AI Drafter 
TaxTMI 
TaxTMI 
2017 (2) TMI 1439
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....e Income tax Rules, 1962 (Rules). As per Rule 8(1) the composite income of the assessee has to be arrived at i.e. income from growing of tea and income from manufacturing and sale of tea has to be arrived at. 40% of such composite income is taxable and 60% is deemed income not taxable and attributable to agricultural income. Income from purchase of tea leaves from third parties and carrying out manufacturing process and selling tea cannot form part of the composite income and has to be regarded as income from business outside the purview of Rule 8(1) of the Rules. 3. The assessee computed the composite income at Rs. 41,82,95,456/- . 40% of the above was offered to tax i.e. Rs. 1,93,18,182/-. The computation of total income of the assessee under the normal provisions of the Act was as follows :- Rs. Rs. Net Profit as per Profit & Loss Account 17,52,56,793 Add:i)Depreciation debited to Profit & Loss A/c 1,62,80,290 ii)Expenses disallowed u/s 14-A of IT Act 6,15,436 iii)Amount inadmissible(as per computation) 34,737 iv) Amount disallowed as per Annxure-10 3,776 v) Ad....
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....red out of bought leaf) Deduction u/s 80-IE of I.T.Act for Narayanpur T.E.(2nd Yr. Profit of the Unit as per Form No.10CCB 6,75,65,742 Total Production of the unit 20,76,146Kgs. Production from own leaf 10,70,954 Kgs. Applying Rule 8, 60% of own tea is exempted 642,572Kgs Therefore exempted income not deductible mu/s 80IE : Rs. 675,65,742X642,572Kgs/20,76,146 Kgs. TAXABLE INCOME 2,09,11,753 4,66,53,989 Income Tax @ 20% on Long Term Capital gains 1,95,54,032 Income tax on other Business Income @30% 1,13,99,547 22,79,909 81,54,486 24,46,346 Add:Surcharge @ 10% 47,26,255 4,72,625 Add: Education Cess @ 3% 51,98,880 Total Income tax payable 1,55,966 Less : tax Deducted at source 53,54,847 Advance Income tax paid by 15.03.2010 1,76,674 Payable 50,00,000 51,76,674 1,78,173 4. It can be seen from the aforesaid computation of tot....
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....section 234-B : 59,728 5,04,125 On Rs. 5972775 for 3 months @ 1% p.m. 1,79,183 66,56,084 Less:Tax paid on self assessment 66,60,000 Income Tax Refundable/Due 3,916 Carry Forward MAT credit u/s 115JAA: Assessment Year 2006-07 4,37,822 Assessment Year 2007-08 9,12,103 Assessment Year 2008-09 4,76,236 Assessment Year 2009-10 32,89,818 Assessment year 2010-11 57,94,602 Total MAT credit carry forward 1,09,10,581 7. The AO passed order of assessment u/s 143(3) of the Act dated 24.09.2012 wherein he computed the total income of the assessee under the normal provisions of the Act at a sum of Rs. 1,13,99,547/- on which the tax payable was Rs. 25,83,138/-. The tax payable was less than 15% of the book profit and therefore the assessee's total income and tax payable was not determined by the AO under the normal provisions of the Act but as per the provisions of section 115JB of the Act. While computing total income u/s.115JB of the Act, the AO accepted the computation of book profit u/s 115J....
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....isallowance under Rule 8D(2)(ii) of the Rules, the assessee adjusted interest paid against the figure of interest earned. According to the CIT interest expenses alone ought to be considered for disallowance under rule 8D(2)(ii) of the Rules without set off of interest earned. According to CIT such setting off of interest paid against received allowed by AO resulted in less disallowance of Rs. 11 ,46,644/- as per Rule 8D(2)(ii) and thereby possible underassessment of income of Rs. 11 ,46,644/-. 11. The plea of the assessee was that while computing the book profit u/s 115JB of the Act the assessee need not exclude the income that arises out of tea manufacturing from tea leaves that are purchased. It was the contention of the assessee that even the profit obtained from manufacturing and sale of tea from tea leaves purchased should be regarded as part of the composite income under the provisions of section 115JB of the Act. Only 40% of such composite income should be taken as book profits for the purpose of section 115JB of the Act and the action of AO in this regard was proper. The assessee in this regard placed reliance on the decision of the Hon'ble Supreme Court in the case of A....
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....at in any way even if this amount ofRs. 24,22,983/- is treated as income not adjustable against the deduction u/s. 80IB & 80IE, there is no effect of deduction under section 80IB & 80IE. As per order u/s. 154/143(3) dated 16/07/2013, business income is Rs. 11,59,99,361/- and deduction u/s. 80IB & 80IE is Rs.l0,78,44,875/Tax calculated on business income of Rs. 81,54,486/- came to Rs. 24,46,346/-. During the course of hearing, the Ld. A/R explained that since the tax paid by the assessee was on account of tax calculated u/s 115JB amounting to Rs. l,11 ,49,449/- which was higher than the tax on business income amounting to Rs. 24,46,346/-. It was further stated that therefore, even if the amount of DEPB receipt of Rs. 24,22,983/- was treated as being income not from industrial undertaking, it would have no tax effect. I have considered the matter. It may perhaps be correct that even if the amount of DEPB receipt is reduced from the computation of deduction u/s. 80IB & 80IE, it would have no tax effect as the tax payable as per MAT provisions is higher. Nonetheless, the AO is directed to examine the matter and determine as to whether the DEPB licence receipts were received in course o....
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.... and sub-clause (ii) of Explanation to section 115JB(1) of the Act which inter-alia deals with the amount of expenditure relatable to any income to which the provision of Chapter-III applies. In all other respects the AO has to make an adjustment referred to in Explanation to section 115J(1) of the Act. It was pointed out by him that the adjustment proposed by the CIT, in so far as excluding the income from manufacturing and sale of tea from tea leaves purchased from third parties is not one such adjustment permitted under the explanation to section 115JB(2) of the Act. He relied on the decision of the Hon'ble Supreme Court in the case of Apollo Tyres (supra) and submitted that the AO cannot be permitted to make any adjustment to the profit as per the profit and loss account prepared in accordance with the provisions of the Companies Act, 1956 except to the extent permitted by the Explanation to section 115JB(2) of the Act. In respect of the income from sale of DEPB licence he reiterated the submissions made before CIT. In so far as the disallowance under Rule 8D(2) (ii) of the Rules is concerned the ld. Counsel submitted that the proposed direction of the CIT in the impugned order....
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....eceived for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under Section 263 of the Act." 19. It can be seen from the aforesaid observation of the Hon'ble High Court that it has been made clear that no rigid rule can be laid down and that facts of each case will have to be seen to come to a conclusion whether audit objection was sufficient to come to a conclusion that the order of the AO that is sought to be revised in exercise of powers u/s.263 of the Act was erroneous and prejudicial to the interest of the revenue. On the facts of the present case, we are satisfied that the CIT applied his mind independently and that he had not proceeded purely on the basis of any audit objection. Therefore the preliminary objection raised by the Assessee in this regard is hereby rejected. 20. We have given a very careful consideration to the rival submissions. It is no doubt true that the assessee had income from growing, manufacturing and sale of tea as well as income from tea leaves purchased from third parties which were processed /manufactured and sold by the assessee. In so far as the first category of i....
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....[(iii) an individual who is liable to be assessed under the provisions of subsection (2) of section 64;" Pursuant to the aforesaid provision of Rule 8 of IT Rules 1962 provides that in the case of income derived from sale of tea grown and manufactured by the seller in India, the income shall be computed as if they were income derived from business and 40% of such income shall deemed to be income liable to tax. It is thus clear from the reading of Rule 8(1) that 60% of the income computed as aforesaid is to be treated as agricultural income exempt u/s 10(1) of the Act. Since 60% of the income is exempt u/s 10(1) of the Act. The Assessee's claim is that 60% of the income which is exempt in terms of Rule 8 of the Rules, is nothing but income exempt u/s.10(1) of the Act and hence the same should be reduced from the book profits under Explanation 1 clause (ii) listing amounts to be reduced u/s 115JB of the Act. We are of the view that the stand taken by the revenue deserves acceptance. The CBDT in the context of Sec.115J of the Act had in CIRCULAR NO. 495 DATED 22ND SEPTEMBER, 1987 in para 36.4 taken the same view: "36.4 In the case of a tea company where income is der....
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....under Section 115-J of the Income Tax Act question the correctness of the profit and loss account prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act ?" The Hon'ble Supreme Court after extracting the provisions of Sec.115J of the Act found that the intent and purpose of Sec.115J of the Act, as explained by the Hon'ble Finance Minister when he introduced the relevant Bill containing the said provisions, was that highly profitable companies were showing nil income for the purpose of income tax calling them as "zero-tax" companies and that the provisions of Sec.115J were being inserted so that all profitable companies pay some tax and hence a provision whereby every company will to have to pay a "minimum corporate tax" on the profits declared by it in its own accounts was being introduced. The Hon'ble Cort thereafter held that for the said purpose, Section 115-J makes the income reflected in the companies books of accounts as the deemed income for the purpose of assessing the tax. The books of accounts of the company is prepared in ....
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....ar referred to above and the decision of the Hon'ble Supreme Court in the case of Apollo Tyres (supra) are read together, the only conclusion that can be reached that the computation of book profit as done by the Assessee is correct and cannot be termed as erroneous and prejudicial to the interest of the revenue. 24. We also find that similar computation has been accepted by the revenue even in A.Y.2012-13 to 2014-15. Orders of assessment for A.Y.2013-14 and 2014-15 have been passed after order passed u/s 263 of the Act. We therefore are of the view that the CIT was not justified in invoking the provision u/s 263 of the Act, in so far as it relates to determination of book profit u/s 115JB of the Act. 25. So far as the action of CIT in invoking Sec.263 of the Act on the ground that income from sale of DEPB license ought to have been reduced from the profits eligible for deduction u/s 80IB and 80IE of the Act, the ld. Counsel had pointed out that there will be no prejudicial to the revenue in as much as tax liability of the assessee is being determined u/s 115 JB of the Act on book profits and therefore the computation of total income under the normal provisions of the Act wil....