2020 (6) TMI 200 - HC - Income Tax

MAT Computation - book profit adjustments - tribunal not allowing deduction of brought forward loss or unabsorbed depreciation relating to non-STPI units in computing book profits under Section 115JB - Deduction of income u/s 10A from book profit - HELD THAT - Section 115JB was inserted in the Act by Finance Act, 2000 with effect from 01.04.2001. Explanation-(1) to Second proviso to Section 115JB(1) provides that for the purposes of this Section, book profit means the profit as shown in the statement of profit and loss account for the relevant previous years prepared under sub-Section(2). The supreme court in J.K.INDUSTRIES LTD. VS. UNION OF INDIA 2007 (11) TMI 401 - SUPREME COURT has held that books of account do not include balance sheet and profit and loss account. It has further been held that balance sheet and profit and loss account are financial statements. Section 10A of the Act permits a newly established undertaking in Free Trade Zone to claim a deduction from profits as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive Assessment years relevant to the previous year, in which undertaking begins to manufacture of produce such article or things or computer software as the case may be, shall be allowed from the total income of the assessee. In the present case the tribunal has held that net profits have to be determined as per the provisions of the companies Act and thereafter, the adjustments have to be made. It has further been held that the assessee cannot adjust the books of profit except as provided under the companies Act. While passing the order, the tribunal has misconstrued the relevant statutory provisions. It is also pertinent to note that the tribunal has not dealt with the claim of the assessee for deduction under Section 10A of the Act. Therefore, in the fact situation of the case, the remand of the matter to the tribunal for decision afresh has become imperative. It is therefore, not necessary for us to deal with the substantial questions of law framed by this court. In view of the preceding analysis, the order passed by the Income Tax Appellate Tribunal is hereby quashed and the matter is remitted to the tribunal for decision afresh in accordance with law.

Summary

Issues:
1. Deduction of brought forward loss or unabsorbed depreciation under Section 115JB.
2. Adjustment of past profits of STPI units against brought forward loss or unabsorbed depreciation.
3. Treatment of STPI unit profits for computing book profits under Section 115JB.

Analysis:
1. The appellant, engaged in manufacturing, trading, and distribution, filed an appeal regarding the deduction of brought forward loss and unabsorbed depreciation for Assessment year 2005-06 under Section 115JB. The assessing officer disallowed the deduction, leading to a refund adjustment. The Commissioner of Income Tax (Appeals) upheld the decision, emphasizing the application of Section 115JB to the entire case. The Income Tax Appellate Tribunal dismissed the appeal, stating that net profits must follow Companies Act provisions, not income tax rules. The appellant argued for deduction based on lower figures from the books of accounts, citing relevant legal precedents and circulars.

2. The tribunal's decision to adjust past profits of the STPI unit against the appellant's claimed deduction was challenged by the appellant. The appellant contended that the tribunal misinterpreted statutory provisions and failed to consider the deduction eligibility based on the lower of brought forward loss or unabsorbed depreciation as per books of accounts. The appellant highlighted the tribunal's error in applying the provisions of Section 10A and Section 115JB, leading to an incorrect conclusion on the deduction eligibility.

3. The tribunal's misinterpretation of statutory provisions and failure to address the appellant's claim for deduction under Section 10A were crucial points in the appeal. The court referred to legal precedents and the deeming provision of Section 115J to emphasize the importance of maintaining accounts in accordance with the Companies Act. The court quashed the tribunal's order, remitting the matter for a fresh decision in line with the law. The court did not delve into the substantial questions of law framed earlier, concluding the appeal by remanding the case to the tribunal for a proper decision.