TMI Blog2015 (11) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... ct by the CIT(A). In such situation we are of the view that there can be no grievance for the revenue as projected. This ground has probably been taken on misconception that the aforesaid items of receipts were also considered as profit eligible for deduction u/s 80HHC of the Act. - Decided against revenue. Computation of books profit by considering the amount claimed as deduction by the assessee u/s 80HHC or on the basis of the amount of deduction actually allowed u/ 80HHC - Held that:- If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a selfcontained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We therefore hold that the determination of books profits u/s.115JB of the Act should be worked out by the AO on the lines indicated in the Circular. We hold that the determination of books profits u/s.115JB of the Act should be worked out as done by the Assessee and in accordance with the directions laid down in the Circular referred above. - Decided in favour of assessee. - ITA No.17/Kol/2012, ITA No.68/Kol/2012 - - - Dated:- 8-10-2015 - Hon ble Shri N.V.Vasudevan, JM Shri Waseem Ahmed, AM For The Department : Shri Sanjit Kr.Das, JCIT, Sr.DR For The Assessee : Shri Manish Tiwari, FCA ORDER Per Shri N.V.Vasudevan, JM ITA No.17/Kol/2012 (Revenue s appeal) : This is an appeal by the Revenue against the order dated 21.10.2011 of CIT(A)-XIX, Kolkata realting to A.Y.2003-04. 2. Ground No.1 raised by the revenue reads as follows :- 1. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in directing the A.O. to delete the addition of ₹ 6,41,000/- on account of deferred tax liability without considering the fact that such excess liability was created in order to explain the other assets. 3. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was clarified that provision for deferred tax asset has been made in the accounts in view of amendment in tax laws relating to adjustment of brought forward unabsorbed depreciation. Accordingly, a sum of ₹ 5,47,19,000/- has been added to General Reserve towards deferred tax assets in accordance with AS-22 issued by the ICAI. The adjustment for revaluation reserve of ₹ 1,10,000/- arising on sale of assets revalued earlier. It was further submitted by the Assessee that opening balances of deferred tax liability and assets as under are also not considered by the A.O. : Deferred tax asset Rs.12,87,000/- Deferred tax liability Rs.18,18,000/- Balance (-) ₹ 5,31,000/- The amount of deferred tax asset at ₹ 5,69,22,000/- in the accounts as on 31/3/2003 was reconciled as under :- Opening balance (-) ₹ 5,31,000/- Deferred tax asset as per Note 19 of Schedule 19 Rs.5,47,19,000/- Transfer from P L A/c. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit of the assessee as ₹ 90,75,000/- which is duly declared by the assessee in the return which is the starting point of computing of the total income adopted by the AO. The ld. Counsel also brought to our notice that the deferred tax liability was not the item in the debit in the profit and loss account and there is no question of making any addition on account of any deferred tax liability as the deferred tax liability has never again reduced to add in the return of income. Besides the above he also relied on the findings of the CIT(A). 8. We have taken careful consideration of the rival submissions and are of the view that the impugned addition could not have been made by the AO for the reason that the deferred tax liability had not come to reduce the total income declared by the assessee in the return of income. The income declared in the return of income was the profit of the three divisions as per the profit and loss account as on 31.03.2003. The deferred tax liability was never an item of expenditure in the profit and loss account. Therefore, there is no question of excess liability. The other reason given by the CIT(A) that the adjustment in question in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct was to be allowed. The deduction u/s.80HHC of the Act is allowed at 80% of the profits dervied from the business of export. There is thus a difference between the Profits on which deduction is to be allowed and deduction that is actually allowed on such profit. According to the AO what is to be reduced from the profit as per profit and loss account is the eligible deduction that is to be allowed u/s.80HHC of the Act not the profit on which the eligible deduction is to be computed. In the assessment order, the A.O. has mentioned that in the computation for book profit u/s 115JB, the assessee has claimed deduction u/s 80HHC. Since, the deduction available u/s 80HHC comes to nil, no deduction is allowed. Further the AO also increased the book profit of Tea Division and Textile Division by ₹ 32,27,211/- and ₹ 3,50,455/- respectively on account of provision for gratuity. .The A.O. has further mentioned that it is seen by him that the assessee has claimed provision for gratuity under Tea Division for ₹ 32,27,211/- and under the Textile Division at ₹ 3,50,455/-. On being questioned as to why the provision for gratuity should not be added back being the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of computation of book profit. The A.O. is directed to delete the addition made by him on account of Provision for Gratuity in Tea Division and Textile Division. The A.O. is also directed to allow the deduction u/s 80HHC re-calculated by him on the basis of directions given to him in ground nos.2 3 above. In view of above, the ground no.4 is partly allowed and ground no.5 is allowed. 12. Aggrieved by the order of the CIT(A), the Revenue has raised ground No.3 4 before the Tribunal. 13. We have heard the rival submissions. As far as ground no.3 raised by the revenue is concerned the issue raised therein is no longer res integra and has been concluded by the Hon ble Supreme Court in the case of Ajanta Pharma Ltd. Vs. CIT 327 ITR 0305. In the aforesaid decision, the facts were that the Assessee which was a company to which the Minimum Alternate Tax provisions of Sec.115JB were applicable, filed its return of income claiming deduction under s. 80HHC of the IT Act, 1961 (for short, the 1961 Act ). While computing the book profits under s. 115JB of the 1961 Act, the assessee claimed reduction, under cl. (iv) of Explanation to s. 115JB, of 100 per cent export profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC(1B) it is the extent of deduction which matters. The word thereof in each of the items under s. 80HHC(1B) is important. Thus, if an assessee earns ₹ 100 crores then for the asst. yr. 2001-02, the extent of deduction is 80 per cent thereof and so on which means that the principle of proportionality is brought in to scale down the tax incentive in a phased manner. However, for the purposes of computation of book profits which computation is different from normal computation under the 1961 Act/computation under Chapter VI-A, the upward and downward adjustments are to be kept in mind and if so read it becomes clear that cl. (iv) covers full export profits of 100 per cent as eligible profits and that the same cannot be reduced to 80 per cent by relying on s. 80HHC(1B). Thus, for computing book profits the downward adjustment, in the above example, would be ₹ 100 crores and not ₹ 90 crores. The idea is to exclude export profits from computation of book profits under s. 115JB which imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of Explanation to the Finance Bill, 2000. The argument of the Department, that both eligibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case, Ld. CIT(A) is completely misdirected in confirming the order of the Assessing Officer to compute book profit from Tea Division at ₹ 18,15,643/- u/s 115JB of I.T.Act, 1961, without giving effect to Rule 8 of I.T.Rules, 1962 for agricultural income exempt u/s 10(1) of the Act. 2. That on the facts and in the circumstances of the case, Ld. CIT(A) should have allowed reduction of income exempt u/s 10 as per Explanation 1(ii) attached to Section 115JB (2) of I.T.Act, 1961 in the nature of agricultural income to be computed applying Rule 8 to Composite book profit from the sale of tea grown and manufactures by the assessee company. 17. The Assessee had disclosed book profit u/s 115JB at ₹ 15,89,745/- which consisted of book profit of tea division at ₹ 11,04,505/- and book profit of textile division at ₹ 4,85,240/-. As against the book profit of Rs.,15,89,745/- shown by the Assessee, the A.O. has calculated the book profit at ₹ 23,00,880/-. It was submitted by the Assessee before CIT(A) that as far as the book profit of textile division is concerned, the AO has accepted the book profit as declared b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Section 295 (2) (b) provides as follows :- 295 Power to make rules. (1) The Board may, subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out of the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters :- (a) The ascertainment and determination of any class of income; (b) The manner in which and the procedure by which the income shall be arrived at in the case of (i) income derived in part from agriculture and in part from business; (ii) persons residing outside India; [(iii) an individual who is liable to be assessed under the provisions of sub-section (2) of section 64; Pursuant to the aforesaid provision of Rule 8 of IT Rules 1962 provides that in the case of income derived from sale of tea grown and manufactured by the seller in India, the income shall be computed as if they were income derived from business and 40% of such income shall deemed to be income liable to tax. It is thus clear from the reading of Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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