ACIT, New Delhi V. M/s. Flex Foods Ltd., New Delhi

ITA 4881/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61618 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-04-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S KRISHNA
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Depreciation
• Section: 80HHC; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NOS.4880 & 4881/DEL/2011 ASSESSMENT YEARS : 2003-04 & 2004-05 ACIT, CENTRAL CIRCLE-18, ROOM NO.327, 3 RD FLOOR, ARA CENTRE, E-2, JHANDEWALAN EXTN., NEW DELHI. VS. FLEX FOODS LTD., 305, 3 RD FLOOR, BHANOT CORNER, PAMPOSH ENCLAVE, GK-1, NEW DELHI. PAN : AAACF0108K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SURESH ANANTHARAMAN, CA REVENUE BY : SHRI S. KRISHNA, CIT, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER BOTH THESE APPEALS ARE FILED BY THE REVENUE. THEY AR E DIRECTED AGAINST THE TWO SEPARATE ORDERS PASSED BY THE CIT (A) DA TED 4 TH AUGUST, 2011 AND 19 TH AUGUST, 2011 FOR ASSESSMENT YEARS 2003-04 & 2004-05 RESPECTIVELY. THE ISSUE RAISED IN BOTH THE APPEALS ARE COMMON. THESE APPEALS WERE ARGUED TOGETHER BY BOTH THE PARTIES, HEN CE, FOR THE SAKE OF CONVENIENCE BOTH THESE APPEALS ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. THE GROUNDS OF APPEAL BEING IDEN TICAL IN BOTH THE APPEALS READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DEDUCTION CLAIMED BY THE ASSESSEE U/S 80HH OF THE INCO ME TAX ACT, 1961. ITA NOS.4880 & 4881/DEL/2011 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT WHILE COMPUTING THE BOOK PROFITS U/S 115JB, THE AMOUNT O F PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC SHOULD BE BASED ON BOOK PROFIT AND NOT ON THE PROFIT UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT PROVISION OF SUNSET CLAUSE SHOULD NOT APPLY TO A CASE WHEREIN ELIGIBLE DEDUCTION U/S 80HHC IS BEING COMPUTED UNDER CLAUSE (IV) OF SECTION 115JB OF THE INCOME TAX ACT, 1961. 4. THE ORDER OF THE LD. CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, OR AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 2. THE INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISION S OF THE ACT HAS BEEN COMPUTED AT NIL IN VIEW OF BROUGHT FORW ARD BUSINESS LOSS/DEPRECIATION. IT IS BECAUSE OF THAT THE ASSESSEE WAS N OT ELIGIBLE FOR DEDUCTION U/S 80HHC IN VIEW OF NON-AVAILABILITY OF ANY INCOME. THEREFORE, THE ASSESSING OFFICER HAS COMPUTED THE INCOME OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 115JB AND HAS DEC LINED TO REDUCE THE CLAIMED DEDUCTION U/S 80HHC OUT OF BOOK P ROFIT AND HE HAS DISALLOWED THE SAID DEDUCTION U/S 80HHC AT ` 3,27,78,1 26/- AND THE BOOK PROFIT OF THE ASSESSEE AFTER GIVING SET OFF OF BROU GHT FORWARD AND UNABSORBED BOOK LOSSES AND DEPRECIATION IS COMPUTED AT ` 3,87,74,630/-. BEFORE CIT (A) IT WAS CLAIMED THAT W HILE COMPUTING BOOK PROFIT THE ASSESSING OFFICER SHOULD HAVE ALLOWED THE DED UCTION U/S 80HHC AS COMPUTED BY THE ASSESSEE IN THE AUDIT REPORT SUB MITTED IN THIS REGARD AND FOLLOWING ASPECTS OF THE MATTER WERE R AISED BEFORE THE CIT (A) WHICH ARE AS FOLLOWS:- I) THAT IN VIEW OF THE SPECIAL BENCH DECISION OF ITA T IN THE CASE OF DCIT VS. SYNCOME FORMULATIONS 106 ITD 193 (SB), WH ILE COMPUTING THE BOOK PROFIT U/S 115JB, AS PER CLAUSE (I V) OF ITA NOS.4880 & 4881/DEL/2011 3 EXPLANATION TO SECTION 115JB (2) OF THE ACT, THE AM OUNT OF PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC HAS TO BE REDUCED AN D THE COMPUTATION HAS TO BE MADE ON THE BASIS OF BOOK PROFIT AND NOT AS PER REGULAR PROVISIONS OF THE ACT. LEARNED CIT (A) HAS NOTED THAT THIS ISSUE IS COVERED BY THE EARLIER DECISION OF IT AT IN THE CASE OF THE ASSESSEE AND, ACCORDINGLY, HE HELD THAT DEDU CTION U/S 80HHC IS ALLOWABLE TO THE ASSESSEE WHILE COMPUTING BOOK PROFIT FOR THE PURPOSE OF DETERMINING INCOME U/S 115JB. II) REGARDING SUNSET CLAUSE CONTAINED IN SECTION 80HHC (1B ), WHETHER IT APPLIED OR NOT, LEARNED CIT (A) HAS FOUND THAT ITAT IN THE CASE OF THE ASSESSEE ITSELF HAS GIVEN THE DIRECTION TO DECIDE THE MATTER IN THE LINE OF DECISION OF AFOREMENTIONED SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATIONS (SUPRA). DE SPITE THAT THE ASSESSING OFFICER BY QUOTING THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF AJANTA PHARMA LTD. HAS NOT ACCEPTED SUCH CLAIM OF THE ASSESSEE. LEARNED CIT (A) HA S FOUND THAT THE SAID DECISION OF HONBLE BOMBAY HIGH COURT H AS NOW BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE CA SE OF AJANTA PHARMA LTD. 327 ITR 305 (SC). LEARNED CIT ( A) HAS QUOTED THE OBSERVATIONS OF THEIR LORDSHIPS FROM THE SAID DECISION AND HAS COME TO THE CONCLUSION THAT SINCE THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF AJANTA PHA RMA LTD. (SUPRA) HAS BEEN REVERSED BY HONBLE SUPREME COURT, TH E ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND HE HAS DI RECTED THE ASSESSING OFFICER TO CALCULATE AND ALLOW THE DEDUCT ION U/S 80HHC WITHOUT APPLYING THE SUNSET CLAUSE AS SPECIFIED U /S 80HHC (1B) AND, IN THIS MANNER, LEARNED CIT (A) HAS D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE DEPARTMENT IS AGGRIE VED, HENCE, IN APPEAL. ITA NOS.4880 & 4881/DEL/2011 4 THE LEARNED DR, AFTER NARRATING THE FACTS, CONTENDED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC AS IT HAS NO PROFIT AS THE ENTIRE PROFIT HAS BEEN SET OFF AGAINST TH E BROUGHT FORWARD BUSINESS LOSSES AND DEPRECIATION. HE CONTENDED TH AT EVEN FOR THE PURPOSE OF SECTION 115JB, THE AMOUNT OF PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC SHOULD NOT BE REDUCE D AND IT SHOULD BE REDUCED IN ACCORDANCE WITH THE SUNSET CLAUSE . 3. ON THE OTHER HAND, IT WAS SUBMITTED BY THE LEARNED AR THAT ALL THE ISSUES RAISED BY THE REVENUE ARE COVERED IN FAVOUR OF THE ASSESSEE. 4. IN THE REJOINDER, IT WAS SUBMITTED BY THE LEARNED DR THAT COMPUTATION OF DEDUCTION U/S 80HHC IN BOTH THE YEARS SHOULD AT LEAST BE REDUCED TO THE EXTENT OF MISCELLANEOUS INCOME AND INTEREST INCOME WHICH CANNOT BE CONSIDERED TO BE PART OF EXPORT PROF ITS. THUS, IT WAS PLEADED BY THE LEARNED DR THAT TO THAT EXTENT THE O RDER OF THE CIT (A) SHOULD BE MODIFIED. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. SO FAR AS IT RELATES TO THE ISSUE REGARDING ALLOWABILITY OR OTHERWISE OF DEDUCTION U/S 80HHC UNDER THE NORMAL PROVISIONS OF THE ACT, WE FIND THAT THERE IS NO DISPUTE TO THAT EXTENT. THE INCOME AS COMPUTED BY THE ASSESSING OFFICER UNDER THE NORMAL PROVISIONS IS NIL. HOWEVER, WHEN BOOK PROFITS A RE TO BE COMPUTED OUT OF THOSE BOOK PROFITS, DEDUCTION U/S 80HH C AS COMPUTED IN THE AUDIT REPORT HAS ONLY TO BE REDUCED. THE SU NSET CLAUSE HAS ALSO NOT TO BE APPLIED AND THESE ISSUES ARE COVERED BY THE A FOREMENTIONED DECISION OF HONBLE SUPREME COURT. SO FAR AS IT RELA TES TO THE CONTENTION OF THE LEARNED DR THAT MISCELLANEOUS INCOM E AND INTEREST INCOME SHOULD ALSO BE REDUCED WHILE COMPUTING BOOK PR OFIT, WE FIND THAT THIS ARGUMENT OF THE LEARNED DR IS NOT ACCEPTABL E AS IN ITA NOS.4880 & 4881/DEL/2011 5 ACCORDANCE WITH THE SECTION 115JB IT HAS BEEN CLEARL Y STATED THAT RELIEF WILL BE COMPUTED U/S 80HHC (3)/(3A), SUBJECT TO THE C ONDITIONS UNDER SUB-SECTIONS (4) AND (4A) OF THAT SECTION. THE CONDIT ION IS ONLY THAT RELIEF SHOULD BE CERTIFIED BY THE CHARTERED ACCOUNTA NT. SUCH CONDITION IS NOT A QUALIFYING CONDITION, BUT, IS A COMPLIANCE C ONDITION. THEREFORE, ONE CANNOT RELY UPON THE LAST SENTENCE IN CLAUSE (IV) OF EXPLANATION TO SECTION 115JB (SUBJECT TO THE CONDITIONS SPECIFIED IN SU B-SECTION (4) AND (4A) OF THAT SECTION) TO OBLITERATE THE DIFFERENCE B ETWEEN ELIGIBILITY AND DEDUCTIBILITY OF PROFITS. REFERENCE IN THIS RE GARD CAN BE MADE TO THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME COU RT IN THE JUDGEMENT IN THE CASE OF AJANTA PHARMA LTD. VS. CIT ( SC) (SUPRA):- WE FIND NO MERIT IN THIS ARGUMENT. IF THE DICHOTOMY BE TWEEN ELIGIBILITY OF PROFIT AND DEDUCTIBILITY OF PROFIT IS NOT KEPT IN MIND THEN SECTION 115JB WILL CEASE TO BE A SELF-CONTAIN ED CODE. IN SECTION 115JB, AS IN SECTION 115JA, IT HAS BEEN CL EARLY STATED THAT RELIEF WILL BE COMPUTED U/S 80HHC (3)/(3A), SUBJE CT TO THE CONDITIONS UNDER SUB-SECTIONS (4) AND (4A) OF THAT SECTI ON. THE CONDITIONS ARE ONLY THAT THE RELIEF SHOULD BE CERTIFIED BY THE CHARTERED ACCOUNTANT. SUCH CONDITION IS NOT A QUALIFYIN G CONDITION, BUT, IT IS A COMPLIANCE CONDITION. THEREFOR E, ONE CANNOT RELY UPON THE LAST SENTENCE IN CLAUSE (IV) OF EX PLANATION TO SECTION 115JB (SUBJECT TO THE CONDITIONS SPECIFIED IN SUB- SECTION (4) AND (4A) OF THAT SECTION) TO OBLITERATE THE DIF FERENCE BETWEEN ELIGIBILITY AND DEDUCTIBILITY OF PROFITS AS CONTENDED ON BEHALF OF THE DEPARTMENT. 6. FROM THE ABOVE OBSERVATIONS, IT IS CLEAR THAT THE Q UANTUM OF DEDUCTION U/S 80HHC UNDER THE PROVISIONS OF SECTION 11 5JB WILL BE LIMITED TO THE RELIEF CERTIFIED BY THE CHARTERED AC COUNTANT AND THIS IS NOT A QUALIFYING CONDITION BUT IT IS A COMPLIANCE CO NDITION. THEREFORE, THE ARGUMENT RAISED BY THE LEARNED DR HAS TO BE REJEC TED. THE DECISION OF LEARNED CIT (A) IS IN ACCORDANCE WITH THE AFOREMENTIONED JUDICIAL PRONOUNCEMENT. IT MAY ALSO BE MENTIONED HE RE THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF SYNCOME FORM ULATIONS (I) LTD. (SUPRA) HAS BEEN APPROVED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S BHARI INFORMATION TECH SYSTEMS PVT. LTD. 34 0 ITR 593 (SC). ITA NOS.4880 & 4881/DEL/2011 6 7. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO INFIRMI TY IN THE ORDER PASSED BY THE CIT (A) ON EACH OF THE GROUNDS RAISED BY THE REVENUE AND BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED . 8 . IN THE RESULT, THE APPEALS ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.04.20 12. SD/- SD/- [G.D. AGRAWAL] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 17.04.2012. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR, ITAT, DELHI BENCHES