2009 (11) TMI 990 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of deduction under section 80HHC.
2. Market value determination of electricity generated by the eligible unit.
3. Deduction under section 80HHC for the purpose of computation of book profit under section 115JB.
4. Credit allowable under section 115JAA for the purpose of levy of interest under section 234B.
5. Disallowance of traveling expenses, postage, telephone expenses, and miscellaneous expenses.
6. Provision for gratuity, leave encashment, and deferred tax as ascertained liabilities within the meaning of clause (c) of Explanation below section 115JA(2).

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Under Section 80HHC:

The main contention was whether the deduction under section 80IA should be reduced from the deduction under section 80HHC. It was agreed by both parties that the issue is covered by the decision of the Special Bench of the Delhi Tribunal in the case of ACIT vs. Hindustan Mint and Agro Product (P) Ltd. The Tribunal held that the restriction in section 80IA(9) or 80IB(9A) applies to the same profit to prevent repeated deductions. Following this decision, the Tribunal set aside the order of the CIT(A) and directed the AO to re-decide the issue of computation of deduction under section 80HHC as per the Special Bench's decision.

2. Market Value Determination of Electricity Generated by the Eligible Unit:

The dispute was whether the market value of electricity generated by the captive unit should be taken at Rs. 4.28 per unit or Rs. 4.9 per unit. The Tribunal referred to the decision of the Mumbai Bench in the case of West Coast Paper Mills Ltd vs. JCIT, which held that the cost of electricity produced by the captive unit should be taken at the market value, i.e., the average annual landed cost of electricity purchased from the state electricity board. The Tribunal directed the AO to compute the deduction under section 80IA by taking the market value of electricity at Rs. 4.9 per unit.

3. Deduction Under Section 80HHC for the Purpose of Computation of Book Profit Under Section 115JB:

The Tribunal referred to the decision of the Special Bench of the Mumbai Tribunal in DCIT vs. Syncome Formulations (I) Ltd, which held that the deduction under section 80HHC in the case of MAT assessment should be worked out on the basis of adjusted book profit under section 115JA. However, the Tribunal concluded that the assessee would not be entitled to the deduction under section 80HHC in view of the provisions of section 80IA(9), and thus, this ground of appeal was dismissed.

4. Credit Allowable Under Section 115JAA for the Purpose of Levy of Interest Under Section 234B:

The Tribunal relied on the decision of the Madras High Court in CIT vs. Chemplast Sanmar Ltd, which held that MAT credit under section 115JAA should be given before charging interest under section 234B and 234C. The Tribunal directed the AO to reduce the credit available under section 115JAA first and then compute the interest under section 234B.

5. Disallowance of Traveling Expenses, Postage, Telephone Expenses, and Miscellaneous Expenses:

The AO disallowed 20% of the expenses due to lack of proper checks. The Tribunal found the disallowance on the higher side and directed the AO to disallow only 1/10th of the expenses, considering it fit and proper for both parties.

6. Provision for Gratuity, Leave Encashment, and Deferred Tax as Ascertained Liabilities:

The Tribunal agreed with the CIT(A) that provisions for gratuity and leave encashment are ascertained liabilities. However, it held that the provision for deferred tax cannot be regarded as an ascertained liability and should be added to the book profit for MAT computation under section 115JB. The Tribunal directed the AO to re-compute the MAT after adding the provision for deferred tax.

Conclusion:

The appeals were partly allowed, with directions provided for re-computation and reconsideration of specific issues by the AO. The Tribunal's decisions were based on precedents and detailed analysis of the relevant provisions and judicial interpretations.