2010 (12) TMI 740 - AT - Income Tax

MAT - disallowance of deduction u/s 10B from book profit - set off of unabsorbed depreciation - Enhancement of book profit - Deduction u/s 80HHC - It was submitted by the assessee that for working u/s.115JB, the deduction u/s.80HHC has to be recomputed as per the figures mentioned in the books of accounts only and not as computed for income tax purposes - it is clear that the AO has considered the allowability of deduction under Section 80HHC while computing the book profit - Held that - for the purpose of the book profit, deduction under section 80HHC is to be computed with reference to the book profit and not with reference to the profit computed under the Income Tax Act. Admittedly, while computing the book profit, brought forward depreciation was not reduced and therefore for the purpose of computing the deduction under Section 80HHC for the purpose of section 115JB, brought forward depreciation is not required to be reduced. Exemption u/s 10B - A careful perusal of clause (ii) of the Explanation to section 115JB(2) reveals that, though the said clause speaks about the amount of income; yet it also speaks of if, any such amount is credited in profit and loss account Thus, while reading the said clause as a whole, it becomes clear that the amount of income which can be reduced by the Assessing Officer for computing the book profit under clause (ii) of the Explanation to section 115JB(2), it would be the amount which is credited to the profit and loss account and not the amount of income which is claimed by the assessee or determined by the Assessing Officer while assessing the income under the regular provisions of the Incometax Act. - CIT(A) was not justified in enhancing the book profit by disallowing the deduction under Section 10B.

Issues Involved:
1. Enhancement of book profits by the Commissioner of Income-tax (Appeals) (CIT(A)).
2. Recalculation of deduction under Section 80HHC.
3. Denial of deduction under Section 10B.
4. Set off of unabsorbed brought forward depreciation.
5. Deduction under Section 35D.
6. Levy of interest under Section 234A/B/C.
7. Deduction of other incomes under Section 10B.
8. Exclusion of excise duty from total turnover for deduction under Section 10B.

Issue-wise Detailed Analysis:

1. Enhancement of Book Profits by CIT(A):
The CIT(A) enhanced the book profits by Rs.8,77,94,182/- on different grounds than those considered by the Assessing Officer (AO). The CIT(A) disallowed deductions under Section 80HHC and Section 10B while computing book profits under Section 115JB. The assessee argued that CIT(A) cannot consider items not considered by the AO, citing several legal precedents. However, it was established that the CIT(A) has the authority to enhance income even if it involves new sources not considered by the AO, as per the Supreme Court ruling in Commissioner of Income-tax vs Nirbheram Daluram (224 ITR 610).

2. Recalculation of Deduction under Section 80HHC:
The CIT(A) recalculated the deduction under Section 80HHC, which the assessee had initially computed incorrectly. The Supreme Court in Ajanta Pharma Ltd. vs Commissioner of Income-tax (327 ITR 305) and the Special Bench of ITAT in DCIT vs Syncome Formulations (I) Ltd. (106 ITD 193) established that deductions under Section 80HHC should be computed with reference to book profits and not statutory profits. The AO was directed to allow the correct deduction of Rs.1,01,83,701/- under Section 80HHC while computing book profits.

3. Denial of Deduction under Section 10B:
The CIT(A) denied the deduction under Section 10B, arguing that the total income after set-off of unabsorbed depreciation was NIL. However, the ITAT ruled that for computing book profit under Section 115JB, deductions should be based on book profits, not statutory profits. The ITAT followed the Delhi Bench ruling in DCIT vs Roxy Investments P. Ltd. (24 SOT 227) and allowed the deduction under Section 10B.

4. Set Off of Unabsorbed Brought Forward Depreciation:
The assessee's claim for deduction under Section 80HHC on current year's profits without setting off unabsorbed depreciation was rejected, following the Supreme Court decision in Commissioner of Income-tax v. Shirke Construction Equipment Ltd. (291 ITR 380).

5. Deduction under Section 35D:
The issue of deduction under Section 35D was restored to the AO with directions to follow the ITAT's findings for A.Y.1998-99.

6. Levy of Interest under Section 234A/B/C:
The ITAT upheld the levy of interest under Section 234A/B/C, following the Third Member decision in Kanel Oil and Exports Ind. Ltd. vs JCIT (126 TTJ 158).

7. Deduction of Other Incomes under Section 10B:
The CIT(A) included Forex Swap and Forex Forward incomes for deduction under Section 10B, which was upheld by the ITAT, referencing the Gujarat High Court decisions in Commissioner of Income-tax vs Amba Impex (282 ITR 144) and Nirma Industries Ltd. vs Deputy Commissioner of Income-tax (283 ITR 402).

8. Exclusion of Excise Duty from Total Turnover for Deduction under Section 10B:
The ITAT upheld the exclusion of excise duty from total turnover for computing deduction under Section 10B, following the Supreme Court decision in CIT vs Lakshmi Machine Works (290 ITR 667).

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The significant rulings included the proper computation of deductions under Sections 80HHC and 10B based on book profits, and the exclusion of excise duty from total turnover for Section 10B deductions.

← Previous Next →