2005 (1) TMI 586 - AT - Income Tax

Computation of Minimum alternate tax - Deduction of book profit of section 80-IA(b)(iv)(c) qualifying industrial undertaking as per its profit loss account and not the amount of profit computed in terms of provisions of Chapter IV-D of the IT Act - HELD THAT - The mandatory requirement of section 115JA is that, for the purpose of section, the profit loss account has to be prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. In the present case, there is no dispute that the profit loss account has been prepared by the assessee in consonance with the above mentioned statutory requirement. It is notable that under the Explanation, the book profits cannot be increased by making any adjustment on account of depreciation. Further, the book profits are required to be reduced by the amount of profit derived by the industrial undertaking which is eligible for exemption u/s 80-IA. Under clause ( v ), there is no mention that the profit derived by the industrial undertaking must be calculated as per the provisions of the IT Act. Therefore, in our view, the logical interpretation would be that the profits derived by the industrial undertaking as per the books of account have to be reduced from the book profits. In the present case, while computing book profits, which is in consonance with the profit loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, the depreciation as provided in the books of account has been considered. If while computing the profits derived by the industrial undertaking, which is required to be reduced from the book profits as per clause ( v ), the provisions of the IT Act are applied and depreciation as admissible under IT 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 u/s. 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 ld. counsel for the assessee support this view. We, therefore, hold that the profit of the industrial undertaking eligible for exemption u/s 80-IA must be computed as per the books of account and the provisions of IT 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. In the result, the assessee s appeal stands partly allowed.

Summary

Issues Involved:
The issues involved in the judgment are:
1. Interpretation of provisions u/s 115JA regarding the computation of book profit in relation to section 80-IA.
2. Dispute over the calculation of exemption under section 80-IA based on depreciation adjustments.
3. Dilution of relief under section 80-IA by reducing deductions under section 80HHC.
4. Determination of service charges as income derived from industrial undertaking.
5. Recalculation of interest charges u/s 234B and 234C.

Interpretation of Provisions u/s 115JA:
The appellant contested the adjustment made by the Assessing Officer in the quantum of income exempt under section 80-IA, emphasizing that depreciation as per the books of account cannot be altered. Citing the Kerala High Court judgment, the appellant argued that profit should be based on the books of account, not as calculated under the Act. The ITAT held that for section 115JA, the profit & loss account must comply with the Companies Act. The book profits cannot be increased by adjusting depreciation, and profits from the industrial undertaking must be reduced as per the books of account, not as per the IT Act provisions. Therefore, the Assessing Officer was directed to recompute the book profits accordingly.

Calculation of Exemption under Section 80-IA:
The dispute arose when the Assessing Officer recalculated the exemption under section 80-IA based on depreciation adjustments, differing significantly from the appellant's calculations. The ITAT ruled that the profit derived from the industrial undertaking eligible for exemption under section 80-IA should be computed as per the books of account, without applying the IT Act provisions. Any adjustments not permitted under the section were deemed impermissible, and the Assessing Officer was instructed to recompute the book profits in line with this interpretation.

Dilution of Relief under Section 80-IA:
The appellant challenged the reduction of the qualifying profit base under section 80-IA by an amount admissible as a deduction under section 80HHC. Both parties agreed that this issue favored the appellant based on a Bombay High Court decision. Consequently, the Assessing Officer was directed to recalculate the exemption under section 80-IA without reducing the deduction under section 80HHC from the qualifying book profits.

Service Charges and Interest Recalculation:
The finding that service charges did not represent income derived from the industrial undertaking was accepted by the appellant, and the Assessing Officer's decision on this matter was upheld. The issue of charging interest under sections 234B and 234C was deemed consequential, and the Assessing Officer was directed to recalculate the interest in compliance with the order. Overall, the appellant's appeal was partly allowed, addressing the various issues raised in the case.