TaxTMI 
TaxTMI 
2005 (9) TMI 45
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....ection 80HHC applied. Prior to making assessment under section 143(3) for the assessment year 1990-91, the Assessing Officer had issued an intimation under section 143(1)(a) reducing the amount of claim under section 80HHC by the asses-see from Rs. 14,38,513 to Rs. 13,50,929. The intimation under section 143(1)(a) was set aside by the Tribunal on an application under section 154 moved by the assessee which was then the remedy provided against the adjustments made by the Assessing Officer without calling upon the assessee to explain in respect of such claims to deduction or subject to concession or tax benefits under the Act. In the order that came to be made finally on the application under section 154 it was held that the process adopted by the Income-tax Officer for making assessments under section 143(1)(a) could not have been so adopted to make additions of amounts which needed a hearing and which cannot be assumed to be erroneous on face value and could be explained or debated during regular assessment. Thereafter, the regular assessment was completed under section 143(3) by the Assessing Officer on March 31, 1990. The assessee being a company is subject to the ....
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....he profits from which are eligible to deduction under section 80HHC or section 80HHD. The amount so attributable to the businesses referred to in section 80HHC has to be computed in the same manner specified in sub-section (3) of section 80HHC or sub-section (3) of section 80HHD as the case may be. We are concerned in this case about computation of deduction under section 80HHC only. The assessee has filed a return showing its income at Rs. 53,33,080 being 30 per cent, of its books profit in terms of section 115J. Even according to the assessee, computation of its income under various provisions of the Income-tax Act would be less than 30 per cent, of its book profit as computed in terms of section 115J of the Income-tax Act, 1961. The book profit disclosed by the assessee was as per the auditor's certificate furnished along with the return by the assessee. The Assessing Officer made two additions in the book profits shown in the profit and loss account to augment 30 per cent, of its total as minimum tax level profits. In other words, the Assessing Officer instead of taking the net profits shown by the assessee-company in its books, recomputed the net profit by disallow....
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....he assessment did not rest at adjustments under section 143(1)(a) but was subjected to regular assessment under section 143(3) and making of adjustments under section 143(1)(a) is otherwise subject to regular assessment, whether resorted to at the request of the assessee by the Assessing Officer, the proceeding under section 143(1)(a) loses its significance. It may also be noticed in this connection that during the assessment proceedings, the assessee had laid claim to deduction of eligible amount at Rs. 18,25,468. However, such claim is not before us as the question suggests that the contours of this question is between the assessee's claim in the return and the claim allowed by the Assessing Officer. For the additional claim which has not been allowed by any of the authorities, no grievance appears to have been raised. The second adjustment which the Assessing Officer made in the computation of 30 per cent, of the book profit submitted by the assessee was by making additions of Rs. 24,40,000 as the bonus liability accounted for in arriving at the net profit in the books of account, inter alia, on the ground that the assessee has not made any provision for the payment of bon....
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.... founded on an alternative basis for making companies liable to tax at a minimum level on the basis of the income admitted by the assessee and such liability is not founded on any computation to be made in accordance with the provisions relating to computation of taxable income under the Income-tax Act by alternative principles. Alternative to computation of taxable income of a company in accordance with the provision is to fall back on the profits disclosed by the assessee, with permissible adjustment detailed in the Explanation. The base of such adjustment is the admitted net profit which is not to be substituted by the Assessing Officer. The foundation of the provision being a minimum tax liability level on admitted basis cannot be substituted by the foundation provided by the; Assessing Officer which he thinks to be appropriate. The substitution of admitted profits to provide a recomputed net profit by the Assessing Officer is not envisaged. It is unequivocally clear that the foundation of the scheme under section 115J for its operation is the admitted net profits as shown by the assessee in his books of account, which furnishes an alternative basis for providing the minimum....
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....re the result arrived at by regular assessment of the company by computing its income in accordance with the provisions of the Income-tax Act, if the assessee's total taxable income be less than 30 per cent, of the income admitted by the assessee through declaration of book profits in its profit and loss account presented before the A.G.M. for the purpose of distributing the dividends. This is with the object that the company is at least held liable to pay tax on 30 per cent, of such admitted profits, which has been placed before the A.G.M. for the purpose of distributing its dividends. The object of insertion of section 115J initially with effect from April 1, 1988, by the Income-tax Act, 1961 and later on by introducing section 115JA with effect from April 1, 1997, vide the Finance (No. 2) Act, 1996 was to secure a minimum tax on the basis of admitted profits earned by the company for the purpose of distributing the dividends if the computation of income in accordance with the provisions of the Income-tax Act yields a lesser income. The provision was thus not introduced as an alternate regular procedure to be gone into for determining the maximum tax to be collected from the comp....
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....o room for redetermining the net profit as shown in the profit and loss account of the company containing relevant declarations as incorporated in the light of Part III of Schedule VI. The Assessing Officer had to accept the result shown in the profit and loss account as book profit subject to the adjustment by additions or reductions, as detailed in the Explanation. The enquiry by the Assessing Officer into the conceptual 'true and fair result' of the working of the company to be adverted to by the Tribunal is alien to the enquiry under section 115J. As such it is not a substitute procedure laid down for recomputing the income of the assessee in a different manner by the Assessing Officer himself, as he thinks proper, then he has already computed under the provisions of the Income-tax Act. He is not required to embark upon a detailed requirement into the different aspects of the matter and recompute the net profit shown in the books of account for applying the basis to revive as book profit which he thinks ought to be the fair and true result by resorting to the conceptual theory of true and fair result, by foraying into various other provisions of the Companies Act, that may prov....
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....sessing Officer was of the opinion that since in the books of account, the total turnover of the trading business of the assessee was shown to be Rs. 40,76,73,018 without taking into account the discount and commissions allowed to customers from sale bill or invoices amounting to Rs. 6,87,67,354 and if this is accounted for, the turnover comes to Rs. 33,89,05,664. While the computation by the assessee of the eligible profit for deductions under section 80HHC was on the premise of the total trading turnover for Rs. 33,89,05,664, the Assessing Officer has computed deductible amount eligible under section 80HHC by taking the total gross turnover of Rs. 40,76,73,018. In taking the increased trading turnover, disallowance has been made of the direct expenditure incurred by the assessee in its trading business by allowing discount and commission to the customers on its sales. It has referred to non-adjustment of depreciation under section 32 and investment in computing the total gross income for the purpose of section 80HHC. However, ignoring the discounts and commissions directly to customers which has a direct bearing on the turnover (the aggregate of sale proceeds) for the reason s....
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.... in the present case, the previous year relevant to the assessment year 1990-91, in its ordinary sense denotes the aggregate of price received or receivable by the company in respect of sale of goods transacted by it. No other specific meaning has been assigned to it. If sale of goods is to be understood as defined in the Sale of Goods Act, the price received/receivable becomes an integral part of the sale transaction. Where the sale is under invoice or bill and the price itself has been discounted in invoice on such transaction, the price received or receivable can only be the amount actually charged from the buyer. The form of bill showing the price at which goods are ordinarily sold or saleable and reduced by discount to the buyer, results in reduction of the price receivable itself. Such a discount cannot be considered exclusive of turnover of such sales. The Central Board of Direct Taxes circular referred to by the Tribunal also refers to turnover in respect of sales of goods. There is a clear finding that the total turnover of sales of the company shown in the books of account was Rs. 40,76,73,018 and the assessee has claimed its reduction by the amount of discount and com....
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....ading goods. In this aspect of the matter, it cannot be doubted and argued that the sale commission and sale discounts are not part of direct costs of the turnover attributable to business or attributable to export as the case may be. In that view of the matter, for computing the eligible profit in the manner as provided in section 80HHD accounted for the sale and discount while computing the total turnover of the business found an essential ingredient and that is what has been certified to be shown while arriving at the 30 per cent, of profit of the business of the Companies Act, the book profit by computing the eligible profit for deduction under section 80HHC in the manner laid down in section 80HHC. The circular of the Central Board of Direct Taxes No. 680 dated February 21,1994 (see [1994] 206 ITR (St.) 297), which is founded on the explanatory note issued under the provisions of section 115J in the earlier circular dated May 4, 1990 (see [1990] 184 ITR (St.) 91), and no other explanation which simply prefaces the provisions contained in sub-section (3) or (3A) of section 80HHC or sub-section (3) of section 80HHD in the light of clause (iii) of the Explanation under section....
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....mputation, depreciation of eligible amount in respect of export profit must also be the eligible export profits or tourism profit to be related to the net profit disclosed in the profit and loss account for the purpose of finding the ratio between business profit and profit from export or tourism as the case may be. The relevant excerpts from the aforesaid circular of the Central Board of Direct Taxes are in consonance with what we have explained above (see [1994] 206 ITR (St.) 297): "It may be noted that while deductions under sections 80HHC and 80HHD are related to the profits computed under the head 'Profits and gains of business or profession' section 115J is concerned only with book profits. While explaining the scope of Explanation (iii) under section 115J, it was stated in para. 9.2 of the Board's Circular No. 559 dated May 4, 1990 (see [1990] 184 ITR (St.) 91), that the intention behind introduction of the said Explanation was to ensure that the provisions of section 115J, which provided for a tax on the book-profits, did not take away the 100 per cent, exemption which was to be allowed in respect of export profits and the profits from tourism-related industry. It was al....