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2010 (5) TMI 668 - AT - Income TaxDeduction u/s 80 HHC - book profit and not the income - HELD THAT - this is an appeal against the order passed u/s 263. The original assessment order has been passed u/s 143(3) for the AY 2002-03. The AO after proper appraisal of the material on record taken one view. The action taken by CIT u/s 263 is not justified because different view was possible on the said issues considered by CIT. In the case of CIT v. Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT held that where the order passed by the AO was a possible view supported by subsequent decision of Tribunal it was not amenable to revisional jurisdiction of CIT. In the present case, there are various decisions available at the time of completing assessment which are in favour of the assessee on the impugned issues. In the case of Starchik Specialities Ltd. 2003 (7) TMI 283 - ITAT HYDERABAD-B , Govind Rubber (P.) Ltd. s case 2003 (1) TMI 231 - ITAT BOMBAY-E , Tushako Pumps Ltd. v. Asstt. CIT 2005 (1) TMI 586 - ITAT MUMBAI and in the case of Syncome Formulations (I) Ltd 2007 (3) TMI 288 - ITAT BOMBAY-H , wherein it was held that the deduction u/s 80HHC deserves to be computed by taking into consideration book profit and cannot be restricted to the profits of the business as comupted under the normal provisions of the IT Act. Therefore, we are of the opinion, that the AO s decisions are based on various judicial pronouncements though decision of the AO is prejudicial to the revenue, it cannot be treated as erroneous. In view of this, in our opinion, the CIT cannot invoke the provisions of section 263 to set right the errors committed by the AO. In the result, the appeal of the assessee is allowed. Addition to the book profit - provision for gratuity - an ascertained liability - we are of the opinion that this issue is required to be re-examined by the AO. Hence, we set aside this issue to the file of AO to see the crystallization of the liabilities in the assessment year under consideration. If the liabilities towards gratuity is crystallized in the assessment year under consideration, then it is to be considered as ascertained liability and claim of the assessee is to be allowed. Accordingly, this issue is set aside to the file of AO with a direction to assessee to place necessary evidence to prove that the liabilities are ascertained. In the result, the appeal of the assessee is partly allowed. Unabsorbed business losses - deducted u/s 80HHC - calculating the book profit u/s115JA - The AO set off the losses of earlier year while computing the deduction u/s 80HHC on book profit determined u/s115JA while passing order u/s 143(3). In our opinion, the lower authorities taken correct view since section 80AB, which is also in Chapter VI-A, starting with the words where any deduction is required to be made or allowed under any section of this Chapter would include section 80HHC also. Further, section 80AB uses the words notwithstanding anything contained in that section . Thus, section 80AB has been given an overriding effect over all other sections in Chapter VI-A. But, section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provisions of the Act. Section 80HHC would thus be governed by section 80AB. The unabsorbed business losses, unabsorbed depreciation etc., should be taken into account while computing the income for the purpose of deduction u/s 80HHC. Moreso, these grounds are covered against the assessee by the Judgment of Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT 2004 (3) TMI 9 - SUPREME COURT and in the case of Shirke Construction Equipment Ltd. 2007 (5) TMI 194 - SUPREME COURT . Accordingly, the grounds are dismissed. Interest u/s 234B and 234C - HELD THAT - This issue is covered in favour of the assessee by the judgment of Hon ble Supreme Court in the case of CIT v. Kwality Biscuits Ltd. 2006 (4) TMI 121 - SC ORDER wherein it was held that when assessee is liable for to pay tax u/s 115J, interest u/s 243 B C cannot be charged. This issue decided in favour of the assessee and the ground taken by the assessee on this issue is allowed. Determination of total turnover - deduction u/s 80HHC - HELD THAT - The assessee raised additional grounds relating to the computation of total turnover which includes sales tax and also contended before the CIT(A) that these issues are borne out of assessment order and prayed to adjudicate the issue but he failed to adjudicate the same. In our opinion, the CIT(A) must have considered these issues while deciding the appeal. His jurisdiction is co-terminus with AO. Accordingly, we set aside this issue to the file of AO for fresh consideration. In the result, the appeal of the assessee is partly allowed. Deduction of loss - HELD THAT - On perusal of the profit and loss account, the CIT(A) came to the conclusion that no such loss of the earlier year company has been brought forward in the profit and loss account of the relevant year and also he was of the opinion that the judgment of Hon ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT 2002 (5) TMI 5 - SUPREME COURT as per which profit arrived at the profit and loss account which is prepared in accordance with the Companies Act has to be adopted for the purpose of book profit. As no such loss of earlier company reflected in the profit and loss account of the relevant year, the CIT(A) held that there is no justification for deduction of such loss in arriving at the book profit of this year. However, before us the authorised representative submitted that the loss of the Deccan are merged in the final accounts of the assessee company on the date of merger of Deccan Drugs Ltd., with the assessee company. As such, the said loss to be considered for deduction while arriving at book profit of the assessee company. In our opinion, the argument of the assessee is to be examined by the lower authorities w.r.t. the evidence in support of that claim. Accordingly, We remit back matter to AO for fresh consideration. Disallowance of depreciation - state subsidy received - HELD THAT - If the payment of subsidy is not related to actual acquisition of assets and the subsidy is granted on capital investment on land, building and machinery, then it cannot be reduced from the value of the asset (written down value). Further, if there is no special mention regarding the intention to adjust the said subsidy against the actual cost of machinery, then that amount of subsidy cannot be reduced from the cost of the plant and machinery. Hence, we set aside this issue to the file of AO to examine the terms and conditions of sanction of subsidy and if the subsidy was not given to meet the cost of any specific capital asset and the amount of subsidy so received was quantified according to the investment made by the assessee in plant and machinery and building, the claim of the assessee to be allowed. With this direction, the issue set aside to the file of AO for fresh consideration. In the result, the appeals of the assessees are allowed.
Issues Involved:
1. Validity of the order passed under section 263 for the assessment year 2002-03. 2. Determination of deduction under section 80HHC for the purpose of arriving at the book profit under section 115JB. 3. Addition of provision for gratuity to the book profit. 4. Set-off of losses of Deccan Drugs Ltd. merged with the assessee company. 5. Inclusion of subsidy in the cost of fixed assets for depreciation purposes. 6. Chargeability of interest under sections 234B and 234C when the tax payable is under section 115JB. Issue-wise Detailed Analysis: 1. Validity of the order passed under section 263 for the assessment year 2002-03: The CIT issued a notice under section 263 requiring the assessee to explain why the assessment should not be revised by withdrawing the deduction towards unabsorbed depreciation. The CIT concluded that the unabsorbed depreciation of Rs. 1,86,11,743 for the assessment year 2001-02 should not be allowed as a deduction for arriving at the book profit for the assessment year 2002-03. The assessee argued that the loss or unabsorbed depreciation brought forward should be considered for deduction based on the IT Act, not the Companies Act. The Tribunal held that the CIT's action under section 263 was not justified because the Assessing Officer's decision was based on various judicial pronouncements and was a possible view, making the order not erroneous. The Tribunal allowed the appeal of the assessee in ITA No. 328/Hyd./2006. 2. Determination of deduction under section 80HHC for the purpose of arriving at the book profit under section 115JB: The CIT(A) held that the assessee cannot agitate the grounds regarding the determination of deduction under section 80HHC for arriving at the book profit under section 115JB. The Tribunal, in view of its findings in ITA No. 328/Hyd./2006, allowed this ground in ITA No. 1037/Hyd./2007, stating that the revision under section 263 is not possible on this issue. 3. Addition of provision for gratuity to the book profit: The assessee contended that the provision for gratuity is an ascertained liability and should not be added to the book profit. The Tribunal set aside this issue to the Assessing Officer to verify if the liabilities towards gratuity were crystallized in the assessment year under consideration. If so, it should be considered an ascertained liability, and the claim of the assessee should be allowed. 4. Set-off of losses of Deccan Drugs Ltd. merged with the assessee company: The CIT(A) did not properly adjudicate this ground, stating no specific evidence/details were provided. The Tribunal set aside this issue to the Assessing Officer for fresh consideration, directing the assessee to provide necessary evidence to support the claim that the losses of Deccan Drugs Ltd. are to be considered for deduction while arriving at the book profit. 5. Inclusion of subsidy in the cost of fixed assets for depreciation purposes: The Assessing Officer disallowed depreciation on account of state subsidy received by the assessee, referring to Explanation 10 to section 43(1). The Tribunal held that if the subsidy is not related to the actual acquisition of assets and is granted based on capital investment, it should not reduce the actual cost of the asset. The issue was set aside to the Assessing Officer to examine the terms and conditions of the subsidy and decide accordingly. 6. Chargeability of interest under sections 234B and 234C when the tax payable is under section 115JB: The Tribunal held that when the assessee is liable to pay tax under section 115J, interest under sections 234B and 234C cannot be charged. This issue was decided in favor of the assessee, and the ground taken by the assessee was allowed. Conclusion: The appeals in ITA Nos. 328/Hyd./2006 and 329/Hyd./2006 were allowed. The appeals in ITA Nos. 1037/Hyd./2007, 1038/Hyd./2007, and 538/Hyd./2006 were partly allowed with directions for fresh consideration by the Assessing Officer on specific issues.
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