TaxTMI 
TaxTMI 
2002 (9) TMI 248
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.... arrive at deduction under section 32AB. iv. The CIT(A) erred in agreeing that donation and contribution to Scientific Research Association are not expenses of the business but only application of income. v. The CIT(A) ought to have considered that contribution to Scientific Research Association and donations are items of expenditure as per Income-tax Act, and these items have to be reduced and on the balance only deduction under section 32AB is allowable. 3. The Assessing Officer passed an order under section 154 dated 14-9-1993 as under:-- "In the intimation dated 14-2-1990, deduction under section 32AB has been worked out after reducing Rs. 2,06,77,000 amount debited to Scientific Research Association, contribution to National Rural Development Fund and donation and also income from other sources have been taken into account while arriving at profit from business. Additional tax was omitted to charge on these items. These mistakes have been brought to the notice of the assessee and the assessee has objected to include these items quoting the case law held in T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR SO (SC) with other points and the assessee has given list of ....
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.... 2,351 (vii) Rebate on discount 44,129 (viii) Profit on sale of fixed assets: 6,18,591 ------------- Total 79,39,681 After careful consideration, the assessee's objection is rejected. However, items included under other sources allowed as follows: Rs. (i) Duty Drawback &nbs....
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....07,549 Rs. 2,52,56,339 -------------------- Or Rs. 2,52,56,340 Annexure Net Profit  ....
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....sp; -------------------- Rs. 52,07,549" -------------------- 3.1 The CIT(A) held that except the dividend of Rs. 2,64,903, the balance income of Rs. 50,95,840 should not be deducted from the total income for the purpose of computing deduction under section 32AB of the Act. The CIT(A) also held that the total donations of Rs. 2,06,77,000 is not required to be reduced from the computation of profit computed in accordance with the requirement of Parts II & III of Schedule VI of the Companies Act, 1956. The CIT(A) held that as per the accounting principles laid down by the Institute of Chartered Accountants of India, business income for the purpose of section 32AB of the A....
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....dance with Parts II & III of Schedule VI of the Companies Act, 1956. This is a pure arithmetical exercise carried on by the Assessing Officer which is well within the purview of section 154 of the Act. 4. We have considered the rival submission, the relevant facts of the case, the arguments advanced and decisions relied upon. Section 32AB(1)(ii) of the Income-tax Act allow the deduction of a sum equal to 20% of the profits of eligible business as computed in the accounts of assessee audited in accordance with the sub-section (5) of section 32AB. Section 32AB prescribes the procedure for arriving at the eligible profit. For the sake of brevity sub-section is reproduced below: (5) "The profits of eligible business or profession of an assessee for the purpose of sub-section (1) shall-- (a) in a case where separate accounts in respect of such eligible business or profession are maintained, be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, ....
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.... 3159 7940 Total (A) 279630 230486 570116 B. Expenses Expenses 250059 258245 508304 Depreciation 2931 2490 5421 Total (B)  ....
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....net profit, the ld. D.R. fairly conceded that though this income may be taxed under different heads for the purpose of I.T. Act, yet for the purpose of computation of net profit under Schedule VI to the Companies Act, they are definitely forming part of net profit. Since the language of section 32AB(3) requires net profit to be computed not as per I.T. Act but under the Companies Act, various income amounting to Rs. 50,93,489 has been correctly treated by the ld. CIT(A)as business income for the purpose of computing deduction under section 32AB. The fact that the income was shown under a different head of income or it is taxable under the head "income from other sources", did not deprive the assessee-company of the benefit under section 32AB so long as the relevant income was in the course of its "eligible business". This view finds support from the decision of special bench of the Tribunal in the case of Highway Cycle Industries Ltd. v. Asstt. CIT [2002] 74 TTJ (Chd.) (SB) 171 and the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. This issue raised by the revenue under ground Nos. (i) and (ii) above is therefore dismissed. 6. The n....