2003 (7) TMI 283 - AT - Income Tax

Minimum Alternate Tax - Deductions u/s 80HHC - Exporters - deemed income u/s 115JA - indirect costs - Applicability of provisions of section 80A(2) in computing book profit u/s 115JA - For the deduction u/s 80HHC is mandatory to enclose the tax audit report in Form No.10CCAC alongwith the return filed? - HELD THAT - We are of the view that section 80A(2) and section 80B(5) which are applicable only in the first procedure, have no role to play in working out the deduction u/s 80HHC eligible for being reduced for arriving at the book profit in terms of clause (iii) of Explanation to section 115J or clause (viii) of Explanation to section 115JA. The Revenue have also contended that in terms of section 115JA(4) all other provisions of the Act shall apply to every assessee in respect of whom provisions of section 115JA are invoked, and so, section 80A(2) and section 80B(5) are also applicable for the purpose of determining the book profit u/s 115JA. We find no force in this contention. Section 115JA(4) itself makes it clear that other provisions apply only when it is not otherwise provided in the section. We find that the language of section 115JA(1) and Explanation thereto rules out applicability of section 80A(3) and section 80B(5). We accordingly decide this aspect of the matter in favour of the assessee. It may be observed that the indirect costs to be taken into consideration are the proportion of the total costs which include the costs of Manufacturing Division and not a proportion of the costs relatable to the Sales Division alone. When the denominator in the formula for working out the relevant portion of indirect costs is the total turnover, we do not see why the specified proportion of the total indirect costs should not be taken into consideration. No serious argument to the contrary has been advanced before us. At any rate, even if only the indirect costs of the sales Division should be adopted as the correct basis, it is not conceivable as to how the said figure of Rs.8,10,820 is arrived at. In the circumstances, we see no reason for holding that the admissible deduction u/s 80HHC is anything more than Rs.10,25,264 worked out by the Assessing Officer. We hold that the assessee is eligible for deduction of Rs.10,25,264 while working out the book profit in terms of section 115JA, and reject the plea of the learned counsel for the assessee, to the contrary, on this limited issue. In the circumstances, we hold that the assessee is in principle eligible for deduction u/s 80HHC, while working out the deemed income based on book profit u/s 115JA. So far as the quantum of such deduction towards eligible amount in terms of section 80HHC is concerned, we uphold the working given by the Assessing Officer in the assessment order at Rs.10,25,264. Assessing Officer is accordingly directed to modify the assessment, working out deemed profit u/s 115JA on this basis.

Summary

Issues Involved:
1. Non-filing of tax audit report in Form No. 10CCAC.
2. Applicability of provisions of section 80A(2) in computing book profit under section 115JA.
3. Correctness of indirect costs considered for deduction under section 80HHC.

Summary:

Non-filing of Tax Audit Report in Form No. 10CCAC:
The assessee filed a return declaring a loss under normal provisions and deemed income u/s 115JA. The Assessing Officer (AO) denied the deduction u/s 80HHC as the tax audit report in Form No. 10CCAC was not enclosed with the return. However, the Tribunal held that the deduction u/s 80HHC cannot be denied simply because the audit report was not enclosed with the return, as long as it was filed before the completion of the assessment. This is in line with the jurisdictional High Court's decision in CIT v. Hemsons Industries [2001] 251 ITR 693.

Applicability of Provisions of Section 80A(2) in Computing Book Profit Under Section 115JA:
The AO applied section 80A(2) to restrict the deduction u/s 80HHC, arguing that the gross total income was not positive. The Tribunal, referencing the Kerala High Court's decision in CIT v. G.T.N. Textiles Ltd. [2001] 248 ITR 372, held that section 80A(2) is relevant only for computing income under normal provisions and not for computing deemed profits u/s 115JA. The Tribunal emphasized that section 115JA involves two distinct procedures: determination of income under normal provisions and determination of book profit subject to specified adjustments. Therefore, section 80A(2) and section 80B(5) do not apply to the computation of book profit u/s 115JA.

Correctness of Indirect Costs Considered for Deduction Under Section 80HHC:
The AO adopted indirect costs at Rs. 64,05,356, while the assessee claimed Rs. 8,10,820, relating only to the Sales Division. The Tribunal upheld the AO's computation, stating that the indirect costs should include the total costs of both the Sales and Manufacturing Divisions. The Tribunal found no basis for the assessee's figure and held that the admissible deduction u/s 80HHC is Rs. 10,25,264 as computed by the AO.

Conclusion:
The Tribunal concluded that the assessee is eligible for deduction u/s 80HHC while computing deemed income based on book profit u/s 115JA. However, the quantum of such deduction is upheld at Rs. 10,25,264 as determined by the AO. The AO is directed to modify the assessment accordingly.