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2010 (11) TMI 752 - AT - Income TaxRectification of mistakes - in the order of rectification, the DCIT reduced the relief in respect of export profits deductible in computing the Book profits u/s 115JB, to 70% of the eligible deduction by invoking sub section (1B) of Section 80HHC - jurisdiction of the DCIT to make the correction in an order of rectification u/s 154 - Held that - As the issue involved extensive examination and analysis of the provision of the Act. Needless to add that such involved and complicated interpretation of the statute cannot be carried out by an order of rectification u/s 154. Therefore we hold that the DCIT erred in recomputing the Book profits by reworking the deduction under explanation (iv) to that section in an order of rectification u/s 154. Issue stands covered in favour of the assessee by the decision of Ajantha Pharma Ltd vs CIT (2010 (9) TMI 8 - SUPREME COURT) wherein keeping in mind upward and downward adjustments and if so read it becomes clear that clause (iv) covers full export profits of 100 percent, as eligible profits and that the same cannot be reduced to 80 percent by relying on section 80HHC (1B). In favour of assessee.
Issues Involved:
1. Jurisdiction of the DCIT to rectify an order under Section 154 of the Income Tax Act. 2. Applicability of Section 80HHC(1B) while computing book profits under Section 115JB of the Income Tax Act. Issue-wise Detailed Analysis: 1. Jurisdiction of the DCIT to rectify an order under Section 154 of the Income Tax Act: The primary issue raised by the assessee was whether the Deputy Commissioner of Income Tax (DCIT) had the jurisdiction to rectify an order under Section 154 of the Income Tax Act. The assessee argued that Section 154 could only be invoked if there was a mistake apparent from the record, which did not require any investigation of facts or examination or analysis of legal principles. The Tribunal noted that the interpretation of Section 115JB and its interplay with Section 80HHC had been a subject of intense litigation, requiring extensive examination and analysis. This included the Special Bench decision in DCIT vs Syncome Formulations (I) Ltd and subsequent reversals by higher courts, including the Supreme Court. Given the complexity and the need for detailed legal interpretation, the Tribunal held that such issues could not be rectified under Section 154, which is intended for clear and unambiguous errors. Therefore, the DCIT erred in recomputing the book profits by reworking the deduction under explanation (iv) to that section in an order of rectification under Section 154. 2. Applicability of Section 80HHC(1B) while computing book profits under Section 115JB of the Income Tax Act: The second issue was whether the reduction in relief in respect of export profits while computing the book profits under Section 115JB should consider the phased reduction in deduction under Section 80HHC(1B). The assessee contended that Section 115JB is a self-contained code and that the book profit should be reduced by the amount of profits eligible for deduction under Section 80HHC, computed under sub-sections (3) and (3A) of that section, without applying the sunset clause of Section 80HHC(1B). The Tribunal referred to the Supreme Court decision in Ajantha Pharma Ltd vs CIT, which clarified that Sections 80HHC and 115JB operate in different spheres. The Supreme Court held that for the purposes of computation of book profits under Section 115JB, the full export profits of 100% should be considered as eligible profits, and the reduction to 70% under Section 80HHC(1B) should not be applied. Thus, the Tribunal concluded that the DCIT's action to apply the 70% reduction was incorrect both on jurisdictional grounds and on merits. Conclusion: The Tribunal set aside the order of rectification, holding that the DCIT did not have the jurisdiction to rectify such a debatable issue under Section 154 and that the reduction in export profits should not consider the phased reduction under Section 80HHC(1B) when computing book profits under Section 115JB. The appeal filed by the assessee was allowed.
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