2012 (12) TMI 85 - AT - Income Tax

Minimum Alternate Tax (MAT) - Book adjustment - Deduction under section 80HHC Held that - Deduction allowable under section 80HHC has been done away with in a phased manner and since assessment year 2005-06, no deduction is allowable. The clause (iv) of Explanation 1 to section 115JB(2) has also been omitted by the Finance Act 2011 w.e.f. 1.4.2005 and, therefore, from assessment year 2005-06, book profit is not required to be reduced by the amount of profit eligible for deduction under section 80HHC as deduction under section 80HHC is no longer available from assessment year 2005-06 - assessee is not entitled for any deduction under section 115JB(2) - assessee will not be entitled for any reduction of book profit on account of section 80HHC deduction or profit eligible for deduction under section 80HHC In favor of revenue

Summary

Issues:
1. Nature of income from import entitlements and allowability of profit under section 80HHC.
2. Reduction of profit eligible for deduction under section 80HHC while computing book profit under section 115JB.

Issue 1: Nature of income from import entitlements and allowability of profit under section 80HHC:
The dispute revolved around the taxability of income from DEPB credit and duty drawback. The AO contended that both amounts represented taxable income not eligible for deduction under sections 80IB and 80IC. The assessee argued that DEPB credit was not income as it was not transferred and that duty drawback was merely a refund of custom duty paid. The CIT(A) agreed with the assessee, ruling that neither amount constituted taxable income. The Tribunal, however, noted that income accrues on DEPB credit only after application is made, and the entire face value of DEPB credit must be assessed as income under section 28(iiid) once the application is made. The issue was restored to the AO for fresh examination. Regarding duty drawback, the Tribunal highlighted the need to examine the entire import-export activity to determine the nature of income and the eligibility for deduction under section 80IB.

Issue 2: Reduction of profit eligible for deduction under section 80HHC while computing book profit under section 115JB:
The AO disallowed the claim of the assessee for deduction under section 80HHC, stating that no profit was eligible for deduction from assessment year 2005-06 onwards. The CIT(A) held that profit eligible for deduction under section 80HHC had to be reduced while computing book profit. The Tribunal, however, noted that since no deduction was allowable under section 80HHC from assessment year 2005-06, the assessee was not entitled to any reduction of book profit on account of section 80HHC. The Tribunal overturned the CIT(A)'s decision and upheld the AO's disallowance of the claim.

In conclusion, the appellate tribunal allowed the revenue's appeal, emphasizing that the assessee was not entitled to any reduction of book profit on account of section 80HHC deduction or profit eligible for deduction under section 80HHC from assessment year 2005-06 onwards.