Deduction of 80HHC u/s 115JB

[pawansingla]

Kindly find judgment of Madras High Court which supports the view taken by the Mumbai Special Bench in case of Syncome formulation.

2009-TIOL-199-HC-MAD-IT

IN THE HIGH COURT OF MADRAS

Tax Case (Appeal)Nos.216 to 219 of 2009
And M.P.Nos.1 of 2009 in T.C.A.Nos.217 to 219 of 2009

THE COMMISSIONER OF INCOME TAX, CHENNAI

Vs

M/s FUTURA POLYESTER LIMITED
(Formerly known as M/s Futura Polymers)
1A, Kamarajar Salai,
Manali, Chennai 68

K Raviraja Pandian And M M Sundresh JJ.,

Dated: April 16, 2009

Appellant rep by: Mr.Arun Kurian Joseph

Income tax - Sec 80HHC benefits - Assessee is a manufacturer-exporter of polymer products - while computing the profit u/s 115JA the assessee claims deduction u/s 80HHC - AO disallows - CIT(A) allows Assessee's appeal and Tribunal upholds the same - held, AO is not entitled to touch the P&L account prepared as per provisions of Companies Act while arriving at profit u/s 115J and the book profit thus calculated should be the basis for taxation - deduction u/s 80HHC to be limited only to profits of eligible category only - no infirmity in the Tribunal's order - Revenue's appeal dismissed

JUDGEMENT

Per: K Raviraja Pandian J.:

The revenue on appeal against the order of the Income Tax Appellate Tribunal, dated 31.07.2008 passed in ITA Nos.357 to 360/Mds/2008 n respect of the assessment years 1998-99 to 2001-02.

2. The assessee is a domestic company engaged in the business of manufacture and export of polymers, plastic and polymerised products. For the assessment years 1998-99 to 2001-02, the assessee company filed return showing a loss under the head "business". The Assessee company offered to tax certain income computed under section 115HA and claimed a deduction u/s 80HHC while computing the profit u/s 115JB. The Assessing Officer held that the assessee is not entitled to any deduction under section 80HHC while determining the taxable income on the basis of the book profit under Section 115JA since the computation of business income under the regular provisions resulted in nil figure for each of the assessment years. The Assessing Officer found that since there was no eligible provisions governing "profits and gains of business or profession", the assessee company is not entitled for any deduction under section 80HHC from its book profits as per clauses (viii)(iv) of the Explanation appended to section 115JA and completed the assessment.

3. This finding of the assessing officer has been reversed by the Commissioner of Income Tax (Appeals) on appeal being filed by the assessee by holding that for the purpose of computing book profit under Section 115JA, relief u/s 80 HHC has to be worked out on the basis of the book profits as against the normal computation of income.

4. This was confirmed by the Tribunal on the appeal taken out by the revenue. The correctness of the same is now canvassed before this Court by the revenue by formulating the following question of law:-

"Whether in the facts and circumstances of the case, the Tribunal was right in allowing deduction u/s 80HHC on the basis of book profits u/s 115JB and not on the basis of eligible profits u/s 80HHC as per normal computation".

5. We have heard the argument of the learned counsel for the revenue and perused the materials available on record.

6. The issue involved in the present appeals is squarely covered by the decision of a Division Bench of this Court in which one of us (K.Raviraja Pandian,J) was a party in the case of Commissioner of Income Tax vs. Rajanikant Schnelder and Associates P. Ltd., reported in 302 ITR 22), wherein it has been observed as follows:-

"4. We are not able to subscribe our view to the grounds taken in the appeal that the deduction under Section 80 HHC is allowable only on the profits and gains arrived at under Sections 28 to 44B of the Income Tax Act. In the case on hand, it is the stand of the assessee that the relief under section 80HHC should be based on the profit ascertained under Section 115JA only but not on income computed under Sections 28 to 44 of the Act. The Tribunal after considering the Judgments of the Supreme Court in the case of Surana Steels P. Ltd., vs. Deputy CIT (1999) 237 ITR 777 and in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 (SC) and analyzing the order impugned found that the provisions of Section 115J are similar to the provisions of Section 115JA of the Act. In order to come to the conclusion the Tribunal has also taken note of sub-section (4) of section 115JA and referred to the dictum laid down by the Supreme Court in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 wherein it was held that the Assessing Officer while computing the book profits of a company under Section 115J of the Income Tax Act, 1961, has only the power to examine whether such books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation Section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in Section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by the statutory auditors and approved by the company in the general meeting and thereafter to be filed before the Registrar of Companies, who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115H does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.

5. The Assessing Officer is not entitled to touch the profit and loss account prepared by the assessee as per the provisions contained in the Companies Act, while arriving at the book profit under Section 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation under Section 80HHC should be limited to the case of profits of eligible category only. The Tribunal has also come to the conclusion that in view of the non obstante clause available in Section 115JA it was clear that the provisions is a self-contained one and no other provision would have effect on it and thereby it was to be implemented as contained in the said provision. The Tribunal has also further given a reason to the effect that section 80HHC is clear about this aspect that profit only is to be taken into account but not income and sub-section (3) of Section 115JA itself took care of the provisions relating to the adjustment of loss or depreciation and carry forward of the income. The finding arrived at by the Tribunal is correct and followed the decision of the Supreme Court. We are of the view that the conclusion arrived at by the Tribunal cannot be complained of".

7. Hence, following the same, the question of law is answered against the revenue and the appeals are dismissed. Consequently, connected miscellaneous petitions are also dismissed.

[PANKAJ JAIN]

The issue which needs consideration is whether export profit computed under section 80HHC can be deducted in computing the book profit u/s 115JB in current scenario, where 80HHC deduction is at 0% of eligible profit, considering the wordings of the relevant clause, which are reproduced as under :

"amount of profit eligible for deduction under section 80HHC" (as provided in clause(iv) to Explanation 1 to section 115JB)".