DY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(4), MUMBAI V. M/S GRASIM INDUSTRIES LIMITED (SUCCESSOR TO ADITYA BIRLA NUVO LTD) , MUMBAI

ITA 2116/MUM/2022

AI Insights

The case involves the Deputy Commissioner of Income Tax, Central Circle-1(4), Mumbai (Appellant) against M/s. Grasim Industries Limited (Respondent) concerning the assessment year 2002-03. The primary issue was the computation of book profit under section 115JB of the Income Tax Act, 1961, and the deduction allowable under section 80HHC. The assessee company argued for a deduction based on adjusted book profits, while the Assessing Officer (AO) initially did not allow this, leading to an appeal. The CIT(A) had earlier allowed the deduction, which was contested by the Revenue in this appeal. The Tribunal's decision supported the CIT(A)'s ruling, referencing the Supreme Court's precedent that favored the assessee's method of computation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302426 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-01-2023
• Assessment Year: 2002-2003
• Appeal Filed On: 23-08-2022
• Other Referred Cases: DCIT v. M/S. Syncome Formulations (1) Ltd, Bhari Information Technology Systems Private Ltd v. CIT, Ajanta Pharma Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 80HHC; 115JB; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘G‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA No.2116/Mum/2022 (Asse ssment Year :2002-03) Dy. Commissioner of Income Tax Central Circle – 1 (4) Mumbai, 9 th Floor, 902 Pratishtha Bhavan Old CGO Building (Annexe) M.K.Road, Mumbai- 400 020 Vs. M/s. Grasim Industries Limited (Successor to Aditya Birla Nuvo Ltd.) A-Wing, 2 nd Floor Aditya Birla Centre S.K.Ahire Marg Worli, Mumbai – 400 030 PAN/GIR No.AAACG4464B (Appellant) .. (Respondent) Assessee by Shri Yogesh Thar & Ms. Ayushi Modani Revenue by Shri Ajay Jadeja Singh Date of Hearing 12/01/2023 Date of Pronouncement 31/01/2023 आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No. 2116/Mum/2022 for A.Y.2002-03 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-47, Mumbai in appeal No.CIT(A)-47, Mumbai/10001/2001-02 dated 09/06/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.154 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2011 by the ld. Dy. Commissioner of Income Tax, Central Circle 1 (4), Mumbai (hereinafter referred to as ld. AO). ITA No.2116/Mum/2022 M/s. Grasim Industries Limited (Successor to M/s. Aditya Birla Nuvo Ltd.) 2 2. The Revenue has raised the following grounds:- 1. "Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) is justified on relying upon the decision of the Hon'ble Supreme Court and the Hon'ble ITAT only without discussing the merits of the case?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in completely overlooking the provisions contained in sub section 1(1B)(ii) of section 80HHC of the Act and thereby allowing the deduction under the said section to 100% instead of 70% as applicable to the assessee company while computing book profit u/s 115JB of the Act?" 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in ignoring the explanation to section 115JB of the Act, which clearly permits allowance/ deduction u/s. 115JB of the Act only to the tune of profit that is eligible for deduction u/s 80HHC of the Act and not the entire amount of profits?" 4. The assessee company is a public limited Company engaged in diversified business such as Garments, Insulators, Viscose Filament yarn etc. at different units located across the country. With effect from 1 st July 2017, it is amalgamated with Grasim Industries Limited. Accordingly, all the dealings/ matters are being conducted by and in the name of Grasim Industries Limited only.” 3. We have heard rival submissions and perused the materials available on record. The assessee company e-filed its Return of Income for AY 2002-03 on 24/10/2002 declaring total income of Rs. NIL. as per normal provisions of the Act and book profit of Rs. 33,72,51,346/- u/s. 115JB of the Act. In the return of income for AY 2002-03, while computing book profit u/s. 115JB of the Act, the assessee Company reduced Rs. 9,89,53,994/- under clause (iv) of Explanation to section 115JB(2) of the Act being "the amount of profits eligible for deduction under section 80HHC of the Act". 3.1. The case was selected for scrutiny and in the assessment order dated 30.03.2005 passed u/s 143(3) of the Act, the ld. AO did not allow reduction as referred in clause (iv) of section Explanation to 115JB(2) on the ground that the assessee company is not entitled to deduction u/s. 80HHC of the Act under normal provisions of the Act. Aggrieved by the ITA No.2116/Mum/2022 M/s. Grasim Industries Limited (Successor to M/s. Aditya Birla Nuvo Ltd.) 3 order of the ld. AO, the assessee company filed an appeal before the ld. CIT(A). Subsequently, the Special Bench of Mumbai Tribunal in case of DCIT v. M/S. Syncome Formulations (1) Ltd reported in 13 SOT 414 (2007) held that the deduction under 80HHC of the Act for computing Book Profit u/s 115JB is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profits and gains of business or profession. 3.2. Relying on this decision of the Special Bench of the Mumbai Tribunal, the assessee company filed an additional ground of appeal before the ld. CIT(A) claiming that for computing book profit u/s.115JB of the Act, deduction u/s 80HHC as per clause (iv) of Explanation to section 115JB(2) is to be worked out on the basis of the adjusted book profit and accordingly Rs.11,73,58,799/- worked out on the basis of the adjusted book profits, be allowed as deduction as per clause (iv) of Explanation to section 115JB(2). The ld. CIT(A), rejected the additional ground filed by the assessee company. Subsequent to order dated 18/11/2008 passed by the ld. CIT(A), the Hon'ble Supreme Court in case of Bhari Information Technology Systems Private Ltd reported in 340 ITR 593, upheld the decision of Hon'ble Special Bench of Mumbai Tribunal in case of DCIT VS Syncome Formulations (1) Ltd. (2007) 108 TTJ (Mumbai) (SB)105 and held that for the purpose of computing book profit, deduction u/s. 80HHC of the Act should be computed on the basis of adjusted book profits u/s 115JA/115JB of the Act and not on the basis of income computed under the regular provisions of law applicable to the computation of profits and gains of business. In remand proceedings u/s. 143(3) r.w.s. 254 of the Act, following the decision of Hon'ble Supreme Court in the case of Bhari Information Technology Systems Private Ltd, the ld. AO allowed ITA No.2116/Mum/2022 M/s. Grasim Industries Limited (Successor to M/s. Aditya Birla Nuvo Ltd.) 4 deduction u/s. 80HHC of the Act as claimed by the assessee company by holding that computational provision u/s. 80HHC of the Act shall not be applicable while computing book profit u/s. 115JB of the Act. 3.3. Subsequently, the ld. AO issued show cause notice dated 20.03.2021 u/s 154 of the Act. In show cause notice, the ld. AO has stated, as per section 80HHC(1B)(ii) of the Act, deduction@ 70% of eligible profits is to be reduced from book profit u/s. 115JB of the Act. In response to the above show cause dated 20.03.2021, the assessee company filed detailed submissions to the ld. AO vide its letter dated 25.03.2021. The ld. AO has passed an order u/s.154 of the Act dated 31.03.2021 by not accepting the contention of the assessee and partially withdrew the amount of eligible profits as per section 80HHC reduced from book profit u/s 115JB of the Act. The assessee company is aggrieved by the said order dated 31.03.2021 passed by the ld. AO. 3.4. We find that the ld. AO had relied on section 80HHC (1)(1B)(ii) of the Act to come to the conclusion that while computing book profits u/s.115JB of the Act, the assessee would be eligible for 70% of deduction u/s.80HHC of the Act instead of 100%. Accordingly, the excess deduction u/s.80HHC of the Act of Rs.3,54,71,075/- (Rs.11,82,36,916 – Rs. 8,27,65,841) was disallowed by the ld. AO u/s.154 of the Act i.e. impugned proceedings. 3.5. The issue in dispute is no longer res integra in view of the decision of the Hon’ble Apex Court in the case of Ajanta Pharma Ltd. vs. CIT reported in 327 ITR 305 wherein it was held as under:- “9. On the other hand, section 80HHC(1) inter alia states that where an assessee, who is the Indian resident, is engaged in the business of exports out of India of ITA No.2116/Mum/2022 M/s. Grasim Industries Limited (Successor to M/s. Aditya Birla Nuvo Ltd.) 5 any goods earns convertible foreign exchange then in computing the total income, a deduction of the profits derived from such exports would be admissible. Thus, section 80HHC provides for tax incentives. Section 80HHC(1) at one point of time laid down that an amount equal to the amount of deduction claimed should be debited to the Profit and Loss Account of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilized for the business purpose. Section 80HHC(1) concerns eligibility whereas section 80HHC(3) concerns computation of the quantum of deduction/tax relief. At one point of time prior to the Finance Act, 2000, exporters were allowed 100 per cent deduction in respect of profits derived from export of goods. However, that has now been reduced in a phase-wise manner under section 80HHC(1B). It may be noted that all assessable entities are not eligible for deduction under section 80HHC. Similarly, only eligible goods are entitled to such special deduction under section 80HHC(1). A bare reading of section 80AB shows that computation of deduction is geared to the amount of income, but section 80HHC(3), which refers to quantification of deduction is geared to the exports turnover and not to the income. On the other hand, section 115JB refers to levy of MAT on the deemed income. The above discussion is only to show that sections 80HHC and 115JB operate in different spheres. Thus, two essential conditions for invoking section 80HHC(1) are that assessee must be in the business of export and secondly that sale proceeds of such exports should be receivable in India in convertible foreign exchange. Hence, section 80HHC(1) refers to "eligibility" whereas section 80HHC(3) refers to computation of tax incentive. Coming to section 80HHC(1B) it is clear that after Finance Act, 2000 with effect from assessment year 2001-02 exporters would not get 100 per cent deduction in respect of profits derived from exports but that they would get deduction of 80 per cent in the assessment year 2001-02, 70 per cent in the assessment year 2002-03 and so on. Thus, section 80HHC(1B) deals not with "eligibility" but with the "extent of deduction". As earlier stated, section 115JB is a self-contained Code. It taxes deemed income. It begins with a non obstante clause. Section 115JB refers to computation of "book profits" which have to be computed by making Upward and Downward Adjustments. In the Downward Adjustment, vide clause (iv) it seeks to exclude "eligible" profits derived from exports. On the other hand, under section 80HHC(1B) it is the extent of deduction which matters. The word "thereof in each of the items under section 80HHC(1B) is important. Thus, if an assessee earns Rs. 100 crores then for the assessment year 2001-02, the extent of deduction is 80 per cent thereof and so on which means that the principle of proportionality is brought into scale down the tax incentive in a phased manner. However, for the purposes of computation of book profits which computation is different from normal computation under the 1961 Act/computation under Chapter VIA. We need to keep in mind the Upward and Downward Adjustments and if so read it becomes clear that clause (iv) covers full export profits of 100 per cent as "eligible profits" and that the same cannot be reduced to 80 per cent by relying on section 80HHC(1B). Thus, for computing "book profits" the Downward Adjustment, in the above example, would be Rs. 100 crores and not Rs. 90 crores. The idea being to exclude "export profits" from computation of book profits under section 115JB which imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of Explanation to the Finance Bill, 2000. ITA No.2116/Mum/2022 M/s. Grasim Industries Limited (Successor to M/s. Aditya Birla Nuvo Ltd.) 6 10. One of the contentions raised on behalf of the Department was that if clause (iv) of Explanation to section 115JB is read in entirety including the last line thereof (which reads as "subject to the conditions specified in that section"), it becomes clear that the amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various provisions of section 80HHC in isolation whereas as per clause (iv) of Explanation to section 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to section 115JB. We find no merit in this argument. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then section 115JB will cease to be a self-contained code. In section 115JB, as in section 115JA, it has been clearly stated that the relief will be computed under section 80HHC(3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that section. The conditions are only that the relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB [Subject to the conditions specified in sub-sections (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department.” 3.6. We find that the ld. CIT(A) had clearly followed the aforesaid decision and granted relief to the assessee on which we do not find any infirmity. Hence, the grounds raised by the Revenue are dismissed. 4. In the result, appeal of the Revenue is dismissed. Order pronounced on 31/01/2023 by way of proper mentioning in the notice board. Sd/- (AMIT SHUKLA) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 31/01/2023 ITA No.2116/Mum/2022 M/s. Grasim Industries Limited (Successor to M/s. Aditya Birla Nuvo Ltd.) 7 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//