2011 (9) TMI 1067 - AT - Income Tax

Computation of deduction u/s 80IA after reduction of a sum on account of synchronization charges - non-rejection of book profit for the purpose of calculating MAT u/s 115JB by an amount being the amount of profit from export business under clause (a), (b) and (c) of sub-section (3) of Section 80HHC - Penalty u/s 271(1)(c) -

Issues Involved:
1. Computation of deduction under Section 80-IA.
2. Addition under Section 14-A for expenditure incurred in relation to exempt income.
3. Computation of book profits under Section 115JB.
4. Penalty under Section 271(1)(c) on account of employees' contributions to ESI and PF.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 80-IA:
The assessee contested the reduction of Rs. 1,72,82,880/- on account of synchronization charges for computing deduction under Section 80-IA. The Tribunal referred to its previous orders and upheld the decision against the assessee, stating that synchronization charges, although not debited in the Profit and Loss Account, crystallized during the relevant previous year and must be reduced from the profits of the eligible unit for proper computation of deduction under Section 80-IA.

2. Addition under Section 14-A for Expenditure Incurred in Relation to Exempt Income:
The assessee did not press grounds related to the addition of Rs. 8,00,000/- under Section 14-A for expenditure incurred in relation to exempt income while computing income under the normal provisions and book profits under Section 115JB. Consequently, these grounds were dismissed as not pressed.

3. Computation of Book Profits under Section 115JB:
- Profit from Export Business: The assessee's claim to reduce book profit by Rs. 21,55,44,187/- (profit from export business) was rejected due to the retrospective amendment brought by the Finance Act 2011, which omitted clause (iv) of Explanation 1 to Section 115JB. This amendment clarified that profits eligible for deduction under Section 80HHC cannot be reduced for computing book profits under Section 115JB.
- Provision for Fringe Benefit Tax (FBT): The Tribunal allowed the reduction of Rs. 1,17,68,617/- (provision for FBT) from book profits, referencing the ITAT's decision in the case of ITO vs. Vitage Distillers Ltd. The Tribunal held that the term "income-tax" in Explanation 1 to Section 115JB does not include FBT, and thus, FBT should not be added back for computing book profits.
- Provision for Doubtful Debts: The Tribunal upheld the addition of Rs. 1,27,68,043/- (provision for doubtful debts) to book profits, citing the amendment in Explanation 1 to Section 115JB, which requires adding back provisions for diminution in the value of any asset, including doubtful debts.

4. Penalty under Section 271(1)(c) on Account of Employees' Contributions to ESI and PF:
The revenue's appeal contested the deletion of penalty related to the disallowance of Rs. 13,02,257/- on account of employees' contributions to ESI and PF. The Tribunal upheld the CIT (A)'s decision to delete the penalty, referencing the amendment to Section 43-B effective from 1.4.2004, which allows such payments made before the due date of filing the return. The Tribunal also noted the Supreme Court decision in CIT vs. Alome Extrusions Ltd., which held the amendment to be retrospective from 1.4.1988.

Conclusion:
The appeal filed by the assessee was partly allowed, and the appeal filed by the revenue was dismissed. The Tribunal's order was pronounced in the open court on 22.09.2011.

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