TaxTMI 
TaxTMI 
2006 (3) TMI 300
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....income of the assessee at Rs. 2,07,675. He also computed the book profits under section 115JB of the Act at Rs. 23,17,154. While doing so, he inter alia, reduced from the book profits an amount of Rs. 1,06,92,643, representing 30 per cent of the profits derived from the exports business, as against the claim of the assessee of Rs. 1,33,65,804. In this connection, the Assessing Officer mentioned in paragraph 9 of his order, that for assessment year 2001-02, only 80 per cent of the export profits was eligible for deduction under section 80HHC(1) read with section 80HHC(1B). For the sake of ready reference, para 9 of his order is reproduced below: "9. In view of the above, it is clear that the assessee's claim of deduction under section 80HHC in its working given above in the para 3 above is excess by 20 per cent and the same is not acceptable. The assessee is entitled for deduction only to the extent of 80 per cent of the profit derived from the export business. The computation of the tax under MAT in view of section 115JB, read with section 80RRC is made as under:- ----------------------------------------------------- Book profit before tax as per books &n....
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....ase. As far as the normal computation of income is concerned, the appellant is entitled to allowance under section 80HHC of the Income-tax Act, 1961 only if the gross total income of the appellant is positive figure. There is no dispute that the current years income would be wiped off by setting off of the carry forward business losses/unabsorbed depreciation of the earlier years. The appellant therefore before claiming the allowance under section 80HHC of the Income-tax Act, 1961 in the normal computation of income should have first of all given effect to the set off of the carry forward business losses/unabsorbed depreciation of the earlier years and then if there was a positive income was entitled to claim the deduction under section 80HHC of the Income-tax Act, 1961. The appellant has objected to the proposed enhancement stating that the powers of enhancement are not in substitution of the provisions of reassessment and could not be so utilized in a manner that such enhancement proceedings result in overriding or by-passing the definite provisions of reassessment. This is an absurd proposition. The powers and functions of the CIT(A) are quite wide and have not been restricted t....
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....he computation of payment of tax by certain companies under section 115JB, he referred to the provisions contained in aforesaid clause (iv) of the Explanation under this section. He was of the view that deduction under this clause has to be made as per the provisions of section 80HHC. In view thereof, he upheld the decision of the Assessing Officer that only 80 per cent of the amount of export profits, computed in accordance with section 80HHC, can be deducted under the aforesaid clause from the book profits. Since the amount deductible under section 80HHC was nil, he came to the conclusion that no deduction was admissible to the assessee under the aforesaid clause (iv). Accordingly, he worked out the adjusted book profits at Rs. 1,56,82,958. The calculation made by him is reproduced below: ----------------------------------------------------- "Book profits before tax as per books Rs.3,28,11,709 Less: Least of unabsorbed depreciation and unabsorbed business losses (as per books) &n....
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....ferred to pages 50 and 51 of the paper book filed by the assessee, in which deduction under section 80HHC for this year was computed at Rs. 1,06,92,643, which was duly certified by SHARP TANAN, Chartered Accountants on 17-10-2001. It was pointed out by the learned counsel that unabsorbed depreciation amounted about Rs. 7.16 crore, and thus, it was fairly conceded that the gross total income of the assessee was lesser in amount than the aggregate of carried forward losses and unabsorbed depreciation. 4.2 Coming to the legal issues, the case of the learned counsel was that it was entitled to deduction under clause (iv) of the full amount of admissible deduction under section 80HH C, as claimed by the assessee. In this connection, reliance was placed on the, decision of Hon'ble Kerala High Court in the case of CIT v. G.T.N. Textiles Ltd. [2001] 248 ITR 372, a case decided under section 115J of the Act. The decision of the Hon'ble Court, material for our discussion, is that the Tribunal was correct in interpreting that under section 115J(1A)(iii) of the Act, book profit will be taken into consideration as per the books of account and not the income calculated under other provisions of....
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....fore the Hon'ble Tribunal was whether in view of amendment in section 32 by Finance (No.2) Act, 1996, with effect from 1-4-1997, unabsorbed depreciation of earlier years could be allowed to be set-off against income from house property for assessment year 199798. The Hon'ble Tribunal took recourse to the Budget Speech of the Finance Minister while moving the Finance Bill and Board Circular No. 762, dated 18-2-1998, the intent of which was that the amendment will have the effect that the cumulative unabsorbed depreciation brought forward as on 1-4-1997 could be set-off against the income under any other head in assessment year 1997-98 and seven subsequent years, while the depreciation for assessment year 1997-98, remaining unabsorbed, will be governed by the amended provisions. 4.6 The learned counsel relied on Circular No. 559, dated 4-5-1990, being the Explanatory Notes on the provisions of Direct Tax Law (Amendment) Act, 1989. In regard to deduction under section 80HHC, it was inter alia mentioned that under the old provisions of section 115J, it was provided that where the total income of the assessee in respect of any previous year, computed under this Act, was less than 30 pe....
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....CA Laboratories Ltd. was considered by the Hon'ble ITAT, wherein it was pointed out that provisions of section 80A are applicable only when there is no loss from the export activities. If that is not the case, then deduction under section 80HHC has to be computed on the basis that export activities constitute a separate business and only such losses etc. can be considered as are attributable to the export business. It was also argued that section 115JB is complete code unto itself and it also contains provisions which are in the nature of charging provisions. Therefore, these provisions are to be strictly construed. It was also argued that the learned CIT(A) did not have any power to enhance the income and for this purpose he relied on the decision of Hon'ble Supreme Court in the case of CIT v. Manmohan Das [1966] 59 ITR 699. We find that the decision is to the effect that when the loss in any year is carried forward to the following year and is to be set-off against the profits and gains of the subsequent year under section 24(2) of the 1922 Act, it is the ITO who deals with the assessment of the subsequent year who has to decide the matter. A decision recorded by the ITO who comp....
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.... [2004] 266 ITR 521. There were two limbs of judgment. The first limb dealt with deduction under section 80HHC and the Hon'ble Court pointed out that in arriving at profits earned from exports of manufactured goods and trading goods, the profit and loss in both trades will have to be taken into consideration. If after such inter se set-off, there is a positive profit, only then the assessee is entitled to deduction under section 80HHC(1). If there is a loss, the assessee would not be entitled to any deduction. The second limb deals with the provisions of section 80AB on one hand and section 80HHC on the other. The Hon'ble Court held that the provisions of section 80AB have overriding effect over all other sections in Chapter VI-A. Section 80HHC nowhere provides that its provision shall prevail over the provisions of section 80AB or over any other provision of the Act. Therefore, the case of the learned DR was that the learned CIT(A) has correctly interpreted the provisions contained in Explanation (iv) of section 115JB as also the provisions contained in section 80HHC. 5.1 We have considered the facts of the case and rival submissions. Insofar as the controversy regarding section ....
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....culiar language led to interpretation that this clause provides the ratio of the book profit to be the same as mentioned in sub-section (3) or subsection (3A), but the profits of the business contemplated in section 80HHC shall be replaced by the book profits while computing deduction under this clause. On the other hand, clause (iv) of section 115JB is quite different when it states that the amount to be deducted under this clause shall be the amount of profits eligible for deduction under section 80HHC and computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A) of that section and subject to the conditions specified in that section. The language of this clause is quite different from the language of clause (iii) of section 115J. The clause is also clear in its content in two respects, namely, that (i) only such amounts as are deductible under section 80HHC shall be reduced, and (ii) conditions specified in that section shall be applicable. Coming to the provisions of sub-section (1) and sub-section (1B) of section 80HHC, it is clear that only 80 per cent of the normal deduction under section 80HHC is admissible for assessment year 2001-02. As ....
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....l also referred to various circulars of the Board to canvass its case that export profits are outside the purview of MAT. In first place, these circulars were issued in the context of sections 115J or 115JA. That point apart, circulars never stated that export profits shall be excluded from the book profits without having regard to various provisions of section 80HHC. Circular No. 559, clearly mentions that clause (iii) has been inserted in Explanation to provide that for the purpose of computation of "book profits", the net profit shall be reduced by the amount of net profits derived from export business, which are eligible for deduction under section 80HHC. It appears that the learned counsel wants us to ignore the words "which are eligible for deduction under section 80HHC" in the Circular. Circular No. 680 is also worded in the same manner. Circular No. 794 also states that export profits under section 80HHC are kept out of the purview of the provisions. Therefore, what is kept out of the purview is not export profits per se but export profits computed under section 80HHC. We may also refer to the Budget Speech of the Finance Minister, which primarily deals with the issue of ph....
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....eligible for deduction under section 80HHC. Therefore, his case was that the assessee was eligible for deduction under section 80HHC. His alternative argument was that only so much of unabsorbed depreciation and brought forward losses can be set off for the purpose of computing gross total income as are attributable to the export activities. Therefore, it was contended that the assessee was entitled to deduction under section 80HHC on the first premise or in the alternative on the second premise. 6.1 We have considered the facts of the case and submissions made before us. The assessee has been exporting goods and also selling goods in the inland market. Therefore, provisions of subsection (3) are applicable to the facts of the case. In clause (ba) of the Explanation below section 80HHC, 'profits of the business' have been defined to mean the profits of the business as computed under the head 'profits and gains of business or profession' as reduced by certain amounts. Therefore, in the case of the assessee, the profits of the business will have to be calculated under sections 28 to 44DA. Section 32 is a part and parcel of Chapter IV-D regarding 'profits and gains of business or pro....
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....finitions of 'total turnover' and 'profits of business' as furnished in clauses (ba) and (baa) of the Explanation below section 80HHC. Therefore, we are clearly of the view that with reference to provisions of section 80HHC as also because of overriding provisions of section 80AB, the assessee is not entitled to any deduction under section 80HHC, especially in view of the expressed decision of Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. For this very reason, we uphold the decision of the learned CIT(A) that unabsorbed depreciation and brought forward losses, to the extent absorbed in profits of this year to arrive at the gross total income, cannot be carried forward. 6.2 In the light of the aforesaid discussion, various grounds of appeal are decided as under- (1) Ground No.1 reads as under:- (a) The learned CIT(A) erred in law and on facts in initiating enhancement proceedings in the case of the appellant and further erred in (i) re-computing the total income (ii) denying deduction under section 80HHC altogether and (iii) enhancing the book profit of the appellant assessed under section 143(3). (b) Your appellants submit that: (i) The enhancement proceedings w....
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....04. (b) Your appellant submits that (i) Book profit is to be computed strictly in accordance with the provisions of section 115JB. (ii) Under Explanation (iv) to section 115JB, the export profits eligible for deduction under section 80HHC of the Act is to be excluded in computation of book profit. (iii) The appellant had profits of Rs. 1,33,65,804 eligible for deduction under section 80HHC of the Act and the same was to be excluded under the said Explanation while computing book profits. (c) Your appellant pray that an amount of Rs. 1,33,65,804 representing of profits eligible for deduction under section 80HHC be allowed and deduction under Explanation (iv) to section 115JB. Alternatively without prejudice to the claim for relief the deduction under section 80HHC be computed on the basis of Net Profit as per books of account and not as per income determined under the head "profits and gains of business" which net profit cannot be reduced by unabsorbed depreciation under the Income-tax Act. This ground is also dismissed. We may add at this juncture that the provisions of clause (iv) of Explanation to section 115JB-are quite distinct from the provisions of clause (iii) of secti....