IN THE ITAT MUMBAI BENCH ‘E’
Assistant
Commissioner of Income tax, Range 9(1)
v.
Ajanta
Pharma Ltd.
Sunil
Kumar Yadav, Judicial Member
and
V. K. Gupta, Accountant Member
IT
Appeal No. 7202 (Mum.) of 2004
[Assessment
year 2001-02]
November
30, 2007
Section 80HHC, read with section 115JB of the Income tax Act, 1961 -
Deductions - Exporters - Assessment year 2001-2002 - Whether for computing book
profit for purpose of section 115JB net profit shown in profit and loss
account, are to be reduced by amount of profits eligible for deduction under
section 80HHC irrespective of fact how much percentage of it is eligible for
deduction - Held, yes
Circulars and Notifications:
Circular No. 680, dated 21-2-1994
Circular No. 559 dated 4-5-1990.
The assessee was engaged in manufacturing and sale of pharmaceutical products. During assessment proceedings, the Assessing Officer recomputed the book profit under section 115JB. He passed an assessment order observing that section 80HHC(1) allows deduction to the extent of profits, referred in sub-section (1B) and only 80 per cent of export profit would be eligible for reduction. On appeal, the Commissioner (Appeals) in the light of the CBDT Circular No. 680 dated 21-2-1994 and 559 dated 4-5-1990 and the clarificatory note published as annotated text of the Finance Bill, 2000, concluded that the entire profit earned from export as computed under section 80HHC(3) would be eligible for reduction under clause (iv) of Explanation to section 115JB.
On revenue’ appeal:
HELD
The book profit under section 115JB is to be computed as per Explanation
below sub-section (ii) of section 115JB and according to it the book
profit means the net profit as shown in the profit and loss account for the
relevant previous year prepared under sub-section (2) as increased by various
items specified in clauses (a) to (g) if such amount is debited
to the profit and loss account and as reduced by different items mentioned in
clauses (i) to (vii). As
per clause (iv) the amount of profit eligible for deduction under
section 80HHC computed under clause (a) or (b) or (c) of
sub-section (3) or sub-section (3A), as the case may be, of that section and
subject to conditions specified in that section is to be reduced from the above
net profit to compute book profit.
Meaning thereby, for computing book profit for the purpose of section
115JB net profit as shown in the profit and loss account prepared as per the
provisions of Parts II & III of Schedule VI of Companies Act be reduced by
the amount of profit eligible for deduction under section 80HHC computed under
clause (a) or clause (b) or clause (c) of sub-section (3)
or sub-section (3A). The dispute raised
was with regard to the proper meaning of the word ‘profit eligible for
reduction’. Whether it means the entire
amount of profit eligible for deduction or it is the amount of deduction. The Assessing Officer had observed that it
was the amount of deduction which was to be reduced from the net profit shown
in the profit and loss account but the Commissioner (Appeals) said that it was
the amount of profit eligible for deduction. [
As per the sub-section (1) of section 80HHC deduction to the extent of
profits referred in sub-section (1B) derived by the assessee from export of
such goods is to be allowed in computing the total income of the assessee;
Meaning thereby the profits derived by the assessee from the export of such
goods is one thing and the deduction to be allowed in computation of total
income of the assessee under section 80HHC is a different thing. After introduction of sub-section (1B) to
section 80HHC by the Finance Act, 2000 with effect from 1-4-2001 the entire
profit derived from the export of goods
or merchandise is not available for deduction under section 80HHC as it is
being phased out in a piecemeal manner over a period of four years and no
deduction would be allowed in respect of assessment year beginning on 1-4-2005
and in any subsequent assessment years.
Section 115JB was also introduced by the Finance Act, 2000 with effect from
1-4-2001 in sub-section (1) of section 80HHC the Legislature has used the words
‘for determining the quantum of deduction’ to the extent of profit referred to
in sub-section (1B) but while coming to clause (iv) of Explanation
to section 115JB the Legislature has used the words ‘the amount of profit
eligible for deduction under section 80HHC’; Meaning thereby the words ‘the
amount of profit eligible for deduction’ used in clause (iv) does not
have the same meaning as the words ‘deduction to the extent of profit referred
to in sub-section (1B)’ used in sub-section (1) of section 80HHC has. Both these words were used in different
contexts and they do not have the similar meaning. [
In sub-section (1B) the Legislature has again used the words ‘the extent
of deduction of profit shall be an amount equal to’; Meaning thereby for
quantification of deduction the Legislature has used the words ‘deduction to
the extent of profit or the extent of deduction of the profit’, but for
determining the profits eligible for deduction this type of terminology was not
used by the Legislature; Meaning thereby the amount of profit eligible for
deduction is an amount of export profit which is eligible for deduction
irrespective of the fact that the entire amount may or may not be allowed for
deduction under section 80HHC after the introduction of sub-section (1B) of
section 80HHC. Had it been the intention
of the Legislature that only deduction amount is allowed to be reduced from the
net profit shown in the profit and loss account prepared as per provisions of
Part II and III of the Schedule VI of Companies Act for computing book profit
under section 115JB, similar words as used in section 80HHC(1) and (1B) would
have been used here. But in clause (iv)
of Explanation to section 115JB the Legislature has used the words
‘amount of profit eligible for deduction under section 80HHC computed under the
clause (a) or clause (b) or clause (c) of sub-section (3)
or sub-section (3A)’. As such, while
computing the profit eligible the deduction under clause (a), (b)
or (c) of sub-section (3) or (3A) no restriction was imposed in
computing the profit eligible for deduction.
Whatever restrictions are imposed for allowability of deduction it is
specified in sub-section (1) of section 80HHC and no reference of this
sub-section is made in sub-clause (iv) of the Explanation to
section 115JB which deals with the reduction of amount of profit eligible for
deduction under section 80HHC from the net profit shown in the profit and loss
account to compute the book profit. [
In the case of Dy. CIT v. Govind Rubber (P) Ltd. (2004) 1
SOT 481/89 ITD 457 the Tribunal has held that for the purpose of determining of
book profit under section 115J the assessee was entitled for deduction of profit
attributable to export under section 80HHC even though the assessee was denied
deduction under section 80HHC because of the proviso of section 80A as income
computed for the assessment year under consideration was negative though the
book profit attributable to export under section 80HHC was positive. Similar analysis should be applied to the
instant situation. [
Keeping in view, the totality of the facts and circumstances of the
instant case, it was to be held that for computing the book profit for the
purpose of section 115JB the net profit shown in the profit and loss account
prepared as per its sub-section (2), are to be reduced by the amount of profits
eligible for deduction under section 80HHC irrespective of the fact how much
percentage of it is eligible for deduction under section 80HHC. The amount of profit eligible for deduction
would not be governed by sub-section (1B) of section 80HHC in the absence of
its reference in clause (iv) of the Explanation to section
115JB. Therefore, the order of the
Commissioner (Appeals) was to be confirmed. [
In the result, the appeal was to be dismissed. [