IN THE ITAT MIMBAI BENCH ‘K’
Income-tax Officer 3(3)(3)
v.
Su-raj Jewellery (
DR. O.K. NARAYANAN, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
IT APPEAL NOS. 8800 AND 8801 (MUM) OF 2004
[Assessment years 1997-98 AND 2001-02]
October 10, 2007
I Section 145 of the Income-tax Act, 1961
- Method of accounting - Estimation of profit - Assessment year 2001-02 -
Assessing Officer, on basis of two audited accounts furnished by assessee and
further on basis of several defects and deficiencies pointed out by
departmental auditor in accounts of assessee, rejected book results of assessee
and further on basis of net profit shown by assessee in first year of operation
i.e., in assessment year 1996-97 at 12.57 per cent estimated business profits
of assessee at rate of 4 per cent of net sales - Commissioner (Appeals),
however, estimated net profits of assessee at rate of 2 per cent of net
turnover - Whether though book results shown by assessee could not be accepted
and relied upon but in totality of facts and circumstances of case,
Commissioner (Appeals) was justified in estimating net profit at rate of 2 per
cent of the total turnover - Held, yes
II Section
80HHC of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year
2001-02 - Assessee also claimed deduction under section 80HHC in respect of
labour charges received by it for job work carried out - Assessing Officer
while computing deduction under section 80HHC had excluded labour charges from
business profits - Whether since labour charges received by assessee
constituted operational income, labour charges were includible in business
profits of assessee for purpose of computing deduction under section 80HHC -
Held, yes
III Section
115JB, read with section 47 of the Income-tax Act, 1961 and section 349 of the
Companies Act, 1956 - Minimum alternate tax - Assessment year 2001-02 - Whether
capital receipts which do not constitute income under Income-tax Act can not be
brought to taxnet by employing mechanism of section 115JB - Held, yes - During
relevant previous year, assessee had transferred some of its capital assets to
its holding company and profit arising on such transfer was credited to profit and
loss appropriation account - Further assessee did not include capital profit
arising on transfer of assets to holding company in book profits, as capital
gains arising on such transfer had been specifically excluded from purview of
section 45 by virtue of section 47(v) - Whether since profit arising on
transfer of capital assets by assessee to its holding company was a capital
receipt in hands of assessee and further since it was not taxable in view of
provisions of section 47(v), capital receipt in question did not form part of
book profits of assessee for purpose of computation of minimum alternate tax
profit under section 115JB - Held, yes
FACTS I
For the
relevant assessment year, the assessee had initially filed the return of income
accompanied by audited profit and loss account showing certain loss. Subsequently, the assessee during the course
of assessment proceedings furnished a different set of audited accounts
claiming the latter audited accounts reflected the correct picture of the
business activity. The Assessing Officer
having noticed that there was variation in the figures of sales, purchases,
unsecured credits, etc. in the two audited accounts of the assessee, got the
assessee’s account audited by a departmental auditor who pointed out several
defects and deficiencies. Thereafter,
the Assessing Officer, on the basis of the adverse findings of the auditor,
rejected the book results of the assessee and further on the basis of the net
profit shown by the assessee in the first year of operation, i.e., in the assessment year 1996-97 at
12.57 per cent estimated the business profits of the assessee at the rate of 4
per cent of the net sales.
On appeal, the
Commissioner (Appeals) partly allowed the assessee’s appeal and estimated the
net profits of the assessee at the rate of 2 per cent of the net turnover.
On revenue’s appeal to the Tribunal :
HELD I
Each year is
an independent year and the result of preceding year cannot be the basis for
estimating the net profit rates for the current year. Though the book results shown by the assessee
could not be accepted and relied upon but in the totality of facts and
circumstances of the case, the Commissioner (Appeals) was justified in
estimating the net profit at the rate of 2 per cent of the total turnover. Therefore, the order passed by the Commissioner
(Appeals) being reasonable and appropriate was liable to be upheld. [
FACTS II
The assessee
also claimed deduction under section 80HHC in respect of labour charges
received by it for job work carried out.
The Assessing Officer while computing the deduction under section 80HHC
had excluded the labour charges from the business profits of the assessee.
On appeal, the
Commissioner (Appeals) directed the Assessing officer to include the labour
charges in the business profits of the assessee for the purpose of computing
deduction under section 80HHC.
On revenue’s
appeal to the Tribunal:
HELD II
The labour
charges received by the assessee for job work carried out, which was in line
with manufacturing activity carried on by the assessee, constituted operational
income and the profits and the receipts from the said labour charges were
includible in the business profits of the assessee, while computing the
deduction under section 80HHC.
Therefore, the Commissioner (Appeals) was justified in his view. [
FACTS III
During the relevant
previous year, the assessee-company had transferred some of its capital assets
to its holding company and the profit arising on such transfer was credited to
the profit and loss appropriation account.
Further, the assessee did not include the capital profit arising on
transfer of assets to holding company in the book profits, as capital gains
arising on such transfer had been specifically excluded from the purview of
section 45 by virtue of section 47(v). The assessee claimed that the said capital
profit was capital receipt, which did not have any element of income. It also claimed that such capital receipt was
not chargeable to tax. The assessee,
therefore, claimed that the capital receipt in question did not form part of
its book profits for the purpose of computation of minimum alternate tax (MAT)
profit under section 115JA. The Assessing Officer rejecting the claim of the
assessee included the capital receipts as part of book profits while computing
the MAT profit under section 115JB.
On appeal, the
Commissioner (Appeals) upheld the assessee’s claim and directed the Assessing
officer to exclude the capital receipt from the book profits of the assessee.
On revenue’s appeal to the Tribunal:
HELD III
The intention
of bringing section 115JB on the statute was that the companies should be made
to pay taxes on the basis of the net profits shown in its profit and loss
account. For the purpose of computing
the MAT profit under section 115JB, the business profits as declared in the profit
and loss account are to be considered by the Assessing Officer. The section further provides certain
adjustments to be made in respect of different sets of income and
expenditure. In the instant case, the
assessee was not liable to pay any tax on the gain arising on transfer of its
assets to holding company. Such profit
was exempt from tax under section 47(v). Though for computing the MAT profit under
section 115J, the business profits shown in the profit and loss are to be
adopted but in case the said profits include certain receipts which are not of
income nature, the same are to be excluded before making any calculations in
that regard. Further, section 349 of the
Companies Act clearly provides that the credit for the profit arising on sale
of any immovable property or fixed assets of capital nature should not be taken
into profit and loss account and accordingly the profits/gains arising on
transfer of assets to the holding company was not includible in the profits of
the assessee-company. [
To
sum up
The capital
receipts which do not constitute income under the Income-tax Act cannot be
brought to tax net by employing the mechanism of section 115JB and the said
section has not intended to bring all non income items within the domain of
Income-tax Act. [