Quantum of deduction under sec 80HHC under the provision of sec 115JB limited to relief certified by the Chartered Accountant

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: B: NEW DELHI

BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT

AND

SHRI I.P. BANSAL, JUDICIAL MEMBER

ITA Nos.4880 & 4881/Del/2011

Assessment Years: 2003-04 & 2004-05

ACIT,

Central Circle-18,

Room No.327,

3rd Floor, ARA Centre,

E-2, Jhandewalan Extn.,

New Delhi.

(Appellant)

Vs.

Flex Foods Ltd.,

305, 3rd Floor,

Bhanot Corner, Pamposh

Enclave, GK-1,

New Delhi.

PAN: AAACF0108K

 (Respondent)

Assessee by: Shri Suresh Anantharaman, CA

Revenue by: Shri S. Krishna, CIT, DR

ORDER

PER I.P. BANSAL, JUDICIAL MEMBER

Both these appeals are filed by the revenue. They are directed against the two separate orders passed by the CIT (A) dated 4th August, 2011 and 19th August, 2011 for Assessment Years 2003-04 & 2004-05 respectively. The issue raised in both the appeals are common. These appeals were argued together by both the parties, hence, for the sake of convenience both these appeals are being disposed of by this consolidated order. The grounds of appeal being identical in both the appeals read as under:-

“1. On the facts and in the circumstances of the case, the learned CIT (A) has erred in law and on facts in deleting the disallowance made by the Assessing Officer on account of N deduction claimed by the assessee u/s 80HH of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the case, the learned CIT (A) has erred in law and on facts in holding that while computing the book profits u/s 115JB, the amount of profit eligible for deduction u/s 80HHC should be based on book profit and not on the profit under the normal provisions of the Income Tax Act, 1961.

3. On the facts and in the circumstances of the case, the learned CIT (A) has erred in law and on facts in holding that provision of Sunset Clause should not apply to a case wherein eligible deduction u/s 80HHC is being computed under clause (iv) of section 115JB of the Income Tax Act, 1961.

4. The order of the ld. CIT (A) is erroneous and is not tenable on facts and in law.

5. The appellant craves leave to add, alter, or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

2. The income of the assessee under the normal provisions of the Act has been computed at nil in view of brought forward business loss/depreciation. It is because of that the assessee was not eligible for deduction u/s 80HHC in view of non-availability of any income. Therefore, the Assessing Officer has computed the income of the assessee under the provisions of Section 115JB and has declined to reduce the claimed deduction u/s 80HHC out of book profit and he has disallowed the said deduction u/s 80HHC at Rs. 3,27,78,126/- and the book profit of the assessee after giving set off of brought forward and unabsorbed book losses and depreciation is computed at Rs. 3,87,74,630/-. Before CIT (A) it was claimed that while computing book profit the Assessing Officer should have allowed the deduction u/s 80HHC as computed by the assessee in the audit report submitted in this regard and following aspects of the matter were raised before the CIT (A) which are as follows:-

i) That in view of the Special Bench decision of ITAT in the case of DCIT vs. Syncome Formulations 106 ITD 193 (SB), while computing the book profit u/s 115JB, as per clause (iv) of

Explanation to Section 115JB (2) of the Act, the amount of profit eligible for deduction u/s 80HHC has to be reduced and the computation has to be made on the basis of book profit and not

as per regular provisions of the Act. Learned CIT (A) has noted that this issue is covered by the earlier decision of ITAT in the case of the assessee and, accordingly, he held that deduction u/s 80HHC is allowable to the assessee while computing book profit for the purpose of determining income u/s 115JB.

ii) Regarding sunset clause contained in Section 80HHC (1B), whether it applied or not, learned CIT (A) has found that ITAT in the case of the assessee itself has given the direction to decide the matter in the line of decision of aforementioned Special Bench in the case of Syncome Formulations (supra). Despite that the Assessing Officer by quoting the judgement of Hon’ble Bombay High Court in the case of Ajanta Pharma Ltd. has not accepted such claim of the assessee. Learned CIT (A) has found that the said decision of Hon’ble Bombay High Court has now been reversed by the Hon’ble Supreme Court in the case of Ajanta Pharma Ltd. 327 ITR 305 (SC). Learned CIT (A) has quoted the observations of their lordships from the said decision and has come to the conclusion that since the decision of Hon’ble Bombay High Court in the case of Ajanta Pharma Ltd. (supra) has been reversed by Hon’ble Supreme Court, the issue has to be decided in favour of the assessee and he has directed the Assessing Officer to calculate and allow the deduction u/s 80HHC without applying the Sunset Clause as specified u/s 80HHC (1B) and, in this manner, learned CIT (A) has decided the issue in favour of the assessee. The department is aggrieved, hence, in appeal.

The learned DR, after narrating the facts, contended that the assessee is not eligible for deduction u/s 80HHC as it has no profit as the entire profit has been set off against the brought forward business losses and depreciation. He contended that even for the purpose of Section 115JB, the amount of profit eligible for deduction u/s 80HHC should not be reduced and it should be reduced in accordance with the Sunset Clause.

3. On the other hand, it was submitted by the learned AR that all the issues raised by the revenue are covered in favour of the assessee.

4. In the rejoinder, it was submitted by the learned DR that computation of deduction u/s 80HHC in both the years should at least be reduced to the extent of miscellaneous income and interest income which cannot be considered to be part of export profits. Thus, it was pleaded by the learned DR that to that extent the order of the CIT (A) should be modified.

5. We have carefully considered the rival submissions in the light of the material placed before us. So far as it relates to the issue regarding allowability or otherwise of deduction u/s 80HHC under the normal provisions of the Act, we find that there is no dispute to that extent. The income as computed by the Assessing Officer under the normal provisions is nil. However, when book profits are to be computed out of those book profits, deduction u/s 80HHC as computed in the audit report has only to be reduced. The Sunset Clause has also not to be applied and these issues are covered by the aforementioned decision of Hon’ble Supreme Court. So far as it relates to the contention of the learned DR that miscellaneous income and interest income should also be reduced while computing book profit, we find that this argument of the learned DR is not acceptable as in accordance with the Section 115JB it has been clearly stated that relief will be computed u/s 80HHC (3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that Section. The condition is only that relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition, but, is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB (subject to the conditions specified in sub-section (4) and (4A) of that section) to obliterate the difference between “eligibility” and “deductibility” of profits. Reference in this regard can be made to the following observations of the Hon’ble Supreme Court in the judgement in the case of Ajanta Pharma Ltd. vs. CIT (SC) (supra):-

“We find no merit in this argument. If the dichotomy between “eligibility” of profit and “deductibility” of profit is not kept in mind then section 115JB will cease to be a self-contained code. In Section 115JB, as in section 115JA, it has been clearly stated that relief will be computed u/s 80HHC (3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that Section. The conditions are only that the relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition, but, it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB (subject to the conditions specified in sub- section (4) and (4A) of that section) to obliterate the difference between “eligibility” and “deductibility” of profits as contended on behalf of the Department.”

6. From the above observations, it is clear that the quantum of deduction u/s 80HHC under the provisions of Section 115JB will be limited to the relief certified by the Chartered Accountant and this is not a qualifying condition but it is a compliance condition. Therefore, the argument raised by the learned DR has to be rejected. The decision of learned CIT (A) is in accordance with the aforementioned judicial pronouncement. It may also be mentioned here that the decision of Special Bench in the case of Syncome Formulations (I) Ltd. (supra) has been approved by Hon’ble Supreme Court in the case of CIT vs. M/s Bhari Information Tech Systems Pvt. Ltd. 340 ITR 593 (SC).

7. In view of the above discussion, we find no infirmity in the order passed by the CIT (A) on each of the grounds raised by the revenue and both the appeals filed by the revenue are dismissed.

8. In the result, the appeals are dismissed.

The order pronounced in the open court on 17.04.2012.

                                                      Sd/-                             Sd/-

                                         [G.D. AGRAWAL]        [I.P. BANSAL]

                                       VICE PRESIDENT      JUDICIAL MEMBER

Dated, 17.04.2012.

dk

Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT

Deputy Registrar,

ITAT, Delhi Benches