N.W. EXPORTS LTD, MUMBAI V. ITO WD 2(2)(4), MUMBAI

ITA 3123/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48434 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 21-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: M D INAMDAR
• Keywords: Business income; Depreciation; Deemed to accrue or arise in india
• Section: 143(3); 115JB; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.3123/MUM/2010(A.Y. 2003-04) N.W. EXPORT LIMITED, NEVILLE HOUSE, CURRIMBHOY ROAD, BALLARD ESTATE, MUMBAI 01. PAN:AAACN 2021 P (APPELLANT) VS. THE ITO WARD 2(2)(4), AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI M.D. INAMDAR RESPONDENT BY : SMT. ASHIMA GUPTA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 2/2/2010 OF CIT(A)-5, MUMBAI RELATING TO ASSESSMENT YEAR 2003-0 4. THE GROUND OF APPEAL OF THE ASSESSEE READS AS FOLLOWS: THE LEARNED CIT(A)-5 GROSSLY ERRED IN UPHOLDING TH E DECISION OF THE ACIT (OSD) CIRCLE 2 (2) MUMBAI VIDE ORDER PASSED U/ S. 143(3)/263 OF THE IT ACT 1961 IN NOT ALLOWING DEDUCTION OF RS. 73 ,63,722/- ALLOWABLE U/S. 80 HHC OF THE INCOME TAX ACT WHILE ARRIVING BO OK PROFIT U/S. 115JB OF THE INCOME TAX ACT. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF EXPORT TRADING OF TEXTILES. THE ASSESSMENT OF THE ASSESSEE FOR A. Y 2003-04 WAS COMPLETED BY THE AO UNDER SECTION 143(3) OF THE ACT ON 27/3/0 6. THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80 HHC OF THE I NCOME TAX ACT, 1961 (THE ACT). THE ASSESSEE HAD COMPUTED SUCH DEDUCTION AT A SUM OF RS. ITA NO.3123/MUM/2010(A.Y. 2003-04) 2 81,53,282/-. WHILE COMPLETING THE ASSESSMENT THE A O DETERMINED THE ELIGIBLE DEDUCTION UNDER SECTION 80 HHC OF THE ACT AT RS. 73,63,722/-. THE DEDUCTION UNDER SECTION 80 HHC WAS HOWEVER NOT ALLO WED BECAUSE THE INCOME UNDER THE HEAD BUSINESS WAS NIL. THE INCOME TAX PAYABLE ON THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIONS O F THE ACT WAS LESS THAN 15% OF THE BOOK PROFITS AND, THEREFORE, THE INCOME OF THE ASSESSEE WAS DETERMINED ON THE BASIS OF THE BOOK PROFITS IN VIEW OF THE PROVISIONS OF SECTION 115JB OF THE ACT. THE COMPUTATION OF TOTAL INCOME AS DONE BY THE AO AND THE BOOK PROFITS UNDER SECTION 115JB WAS COM PUTED BY THE AO AS FOLLOWS: BUSINESS INCOME AS PER COMPUTATION OF TOTAL INCO ME RS. 24993183 ADD: DISALLOWANCES 1. U/S. 43B(B) AS PER PARA 2 RS. 54,000 2. U/S.2(24)(X) AS PER PARA 3 RS. 54,000 3. LOANS AND ADVANCES W/OFF RS. 5,8 9,166 RS. 697166 ----------------------------------- RS. 25690349 LESS: UNABSORBED B/F LOSSES AND DEPRECIATION. RS.25690349 ---------------- BUSINESS INCOME RS. NIL INCOME FROM CAPITAL GAINS: SHORT TERM CAPITAL GAINS AS PER COMPUTATION RS. 223055 INCOME FROM OTHER SOURCES DIVIDEND INCOME RS. 785935 ---------- ----- TOTAL INCOME RS.1008990 ========== TAX PAYABLE U/S.115JB OF THE IT ACT. NET PROFIT AS PER P&L A/C. RS.21164262 LESS DEDUCTION U/S. 80 HHC RS. 7363722 ------------- ------ BOOK PROFIT RS.13800540 TAX @ 7.5% RS. 1035041 ADD: SURCHARGE @ 5% RS. 51572 ------------- ----- TOTAL TAX. RS.1086793 =========== ITA NO.3123/MUM/2010(A.Y. 2003-04) 3 3. THE CIT IN EXERCISE OF HIS POWERS UNDER SECTION 263 OF THE ACT WAS OF VIEW THAT WHILE COMPUTING BOOK PROFITS UNDER SECTIO N 115JB OF THE ACT IN TERMS OF CLAUSE (IV) TO EXPLANATION-1 BELOW SECTION 115JB (2) OF THE ACT THE AMOUNT OF PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80 HHC, 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 SHOULD BE REDUCED FROM THE PROFITS AS PER P&L ACCOUNT. ACCORDING TO THE CIT SINCE NO DEDUCTION UNDER SECTION 80 HHC WAS ALLOWED UNDER NORMAL PROVISIONS OF THE A CT, EVEN WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE A CT THE AMOUNT ELIGIBLE FOR DEDUCTION OUGHT NOT TO HAVE BEEN REDUCED FROM T HE PROFITS AS PER P&L ACCOUNT REQUIRED IN ACCORDANCE WITH COMPANIES ACT, 1956. ACCORDING TO THE CIT IT IS ONLY WHEN A DEDUCTION IS ALLOWED UNDE R SECTION 80 HHC UNDER THE NORMAL PROVISIONS OF THE ACT THAT THE SAME CAN BE REDUCED WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE A CT. THE CIT ACCORDINGLY VIDE HIS ORDER DATED 31/7/2008 DIRECTED THE AO TO R ECOMPUTED THE DEDUCTION UNDER SECTION 115JB OF THE ACT IN ACCORDA NCE WITH THE VIEW EXPRESSED BY HIM AS ABOVE. 4. THE A.O CONSEQUENT TO THE ORDER OF THE CIT UNDER SECTION 263 PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 263 DATED 22/1 2/2008 ADOPTING THE BOOK PROFITS AS PER THE P&L ACCOUNT PREPARED IN ACC ORDANCE WITH COMPANIES ACT 1956 WITHOUT ALLOWING DEDUCTION UNDER SECTION 8 0 HHC OF THE ACT. 5. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDER OF THE AO FOR THE FOLLOWING REASONS. 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AN D FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE DECISIO N OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT VS. A JANTA PHARMA LTD. ITA NO.3123/MUM/2010(A.Y. 2003-04) 4 (2009) 180 TAXMAN 494 (BOM)/318 ITR 252 IN WHICH IT WAS HELD THAT FOR THE PURPOSES OF COMPUTING BOOK PROFIT U/S. 115J B, MAT COMPANIES ARE ENTITLED TO SAME DEDUCTION OF EXPORT PROFIT U/S . 80 HHC AS ANY OTHER COMPANY INVOLVED IN TERMS OF SECTION 80 HHC(1 B). THEREFORE, FOR THE PURPOSES OF CALCULATING BOOK PROFIT UNDER EXPLA NATION 1(IV) TO SECTION 115JB(2) EXPORT PROFIT TO BE EXCLUDED FROM THE BOOK PROFIT WOULD BE EXPORT PROFITS ALLOWED AS DEDUCTION U/S. 80 HHC AFTER RESTRICTING DEDUCTION AS PER PROVISIONS OF SUB-SECT ION (1B) OF SECTION 80 HHC AND NOT EXPORT PROFIT AS CALCULATED AS PER S UBSECTION (3) AND (3A) OF SECTION 80 HHC BEFORE APPLYING RESTRICTION CONTAINED IN SUB- SECTION (1B) OF SECTION 80 HHC. WHETHER IT BE 115J /JA/JB, THE EXPRESS LANGUAGE USED IS ELIGIBLE FOR DEDUCTION U/S . 80 HHC AND COMPUTED UNDER CLAUSE9A) OR CLAUSE (B) OR CLAUSES ( C) OF SUB SECTION (3) OR SUB SECTION (3A) AS THE CASE MAY BE. WHAT IT ME ANS IS THAT SUB- SECTIONS (3) AND (3A) PROVIDE FOR THE METHOD FOR CO MPUTATION OF PROFITS. ONCE THE PROFITS ARE WORKED OUT, THEN ONLY THE PROF IT WHICH IS ELIGIBLE CAN BE DEDUCTED. SECTION 80 HHC(1) ALLOWS DEDUCTIO N OF PROFITS TO THE EXTENT REFERRED TO IN SUB SECTION (IB). 5.1 ACCORDINGLY, IT IS HELD THAT THE AO WAS JUSTIF IED IN REJECTING THE CLAIM OF DEDUCTION U/S. 80 HHC . THE DISALLOWANCE MADE IS UPHELD. IN THE RESULT, THE APPEAL IS DISMISSED. 6. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BRO UGHT TO OUR NOTICE THAT THE HONBLE SUPREME COURT HAS SINCE REVERSED THE HO NBLE BOMBAY HIGH COURTSS DECISION IN THE CASE OF AJANTA PHARMA LTD. VS. CIT, 327 ITR 305 ON WHICH THE LEARNED CIT(A) PLACED RELIANCE WHILE UPHO LDING THE ORDER OF THE AO. THE HONBLE SUPREME COURT HELD AS FOLLOWS: THE ASSESSEE, A COMPANY PAYING MINIMUM ALTERNATE T AX AT THE RELEVANT TIME, FILED ITS RETURN FOR THE ASSESSMENT YEAR 2001-02, CLAIMING DEDUCTION UNDER SECTION 80 HHC OF THE INCO ME TAX ACT, 1961. IN COMPUTING THE BOOK PROFITS IT CLAIMED R EDUCTION OF 100 PER CENT OF THE EXPORT PROFITS UNDER CLAUSE (IV) OF THE EXPLANATION TO SECTION 115JB . BUT THE ASSESSING OFFICER ALLOWED ONLY 80% OF THE EXPORT PROFITS IN TERMS OF SECTION 80 HHC(1B). ON APPEAL , THE COMMISSIONER(APPEALS) HELD THAT 100 PER CENT OF THE EXPORT PRO-FITS EARNED BY THE ASSESSEE AS COMPUTED UNDER SECTION 80 HHC WAS ELIGIBLE FOR REDUCTION UNDER CLAUSE (IV) OF THE EXP LANATION TO SECTION ITA NO.3123/MUM/2010(A.Y. 2003-04) 5 115JB. THE APPELLATE TRIBUNAL UPHELD THE ORDER OF THE COMMISSIONER (APPEALS). THE HIGH COURT ALLOWED THE DEPARTMENTS APPEAL. THE ASSESSEE APPEALED TO THE SUPREME COURT: HELD, REVERSING THE DECISION OF THE HIGH COURT AND RESTORING THAT OF THE APPELLATE TRIBUNAL(I) THAT SECTION 115JA WAS A SELF -CONTAINED CODE AND APPLIED NOTWITHSTANDING ANY PROVISION IN THE ACT. SECTION 115JB IS THE SUCCESSOR SECTION TO SECTION 115JA. SECTION 11 5JB CONTINUES TO REMAIN A SELF CONTAINED CODE. (II) THAT ALL ASSESSABLE ENTITIES WERE NOT ELIGIBL E FOR DEDUCTION UNDER SECTION 80 HHC (1B). SIMILARLY, ONLY ELIGIBLE GOODS WERE ENTITLED TO SUCH SPECIAL DEDUCTION UNDER SECTION 80HHC(1). SEC TION 80HHC(3) WAS GEARED TO THE EXPORTS, WHEREAS THE LEVY UNDER S ECTION 115JB WAS ON THE DEEMED INCOME. THE IDEA WAS TO EXCLUDE EXP ORT PROFITS FROM THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB . (III) THAT IF THE DICHOTOMY BETWEEN ELIGIBILITY OF PROFITS AND DEDUCTIBILITY OF PROFITS WAS NOT KEPT IN MIND SEC TION 115JB WOULD CEASE TO BE A SELF-CONTAINED CODE. (IV) THAT, THEREFORE, THE APPELLATE TRIBUNAL WAS RI GHT IN HOLDING THAT 100 PER CENT OF THE EXPORT PROFITS EARNED BY THE AS SESSEE AS COMPUTED UNDER SECTION 80 HHC(3) WAS ELIGIBLE FOR REDUCTION UNDER CLAUSE (IV) OF THE EXPLANATION TO SECTION 115JB. DECISION OF THE BOMBAY HIGH COURT IN CIT V. AJANTA PHARMA LTD. 92009) 318 ITR 252 REV ERSED. COMMISSIONER OF INCOME-TAX V. AJANTA PHARMA LTD. (2 009) 318 ITR 0252(BOM)-REVERSED CA NO.7518/10, 7. IN VIEW OF THE AFORESAID DECISION OF THE HONBL E SUPREME COURT WE ARE OF THE VIEW THAT THE BOOK PROFITS AS COMPUTED BY THE A O IN HIS ORDER DATED 27/3/2006 DETERMINING THE BOOK PROFIT AT RS. 1,38,0 0,540/- SHOULD BE RESTORED. WE DIRECT ACCORDINGLY AND ALLOW THE APPE AL OF THE ASSESSEE 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 8 TH DAY OF APRIL, 2011. SD/- SD/- (PRAMOD KUMAR ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 8 TH APRIL.2011 ITA NO.3123/MUM/2010(A.Y. 2003-04) 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3123/MUM/2010(A.Y. 2003-04) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 1/4/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 5/4/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER