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2012 (12) TMI 687 - AT - Income TaxRe-opening of Assessment – reworked out the deduction u/s 80HHC and book profit u/s 115JB - Held that:- Considering the excessive claim of the assessee u/s. 80HHC while computing the Book Profit u/s 115JB AO initiated the reopening of assessment to bring the income to tax which is escaped from assessment. Being so, the reopening of assessment is valid - against the assessee. Deduction u/s.80HHC by adopting the book profit in place of the profits of the business while computing the chargeable book profit u/s. 115JB - Held that:- As decided in Ajanta Pharma Ltd v CIT [2010 (9) TMI 8 - SUPREME COURT] export profits computed under the provisions of sec. 80HHC based on 'profits of business or profession' cannot be substituted into the computation scheme as prescribed in sec. 115JB which is an alternative computation to the normal computation of income. The deduction under clause (iv) of Explanation for the export profits should not be phased out as provided in sub-section (1B) of sec. 80HHC because, 115JB is an independent code and it covers full export profits as the eligible profits for the purposes of book profits tax and no phasing is required to be carried out - in favour of assessee. Deferred tax provision pursuant to AS 22 - unascertained liability hence warrants adjustments by way of addition to the book profits - Held that:- After insertion of clause (h) in the Explanation-1 to section 115JB with retrospective effect vide Finance Act, 2008 with effect from 1.4.2001, this issue has to be decided against the assessee as in view this clause the book profit shown in the Profit and Loss Account in the relevant previous year prepared under subsection (2) of section 115JB to be increased, inter alia by the amount of deferred tax and the provisions therefor - against assessee. Reopening of assessment - excess grant of deduction u/s 80HHC - Held that:- Though the original assessments have been completed u/s 143(3) of the Act. The assessing officer has considered all the materials available on the record at the time of completing the original assessment and granted deduction u/s 80HHC. The AO is precluded to reconsider the same after four years from the expiry of the original assessment year to consider the same to bring the escaped income into taxation. Had it been within four years, the assessing officer could have reopened the assessment under clause (b) to explanation 2 to proviso 2 of Section 147 of the I.T. Act. In these assessment years, the assessment was reopened after four years, in our opinion, the reassessment is bad in law - in favour of assessee. Brought forward loss/ Unabsorbed Depreciation allowance of amalgamating companies - whether eligible for set off under sec. 72A while computing relief u/s 80HHC - Held that:- This ground doesn’t required adjudication as already held that the reopening is bad in law in these assessment years. Being so, we refrain ourselves from adjudicating this issue. Interest income - whether a part of business profits assessable u/s 28 to 44 - Held that:- The deposit made by the assessee in the bank and interest earned on it cannot be considered as income from business much less income from export earning, it cannot be considered as income from export earnings, as there is no nexus between export business and interest income. Interest income was earned from the deposits made by the assessee with the bank and not from export business - in favour of revenue. Conversion charges - whether eligible profits for computing deduction u/s 80HHC r.w. clause (iv) of Explanation to sec. 115JB - Held that:- As decided in CIT Versus K. RAVINDRANATHAN NAIR [2007 (11) TMI 10 - SUPREME COURT OF INDIA] 90% of conversion charges has to be reduced from the gross total income to arrive at the business profit and it has to be included in the total turnover in the formula of arriving at the business profit in terms of clause (baa) of the Explanation to section 80HHC(3) of the Act. Accordingly, the Assessing Officer is directed to recompute the deduction u/s. 80HHC - partly in favour of revenue. Sales tax and excise duty - whether deleted from total turnover for computing deduction u/s. 80HHC - Held that:- As decided in Commissioner of Income-Tax Versus Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] just as interest, commission, etc., do not emanate from the “turnover” so also excise duty and sales tax do not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover such taxes had to be excluded - against revenue. Interest relatable to an acquisition of capital asset - whether permissible deduction u/s 36(1)(iii)? Held that:- As decuided in DCIT vs. Core Health Care Ltd. [2008 (2) TMI 8 - SUPREME COURT OF INDIA] Section 36(1)(iii)it is a code by itself. It makes no distinction between money borrowed to acquire a capital asset or a revenue asset. All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be for business - in favour of assessee. Provisions for unascertained liabilities - Held that:- In view of the retrospective amendment vide Finance Act, 2009 wherein there is an insertion of clause (i) with retrospective amendment from 1.4.2001 wherein the amount or amounts set aside as provision for diminution in the value of revenue assets has to be added to the book profit. In view of this, this issue is decided against the assessee. DEPB benefits accrued - whether deducted for computing export profits both u/s 80HHC and clause (iv) of Explanation to sec. 115JB - Held that:- As decided in Topman Exports v CIT [2012 (2) TMI 100 - SUPREME COURT OF INDIA] the face value would be assessable under 28(iiib) and the profit under 28(iiid) and in case the exporter (having export turnover in excess of Rs. 10 crores) is unable to fulfil the conditions specified in Third Proviso it is only the profits earned on the sale of DEPB benefits to the extent of face value should be allowed to the assessee in terms of First proviso under subsection (3) without applying the conditions stipulated in Third Proviso - in favour of the assessee. Depreciation on demolished assets - Held that:- As decided in Natco Exports vs. DCIT [2002 (6) TMI 168 - ITAT HYDERABAD-A] as for discarded assets the adjustment required to be made under the concept of "block of assets" for the purposes of allowing depreciation is to reduce the monies receivable consequent to such discarding from the block. In the case of the assessee, as no money whatsoever was payable to him on handing over the ponds constructed on leased land to the owners of land, there can be no amount whatsoever that can be reduced from the block of assets. Hence, the block continues at its written down value - in favour of assessee. Addition of imported entitlements - Held that:- Agreeing with the findings of the CIT(A) that the import entitlements are contingent in nature and accrue only in the year of actual import of raw materials and real income to be taxed even though in book keeping, an entry is made about hypothetical income which doesn’t materialize - against revenue.
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