2010 (8) TMI 334 - HC - Income Tax

Company Book profit assessing officer not entitled to go into profit and loss account prepared by assessee as per Companies Act Book profit arrived at to be the basis for taxation

Summary

Issues Involved:
1. Challenge to the Tribunal's order regarding the computation of relief in respect of export profit under section 115J.
2. Denial of deduction in respect of export profit under clause (iii) of the Explanation to section 115J while computing book profit.

Issue 1: Challenge to Tribunal's Order on Relief Computation:
The assessee, a company, challenged the Tribunal's order regarding the computation of relief in respect of export profit under section 115J. The Assessing Officer rejected the claim for deduction in respect of export profits under clause (iii) of the Explanation to section 115J. The Commissioner of Income-tax (Appeals) allowed the appeal by accepting the book profit entered by the assessee. However, the Tribunal allowed the appeal made by the Revenue, leading to the current appeal by the assessee. The High Court referred to a previous decision where it was held that the Assessing Officer should not embark on further inquiries regarding the entries in the company's books, and the book profit should be the basis for taxation. The High Court concluded that the questions of law raised must be answered in favor of the assessee, setting aside the Tribunal's order and reinstating the Commissioner of Income-tax (Appeals) order.

Issue 2: Denial of Deduction in Export Profit Computation:
The assessee's request for deduction in respect of export profit under clause (iii) of the Explanation to section 115J was denied by the Assessing Officer during the computation of book profit. The Commissioner of Income-tax (Appeals) had allowed the appeal by accepting the book profit entered by the assessee. However, the Tribunal allowed the Revenue's appeal, leading to the current challenge by the assessee. The High Court reiterated that the Assessing Officer should not delve into the profit and loss account prepared by the assessee as per the Companies Act. The High Court held that the book profit arrived at should be the basis for taxation, limiting the computation under section 80HHC to profits of the eligible category only. Applying this legal principle to the case at hand, the High Court ruled in favor of the assessee, setting aside the Tribunal's order and reinstating the Commissioner of Income-tax (Appeals) decision.

This judgment highlights the importance of adhering to the prescribed procedures and legal principles while computing book profit and deductions under the Income-tax Act. The High Court's decision emphasizes the significance of following established legal interpretations and guidelines in tax assessments to ensure fairness and consistency in tax-related matters.