTION 10B A OR 10B OR SECTION 11OR12 WOULD APPLY-HAD TO BE REDUCED FROM THE BOOK PROFIT IF SUCH AMOUNT WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT,THAT FO R PURPOSE OF COMPUTATION OF BOOK PROFIT THE AMOUNT OF DEDUCTION TO WHICH THE ASSESSEE WAS ENTIT LED,AS PER LAW,HAD TO BE REDUCED FROM THE BOOK PROFIT,THAT THE AO HAD ACCEPTED THE COMPUT ATION OF BOOK PROFIT SHOWN BY THE ASSESSEE AFTER REDUCING THE ENTIRE PROFIT OF THE BU SINESS OF THE UNDERTAKING, THAT THE AMOUNT OF DEDUCTION OF RS.12.85 CRORES CLAIMED BY THE ASSESSE E WAS NOT IN ACCORDANCE WITH THE 3 PROVISIONS OF SECTION 10B (4),THAT THE TERM EXPORT TURNOVER WOULD MEAN THE CONSIDERATION OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN , OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB SECTION (3), THAT IT DID NOT INCLUDE FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES,IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA, THAT THE ASSE SSEE HAS WRONGLY INCLUDED SERVICE CHARGES OF RS.6.27 LAKHS A PART OF EXPORT TURNOVER,THAT IT HAD NOT EXCLUDED FREIGHT AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS, THAT THE EXPORT TURNOVER HAD TO BE WORKED OUT AS PER THE PROVISIONS CONTAINED IN SECTION 10B, THAT TOTAL TURNOVER OF THE UNDERTAKING HAD BEEN SHOWN AT RS. 27.65 CRORES,THAT THE SAID FIGURE WAS INCORRECT REPRESENTATION OF TURNOVER AMOUNT, THAT TOTAL FOREIGN EXCHANGE LOSS,CLAIMED AT RS. 23.67 LAKHS,DID NOT PERTAIN TO THE EXPORT MADE IN THE YEAR UNDER CONSIDERATION, THAT A MOUNT OF DEDUCTION U/S.10B,FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT, COULD NOT EX CEED THE AMOUNT OF DEDUCTION TO WHICH THE ASSESSEE WAS ENTITLED U/S. 10B, AS PER THE NORM AL PROVISIONS. FINALLY, HE HELD THAT ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF REVENUE DUE TO INCORRECT APPLICATION OF LAW AND ALSO NON-APPLICATION OF MIND ,THAT HE HAD NOT COMPUTED THE BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115 JB, THAT THERE WAS NO DISCUSSION THE ASSESSMENT ORDER ON THE ISSUE AT ALL, THAT THERE WAS NO DELIBERATION AB OUT DEDUCTION U/S. 10B OF THE ACT IN THE ORDER. WITH REGARD TO COMPUTATION OF DEPRECIATION,T HE CIT DIRECTED THE AO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW THE SAME. AS REGARDS RESTRIC TION ON DEDUCTION U/S. 10B TO THE EXTENT OF 90% OF THE PROFIT DERIVED BY HUNDRED PERCENT EOU, H E OBSERVED THAT CLAIM MADE BY THE ASSESSEE WAS AS PER LAW, THAT THE SAID RESTRICTION APPLIED FOR THE AY. 2003-04 ONLY. 4. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) ARGUED THAT THE ORDER PASSED BY THE AO U/S.143(3) OF THE ACT WAS NE ITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE, THAT THE AO HAD APPLIED HIS MI ND WHILE FINALISING THE SCRUTINY ASSESSMENT, THE ISSUES RAISED BY THE CIT IN VARIOUS SHOW CAUSE NOTICES WERE COVERED IN FAVOUR OF THE ASSESSEE, THAT TWO VIEWS WERE POSSIBLE IN ALL THE I SSUES RAISED BY THE CIT, WHILE COMPUTING THE TOTAL INCOME THE ASSESSEE HAD FIRST CLAIMED THE DEDUCTION U/S. 10B OF RS.12.85 CRORES, THAT THEREAFTER IT REDUCED THE BROUGHT FORWARD UNABSORBE D DEPRECIATION OF RS.2.03 CRORES PERTAIN - ING TO NON-EOU UNIT, THAT IN THE REVISIONARY ORDER ORDER THE CIT FIRST REDUCED THE UNABSORBED DEPRECIATION AND THEREAFTER ALLOWED THE DEDUCTION U /S. 10B FROM THE TOTAL INCOME OF THE ASSESSEE,THAT DURING THE YEAR UNDER CONSIDERATION I T HAD EXPORTED ENGINEERING DESIGNS TO ITS PARENT COMPANY AS PER THE SPECIFICATION,THAT EXEMPT ION FOR SUCH EXPORT WAS CLAIMED U/S. 10B, 4 THAT TO ENSURE THE QUALITY OF DESIGNS THE PARENT CO MPANY HAD SENT ITS REPRESENTATIVE TO INDIA TO SUPERVISE THE DEVELOPMENT WORK RELATED TO EXPORT OF SERVICES,THAT IT HAD INCURRED CERTAIN EXPENSES LIKE HOTEL CHARGES,TRAVEL TICKETS OF THE R EPRESENTATIVES AND HAD CHARGED SUCH EXPENSES BACK TO THE PARENT COMPANY AFTER ADDING SE RVICE CHARGES TOTALLING TO RS.6.27 LAKHS, THAT IT RECEIVED PAYMENT FOR THIS IN INDIA IN FOREI GN CURRENCY, THAT THE SERVICE CHARGES RECEIVED IN FOREIGN CURRENCY HAD A CLOSE AND DIRECT NEXUS WI TH EXPORT ACTIVITIES OF THE ENGINEERING DESIGNS,THAT SAME HAD BEEN CONSIDERED TO BE PART OF EXPORT TURNOVER FOR THE PURPOSE OF SECTION 10B, THAT THE CIT HAD HELD THAT ASSESSEE HAD WRONGL Y INCLUDED THE SERVICE CHARGES AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF CLAIMING DEDUCTI ON U/S. 10B, THAT EXPORT TURNOVER INCLUDED CONSIDERATION FOR EXPORT THAT WAS BROUGHT INTO INDI A INCOME IN CONVERTIBLE FOREIGN EXCHANGE BUT EXCLUDED CERTAIN ITEMS, THAT SERVICE CHARGES WE RE BROUGHT INTO INDIA AND THEY DID NOT FALL IN ANY OF THE CLASSES OF RECEIPTS THAT HAD BEEN EXC LUDED FROM THE DEFINITION OF EXPORT TURNOVER, THAT IT HAD CORRECTLY INCLUDED THE SERVICE CHARGES IN EXPORT TURNOVER.ALTERNATIVELY, IT WAS ARGUED THAT IF SERVICE CHARGES WERE TO BE EXCLUDED FROM EXPORT TURNOVER THEY SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. WITH REGARD TO FO REIGN EXCHANGE LOSS OF RS. 23.67 LAKHS,HE ARGUED THAT WHILE COMPUTING THE TOTAL TURNOVER/EXPO RT TURNOVER FOR THE PURPOSE OF COMPUTING EXEMPTION U/S. 10B THE ASSESSEE HAD EXCLUDED FOREI GN EXCHANGE LOSS, THE CIT HAD HELD THAT FOREIGN EXCHANGE LOSS DID NOT PERTAIN TO THE EXPORT MADE IN THE YEAR UNDER CONSIDERATION,THAT THE GAIN DUE TO FLUCTUATION IN FOREIGN EXCHANGE RAT E EMANATING FROM EXPORTS WAS ITS INTEGRAL PART, THAT WHEN GOODS WERE EXPORTED SUCH INVOICES R AISED IN THE CURRENCY OF THE COUNTRY FROM WHERE THE GOODS WERE SOLD, THAT WHEN THE AMOUNTS WE RE REALISED IN THAT FOREIGN CURRENCY AND CONVERTED INTO INDIAN RUPEES THE ENTIRE AMOUNTS WOU LD RELATE TO THE EXPORTS MADE, THAT IT WAS ONLY THE TRANSLATION OF INVOICE VALUE FROM THE FORE IGN CURRENCY TO INDIAN CURRENCY RUPEES, THAT IRRESPECTIVE OF THE FACT THAT THE INDIAN CURRE NCY HAD ASSUMED NORTHWARD OR SOUTHWARD VIS- A-VIS THE OTHER FOREIGN CURRENCY THE AMOUNT REALISE D IN INDIAN RUPEES WOULD REMAIN ATTRIBUT - ABLE TO EXPORTS MADE IN FOREIGN CURRENCY, THAT FOR THE PURPOSE OF THIS COMPUTING THE BOOK PROFIT U/S.115 JB, THE ASSESSEE HAD ADDED BACK EXPE NSES OF RS. 14.81CRORES RELATING TO THE EOU DIVISION AND HAD REDUCED THE INCOME OF RS. 27.6 9 CRORES RELATING TO EOU DIVISION FROM THE TOTAL PROFITS AS PER THE BOOKS OF ACCOUNTS IN A CCORDANCE WITH THE PROVISIONS OF SECTION 115 JB, THAT THE CIT HAD HELD THAT FOR PURPOSE OF COMPU TATION OF BOOK PROFIT ONLY THE AMOUNT OF DEDUCTION TO WHICH ASSESSEE WAS ENTITLED WAS TO BE REDUCED FROM THE BOOK PROFIT, THAT UNDER THE PROVISIONS OF SECTION 115 JB BOTH THE ITEMS I.E . EXPENDITURE AND INCOME RELATED TO AN UNDERTAKING WHOSE PROFITS WERE EXEMPT,HAD TO BE TAK EN OUT OF THE PURVIEW OF BOOK PROFIT LIABLE TO TAX,THAT FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT NO ADJUSTMENT WAS PERMITTED 5 OTHER THAN THOSE WHICH WERE SPECIFIED UNDER EXPLANA TION TO SECTION 115 JB AND WAS NORMAL COMPUTATION OF INCOME WOULD NOT HAVE ANY BEARING ON THE COMPUTATION OF BOOK PROFIT. HE RELIED UPON THE CASES OF PEOPLE INTERACTIVE I PRIVA TE LTD.S(ITA/3558 AND 3717/ MUM/2016) GABRIEL INDIA LTD. (203 ITR 108),YOKOGAWA INDIA LTD (77 TAXMANN. COM.41), GAM PLUS JEWELLERY INDIA LTD.(330 ITR 175)TATA ELXSI LTD. (3 49 ITR 98)AND MOSER BAER INDIA LTD. (17SOT510B).HE IS ALSO REFERRED TO THE ASSESSEES O WN APPEAL FOR THE AY. 2002-03 (ITA/ 3873/ MUMBAI/2010) AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT FOR THE SAME AY. THE DEPARTMENTAL REPRESENTATIVE(DR)STRONGLY SUPPORT ED THE ORDER OF THE CIT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD COMPLETED THE ASSESSMENT U/S.143(3)OF THE AC T,THAT HE HAD ASKED THE ASSESSEE TO FILE JUSTIFY THE CLAIM MADE BY IT U/S.10B OF THE,THAT HE MADE INQUIRIES ABOUT COMPUTATION U/S.115 JB OF THE ACT,THAT THE CIT HAD ISSUED THREE NOTICES TO THE ASSESSEE REVISE THE ASSESSMENT ON FOLLOWING GROUNDS: I. GRANT OF DEDUCTION UNDER SECTION 10B BEFORE SET OFF OF UNABSORBED DEPRECIATION RELATING TO NON- ELIGIBLE UNDERTAKING. II. REDUCTION OF BOOK PROFITS FOR THE PURPOSE OF SE CTION 115JB BASED ON BOOK PROFITS AS AGAINST TAX PROFITS III. INCLUSION OF SERVICE CHARGES AS EXPORT TURNOVE R IV. REDUCTION OF FOREIGN EXCHANGE LOSS FROM THE TOT AL TURNOVER V. CALCULATION OF CORRECT DEPRECIATION. THE LAST ISSUE WAS SET ASIDE,BY THE CIT,TO THE FILE OF THE AO.IN THE ORDER GIVING EFFECT TO THE DIRECTIONS OF THE CIT,HE FOUND THAT CLAIM MADE BY T HE ASSESSEE WAS AS PER LAW. THEREFORE,THE ASSESSEE DID NOT AGITATED THE ISSUE BEFORE US. AS PER THE ESTABLISHED PRINCIPLES OF TAXATION JURIS PRUDENCE,THE CIT CAN REVISE THE ASSESSMENT PASSED BY THE AO,IF HE FINDS THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE.THE HIGHER JUDICIAL FORUMS HAVE DEFINED THE TERMS ERRONEOUSAS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE.UNLESS AND UNTIL THE REVISIONARY ORDER IS NOT JUSTIFIED ON THE TOUCHSTONE OF THE TWIN PRECONDITIONS,ORDER P ASSED,U/S.263 OF THE ACT,CANNOT BE UPHELD. COURTS ARE OF THE OPINION THAT IF THE AO HAS ADOPTE D ONE OF THE POSSIBLE VIEWS REVISIONARY ORDER WOULD BE INVALID.BUT,IF ONLY ONE VIEW IS POSS IBLE ABOUT AN ISSUE AND THE AO HAS NOT FOLLOWED THAT VIEW,THE CIT WOULD BE FULLY JUSTIFIED IN REVISING SUCH AN ORDER.IF THE AO HAS NOT APPLIED HIS MIND WHILE DETERMINING THE TAX LIAB ILITY OF AN ASSESSEE,A REVISIONARY ACTION CANNOT BE CHALLENGED.BUT,NON APPLICATION OF MIND HA S TO BE PROVED.NOT CALLING FOR DETAILS AND 6 CALLING FOR DETAILS AND NOT MENTIONING THE SAME IN THE ASSESSMENT ORDER ARE TWO DIFFERENT THINGS.IN SECOND TYPE OF MATTERS,THE ASSESSEE CANNO T BE VISITED BY REVISIONARY PROVISIONS.IF THE AO CHOOSES NOT TO MENTION ANYTHING EVEN AFTER C ALLING FOR DETAILS AND GOING THROUGH THE SAME,THE ASSESSEE CANNOT BE PENALISED FOR IT.IT CAN NOT COMPEL THE AO TO PASS A DETAILED ORDER COVERING ALL THE ISSUES.THE LEGAL PRESUMPTION IN SU CH CASES IS THAT THE AO HAD PASSED THE SCRUTINY ORDER AFTER DELIBERATING UPON THE MATERIAL FILED BY THE ASSESSEE. CONSIDERING THESE BROAD PRINCIPLES IN MIND,NOW,WE WOULD LIKE TO ADJUD ICATE THE FIRST TWO GROUNDS OF APPEAL THAT DEAL WITH VALIDITY OF 263 PROCEEDINGS. 5.1. WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS,THE ASSESSE HAD FILED DETAILS,IN RESPONSE TO THE NOTICES ISSUED U/S.142(1)AND 143(2)OF THE AC T,WITH REGARD TO DEDUCTION U/S.10B AND COMPUTATION OF PROFIT U/S.115JB OF THE ACT (PG.S14- 21).WE FIND THAT THE ASSESSEE,WHILE JUSTIFYING CLAIM U/S.10B HAD REFERRED TO NOTIFICATI ON NO.SO.890(E)DTD.26.09.2000 AND HAD MENTIONED THAT IN ALL EARLIER AY.SPROFITS FROM EOU HAD BEEN HELD TO BE EXEMPT CONSISTENTLY. BESIDES,DETAILED COMPUTATION,AS PER THE MAT PROVISI ONS,WAS ALSO SUBMITTED.THUS,IT IS CLEAR THAT THE AO HAD SUFFICIENT MATERIAL BEFORE HIM,WHIL E PASSING ORDER U/S.143(3)OF THE ACT AND IT HAS TO BE HELD THAT HE HAD ALLOWED DEDUCTION U/S.10 B AFTER CONSIDERING THAT MATERIAL.SIMILAR IS THE POSITION OF COMPUTATION MADE U/S.115JB OF THE A CT.IN SHORT,THE AO HAD FORMED AN OPINION AFTER DUE DELIBERATIONS. HERE,WE WOULD LIKE TO REFER TO THE CASE OF GABRIEL INDIA LTD. (203 ITR10B8)AND IT READS AS UNDER: THE POWER OF SUO MOTU REVISION UNDER SUB-SECTION (1 ) OF SECTION 263 OF THE INCOME-TAX ACT, 1961, IS IN THE NATURE OF SUPERVISORY JURISDICTION AND CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMST ANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE THE POWER OF REVISION UNDE R THIS SUB-SECTION, VIZ., (I) THE ORDER SHOULD BE ERRONEOUS; AND (II) BY VIRTUE OF THE ORDE R BEING ERRONEOUS PREJUDICE MUST HAVE BEEN CAUSED TO THE INTERESTS OF THE REVENUE. AN ORDER CA NNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICE R ACTING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS E RRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BE EN WRITTEN MORE ELABORATELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF THE JU DGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFICER, WHO PASSED THE ORDER, UNLESS TH E DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME-TAX OFFICER WHIL E MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOU NTS OR BY MAKING SOME ESTIMATES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEF T TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A HIGHER FIGURE THAN THE ON E DETERMINED BY THE INCOME-TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. THIS IS BECA USE THE INCOME-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANC E WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONE OUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICI AL TO THE INTERESTS OF THE REVENUE. BUT THAT 7 BY ITSELF WOULD NOT BE ENOUGH TO VEST THE COMMISSIO NER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIREMENT, NAMELY, THAT THE ORD ER IS ERRONEOUS, IS ABSENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTER ESTS OF THE REVENUE, THEN THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ER RONEOUS ORDER CANNOT BE THE SUBJECT- MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT M UST BE FULFILLED. THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHI CH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE, ON AN INCORRECT OR INCOMPLETE INTERPRETATION, A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. WHEN EXERCISE OF STATUTORY POWER IS DEPENDENT UPON THE EXISTENCE OF CERTAIN OB JECTIVE FACTS, THE AUTHORITY BEFORE EXERCISING SUCH POWER MUST HAVE MATERIALS ON RECORD TO SATISFY IT IN THAT REGARD. IF THE ACTION OF THE AUTHORITY IS CHALLENGED BEFORE THE COURT IT WOULD BE OPEN TO THE COURTS TO EXAMINE WHETHER THE RELEVANT OBJECTIVE FACTORS WERE AVAILAB LE FROM THE RECORDS CALLED FOR AND EXAMINED BY SUCH AUTHORITY. IN THIS CASE,THE AO HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE.THE ASSESSEE HAD GIVEN A DETAILED EXPL ANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE C ASE.THE HONBLE COURT HELD THAT EVIDENTLY, THE CLAIM WAS ALLOWED BY THE AO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE,THAT THE DECISION OF THE AO COULD NOT BE HELD TO BE 'ERR ONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. WE WOULD LIKE TO MENTION THAT THE CIT HAD TAKEN OBJ ECTION WITH REGARD TO 10B CLAIM HOLDING THAT THERE WAS EXCESS CLAIM OF RS.1.92 LAKHS IN MAT COMPUTATION,THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS THE CLAIM MADE BY THE ASSESSEE WAS OF RS.12.85 CRORES AND WHILE COMPUTING THE BOOK PROFIT DEDUCTION WAS CLAIMED AT RS.12.87 CRORES.IT IS CLEAR FROM THE REPORT IN FORM NO.56 G THAT TOTAL INCOME OF THE ASSESSEE FROM EOU WAS 27.69 CRORESS AND TOTAL EXPENSES FOR THE YEAR W ERE OF RS.14.81 CRORESS,THAT THE BALANCE (RS.12.87 CRORES)PROFIT WAS CONSIDERED FOR COMPUTIN G INCOME U/S.115JB OF THE ACT.AS PER THE PROVISIONS OF SECTION 10B(4) THE ASSESSEE HAD CLAIM ED PRO RATA DEDUCTION OF RS.12.85 CRORES UNDER THE NORMAL PROVISIONS.THE ALLEGED DIFFERENCE HAS ARISEN BECAUSE OF THE PROVISIONS OF THE ACT.UNDER THE MAT PROVISIONS NO ADJUSTMENT CAN BE MADE EXCEPT FOR THE ADJUSTMENTS PROVIDED UNDER EXPLANATION TO THE SECTION.PROVISION S OF SECTION 10B(4)ARE NOT APPLICABLE TO MAT CALCULATION.WE WOULD ALSO LIKE TO DEAL WITH ONE MORE ISSUE REGARDING COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT.WE FIND THAT THE C IT HAD HELD THAT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT ONLY THE AMOUNT OF DEDUC TION, TO WHICH THE ASSESSEE WAS ENTITLED AS PER SECTION 10B, WAS TO BE REDUCED FROM THE BOOK PROFIT,THAT THE AO HAD ACCEPTED THE COMPUTATION OF PROFIT SHOWN BY THE ASSESSEE AFTER R EDUCING THE ENTIRE PROFIT OF BUSINESS OF UNDERTAKING, THAT THE AMOUNT OF PRODUCTION U/S.10B FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S.115 JB COULD NOT EXCEED THE AMOUNT OF DE DUCTION TO WHICH THE ASSESSEE WAS ENTITLED AS PER THE NORMAL PROVISIONS. IT IS FOUND THAT FOR THE PURPOSE OF COMPUTING BOOK PROFIT THE ASSESSEE HAD ADDED BACK EXPENSES WERE RS.14.81 CROR ES RELATING TO THE EOU DIVISION AND HAD 8 REDUCED INCOME OF RS. 27.69 CRORES FROM THE TOTAL P ROFITS AS PER THE BOOKS OF ACCOUNTS.IN OUR OPINION,UNDER THE PROVISIONS OF SECTION 115 JB OF T HE ACT, INCOME AND EXPENDITURE RELATED TO AN UNDERTAKING WHOSE PROFITS ARE EXEMPT U/S.10B HAV E TO BE TAKEN OUT OF THE PURVIEW OF BOOK PROFIT,THAT NO ADJUSTMENT COULD BE MADE OTHER THAN THE ADJUSTMENT SPECIFIED IN THE EXPLANA - TION.THE COMPUTATION OF INCOME UNDER THE NORMAL PRO VISIONS OF THE ACT WOULD NOT AFFECT THE COMPUTATION OF BOOK PROFIT UNDER THE MAT PROVISIONS .IN THE MATTER OF MOSER BAYER (SUPRA)THE TRIBUNAL HAS HELD AS UNDER: 5.AS REGARDS MERITS OF THE COMPUTATION OF BOOK PRO FIT U/S. 115JB IT WOULD BE RELEVANT TO CONSIDER THE RELEVANT PROVISION OF SECTION 115JB. FOR PURPOSE OF COMPUTING, BOOK PROFIT U/S. 115JB PROFIT IS TO BE FIRST ARRIVED AT AS COMPUTED UNDER PARTS II & III O F SCHEDULE VI, COMPANIES ACT, 1956. IN SO COMPUTING THE ACCOUNTING POLICIES THE ACCOUNTING STANDARDS AD OPTED 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. EXPL ANATION TO SECTION 115JB(2) PROVIDES AS UNDER : XXXXX 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 O F COMPANIES ACT, AS OPPOSED TO 'PROFITS OR GAINS OF BUSINESS OR PROFESSION' AS COMPUTED AS PER THE PROV ISIONS OF THE ACT. THE BOOK PROFIT GETS SUBSTITUTED FOR THE TOTAL INCO ME AS COMPUTED UNDER THE ACT. THE BOOK PROFIT HAS THEREFORE TO BE WHOLLY QUARANTINED FROM THE SAID TO TAL INCOME. FOR THE DETERMINATION OF BOOK PROFITS THUS ANY MODE AND MANNER OF COMPUTATION OF TOTAL IN COME UNDER THE ACT HAS NOT TO BE APPLIED UNLESS SPECIFICALLY PROVIDED, AS HELD BY THE APEX COURT IN APOLLO TYRES LTD. V. CIT [2002] 255 ITR 273AND AS CLARIFIED IN THE MEMORANDUM EXPLAINING PROVISIONS O F THE FINANCE BILL, 2000 [242 ITR (ST.) 117, 138]. IN OTHER WORDS, FOR THE PURPOSE OF LEVY OF MAT, REF ERENCE 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 LOS S ACCOUNT IS TO BE PREPARED AS PER PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT [SUB-SECTION (2) O F SECTION 115JB] (III)WHILE PREPARING THE ANNUAL ACCOUNTS, (I) ACCOU NTING POLICIES, (II) ACCOUNTING STANDARDS AND EVEN (III) METHODS AND RULES ADOPTED FOR CALCULATING DEP RECIATION OUGHT TO BE SAME AS ADOPTED FOR THE PURPOSE OF PREPARING SUCH ACCOUNTS AS LAID BEFORE T HE COMPANY AT ITS ANNUAL GENERAL MEETING. [PROVISO TO SECTION 115JB(2)] EXPLANATION TO SECTION 115JB OF THE ACT PROVIDES TH E MANNER OF COMPUTATION OF BOOK PROFIT. THE STARTING POINT IS THE BOOK PROFIT AS DISCLOSED IN T HE PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE W ITH PARTS II AND III OF SCHEDULE VI OF THE COMPANIES AC T, 1956. SUCH PROFIT IS SUBJECT TO ADJUSTMENTS SPECIFIED IN THE EXPLANATION TO SAID SECTION. IN TERMS OF EXPLANATION (II) OF SECTION 115JB THE A MOUNT OF INCOME TO WHICH PROVISIONS, INTER ALIA, SECTION 10BA/10BB 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 115JB OF THE A CT PROVIDES THAT PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT BE INCREASED BY THE AMOUNT OF EXPENDITURE R ELATABLE TO ANY INCOME TO WHICH, INTER ALIA, SECTIO N 10BA OR 10BB APPLY. THE AMOUNT OF INCOME TO WHICH, INTER ALIA, SECTION 10BA/10BB 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, INCLU DING DEPRECIATION RELATABLE TO ANY INCOME TO WHICH SECTION 10BA/10BB APPLY WOULD CERTAINLY REFER TO TH E EXPENSES AND DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT AND NOT COMPUTED IN THE MANNER PRO VIDED U/S.S 28 TO 44 OF THE ACT. THE TRIBUNAL NARRATED THE FACTS OF THE CASE AS FOLL OW: THE APPELLANT, ACCORDINGLY, WHILE COMPUTING BOOK PR OFIT U/S. 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 : 9 (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 OTH ER INCOME, INTEREST DIVIDEND, ETC., WAS REDUCED FROM THE PROFIT. THE ASSESSING OFFICER ON THE OTHER HAND REDUCED THE BOOK PROFIT BY DEDUCTION ADMISSIBLE U/S. 10BA/10BB OF THE ACT IN RESPECT OF THE AFORESAID UN ITS, CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. AFTER CONSIDERING THE FACTS THE TRIBUNAL FURTHER HE LD AS UNDER: THE MAJOR DIFFERENCE IN THE BASIS ADOPTED BY THE A PPELLANT 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 BO OK 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-SEC TION (2) OF SECTION 115JB PROVIDING THAT METHODS AND RATES ADOPTED FOR CALCULATING DEPRECIAT ION WOULD BE THE SAME AS HAVE BEEN ADOPTED FOR PREPARING THE ACCOUNTS THAT ARE LAID BE FORE ANNUAL GENERAL MEETING CONVENED AS PER THE PROVISIONS OF SECTION 210B 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, EX CLUSION OF INCOME NET OF EXPENSES RELATABLE TO UNITS ELIGIBLE FOR DEDUCTION U/S. 10BA /10BB 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 C ONTRARY 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 1 15JB OF THE ACT) DEDUCTION U/S. 80HHC OF THE ACT THAT NEEDS TO BE EXCLUDED (FROM BOOK PROFIT S) IN TERMS OF CLAUSE (III) OF EXPLANATION IS TO BE CALCULATED WITH REFERENCE TO BOOK PROFITS. IN CIT V. G.T.N. TEXTILE LTD. [2001] 248 ITR 372, T HE HON'BLE KERALA HIGH COURT, WHILE CONSIDERING CLAUSE (III) OF EXPLANATION TO SECTION 115J OF THE ACT, HELD THAT THE DEDUCTION U/S. 80HHC OF THE ACT EXCLUDED FOR PURPOSE OF THE SAID S ECTION HAD TO BE COMPUTED AS PER THE BOOKS OF ACCOUNT AND NOT CALCULATED UNDER THE PROVI SIONS OF THE ACT. THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF DY. CIT V. SYNCOME FORMULAT IONS (INDIA) LTD. [2007] 10B6 ITD 193(MUM.) CONSIDERING PROVISIONS OF SECTIONS 115JA AND 115JB HELD THAT THE ASSESSING OFFICER IS NOT PERMITTED TO DEVIATE FROM THE BOOK P ROFIT WHILE COMPUTING THE DEDUCTION U/S. 80HHC OF THE ACT THAT IS TO BE EXCLUDED IN TERMS TH EREOF.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 Q UESTION IS WHETHER THE SUBSEQUENT CHANGES BROUGHT IN THE WORDS AND EXPRESSIONS IN SEC TIONS 115JA AND 115JB HAVE BROUGHT ANY DEVIATION FROM THE POSITION EXISTED U/S . 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 U/S. 115J HAS BEEN EXTENDED IN MORE CLEARLY SPOKEN WORDS IN SUBSEQUENT SECTIONS 11 5JA AND 115JB. IN SECTION 115JA, IT HAS BEEN CLEARLY STATED THAT THE RELIEF W ILL BE COMPUTED U/S. 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 CERTI FIED 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 E XPLANATION (B) TO SUB-SECTION (3) REFERRING TO THE ADJUSTED PROFIT OF THE BUSINESS, W HICH IS REQUIRED FOR THE PURPOSES OF ASCERTAINING PROPORTIONATE PROFITS IN RESPECT OF MA NUFACTURED GOODS TO BE UNDERSTOOD BY THE DEFINITION OF ADJUSTED PROFITS OF BUSINESS. . . . 10 60. THE CONCEPT OF BOOK PROFIT IS THE PRODUCT OF MA T, INTRODUCED IN SECTION 115J, SIMILAR TO THE CONCEPT OF ALTERNATE MINIMUM TAX UND ER THE UNITED STATE FEDERAL LAWS. THE INTENTION WAS TO TAX ZERO TAX COMPANIES O N 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 RELIEFS CLAIMED BY TH EM, 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 INTR ODUCED IN SECTION 115J, IT WAS A STEEL- FRAME THAT THE TAX SHALL BE PAYABLE ON THE BOOK PRO FIT SUBJECT TO CERTAIN ADJUSTMENTS OF ADDITIONS AND DEDUCTIONS. NO FURTHER DEDUCTIONS WER E AVAILABLE FROM THE SAID ADJUSTED BOOK PROFIT. IT WAS THE ULTIMATE AMOUNT ON WHICH TH E 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 COMP ELLED 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 LEGISLAT URE ITSELF HAS THUS DECLARED THAT THE ADJUSTED BOOK PROFIT WORKED OUT UNDER MAT SCHEME NE ED 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 ADJUS TED BOOK PROFIT IS AMENDABLE FOR FURTHER DEDUCTIONS ON SPECIFIED GROUNDS, IN A CASE WHERE SECTION 80HHC IS OPERATIONAL, IT BECOMES VERY CLEAR THAT THE COMPUTA TION FOR THE DEDUCTION U/S. 80HHC NEEDS TO BE WORKED OUT ON THE BASIS OF THE VERY SAM E ADJUSTED BOOK PROFIT. THE ABOVE PROPOSITION IS MANIFEST IN THE FACT THAT THE DEDUCT ION U/S. 80HHC HAS BEEN PROVIDED IN SECTIONS 115J, 115JA AND 115JB THEMSELVES INSTEAD O F MAKING A REFERENCE IN SECTION 80 HON'BLE HIGH COURT ITSELF. IT IS MADE SO BECAUSE THE NEXUS BETWEEN THE DEDUCTION U/S. 80HHC AND THE PROFIT IN A MAT REGIME IS BETWEE N THE DEDUCTION AND THE ADJUSTED BOOK PROFIT. 66. THE DEDUCTION U/S. 80HHC IN A MAT SCHEME IS FRO M THE TAXABLE INCOME, WHICH IS OTHERWISE THE ADJUSTED BOOK PROFIT. IF NO DEDUCT ION 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 INTERPRETATI ON IS THAT THE ADJUSTED BOOK PROFIT OF A COMPANY ITSELF IS THE GROSS TOTAL INCOME OF THE A SSESSEE-COMPANY. THE DEDUCTION U/S. 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 B E COMPUTED ON THE ADJUSTED BOOK PROFIT. SECTIONS 115J, 115JA AND 115JB COME IN TO OPERATION, AS THE REGULAR PROFITS HAS BEEN SUBSTITUTED BY THE BOOK PROFIT. ON CE THE SUBSTITUTION IS OVER, THERE IS NO WAY TO GO BACK TO THE NORMAL COMPUTATION PROCESS OF STATUTORY PROFIT, WHICH HAS ALREADY BEEN OVERWHELMED BY SECTIONS 115J, 115JA AN D 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 8 0-AB. THEREFORE, WE FIND THAT THE DEDUCTION U/S. 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 COMPUTA TION OF PROFIT AND GAINS OF BUSINESS OR PROFESSION.' TO THE SAME EFFECT ARE THE FOLLOWING DECISIONS OF V ARIOUS BENCHES OF THE TRIBUNAL HOLDING THAT THE EXCLUSION OF DEDUCTION U/S. 80HHC, WHILE COMPUTING BOOK PROFITS U/S. 115JA/115JB IS THE AMOUNT CALCULATED AS PER THE BOOK PROFITS AND NOT THE DEDU CTION ADMISSIBLE IN TERMS OF THE PROVISIONS OF THE ACT : -DY. CIT V. GOVIND RUBBER (P.) LTD. [2004] 89 ITD 4 57(MUM.) -STARCHIK SPECIALITIES LTD. V. DY. CIT [2004] 90 IT D 34(HYD.) -SMRUTHI ORGANICS LTD. V. DY. CIT [2006] 10B1 ITD 2 05(PUNE). THE BOMBAY BENCH OF TRIBUNAL IN THE CASE OF TUSHAKO PUMPS LTD. V. ASSTT. CIT [2005] 2 SOT 556WHILE CONSIDERING CLAUSE (V) OF EXPLANATION TO S ECTION 115JA, HELD THAT THE PROFIT OF INDUSTRIAL UNDERTAKING ELIGIBLE FOR EXEMPTION U/S. 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 11 NOT PERMISSIBLE FOR THE PURPOSE OF COMPUTATION OF B OOK PROFIT AS PER SECTION 115JA OF THE ACT. THE BOMBAY BENCH HELD AS UNDER : 'FROM THE ABOVE PROVISIONS, IT IS NOTABLE THAT UNDE R THE EXPLANATION, THE BOOK PROFITS CANNOT BE INCREASED BY MAKING ANY ADJUSTMENT ON ACC OUNT 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 EXEMPT ION U/S. 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 DE RIVED 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 CON SONANCE WITH THE PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III 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 FROM THE BOOK PROFI TS 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 FROM THE INDUSTRIAL UNDERTAKING, WHICH IS INCLUDED IN THE BOOK PROFITS HAS BEEN COMPUTED AS PER THE BOOKS AND NO ADJUSTMENT FOR DEP RECIATION HAS BEEN MADE, WHILE COMPUTING THE INCOME ELIGIBLE FOR EXEMPTION U/S. 80 -IA, THE QUANTUM OF DEPRECIATION AS PER THE PROVISIONS OF THE IT ACT WOULD BE SUBSTA NTIALLY ENHANCED. THIS WOULD VIOLATE THE VERY PURPOSE OF SECTION 115JA. THE CASE S WHICH HAVE BEEN RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORT THIS V IEW. WE, THEREFORE, HOLD THAT THE PROFIT OF THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR E XEMPTION U/S. 80-IA MUST BE COMPUTED AS PER THE BOOKS OF ACCOUNT AND THE PROVIS IONS 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 AUT HORITIES 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. CIT V. VARINDER AGRO CHEMICAL S LTD. [2007] 161 TAXMAN 134, THE CHANDIGARH BENCH OF THE TRIBUNAL FOLLOWING THE DECI SION OF KERALA HIGH COURT IN THE CASE OF G.T.N. TEXTILE LTD. (SUPRA), HELD THAT FOR THE PURP OSE OF CLAUSE (IV) OF SECTION 115JA(2) OF THE ACT, WHAT IS DEDUCTIBLE FROM THE NET PROFITS, IS NO T THE ACTUAL DEDUCTION OF THE ELIGIBLE UNDERTAKING U/S. 80-IA OF THE ACT, BUT THE PROFIT O F 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 EXPL ANATION 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 DEDUCTI ON COMPUTED U/S. 80-IA OF THE ACT. THE CHANDIGARH BENCH ADDITIONALLY HELD AS FOLLOWS : '(11) WE ALSO FIND THE ACTION OF THE ASSESSING OFFI CER AS UNTENABLE ON ANOTHER ANGLE. THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYR ES 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 T HE RELEVANT SECTION ITSELF. THE PERMISSIBLE ADJUSTMENTS TO THE 'NET PROFIT' AS SHOW N IN THE P & L A/C HAVE BEEN LISTED IN THE EXPLANATION BELOW SECTION 115J(1A) OF THE AC T. 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 I.E., SECTION 115JA OF THE ACT. AS NOTED EARLIER, BOTH THE SECTIONS STAND ON EQUAL FOOTING I NSOFAR 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 PERMISS IBLE, TO COMPUTE BOOK PROFITS ARE SO PROVIDED FOR IN THE EXPLANATION BELOW SECTION 115JA (2) OF THE ACT. CLAUSE (IV) OF THE EXPLANATION MERELY ALLOWS REDUCTION OF AMOUNT OF PR OFITS AND NOT THE AMOUNT OF DEDUCTION COMPUTED U/S. 80-IA OF THE ACT. THEREFORE , THE ASSESSING OFFICER WHILE REDUCING THE AMOUNT OF DEDUCTION ALLOWED U/S. 80-IA FROM THE NET PROFITS SHOWN IN 12 THE P & L A/C FOR THE INSTANT YEAR PREPARED IN ACCO RDANCE WITH THE PROVISIONS OF PARTS II AND III OF THE SCHEDULE VI OF THE COMPANIES ACT IN ORDER TO COMPUTE BOOK PROFIT SQUARELY FELL IN ERROR. THE SAID ACTION OF THE ASSE SSING 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 OFFI CER EXCEEDED HIS JURISDICTION WHILE COMPUTING BOOK PROFITS U/S. 115JA OF THE ACT BY SEE KING TO EXCLUDE THE ACTUAL AMOUNT OF DEDUCTION ALLOWABLE U/S. 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 SECTI ON 115JB OF THE ACT HAS TO BE FOR THE AMOUNTS CREDITED/DEBITED TO THE PROFIT AND LOSS ACC OUNT,AS THE CASE MAY BE. CONSIDERING THE ABOVE,WE ARE OF THE OPINION THERE W AS NO DIFFERENCE IN THE CALCULATIONS MADE UNDER BOTH THE SECTIONS AND THAT THE ORDER OF THE A O CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 5.2. NOW,WE WOULD DEAL WITH THE ISSUE OF INCLUSION OF SE RVICE CHARGES OF RS.6.27 LAKHS AS PART OF EXPORT TURNOVER FOR THE PURPOSES OF CLAIMING DED UCTION U/S.10B OF THE ACT. IN HIS ORDER, THE CIT HAD OBSERVED THAT THE ASSESSEE HAD WRONGLY INCL UDED SERVICE CHARGES AS PART OF EXPORT TURNOVER OF THE PURPOSE OF CLAIMING DEDUCTION U/S. 10B.IT IS FOUND THAT THE ASSESSEE HAD EXPORTED ENGINEERING DESIGNS TO ITS HOLDING COMPANY AND HAD CLAIMED EXEMPTION FOR THE SAME,THAT THE HOLDING COMPANY HAD REIMBURSED THOSE EXPENSES INCURRED BY THE ASSESSEE UNDER THE CONTRACT, THAT IT HAD RECOVERED 2% OF SUCH REIM BURSEMENTS AS SERVICE CHARGES, THAT IT HAD ALSO RECOVERED BANK CHARGES @OF USD30 PER TRANSACTI ON,THAT CHARGES WERE LESSER THAN THE AMOUNT IN QUESTION AND THE ASSESSEE HAD CREDITED TH E EXCESS RECOVERY FOR COMPUTING EXPORT TURNOVER. EXPLANATION 2 (III)TO SECTION 10B PROVIDE S THE DEFINITION OF EXPORT TURNOVER AND IT EXCLUDES ONLY 3 ITEMS NAMELY FREIGHT, TELECOMMUNICA TION CHARGES AND INSURANCE ATTRIBUTABLE TO EXPORT DELIVERY OR ANY EXPENSES INCURRED OUTSIDE INDIA. SERVICE CHARGES OF RS. 6.27 LAKHS WOULD NOT FALL IN ANY OF THE CATEGORIES OF RECEIPTS THAT HAVE BEEN EXCLUDED FROM THE DEFINITION OF EXPORT TURNOVER.THEREFORE,THERE WAS JUSTIFICATIO N FOR THE ASSESSEE TO INCLUDE THE SERVICE CHARGES AS PART OF EXPORT TURNOVER. SECONDLY,AS PER THE ESTABLISHED PRINCIPLES OF COMPUTATION OF TURNOVER IF AN ITEM IS TO BE EXCLUDED/INCLUDED F ROM THE EXPORT TURNOVER SAME HAD TO BE INCLUDED/EXCLUDED IN THE TOTAL TURNOVER ALSO. THERE FORE, THE TREATMENT GIVEN BY THE ASSESSEE TO THE SERVICE CHARGES,IN OUR OPINION,WAS AS PER LAW A ND THAT IF THE AO HAD NOT DISTURBED THE CALCULATION,HIS ORDER CANNOT BE HELD TO BE ERRONEOU S. 5.3. THIRD OBJECTION,RAISED BY THE CIT,WAS ABOUT FOREIGN EXCHANGE LOSS. THE ASSESSEE HAD, WHILE COMPUTING THE TOTAL TURNOVER AND EXPORT TURNO VER FOR THE PURPOSE OF EXEMPTION U/S.10B,EXCLUDED FOREIGN EXCHANGE LOSS OF RS. 23, 6 7, 165/-. IT IS FOUND THAT THE ASSESSEE WAS CONSISTENTLY CONSIDERING THE FOREIGN EXCHANGE GAIN IS PART OF THE TOTAL TURNOVER, THAT THE GAIN 13 DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATE EMANATI NG FROM EXPORT WAS ITS INTEGRAL PART. IF THE FOREIGN EXCHANGE LOSS IS ADDED BACK TO COMPUTE THE TOTAL TURNOVER, THE SAME WOULD HAVE TO BE ADDED BACK TO COMPUTE THE EXPORT TURNOVER ALSO.THUS , THERE WOULD BE NO DIFFERENCE IN THE TAXABLE INCOME OF THE ASSESSEE. BESIDES,WE FIND THA T IN THE CASE OF PRAKASH L SHAH (SUPRA) THE TRIBUNAL HAS HELD THAT EXCHANGE-RATE GAIN OR LOSS C ANNOT HAVE A DIFFERENCE CHARACTER THAN THE TRANSACTION TO WHICH IT WOULD RELATE, THAT THERE CA NNOT BE ANY QUESTION OF EARNING EXCHANGE- RATE GAIN UNLESS THERE WAS REALISATION OF INVOICE V ALUE OF INDIAN RUPEES. THE ASSESSEE RAISED THE INVOICE IN FOREIGN EXCHANGE AND THAT THE TIME O F REALISATION WOULD CONVERT IT INTO INDIAN RUPEES. THUS THE ENTIRE AMOUNT WAS RELATABLE TO THE EXPORTS MADE.IN OUR OPINION, THE METHOD ADOPTED BY THE ASSESSEE WAS ONE OF THE RECOGNISED M ETHODS AND THAT IF THE AO HAD NOT DISTURBED IT,HIS ORDER WAS IN ACCORDANCE WITH THE P ROVISIONS OF THE ACT. IN VIEW OF THE ABOVE DISCUSSION,WE HOLD THAT THE OR DER PASSED BY THE AO U/S.143(3)OF THE ACT FOR THE YEAR UNDER APPEAL,CANNOT BE HELD TO BE ERRO NEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE.WE FIND THAT THE REVISIONARY ORDER OF THE C IT CANNOT BE ENDORSED EITHER ON FACTS OR MERITS.SO, REVERSING HIS ORDER,WE DECIDE ALL THE GR OUNDS OF APPEAL(EXCEPT G.S OA 12-13)IN FAVOUR OF THE ASSESSEE AND HOLD THAT ORDER PASSED B Y THE CIT U/S.263 WAS NOT VALID. ITA/3874/MUM/2010,AY.2004-05 6. IN PURSUANCE OF THE DIRECTIONS OF THE CIT THE AO PA SSED AN ORDER U/S.143(3)R.W.S.263 OF THE ACT ON 02/02/2010 AND REVISED THE ORDER AS PER THE DIRECTIONS EXCEPT FOR THE ISSUE OF CALCULATION OF DEPRECIATION.IN THE APPELLATE PROCEE DINGS,HIS ORDER WAS CONFIRMED BY THE FIRST APPELLATE AUTHORITY. 6.1. IN THE EARLIER PART OF OUR ORDER,WE HAVE HELD THAT REVISIONARY ORDER OF THE CIT WAS INVALID. SO,ORDER PASSED AS PER THE DIRECTIONS OF THE SAID O RDER WOULD NOT SURVIVE.GROUNDS RAISED BY THE ASSESEE STAND ALLOWED. AS A RESULT,ITA/1380/MUM/2009 IS PARTLY ALLOWED AND ITA /3874/MUM/2010/STANDS ALLOWED. /1380/ /2009 /3874/ /2010 . ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2017. 19 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 19.04 .2017. JV.SR.PS. 14 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.