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2019 (11) TMI 1077 - AT - Income TaxRevision u/s 263 - entitled for deduction while computing book profit u/s 115JB being 60% of the proportionate profit relating to the activity of growing, manufacturing and selling of tea made from its own grown tea leaves - CIT(A)computing book profit by considering 60% of adjusted income instead of 60% of composite income - HELD THAT - The common issue involved in these two appeals thus is squarely covered in favour of the assessee by the order of the Tribunal 2017 (2) TMI 1439 - ITAT KOLKATA and respectfully following the same, we uphold the impugned orders of the Ld. CIT(A) allowing the claim of the assessee for deduction of 60% of adjusted income while computing the book profit u/s 115JB of the Act for both the years under consideration.
Issues Involved:
1. Computation of book profit under Section 115JB of the Income Tax Act. 2. Applicability of Rule 8(1) of the Income Tax Rules, 1962 for determining agricultural income. Detailed Analysis: 1. Computation of Book Profit under Section 115JB of the Income Tax Act The core issue revolves around the computation of book profit under Section 115JB of the Income Tax Act. The assessee, a company engaged in the business of cultivation, manufacturing, and sale of tea, had deducted ?9,84,06,438, being 60% of the composite profit of ?16,40,10,729, which included profits from growing, manufacturing, and selling tea as well as profits from the sale of tea manufactured from tea leaves purchased from third parties. The Assessing Officer (AO) initially allowed this deduction while computing the book profit under Section 115JB. However, upon examination, the Commissioner of Income Tax (CIT) held that the assessee was entitled to a deduction only to the extent of ?2,09,11,766, being 60% of the proportionate profit of ?3,48,52,944, related to the activity of growing, manufacturing, and selling tea made from its own grown tea leaves. The CIT opined that the income from the sale of tea manufactured from tea leaves purchased from third parties was non-agricultural and thus not eligible for the 60% deduction under Rule 8(1). Upon reassessment, the AO restricted the deduction claimed by the assessee for the Assessment Year (AY) 2010-11 to ?2,89,77,274 and for AY 2013-14 to ?7,63,71,381, against the originally allowed amounts. 2. Applicability of Rule 8(1) of the Income Tax Rules, 1962 for Determining Agricultural Income Rule 8(1) of the Income Tax Rules, 1962, stipulates that in the case of income derived from the sale of tea grown and manufactured by the seller in India, the income shall be computed as if it were income derived from business, with 40% of such income deemed to be liable to tax and 60% considered agricultural income exempt under Section 10(1) of the Act. The CIT(A) allowed the assessee's claim for the deduction of 60% of adjusted profit while computing the book profit under Section 115JB, following a Tribunal decision dated 03.02.2017, which had ruled in favor of the assessee on a similar issue. The Tribunal had emphasized that the CBDT Circular No.495 dated 22.09.1987, which set out the manner of computation of book profits and composite income for tea companies, should be applied in the context of Section 115JB as well. The Circular clarified that no adjustment should be made for agricultural income earned by tea companies from tea business while computing book profit under Section 115JB. The Tribunal's decision highlighted that the AO must accept the profit as per the profit and loss account prepared in accordance with the Companies Act and can only make adjustments as provided in the Explanation to Section 115JB. The Tribunal referenced the Supreme Court's ruling in Apollo Tyres Ltd., which stated that the AO does not have the jurisdiction to question the correctness of the profit and loss account certified by statutory auditors and approved by the company's General Meeting. Conclusion The Tribunal upheld the CIT(A)'s orders, allowing the assessee's claim for the deduction of 60% of adjusted income while computing the book profit under Section 115JB for both AY 2010-11 and AY 2013-14. The Tribunal found that the common issue involved in these appeals was squarely covered in favor of the assessee by its earlier order dated 03.02.2017. Consequently, the appeals filed by the Revenue were dismissed. Order Pronounced in the Open Court on 20th November, 2019.
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