M/s. ACIT-2(3), MUMBAI V. TARAK CHEMICALS P. LTD., MUMBAI

ITA 4130/MUM/2008

• Counselvise Citation: 413019914 RSA 2008
• Duration Of Justice: 2 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 18-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 10-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: PRITI GANDHI
• Keywords: Deemed to accrue or arise in india
• Section: 80HHC; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 4130/MUM./2008 (ASSESSMENT YEAR : 2003-04 ) DATE OF HEARING: 18.5.2011 ASSTT. COMMISSIONER OF INCOME TAX RANGE-2(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S M/S. TARAK CHEMICALS PVT. LTD. 313/315, KHAJURWALA CHAMBERS NARSHI NATHA STREET, MASJID BUNDER MUMBAI 400 009 AAACT2022L .... RESPONDENT REVENUE BY : MR. S.K. SINGH ASSESSEE BY : MS. PRITI GANDHI O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED A GAINST THE IMPUGNED ORDER DATED 30 TH MARCH 2008, PASSED BY THE COMMISSIONER (APPEALS)-XXX, MUMBAI, FOR ASSESSMENT YEAR 2003-04, WHEREIN THE COMMISSIONER (APPEALS) FOLLOWED THE DECISION OF MUM BAI SPECIAL BENCH OF THE TRIBUNAL IN DCIT V/S SYNCOM FORMULATION (INDIA) LTD., AND DIRECTED THE ASSESSING OFFICER TO COMPUTE THE BOOK PROFITS UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) BY ALLOWING DEDUCTION UNDER SECTION 80HHC OF THE ACT, ON THE BASIS OF BOOK PROF ITS. AGGRIEVED WITH THIS DECISION, THE REVENUE IS IN APPEAL BEFORE THE TRIBU NAL ON THE FOLLOWING GROUNDS:- M/S. TARAK CHEMICALS PVT. LTD. ITA NO.4130/MUM./2008 2 1. THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A. O. TO ALLOW DEDUCTION UNDER SECTION 80HHC FOR THE PURPOSE OF CO MPUTING MINIMUM ALTERNATIVE TAX (MAT) UNDER SECTION 115JB, ON THE BASIS OF BOOK PROFITS AND NOT ON THE BASIS OF DEDUCTION ACTU ALLY COMPUTED UNDER SECTION 80HHC. 2. THE LEARNED CIT(A) ERRED IN DIRECTING THE A.O. T O ALLOW THE DEDUCTION UNDER SECTION 80HHC AMOUNTING TO ` 32,29,212 FROM BOOK PROFITS UNDER SECTION 115JB, WITHOUT APPRECIATING T HE FACT THAT THE ASSESSEE CLAIM UNDER SECTION 80HHC WAS DETERMINED A T ` 3,61,232. 2. LEARNED COUNSEL, MS. PRITI GANDHI, APPEARING ON BEH ALF OF THE ASSESSEE, SOUGHT ADJOURNMENT. AS THE ISSUE ON HAND IS A COVERED MATTER, WE FIND NO REASON TO ADJOURN THE MATTER AS THE ISSUE H AS BEEN COMING UP BEFORE THE BENCH ON MORE THAN FOUR OCCASIONS. THUS, WE REJ ECT THE REQUEST FOR ADJOURNMENT AND DISPOSE OFF THE APPEAL ON MERIT AFT ER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATI VE, MR. S.K. SINGH. 4. THE HON'BLE SUPREME COURT IN AJANTA PHARMA V/S CIT, (2010) 327 ITR 305 (SC), HAS HELD AS FOLLOWS. HELD : SECS. 80HHC AND 115JB OPERATE IN DIFFERENT SPHER ES. TWO ESSENTIAL CONDITIONS FOR INVOKING S. 80HHC(1) ARE T HAT ASSESSEE MUST BE IN THE BUSINESS OF EXPORT AND SECONDLY THAT SALE PROCEEDS OF SUCH EXPORTS SHOULD BE RECEIVABLE IN INDIA IN CONVERTIBL E FOREIGN EXCHANGE. HENCE, S. 80HHC(1) REFERS TO 'ELIGIBILITY' WHEREAS S. 80HHC(3) REFERS TO COMPUTATION OF TAX INCENTIVE. COMING TO S. 80HHC (1B) IT IS CLEAR THAT AFTER FINANCE ACT, 2000 W.E.F. ASST. YR. 2001- 02 EXPORTERS WOULD NOT GET 100 PER CENT DEDUCTION IN RESPECT OF PROFIT S DERIVED FROM EXPORTS BUT THAT THEY WOULD GET DEDUCTION OF 80 PER CENT IN THE ASST. YR. 2001-02, 70 PER CENT IN THE ASST. YR. 2002-03 A ND SO ON. THUS, S. 80HHC(1B) DEALS NOT WITH 'ELIGIBILITY' BUT WITH THE 'EXTENT OF DEDUCTION'. SEC. 115JB IS A SELF-CONTAINED CODE. IT TAXES DEEMED INCOME. IT BEGINS WITH A NON OBSTANTE CLAUSE. SEC. 115JB REFERS TO COMPUTATION OF 'BOOK PROFITS' WHICH HAVE TO BE COMP UTED BY MAKING UPWARD AND DOWNWARD ADJUSTMENTS. IN THE DOWNWARD AD JUSTMENT, VIDE CL. (IV) IT SEEKS TO EXCLUDE 'ELIGIBLE' PROFIT S DERIVED FROM EXPORTS. ON THE OTHER HAND, UNDER S. 80HHC(1B) IT IS THE EXT ENT OF DEDUCTION WHICH MATTERS. THE WORD 'THEREOF' IN EACH OF THE IT EMS UNDER S. 80HHC(1B) IS IMPORTANT. THUS, IF AN ASSESSEE EARNS RS. 100 CRORES THEN FOR THE ASST. YR. 2001-02, THE EXTENT OF DEDUC TION IS 80 PER CENT THEREOF AND SO ON WHICH MEANS THAT THE PRINCIPLE OF PROPORTIONALITY IS BROUGHT IN TO SCALE DOWN THE TAX INCENTIVE IN A PHA SED MANNER. M/S. TARAK CHEMICALS PVT. LTD. ITA NO.4130/MUM./2008 3 HOWEVER, FOR THE PURPOSES OF COMPUTATION OF BOOK PR OFITS WHICH COMPUTATION IS DIFFERENT FROM NORMAL COMPUTATION UN DER THE 1961 ACT/COMPUTATION UNDER CHAPTER VI-A, THE UPWARD AND DOWNWARD ADJUSTMENTS ARE TO BE KEPT IN MIND AND IF SO READ I T BECOMES CLEAR THAT CL. (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 S. 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 IS TO EXCLUDE 'EXPORT PROFI TS' FROM COMPUTATION OF BOOK PROFITS UNDER S. 115JB WHICH IMPOSES MAT ON DEEMED INCOME. THE ABOVE REASONING ALSO GETS SUPPORT FROM THE MEMO RANDUM OF EXPLANATION TO THE FINANCE BILL, 2000. THE ARGUMENT OF THE DEPARTMENT, THAT BOTH 'ELIGIBILITY' AS WELL AS 'DED UCTIBILITY' OF THE PROFIT HAVE GOT TO BE CONSIDERED TOGETHER FOR WORKI NG OUT THE DEDUCTION AS MENTIONED IN CL. (IV) OF EXPLANATION T O S. 115JB HAS NO MERIT. IF THE DICHOTOMY BETWEEN 'ELIGIBILITY' OF PR OFIT AND 'DEDUCTIBILITY' OF PROFIT IS NOT KEPT IN MIND THEN S. 115JB WILL CE ASE TO BE A SELF- CONTAINED CODE. IN 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 CONDITIONS UNDER SUB-CLS. (4) AND (4A) OF THAT SECT ION. 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 CL. (IV) OF EXPLANATION TO S. 115JB [SUBJECT TO THE CONDITIO NS SPECIFIED IN SUB- CLS. (4) AND (4A) OF THAT SECTION] TO OBLITERATE TH E DIFFERENCE BETWEEN 'ELIGIBILITY' AND 'DEDUCTIBILITY' OF PROFITS AS CON TENDED ON BEHALF OF THE DEPARTMENT.CIT VS. AJANTA PHARMA LTD. (2009) 223 C TR (BOM) 441 : (2009) 23 DTR (BOM) 1 SET ASIDE. 5. THE DECISION OF THE COMMISSIONER (APPEALS) IS IN LI NE WITH THE JUDGMENT OF THE HON'BLE SUPREME COURT CITED SUPRA. CONSEQUENTLY, WE UPHOLD THE ORDER OF THE COMMISSIONER (APPEALS) AND DISMISS THE GROUNDS RAISED BY THE REVENUE. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.5.2011 SD/- N.V. VASUDEVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 27.5.2011 M/S. TARAK CHEMICALS PVT. LTD. ITA NO.4130/MUM./2008 4 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, J BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI