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2007 (11) TMI 320 - AT - Income TaxComputation of MAT u/s 115JB - deduction of profit attributable to export u/s 80HHC - HELD THAT - We are of the opinion that for computing the book profit for the purpose of s. 115JB the net profits shown in the P L a/c prepared as per its sub-s. (2), are to be reduced by the amount of profits eligible for deduction under s. 80HHC irrespective of the fact how much percentage of it is eligible for deduction under s. 80HHC of the Act. The amount of profit eligible for deduction would not be governed by sub-s. (1B) of s. 80HHC in the absence of its reference in cl. (iv) of the Explanation to s. 115JB. We, therefore, find ourselves in agreement of the CIT(A) who has rightly adjudicated the issue in the light of the given situation. Accordingly we confirm the same. In the result appeal of the Revenue is dismissed.
Issues Involved:
1. Eligibility of profit earned from exports for reduction under clause (iv) of Explanation to section 115JB of the IT Act. 2. Computation of book profit under section 115JB of the IT Act. 3. Interpretation of the term "profit eligible for deduction" under section 80HHC. 4. Applicability of sub-section (1B) of section 80HHC to the computation of book profit under section 115JB. Issue-wise Detailed Analysis: 1. Eligibility of profit earned from exports for reduction under clause (iv) of Explanation to section 115JB of the IT Act: The CIT(A) held that the entire profit earned from exports, as computed under clauses (a) to (c) of section 80HHC(3), is eligible for reduction under clause (iv) of Explanation to section 115JB. The CIT(A) interpreted the clause to signify that the extent of profits derived from exports is allowed to be reduced without any restriction of reducing the amount deductible in a phased-out manner. The CIT(A) supported this view by referencing CBDT Circular No. 794 and the Finance Minister's speech during the Union Budget 2000 presentation, which indicated that exporters would continue to enjoy exemption from MAT till the full phase-out. 2. Computation of book profit under section 115JB of the IT Act: The AO recomputed the book profit under section 115JB at Rs. 1,33,66,209 against Rs. 81,021 disclosed by the assessee, observing that only 80 percent of export profit would be eligible for reduction. The CIT(A), however, directed that the entire profit from exports should be considered for reduction while computing the book profit, as per the P&L account and not limited to the phased deduction under section 80HHC(1B). 3. Interpretation of the term "profit eligible for deduction" under section 80HHC: The term "profit eligible for deduction" was interpreted differently by the AO and CIT(A). The AO considered it to mean the amount of deduction allowed, while the CIT(A) and the Tribunal interpreted it as the entire profit derived from exports, irrespective of the phased deduction allowed under section 80HHC(1B). The Tribunal emphasized that the amount of profit eligible for deduction under section 80HHC should be reduced from the net profit shown in the P&L account for computing book profit under section 115JB. 4. Applicability of sub-section (1B) of section 80HHC to the computation of book profit under section 115JB: The Tribunal clarified that sub-section (1B) of section 80HHC, which phases out the deduction over a period, does not apply to the computation of book profit under section 115JB. The Tribunal noted that the phrase "amount of profit eligible for deduction" in clause (iv) of Explanation to section 115JB does not refer to the phased deduction under section 80HHC(1B). Instead, it refers to the entire profit derived from exports as computed under clauses (a) to (c) of section 80HHC(3). The Tribunal supported this interpretation by referencing the Special Bench decision in the case of Syncome Formulations (I) Ltd., which held that the deduction under section 80HHC should be available in its entirety for MAT purposes, even if phased out under section 80HHC(1B). Conclusion: The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision that the entire profit from exports, as computed under clauses (a) to (c) of section 80HHC(3), is eligible for reduction under clause (iv) of Explanation to section 115JB. The Tribunal held that the computation of book profit under section 115JB should reduce the net profit shown in the P&L account by the amount of profit eligible for deduction under section 80HHC, without applying the phased deduction limits of section 80HHC(1B).
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