2008 (3) TMI 298 - HC - Income Tax

Special deduction industrial undertaking - contention of assessee is, that assessee company is an industrial undertaking, situated in the backward industrial State of District, therefore, the income earned is 100% exempted from tax, as per the provisions of S. 80-IA(2)(iv)(c) and S. 80IB - therefore, for determination of book profit as per Section 115JA, the 100 per cent. exempted income is required to be deducted contention of assessee is acceptable - revenue s appeal dismissed

Summary

Issues:
- Rectification of tax computation under Section 154 for raising demand invoking Section 115JA/115JB
- Computation of 'Book Profit' under Section 115JA/115JB and deduction under Section 80-IA/80-IB
- Whether deduction under Section 80-IA/80-IB can form part of 'Book Profit'
- Application of provisions of Sections 115JA and 115JB in assessment orders

Issue 1: Rectification of tax computation under Section 154 for raising demand invoking Section 115JA/115JB
The appeals arose from the common order of the Income-tax Appellate Tribunal, where the Assessing Officer issued notices under Section 154/155 to increase the liability of the assessee based on objections raised by the Audit Party regarding the calculation of income under Section 115JA/115JB. The Tribunal highlighted that the provisions of Section 143(1) and 154 were amended by the Finance Act of 1999, limiting the scope of assessment to demand and refunds based on the return filed. The Tribunal observed that the orders passed by the Assessing Officer seemed to be influenced by audit objections without proper consideration of the applicable provisions.

Issue 2: Computation of 'Book Profit' under Section 115JA/115JB and deduction under Section 80-IA/80-IB
The Tribunal noted that the assessee, being an industrial undertaking in a backward area, was eligible for 100% exemption under Section 80-IA/80-IB. However, the Assessing Officer failed to deduct the exempted income derived from the industrial undertaking while calculating the 'book profit' under Section 115JA. The Tribunal found that the orders passed under Section 154 did not consider this crucial deduction, leading to errors apparent on the face of the record. The Tribunal agreed with the arguments presented by the authorized representatives of the assessee, emphasizing the importance of correctly determining the 'book profit' by deducting the exempted income.

Issue 3: Whether deduction under Section 80-IA/80-IB can form part of 'Book Profit'
The Tribunal analyzed the provisions of Section 115JA, which create a fiction to treat 30% of the 'book profit' as the income chargeable to tax. The definition of 'book profit' includes deductions for profits derived by industrial undertakings in backward areas under Section 80-IA/80-IB. The Tribunal emphasized that the Assessing Officer's failure to consider these deductions while passing orders under Section 154 constituted a significant error. The Tribunal held that the orders lacked proper consideration of the relevant clauses, leading to the dismissal of the appeals based on the errors in computation and application of the provisions.

In conclusion, the Tribunal dismissed the appeals, answering specific questions related to the rectification of tax computation and the inclusion of deductions under Section 80-IA/80-IB in the 'Book Profit.' The judgment highlighted the importance of correctly applying the provisions of Section 115JA/115JB and considering all relevant deductions for industrial undertakings in backward areas to avoid errors in tax computation and assessment orders.