2003 (7) TMI 283 - AT - Income Tax

Minimum Alternate Tax - Deductions u/s 80HHC - Exporters - deemed income u/s 115JA - indirect costs - Applicability of provisions of section 80A(2) in computing book profit u/s 115JA - For the deduction u/s 80HHC is mandatory to enclose the tax audit report in Form No.10CCAC alongwith the return filed? - HELD THAT - We are of the view that section 80A(2) and section 80B(5) which are applicable only in the first procedure have no role to play in working out the deduction u/s 80HHC eligible for being reduced for arriving at the book profit in terms of clause (iii) of Explanation to section 115J or clause (viii) of Explanation to section 115JA. The Revenue have also contended that in terms of section 115JA(4) all other provisions of the Act shall apply to every assessee in respect of whom provisions of section 115JA are invoked and so section 80A(2) and section 80B(5) are also applicable for the purpose of determining the book profit u/s 115JA. We find no force in this contention. Section 115JA(4) itself makes it clear that other provisions apply only when it is not otherwise provided in the section. We find that the language of section 115JA(1) and Explanation thereto rules out applicability of section 80A(3) and section 80B(5). We accordingly decide this aspect of the matter in favour of the assessee. It may be observed that the indirect costs to be taken into consideration are the proportion of the total costs which include the costs of Manufacturing Division and not a proportion of the costs relatable to the Sales Division alone. When the denominator in the formula for working out the relevant portion of indirect costs is the total turnover we do not see why the specified proportion of the total indirect costs should not be taken into consideration. No serious argument to the contrary has been advanced before us. At any rate even if only the indirect costs of the sales Division should be adopted as the correct basis it is not conceivable as to how the said figure of Rs.8, 10, 820 is arrived at. In the circumstances we see no reason for holding that the admissible deduction u/s 80HHC is anything more than Rs.10, 25, 264 worked out by the Assessing Officer. We hold that the assessee is eligible for deduction of Rs.10, 25, 264 while working out the book profit in terms of section 115JA and reject the plea of the learned counsel for the assessee to the contrary on this limited issue. In the circumstances we hold that the assessee is in principle eligible for deduction u/s 80HHC while working out the deemed income based on book profit u/s 115JA. So far as the quantum of such deduction towards eligible amount in terms of section 80HHC is concerned we uphold the working given by the Assessing Officer in the assessment order at Rs.10, 25, 264. Assessing Officer is accordingly directed to modify the assessment working out deemed profit u/s 115JA on this basis.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

• Whether the deduction under section 80HHC can be denied for not enclosing the audit report with the return when it was submitted before the assessment completion.
• The applicability of section 80A(2) in computing the deduction under section 80HHC for determining book profit under section 115JA.
• The correct method for calculating indirect costs for the purpose of deduction under section 80HHC.

ISSUE-WISE DETAILED ANALYSIS

1. Deduction under Section 80HHC and Audit Report Submission

• Relevant Legal Framework and Precedents: The requirement under section 80HHC to submit an audit report with the tax return is addressed. The case of CIT v. Hemsons Industries was cited, where it was established that submission before assessment completion suffices.
• Court's Interpretation and Reasoning: The Tribunal agreed that the deduction under section 80HHC cannot be denied merely because the audit report was not filed with the return, as long as it was submitted before the assessment was completed.
• Conclusion: The Tribunal concluded that the deduction under section 80HHC should not be denied on the grounds of delayed audit report submission.

2. Applicability of Section 80A(2) in Computing Book Profit under Section 115JA

• Relevant Legal Framework and Precedents: Section 115JA deals with the computation of book profits for certain companies, while section 80A(2) limits aggregate deductions to the gross total income. The case of CIT v. G.T.N. Textiles Ltd. was referenced, which dealt with similar provisions under section 115J.
• Court's Interpretation and Reasoning: The Tribunal found that section 80A(2) is not applicable in computing book profits under section 115JA. The provisions of section 115JA are distinct and involve separate procedures for determining income and book profits.
• Key Evidence and Findings: The Tribunal noted that the Kerala High Court's decision in G.T.N. Textiles Ltd. supported the exclusion of section 80A(2) from the book profit computation process.
• Conclusion: The Tribunal ruled in favor of the assessee, stating that section 80A(2) does not apply to the computation of book profits under section 115JA.

3. Calculation of Indirect Costs for Deduction under Section 80HHC

• Relevant Legal Framework and Precedents: Section 80HHC and its explanation define "indirect costs" as costs not directly attributable to exports, to be allocated based on the ratio of export turnover to total turnover.
• Court's Interpretation and Reasoning: The Tribunal disagreed with the assessee's method of calculating indirect costs by excluding the Manufacturing Division's costs. It emphasized that indirect costs should reflect the total business costs, not just those of the Sales Division.
• Key Evidence and Findings: The Tribunal found no justification for the assessee's exclusion of Manufacturing Division costs and upheld the Assessing Officer's computation.
• Conclusion: The Tribunal upheld the Assessing Officer's calculation of indirect costs and the resulting deduction amount of Rs.10,25,264 under section 80HHC.

SIGNIFICANT HOLDINGS

• The Tribunal held that the deduction under section 80HHC cannot be denied due to the late submission of the audit report, provided it is filed before assessment completion, aligning with the Hemsons Industries decision.
• The Tribunal established that section 80A(2) does not influence the computation of book profits under section 115JA, supporting the precedent set by G.T.N. Textiles Ltd.
• Regarding indirect costs, the Tribunal maintained that the total indirect costs, including those from the Manufacturing Division, must be considered for section 80HHC deductions, affirming the Assessing Officer's computation.
• The Tribunal directed the Assessing Officer to modify the assessment based on its findings, allowing a deduction of Rs.10,25,264 under section 80HHC while computing book profits under section 115JA.