2009 (4) TMI 54 - HC - Income Tax

Basis for computation of deduction u/s 80HHC Section 80HHC is clear about this aspect that profit only is to be taken into account but not income and sub-section (3) of Section 115JA itself took care of the provisions relating to the adjustment of loss or depreciation and carry forward of the income therefore, Tribunal rightly held that the computation of deduction u/s 80HHC is to be worked out on the basis of the adjusted book profits u/s 115JA only, and not in the profit arrived at in regular basis

Summary

Issues:
- Appeal against the order of the Income Tax Appellate Tribunal, Madras "C" Bench, regarding the deduction under Section 80HHC based on book profits under Section 115JA for the assessment year 2000-2001.

Analysis:

Issue 1: Calculation of Deduction under Section 80HHC
The case involved a dispute over the calculation of deduction under Section 80HHC of the Income Tax Act for the assessment year 2000-2001. The assessee, engaged in the manufacture of leather products, claimed the benefit under Section 115JA and argued that the deduction under Section 80HHC should be based on book profits as profits of the business. The Assessing Officer, however, denied the deduction as the actual profits of the business were Nil per regular working. The Commissioner of Income Tax (Appeals) upheld this decision, stating that the book profits could not be the basis for computing the deduction under Section 80HHC. The Income Tax Appellate Tribunal, on appeal, ruled that the deduction should be calculated based on adjusted book profits under Section 115JA, not the regular basis profits. This led to the appeal before the High Court.

Issue 2: Interpretation of Relevant Legal Provisions
The High Court referred to a previous decision involving similar issues and held that the deduction under Section 80HHC is to be based on the profit ascertained under Section 115JA, not on income computed under other sections of the Act. Citing Supreme Court judgments, the Court emphasized that the assessing officer, while computing book profits under Section 115J, should rely on certified accounts maintained in accordance with the Companies Act. The Court clarified that the assessing officer does not have the authority to question the net profits shown in the profit and loss account beyond the specified limits in the Explanation to Section 115J. The Court further explained that Section 80HHC requires considering profits only, not income, and Section 115JA addresses adjustments for losses, depreciation, and carry forward income.

Conclusion:
Based on the interpretation of relevant legal provisions and precedents, the High Court dismissed the tax case appeal, affirming the Tribunal's decision to calculate the deduction under Section 80HHC based on adjusted book profits under Section 115JA. The Court found the Tribunal's reasoning in line with Supreme Court decisions and concluded that the computation method adopted was correct and consistent with the law.