TaxTMI 
TaxTMI 
2008 (10) TMI 298
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....ge interest under section 234C when the income is computed under section 115JA." ITA No. 2002/Ahd./2001 "1. The ld. CIT(A) has erred in law and on facts in allowing the expenditure of Rs. 1,56,44,614 as revenue expenditure which being pre-operative expenses was capital in nature and was rightly so held by the Assessing Officer. 2. The ld. CIT(A) has erred in law and on facts in holding that the interest of Rs. 14,64,58,864 was allowable under section 36(1)(iii) of the Income-tax Act although the same represents preoperative expenses and was capital in nature. 3. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer not to charge interest under section 234C when the income is computed under section 115JA. 4. The ld. CIT(A) has erred in law and on facts of the case in allowing the claim of the assessee of not reducing the 90 per cent of gross interest received of Rs. 22,94,13,676 while working out the export profit under section 80HHC for the purpose of finding out the book profit under section 115JA." Initially reference was made by the taxpayer to Hon'ble President, ITAT for constitution of a Special Bench due to conflicting decisions of ....
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....-- 1. Corporate advertisement 32.31 63,40,773 ------------------------------------------------------ 2. Computer software expenses 0.23 5,38,267 ------------------------------------------------------ 3. Public relation expenses/ 4.25 4,43,130 Cultural programme expenses ------------------------------------------------------ 4. Quota expenses 8.60 14,44,621 ------------------------------------------------------ 5. Sales promotion expenses 10.78 1,10,33,611 ------------------------------------------------------ 6. Fixed deposit expenses 184.80 1,37,51,366 ------------------------------------------------------ 7. Exhibition expenses &nbs....
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....while carrying us through the assessment order pointed out that since the taxpayer itself debited only amortized expenses of Rs. 1,27,33,092 and Rs. 185.93 lakhs in the P&L account of the respective assessment years, the ld. CIT(A) was not justified in allowing the deduction for the entire expenditure. In this connection, the ld. DR relied upon the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802. 7. On the other hand, the ld. AR on behalf of the taxpayer while rebutting the contentions of the ld. DR, relied upon the decisions of the Hon'ble Supreme Court in the cases of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and Tuticorin Alkali Chemicals &Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) and pointed out that the nature of expenditure is irrelevant. As regards expenses relating to fixed deposits, ld. AR relied upon the decision of Hon'ble Madras High Court in the case of CIT v. Southern Petrochemical Industries Corpn. Ltd. [2008] 301 ITR 255 and pleaded that out of total fixed deposits of Rs. 29 crores, Rs. 27 crores were for the period less than one year. He further contended that expenditure incur....
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....t" are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" was evolved to emphasise the element of a sufficient degree of durability appropriate to the context." 9. Moreover, the deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved. For the purpose of allowability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same does not recognise of any concept of deferred revenue expenditure. That is why Assessing Officer himself allowed the amount debited in the profit and loss account. In a number of judgments viz. Amar Raja Batteries Ltd. v. Asstt. CIT [2004] 91 ITD 280 (Hyd.), Jt. CIT v. Modi Olivetti Ltd. [2005] 4 SOT 859 (Delhi), Asstt. CIT v. Medicamen Biotech Ltd. [200....
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....s incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years." 11. Another argument by the ld. DR is the variation and dichotomy between the accounting treatment of such expenditure in the books of account and its claim under the Act. As far as the entries in the books of account are concerned, it is well-settled that they do not clinch the issue either way, and are not determinative of the allow ability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. and in the case of CIT v. Indian Discount Co. Ltd. [1970] 75 ITR 191 (SC) are clear on the issue. The accounting entries in the books of account are occasioned by a diverse set of considerations and issues such as compliance with statutory laws and mandatory accounting standards/principles and of course management decisions as to the treatment of a particular item which can be guided by considerations of reported profitability earning per share, impact on share prices etc. The Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. also affirmed the above view by observing that: "whet....
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....venue expenditure is such that the same can be clearly and unambiguously identified over specified future time periods (e.g., discount on issue of debentures) akin to pre-paid expenses the same would be allowable over the period to which these relate proportionately, applying the matching principle. - In other cases where the same does not result in the creation of any capital asset or where the same is not allocable over defined future time periods there can be no case for amortising the same under the Act over the expected period over which the benefit is likely to arise therefrom since in such cases the expenditure is essentially revenue in nature but is amortised in the books only on account of some other considerations. 15. In view of the foregoing, we may now analyse the claim of expenditure in these two assessment years: (a) Corporate advertisement, Exhibition, Public relation expenses/Cultural programme expenses, quota expenses and sales promotion-The undisputed fact is that the expenditure relating to Corporate advertisement, Exhibition, Public relation expenses/Cultural programme expenses, quota expenses and sales promotion is in the revenue field. The only issue....
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....ncurred, if it is revenue expenditure, and if it is wholly and exclusively incurred for the purposes of business. In the case under consideration, there is nothing to suggest that with this expenditure, any asset, tangible or intangible, has been created. There is no evidence on record regarding accrual of any specific revenue in the years under consideration or subsequently over a defined period with the incurring of said expenditure. Assessing Officer himself admitted the portion of expenditure debited in the profit and loss account as revenue expenditure. In these circumstances, we do not find any justification to interfere with the findings of the ld. CIT(A). (b) Computer software-As regards expenditure on computer software, the relevant orders do not reveal the nature of expenditure on software. The ITAT Special Bench in the case of Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112 (Delhi) in their detailed judgment held that since software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where life of the computer software is shorter (say less than two years), it may be treated as revenue expenditure. It wa....
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....nue field or its utility to a businessman which may touch either capital or revenue field. 60. Having laid down the criteria for determining the nature of expenditure incurred on acquisition of software, whether capital or revenue, we are of the view that these criteria need to be applied to determine the exact nature of expenditure incurred by the assessees in the present cases for acquiring different softwares. Since this exercise is required to be done in respect of each and every software independently having regard to the criteria laid down above, we are of the view that the matter needs to be restored back to the file of the Assessing Officer for doing such exercise. The Assessing Officer shall examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down above after giving an opportunity of being heard to the assessees. If on such examination, the Assessing Officer comes to the conclusion that the expenditure is capital expenditure, then the question regarding allowing depreciation will be decided in accordance with the principles laid down in the subsequent paragraphs." Since in the case under consideration ....
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....an enduring nature, (b) that the expenditure was made for securing the use of money for a certain period: and (c) that it is irrelevant to consider the object with which the loan was obtained.' Observing so, the Supreme Court held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained and, therefore, the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, allowable as a deduction. The Apex Court also held that obtaining capital by issue of shares is different from obtaining loan by debentures. ................. In CIT v. Investment Trust of India Ltd. [2003] 264 ITR 506 this Court held that the expenditure on advertisements in newspapers inviting fixed deposits from the public is allowable in the words: 'In view of the provisions contained in section 58A of the Companies Act, 1956, the assessee-company had ....
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....ndings for the assessment years 1995-96 and 1996-97 and concluded that the interest capitalized in the books of account has to be added towards cost of assets. Accordingly, the claim for deduction of expenditure was disallowed and depreciation was allowed on the amount of interest capitalized. 18. On appeal, the ld. CIT(A) while relying upon his own order dated 18-9-2000 for the assessment year 1996-97 allowed the claim of the taxpayer. 19. Before us, both the parties agreed that the issue is now settled by the decision of the Hon'ble Supreme Court in the cases of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194 and Dy. CIT v. Gujarat Alkalies & Chemicals Ltd. [2008] 299 ITR 85. 20. We have heard the rival contentions and gone through the facts of the case. The issue regarding claim for deduction of interest on borrowed funds has now been settled by the decision of the Hon'ble Supreme Court in the aforesaid case of Core Health Care Ltd., wherein it was held:- "In the case of Challapalli Sugars Ltd [1975] 98 ITR 167 this Court observed that interest paid on the borrowing utilised to bring into existence a fixed asset which has not gone into production, goes to add to ....
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....gs which could not be treated as made for the purposes of business as no business had commenced in that case. Therefore, there is no inconsistency between the above decisions. Conclusions For the above reasons, we hold that the Assessing Officer was not justified in making disallowance of Rs. 1,56,76,000 in respect of borrowings utilised for purchase of machines. Accordingly, the above question is answered in favour of the assessee and against the Department." 21. The aforesaid decision has subsequently been followed in Jt. CIT v. United Phosphorous Ltd. [2008] 299 ITR 9 (SC), Asstt. CIT v. Arvind Polycot Ltd. [2008] 299 ITR 12 (SC) and CIT v. Ishwar Bhuvan Hotels Ltd. [2008] 215 CTR (SC) 14. 22. In the light of these decisions of the Apex Court, we hold that the Assessing Officer was not justified in making disallowance of interest of Rs. 20,72,33,895 for the assessment year 1997-98 and Rs. 14,64,58,864 for the assessment year 1998-99. There being no infirmity in the findings of ld. CIT(A), we uphold his orders for these two years. Thus, ground No. 2 in the appeals for the assessment years 1997-98 and 1998-99 is dismissed. 23. Ground No. 3 in the appeals for the two....
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..... v. Dy. CIT [2006] 286 ITR 182. Continuing, the ld. DR further relied upon the decision of Hon'ble Madras High Court in the case of CIT v. Geetha Ramakrishna Mills (P.) Ltd. [2007] 288 ITR 489, wherein, while distinguishing the decision of the Hon'ble Supreme Court in the case of CIT v. Kwality Biscuit Ltd. [2006] 284 ITR 434, the Hon'ble Madras High Court held as under:- "Further, as pointed out by the learned senior standing counsel for the revenue, the Bombay High Court in CIT v. Kotak Mahindra Finance Ltd. [2004] 265 ITR 119 and the Punjab and Haryana High Court in CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. [2005] 279 ITR 123 also considered the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519 and held that where there is non-payment or short payment due to the computation of income under section 115J of the Act, interest can be levied under sections 234B and 234C of the Act and dissented from the view taken by the Karnataka High Court in Kwality Biscuits Ltd.'s case [2000] 243 ITR 519. Even though it is brought to our notice that the decision of the Apex Court in CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434, confirming the d....
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....n the case of Dy. CIT v. Dintex Dyechem (P.) Ltd wherein the issue was adjudicated in favour of the assessee and against the revenue. This issue also arose before the Karnataka High Court in the case of Kwality Biscuits Ltd v. CIT 243 ITR 519. An appeal filed against this judgment by the revenue before the Apex Court has been dismissed and the said decision is reported in [2006] 284 ITR 434. It is reported therein that from the decision of the Karnataka High Court to the effect, inter alia, that interest is not leviable under sections 234B and 234C of the Income-tax Act, 1961, in the case of an assessment of a company on the basis of book profits under section 115J, since the entire exercise of computing income under section 115J can only be done at the end of the financial year, and the provisions of sections 207, 208, 209 and 210 cannot be made applicable until and unless the accounts are audited and the balance-sheet prepared. The department preferred appeals to the Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed the appeals. 6. Since the decision of the Karnataka High Court has been approved by the Hon'ble Supreme Court, we decide this question in favour of the....
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....sal, affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court." In the light of the said decision, the ld. AR argued that the decision of the Hon'ble Supreme Court in Kwality Biscuits Ltd.'s case, is binding and no interest could be changed under section 234C of the Act. 26.2 Continuing, the ld. AR further argued that since determination of book profits in terms of provisions of section 115JA of the Act is fictional, interest on the said fictional income cannot be levied. On the other hand, the ld. DR ....
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....aring profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956) which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year pre-paied under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made f....
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....fits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of profits eligible for deduction under section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that sections; (ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section. (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be c....
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....see for the later previous year, or, as the case may be, the total income in respect of which the regular assessment, referred to in that sub-section has been made, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year; (d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable." 29. As is evident from the aforesaid provisions of sections 207 to 209 of the Act, every assessee has to pay advance tax on his 'current income' if liability for such tax exceeds Rs. 5,000 'Current income' has to be determined in accordance with provisions of section 209 of the Act. The provisions of section 209(1) of the Act stipulate that the assessee shall estimate his current income for ....
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....ned. The provisions of sections 234A, 234B and 234C are in my opinion incapable of being interpreted to mean that the assessee concerned has a right of being heard against the levy which is otherwise automatic in nature." 30. Hon'ble Punjab and Haryana High Court in Sant Lal v. Union of India [1996] 222 ITR 375, concurred with the views of the Hon'ble Karnataka High Court in the aforesaid case of Union Home Products Ltd. The Hon'ble Bombay High Court in Umesh S. Bangera v. Union of India [2004] 268 ITR 405, also concurred with the decisions in the cases of Union Home Products Ltd. and Sant Lal. In the light of these decisions it is evident that the provisions contained in sections 234A, 234B and 234C of the Act are certainly not penal provisions but are compensatory in nature for breach of civil obligations. These provisions have been introduced to eliminate the subjective discretion of the tax authorities, ensuring uniform treatment to similarly situated persons. The provisions are mandatory and the levy thereunder is automatic, the moment it is proved that a default has been committed within the comprehension of any one of the provisions in question. In Anjum M.H. Ghaswala's c....
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.... Act takes place, levy of such interest is automatic and there is no scope for applying the principles of equity or rules of natural justice. No hearing is required to be given to the assessee seeking any justification for not making the payment of advance tax. 33. We, therefore, find no merit in the contention that the provisions of section 234C of the Act would not be attracted in cases where a company is assessed on the income computed under section 115JA of the Act. As already observed, the levy is automatic without any notice to the assessee. 34. The ld. AR on behalf of the taxpayer vehemently placed reliance on the decision of the Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd., in the context of provisions of section 115J of the Act, which was later affirmed by the Hon'ble Supreme Court in Kwality Biscuits Ltd.'s case. Hon'ble Supreme Court held in their decision that- "The appeals are dismissed." 35. Earlier, the Hon'ble Karnataka High Court in the aforesaid decision while accepting the claim of the assessee, observed:- "Under section 115J, where the total income of the company is less than 30 per cent of its book profit, the total income of....
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.... interest under section 234B and under section 234C of the Income-tax Act. This question No. 2 is therefore answered in favour of the assessee and against the revenue." 36. From the above, it is clear that two factors weighed with the Hon'ble High Court while granting relief to the assessee. Firstly, that the provisions of section 207 are not applicable to an income determined under section 115J and; secondly, that a hardship is caused to the assessee because the liability to pay tax on the book profits is determined only at the end of the financial year. The Hon'ble Court held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction; so as to include other provisions of the Act, which are not specifically made applicable. 37. However, the Hon'ble Gauhati, Madras, Madhya Pradesh and Mumbai High Courts which took a view that even in cases covered by section 115J of the Act, the assessee's are liable to pay advance-tax. In the case of Assam Bengal Carriers Ltd. v. CIT [1999] 239 ITR 862, the Hon'ble Gauhati High Court observed as under:- "Section 207 of the Act envisions that tax sha....
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.... the case of Itarsi Oils & Flours (P.) Ltd., the Madhya Pradesh High Court has also held that there is no mention in sections 234B and 234C of the Act that in cases of determination of income under section 115J, the provisions of the same would not be attracted. 40. While upholding the levy of interest under section 234B of the Act, the Hon'ble Madras High Court in the case of CIT v. Holiday Travels (P.) Ltd. [2003] 263 ITR 307 observed as under:- "It is true that for the applicability of section 115J of the Act, the starting point is the profit and loss account for the relevant previous year which should be drawn in accordance with the provisions of the Companies Act and to the net profit as shown in the profit and loss account, certain amounts which are found in the Explanation to section 115J are added to arrive at the book profit. There is no doubt that the entire exercise under section 115J of the Act is required to be made and can be made only on the basis of the net profit arrived at on the basis of the profit and loss account. However, the question remains whether it is not possible for the assessee to estimate the profit of the current year. It is axiomatic that all ....
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....de in the section providing that all provisions of the Act shall apply to the assessee being a company mentioned in the said section and therefore, section 115J of the Act is no more available for the assessee for delaying the payment of advance tax in view of the insertion of sections 115JA and 115JB of the Act. For all these reasons, the question referred to us is answered in favour of the revenue and against the assessee and the appeal is allowed." 42. As is evident from the aforesaid decisions, in respect of levy of mandatory interest under sections 234B and 234C of the Act even in the context of provisions of section 115J of the Act, Hon'ble Gauhati, Madras, Madhya Pradesh and Bombay High Courts have taken a consistent view in favour of the revenue. Only Hon'ble Karnataka and Gujarat High Court took a contrary view. On a perusal of decision of Hon'ble Karnataka High Court in Kwality Biscuits Ltd.'s case, Hon'ble High Court, inter alia, held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction, so as to include other provisions of the Act which are not specifically made applic....
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....ourt and jurisdictional High Court relied upon by the taxpayer in the context of doctrine of merger in civil appeals, we are duty bound to respect and follow these decisions in the contexts these were rendered. As already observed, these decisions cannot be straightaway applied without analyzing the facts and the context in which these were rendered especially when Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd. themselves held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction, so as to include other provisions of the Act, which are not specifically made applicable. In the context of levy of interest under sections 234B and 234C of the Act in the case under consideration, provisions of sub-section (4) of section 115JA specifically stipulate applicability of all other provisions of the Act. Thus, the said decision in a way supports the case of revenue in the case under consideration. As is apparent, the aforesaid decision in the case of Kwality Biscuits Ltd. and Associated Crown Closures (P.) Ltd. were not rendered in the context of provisions of section 115JA of the....
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....come can only be determined after the close of the books of account at the end of the year. As already observed, the provisions of sections 207 to 209 of the Act do not exclude the income determined under section 115JA of the Act from the purview of current income on which advance tax is payable. Similarly, there is no scope for considering the hardship of the assessee as the levy is automatic and does not require any opportunity to be given to the assessee. Section 4 of the Act envisages charge to tax the income at any rate or rates which may be prescribed by the Finance Act every year and section 207 deals with liability for payment of advance tax and section 209 deals with its computation based on the rates in force for the financial year, as are contained in the relevant Finance Act. 45. In our opinion, all other provisions of Act including the provisions relating to payment of advance tax are applicable even when the income is computed under section 115JA of the Act. Section 115JA has a specific provision in the shape of sub-section (4) which reads as under:- "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being....
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....Income-tax Act. Section 4 of the Act charges to tax the income at any rate or rates which may be prescribed by the Finance Act every year and section 207 deals with liability for payment of advance tax and section 209 deals with its computation based on the rates in force for the financial year, as are contained in the Finance Act and the first proviso to section 2(8) of the Finance Act, 2001, provides that the tax payable by way of advance tax in respect of income chargeable under section 115JB as introduced by the Finance Act, 2000, and consequently the provisions of sections 234B and 234C for interest on defaults in payment of advance tax and deferment of advance tax would also be applicable where the facts of the case warrant." 47. Similarly Hon'ble Punjab & Haryana High Court in CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. [2005] 279 ITR 123, in the context of levy of interest under sections 234B and 234C of the Act while determining income in terms of provisions of section 115JA of the Act, held- "We fully concur with the view expressed in the aforesaid judgments. The Madras High Court has correctly pointed out that for the purpose of payment of advance tax, all asses....
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....ficer in charging interest under section 234C of the Act is confirmed. 49. Therefore, ground No. 3 in both the appeals is allowed. 50. Ground No. 4 in the appeal for the assessment year 1998-99 relates to netting of interest for the purpose of deduction under section 80HHC of the Act while calculating book profits under section 115JA of the Act. While working out the book profit in terms of provision of section 115JA of the Act, the Assessing Officer noticed that the taxpayer did not reduce book profits by 90 per cent of gross interest receipt of Rs. 22,94,13,876 and the taxpayer adopted the book profit as a base for arriving the deduction on account of export profit as against the business profits computed under the Act. Inter alia, the taxpayer relied upon the CBDT Circular No. 559, dated 4-5-1990. Accordingly, after considering the submissions of the taxpayer, the Assessing Officer reduced 90 per cent of the aforesaid gross amount of interest while working out book profits in terms of provision of section 115JA of the Act. 51. On appeal, the taxpayer contended before the ld. CIT(A) that the Assessing Officer was not justified in reducing the book profits by the interest....
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....[2007] 106 ITD 193, held- "66. The deduction under section 80HHC in a MAT scheme is from the taxable income, which is otherwise the adjusted book profit. If no deduction is available to an assessee, the gross total income itself is the taxable income of the assessee. MAT scheme does not provide for deductions. Therefore, the interpretation is that the adjusted book profit of a company itself is the gross total income of that assessee-company. The deduction under section 80HHC is in that way given out of gross total income in a case falling under MAT. This in turn means that section 80HHC should be computed on the adjusted book profit. Sections 115J, 115JA and 115JB come into operation, as the regular profits has been substituted by the book profit. Once the substitution is over, there is no way to go back to the normal computation process of statutory profit, which has already been overwhelmed by sections 115J, 115JA and 115JB. This reconciles the alleged incompatibility pointed out by the revenue that the deduction available to an assessee under Chapter VI-A is subject to section 80AB. Therefore, we find that the deduction under section 80HHC in a case of MAT assessment is t....
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....y applying accounting standards as well as the provisions contained in the Act, the assessee would be permitted to, in terms of section 37 of the Act, claim as deduction, expenditure laid out for the purposes of earning such business income. (vii) In the second stage, the Assessing Officer will deduct from the profits of the business computed under the head "Profits and gains of business or profession" the following sums in order to arrive at the "profits of the business" for the purposes of section 80HHC(3):- (a) 90 per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 i.e., export incentives; (b) 90 per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (c) profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. (viii) The word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i.e., gross interest as reduced by expenditure incurred for earning su....