TaxTMI 
TaxTMI 
2007 (7) TMI 434
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.... 10A/10B of the Income-tax Act ('the Act') for its 100 per cent EOU units. For the relevant previous year the return of the appellant was filed on declaring loss of Rs. 8,73,72,570 under the normal provisions of the Act and at book profit of Rs. 5,10,41,286 under section 115JB of the Act. The return of income was assessed under section 143(3) of the Act at the returned loss under the normal provisions of the Act and at book profit of Rs. 5,41,97,900 under section 115JB of the Act. Thereafter, notice under section 148 of the Act dated 18-7-2005 was issued seeking to reopen the assessment. Pursuant to the request made by the appellant, the Assessing Officer vide letter dated 23-8-2005 communicated the reasons recorded for reopening the assessment as under : "1.The assessee filed its return of income on 30-10-2002 declaring a loss of Rs. 8,73,72,570. The assessment in this case was completed under section 143(3) on 20-2-2004 at total loss of Rs. 8,60,18,990 and assessed at book profit of Rs. 5,41,97,900 under section 115JB. 2.Section 115JB of the Income-tax Act, 1961, provides that where in the case of an assessee being a company, the income-tax payable on the total ....
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.... 7.The above income has not been 'derived from' the industrial undertaking. At most they can be attributable to the blueness of the assessee barring interest income which is clearly income from other sources. 8.It has been judicially held by the Supreme Court in the cases of CIT v. Sterling Foods 237 ITR 579, Cambay Electric Supply Industrial Co. Ltd. v. CIT 113 ITR 84, CIT v. Pandian Chemicals Ltd. 233 ITR 497 and by Madras High Court in the case of CIT v. Sundaram Industries Ltd. 253 ITR 396 and in the case of CIT v. Menon Impex (P.) Ltd. [2003] 259 ITR 403 and by Kerala High Court in the case of CIT v. Cochin Refineries Ltd. [1982] 135 ITR 278 that the used of the term 'derived from' in the relevant provisions of the Act indicates the restricted meaning to cover only the profits and gains directly accruing from the conduct of business undertaking. 9.From a reading of the section 10A coupled with the above case laws, it is evident that the other income of Rs. 15,82,92,709 has not been derived from the industrial undertaking and hence is not eligible to be considered for exemption under section 10A. 10.But it is seen from assessee's computation of....
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....ion of assessee that reassessment is merely on the change of opinion. In the assessment order the Assessing Officer held that in computing book profit under section 115JB the amount to be reduced is the income which is eligible for exemption under sections 10A and 10B as computed under the provision of Income-tax Act, and not on the basis of book profit. The same was upheld by Learned Commissioner (Appeals) and hence this appeal. 3. Learned Counsel submitted that the reassessment is not valid in eye of law. The reassessment is initiated merely on the change of opinion and re-appraisal of information and document available at the time of original assessment. No fresh facts came to the knowledge of Assessing Officer after the original assessment was framed under section 143(3). The assessee filed the complete details as to how the book profit is calculated. The computation of book profit was duly supported by the report of auditor as required to be obtained under section 115JB of the Act. As per the computation, the net profit as per profit and loss account was Rs. 138.56 crores. In such book profit the amount of profit eligible for exemption under section 10A was Rs. 133.43 cr....
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....assess or reassess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. It is settled law that reason to believe can never be the outcome of a change of opinion. Thus, where the reasons recorded by the Assessing Officer disclose no more than mere change of opinion, the reassessment proceedings are invalid and void ab initio and are liable to be quashed. In the following decisions it has been unanimously held that the initiation of reassessment proceedings, even under the provisions of section 147 of the Act, as amended with effect from 1-4-1989, which were applicable to the assessment order under consideration, is not sustainable on a mere change of opinion. -Kaira District Co-operative Milk Producers Union Ltd. v. Asstt. CIT [1996] 220 ITR 194 (Guj.). - Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170 (Delhi). - Berger Paints India Ltd. v. Jt. CIT [2000] 245 ITR 645 (Cal.). - Kelvinator of India Ltd.'s case (supra ). - Foramer v. CIT [2001] 247 ITR 436 (All.), CIT v. Foramer France [2003] 264 ITR 566 (SC). - CIT v. Smt. Binda Devi [2005] 197 CTR (Punj.....
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.... Delhi High Court in the case of Kelvinator of India Ltd. (supra) : "The scope and effect of section 147 as substituted with effect from 1-4-1989, by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989, as also of sections 148 to 152 have been elaborated in Circular No. 549, dated 31-10-1989. A perusal of clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression "reason to believe" from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on a mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment. A statute conferring an arbitrary power may be held to be ultra vires article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality should be favoured. In the event it is held that by reason of section 147 the Income-tax Officer may exercise his juris....
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....eciation shall be the same as have been adopted for the purpose of preparing such accounts and rate before the company at its Annual General Meeting. The profit is so computed which is not in dispute. Explanation to section 115JB(2) provides as under :- "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 prepared under sub-section (2) as increased by- (a )to (e)****** (f )the amount or amounts of expenditure relatable to any income to which section 10 or section 10A or section 10B or section 11 or section 12 apply. If any amount referred to in clauses (a ) to (f) is debited to the profit and loss account, and as reduced by - (i )****** (ii) the amount of income to which any of the provisions of section 10 or section 10A or section 10B or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or (iii)to (viii)******" [Emphasis supplied] Under the scheme of provisions of section 115JB of the Act, Minimum Alternate Tax (MAT) is levied with reference to the book profit disclosed in the profit a....
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....come to which, inter alia, section 10A or 10B apply. The amount of income to which, inter alia, section 10A/10B of the Act apply, if such amount is credited to the profit and loss account would only refer to such amount as appearing in the books of account. Similarly the amount of expenditure, including depreciation relatable to any income to which section 10A/10B apply would certainly refer to the expenses and depreciation debited to the profit and loss account and not computed in the manner provided under sections 28 to 44 of the Act. The appellant, accordingly, while computing book profit under section 115JB, on which tax was paid, deeming the same to be the total income chargeable to tax in the hands of the appellant, adjusted the profit as shown in the profit and loss account to the following extent : (i)Expenditure and book depreciation in relation to CDR A-164 Unit and Floppy III unit were added back to the profit. (ii)The income of the aforesaid two units minus other income, interest dividend, etc., was reduced from the profit. The Assessing Officer on the other hand reduced the book profit by deduction admissible under section 10A/10B of the Act ....
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....JA and 115JB held that the Assessing Officer is not permitted to deviate from the book profit while computing the deduction under section 80HHC of the Act that is to be excluded in terms thereof. The relevant findings of the Special Bench are extracted as under : "53. . . The circular clarified that the quantum of computation is to be worked out on the basis of the adjusted book profit. The Revenue has also accepted the above position for the purpose of section 115J. Now the question is whether the subsequent changes brought in the words and expressions in sections 115JA and 115JB have brought any deviation from the position existed under section 115J. . . . 56. . . .Therefore, it is clear from the successive changes brought in the statute that the relief with reference to book profit tax erstwhile given under section 115J has been extended in more clearly spoken words in subsequent sections 115JA and 115JB. In section 115JA, it has been clearly stated that the relief will be computed under section 80HHC(3)/(3A), subject to the conditions under sub-clauses (4) and (4A) of that section. The conditions are only that the relief should be certified by a Chartered A....
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....tion under section 80HHC and the profit in a MAT regime is between the deduction and the adjusted book profit. 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 the 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 80-AB. The....
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....g, which is required to be reduced from the book profits as per clause (v), the provisions of the Income-tax Act are applied and depreciation as admissible under Income-tax Act is deducted, it would result into an anomalous situation. While the profit derived from the industrial undertaking, which is included in the book profits has been computed as per the books and no adjustment for depreciation has been made, while computing the income eligible for exemption under section 80-IA, the quantum of depreciation as per the provisions of the IT Act would be substantially enhanced. This would violate the very purpose of section 115JA. The cases which have been relied upon by the learned Counsel for the assessee support this view. We, therefore, hold that the profit of the industrial undertaking eligible for exemption under section 80-IA must be computed as per the books of account and the provisions of Income-tax Act cannot be applied and no adjustment can be made which is not permissible under the section. We, therefore, reverse the order of the revenue authorities on this point and direct the Assessing Officer to re-compute the book profits in the light of the observations made above.....