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2012 (8) TMI 335 - AT - Income TaxDisallowance of deduction u/s 10B - AO stated that the deduction under section 10B is to be allowed after set off of brought forward business losses and unabsorbed depreciation - Held that - The loss incurred by the assessee under the head Profits and gains of business or profession has to be set off against the profits and gains, if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise - As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise - Since the provisions of section 10A and 10B are similar in nature the contention of assessee that carry forward business losses and depreciation cannot be set off to the profits of the undertaking while working the claim u/s 10B is uphold - in favour of assessee. Non inclusion/deducting the amount credited/debited as income/expenses relatable to unit eligible for tax holiday under section 10B for computing book profits u/s 115JB - Held that - Under the scheme of provisions of section 115JB Minimum Alternate Tax (MAT) is levied with reference to the book profit disclosed in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of Companies Act, as opposed to profits or gains of business or profession as computed as per the provisions of the Act - Explanation to section 115JB(2) provides for the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by the amount or amounts of expenditure relatable to any income to which section 10 or section 10A or section 10B or section 11 or section 12 apply - - deduction claimed by the assessee under section 80HHE has to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business - while working out deduction under section 80HHC are equally applicable to the provisions of section 10B while working out deduction under section 115JB, respectfully following the same uphold assessee s contentions - in favour of assessee Disallowance of deduction on provisions of fringe benefit tax while computing book profits under section 115JB - Held that - Considering Board Circular FBT is a liability qua employer,an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-clause (ic) of clause (a) of section 40 of the Income-tax Act expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head profits and gains of business or profession . This prohibition does not apply to the computation of book profit for the purposes of section 115JB - in favour of assessee.
Issues Involved:
1. Exemption under Section 10B. 2. Computation of Book Profits under Section 115JB. 3. Interest charged under Sections 234B and 234D. 4. Initiation of penalty under Section 271(1)(c). 5. Deduction on provisions of Fringe Benefit Tax and Wealth Tax under Section 115JB. Detailed Analysis: 1. Exemption under Section 10B: The primary issue was whether the deduction under Section 10B should be allowed before setting off brought forward business losses and unabsorbed depreciation. The assessee argued that Section 10B is an exemption provision, and such set-offs should occur after allowing the claim under Section 10B. The Tribunal ruled in favor of the assessee, citing judgments from the jurisdictional High Court and the Karnataka High Court, which held that the deduction under Section 10B should be allowed before setting off any brought forward losses or depreciation. The Bombay High Court in CIT v. Black & Veach Consulting Pvt. Ltd and the Karnataka High Court in ACIT vs. M/s Yokogawa India Ltd supported this interpretation, emphasizing that Section 10A and 10B are in the nature of deductions and not exemptions, and should be applied at the stage of computing business profits. 2. Computation of Book Profits under Section 115JB: The issue was whether the computation of book profits under Section 115JB should consider adjustments related to income and expenses of units eligible for tax holiday under Section 10B. The Tribunal referred to the decisions in Moser Baer India Ltd v. DCIT and DCIT v. Roxy Investments (P) Ltd, and the Supreme Court ruling in CIT Chennai vs. Bhari Information Tech. Systems Pvt. Ltd. It was held that for the purpose of computing book profits under Section 115JB, the adjustments should be based on the book profits as per the Companies Act, not the normal computation under the Income Tax Act. The Tribunal directed the AO to rework the computation under Section 115JB accordingly. 3. Interest Charged under Sections 234B and 234D: The Tribunal noted that the grounds related to the interest charged under Sections 234B and 234D are consequential in nature and thus did not require separate adjudication. 4. Initiation of Penalty under Section 271(1)(c): The Tribunal found the ground regarding the initiation of penalty proceedings under Section 271(1)(c) to be premature since the proceedings had only been initiated and not concluded. Therefore, this ground was considered academic. 5. Deduction on Provisions of Fringe Benefit Tax and Wealth Tax under Section 115JB: The assessee contested the disallowance of provisions for Fringe Benefit Tax (FBT) and Wealth Tax while computing book profits under Section 115JB. The Tribunal held that Wealth Tax should be disallowed as per the provisions, but the amount added by the AO was a typographical error and should be corrected to Rs. 90,000. Regarding FBT, the Tribunal referred to the CBDT Circular No. 8, which treats FBT as an allowable deduction in the computation of book profits under Section 115JB. The AO was directed to exclude the amount of FBT in the computation of book profits. Conclusion: The appeals for the assessment years 2005-06 and 2007-08 were allowed in favor of the assessee on the issues of Section 10B and Section 115JB. For the assessment year 2006-07, the appeal was also allowed on merits, and the AO was directed to restore the original order under Section 143(3). The appeal for ITA No. 245/Mum/2011 was dismissed as withdrawn. The Tribunal's decisions emphasized the correct application of deductions under Section 10B and the computation of book profits under Section 115JB, aligning with judicial precedents and CBDT circulars.
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