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The Commissioner of Income Tax v/s M/s Magna Electro Castings Ltd.

    Tax Case (Appeal)No.247 of 2009

    Decided On, 15 April 2009

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIAN & THE HONOURABLE MR. JUSTICE M.M. SUNDRESH

    For the Appellant : T. Ravikumar, Advocate. For the Respondent: ---------



Judgment Text

(Tax Case Appeal filed under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai, dated 10.12.2007 passed in ITA No.2855/Mds/2005.)


K. Raviraja Pandian, J.


At the instance of the revenue, an appeal is filed against the order of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai, dated 10.12.2007 passed in ITA No.2855/Mds/2005 in respect of the assessment year 2002-03.


2. The facts as culled out from the statement of facts in the memorandum of grounds of appeal are as follows:- The assessee, a company engaged in the manufacture of iron castings, filed its return of income for the assessment year 2002-03 admitting nil income. The return was processed under section 143(1) on 30.09.2002 and the case was selected for scrutiny and notice under section 143(2) was issued on 24.06.2004. The Assessing Officer was of the view that the assessee has not restricted the deduction allowable under Section 80 HHC to 70% as applicable for that year and issued a notice under Section 148 and completed the assessment under Section 143(3) r/w Section 147 restricting the assessee's claim. Against the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who dismissed the appeal. The assessee filed an appeal before the Tribunal and the Tribunal allowed the appeal following the Judgment of Mumbai Special Bench in the case of Deputy Commissioner of Income Tax vs. Syncome Formulations (I) Ltd., reported in 292 ITR 144. As against that order, the present appeal is filed as stated in the summation of facts by formulating the following two questions of law:-


"1. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that deduction under Section 80 HHC in the case of MAT assessment is to be worked out on the basis of adjusted book profits under Section 115 JA and not on the basis of profit computed under regular provision of law applicable to computation of profit and gains of business or profession?


2. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that disallowance of a sum of Rs.1,68,05,081/- computed under 80HHC adopting book profit u/s 115JB as profit from export business and also without restricting it as provided under Section 80HHC (1B) is proper?".


3. We heard the arguments of the learned counsel for the appellant and perused the materials available on record.


4. Similar question of law came up for consideration before the Division Bench of this Court in which one of us was a party (K. Raviraja Pandian) in the case of Commissioner of Income Tax vs. Rajanikant Schnelder and Associates P. Ltd., reported in 302 ITR 22). While considering the issue, the Division Bench has observed as follows:-


"4. We are not able to subscribe our view to the grounds taken in the appeal that the deduction under Section 80 HHC is allowable only on the profits and gains arrived at under Sections 28 to 44B of the Income Tax Act. In the case on hand, it is the stand of the assessee that the relief under section 80HHC should be based on the profit ascertained under Section 115JA only but not on income computed under Sections 28 to 44 of the Act. The Tribunal after considering the Judgments of the Supreme Court in the case of Surana Steels P. Ltd., vs. Deputy CIT (1999) 237 ITR 777 and in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 (SC) and analyzing the order impugned found that the provisions of Section 115J are similar to the provisions of Section 115JA of the Act. In order to come to the conclusion the Tribunal has also taken note of sub-section (4) of section 115JA and referred to the dictum laid down by the Supreme Court in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 wherein it was held that the Assessing Officer while computing the book profits of a company under Section 115J of the Income Tax Act, 1961, has only the power to examine whether such books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation Section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in Section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by the statutory auditors and approved by the company in the general meeting and thereafter to be filed before the Registrar of Companies, who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115H does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.


5. The Assessing Officer is not entitled to touch the profit and loss account prepared by the assessee as per the provisions contained in the Companies Act, while arriving at the book profit under Section 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation under Section 80HHC should be limited to the case of profits of eligible category only. The Tribunal has also come to the conclusion that in view of the non obstante clause available in Section 115JA it was clear that the provisions is a self-contained one and no other provision would have effect on it and thereby it was to be implemented as contained in the said provision. The Tribunal has also further given a reason to the effect that section 80HHC is clear about this aspect that profit only is to be taken into account but not income and sub-section (3) of Section 115JA itself took care of the provisions relating to the adjustment of loss or depreciation and carry forward of the income. The finding arrived at by the Tribunal is correct and followed the decision of the Supreme Court. We are of the view that the conclusion arrived at by the Tribunal cannot be complained of".


5. The above extracted observation of the Division Bench which followed the Supreme Court Judgments would answer even the 2nd question of law extracted above. Apart from the above, we are in agreement with the reasoning stated by the Tribunal to the effect that the deduction under Section 80HHC in a MAT scheme is from the taxable income, which is otherwise the adjusted book profit. If no deduction is available to an assessee, the gross total income itself is the taxable income of the assessee. MAT scheme does not provide for deductions. Therefore, the interpretation is that the adjusted book profit of a company itself is the gross total income of that assessee-company. The deduction under section 80HHC in that way given out of the gross total income in a case falling under MAT. This in turn means that section 80HHC should be computed on the

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adjusted book profit. Sections 115J, 115JA and 115 JB come into operation, as the regular profits has been substituted by the book profit. Once the substitution is over, there is no way to go back to the normal computation process of statutory profit, which has already been overwhelmed by sections 115J, 115JA and 115JB. This reconciles the alleged incompatibility pointed out by the Revenue that the deduction available to an assessee under Chapter VIA is subject to section 80AB. Therefore, we find that the deduction under section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profits and gains of business or profession. 6. For the reasons stated above, the appeal is dismissed.
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