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2010 (5) TMI 668 - AT - Income TaxDeduction u/s 80 HHC - book profit and not the income - HELD THAT:- this is an appeal against the order passed u/s 263. The original assessment order has been passed u/s 143(3) for the AY 2002-03. The AO after proper appraisal of the material on record taken one view. The action taken by CIT u/s 263 is not justified because different view was possible on the said issues considered by CIT. In the case of CIT v. Max India Ltd.[2007 (11) TMI 12 - SUPREME COURT] held that where the order passed by the AO was a possible view supported by subsequent decision of Tribunal it was not amenable to revisional jurisdiction of CIT. In the present case, there are various decisions available at the time of completing assessment which are in favour of the assessee on the impugned issues. In the case of Starchik Specialities Ltd.[2003 (7) TMI 283 - ITAT HYDERABAD-B], Govind Rubber (P.) Ltd.’s case [2003 (1) TMI 231 - ITAT BOMBAY-E], Tushako Pumps Ltd. v. Asstt. CIT [2005 (1) TMI 586 - ITAT MUMBAI] and in the case of Syncome Formulations (I) Ltd [2007 (3) TMI 288 - ITAT BOMBAY-H], wherein it was held that the deduction u/s 80HHC deserves to be computed by taking into consideration book profit and cannot be restricted to the profits of the business as comupted under the normal provisions of the IT Act. Therefore, we are of the opinion, that the AO’s decisions are based on various judicial pronouncements though decision of the AO is prejudicial to the revenue, it cannot be treated as erroneous. In view of this, in our opinion, the CIT cannot invoke the provisions of section 263 to set right the errors committed by the AO. In the result, the appeal of the assessee is allowed. Addition to the book profit - provision for gratuity - an ascertained liability - we are of the opinion that this issue is required to be re-examined by the AO. Hence, we set aside this issue to the file of AO to see the crystallization of the liabilities in the assessment year under consideration. If the liabilities towards gratuity is crystallized in the assessment year under consideration, then it is to be considered as ascertained liability and claim of the assessee is to be allowed. Accordingly, this issue is set aside to the file of AO with a direction to assessee to place necessary evidence to prove that the liabilities are ascertained. In the result, the appeal of the assessee is partly allowed. Unabsorbed business losses - deducted u/s 80HHC - calculating the book profit u/s115JA - The AO set off the losses of earlier year while computing the deduction u/s 80HHC on book profit determined u/s115JA while passing order u/s 143(3). In our opinion, the lower authorities taken correct view since section 80AB, which is also in Chapter VI-A, starting with the words ‘where any deduction is required to be made or allowed under any section of this Chapter’ would include section 80HHC also. Further, section 80AB uses the words ‘notwithstanding anything contained in that section’. Thus, section 80AB has been given an overriding effect over all other sections in Chapter VI-A. But, section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provisions of the Act. Section 80HHC would thus be governed by section 80AB. The unabsorbed business losses, unabsorbed depreciation etc., should be taken into account while computing the income for the purpose of deduction u/s 80HHC. Moreso, these grounds are covered against the assessee by the Judgment of Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT [2004 (3) TMI 9 - SUPREME COURT] and in the case of Shirke Construction Equipment Ltd. [2007 (5) TMI 194 - SUPREME COURT]. Accordingly, the grounds are dismissed. Interest u/s 234B and 234C - HELD THAT:- This issue is covered in favour of the assessee by the judgment of Hon’ble Supreme Court in the case of CIT v. Kwality Biscuits Ltd.[2006 (4) TMI 121 - SC ORDER] wherein it was held that when assessee is liable for to pay tax u/s 115J, interest u/s 243 B & C cannot be charged. This issue decided in favour of the assessee and the ground taken by the assessee on this issue is allowed. Determination of total turnover - deduction u/s 80HHC - HELD THAT:- The assessee raised additional grounds relating to the computation of total turnover which includes sales tax and also contended before the CIT(A) that these issues are borne out of assessment order and prayed to adjudicate the issue but he failed to adjudicate the same. In our opinion, the CIT(A) must have considered these issues while deciding the appeal. His jurisdiction is co-terminus with AO. Accordingly, we set aside this issue to the file of AO for fresh consideration. In the result, the appeal of the assessee is partly allowed. Deduction of loss - HELD THAT:- On perusal of the profit and loss account, the CIT(A) came to the conclusion that no such loss of the earlier year company has been brought forward in the profit and loss account of the relevant year and also he was of the opinion that the judgment of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002 (5) TMI 5 - SUPREME COURT] as per which profit arrived at the profit and loss account which is prepared in accordance with the Companies Act has to be adopted for the purpose of book profit. As no such loss of earlier company reflected in the profit and loss account of the relevant year, the CIT(A) held that there is no justification for deduction of such loss in arriving at the book profit of this year. However, before us the authorised representative submitted that the loss of the Deccan are merged in the final accounts of the assessee company on the date of merger of Deccan Drugs Ltd., with the assessee company. As such, the said loss to be considered for deduction while arriving at book profit of the assessee company. In our opinion, the argument of the assessee is to be examined by the lower authorities w.r.t. the evidence in support of that claim. Accordingly, We remit back matter to AO for fresh consideration. Disallowance of depreciation - state subsidy received - HELD THAT:- If the payment of subsidy is not related to actual acquisition of assets and the subsidy is granted on capital investment on land, building and machinery, then it cannot be reduced from the value of the asset (written down value). Further, if there is no special mention regarding the intention to adjust the said subsidy against the actual cost of machinery, then that amount of subsidy cannot be reduced from the cost of the plant and machinery. Hence, we set aside this issue to the file of AO to examine the terms and conditions of sanction of subsidy and if the subsidy was not given to meet the cost of any specific capital asset and the amount of subsidy so received was quantified according to the investment made by the assessee in plant and machinery and building, the claim of the assessee to be allowed. With this direction, the issue set aside to the file of AO for fresh consideration. In the result, the appeals of the assessees are allowed.
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