TMI Blog2010 (5) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. 4. 1089/A/08 CIT(A)-XI, A bad 04-01-08 2002-03 Assessee. 5. 1242/A/07 CIT(A)-XI, A bad 22-11-06 2003-04 Assessee. 6. 3557/A/07 CIT(A)-XI, A bad 31-5-07 2004-05 Assessee. 2. In these appeals by the Revenue the assessee, following grounds have been raised : ITA No.1467/Ahd/2006[Revenue] for AY 2002-03: 1. The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts while directing assessing officer to allow depreciation of ₹ 3,77,59,296/- on the basis of findings given in earlier years and to consider the depreciation for computing the book profit u/s 115JB of the Act. 2. The Ld. CIT(A)-XI, Ahmeabad has erred in law and on fact while directing assessing officer to recomputed the deduction u/s 80HHC of the Act, after giving effect to the appellate order and reduce the same from the book profit. 3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the order of the Ld. CIT(A)-XI, Ahmedabad may be set aside and that of the Assessing Officer be restored. ITA No.3242/Ahd/2007[ Revenue]-AY 2004-05 1. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in allowing the depreciation of ₹ 5,82,09,336/-as per WDV worked out by the assessee as against ₹ 5,30,09,521/- allowed by the Assessing Officer keeping in view the Written Down Value of the assets as per Income tax records. 2. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in deleting the addition made of ₹ 27,075/- on account of disallowance of employees contribution towards ESI which were paid after the due date. 3 .On the facts and in he circumstances of the case, the Ld. CIT(A)-XI, Ahmedabad ought to have upheld the order of the Assessing Officer. for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 4. It is, therefore, prayed that the order of the Ld. CIT(A)-XI, Ahmedabad may be set aside and that of the Assessing Officer be restored. ITA No.1089/Ahd/2008[Assessee]-AY 2002-03 1. That the learned CIT(A) has erred in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O be directed to reduce the amount of deduction under section 80HHC while computing book profit under section 115JB of the Act. 3. Your appellant craves a leave to add, alter or amend any ground at the time of hearing. ITANo.3557/Ahd/2007[Assessee]-AY 2004-05 1. That the learned CIT(A) has erred in law and facts by confirming the disallowance of claim of deduction under section 80HHC of the Act, as the amendment in the Act is retrospective, discriminative, against the constitution and the operation of the amendment has been stayed by the various Courts, and therefore the AO be directed to allow the deduction under section 80HHC, as claimed while computing the total income. 2. That the learned CIT(A) has erred in law and facts by not reducing the amount of deduction under section 80HHC of the Act, while computing Book Profit under section 115JB of the Act and accordingly the learned AO be directed to reduce the amount of deduction under section 80HHC while computing book profit under section 115JB of the Act. 3. Your appellant craves a leave to add, alter or amend any ground at the time of hearing. 3. Adverting first to ground no.1 in ITA no.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res Rs 15,32,427 Computer Rs 4,80,488 Vehicles Rs 15,32,026 Total ------------------- Rs 2,87,29,217 B) Trading Unit Rs. 11,69,760 ------------------- Total dep. Available (A+B) ₹ 2,98,98,977 3.2 Like wise in the AY 2003-04, the AO restricted the claim to depreciation of ₹ 2,65,45,551/- as against claim of ₹ 3,29,46,344/- while in the AY 2004-05, it was restricted to ₹ 5,30,09,521/- as against claim of ₹ 5,82,09,336/-. 4. On appeal, the ld. CIT(A) while following the appellate order dated 29-06-2006 of his predecessor in appeal No. CIT(A)-XI/91/2004-05 for the AY 2001-02 directed the AO in these three assessment years to go through the appellate orders for the earlier years and allow the depreciation on the WDV which is worked out after giving effect to the above orders. As regards ground no.3 in ITA no.546/A/2007 f or the AY 2003-04 relating to direction to allow additional depreciation of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (already cited above) of Hon ble Karnataka High Court and jurisdictional ITAT and the decision in the case of the appellant for the AY 1997-98 by my predecessor, it is held that the AO was not correct in disturbing the Book Profit of the appellant for the AY 1998-99. He is directed to recomputed the Book Profit under sec. 115JA, after allowing additional depreciation of ₹ 1,37,96,295/- of the current year, resulting on account of change in the method of depreciation. 4 After careful consideration of the rival submissions, facts and circumstances of the case and the decision (supra), we are of the opinion that the order of the CIT(A) requires no interference and, therefore, Revenue s ground Nos.1 2 are rejected and order of the CIT(A) on these points are sustained. 6.1 The aforesaid decision was followed while adjudicating a similar issue in ITA no.2529/Ahd./2002 for the AY 1999-2000, ITA no.3702/Ahd./2003 for the AY 2000-01, ITA no.2556/Ahd./2004 in the AY 2001-02. While adjudicating the issue in ITA no.2556/Ahd./2004 , the Tribunal incorrectly referred to ground no.5 of ITA No.215/Ahd/2002 instead of ground no.1 2 in para 52 of their order. In the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the facts of the case. Since the relevant provisions of sec. 80HHC of the Act were amended only after the assessment order was passed, we see no infirmity in the directions of the ld. CIT(A) to compute the said deduction in terms of the amended provisions prevailing during the year after allowing sufficient opportunity to the assessee. With these observations, ground no. 2 in ITA no.1467/A/06 is dismissed.. 11 Ground No.3 in the ITA no.1467/Ahd./06 relates to deletion of the addition of ₹ 1,11,75,348/- while computing book profits in terms of provisions of sec. 115JB of the Act. During the course of assessment proceedings, the AO added an amount of ₹ 1,11,75,348/- on account of write back of excess provision of income-tax of earlier year while determining book profits u/s 115JB(2) of the Act. On appeal, the learned CIT(A) concluded as under:- 7.1 The submissions of the AR of the appellant have been perused. It is seen that the appellant had made provision for income-tax for the AY 2001-02 at ₹ 1,11,75,348/-. The AO had added back the said provision while computing the book profit for the assessment year 2001-02. 7.2 It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disallowance of ₹ 3,01,060/-and ground no.2 in ITA no.3242/Ahd./2007 relates to disallowance of ₹ 27,075/-, on account of belated payment of ESI .The AO noticed from the Annexure-3 of the Audit Report that following payments were made belatedly in the period relevant to the AY 2002-03: Employees Contribution Employer Contribution Due date of payment Date of payment 554 1505 21-5-01 22-5-01 533 1501 21-6-01 22-6-01 578 1568 21-7-01 23-7-01 591 1604 21-8-01 28-8-01 822 2233 21-9-01 10-10-01 696 1890 21-3-02 26-3-02 3744 10301 Total 14075 14.1 To a query by the AO, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Shri Omarsingh B. Rawat Vs ITP ITA No.1908/Ahd/2009 vide their order dated 18-09-2009, the Tribunal allowed the appeal of the assessee on the issue of employees contribution relying upon the aforesaid decision of the Hon ble Delhi High Court. We find that the Hon bleDelhi High Court in the case of P.M.Electronics Ltd.(supra), following the decision of Hon ble Apex Court in the case of Vinay Cement Ltd.(supra), allowed the claim of the assessee for deduction of the employees contribution towards PF. 18.1 Moreover, recently, Hon ble Apex Court in the case of CIT vs Alom Extrusions Ltd 319 ITR 306 (SC) held that the omission of the second proviso to section 43B of the Act by the Finance Act, 2003, operated, retrospectively, with effect from, April 1, 1988 and not prospectively from April 1, 2004. Hon ble Court observed that earlier under the second proviso to section 43B as amended by the Finance Act, 1989, the assesses were entitled to deduction only if the contribution stood credited on or before the due date given in the Provident Funds Act. This created further difficulties and on a representation made to the Finance Ministry one more amendment was made by the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 43B w.e.f 1.4.2004 was held applicable to earlier years as well. As the deletion of the 2nd Proviso is retrospective, the case has to be governed by the first Proviso. Dharmendra Sharma 297 ITR 320 (Del) P.M. Electronics 313 ITR 161 (Delhi) followed; (iii) If the employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down in Vinay Cement. 18.3 In view of the foregoing, we have no hesitation in holding that the both employer s as well as employees contribution towards ESI having been made by the assessee within the due date of filing of return u/s 139(1) of the Act for the assessment years under consideration, there is no ground for disallowing the same. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the assessee submitted that the issue is covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of CIT vs. Jindal Exports Ltd. (2009) 314 ITR 137 (Delhi) and the decision of the Hon ble Madras High Court in the case of CIT vs. Chemplast Sanmar Ltd. (2009) 314 ITR 231 (Mad). 23 We have heard the parties and gone through the facts of the case. We find that the Hon ble Delhi High Court in the case of CITvs. Jindal Exports Ltd. (2009)314 ITR 137 (Delhi), while adjudicating a similar issue, held that interest under ss. 234B and 234C is to be charged after the tax credit (MAT credit) available under s. 115JAA is set off against tax payable on the total income of the year in question. Likewise, Hon ble Madras High Court in the case of CIT vs. Chemplast Sanmar Ltd. (2009) 314 ITR 231 (Mad), held that the credit under section 155JAA should be given effect to before charging of interest under sections 234A, 234B and 234C of the Act. Even more recently, while agreeing with the view taken in the aforesaid two decisions, Hon ble Bombay High Court in the case of CIT Vs. Apar Industries Ltd.,323 ITR 411(Bom.) held that amendment of section 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business profits . Therefore, we have to read the formula in entirety. In that formula the entire business profits is not given deduction. It is the business profit which is proportionately reduced by the above fraction/ratio of export turnover + total turnover which constitutes section 80HHC concession (deduction). Income in the nature of business profits was, therefore, apportioned. The above formula fixed a ratio in which business profits under section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words total turnover but also to the words export turnover , total export turnover and business profits . That is the reason why we have quoted hereinabove extensively the illustration from the Direct Taxes (Income-tax) Ready Reckoner of the relevant word. In the circumstances, we cannot interpret the words total turnover in the above formula with reference to the definition of the word turnover in other laws like Central Sales Tax or as defined in accounting principles. Goods for export do not incur excise duty liability. As stated above, even commission and interest formed a part of the profit and loss account, however, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from the turnover . Just as interest, commission etc. did not emanate from the turnover , so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and therefore, they were not includible in the total turnover . The above discussion shows that income from rent, commission, etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. In fact, in Civil Appeal No. 4409 of 2005, the above proposition has been accepted by the Assessing Officer, if so, then excise duty and sales tax also cannot form part of the total turnover under section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of turnover which is the position even in the case of rent, commission, interest etc. It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option to choose either the duty drawback or the duty entitled pass book scheme being duty remission scheme and b) the rate of drawback credit attributable to the custom duty was higher than the rate of credit available under Duty Entitlement Pass book scheme being duty remission scheme. While referring to his own order for the AY 2003-04 , the AO denied the claim since (i) the export turnover was more than ₹ 10 Crore (ii) the entire sale value was the profit, as there was no cost of the DEPB entitlement (iii) newly amended definition of Business Profit, as per explanation (baa) of section 80HHC(1) stipulated that the amount of DEPB is required to be reduced from the business profit for the deduction of claim under section 80HHC and the assessee failed to justify that the two conditions as enumerated in the amended provisions have been fulfilled by it. 28.1 Like wise, the AO disallowed the claim for deduction u/s 80HHC of the Act in the AY 2003-04, business profits after reduction of DEPB amount of ₹ 7,39,51,432/-, being negative. In AY 2004-05 also similar findings were recorded by the AO. 29. On appeal, the learned CIT(A) held in the AY 2002-03 that sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Duty Entitlement Pass Book Scheme, being Duty Remission Scheme : 31.2 As regards plea of the assessee in their ground that amendment is discriminative, against the constitution and had been stayed by various courts, the ld. AR did not make any submissions on these aspects nor brought to our notice any decision, staying the aforesaid amendments. In any case, it is not within our jurisdicton to decide the constitutionality of any amendment under the Act and therefore, this plea has to be rejected. As is apparent from the aforesaid provisions, only ninety percent of profit on transfer of DEPB license falling within the provisions of sec. 28(iiid) has to be increased in terms of the aforesaid third proviso while determining deduction u/s 80HHC of the Act. In this connection, in the aforesaid decision dated 11.8.2009 in the case of M/s Topman Exports,318 ITR(AT) 87(Mumbai) (SB)., the following question was referred to the Special Bench: Whether the entire amount received on sale of DEPB entitlements represents profit chargeable under section 28(iiid) of the Income Tax Act or the profit referred to therein requires any artificial cost to be interpolated? 31.21 The Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act as also record his specific findings on the grounds connected with deduction u/s 80HHC of the Act and not adjudicated by him separately in the AY 2003-04 2004-05. With these directions, ground nos.1 2 in ITA no.1089/Ahd/2008, ground no.1 in ITA nos. 1242 3557/Ahd./2007 are disposed of. 32. As regards ground no.3 in ITA no.1089/Ahd/2008, ground no.2 in ITA no. 1242/Ahd./2007 and ground no. 2 in ITA no.3557/Ahd./2007 relating to reduction of deduction u/s 80HHC while computing book profits u/s 115JB of the Act, the AO rejected the claim of the assessee since the profits of the business resulted in a negative figure due to reduction of DEPB amounts. On appeal, the ld. CIT(A) merely upheld the findings of the AO. 33. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR relied upon the decision dated 20-10-2009 of the Tribunal in the assessee s own case in ITA No.2529/Ahd/2002 for AY 1999-2000,wherein it was held in para 21 to 23 as under:- 21 Coming to issue involved in Ground No.2, it is observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of Syncome Formulations (I) Ltd.(supra), holding as under: 23. Until s. 115JB was introduced, the whole of the profits computed under s. 80HHC were eligible for reduction for computing the book profits. Pursuant to sub-s. (1B) of s. 80HHC the deduction available to the extent provided in s. (1B) and after 1st April, 2005 the deduction of export profits is discontinued. The assessee's argument is that only in case of companies not covered by s. 115JB to then sub-s. (1B) of s. 80HHC would apply. Insofar as MAT companies are concerned, the profits eligible for deduction are as computed under sub-s. (3) or (3A) of s. 80HHC without applying sub-s. (1B). This argument is based on the expression computed under sub-s. (3) or sub-s. (3A) as the case may be . 24. For that purpose, we will have to examine the true scope and effect of s. 80HHC. In s. 80HHC, the relevant provisions to which we have earlier reproduced is sub-s. (1), which provides, that in computing the total income of the assessee, a deduction is to be made to the extent of profits referred to in sub-s. (1B) derived by the assessee from the export of such goods. The section as amended has broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible of reading s. 80HHC(3) or (3A) independent of s. 80HHC(1B). To our mind, the language is clear. The literal meaning does not in any way defeat the object of the section and/or lead to an absurdity. The object of s. 115JB is to allow even MAT companies to avail of the benefit of deduction. If we consider the assessee's arguments that MAT companies are entitled to full deduction of export profits it will lead to anomaly, whereby the companies which are paying tax on total income under the normal rules, for them the deduction of export profits will be lesser than what MAT companies are entitled to. Is this a possible view? When s. 115J was originally introduced, MAT companies were not entitled to deduction of profits under s. 80HHC while working out the book profits. That came to be introduced by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1 st April, 1989 a year later. Parliament, therefore, initially had even denied to MAT companies deduction under s. 115J. When s. 115JA was introduced w.e.f. 1 st April, 1997, s. 80HHC benefits were once again not available for MAT companies. The amendment by Finance Act, 1997 to give the benefit was w.e.f. 1st April, 1998. Can it now be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no absurdity or ambiguity being caused or any mischief sought to be remedied. The language used in s. 115JB is deduction available under s. 80HHC. It is difficult to conceive of any rational reason as to why the legislature should have thought to give MAT companies additional benefits than the other companies who are paying tax on total income and not the tax based on book profit as calculated under s. 115JB. Is it possible to conceive of any degree of fairness and/or justice that MAT companies, who for some periods were denied the benefit of s. 80HHC, because of the introduction of s. 115JB Expln. 1(iv) are entitled to have their entire export profits reduced? The object of s. 115JB or for that matter s. 115J or s. 115JA was to impose tax on those companies which otherwise considering various exemptions or deductions available under the Act, though making huge profits and paying large dividends were not paying any tax. It is therefore, not possible to accept the construction as sought to be advanced on behalf of the assessee, that they should be treated on a different footing in computing export profits under s. 80HHC, for the purpose of s. 115JB. 28. We have had the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the AO and ld. CIT(A) did not have the benefit of the views in the aforecited decisions and thus, could not record any findings on the pleas now raised on behalf of the assessee before us on their claim for deduction u/s 80HHC of the Act while determining book profits u/s 115JB of the Act , we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue of claim for deduction u/s 80HHC of the Act in terms of clause (iv) of the explanation to sec. 115JB of the Act in accordance with law in the light of various judicial pronouncements including the aforecited decisions, after allowing sufficient opportunity to both the parties . Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act and ensuring that the conditions of section 80HHC are satisfied in the instant case while computing the deduction allowable to the assessee .With these directions, ground no. 3 in ITA no.1089/Ahd/2008, ground no.2 in ITA nos. 1242 3557/Ahd./2007 are disposed of. 35 Ground nos. 8 9 in ITA No.546/Ahd/2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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