2007 (5) TMI 353 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of income determination u/s 115JA.
2. Eligibility for deduction u/s 80-IA.
3. Computation of book profit u/s 115JA.

Summary:

Issue 1: Confirmation of income determination u/s 115JA
The learned CIT(A) confirmed the determination of income of Rs. 4,38,762 being 30% of book profit of Rs. 14,62,541 u/s 115JA, resulting in a tax liability of Rs. 2,13,875. The assessee contested this, arguing that the book profit should be worked out at Nil as per the provisions of section 115JA.

Issue 2: Eligibility for deduction u/s 80-IA
The CIT(A) accepted that the appellant company, engaged in manufacturing pharmaceutical products in a Backward Industrial Zone, was eligible for deduction u/s 80-IA. However, the CIT(A) did not allow any deduction of section 80-IA for computing book profit u/s 115JA, stating that the admissible deduction under section 80-IA was nil.

Issue 3: Computation of book profit u/s 115JA
The core issue was the amount to be reduced from the net profit shown in the profit and loss account to compute book profit for section 115JA. The assessee relied on the Special Bench decision in Dy. CIT v. Syncome Formulations (I) Ltd., which held that deduction u/s 80HHC in a MAT scheme is from the adjusted book profit. However, the Tribunal noted that this decision did not discuss clause V of Explanation below section 115JA(2), which deals with profits derived by an industrial undertaking eligible for deduction u/s 80-IA.

The Tribunal clarified that for section 115JA, the amount to be reduced from net profit is the profit derived by an industrial undertaking eligible for deduction u/s 80-IA, not necessarily the profit eligible for deduction. The Tribunal emphasized examining the definition of 'derived' in light of judicial pronouncements such as CIT v. Sterling Foods and Pandian Chemicals v. CIT.

The Tribunal found that the lower authorities did not properly examine whether the profits derived from the industrial undertaking were computed for reduction from the net profit. Consequently, the matter was remanded to the Assessing Officer for re-computation of book profit and total income of the assessee, considering the judgments of the Apex Court in Pandian Chemicals and Sterling Foods.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, with the matter remanded to the Assessing Officer for proper computation of book profit u/s 115JA.