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TMI Blog2012 (10) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation (iii) of section 115-J - Held that:- The AO while adopting the book profit under Section 115J as the total income allowable to tax, reduced the profit for the year amounting to Rs. 6, 90, 92, 303/- to Nil after setting out the brought forward losses/allowances to that extent. The balance brought forward allowance was carried forward to the subsequent years. In appeal it was held that the unabsorbed business losses, unabsorbed depreciation and unabsorbed investment allowance should be taken to be set off only to that extent which is sufficient to bring down the income computed under the normal provisions of the Act to the level of Section 115J income. And the AO was directed to increase the amounts of unabsorbed losses by the income computed under Section 115J income. The Tribunal upheld the order. Thus not agreeing with the submissions of revenue, that Section 80AB has overriding effect and will prevail over Section 80HHC. Section 80AB provides for deductions to be made with reference to the income included in the gross total income. Section 80HHC provides for deduction in respect of profits retained for export business. Although both the sections fall in Chapter VIA, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee-appellant preferred an appeal, which was allowed on 14.7.1992. 4. The Deputy Commissioner of Income Tax (Assessment) Special Range-I, Meerut filed an appeal against the appellate order, which was partly allowed on 23.7.1999. The assessee has preferred this appeal on the following substantial questions of law:- 1. Whether the Tribunal was right in law in holding that the appellant was not entitled to claim of investment allowance under Section 32-A of the Act with reference to the actual cost of assets as enhanced by the sum of Rs. 48, 83, 326? 2. Whether the Tribunal was right in law in holding that the claim of investment allowance under Section 32-A read with Section 43-A of the Act was not allowable on increase in the actual cost of assets due to foreign exchange fluctuations taking place subsequent to the year (s) in which the assets had been installed and put to use? 3. Whether the Tribunal was right in law in holding that deduction under Section 80 HHC is to be allowed with reference to section 80 AB and not as per the calculation under Section 80 HHC (3) read with Explanation (iii) of Section 115-J of the Act? 4. Whether the Tribunal was right in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee can claim deduction of a higher amount of investment allowance on fulfillment of statutory conditions prescribed. The scheme of Section 32-A did not envisage relating back to the year of acquisition/installation/first user, but has provided for creation of reserve and allowance in a subsequent year, being aware of the settled legal position that reopening of accounts is unknown to income tax. Section 43-A overrides other provisions of the Act. It operates on an event, which happens after the deduction of acquisition of the estate and takes into account the increase/reduction in the liability for making payment towards the whole or part of the cost of the estate. The amount, by which the liability is increased or reduced, should go on to add or to reduce from the actual cost of the asset under Section 43 (1). Such changed figure is to be taken the actual cost of the asset. The increase or reduction in the liability has to take place only in the year of fluctuation and it does not relate back to the year of acquisition/installation/first user. The Full Bench of the Gujarat High Court, overruled the opinion expressed in CIT v. Windsor Foods Ltd (1999) 235 ITR 249 (Guj) on this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of exchange of currency- (1) Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in clause (I) of section 43, or the amount of expenditure of a capital nature referred to in clause (iv) of sub- section (1) of section 35 or in section 35A or in clause (ix) of sub-section (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully agree with the reasoning of the Full Bench of Gujarat High Court based on the clarificatory letter dated January 4, 1967 issued by Ministry of Finance, and the judgment in CIT v. Arvind Mills (1992) 193 ITR 255, in which it was held that the increase or decrease in liability arising on account of fluctuation in the foreign exchange rate should be taken into account to modify to figure of actual cost and that such adjustment should be made in the assessment year in which the increase or decrease in the liability arises on account of fluctuations in the rate of exchange. The adjusted actual cost is to be taken as the actual cost for all purposes other than for the grant of development rebate. Clause (1) of Section 43-A of the Act grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate. 10. The question nos. 1 and 2 are thus decided in favour of assessee-appellant and against the revenue. Question nos. 3 and 4 11. Shri Bhupesh Jain submits that the assessee-appellant claimed deductions under Section 80 HHC amounting to Rs. 1, 48, 05, 072/- while calculating book profit under Section 115-J of the Act based on clause (iii) of Explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 115-JA was a self-contained code, and applied notwithstanding any provision in the Act. Section 115JB is the successor section to section 115JA which also continues to remain a self-contained code. The Supreme Court held that all assessable entities were not eligible for deduction under Section 80HHC (1B). Similarly, only eligible goods were entitled to such special deduction under section 80HHC (1). Section 80HHC (3) was obligatory to exports, whereas the levy under Section 115JB, was on the deemed income. The object was to exclude export profits from the computation of book profits under Section 115JB. The Supreme Court further held that if the dichotomy between eligibility of profits and deductibility of profits was not kept in mind Section 115JB would cease to be a self-contained code. 14. Shri Shambhu Chopra appearing for the revenue, on the other hand, relies upon Joint Commissioner of Income Tax v. Rolta India Ltd (2011) 330 ITR 470 (SC) and submits that all the provisions of the Act shall apply to a MAT company including sections 115-JA (4), and section 115JB (5). He has referred to IPCA Laboratory Ltd v. Deputy Commissioner of Income Tax (2004) 266 ITR 521 in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year at Rs. 6,90,92,303/- under the normal provisions of the Act, before setting out the brought forward losses and other allowances. The book profits under Section 115J were worked out at Rs. 2, 56, 10, 184/-. The AO while adopting the book profit under Section 115J as the total income allowable to tax, reduced the profit for the year amounting to Rs. 6, 90, 92, 303/- to Nil after setting out the brought forward losses/allowances to that extent. The balance brought forward allowance was carried forward to the subsequent years. In appeal it was held that the unabsorbed business losses, unabsorbed depreciation and unabsorbed investment allowance should be taken to be set off only to that extent which is sufficient to bring down the income computed under the normal provisions of the Act to the level of Section 115J income. In other words, the AO was directed to increase the amounts of unabsorbed losses by the income computed under Section 115J income. The Tribunal upheld the order. 18. We do not agree with the submissions of Shri Chopra appearing for revenue, that Section 80AB has overriding effect and will prevail over Section 80HHC. Section 80AB provides for deductions to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of the Act was less than 30% of the book profit. 10. According to the Karnataka High Court, this entire exercise of computing income or the book profits of the company could be done only at the end of the financial year and hence the provisions of Sections 207, 208, 209 and 210 (predecessors of Sections 234-B and 234-C) were not applicable until and unless the accounts stood audited and the balance sheet stood prepared, because till then even the assessee may not know whether the provisions of Section 115J would be applied or not. The Court, therefore, held that the liability would arise only after the profit is determined in accordance with the provisions of the Companies Act, 1956 and, therefore, interest under Sections 234-B and 234-C is not leviable in cases where Section 115J applied. 11. This view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT reported in (1999) 239 ITR 862 and Madhya Pradesh High Court in Itarsi Oil and Flours (P.) Limited v. CIT reported in (2001) 250 ITR 686 as also by the Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd. reported ..... X X X X Extracts X X X X X X X X Extracts X X X X
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