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TMI Blog1998 (1) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... m the provisions of sections 32AB(3) that the computation of profits of eligible business or profession will have to be made by taking into consideration the profits as per the requirements of Schedule VI of the Companies Act (Parts II III) and then making adjustments for the items mentioned in sub-section (3)(a). It is on this profit so arrived at one has to apply 20% to arrive at the maximum deduction eligible under section 32AB. 5. In the light of the above, the points raised by the audit are dealt with below: - (a) Inclusion of dividend income: Net profits of the Company as per the requirement of Schedule VI of the Companies Act should include income from dividend. Sub-section 3(a) of section 32AB does not specify that the dividend income should be excluded while computing the income from the profits of eligible business or profession. Thus, there is no need to delete the amount of dividend credited to the P L A/c. It is irrelevant for this purpose in what manner, the business income is computed under Chapter IV of the Income-tax Act. (b) Inclusion of profit on sale of capital assets: This income has been credited to the P L A/c as per the requirement of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntemplated in sub-section 3(a) of section 32AB. Therefore, there is no need to deduct this amount of Rs. 95,25,670 from the net profit to arrive at the profits of eligible business or profession. It will be relevant to state that the withdrawal of reserves or provisions contemplated in sub-section 3(a) is complementary to the add back of amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities as stated in sub-clause (v) of subsection 3(a). 6. It will, therefore, be seen that the profits of eligible business or profession for the purposes of ascertaining the amount of deduction is not the same as the 'Income from business'. Such profits for the purpose of investment deposit will have to be specifically calculated in the manner provided. Accordingly, the audit comment is not correct in stating that the amount of Rs. 18,54,101 calculated and allowed in assessment under section 32AB of the Act is not correct." 4. The Assessing Officer considered the aforesaid reply of the assessee and rejected the same after making the following observations: (1) Write back of liability amounting to Rs. 95.25 lacs: As per the provisions of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the assessee-company and is being rectified as below: Amount of deduction under section 32AB: Net amount as arrived by the assessee-company on which 20% being deduction under section 32AB has been allowed. 82,70,507 Less : The amounts which are not includable for deduction under section 32AB as discussed above : (a) Write back of liability 95,25,670 (b) Capital gain 10,75,408 (c) Income from other source 5,04,648 1,11,05,726 ----------- ------------- (-) 18,35,218 ------------- 6. Since the figure on which deduction under section 32AB was to be computed came to a negative figure of/and Rs.l8,35,218 as per the above calculation of the Assessing Officer, the deduction allowed under section 32 AB of the amount of Rs. 18,54,101 was withdrawn and total income was recomputed at Rs. 76,33,680 after adding back the amount of Rs. 18,54,101 to the total income of Rs. 57,79,582. This was done by the impugned order under section 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the action under section 154 was initiated by the Assessing Officer on account of difference of opinion regarding admissibility of the claim under section 32AB and not on account of any mistake apparent from record. He further added that in the original assessment the claim had been allowed by the Assessing Officer after due consideration of the facts of the case and the provisions of law. He contended that there was no justification for withdrawal of the deduction allowed merely on the basis of-change of opinion and views by an order under section 154 of the IT Act. He relied on the Supreme Court's judgment in the case of Volkart Bros. 11. The ld. counsel reiterated the submissions made before the Assessing Officer and the ld. CIT (Appeals) in respect of the inclusion of each of the aforesaid 3 items in the profit of the company for computing the deduction under section 32AB of the IT Act. He submitted that there was no dispute regarding the eligible business as such. He further submitted that section 32AB(3) was very clear that the profits of business or profession of an assessee for the purpose of sub-section (1) of section 32AB shall be computed in accordance with the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Appeals) that it was not a profit but a provision was totally misconceived, wrong and contrary to the provisions of law. 14. The ld. counsel further submitted that the assessee had filed report under section 132 AB by the renowned Chartered Accountant, S.B. Bilimoria Company, who had given detailed computation of the deduction under section 32AB. They had considered the audited accounts including the 3 items in dispute and taken the 3 items also in the computation of deduction under section 32AB. He added that their report was based on correct appreciation of the accounting methods, the provisions of the Companies Act and section 32AB of the IT Act. 15. The ld. counsel contended that the Assessing Officer was not justified in withdrawing the deduction under section 32 AB by the impugned order passed under section 154. 16. The ld. D.R., on the other hand, supported the order of the ld. CIT (Appeals). She submitted that the order passed under section 154 was proper and justified because the mistake was apparent from record. She added that in the original assessment the aforesaid 3 items had wrongly been included for the purpose of computation of deduction under section 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , income from house property, income from capital gains and income from other sources, etc., is not required as is done for the purpose of computation of income under the IT Act. Capital gains and dividend were part of the profit of the business in accordance with Parts II III of the Schedule VI to the Companies Act. The ld. CIT(Appeals) was not justified in holding that since the capital gains and dividend are assessed under the heads of income other than the head 'Profit and gains of business or profession' under the IT Act, they would not constitute part of the profits of business or profession for the purpose of computation of deduction under section 32AB. In holding this view the ld. CIT(Appeals) was obsessed by the provisions of the IT Act regarding computation of income under different heads and he had become oblivious of Parts II III of Schedule VI to the Companies Act. Section 32AB(3) is very clear on the point that the profits of business or profession of an assessee for the said purpose would not be computed in accordance with the provisions of the IT Act. 18. In the above view of the matter, we hold that the capital gains and dividend were includible in the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts." 21. From a reading of the above it is clear that the amount of Rs. 95.25 lakhs being liability written back falls under section 41(1)(a) and the same was profit chargeable to tax. 22. In the above view of the matter the amount of Rs. 95.25 lakhs was includible in the profit of the business of the company for the assessment year in question for the purpose of computation of deduction under section 32AB. The adverse finding of the ld. CIT(Appeals), in this regard, was wrong. 23. On careful consideration of the facts and circumstances of the case and the submissions of both the parties as discussed above, we also hold that it was not a case covered undersection 154of the IT Act. The matters of inclusion of the aforesaid 3 items in the profit of the business of the company for the purpose of computation of deduction under section 32AB, were debatable issues and they were not mistakes apparent from record which could be rectified under section 154. The claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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