TMI Blog2005 (1) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... of clause ( v ) of the Explanation to section 115JA is book profit of section 80-IA( b )( iv )( c ) qualifying industrial undertaking as per its profit loss account and not the amount of profit computed in terms of provisions of Chapter IV-D of the IT Act. ii. The ld. CIT(A) erred in not referring to and accepting the contention of the appellant that its claim was squarely covered by the decision of Kerala High Court in CIT v. GTN Textiles Ltd. [2001] 248 ITR 372 1 . The ld. CIT(A) ought to have followed the impugned judgment of the High Court as the only judgment dealing directly with the issue on hand. 2. The relevant facts are that the appellant company is engaged in the manufacturing of positive displacement pumps. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the ld. CIT(A) and that is how the dispute has come up before us for adjudication. 3. The ld. counsel appearing on behalf of the assessee forcefully contended that provisions of section 115JA do not visualize or permit adjustment made by the Assessing Officer in the quantum of income exempt under section 80-IA. It is submitted that depreciation as provided in the books of account cannot be varied by the Assessing Officer while computing book profits under section 80-IA. The ld. counsel strongly relied on the Kerala High Court judgment in the case of GTN Textiles Ltd. [2001] 248 ITR 372 1 and invited our attention to the ratio of this judgment, which is reproduced below from the head note: "According to section 115J of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Tribunal was correct in holding that under section 115J, Explanation, clause ( iii ) of the Act, profit to be taken into consideration was profit as per the books of account and not as calculated under the Act. 4. The ld. counsel also drew support from the ITAT, Hyderabad Bench decision in the case of Starchik Speciality Ltd. v. Dy. CIT [2004] 90 ITD 34 . The ratio of this case may be reproduced below from the headnote : "The invocation of section 115J and section 115JA implies two distinct procedures, (1) determination of income under the normal provisions of the Act, which include section 80A(2) and section 80B(5), relied on by the Revenue and (2) determination of the book profit subject to the specified adjustments, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culated after making adjustment permissible under the section. However, the profits and gains derived from the industrial undertaking have to be calculated in accordance with the provisions of the IT Act. It is, therefore, argued that the depreciation as admissible in the IT Act has to be considered while computing the income eligible for exemption. 6. We have given careful consideration to the rival submissions in the light of the provisions of the law, and the precedents cited before us. The mandatory requirement of section 115JA is that, for the purpose of section, the profit loss account has to be prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. In the present case, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is eligible to claim a deduction of hundred per cent of the profits and gains under sub-section (5) of section 80IA." From the above provisions, it is notable that under the Explanation, the book profits cannot be increased by making any adjustment on account of depreciation. Further, the book profits are required to be reduced by the amount of profit derived by the industrial undertaking which is eligible for exemption under section 80-IA. Under clause ( v ), there is no mention that the profit derived by the industrial undertaking must be calculated as per the provisions of the IT Act. Therefore, in our view, the logical interpretation would be that the profits derived by the industrial undertaking as per the books of account have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok profits in the light of the observations made above. 7. The ground No. 3( a ) is as under: "The ld. CIT(A) erred in diluting relief admissible under section 80-IA by reducing from the qualifying profit base sum of Rs. 17,076 admissible as deduction under section 80HHC of the Act." Both the parties agreed that this issue is covered in assessee s favour by the Bombay High Court decision in the case of CIT v. Nima Specific Family Trust [2001] 248 ITR 29. Accordingly, the order of the ld. CIT(A) on this issue is reversed and the Assessing Officer is directed to recalculate the exemption admissible under section 80-IA without reducing from the qualifying book profits the deduction under section 80HHC. 8. The ground No. 3( b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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