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TMI Blog2007 (7) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 (1) TMI 138 - DELHI HIGH COURT] did not approve its own judgment in the case of Consolidated Photo Finvest Ltd. v. Asstt. CIT [ 1998 (5) TMI 20 - DELHI HIGH COURT] and held the same as not laying down the correct law. We accordingly find merit in the submission of Ld Counsel for assessee that the impugned reassessment was without any fresh material/information in the possession of Assessing Officer and only on the mere change of opinion. Thus there is no valid assumption of jurisdiction u/s 147 and hence reassessment framed u/s 147 has to be cancelled. We hold so. As regards merits of the MAT - The book profit gets substituted for the total income as computed under the Act. The book profit has therefore to be wholly quarantined from the said total income. For the determination of book profits thus any mode and manner of computation of total income under the Act has not to be applied unless specifically provided, as held by the Apex Court in Apollo Tyres Ltd. v. CIT [ 2002 (5) TMI 5 - SUPREME COURT] and as clarified in the Memorandum explaining Provisions of the Finance Bill, 2000. The major difference in the basis adopted by the appellant and the Assessing Officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AND DEEPAK R. SHAH, JJ. Ajay Vohra for the Appellant. Rajneesh Kumar for the Respondent. ORDER Deepak R. Shah, Accountant Member. - This appeal by the assessee is directed against the order of Learned CIT(A)-VIII, New Delhi dated 25-4-2006. In ground Nos. 1 and 2 the assessee challenges validity of assumption of jurisdiction for framing reassessment under section 147 of the Income-tax Act ( the Act ). In ground Nos. 3 to 3.5 the assessee challenges manner of computing book profit under section 115JB whereby the action of Assessing Officer in computing profit of the unit eligible for exemption under section 10A is challenged. The appellant, a company incorporated under the Companies Act, 1956 is engaged in the business of manufacture and sale of optical/magnetic storage media products, viz., CDs and floppies. The appellant is eligible for deduction under section 10A/10B of the Income-tax Act ( the Act ) for its 100 per cent EOU units. For the relevant previous year the return of the appellant was filed on declaring loss of Rs. 8,73,72,570 under the normal provisions of the Act and at book profit of Rs. 5,10,41,286 under section 115JB of the Act. The ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing income pertaining to 10A Unit. 5.Wrong presentation of facts regarding the income pertaining to 10A Unit while computing book profit under section 115JB has resulted in under assessment of the book profit of the assessee by Rs. 3,518.47 lakhs. 6.It is noted from the assessment records that the assessee s in its P L a/c at Schedule 15 has shown other income of Rs. 15,82,92,709. The details of this income is as under : Details of Income Amount in (Rs.) Interest on deposits with banks 14,36,77,259 Interest on others 3,48,176 Excess provisions and unclaimed credit balance written back 9,89,596 Details of Income Amount in (Rs.) Difference in exchange rates 64,18,465 Profits on sale on forward contracts 17,22,535 Misc. Income 21,70,517 Dividend on Investments 26,66,161 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inary objections to the reopening of the assessment vide letter dated 10-9-2005 it was submitted that reopening of the assessment was based on reappraisal of the same facts which were available at the time of assessment completed under section 143(3) of the Act, and the reassessment proceedings initiated merely on the basis of change of opinion were, bad in law. It was submitted on the basis of the aforesaid that the reassessment proceedings initiated were beyond jurisdiction and called for being dropped. The Assessing Officer however disposed of the appellant s preliminary objections to the reassessment vide order dated 21-9-2005 and proceeded to frame the reassessment under section 147 of the Act. The Assessing Officer while completing reassessment under section 147 of the Act computed book profit under section 115JB of the Act at Rs. 40,34,22,680 as against Rs. 5,41,97,900, computed in the assessment completed under section 143(3) of the Act by restricting deduction under section 10B of the Act at Rs. 9,825.14 lakhs as against Rs. 13,343.61 lakhs actually allowed in the original assessment. 2. In the assessment framed under section 147, the Assessing Officer rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffirmed in following cases : 1.CIT v. Eicher Ltd. [2007] 163 Taxman 259 (Delhi). 2.K.L.M. Royal Dutch Airlines v. Asstt. DIT [2007] 159 Taxman 191 (Delhi) 3.He accordingly pleaded that there is no valid assumption of jurisdiction for framing reassessment under section 147. 4. As regards merits of addition Shri Vohra submitted that section 115JB is a special provision for computation of book profit as chargeable to tax. While computing book profit under section 115JB the profit is to be computed as per Parts II III of Schedule VI to the Companies Act, 1956. In such accounts the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts as laid before the company at its Annual General Meeting. In the books of account the assessee has provided depreciation as per Straight Line Method (SLM). While computing income under the Income-tax Act depreciation is allowable as per Written Down Value Method (WDV). However when the book profit is to be computed only that depreciation which was charged to profit and loss account is to be adopted even section 147 of the Act authorizes and permits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,900, after adjustments to the returned book profits, in the order passed under section 143(3) of the Act. The reopening of the concluded assessment was on reappraisal of the same material forming part of the record. The aforesaid fact is evident from the reasons for reopening the assessment which clearly records that It is noted from that the assessee s computation of book profit under section 115JB that assessee had itself taken the amount of deduction pertaining to section 10B which had to be added back to the net profit as per P L a/c at Rs. 13,343.61 lakhs instead of Rs. 9,825.14 lakhs which was the claimed exemption being income pertaining to 10A Unit. The Assessing Officer in the impugned reassessment has only varied the conscious stand originally taken while concluding the original assessment under section 143(3) of the Act after due application of mind, without any fresh material/information coming his possession such circumstances, the reopening is based on mere change of opinion and cannot be sustained as held in the judgments referred to earlier including the decisions from the jurisdictional High Court. At this juncture it is apt to quote from the judgment of Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concur with the view adopted by Hon ble Gujarat High Court in the case of Praful Chunilal Patel (supra), Hon ble Delhi High Court in the case of KLM Royal Dutch Airlines (supra) did not approve its own judgment in the case of Consolidated Photo Finvest Ltd. v. Asstt. CIT [2006] 281 ITR 394 1 (Delhi) and held the same as not laying down the correct law. We accordingly find merit in the submission of Learned Counsel for assessee that the impugned reassessment was without any fresh material/information in the possession of Assessing Officer and only on the mere change of opinion. Thus there is no valid assumption of jurisdiction under section 147 and hence reassessment framed under section 147 has to be cancelled. We hold so. 5. As regards merits of the computation of book profit under section 115JB it would be relevant to consider the relevant provision of section 115JB. For purpose of computing, book profit under section 115JB profit is to be first arrived at as computed under Parts II III of Schedule VI, Companies Act, 1956. In so computing the accounting policies the accounting standards adopted for preparing such accounts and the method and rates adopted for calculatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I of Schedule VI of the Companies Act [sub-section (2) of section 115JB] (iii)While preparing the annual accounts, (i) accounting policies, (ii) accounting standards and even (iii) methods and rules adopted for calculating depreciation ought to be same as adopted for the purpose of preparing such accounts as laid before the company at its annual general meeting. [Proviso to section 115JB(2)] Explanation to section 115JB of the Act provides the manner of computation of book profit. The starting point is the book profit as disclosed in the profit and loss account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. Such profit is subject to adjustments specified in the Explanation to said section. In terms of Explanation ( ii ) of section 115JB the amount of income to which provisions, inter alia, section 10A/10B apply if such amount is credited to profit and loss account, is to be reduced from the profit as per profit and loss account. Similarly Explanation ( f ) of section 115JB of the Act provides that profit as shown in the profit and loss account be increased by the amount of expenditure relatable to any income to whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluded by the appellant. The action of the Assessing Officer is contrary to the scheme of section 115JB of the Act, the unambiguous provisions of clauses ( f ) and ( ii ) of Explanation thereto and the settled judicial precedent in this regard. The Central Board of Direct Taxes vide Circular No. 559: 184 ITR (St.) 91, dated 4-5-1990 and also Circular No. 680: 206 ITR (St.) 297, dated 21-2-1994, clarified that for the purpose of section 115J (which is pari materia to section 115JB of the Act) deduction under section 80HHC of the Act that needs to be excluded (from book profits) in terms of clause ( iii ) of Explanation is to be calculated with reference to book profits. In CIT v. G.T.N. Textile Ltd. [2001] 248 ITR 372, the Hon ble Kerala High Court, while considering clause ( iii ) of Explanation to section 115J of the Act, held that the deduction under section 80HHC of the Act excluded for purpose of the said section had to be computed as per the books of account and not calculated under the provisions of the Act. The Special Bench of Tribunal in the case of Dy. CIT v. Syncome Formulations (India) Ltd. [2007] 106 ITD 193 (Mum.) considering provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the ultimate amount on which the company has to pay taxes. But later on, the Legislature itself thought it fit to protect the concessions given to exporters, etc., so that the exporters are not compelled to pay tax under MAT. Therefore, even the steel-frame of section 115J was mended by the Legislature by providing exemption to export profits. The Legislature itself has thus declared that the adjusted book profit worked out under MAT scheme need not be the ultimate amount on which an assessee has to pay tax but deductions are still available in respect of export incentives, etc. 61. Once the law itself has declared that the adjusted book profit is amendable for further deductions on specified grounds, in a case where section 80HHC is operational, it becomes very clear that the computation for the deduction under section 80HHC needs to be worked out on the basis of the very same adjusted book profit. The above proposition is manifest in the fact that the deduction under section 80HHC has been provided in sections 115J, 115JA and 115JB themselves instead of making a reference in section 80 Hon ble High Court itself. It is made so because the nexus between the deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment can be made which is not permissible for the purpose of computation of book profit as per section 115JA of the Act. The Bombay Bench held as under : From the above provisions, it is notable that under the Explanation, the book profits cannot be increased by making any adjustment on account of depreciation. Further, the book profits are required to be reduced by the amount of profit derived by the industrial undertaking which is eligible for exemption under section 80-IA. Under clause (v), there is no mention that the profit derived by the industrial undertaking must be calculated as per the provisions of the Income-tax Act. Therefore in our view, the logical interpretation would be that the profits derived by the industrial undertaking as per the books of account have to be reduced from the book profits. In the present case, while computing book profits, which is in consonance with the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, the depreciation as provided in the books of account has been considered. If while computing the profits derived by the industrial undertaking, which is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the P L a/c for the relevant section itself. The permissible adjustments to the net profit as shown in the P L a/c have been listed in the Explanation below section 115J(1A) of the Act. The analogy of the decision of the Supreme Court in the case of Apollo Tyres Ltd. (supra) is also squarely applicable to the section, we are presently dealing with i.e., section 115JA of the Act. As noted earlier, both the sections stand on equal footing insofar as they relate to the controversy on hand. In the scheme of section 115JA also, the adjustments to the net profit declared in the P L a/c which are permissible, to compute book profits are so provided for in the Explanation below section 115JA(2) of the Act. Clause (iv) of the Explanation merely allows reduction of amount of profits and not the amount of deduction computed under section 80-IA of the Act. Therefore, the Assessing Officer while reducing the amount of deduction allowed under section 80-IA from the net profits shown in the P L a/c for the instant year prepared in accordance with the provisions of Parts II and III of the Schedule VI of the Companies Act in order to compute book profit squarely fell in error. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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