TaxTMI 
TaxTMI 
2017 (2) TMI 1439
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.... 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) Advances written off 9,271 vi)Donation 5,50,000 ....
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....; 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 total income that the assessee has not considered income that it derived from purchase of tea leaves from third parties and manufacturing of tea from and out of the tea leaves so purchased as part of the composite income. The above computed by the assessee is the computation of the total income under the normal provisions of the Act. ....
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....bsp; 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 115JB of the Act as given by the assessee. 8. The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of AO accepting the computation of book profits u/s.115JB of the Act as given by the assessee was erroneous and prejudicial to the interest of the revenue. The CIT therefore issued a show cause notice u/s 263 of the Act dated 10.03.2015. The case of the CIT for initiating proceedings u/s 263 of the Act was that on perusal of the assessment records it was seen that durin....
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.... 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 Apollo Tyres vs CIT 255 ITR 273 (SC) wherein it was held that the AO while arriving at the book profits has limited power of making adjustments only to the extent specified in Explanation to section 115JB (2) of the Act. The assessee also pointed out that similar method has been adopted by the assessee in the past and accepted by the department. The CIT however rejected the plea of the assessee observing as follows :- "6. I have considered the matter. I fully agree that the AO cannot make adjustments to boo....
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....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 of the business eligible for deduction u/s. 80IB & 80IE respectively. If this be the case, the assessee would be entitled to include the same in the computation of deduction u/s. 80IB & 80IE. However, if the DEPB receipt is not connected with the eligible business, the same has to be excluded irrespective of the fact that it may not have any tax effect." 13. With regard to the disallowance u/s 8D(2)(ii) of the Act of interest expenses incurred in earning exempt income, the assessee took a plea that the method of netting ....
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....anation 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 is acceptable to the assessee and to this extent the order u/s 263 of the Act may be upheld. In so far as the other aspects dealt in the order of 263 are concerned the ld. Counsel prayed that the same may be quashed as the order of AO was neither erroneous nor prejudicial to the interest of the revenue. He drew our attention to the fact that similar computation of composite income u/s.115JB of the Act has been accepted by the revenue in A.Y.2012-13, 2013-14 and 2014-15. The relevant orders of assessment are also filed in the paper....
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....roneous 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 income is concerned, the same has to be regarded as part of the composite income for the purpose of applying Rule 8(1) of the Rules. In so far as the second category of income is concerned it cannot be regarded as part of the composite income under rule 8(1) of the Rules. This position has been accepted by the assessee itself in the computation of the total income under the normal provisions of the Act. We have referred to the computation of the total income by the assessee under the normal provisions of the Act in the earlier part of this order. ....
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....) 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 derived from the sale of tea grown and manufactured by the seller, only 40 per cent of such income is liable to tax under r. 8 of the IT Rules, 1962. Sixty per cent of the income, which is disregarded for the purposes of taxation is considered to be agricultural income and is, therefore, exempt under the provisions of Chapter III. The net profit determined in accordance with Schedule VI to the Companies Act, 1956, has to be adjusted, inter alia, in accordance with cl. (f) and sub- cl. (ii) of the Explanation to s. 115J(1). In the case of the tea companies, the book profit should be computed by making all the adjustments referre....
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....e 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 accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The Hon'ble Court held that while so looking into the accounts of the company, an assessing officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and s....