TMI Blog2003 (1) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to exports should be deducted from the book profits computed under section 115J without going into the reasons given by the Assessing Officer: 2. The assessee-company is manufacturer of cycle tyres and tubes and its factory is located at Ludhiana in Punjab. The first ground of appeal is egarding the deletion of addition of Rs. 2,25,376 made to the value of closing stock on account of unutilised MODVAT credit. This issue is squarely covered in favour of the assessee by the decision of jurisdictional High Court in the case of CIT v. Indo Nippon Chemical Co. Ltd. [2000] 245 ITR 3841 (Bom.). Respectfully following the decision of Bombay High Court, this issue is decided in favour of the assessee. 3. The second ground of appeal is regarding the amount of Rs. 1,65,325 withdrawn from revaluation reserve and credited to profit and loss account. According to the department the learned CIT(A) has erroneously held that the amount of Rs. 1,65,325 will not form part of the book profits. This issue is also covered by the decision of the Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 in favour of the assessee. Respectfully following the decision of the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Synco Industries Ltd. v. Assessing Officer of Income-tax [2002] 254 ITR 608 (Bom.). (ii) CIT v. Gogineni Tobacco Ltd. [2002] 253 ITR 800(SC) (iii) IPCA Laboratories Ltd. v. Dy. CIT (No. 1) [2001] 251 ITR 401 (Bom.). 6. The learned counsel for the assessee referred to the provisions of Explanation (iii) of section 115J of the Act which reads as follows: "(iii) The amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that much amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be, or The learned counsel, thus, contended that on a close and minute inspection and perusal of clause (iii), it will be crystal clear that clause (iii) contemplates following a mandatory step by step chronology as well as the methodology for determining the book profits "attributable to the business" upto the stage of clause (iii) just prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (3A)......." and there is no qualification as in the second limb of clause (iii) of Explanation to section 115J, namely, "........so, however, that such amounts are to be computed......" after giving the strict and peremptory computation mechanism in the first limb of clause (iii). 8. The learned counsel referred to the decision of Kerala High Court in the case of CIT v. G.T.N. Textiles Ltd. [2001] 248 ITR 372 and contended that the High Court has propounded that the concept of "Book profit" is the life line and blood of section 115J. According to him, by this decision the view canvassed by the revenue that section 80HHC is to be worked out in conformity with the provisions of sections 28 to 43C i.e., under the normal provisions of the Act as against "book profits" stand advanced by the assessee was displaced and the latter stand of the assessee countenanced. The learned counsel also referred to circular 680 dated 21-2-1994 reported, which was in continuance of Circular No. 559 dated 4-5-1990, existing at the time the assessment order dated 25-2-1993 was passed. He specially invited our attention to paragraph 2 of the circular which reads as follows: "It may be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by the learned departmental representative, the learned counsel argued that the Supreme Court merely held that a question of law arises on the issue whether deduction under section 80HHC is to be claimed from total income after deduction of unabsorbed losses or unabsorbed depreciation or otherwise. He, thus, contended that a Supreme Court decision directing the High Court to state a referable question of law does not give a decision on merit. Therefore, according to the learned counsel, this decision is irrelevant to the point in issue in the present case. Regarding the Bombay High Court decision in the case of Synco Industries Ltd., the learned counsel contended that this decision pertains to sections 80A and 80B, therefore, the same is not applicable because the issue under consideration is regarding section 115J and not Chapter VI. He referred to the Mumbai High Court decision in the case of CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429 and contended that the Hon'ble Bombay High Court has categorically held that section 80AB has no application to section 80HHC since it is a self contained-code and not controlled by section 80AB. In the case of IPCA Laboratori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income" is a consequence of allowing the permissible deductions may become 'nil' but it cannot turn into a negative figure. Thus, the deduction is permitted only to the extent necessary to wipe out the income but not so as to turn it into a loss. It has been held by the various High Courts that where the gross total income is found to be a net loss, in the concerned year, no deduction under any of the sections 80C to 80U can allowed. We, therefore, fully agree with the department that deduction under section 80HHC is not allowable, where the income determined results into a loss. In the present case, the Assessing Officer has correctly disallowed the benefit of deduction under section 80HHC as the income computed resulted into a loss of Rs. 3,08,70,093. But the issue for our consideration is not allowability of deduction under section 80HHC but the determination of book profits under section 115J of the Act. 11. For the purpose of section 115J, the Explanation defines as to what is meant by the "Book Profit". "Book Profit" means the net profit as shown in the profit and loss account for the relevant previous year as prepared under sub-section (1A). Such book profits will be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is not entitled for deduction under section 80HHC because the same is not permitted by the provisions of section 80A(2). But so far as section 115J is concerned, the law is without any ambiguity and it permits the deduction of the amount of profits attributable to export under section 80HHC of the Act. 12. The various Court cases relied upon by the learned departmental representative are not relevant to the issue under consideration. In the case of IPCA Laboratories Ltd., the Bombay High Court has laid down that disclaiming export benefits in favour of supporting manufacturers can be done only when there is a profit. In this case the assessee showed net loss from export goods. Under these circumstances, the Hon'ble High Court held that net result should be profits for purpose of claiming deduction under section 80HHC. Thus, the assessee was not allowed deduction under section 80HHC. In this case, the export profit was nil therefore, the question of allowing deduction under section 80HHC does not arise. We are unable to understand how this case is relevant to the issue under consideration. In the present case, we are dealing with the determination of book profits under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orbed depreciation. This has nothing to do with the issue under consideration. 15. In the case of GTN Textiles Ltd., relied upon by the learned counsel, the assessee was engaged in the manufacture of goods most of which were exported outside India. Because of substantial amount of depreciation and investment allowance, the assessee did not have taxable income and therefore, the assessing authority made the assessment under section 115J of the Act. The assessee claimed deduction of export profit in the computation of book profit as provided under clause (iii) of the Explanation to section 115Jof the Act. The assessee claimed deduction in the manner provided under section 80HRC(3) of the Act by the following formula: Export turnover ---------------- X Net profit credited in P L Account Total turnover The assessing authority rejected the said computation and worked out the deduction by applying the formula: Profit comput~d under the provisions of the Income-tax Act, i.e., after setting off Export turnover depreciation and investment allowance of ---------------- X current year and the unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies who were otherwise not paying the tax because of various deductions but were paying dividend. Therefore, restrictions were put on certain deductions. A procedure was laid down in Explanation (iii) of the said section for the determination of Book Profits. Certain deductions were allowed out of the Book profits so determined. The companies who were subject to relief under section 80HHC or section 80HHD were exempted from the provisions of section 115J. Therefore, the computation of Book profits has to be made strictly as per the provisions of Explanation. Explanation (iii) excludes profits which are eligible for deduction under section 80HHC. Such amounts are to be computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC as the case may be. There is no ambiguity in these provisions and they are to be strictly construed. The provisions of sections 80HHC and 115J are entirely different. Section 80HHC pertains to deduction whereas section 115J is a charging section. As per section 80HHC, deductions are to be made out of the taxable income if any whereas as per section 115J income has to be determined for charging the tax. Therefore, if deduction is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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