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2007 (10) TMI 451 - AT - Income TaxDeduction u/s 80HHC - estimation of the net profits - Export profits - Treatment of labour charges - Compuation of Minimum Alternate tax (MAT) u/s 115JB. Deduction u/s 80HHC - estimation of the net profits - Export profits - HELD THAT:- The appeals before us relate to assessment year 1997-98 wherein the assessee has shown negative net profit. There is no basis for estimation of net profit rates merely because the assessee has shown a higher net profit rate in the preceding year. Each order is an independent year and the result of preceding year cannot be the basis for estimating the net profit rates for the current year. Though the results shown by the assessee cannot be accepted and relied upon as bench mark of his business activities, as the assessee himself had revised the figures of sales, purchase and unsecured credits in the revised Profit and Loss filed during the course of assessment proceedings. Further, the special auditor appointed in the case had also pointed out defects in the audited books of account maintained by the assessee. Thus, we uphold the order of CIT(A) in estimating the net profit at the rate of 2 per cent of the total turnover being reasonable and appropriate. We confirm the order of CIT(A) in this regard and dismiss the grounds of appeal raised by the revenue in assessment year 1997-98. Treatment of labour charges - deduction u/s 80HHC - HELD THAT:- Their Lordships of Bombay High Court in CIT v. Bangalore Clothing Co.[2003 (1) TMI 89 - BOMBAY HIGH COURT] held that in case any income earned by the assessee constitutes the operational income, the receipts from the same are includible in the business profits while computing the deduction u/s 80HHC of the Income-tax Act. The labour charges received by the assessee for job-work carried out is in line with manufacturing activity carried on by the assessee constitutes, operational income and the profits and the receipts from the said labour charges are includible in the business profits of the assessee, while computing the deduction u/s 80HHC of the Income-tax Act. We confirm the order of the CIT(A) in this regard and dismiss the ground of appeal in ground Nos. 1 and 2 raised by the revenue. Minimum Alternate tax (MAT) profits u/s 115JB - HELD THAT:- In the present case, the assessee is not liable to pay any tax on the gains arising on transfer of its assets to holding company. Such profits are exempt from tax u/s 47(v) of the Income-tax Act. Though for computing the MAT profit u/s 115JB of the Act, the business profits shown in the Profit & Loss are to be adopted but in case the said profits include certain receipts which are not of income nature, the same are to be excluded before making any calculations in that regard. Section 349 of the Companies Act clearly provides that the credit for the profit arising on sale of any immovable property or fixed assets of capital nature should not be taken into profit and loss account and accordingly, the profits/gains arising on transfer of assets to the holding company is not includible in the profits of the assessee-company. We confirm the order of CIT(A) that the capital receipts which do not constitute income under the Income-tax Act cannot be brought to tax net by employing the mechanism of section 115JB and the said section has not intended to bring all non-income items within the domain of Income-tax Act. We dismiss the ground No. 3 raised by the revenue in this regard. In the result, both the appeals filed by the revenue are dismissed.
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