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TMI Blog2015 (11) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of Rs. 5,48,29,000/- and profit as per Profit and Loss account of Rs. 27,34,000/-. Thus the total amount credited to the reserve account was Rs. 5,75,63,000/- in the liability side of the balance sheet.. Deferred tax was shown in the asset side of the balance sheet at Rs. 5,69,22,000/-. The Assessing Officer was of the view that the excess liability shown in the balance sheet had to be added to the total income of the assessee. Accordingly a sum of Rs. 6,41,000/- was added to the total income of the assessee. 4. Before the CIT(A), the Assessee submitted that income-tax (including deferred tax) whether it represents a provision or actual payment is not permissible deduction in computing total income. No such deduction for deferred tax liability has been claimed by the Assessee in its computation of income. It was contended by the Assessee that the AO computed total income on the basis of profit as per profit and loss account and the deferred tax liability was never shown in the profit and loss account and was only an adjustment made in the Profit and Loss Appropriation Account. Therefore, the adjustment entries made in the appropriation account cannot have any adverse impact. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also considered. On careful consideration of the facts and in law, I find force in the submission of the appellant that there is no difference of Rs. 6,41,000/- in deferred tax liability and deferred tax assets as observed by the A.O. The appellant had made aforesaid entries in pursuance to AS-22 issued by ICAI and these were only the adjustment entries and no income element is involved therein. There was no excess liability of Rs. 6,41,000/- as concluded by the A.O. Hence, I am of the opinion that the A.O. was not justified in making the addition of Rs. 6,41,000/- and same is directed to be deleted. The ground no.1 is allowed." 6. Aggrieved by the order of CIT(A) the revenue has preferred ground No.1 before the Tribunal. 7. We have heard the submissions of the ld. DR., who relied on the order of AO. The ld. Counsel for the assessee brought to our notice that the assessee had three sources of income namely income from tea division, income from packet tea division and income from textile division. The profit as per the profit and loss account which was the starting point of computing of the total income by the AO was as follows :- (i) Tea division Rs.79,20,613/- (ii) Tea pac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which are referred to in the ground No.2 raised by the revenue, were not treated as profits eligible for deduction u/s 80HHC of the Act by the CIT(A). In such situation we are of the view that there can be no grievance for the revenue as projected in ground no.2. This ground has probably been taken on misconception that the aforesaid items of receipts were also considered as profit eligible for deduction u/s 80HHC of the Act. We therefore dismiss ground no.2 raised by the revenue. 11 Ground Nos. 3 and 4 raised by the revenue read as follows :- "3. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in directing the A.O. to determine the book profit u/s 115JB in view of direction given to A.O. relating to deduction u/s 80HHC since the decision of CIT(A) on account of deduction u/s 80HHC was already challenged. 4. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in directing the A.O. to delete the addition made on account of provisions for gratuity to ascertain book profit in tea division and textile division since the above two amounts represent only provision and such provision cannot be treated to be actual liability. " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions made for meeting liabilities are to be added for the purpose of computation of book profit, but such liabilities should be other than ascertained liabilities. It was pointed out that the provision for gratuity debited in P&L A/c of Tea Division and Textile Division were based on the report of actuarial valuation and hence the said provisions were made for ascertained liabilities. It was further argued that in Notes to Schedule 19, it has been specifically reported by the Auditors that the year-end accrued liability on gratuity is ascertained and provided on the basis of actuarial valuation. In view of above, it was pleaded that the A.O. be directed to delete the addition made to the book profit on account of provision for gratuity and to allow deduction u/s 80HHC. 11.2 . The CIT(A) accepted the plea of the Assessee with the following observations: "6.2. I have considered the submission of the appellant and perused the assessment order. On careful consideration of the facts and in law, I am of the opinion that the A.O. was not justified in making addition on account of provision for gratuity in Tea Division and Textile Division for the purpose of computation of book profit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the "book profits" in terms of s. 115JB, the net profits as shown in the P&L a/c have to be reduced by the amount of profits eligible for deduction under s. 80HHC or by the amount of deduction under s. 80HHC ? The Hon'ble Supreme Court held that Secs. 80HHC and 115JB operate in different spheres. Two essential conditions for invoking s. 80HHC(1) are that assessee must be in the business of export and secondly that sale proceeds of such exports should be receivable in India in convertible foreign exchange. Hence, s. 80HHC(1) refers to "eligibility" whereas s. 80HHC(3) refers to computation of tax incentive. Coming to s. 80HHC(1B) it is clear that after Finance Act, 2000 w.e.f. asst. yr. 2001-02 exporters would not get 100 per cent deduction in respect of profits derived from exports but that they would get deduction of 80 per cent in the asst. yr. 2001-02, 70 per cent in the asst. yr. 2002-03 and so on. Thus, s. 80HHC(1B) deals not with "eligibility" but with the "extent of deduction". Sec. 115JB is a self-contained code. It taxes deemed income. It begins with a non obstante clause. Sec. 115JB refers to computation of "book profits" which have to be computed by making upward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 100 per cent as "eligible profits" and the same cannot be reduced to 80 per cent by relying on s. 80HHC(1B); argument of the Department that both "eligibility" as well as "deductibility" of the profit have to be considered together for working out the deduction as mentioned in cl. (iv) has no merit. In view of the above the AO is directed to compute the books profit by considering the amount claimed as deduction by the assessee u/s 80HHC of the Act and not on the basis of the amount of deduction actually allowed u/ 80HHC of the Act. 14. As far as ground no.4 raised by the revenue is concerned, the provision of gratuity was made by the assessee in the books of account on the basis of the report of actuarial valuation and it cannot be said that liability of the assessee on account of gratuity was unascertained liability. Therefore, the said sum cannot be added to the book profits as per clause (c) of Explanation 1 to section 115JB of the Act. Ground nos. 3 and 4 raised by the revenue are therefore dismissed. 15. In the result the appeal of the revenue is dismissed. ITA No.68/Kol/2012 (Assessee's Appeal A.Y.2005-06) This is an appeal by the assessee against order dated 21.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of above, it was pleaded by the Assessee that the A.O. be directed to treat 60% of composite income as Agricultural income exempted u/s10(1) of the Act. 18. The CIT(A) however upheld the order of the AO, observing as follows: "3.2. I have considered the submission of the appellant and perused the assessment order. On careful consideration of the facts and in law, I am of the opinion that the AO was justified in treating the composite income of tea division as liable for tax u/s 115JB of the Act. I agree with the view taken by the AO that there is nothing in Rule 8 of the I.T.Rules which says that 60% of composite income will be treated as Agricultural income. In view of above, the action of the A.O. is upheld. The ground No.1 is dismissed." 19. Aggrieved by the order of CIT(A), the assessee has preferred the present appeal before this Tribunal. 20. We have heard the rival submissions. Section 115JB of the Act in Explanation 1 (ii) which gives the list of amounts that has to be reduced from the book profits, provides as follows :- "(ii) the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof)] or se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56, has to be adjusted, inter alia, in accordance with cl. (f) and sub- cl. (ii) of the Explanation to s. 115J(1). In the case of the tea companies, the book profit should be computed by making all the adjustments referred to in the Explanation. However, no adjustment in respect of cl. (f) and sub-cl. (ii) of the Explanation is to be made for the agricultural income earned by tea companies from tea business. 40 per cent of the adjusted amount arrived at in this manner will be the book profit of the tea company in accordance with r. 8 of the IT Rules." The provisions of Sec.115JB of the Act are on the same basis as that of Se.115J of the Act. There is no reason why the aforesaid principle laid down in the CBDT Circular, which is in tune with the provisions of law referred to above, should not be applied to the computation of books profits u/s.115JB of the Act. We therefore hold that the determination of books profits u/s.115JB of the Act should be worked out by the AO on the lines indicated in the Circular. We hold that the determination of books profits u/s.115JB of the Act should be worked out as done by the Assessee and in accordance with the directions laid down in the Circula ..... 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