deduction under clause (iv) (80HHC) to Explanation to section 115JB

[PANKAJ JAIN]

Dear Friends,

Bare reading of the clause (iv) to Explanation to section 115JB reveals that the Export profit computed under sub section (3) of section 80HHC has to be reduced. According, can one take a inference that the export profits computed under sub section (3) of section 80HHC can be reduced from 115JB inspite of the fact that no deduction under section 80HHC is available n the relevant assessment year. Attention is also invited to the latest decison of Mum ITAT in the case of Ajanta Pharma (2 DTR 241) where in the above view was taken by the Tribunal.

Best Regards,

[bhaskar rao]

Sir,

Thank you for pointing out this important point of law. It will be largely useful but can you give proper book reference because we are not having dtr. Please give from itr or ITD or CTR.

Yours failthfully,

Bhaskar Rao, ITP.

[kotreshmg]

I also need an ITR or CTR or Taxmann citation.

[trramanathan]

There are two points for discussion:

1) MAT is payable normally when Income-tax profit is negative and there fore Sec.80HHC deduction would not be available though there is export profit. In such circumstance, what is the meaning of (iv) of 115JA? Whether 80HHC can be computed on the 'book profit' or what is to deducted is only the deduction on the computed profit?

Following rulings have been held in favour of the assessee that re-computation on 'book profit' is permissible so that 80HHC deduction can be reduced even though it is not available on the computed profit.

Syncome Fouundations (SB) - Govind Rubber 89 ITD 457 - GTN Textiles 248 ITR 372 - Godrej industries 16 SOT 107.

2) Another issue is whether sunset clause in 80HHC(1B) (80% / 70%,etc)  is applicable for MAT also or 100% of 80HHC can be reduced under MAT. Ajantha Pharma (21 SOT 101) and Ranbaxy Lab(14 DTR 26) have held that sunset clause is not applicable for MAT computation.

[sivaiah G]

many ITATs have held that the deduction allowable under MAT provisions is to be calculated on the basis of book profits after making the adjustments specified in respective sections of 115J/115JA/115JB. The decisions are reported in 90 ITD 34, 290 ITR 172(AT) and 106 ITD 193 , 13 sot 414. as stated in the earlier postings, the only High court decision available is 248 ITR 372 which is nothing but GTN Textiles case. However, this case is completely based on a circular no. 680 issued by CBDT on the provisions of sec. 115J. Revenue authorities argue that the wording given in sec. 115J is different from to that of wording in latter sections 115JA/115JB. So far no decision supporting the argument of revenue authorities is found. Some people argue that the decision of Rohan Dyes reported in 270 ITR 350 supports the argument of revenue. But there is no clarity in this decision. Till the issue is settled by Apex Court, this is another issue of contention from both sides. Sofar as the sun set clause, I cannot accept the argument that though the deduction under the section is phased out, it should be allowed in its entirety so far as provisions of MAT are concerned. BUt when the courts have decided, that should be accepted as judicial discipline as has been held by bombay high Court in 256 ITR 385 and 257 ITR 315 

[pawansingla]

As regards computation of 80HHC on adjusted Book Profit , I think for the time being controversy has been settled by Mumbai Special Bench in case of SYNCOME FORMULATION.106 ITD 193 which is in favour of the assessee. However whether department has chaalenged in High Court and what is the stauas of the appeal u/s 260A of the Act. As regards though Mumbai Tribunal has held that Sunset Clause is not applicable.However Chennai Tribunal has taken a contrary decision as given below

2009-TIOL-150-ITAT-MAD
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A', CHENNAI
ITA No.457(Mds)/2007
Assessment Year : 2003-04
M/s BONFIGLIOLI TRANSMISSIONS PVT LTD
PLOT-NO AC-7 TO AC-11, SIDCO INDUSTRIAL ESTATE
THIRUMUDIVAKKAM, CHENNAI-44
PAN : AABCB1675N
Vs
THE ASSISTANT COMMISSIONER OF INCOME TAX
COMPANY CIRCLE-I(2), CHENNAI
M K Chaturvedi, VP and Ahmad Fareed, AM
Dated : December 23, 2008
Appellant Rep by : Shri R Seshagiri Rao
Respondent Rep by : Shri Shaji P Jacob
Computation of deduction u/s 80HHC for the purpose of 115JA/JB
Deduction should be computed u/s 80HHC(3) using book profits. Decision of ITAT Spl. Bench, Mumbai in DCIT Vs Syncome Formulations ( 106 ITD 193 ) followed.
While allowing deduction u/s 80HHC for the purpose of sec. 115JA/JB, effect has to be given to sub-sec. (1B) of sec. 80HHC wherein the deduction for each year is restricted to certain percentage of the deduction otherwise available. Sub-section (3) of sec. 80HHC is a machinery provision dealing with the mode of computation of deduction whereas the deduction can be allowed only in accordance with the prescription of the enabling section ie. 80HHC(1). The enabling section is governed by the restrictive provision laid down under sub-section (1B) of sec. 80HHC.
Appeal of assessee partly allowed.
ORDER
Per : M K Chaturvedi :
This appeal by the assessee is directed against the order dated 6.12.2006 passed by the Commissioner(Appeals)-III, Chennai and relates to the assessment year 2003-04.
2. Shri R Seshagiri Rao, learned counsel for the assessee appeared before us and neatly identified the two issues involved as under:-
1. Whether on facts and in law, the assessee while computing the book profits under section 115JA of the Income-tax Act, 1961 is entitled to reduce the net profit as per the profit and loss account by the profits eligible for deduction under section 80HHC of the Act?
2. Whether in the facts and circumstances of the case the eligible profits under section 80HHC based on book profits could be determined by resorting to the provisions of section 80HHC(1B)(iii) of the Act?
No other ground was pressed before us. As such the other grounds raised in the appeal are dismissed as not pressed.
3. In regard to the first question both the parties agreed that the issue stands covered in favour of the assessee by the decision of the Special Bench of the Tribunal rendered in the case of DCIT Vs. Syncome Formulations(I) Ltd., 106 ITD 193 (Mum.)(SB) = (2007-TIOL-96-ITAT-MUM-SB). In this case the Tribunal has held that the deduction under section 80HHC in the case of MAT assessment is to be worked out on the basis of adjusted book profit and not on the basis of profit computed under the regular provisions of law applicable to the computation of profits and gains of business or profession. No contrary decision was placed before us. We, therefore, respectfully following the precedent decide this issue in favour of the assessee and against the Revenue.
4. Adverting to the second question we find that section 80HHC(1B)(iii) clearly stipulates that for the purposes of sub-sections(1) and (1A) the extent of deduction of the profits shall be an amount equal to fifty per cent thereof for an assessment year beginning on the first day of April, 2003. This provision cannot be ignored.
5. Section 80HHC provides for deduction in respect of profits retained for export business, etc. The Finance Act, 2000 amended the provisions of section 80HHC to the effect that the extent of deduction would be reduced to 80% for assessment year 2001-02, 60% for assessment year 2002-03, 40% for assessment year 2003-04 and 20% for assessment year 2004-05. The deduction would cease to be available from assessment year 2005-06 onwards. To cushion the impact of difficulties induced by competition on the one hand and infrastructural bottlenecks faced by exporters on the other, Finance Act, 2001 has amended the rate of phasing our of these deductions. The deduction from profits shall now be reduced to 70% for assessment year 2002-03, 50% for assessment year 2003-04 and 30% for assessment year 2004-05. The deduction would however cease to be available from assessment year 2005-06 and onwards.
6. The contention of the learned counsel for the assessee that deduction under section 80HHC allowed without making recourse to the provisions of sub-section(1B) of section 80HHC is not correct. Section cannot be read in a truncated manner. Sub-section(3) of section 80HHC is a machinery section which prescribes the modus for the computation of deduction. The deduction is allowed in accordance with the prescription of the enabling section 80HHC(1). The enabling section is governed by the restrictive provision laid down under sub-section(1B) of section 80HHC. Reading the section as a whole, in the year under consideration deduction as computed in accordance with the machinery section can be allowed only upto 50% and not beyond that. As such we do not find any merit in the contention of the learned counsel for the assessee. We, therefore, decide this issue in favour of the Revenue and against the assessee.
7. In the result the appeal of the assessee stands partly allowed.

Let,s wait for the outcome .