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2016 (11) TMI 1020 - GUJARAT HIGH COURT

2016 (11) TMI 1020 - GUJARAT HIGH COURT - TMI - Reopening of assessment - Deduction under Section 32AB allowable with reference to the profits of the business as a whole and not in respect of the profit of any particular unit - assessee is a family trust - ITAT considering the profits of the business of the assessee as a whole and not in respect of the profit of Patel Detergents (Manufacturing Division) - Held that:- Considering the provisions of Section 32AB prevailing at the relevant time .....

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e as a whole is required to be considered. Under the circumstances, considering the provisions of Section 32AB of the Act prevailing for the year under consideration i.e. Assessment Year 1988-89 the assessee shall be entitled to the deduction under Section 32AB of the Act equal to 20% of the profits of Patel Detergents (Manufacturing Division) being the profits of `eligible business', and therefore, the Tribunal has committed a grave error in holding that the deduction under Section 32AB of the .....

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iness as a whole and not in respect of profit of any particular unit is hereby quashed and set aside and it is held that the assessee shall be entitled to the deduction under Section 32AB of the Act with reference to the profits of Patel Detergents (Manufacturing Division) as claimed and granted by the Assessing Officer while passing the original order of assessment. - Decided in favour of assessee - Tax Appeal No. 173 of 2002 - Dated:- 7-11-2016 - M. R. Shah And B. N. Karia, JJ. Mr Sn Soparkar, .....

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essing Officer as well as the Commissioner of Income Tax (Appeals) (for short CIT(A) ) with respect to the deduction under Section 32AB of the Income Tax Act (for short the Act ) by holding that the deduction under Section 32AB of the Act is allowable with reference to the profits of the business as a whole and not in respect of the profit of any particular unit, the assessee has preferred the present appeal. 2. At the outset, it is required to be noted that initially the assessee proposed the f .....

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ion qua completion of the reassessment proceedings? (iii) Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that there was no change of opinion on the part of the respondent in spite of the fact that the original assessment was framed u/s 143(3) of the Act and after applying his mind, the respondent consciously and deliberately granted deduction u/s 32AB of the Act which was sought to be withdrawn in the reassessment proceedings? (iv) Whether, in the facts .....

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allowable with reference to the profits of the business as a whole and not in respect of the profit of any particular unit?. It appears that thereafter the assessee preferred O.J. Civil Application No.619 of 2014 with a request to formulate/frame other proposed substantial questions of law namely with respect to the initiation of reassessment proceedings more particularly proposed initial substantial questions of law No.1, 2 and 3. The Division Bench of this Court vide order dated 11.11.2014 al .....

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, 2 and 3 as well as on merits of the deduction under Section 32AB of the Act. After making elaborate submissions, Mr. S.N.Soparkar, learned counsel appearing on behalf of the assessee has stated at the Bar that, after considering the submissions on merits of deduction under Section 32AB of the Act, if this Court holds in favour of the assessee in that case the assessee does not press the initial proposed substantial questions of law No.1, 2 and 3. Therefore we propose to consider the matter on .....

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sed return had been filed by the assessee on 15.11.1988 declaring income of ₹ 6,09,62,050/. The assessee claimed deduction under Section 32AB of the Act for ₹ 2.5 crores on the basis of the deposit made with IDBI as provided under Section 32AB of the Act. The audit certificate under Section 32AB had been attached to the return of income. Certain queries were also raised by the Assessing Officer including the query with respect to the deduction claimed under Section 32AB of the Act, w .....

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Officer. However, so far as the deduction claimed under Section 32AB of the Act is concerned, the Assessing Officer allowed the said deduction as claimed. At this stage it is required to be noted that the appellant - trust being a proprietor of Patel Detergents (Manufacturing Division) has calculated 20% of the profit as per the books of accounts of Patel Detergents (Manufacturing Division) are claiming the deduction under Section 32AB of the Act. Against disallowance of the expenses of ₹ .....

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.1993 and served upon the assessee on the same day, which was within four years from the end of the assessment year under appeal. The reasons recorded for issuance of notice under Section 148 of the Act reads as under: It is noticed that assessee in its return of income has claimed deduction u/s.32AB, ₹ 2,50,00,000/and the same has been allowed also, while passing order u/s.143(3) of the I.T.Act dt.27.3.91. However, after further verification it is noticed that assessee has not considered .....

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fit of Patel Detergent on which deduction worked out Rs.12,74,29,709 Less: Expenses of Harsiddh Spe.F.T. ₹ 2,03,05,962 Rs.10,71,23,747 Maximum deduction allowable u/s.32AB ₹ 2,14,24,749 Deduction allowed u/s.32AB ₹ 2,50,00,000 Excess allowed ₹ 35,75,251 In the light of the above facts, I have reason to believe that income chargeable to tax to the tune of ₹ 35,75,251/has escaped assessment. Accordingly, the case is reopened u/s.147 of the Act and notice u/s.148 is be .....

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e making the assessment under Section 143(3) of the Act had allowed the deduction accordingly. 5.4 However the Assessing Officer passed the reassessment order by observing that the reassessment is not barred by limitation. On merits, the Assessing Officer held that the deduction under Section 32AB of the Act was to be restricted to 20% of the profits of business or profession and not in respect of profits of any one undertaking. The Assessing Officer also observed and held that, for computation .....

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e deduction under Section 32AB of the Act at ₹ 2,14,24,749/. 5.6 Feeling aggrieved and dissatisfied with the order passed by the CIT(A) confirming the calculation of the deduction made under Section 32AB of the Act at ₹ 2,14,24,749/, the assessee preferred further appeal before the Income Tax Appellate Tribunal, and by impugned judgment and order, the Income Tax Appellate Tribunal has dismissed the said appeal preferred by the assessee and confirmed the calculation of the deduction m .....

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g that the action of the respondent in reopening the assessment of the appellant was neither barred by limitation nor without jurisdiction? (iii) Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that the proviso to S.147 of the Act puts an embargo qua initiation of the reassessment proceedings only and does not put any restriction qua completion of the reassessment proceedings? (iii) Whether, in the facts and circumstances of the case, the ITAT was right .....

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rence to the profits of the business as a whole and not in respect of the profit of any particular unit? 6. Mr.S.N.Soparkar, learned counsel appearing on behalf of the assessee has vehemently submitted that the learned ITAT has materially erred in holding that the deduction under Section 32AB of the Act is allowable with reference to the profits of the business (of the assessee trust) as a whole and not in respect of the profit of any particular unit i.e. in the present case Patel Detergents (Ma .....

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submitted that in the case before the Gauhati High Court the question was whether the interest and dividend is to be included in income for the purpose of calculating the deduction under Section 32AB of the Act or not. It is submitted that therefore the learned Tribunal has wrongly considered and relied upon the decision of the Gauhati High Court in the case of Dinjoye Tea Estate (P.) Ltd. (supra). 6.2 Mr.Soparkar, learned counsel appearing on behalf of the assessee has heavily relied upon the d .....

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fits of the eligible business or profession, increases and decreases permitted, did not contemplate the loss of another eligible unit. It is submitted that, while holding so, the Delhi High Court has relied upon the decision of Bombay High Court in the case of CIT v. Pudumjee Agro Industries Ltd. [(2006) 285 ITR 301/150 Taxman 137 (Bombay)]. Therefore it is vehemently submitted by Mr. Soparkar, learned counsel appearing on behalf of the assessee that the question of law framed in the present cas .....

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uently on and from 1.4.1991 the word eligible' has been deleted from Section 32AB (b) (ii) of the Income Tax Act. It is submitted that therefore on and from 1.4.1991 for the purpose of deduction under Section 32AB of the Act, a sum equal to 20% of the profits of the business or profession of the assessee as a whole can be considered. It is submitted that in the present case the relevant assessment year is 1988-89 i.e. prior to 1.4.1991. It is submitted that, if the view taken by the Tribunal .....

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.5 Making the above submissions, it is requested to allow the present appeal and answer the question framed in favour of the assessee and against the revenue. 7. Mr. M.R.Bhatt, learned counsel appearing on behalf of the department has tried to oppose the present appeal by submitting that, on one hand, the assessee got the benefit of the order passed by the CIT(A) (against the original assessment order) and the income of the assessee was reduced to ₹ 11,99,00,05,570/which include, for the p .....

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assessee was allowed ₹ 35,75,251/in excess, as deduction under Section 32AB of the Act. Making the above submissions, it is requested to dismiss the appeal. 8. Heard the learned counsels for the respective parties at length. 9. The short question which is posed for consideration before this Court is whether the learned ITAT was justified in confirming the deduction under Section 32AB of the Act calculated by the Assessing Officer confirmed by the CIT(A) considering the profits of the busin .....

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ticular unit (Patel Detergents (Manufacturing Division)) is required to be considered. 10. For the aforesaid, Section 32AB of the Act which was prevailing at the relevant time is required to be considered which reads as under: 32AB.Investment deposit account:( 1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head profits and gains of business or profession , has, out of such income, (a) deposited any amount in a .....

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cheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so uti .....

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uals. (2) For the purposes of this section, (i) eligible business or profession' shall mean business or profession, other than (a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a smallscale industrial undertaking as defined in section 80HHA; (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a smallscale indus .....

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re the installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely: (a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income .....

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mputed in accordance with the provisions of subsection (1) of section 32 from the amounts of profits computed in accordance with the provisions of subsection (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of (i) the amount of depreciation; (ii)the amount of incometax paid or payable, and provision therefor; (iii) the amount of surtax paid or .....

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ovisions, if such amounts are credited to the profit and loss account; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after following depreciation in accordance with the provisions of subsection (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross re .....

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gned and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this subsection if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this subsection. 11. At this stage it is required to be noted that Se .....

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tel Detergents (Manufacturing Division) can be said to be profits of eligible business'. On and after the amendment in Section 32AB of the Act and after deletion of the word eligible', for the purpose of computation of the deduction under Section 32AB of the Act, the profits of the business of the assessee as a whole is required to be considered. Under the circumstances, considering the provisions of Section 32AB of the Act prevailing for the year under consideration i.e. Assessment Year .....

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