The ITO, Ward-4(3), Ahmedabad V. M/s. H.K. Finechem Ltd., Ahmedabad

ITA 2557/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6685 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-04-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 07-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Retrospective amendment; Reason to believe; Unabsorbed depreciation
• Section: 80HHC; 115JB; 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 20/04/2011 DRAFTED ON: 2 0/04/2011 APPEAL(S) / CO(S) BY SL. NO(S). ITA NO(S) / CO NO(S) ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 2557/AHD/2009 2000-01 ITO WARD-4(3) AHMEDABAD M/S.H.K.FINCHEM LTD. 201, 2 ND FLOOR ANIKET C.G.ROAD, NAVRANGPURA AHMEDABAD PAN:AAACH 5113 Q 2. CONO.212/AHD/ 2009 O/O ITA2557/A/09 2000-01 ASSESSEE REVENUE 3. 2487/AHD/2009 2000-01 ASSESSEE REVENUE 4. 2559/AHD/2009 2005-06 REVENUE ASSESSEE 5. CONO.214/AHD/ 2009 O/O.ITA2559/A/09 2005-06 ASSESSEE REVENUE ASSESSEE BY : SHRI SANJAY R.SHAH, A.R. REVENUE BY : SHRI R.K.DHANESTA, SR.D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : FOR A.Y. 2000-01 THE ASSESSEE AS ALSO THE REVENUE BOTH ARE IN CROSS APPEALS ARISING OUT OF THE ORDER OF THE CI T(A)-VIII DATED 20 TH MAY-2009. THE ASSESSEE HAS ALSO FILED A CROSS OBJ ECTION. WE SHALL FIRST TAKE UP THE APPEAL OF THE REVENUE. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 2 - (A) REVENUES APPEAL; ITA NO.2557/AHD/2009 FOR A.Y . 2000-01 2. GROUND NO.1 : 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALL OWING THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT WITHOUT DED UCTING THE DEPRECIATION. GROUND NO.2 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N HOLDING THAT THE PROVISIONS OF EXPLANATION 5 TO SECTION 32 DID NOT APPLY RETROSPECTIVELY IN SPITE OF THE FACT THAT THE PROVISIONS ARE CLARIFICATORY IN NATURE. GROUND NO.3 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ACCEPTING THE METHOD ADOPTED BY THE ASSESSING OFFIC ER FOR COMPUTATION OF SPECIAL DEDUCTION U/S.80HHC BY DEDUC TING CURRENT YEAR DEPRECIATION FOR ARRIVING AT THE PROFI T AND GAINS OF BUSINESS FOR THE PURPOSE OF THIS SECTION IN SPIT E OF SUCH MANDATE GIVEN BY THE HON'BLE DELHI HIGH COURT IN TH E CASE OF DABUR INDIA LTD. VS. CIT RETRUN OF 219 CTR (DEL. ) 152. 2.1. ALL THE ABOVE THREE GROUNDS ARE IN CONNECTION OF A SINGLE ISSUE OF COMPUTATION OF DEDUCTION U/S.80HHC O F THE ACT WHETHER TO BE COMPUTED WITH OR WITHOUT REDUCTION OF DEPRECIATION . ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF OLEO CHEMICALS. RETURN OF INCOME WAS FILED AT NIL INCOME. A RETURN U/S 115JA WAS FILED DECLARING BOOK PROFIT OF RS. 3,63,173/-. GROS S TOTAL INCOME OF THE ASSESSEE WAS AT RS. 2,95,91,474/- AND AGAINST T HAT CLAIMED A DEDUCTION U/S. 80HHC OF RS. 1,98,75,983/- PLUS SET- OFF OF ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 3 - UNABSORBED DEPRECIATION OF RS. 97,15,491/-, WHICH R ESULTED INTO NIL INCOME. IN RESPECT OF THE ISSUE IN HAND THE A.O. HA D GIVEN A FINDING THAT THE ASSESSEE HAD NOT CLAIMED CURRENT DEPRECIAT ION NOR SET-OFF THE UNABSORBED DEPRECIATION FOR THE PURPOSE OF COMPUTAT ION OF DEDUCTION U/S 80HHC. ON THE BASIS OF THOSE FACTUAL FINDINGS THE A.O. HAD DRAWN A CONCLUSION THAT AS PRESCRIBED U/S 80AB THE DEPRECIATION IS REQUIRED TO BE SET-OFF FIRST TO ARR IVE AT THE BUSINESS INCOME AND IF THERE IS INCOME THEN ONLY TH E DEDUCTION U/S 80HHC SHALL BE GRANTED. HOWEVER, AFTER SET-OFF OF UNABSORBED DEPRECIATION AGAINST THE CURRENT INCOME, IT WAS NOT ED BY THE A.O., THAT THERE WAS NO GROSS TOTAL INCOME LEFT HENCE HEL D THAT THE ASSESSEE SHOULD NOT BE ELIGIBLE FOR DEDUCTION U/S 80 HHC. 3. WHILE DEALING WITH THE ISSUE, THE LD.CIT(A) HAS REMARKED IN THE BEGINNING ITSELF THAT THE GROUND WAS RAISED AGA INST THE ACTION OF THE A.O. FOR GRANTING CURRENT YEARS DEPRECIATION T O THE ASSESSEE THOUGH THE DEPRECIATION WAS NOT CLAIMED IN THE RETU RN. IT WAS NOTED BY THE LD.CIT(A) THAT WHILE COMPUTING THE ASSESSED INCOME, THE A.O. HAS REDUCED THE CURRENT YEARS DEPRECIATION FR OM THE PROFIT FOR THE RELEVANT PERIOD BY INVOKING THE PROVISIONS OF S ECTION 32(2) OF THE ACT FOR THE PURPOSE OF WORKING OUT THE DEDUCTIO N U/S.80HHC OF THE ACT. FROM THE SIDE OF THE ASSESSEE, IT WAS C ONTESTED THAT IN VIEW OF MAHENDRA MILLS 243 ITR 56 DEPRECIATION COULD NOT B E THRUST UPON THE ASSESSEE IF NOT CLAIMED. THE LD.CIT(A) HAS ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 4 - CONCLUDED THAT IN TERMS OF THE ORDER OF THE ITAT AH MEDABAD IN ASSESSEES OWN CASE FOR A.Y. 2002-03, THE DEPRECIAT ION SHOULD NOT BE THRUST UPON THE ASSESSEE. FOLLOWING THE SAID D ECISION OF THE TRIBUNAL FOR A.Y. 2002-03, IT WAS DIRECTED BY LD. C IT(A) TO WORK OUT THE INCOME WITHOUT DEDUCTING CURRENT YEARS DEP RECIATION. 4. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES AND AFTER CAREFUL READING OF THE ORDERS OF THE AUTHORITIES BELOW, WE HAVE NOTED THAT THE ISSUE OF ALLOWANCE OF DEPRECIATION HAS TWO ASPECTS , ONE IS IN CONNECTION OF THE PROVISIONS OF THE SECTION 32 READ WITH EXPLANATION-5 OF I.T.ACT( THE ISSUE AS RAISED IN GR D. NO. 2 BY THE REVENUE) AND THE SECOND ASPECT IS ALLOWANCE OF DEPRECIATION AS PER CHAPTER VI-A OF I.T.ACT, PRESENTLY THE QUESTION IS ABOUT THE ADMISSIBILITY OF DEPRECIATION WHILE COMPUTING THE D EDUCTION U/S.80HHC OF THE ACT.( THE ISSUE IS RAISED VIDE GRD . NO. 1 & 3 BY THE REVENUE ). IT IS ALSO APPROPRIATE TO MENTION AT THIS STAGE OF BEGINNING THAT THE CONTENTION OF LD. AR IS INCORREC T THAT GROUND NO. 1 DID NOT ARISE FROM THE ORDER OF THE CIT(A) BECAUS E THAT WAS ONE OF THE GRIEVANCE ARISING FROM THE ORDER OF THE A.O. WH ICH WAS ADDRESSED TO HIM. 4.1. AS FAR AS THE IMPUGNED ORDER OF LD.CIT(A) IS C ONCERNED, WE HAVE NOTED THAT HE HAS SIMPLY FOLLOWED THE DECISION OF RESPECTED COORDINATE BENCH A AHMEDABAD IN ASSESSEES OWN CA SE BEARING ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 5 - ITA NO.2806/AHD/2006 FOR A.Y. 2002-03 TITLED AS H.K . FINCHEM LTD. VS. ITO ORDER DATED 06/03/2009, WHEREIN IT WAS HELD THAT THE EXPLANATION TO 32 IS EFFECTIVE FROM 01/04/2002 AND SHALL ACCORDINGLY APPLY TO 2002-03 AND SUBSEQUENT YEARS. IT IS WORTH TO MENTION THAT THE YEAR UNDER APPEAL BEFORE US IS A.Y . 2000-01. ON THE BASIS OF THE SAID DECISION OF THE TRIBUNAL, LD. CIT(A) HAS HELD THAT THE AO WAS NOT EMPOWERED TO THRUST UPON THE DEPRECI ATION ON THE ASSESSEE. RELEVANT PORTIONS OF THE TRIBUNAL JUDGEM ENT ARE REPRODUCED BELOW:- 4. TURNING TO THE QUESTION WHETHER EXPLANATION-5 T O SECTION 32(1) APPLIES TO THE PRESENT CASE, WE FIND THAT THE AFORESAID EXPLANATION WAS INSERTED BY THE FINANCE A CT, 2001 W.E.F. 1-4-2002. IT SAYS THAT, FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROVISIONS OF THIS SUB-SEC TION SHALL APPLY WHETHER OR NOT THE ASSESSEE HA CLAIMED THE DE DUCTION IN RESPECT OF THE DEPRECIATION IN COMPUTING THIS TOTAL INCOME. A PERUSAL OF THE CIRCULAR ISSUED BY THE CBDT TO EXPLA IN THE AFORESAID EXPLANATION (CIRCULAR NO.14 OF 2001 DATED 12-12- 2001 REPORTED IN 252 ITR STATUES 65) SHOWS THAT THI S IS WHAT HAS BEEN OBSERVED IN PARA-30.2 OF THE CIRCULAR: THE ACT HAS ALSO CLARIFIED THAT IN COMPUTING THE PR OFITS AND GAINS OF BUSINESS OR PROFESSION FOR ANY PREVIOUS YE AR, DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL BE MANDATORY . IN PARA 30.5 OF THE CIRCULAR IT WAS STATED THAT THE EXPLANATION WILL TAKE EFFECT FROM 1-4-2002 AND WILL ACCORDINGLY APPLY IN RELATION TO THE A.Y. 2002-03 AND SUBSEQUENT YEARS. IN OUR ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 6 - OPINION, WHAT THE EXPLANATION MEANS IS THAT ON AND FROM A.Y. 2002-03 WHICH IS THE YEAR UNDER APPEAL, IT WILL BE OPEN TO THE AO TO COMPULSORILY ALLOW DEPRECIATION TO THE ASSESS EE WHETHER THE ASSESSEE HAS CLAIMED IT OR NOT. THE EXPLANATION CANNOT APPLY TO THE PRESENT CASE FOR THE SIMPLE REA SON THAT THE ASSESSEE, AS ALREADY NOTED, HAS CLAIMED DEPRECI ATION OF RS.2,86,85,879/- IN THE RETURN. IN LIGHT OF THE CLAIM, THERE IS NO QUESTION OF THE AO THRUSTING DEPRECIATION ON TH E ASSESSEE. 5. IT WAS HOWEVER CONTENDED ON BEHALF OF THE DEPART MENT THAT THE EXPLANATION IS RETROSPECTIVE IN NATURE BEC AUSE IT HAS BEEN INSERTED FOR THE REMOVAL OF DOUBTS AND IT IS A LSO EXPRESSED TO BE DECLARATORY. IT IS CONTENDED THAT IT GIVES AUTHORITY TO THE AO TO THRUST DEPRECIATION UPON TH E ASSESSEE EVEN IN RESPECT OF THE EARLIER YEARS. IT IS THEREF ORE ARGUED THAT IT WAS OPEN TO THE AO TO RE-COMPUTE THE WDV OF THE ASSETS FOR THE EARLIER YEARS BY THRUSTING DEPRECIATION UPON TH E ASSESSEE AND FOLLOW IT UP IN THE ASSESSMENT FOR THE YEAR IN QUESTION. WE ARE UNABLE TO ACCEPT THESE SUBMISSIONS. THE QUESTI ON WHETHER THE EXPLANATION IS RETROSPECTIVE CAME UP BEFORE THE KERALA HIGH COURT IN CIT VS. KERALA ELECTRIC LAMP WORKS LT D., (2003) 261 ITR 721. IT WAS HELD THAT THE EXPLANATION DOES NOT APPLY RETROSPECTIVELY AND APPLIES ONLY PROSPECT IVELY . IT WAS NOTICED THAT EVEN THE CIRCULAR (CITED SUPRA) ST ATED THAT THE EXPLANATION WOULD APPLY ONLY IN RESPECT OF A.Y. 20 02-03 ONWARDS. IN CIT VS. SREE SENHAVALLI TEXTILES P.LTD ., (2003) 259 ITR 77 THE MADRAS HIGH COURT DEALING WITH THE S AME QUESTION HELD THAT THE WORDS FOR THE REMOVAL OF DOUBTS CANNOT APPLY TO GIVE RETROSPECTIVE EFFECT TO THE EX PLANATION SINCE THERE WAS A JUDGMENT OF THE SUPREME COURT IN CIT VS. MAHENDRA MILLS (200) 243 ITR 56 IN WHICH IT WAS HEL D THAT THE AO HAD NO POWER TO THRUST DEPRECIATION UPON THE ASSESSEE WHEN IT WAS NOT CLAIMED, AND THAT IT CANNOT BE SAID THAT A JUDGEMENT OF THE SUPREME COURT MERELY GAVE RISE TO DOUBTS, BECAUSE THE JUDGMENT OF THE SUPREME COURT DECLARES THE LAW RIGHT FROM THE INCEPTION AND THE SAME IS BINDING UN DER ARTICLE ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 7 - 141 OF THE CONSTITUTION. THE MADRAS HIGH COURT HAS ALSO REFERRED TO THE CIRCULAR TO HOLD THAT THE EXPLANATI ON WAS ONLY PROSPECTIVE IN NATURE. IT IS THEREFORE NOT POSSIBL E TO ACCEPT THE ARGUMENT OF THE REVENUE THAT THE AFORESAID EXPLANAT ION HAS RETROSPECTIVE EFFECT. 5. ON PERUSAL OF THE ORDER OF THE TRIBUNAL, IT IS A BUNDANTLY CLEAR THAT THE SAID DECISION REMAINED CONFINED TO EXAMINE THE APPLICABILITY OF EXPLANATION-5 TO SECTION 32 ONLY. THERE WAS NO CLEAR CUT FINDING IN RESPECT OF THE ALLOWBILITY OF THE DEPRECIATION W HILE COMPUTING A DEDUCTION UNDER CHAPTER VI-A OF I.T.ACT. IT IS ALS O WORTH TO NOTE THAT THE DECISIONS CONSIDERED BY THE RESPECTED CO-O RDINATE BENCH HAVE ALSO REVOLVED AROUND THE CLAIM OF DEPRECIATION AS PRESCRIBED U/S.32 OF I.T. R.W. EXPLANATION-5. SUCH AS, THE DEC ISION OF CIT VS. KERALA ELECTRIC LAMP WORKS LTD. 261 ITR 721 (KER.) AND THE DECISION OF SREE SENHAVALLI TEXTILES P.LTD. 259 ITR 77 (MAD.) AS WELL AS THE DECISION OF MAHENDRA MILLS 243 ITR 56, ALL REVOLVED AROUND THE ALLOWABILITY OF DEPRECIATION AS PRESCRIB ED U/S.32 OF I.T. ACT. ONLY IN THE CONTEXT OF REGULAR ASSESSMENT BEI NG FRAMED UNDER THE NORMAL PROVISIONS OF I.T. ACT, THE HONBLE COUR TS HAVE EXPRESSED THAT UPTILL THE INTRODUCTION OF EXPLANATI ON-5 (W.E.F.1.4.2002) THE DEPRECIATION MUST NOT BE THRUS T UPON THE ASSESSEE. AS FAR AS THIS LEGAL PROPOSITION IS CONCE RNED, SINCE IT WAS DECIDED IN UNEQUIVOCAL TERMS, THEREFORE, WE HAVE NO THING MUCH TO ADD BUT TO PRONOUNCE THAT EXPLANATION-5 TO SECTION 32 HAS NO RETROSPECTIVE EFFECT AND THE SAID INTRODUCTION IN T HE STATUTE WAS ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 8 - PROSPECTIVE IN NATURE, HENCE, APPLICABLE FROM A.Y. 2002-03 AND NOT FOR ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y.20 00-01. RESULTANTLY, GROUND NO.2 OF THE REVENUE BEING COVERED BY THE DECISION OF THE RESPECTED COORDINATE BENCH TRIBUNAL AND FEW DECISIONS OF THE HONBLE HIGH COURT, HENCE, IT IS H EREBY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE . 5.1. THE NEXT QUESTION AND THE ISSUE AS RAISED THRO UGH GROUND NOS.1 AND 3 BY THE REVENUE IS SIGNIFICANT AND ARISES FROM THE ORDERS OF THE AUTHORITIES BELOW. THE QUESTION IS THAT WHI LE COMPUTING THE DEDUCTION U/S.80HHC WHETHER THE ASSESSEE IS AT LIBE RTY TO CLAIM OR NOT TO CLAIM THE DEPRECIATION FOR THE PURPOSE OF CO MPUTING THE ELIGIBLE PROFIT FOR CLAIM OF DEDUCTION U/S.80HHC OF I.T. ACT. VIDE GROUND NO.3 THE REVENUE HAS CITED A DECISION OF DABAR INDIA LTD. 219 CTR 152 (DELHI) AND AGITATED THAT LD.CIT(A) HAS ERRED IN NOT ALLOWING THE REDUCTION OF CURRENT YEARS DEPRECIATI ON FROM THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U/S.8 0HHC OF THE ACT. IT HAS ALSO VEHEMENTLY PLEADED BEFORE US THAT INSPITE OF A MANDATE GIVEN BY THE HONBLE DELHI HIGH COURT, THE LD.CIT(A ) HAS ERRED IN DIRECTING THE AO TO WORK OUT THE INCOME WITHOUT GIVING EFFECT TO THE CURRENT YEARS DEPRECIATION. THE SAID DECISION OF DELHI HIGH COURT ON THE ISSUE OF ALLOWANCE OF DEPRECIATIO N FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC IS A LANDMARK DECISION, WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE SEEKS T O CLAIM A SPECIAL ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 9 - DEDUCTION UNDER CHAPTER VIA, THERE IS NO OPTION AV AILABLE TO THE ASSESSEE BUT TO PROVIDE FOR DEPRECIATION ALLOWABLE, WHILE CALCULATING THE ELIGIBLE PROFITS AND GAINS ON WHICH DEDUCTION I S PERMISSIBLE UNDER THE PROVISIONS SPECIFIED IN CHAPTER VIA OF I. T. ACT. FROM THE SAID DECISION OF DABAR INDIA LTD. VS. CIT REPORTED AT (2008) 219 CTR 152 (DELHI); RELEVANT PORTIONS ARE REPRODUCED B ELOW:- IN ARRIVING AT THE EXTENT OF THE PERMISSIBLE DEDUC TION UNDER S. 80- IB AND S. 80HHC, THE INCOME WHICH IS TO BE CONSIDER ED IS THAT WHICH IS CALCULATED IN ACCORDANCE WITH THE PROVISIO NS OF THE ACT ALONE. THUS, IN CALCULATING PROFITS AND GAINS OF BU SINESS 'DERIVED' FROM THE INDUSTRIAL UNDERTAKINGS I.E., ELIGIBLE BUS INESSES, UNDER S. 80-IB OR EXPORT BUSINESS UNDER S. 80HHC, ONE WOULD HAVE TO BEAR IN MIND THE PROVISIONS OF SS. 30 TO 43D AS REFERRED TO IN S. 29, S. 80AB AND S. 80B(5). A CONJOINT READING OF THESE PRO VISIONS LEADS TO THE CONCLUSION THAT DEPRECIATION ALLOWANCE UNDER S. 32 WILL HAVE TO BE DEDUCTED IN ARRIVING AT THE 'PROFITS AND GAIN S' OF BUSINESS DERIVED BY AN ASSESSEE, FROM AN INDUSTRIAL UNDERTAK ING SPECIFIED UNDER S. 80-IB OR EXPORT BUSINESS UNDER S. 80HHC. I N THE INSTANT CASE AS NOTICED BY THE AO, THE ASSESSEE WHILE CLAIM ING DEPRECIATION FOR ALL ITS UNITS EXCEPT SIX UNITS HAD ATTEMPTED TO SEEK A DUAL BENEFIT, NOT ENVISAGED UNDER THE PROVISIONS OF THE ACT. FIRSTLY, BY OPTING OUT OF A CLAIM FOR DEPRECIATION ALLOWANCE UNDER S. 32 WHICH RESULTED IN ENHANCEMENT OF PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKINGS AND/OR BUSINESSES SPECIFIED UNDER S. 80-IB AND S. 80HHC, AND CONSEQUENT THERETO LED T O AN ENHANCEMENT OF THE QUANTUM OF DEDUCTION UNDER THE S AID PROVISIONS. SECONDLY, BY THIS METHODOLOGY THE ASSES SEE ENSURED THAT IT COULD AVAIL THE BENEFIT OF DEPRECIATION ALL OWANCE ON A HIGHER WRITTEN VALUE OF THE ASSETS IN THE YEARS SUB SEQUENT TO THE PERIOD OVER WHICH THE DEDUCTIONS UNDER SS. 80-IB AN D 80HHC WOULD BE AVAILABLE. IT IS, THUS, IMPORTANT TO BEAR IN MIND THE SCHEME OF THE ACT WHICH ENVISAGES THAT, WHILE COMPU TING NORMAL PROFITS WHICH DO NOT INVOLVE RELIEF BY WAY OF SPECI AL DEDUCTION ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 10 - PROVIDED FOR UNDER CHAPTER VI-A, AN ASSESSEE IS ENT ITLED TO OPT OUT OF A CLAIM FOR DEPRECIATION ALLOWANCE. IN OTHER WOR DS, THE ASSESSEE CAN CHOOSE TO DECLARE AND PAY TAX ON A GREATER AMOU NT OF INCOME. WHERE, HOWEVER, THE ASSESSEE SEEKS TO CLAIM 'SPECIAL DEDUCTIONS' UNDER CHAPTER VI-A, THERE IS NO OPTION AVAILABLE TO THE ASSESSEE, BUT TO PROVIDE FOR DEPRECIATION ALLOWANCE WHILE CAL CULATING THE ELIGIBLE PROFITS AND GAINS ON WHICH DEDUCTION IS PE RMISSIBLE UNDER THE PROVISIONS SPECIFIED IN CHAPTER VI-A. INDIAN RAYON CORPN. LTD. VS. CIT (2003) 182 CTR (BOM) 247 : (200 3) 261 ITR 98 (BOM) CONCURRED WITH; CAMBAY ELECTRIC SUPPLY IND USTRIAL CO. LTD. VS. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 ( SC) RELIED ON; CIT VS. MAHENDRA MILLS (2000) 159 CTR (SC) 381 : (2 000) 243 ITR 56 (SC) DISTINGUISHED. (PARAS 11 TO 13) 5.2. THE ABOVE DECISION HAS SETTLED THIS CONTROVERS Y AND INTERESTINGLY IN THE SAID DECISION, THE DECISION OF THE ITAT AHMEDABAD (SPECIAL BENCH) PRONOUNCED IN THE CASE OF VAHID PAPER CONVERTERS 100 TTJ 532 [AHD.](SB), HAS BEEN APPROV ED. 5.3. THE AFORECITED DECISION OF SPECIAL BENCH AHMED ABAD PRONOUNCED IN THE CASE OF VAHID PAPER CONVERTERS( S UPRA) HAS STREAMLINED THE ENTIRE CONTROVERSY. AN OBSERVATION IS WORTH MENTIONING THAT THE DEPRECIATION AND OTHER DEDUCTIO NS FALLING WITHIN SECTIONS 32, 43A WILL HAVE TO BE DEDUCTED BEFORE MA KING ANY DEDUCTION U/S.80I, HOWEVER, IF THE DEPRECIATION IS NOT CLAIMED THE RESULTANT INCOME WOULD BE MORE AND, CONSEQUENTLY, M ORE DEDUCTION WOULD BE AVAILABLE TO THE ASSESSEE UNDER CHAPTER VI A. THE RESPECTED BENCH HAS SAID THAT IT COULD NOT BE THE P RIVILEGE OF THE ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 11 - ASSESSEE TO CLAIM MORE DEDUCTION THAN WHAT HE IS EN TITLED TO. BY NOT CLAIMING DEPRECIATION IN THE YEAR IN WHICH THE ASSE SSEE IS ENTITLED TO DEDUCTION UNDER CHAPTER VI-A, RESULTS INTO CLAIMING DOUBLE ADVANTAGE. IN THE SENSE THAT CLAIMING HIGHER DEDUC TION UNDER CHAPTER VIA THEN THE ENTITLEMENT AND SIDE BY SIDE K EEPING WDV OF THE ASSETS AT THE HIGH FIGURE AND CLAIMING HIGHER D EPRECIATION IN SUBSEQUENT YEARS TENTAMOUNT TO DOUBLE BENEFIT. TH E RELEVANT PORTION OF THE DECISION OF SPECIAL BENCH ITAT AHMED ABAD IN THE CASE OF VAHID PAPER CONVERTERS VS. ITO REPORTED AT [2006] 9 8 ITD 165 (AHD.) (SB)( 100 TTJ 532); REPRODUCED BELOW:- WHEN THE ASSESSEE IS ENTITLED TO CERTAIN DEDUCTION OR EXEMPTION BY CLAIMING THE DEDUCTION HIS INCOME IS REDUCED. TH EREFORE, IF SUCH DEDUCTION IS NOT CLAIMED, THE INTEREST OF THE REVEN UE IS NOT PREJUDICIALLY AFFECTED. THEREFORE, IT COULD BE THE PRIVILEGE OF THE ASSESSEE TO CLAIM SUCH DEDUCTION OR NOT TO CLAIM. H OWEVER, THE POSITION IS NOT SAME WHEN THE INCOME OF THE ASSESSE E IS TO BE DETERMINED FOR THE PURPOSE OF COMPUTING DEDUCTION U NDER CHAPTER VI-A. UNDER THIS CHAPTER EITHER WHOLE OR A CERTAIN PERCENTAGE OF THE INCOME IS EXEMPT. THEREFORE, IF THE DEPRECIATION IS NOT CLAIMED, THE RESULTANT INCOME WOULD BE MORE AND CON SEQUENTLY MORE DEDUCTION WOULD BE AVAILABLE TO THE ASSESSEE U NDER CHAPTER VI-A. CERTAINLY, THEREFORE, IT CANNOT BE PRIVILEGE OF THE ASSESSEE TO CLAIM MORE DEDUCTION THAN WHAT HE IS ENTITLED TO. T HE ASSESSEE IS ENTITLED TO DEDUCTION UNDER CHAPTER VI-A ON THE BAS IS OF INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. THEREFORE, THE INCOME IS TO BE COMPUTED TAKING INTO ACCOUNT AL L THE PROVISIONS APPLICABLE WHILE COMPUTING THE BUSINESS INCOME INCL UDING ALLOWANCE OF DEPRECIATION. BY NOT CLAIMING THE DEPR ECIATION, THE ASSESSEE IS IN FACT CLAIMING HIGHER DEDUCTION UNDER CHAPTER VI-A, AND AT THE SAME TIME KEEPING WDV OF THEIR ASSETS HI GH (BECAUSE IF ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 12 - DEPRECIATION IS CLAIMED, WDV WOULD BE REDUCED BY TH E AMOUNT OF DEPRECIATION ACTUALLY ALLOWED). THE ASSESSEE WOULD CLAIM DEPRECIATION ON SUCH HIGH WDV IN THE SUBSEQUENT YEA R. THUS, BY NOT CLAIMING DEPRECIATION IN THE YEARS IN WHICH ASS ESSEE IS ENTITLED TO DEDUCTION UNDER CHAPTER VI-A, ASSESSEES ARE CLAI MING DOUBLE ADVANTAGE, (I) CLAIMING HIGHER DEDUCTION UNDER CHAP TER VI-A THAN THEIR ENTITLEMENT, (II) KEEPING WDV OF ASSETS HIGH RESULTING IN HIGHER CLAIM OF DEPRECIATION IN SUBSEQUENT YEARS. T HIS CANNOT BE PRIVILEGE OF THE ASSESSEE. (PARA 49) IT IS THE DUTY CAST UPON THE AO TO APPLY THE RELEV ANT PROVISIONS OF THE IT ACT FOR THE PURPOSE OF DETERMINING THE TRUE FIGURE OF THE ELIGIBLE INCOME FOR THE PURPOSE OF DEDUCTION UNDER CHAPTER VI-A. THE RELEVANT PROVISIONS OF THE IT ACT INCLUDE S. 32 UNDER WHICH DEDUCTION FOR DEPRECIATION HAS TO BE ALLOWED. THEREFORE, WHILE COMPUTING THE INCOME FOR THE PURPOSE OF DEDUCTION U NDER CHAPTER VI-A, THE DEPRECIATION HAS TO BE ALLOWED WH ETHER IT IS CLAIMED BY THE ASSESSEE OR NOT. (PARA 54) IT IS THUS EVIDENT THAT FOR THE PURPOSE OF CHAPTER VI-A, THE AO HAS TO COMPUTE THE PROFITS AND GAINS OF BUSINESS SE PARATELY. OF COURSE, THE COMPUTATION HAS TO BE MADE AS PER THE P ROVISIONS OF THE IT ACT MEANING THEREBY, WHILE COMPUTING THE PRO FITS AND GAINS OF THE ELIGIBLE BUSINESS, THE AO HAS TO GIVE EFFECT TO ALL THE RELEVANT PROVISIONS OF THE IT ACT, WHICH INCLUDE S. 32 ALSO. THEREFORE, WHILE COMPUTING THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS THE AO HAS TO GIVE EFFECT TO THE PROVISION S OF S. 32 ALSO AND WORK OUT THE PROFITS AND GAINS AFTER ALLOWING T HE DEPRECIATION. (PARA 59) IN VIEW OF THE AFORESAID DISCUSSION WE, THEREFORE, HOLD THAT THE DEPRECIATION, WHICH IS THOUGH ALLOWABLE BUT NOT CLA IMED IN THE RETURN FOR NORMAL COMPUTATION OF INCOME, HAS TO BE ALLOWED WHILE ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 13 - COMPUTING THE DEDUCTIONS UNDER CHAPTER VI-A, VIZ., SS. 80HH, 80- IA, 80-IB, ETC. OF AN INDUSTRIAL UNDERTAKING. (PARA 69) 5.4. THE DISTINCTION SO DRAWN BY THE SPECIAL BENCH IS AN IMPORTANT DISTINCTION THAT THE DEPRECIATION THOUGH ALLOWABLE IN THE NORMAL COMPUTATION BUT IF NOT CLAIMED BY THE ASSESSEE THEN FOR THE PURPOSES OF COMPUTATION OF DEDUCTION UNDER CHAPTER VIA THE D EPRECIATION HAS TO BE ACCOUNTED FOR AND TO BE DEDUCTED FROM THE ELIGIBLE PROFIT. THIS DISTINCTION HAS DULY BEEN APPROVED BY THE HON BLE DELHI HIGH COURT AS REPRODUCED ABOVE. EVEN THE VIEW EXPRESSED BY US GET THE SUPPORT OF AN ORDER OF HONBE GUJARAT H.C. IN THE C ASE OF MAHALAXMI FABRICS MILLS VS. ACIT 309ITR 63 ( GUJ), WHEREIN FOLLOWING SHRIKE CONSTRUCTION EQUIPMENT 291 ITR 380 (SC) AND IPCA LABORARY LTD. 266 ITR 521 (SC) IT WAS HELD THA T IT WAS JUSTIFIED IN REDUCING THE PROFITS BY THE AMOUNT OF CARRIED FORWARD DEPRECIATION AND INVESTMENT ALLOWANCE BEFORE ALLOWI NG DEDUCTION U/S.80HHC .THEREFORE TO CONCLUDE THE ABOVE DETAILED DISCUSSION, WE HEREBY HOLD THAT UP TO A.Y. 2001-02 A DEPRECIATION CAN NOT BE THRUST UPON THE ASSESSEE WHILE COMPUTING THE NORMAL INCOME UNDER THE HEADING COMPUTATION OF TOTAL INCOME AS PER CHAPT ER IV-D I.E. PROFITS & GAINS OF BUSINESS & PROFESSION. BUT WHILE COMPUTING A DEDUCTION UNDER CHAPTER VI-A VIZ. 80 HHC THE ASSESS EE HAS NO SUCH OPTION AND THEREFORE HAS TO REDUCE THE ELIGIBLE PRO FIT BY THE AMOUNT OF DEPRECIATION. IN CASE AN ASSESSEE HAS NOT DEDUCT ED THE AMOUNT OF ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 14 - DEPRECIATION THEN THE A.O. IS EMPOWERED TO MAKE SUC H ADJUSTMENT BY REDUCING THE BOOK-PROFIT OR THE ELIGIBLE PROFIT BY THE AMOUNT OF DEPRECIATION. FOR THE SAKE OF CLARIFICATION WE CAN ADD THAT ON AND FROM THE A.Y 2002-03 AFTER THE INSERTION OF EXPL.5 TO SEC.32 IT IS NOW SYNCHRONIZED THAT EITHER IN THE COMPUTATION OF TOTAL INCOME UNDER CHAPTER IV OR FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER CHAPTER VI-A AN ASSESSEE HAS NO OPTION BUT TO REDUCE THE PRESCRIBED DEPRECIATION. IN VIEW OF THIS GROUND NO.1 & 3 OF THE REVENUE HAS SUBSTANCE AND, THEREFORE, HEREBY DECIDED IN ITS FAVOUR . 6. GROUND NO.4 READS AS UNDER: 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING NOT EXCLUDE 90% OF EXCESS PROVISION FOR CALCULATION OF DEDUCTION U/S.80HHC OF THE I.T. ACT. 6.1. THE OBSERVATION OF THE AO WAS THAT AS PER CLAU SE (BAA) TO EXPLANATION U/S.80HHC(4A) 90% OF EXPORT INCENTIVE, RECEIVED BY COMMISSION, BROKERAGE, ETC. IF INCLUDED IN THE PROF ITS HAVE TO BE EXCLUDED. THE AO HAS FOUND THAT THE ASSESSEE HAS C REDITED SUCH AMOUNT I.E. EXCESS PROVISION, WHICH WERE COVERED UN DER THE EXPRESSION OTHER RECEIPTS OF SIMILAR NATURE. THE AO HAS, THUS, CONCLUDED THAT THOSE AMOUNTS WERE REQUIRED TO BE EX CLUDED TO THE EXTENT OF 90% WHILE COMPUTING THE DEDUCTION U/S.80H HC OF THE I.T. ACT. AGAINST THE SAID DECISION OF THE AO, THE MATT ER WAS CARRIED BEFORE THE LD.CIT(A). ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 15 - 7. THE LD.CIT(A) HAS REFERRED A DECISION OF THE TRI BUNAL FOR A.Y. 2001-02 IN ASSESSEES OWN CASE AND DIRECTED NOT TO EXCLUDE 90% OF SUCH INCOME WHILE COMPUTING THE DEDUCTION U/S.80HHC ; RELEVANT PORTION IS REPRODUCED BELOW : 8.4. THE LD. A.R. ALSO POINTED OUT THAT HON'BLE IT AT IN THE APPELLANTS CASE IN A.Y. 2001-02 DECIDED THE ISSUE REGARDING EXCESS PROVISION WRITTEN BACK . THEREFORE, IT WAS CONTENDED THAT THE AMOUNT UNDER REFERENCE HAS NOT REQUIRED TO BE EXCLUDED FOR THE PURPOSES OF DEDUCTION U/S.80HHC. 8.5. I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE LD. A.R. CAREFULLY. I HAVE ALS O GONE THROUGH THE DECISION OF HON'BLE ITAT IN THE APPELLA NTS CASE FOR THE A.Y. 2001-02. IT IS SENT HAT THE HON'BLE I TAT WHILE DECIDING THE ISSUE OF EXCLUSION OF EXCESS PROVISION WRITTEN BACK OBSERVED THAT IN OUR OPINION, THE EXCESS PROVISION WRITTEN BACK CANNOT BE REGARDED TO BE THE INDEPENDE NT INCOME. THIS IS CONNECTED WITH THE BUSINESS OF THE ASSESSEE AND, THERE, CLAUSE (BAA) OF EXPLANATION CANNOT BE A PPLIED. THE A.O. IS ACCORDINGLY DIRECTED NOT TO EXCLUDE 90% OF THE EXCESS PROVISION WRITTEN BACK WHILE COMPUTING THE D EDUCTION U/80HHC. OUR AFORESAID VIEW IS DULY SUPPORTED BY T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. K.RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC). 8. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE FOUND THAT ITAT A BENCH IN ITA NO.109/AHD/2005 FOR A.Y. 2001-02 VIDE AN ORDER DATED 17/10/2008 TITLED AS M/S.H.K. F INECHEM LTD. HAS DECIDED THE ISSUE IN THE FOLLOWING MANNER: ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 16 - 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE DECISION OF THE HON. MADRAS HIGH COUR T IN THE CASE OF CIT V. ABDUL RAHMAN INDUSTRIES (2007) 293 I TR 475 (MAD) WILL NOT BE APPLICABLE IN THE CASE OF THE ASS ESSEE AS IN THAT CASE THE ISSUE BEFORE THE HIGH COURT WAS WHETH ER THE INCOME FROM UNCLAIMED BALANCE WRITTEN BACK SHOULD B E ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES OR UNDER THE HEAD INCOME FROM BUSINESS SO THAT THE A SSESSEE MAY BE ENTITLED FOR THE DEDUCTION U/S.80HHC. IN TH E CASE BEFORE US SUCH INCOME HAS DULY BEEN ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND THE AO HAS ALSO ALLOWED THE DEDUCTION TO THE ASSESSEE BUT THE ONLY QUESTION REM AINS WHETHER EXPLANATION (BAA) TO SECTION 80HHC IS APPLI CABLE OR NOT. IN OUR OPINION, THE EXCESS PROVISION WRITTEN BACK CANNOT BE REGARDED TO BE THE INDEPENDENT INCOME. THIS IS CONNECTED WITH THE BUSINESS OF THE ASSESSEE AND, THEREFORE, CLAUSE (BAA) OF EXPLANATION CANNOT BE APPLIED. THE AO IS ACCORDINGLY DIRECTED NOT TO EXCLUDE 90% OF THE EXCE SS PROVISION WRITTEN BACK WHILE COMPUTING THE DEDUCTIO N U/S.80HHC. OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT V K RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC). 9. ONCE THE TRIBUNAL HAS FOLLOWED THE DECISION OF H ONBLE APEX COURT, THEREFORE, THE SAME VIEW HAS TO BE ADOPTED F OR THE YEAR UNDER CONSIDERATION AND IN CONSEQUENCE THEREOF THIS GROUN D OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2000-0 1 (ITA NO.2557/AHD/2009) IS PARTLY ALLOWED. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 17 - (B) ASSESSEES APPEAL; ITA NO.2487/AHD/2009 FOR A .Y. 2000-01 11. GROUND NO.1 READS AS UNDER: 1. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS IN UPHOLDING DEDUCTION OF 90% OF COMMISSION INCOME OF RS.21,82,480/- AND MISCELLANEOUS INCOME OF RS.9,22, 608/- WHILE CALCULATING ADJUSTED BOOK PROFIT FOR THE PURP OSE OF WORKING OF DEDUCTION U/S.80HHC OF THE ACT. IT IS S UBMITTED THAT IT BE SO HELD NOW. 11.1 THIS ISSUE HAS ALREADY BEEN DECIDED AGAINST THE ASSESSEE IN A.Y. 2001-02 BY ITAT A BENCH AHMEDABAD ORDER DATE D 17/10/2008(SUPRA) VIDE PARA-7; REPRODUCED BELOW:- 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND, PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE AUTH ORITIES BELOW AS THE ISSUE IS DULY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V K. RAVINDRANATHA N NAIR (2007) 295 ITR 228 (SC). IN VIEW OF CLAUSE (BAA) O F EXPLANATION, 90% OF THE COMMISSION INCOME ASSESSED UNDER THE HAD INCOME FROM BUSINESS HAS TO BE REDUCED WH ILE COMPUTING THE PROFITS OF BUSINESS FOR THE PURPOSE O F COMPUTING THE DEDUCTION U/S.80HHC. OUR AFORESAID VIEW IS DUL Y SUPPORTED BY THE FINDINGS OF THE HON'BLE SUPREME CO URT WHICH HAVE BEEN REPRODUCED IN THE PRECEDING PARAGRAPH WHI LE DISPOSING OF THE ISSUE RELATING TO THE SUNDRY BALAN CE WRITTEN OFF. THUS, THIS GROUND ALSO STANDS DISMISSED. 12. ONCE THE TRIBUNAL HAS FOLLOWED THE HONBLE SUPR EME COURT, THEREFORE, NOW THIS GROUND STOOD COVERED AGAINST TH E ASSESSEE, HENCE, DISMISSED. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 18 - 13. GROUND NO.2 READS AS UNDER: 2. THE LEARNED CIT (APPEALS) ERRED IN LAW AND ON FACTS IN NOT GRANTING DEDUCTION U/S.80HHC ON THE BASIS OF BOOK P ROFIT WHILE WORKING OUT THE COMPUTATION OF ADJUSTED BOOK PROFIT FOR CALCULATION OF MAT LIABILITY OF THE APPELLANT. IT IS SUBMITTED THAT THE APPELLANT BE GRANTED DEDUCTION U/S.80HHC BY APPLYING FORMULA LAID DOWN U/S.80HHC O N THE BOOK PROFIT FOR THE YEAR UNDER CONSIDERATION IN TERMS OF CLAUSE (VIII) OF EXPLANATION OF SECTION 115JA OF TH E ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 13.1. THE AO WAS OF THE VIEW THAT NO POSITIVE FIGUR E OF PROFIT WAS AVAILABLE FOR DEDUCTION AFTER THE ADJUSTMENT OF THE DEPRECIATION, THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO CLAIM O F THE SAID DEDUCTION AGAINST THE AMOUNT OF BOOK PROFIT. HE HA S CONCLUDED THAT AFTER SET OFF OF UNABSORBED LOSSES, DEPRECIATION, E TC. THE GROSS TOTAL INCOME REMAINED NIL, HENCE, THERE WAS NO ADMISSIBLE AMOUNT REMAINED FOR DEDUCTION U/S.80HHC. WHILE COMPUTING THE BOOK PROFIT FORMAT HE HAS NOT REDUCED THE DEDUCTION OF S ECTION 80HHC. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY. 14. THE LD.CIT(A) HAS OBSERVED THAT THERE WAS NO DI SPUTE THAT AFTER GIVING EFFECT TO THE PROVISIONS OF SECTION 80 AB, I.E. THE SET OFF OF LOSS AND SET OFF OF UNABSORBED DEPRECIATION AGAI NST THE BUSINESS INCOME, THERE WAS NO POSITIVE PROFIT REMAINED ON WH ICH THE DEDUCTION U/S.80HHC COULD BE ALLOWED. LD.CIT(A) HA S MADE A ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 19 - REFERENCE IPCA LABORATORIES LTD. 266 ITR 521(SC). IT WAS CONCLUDED BY HIM THAT SINCE THE ASSESSEE WAS NOT EN TITLED FOR DEDUCTION U/S.80HHC ON THE BASIS OF THE PROFIT COMP UTED UNDER THE REGULAR PROVISIONS OF I.T.ACT, THEREFORE, THE ASSES SEE WAS ALSO NOT ENTITLED FOR DEDUCTION OUT OF BOOK PROFIT CALCULA TED FOR THE PURPOSE OF THE PROVISIONS OF SECTION 115JB OF THE I.T. ACT. AT THAT POINT OF TIME, THERE WAS A DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. M/S.AJANTA PHARMA LTD. REPORTED AT (2009) 223 CTR 441 (BOM.) WHICH WAS IN FAVOUR OF THE REVENUE. IN THAT DECISION, THE OBSERVATION OF THE HONBLE BOMBAY HIGH COURT WA S THAT THERE COULD NOT BE SEPARATE PROVISIONS OF WORKING OUT THE PROVISIONS OF SECTION 80HHC, ONE FOR THE PROFIT UNDER THE NORMAL PROVISIONS OF I.T. ACT AND THE OTHER FOR THE BOOK PROFIT TO BE WO RKED OUT UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. IT IS ALSO WORTH TO MENTION THAT AT THAT POINT OF TIME, THERE WAS A DECISION OF SPECIAL BENCH, ITAT MUMBAI IN THE CASE OF DCIT VS. SYNCOME FORMULA TIONS (I) LTD. REPORTED AT (2007)106 ITD 193 (MUM.)[SB] WHICH WAS ALSO OVERRULED. LD.CIT(A) HAS, THUS, CONCLUDED THAT TH OUGH FOR A.Y. 2001-02 THE ITAT AHMEDABAD HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING SYNCOME FORMULATIONS (I) LTD.(SU PRA), BUT IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COU RT THE SAID DECISION OF THE TRIBUNAL HAVE BEEN OVERRULED, THERE FORE, THAT DECISION OF THE TRIBUNAL WOULD NOT RENDER ANY HELP TO THE ASSESSEE. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 20 - THE ASSESSEES CLAIM WAS REJECTED AND THE AOS DECI SION WAS APPROVED. NOW, THE ASSESSEE IS IN APPEAL BEFORE US . 15. HEARD BOTH THE SIDES. THE LEGAL POSITION HAS NOW AGAIN CHANGED . THE HONBLE SUPREME COURT IN THE CASE OF AJANTA PHARMA LTD. VS. CIT (2010)327 ITR 305 HAS HELD THAT CLAUSE(IV) OF THE EXPLANATION TO SECTION 115JB COVERS FULL EXP ORT PROFITS OF 100% AS ELIGIBLE PROFITS AND THE SAME CANNOT BE REDUCED TO 80% BY RELYING ON SECTION 80HHC(1B) OF THE ACT. THEREF ORE, THE ARGUMENT OF THE DEPARTMENT THAT BOTH ELIGIBILITY AS WELL AS DEDUCTIBILITY OF THE PROFIT HAVE TO BE CONSIDERED TOGETHER FOR WORKING OUT THE DEDUCTION AS MENTIONED IN CLAUSE(IV ) HAS NO MERIT. IN SECTION 115JB, IT IS CLEARLY STATED THAT THE REL IEF WILL BE COMPUTED U/S.80HHC SUBJECT TO THE CONDITIONS OF SECTION (4) AND SECTION (4A) OF THAT SECTION. THE OBSERVATION OF THE HONBLE CO URT WAS THOSE CONDITIONS ARE IN RESPECT OF THE COMPLIANCE AND NOT IN RESPECT OF THE QUALIFYING AMOUNT. RELEVANT HELD PORTION IS REPROD UCED BELOW :- 10. ONE OF THE CONTENTIONS RAISED ON BEHALF OF T HE DEPARTMENT WAS THAT IF CL. (IV) OF EXPLANATION TO S . 115JB IS READ IN ENTIRETY INCLUDING THE LAST LINE THEREOF (W HICH READS AS SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTI ON), IT BECOMES CLEAR THAT THE AMOUNT OF PROFITS ELIGIBLE F OR DEDUCTION UNDER S. 80HHC, COMPUTED UNDER CL. (A) OR CL.(B) OR CL.(C) OF SUB-S. (3) OR SUB-S. (3A), AS THE CASE MAY BE, IS S UBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION. ACCORDING TO THE DEPARTMENT, THE ASSESSEE HEREIN IS TRYING TO READ T HE VARIOUS ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 21 - PROVISIONS OF S. 80HHC IN ISOLATION WHEREAS AS PER CL.(IV) OF EXPLANATION TO S. 115JB, IT IS CLEAR THAT BOOK PROF IT SHALL BE REDUCED BY THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUC TION UNDER S. 80HHC AS COMPUTED UNDER CL. (A) OR CL.(B) OR CL. (C) OF SUB-S. (3) OR SUB-S. (3A), AS THE CASE MAY BE, OF THAT SEC TION 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 S. 80HHC. THUS, ACCORDING TO THE DEP ARTMENT, BOTH ELIGIBILITY AS WELL AS DEDUCTIBILITY OF TH E PROFIT HAVE GOT TO BE CONSIDERED TOGETHER FOR WORKING OUT THE D EDUCTION AS MENTIONED IN CL.(IV) OF EXPLANATION TO S. 115JB. W E FIND NO MERIT IN THIS ARGUMENT. IF THE DICHOTOMY BETWEEN ELIGIBILITY OF PROFIT AND DEDUCTIBILITY OF PROFIT IS NOT KEPT IN MIND THEN S. 115JB WILL CEASE TO BE A SELF-CONTAINED CODE. I N S. 115JB, AS IN S. 115JA, IT HAS BEEN CLEARLY STATED THAT THE RELIEF WILL BE COMPUTED UNDER S. 80HHC(3)/(3A), SUBJECT TO THE CON DITIONS UNDER SUB-CLS. (4) AND (4A) OF THAT SECTION. THE C ONDITIONS ARE ONLY THAT THE RELIEF SHOULD BE CERTIFIED BY THE CHA RTERED ACCOUNTANT. SUCH CONDITION IS NOT A QUALIFYING CON DITION BUT IT IS A COMPLIANCE CONDITION. THEREFORE, ONE CANNOT R ELY UPON THE LAST SENTENCE IN CL. (IV) OF EXPLANATION TO S. 115JB [SUBJECT TO THE CONDITIONS SPECIFIED IN SUB-CLS. (4) AND (4A ) OF THAT SECTION] TO OBLITERATE THE DIFFERENCE BETWEEN ELIG IBILITY AND DEDUCTIBILITY OF PROFITS AS CONTENDED ON BEHALF O F THE DEPARTMENT. 16. IN VIEW OF THE LATEST DECISION OF THE HONBLE S UPREME COURT, THE LAW IS SETTLED IN FAVOUR OF THE ASSESSEE. WE H OLD ACCORDINGLY AND THIS GROUND IS ALLOWED. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 22 - 17. IN THE RESULT, ASSESSEES APPEAL FOR A.Y. 2000- 01 (ITA NO.2487/AHD/2009) IS PARTLY ALLOWED. (C) CROSS OBJECTION NO.212/AHD/2009 FOR A.Y. 2000-0 1 18. GROUND NO.1 READS AS UNDER: (1) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS ) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ASSESSMENT UND ER SECTION 147 OF THE ACT. IT IS SUBMITTED THAT THE LEARNED A SSESSING OFFICER HAD WRONGLY ASSUMED JURISDICTION U/S.147 OF THE ACT AND ALSO THE PROCEDURE LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF G.K.N. DRIVE SHAFT LTD., 259 ITR 90 WERE ALSO NOT FOLLOWED. 18.1. IN VIEW OF THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF RAJESH JHAVERI REPORTED AT 291 ITR 500 (SC) IT H AS BEEN SETTLED THAT U/S.147, AS SUBSTITUTED WITH EFFECT FROM 01/04 /1989, IF THE AO, FOR WHATEVER REASON, HAS REASON TO BELIEVE THAT INC OME HAS ESCAPED ASSESSMENT, IT CONFERS JURISDICTION TO REOPEN THE A SSESSMENT WHERE THE CASE IS NOT COVERED BY PROVISO. RESPECTFULLY FOLLOWING THIS DECISION, WE FIND NO FORCE IN THIS CROSS OBJECTION (I.E.CO NO.212/AHD/2009), HENCE, DISMISSED. 19. FOR A.Y. 2005-06 REVENUE IS IN APPEAL AND THE A SSESSEE IS IN CROSS OBJECTION ARISING FROM THE ORDER OF THE CIT(A )-VIII AHMEDABAD DATED 01/05/2009. (D) REVENUES APPEAL; ITA NO.2559/AHD/2009 FOR A.Y . 2005-06 ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 23 - GROUND NO.1 READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N ALLOWING THE ASSESSEE TO CLAIM DEPRECIATION ON W.D.V. OF ASS ETS ON WHICH NO DEPRECIATION WAS CLAIMED IN A.Y. 2000-01 T O 2001- 02. 19.1. FROM THE ORDER OF THE AO, IT WAS FOUND THAT THE DEPRECIATION FOR A.YS. 2000-01 AND 2001-02 WAS NOT CLAIMED. HOW EVER, FOR A.Y. 2002-03 THE DEPRECIATION WAS CLAIMED ON THE BA SIS OF W.D.V. COMPUTED AS ON 01/04/1999. IN THE PAST FOR AY 2002 -03 THE DEPRECIATION WAS ALLOWED BY ADJUSTING THE WDV TO TH E EXTENT OF DEPRECIATION REQUIRED TO BE ADJUSTED FOR THOSE TWO YEARS IN WHICH IT WAS NOT CLAIMED, I.E. A.YS. 2000-01 AND 2001-02. AS FAR AS THE YEAR UNDER CONSIDERATION WAS CONCERNED, THE ASSESSE E HAS CLAIMED THE DEPRECIATION AT RS.1,81,99,029/-. A SHOW-CAUSE NOTICE WAS ISSUED AS TO WHY THE DEPRECIATION BE NOT ALLOWED ON THE WDV WHICH WAS WORKED AS ON 31/03/2004 AS PER THE ASSESSMENT R ECORD. IN COMPLIANCE THE ASSESSEE HAS DISCUSSED THE PROVISION S OF SECTION 43(6) OF THE I.T. ACT AND ARGUED THAT SINCE NO DEPR ECIATION WAS CLAIMED FOR 2001-02 AND, THEREFORE, AS PER THE DEPR ECIATION OF ACTUAL COST THE DEPRECIATION ACTUALLY ALLOWED B E TAKEN INTO ACCOUNT TO COMPUTE THE WDV FOR THE YEAR UNDER CONSI DERATION. THE AO WAS NOT CONVINCED AND ON THE BASIS OF THE WDV AS DETERMINED IN THE ASSESSMENT ORDERS WAS TAKEN FOR COMPUTING TH E DEPRECIATION FOR THE YEAR UNDER CONSIDERATION. THE MATTER WAS C ARRIED BEFORE THE ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 24 - FIRST APPELLATE AUTHORITY AND THE GROUND WAS ALLOWE D AS PER THE FOLLOWING OBSERVATION: 5.5. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE LD.A.R. CAREFULLY. I HAVE ALSO GONE THROUGH THE ORDER OF HON'BLE ITAT FOR THE A.Y. 200 2-03, THE COPY THEREOF HAS BEEN FILED BY THE LD. A.R. DURING THE APPELLATE PROCEEDINGS. THE HON'BLE ITAT HAS ALLOWE D APPELLANTS CLAIM FOR DEPRECIATION FOR THE A.Y. 200 2-03 AS CLAIMED BY IT IN THAT YEAR. THEREFORE, RESPECTFULL Y FOLLOWING THE DECISION OF HON'BLE ITAT, THE A.O. IS DIRECTED TO WORK OUT THE DEPRECIATION ON THE W.D. AS CLAIMED BY THE APPE LLANT ACCORDINGLY. HOWEVER, WHILE GIVING EFFECT TO THIS ORDER THE A.O. WILL HAVE TO TAKE INTO CONSIDERATION THE DEPRE CIATION ALLOWED BY THE HON'BLE ITAT IN THE A.Y. 2002-03 AS REFERRED ABOVE. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED TO THE EXTENT STATED ABOVE. 20. ON HEARING THE SUBMISSIONS BOTH THE SIDES, WE H AVE FOUND THAT IN ASSESSEES OWN CASE FOR AY 2002-03 ITAT A BENC H AHMEDABAD IN ITA NO.2806/AHD/2006 VIDE ORDER DATED 06/03/2009 TITLED AS H.K. FINECHEM LTD. VS. ITO (SUPRA), AS AL READY DISCUSSED, THE DEPRECIATION MUST NOT BE THRUST UPON THE ASSESS EE AND EVEN IN RESPECT OF THE EARLIER YEARS WHOSE ASSESSMENT YEARS HAVE ALREADY BEEN COMPLETED, THEREFORE, IN THE LIGHT OF THESE DE CISIONS OF THE TRIBUNAL, THE WDV HAS FINALLY BEEN DETERMINED AT TH E BEGINNING OF THE YEAR UNDER CONSIDERATION OUGHT TO BE TAKEN INTO ACCOUNT FOR THE CLAIM OF DEPRECIATION FOR AY 2005-06. WE ORDER ACC ORDINGLY. THIS GROUND IS DISMISSED. REVENUES APPEAL IS DISMISSED . ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 25 - 21. IN THE RESULT, THE REVENUES APPEAL FOR A.Y. 2005-06 IS DISMISSED. (E) ASSESSEES CROSS OBJECTION NO.214/AHD/2009 FOR AY2005-06 22. GROUND NO.1 READS AS UNDER: (1) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEA LS) ERRED IN LAW AND ON FACTS IN UPHOLDING THE CHARGING OF IN TEREST U/S.234B AND U/S.234C WHILE WORKING OUT TAX LIABILI TY U/S.115JB OF THE ACT. IT IS SUBMITTED THAT WHEN TH E INCOME IS DETERMINED UNDER THE PROVISIONS OF MAT U/S.115JB, NO SUCH INTEREST SHOULD BE LEVIABLE. IT IS SUBMITTED THAT IT BE SO HELD NOW. 22.1. THE ISSUE OF CHARGING OF INTEREST U/S.234B O F THE ACT STOOD SETTLED IN FAVOUR OF THE REVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ROLTA INDIA LTD. REPOR TED AT 330 ITR 470 (SC), WHEREIN IT HAS HELD THAT INTEREST CAN BE CHARGED ON TAX CALCULATED ON BOOK PROFIT AND THE EXPRESSION ASSES SED TAX IS DEFINED TO THE TAX ASSESSED ON REGULAR ASSESSMENT W HICH MEANS THE TAX DETERMINED ON THE APPLICATION OF SECTION 115J O R 115JA IN THE REGULAR ASSESSMENT. THEREFORE, INTEREST U/S.234B I S PAYABLE ON FAILURE TO PAY ADVANCE TAX IN RESPECT OF TAX PAYABL E U/S.115JB OF THE ACT. THIS GROUND OF THE CROSS OBJECTON IS DISMISSED. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 26 - 23. GROUND NO.2 READS AS UNDER:- (2) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN LAW AND ON FACTS IN UPHOLDING THE CHARGING OF INTEREST U/S.234D OF THE ACT. IT IS SUBMITTED THAT PROVISIONS OF SECTION 234D ARE NOT APPLICABLE FOR T HE YEAR UNDER CONSIDERATION AND HENCE THE SAME SHOULD HAVE BEEN DELETED IN TOTO. 23.1. AS REGARDS CHARGING OF INTEREST U/S.234D, WE FIND THAT THIS ISSUE IS DULY COVERED BY THE DECISION OF THE ITAT S PECIAL BENCH IN THE CASE OF ITO VS. EKTA PROMOTERS (P) LTD. (2008) 113 ITD 719 (DELHI)[SB], IN WHICH THE SPECIAL BENCH OF THIS TRI BUNAL HAS CLEARLY HELD THAT SECTION 234D WHICH HAS BEEN BROUGHT ON TH E STATUTE FROM 01-06-2003 CANNOT BE APPLIED TO THE ASSESSMENT YEAR 2003-04 AND EARLIER YEARS BUT IT WILL HAVE APPLICATION ONLY WIT H EFFECT FROM ASSESSMENT YEAR 2004-05. RESPECTFULLY FOLLOWING TH E AFORESAID DECISION SINCE THE A.Y. UNDER CONSIDERATION WAS A.Y . 05-06 , THEREFORE THIS GROUND OF THE ASSESSEE HAS NO FORCE HENCE DISMISSED. ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 27 - 24. WE SUMMARIZE THE RESULT AS UNDER:- 1. REVENUES APPEAL FOR AY 2000-01 (ITA NO.2557/A HD/2009) IS PARTLY ALLOWED. 2. ASSESSEES APPEAL FOR AY 2000-01 (ITA NO.2487/AHD/2009) IS PARTLY ALLOWED. 3. ASSESSEES C.O. FOR AY 2000-01 (CO NO.212/AHD/2009) IS DISMISSED. 4. REVENUES APPEAL FOR AY 2005-06 (ITA NO.2559/AHD/20 09) IS DISMISSED. 5. ASSESSEES C.O. FOR AY 2005-06 (CO NO.214/AHD/2009 ) IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 29 TH APRIL, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 29 / 04 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NOS.2557&2559/AHD/09(BY REVENUE) AND ITA NO.2487/A/09, CO NOS.212&214/A/09(BY ASSESSEE) ASST.YEARS -2000-01 & 2005-06 - 28 - 1. DATE OF DICTATION..20/04/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21/04/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S29/4/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29/4/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER