Aarvee Denims & Exports Ltd.,, Ahmedabad v. The Jt.CIT, TDS Range,, Ahmedabad

ITA 158/AHD/2007 | 2002-2003
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 15820514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 158/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 16 day(s)
Appellant Aarvee Denims & Exports Ltd.,, Ahmedabad
Respondent The Jt.CIT, TDS Range,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 26-02-2010
Date Of Final Hearing 18-02-2010
Next Hearing Date 18-02-2010
Assessment Year 2002-2003
Appeal Filed On 09-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI BHAVNESH SAINI AND N S SAINI) ITA NOS.158 AND 159/AHD/2007 (ASSESSMENT YEARS:-2002-03 AND 2003-04) M/S AARVEE DENIMS & EXPORTS LIMITED 188/2 RANIPUR PATIA NAROL AHMEDABAD V/S THE INCOME-TAX OFFICER WARD-1(3) AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI S N SOPARKAR SENIOR ADVOCATE RESPONDENT BY:- SHRI GOVIND SINGHAL SENIOR DR O R D E R PER N S SAINI (ACCOUNTANT MEMBER) : THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS B OTH DATED 09-11- 2006 PASSED BY THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS)- V AHMEDABAD [THE CIT(A)] FOR ASSESSMENT YEARS 20 02-03 AND 2003-04. 2 SINCE CERTAIN GROUNDS INVOLVED IN THESE TWO APPEA LS ARE COMMON THEY WERE HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER. 3. THE GROUNDS OF APPEALS TAKEN BY THE ASSESSEE IN BOTH THE APPEALS ARE AS UNDER: FOR AY 2002-03 : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN REOPENING THE ASSESSMENT PROCEEDING S U/S 147 OF THE INCOME TAX ACT 1961. UNDER THE FACTS AND CIRCUMSTA NCES OF THE CASE THE ACTION OF REOPENING IS WITHOUT JURISDICTION AND NOT PERMISSIBLE 2 EITHER IN LAW OR ON FACT. THE PRESENT PROCEEDINGS THEREFORE ARE REQUIRED TO BE QUASHED. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING THE CLAIM OF DEDUCTION U/S 80HHC OF THE ACT AT RS.1 62 80 923/- WHILE CALCULATING BOOK PROFIT U /S 115JB OF THE ACT. 3. BOTH LOWER AUTHORITIES HAVE PASSED THE RESPECTIVE ORD ERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHE R ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS EXPLANATIONS AND INFOR MATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO H AVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN LEVYING INTEREST U/S 234B AND 234C O F THE ACT PARTICULARLY WHEN THE INCOME WAS ASSESSED U/S 115JB OF THE ACT. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN INITIATING PENALTY UNDER SECTION 27 1(1)(C) OF THE ACT WITHOUT APPRECIATING THAT THE AO HAS NOT RECORDED M ANDATORY SATISFACTION AS CONTEMPLATED UNDER THE ACT. FOR AY 2003-04 : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING THE CLAIM OF DEDUCTION U/S 80HHC OF THE ACT AT RS.7 36 23 341/- WHILE CALCULATING BOOK PROFIT U /S 115JB OF THE ACT. 2. BOTH LOWER AUTHORITIES HAVE PASSED THE RESPECTIVE ORD ERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHE R ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS EXPLANATIONS AND INFOR MATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO H AVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN LEVYING INTEREST U/S 234B AND 234C O F THE ACT PARTICULARLY WHEN THE INCOME WAS ASSESSED U/S 115JB OF THE ACT. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN INITIATING PENALTY UNDER SECTION 27 1(1)(C) OF THE ACT WITHOUT APPRECIATING THAT THE AO HAS NOT RECORDED M ANDATORY SATISFACTION AS CONTEMPLATED UNDER THE ACT. 3 4 AT THE OUTSET GROUND NOS.1 3 AND 5 IN AY 2002-0 3 AND GROUND NOS.2 AND 4 IN ASSESSMENT YEAR 2003-04 WERE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE THE SAME ARE DISMISSED AS NOT PRESSED. 5 GROUND NO.2 IN ASSESSMENT YEAR 2002-03 AND GROUND NO.1 IN ASSESSMENT YEAR 2003-04 RELATES TO DISALLOWANCE CLA IMED FOR DEDUCTION U/S 80HHC FOR RS.1 62 80 923/- IN ASSESSM ENT YEAR 2002- 03 AND RS.7 36 23 341/- IN ASSESSMENT YEAR 2003-04 WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE INCOME-TAX ACT 1961 [THE ACT]. SINCE THE FACTS AND ISSUE ARE COMMON IN BOT H THE ASSESSMENT YEARS WE ARE CONSIDERING THE FACTS IN ASSESSMENT Y EAR 2003-04. THE AO AS WELL AS THE CIT(A) HAVE DEALT WITH THE ISSUE IN GREAT DETAIL IN ASSESSMENT YEAR 2003-04. 6 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS.1 62 80 923/- AND RS.7 36 23 341/- FROM THE BOOK PROFITS COMPUTED U/S 115JB. THE AO DISALLO WED THE CLAIM OF DEDUCTION TO THE ASSESSEE BY OBSERVING THAT THE ASSESSEE DID NOT SUBMIT REPORT IN FORM NO.10CCAC AND THAT THE REGULA R INCOME AS PER THE COMPUTATION OF INCOME WAS NIL AND WHEN THE GROSS TOTAL INCOME IS NIL THE ASSESSEE WAS NOT ENTITLED FOR AN Y DEDUCTION UNDER CHAPTER VI INCLUDING DEDUCTION U/S 80HHC. IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CONFIR MED THE ACTION OF THE LEARNED ASSESSING OFFICER. 7 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSE SSEE ARGUED THAT THE AUDIT REPORT IN FORM NO.10CCAC IS N OT REQUIRED TO BE FILED BY THE ASSESSEE AS GROSS TOTAL INCOME BEIN G NIL DEDUCTION U/S 80HHC WAS NOT AVAILABLE WHILE COMPUTING REGULA R INCOME. IT WAS FURTHER ARGUED THAT CBDT CIRCULAR NO.680 DATED 21 ST FEBRUARY 4 1994 EXPLAINING THE EXPLANATION (III) TO SECTION 11 5J THE RELEVANT PORTION WHEREOF READS AS UNDER:- CERTAIN DOUBTS HAVE BEEN EXPRESSED AS TO WHETHER T HE AMOUNT QUANTIFIED U/S 80HHC(3) OR (3A) OR SECTION 8 0HHD(3) ITSELF SHOULD BE DEDUCTED UNDER EXPLANATION (III) U /S 115J OR WHETHER ONLY THE MANNER OF COMPUTATION SPECIFIED IN THOSE SECTIONS SHOULD BE FOLLOWED TO QUANTIFY THE AMOUNT OF DEDUCTION. IN PARA 9.3(A) OF THE CIRCULAR IT IS ELABORATED TH AT FOR THE PURPOSES OF THE SUBJECT EXPLANATION THE NET PROFIT TO BE EXCLUDED SHALL BE COMPUTED IN THE SAME MANNER AS PROVIDED IN SECTION 80HHC(3) OR (3A) OR SECTION 80HHD(3). FURTHER THE EXPLAMNATION (III) U/S 115J ITSELF CLEARLY LAYS DPOWN THAT THEAMOUNT AS ARRIVE D AT AFTER ADJUSTING THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR BY THE ADJUSTMENT REFERR ED TO IN CLAUSES (A) TO (F) (I) AND (II) OF THE SAID EXPLANATION SH OULD BE ALLOWED AS DEDUCTION COMPUTING THE DEDUCTION HOWEVER IN THE M ANNER SPECIFIED U/S 80HHC(3) OR (3A) OR SECTION 80HHD(3). IT IS THEREFORE CLEAR THAT IT IS ONLY THE MANNER OF COMPUTATION SPECIFIED IN SECTION 80HHC(3) OR (3A) OR 80HHD AND NOT THE AMOUNTS THEMSELVES THAT SHOULD BE IMPORTED INTO EXPLANATIO N (III) U/S 115J. 8 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSE SSEE IN SUPPORT OF HIS CONTENTIONS HAS RELIED UPON THE DECI SION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RA JANIKANT SCHNELDER AND ASSOCIATES P. LTD. (2008) 302 ITR 22 (MAD) WHEREIN IT WAS HELD THAT THE AO WAS NOT ENTITLED TO ALTER THE PROFIT AND LOSS ACCOUNT PREPARED BY THE ASSESSEE UNDER THE PROVISIO NS CONTAINED IN THE COMPANIES ACT WHILE ARRIVING AT THE BOOK PROFIT UNDER SECTION 115JA AND THE BOOK PROFIT SO ARRIVED AT SHOULD BE T HE BASIS FOR 5 TAXATION AND THEREFORE THE COMPUTATION UNDER SECT ION 80HHC SHOULD BE LIMITED TO THE CASE OF PROFITS OF ELIGIBL E CATEGORY ONLY. THE FINDING ARRIVED AT BY THE TRIBUNAL WAS CORRECT AND IN CONFORMITY WITH THE DECISION OF THE SUPREME COURT. IT WAS FURT HER SUBMITTED THAT THE DEPARTMENTS SPECIAL LEAVE PETITION WAS DI SMISSED AGAINST THIS JUDGMENT OF HON'BLE MADRAS HIGH COURT WHEREBY THE HON'BLE HIGH COURT FOLLOWING 302 ITR 22 AFFIRMED THE VIEW O F THE TRIBUNAL THAT THE DEDUCTION U/S 80HHC IN A CASE OF ASSESSMEN T U/S 115JA HAD TO BE WORKED OUT ON THE BASIS OF THE ADJUSTED BOOK PROFIT AND NOT ON THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. [CIT VS. SPEL SEMICONDUCTOR LTD. : SLP (C) NO.32735 OF 2009]. 9 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 10 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IN THE NORMAL COMPUTATION I.E. COMPUTATION AS PER THE PROV ISIONS OF INCOME-TAX ACT 1961 EXCEPT SECTION 115JB HAS GROS S TOTAL INCOME OF NIL AND THEREFORE THE AMOUNT DEDUCTIBLE U/S 80HH C FOR THAT COMPUTATION IS RESTRICTED TO NIL IN VIEW OF THE PRO VISIONS OF SECTION 80AB OF THE ACT. THE ASSESSEE IS LIABLE TO PAY TAX ON ITS BOOK PROFITS COMPUTED UNDER SECTION 115JB OF THE ACT. THE ASSESS EE HAS FURNISHED AUDIT REPORT U/S 80HHC OF THE ACT ALONG W ITH THE RETURN OF INCOME. ON THE ABOVE FACTS THE LEARNED ASSESSING OF FICER DISALLOWED THE CLAIM FOR DEDUCTION U/S 80HHC WHILE COMPUTING BOOK PROFIT ALSO AS IN VIEW OF THE LEARNED ASSESSING OFF ICER DEDUCTION ALLOWABLE TO THE ASSESSEE IN NORMAL COMPUTATION U/S 80HHC WAS NIL. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFICER. WE FIN D THAT THE 6 HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RA JANIKANT SCHNELDER AND ASSOCIATES P. LTD. (2008) 302 ITR 22 (MAD) HELD IN RESPECT OF PROVISIONS OF SECTION 115JA AS UNDER:- THE APPEAL IS FILED AGAINST THE ORDER OF THE TRIBU NAL MADRAS 'A' BENCH MADE IN ITA NO. 346/MAD/2002 DT. 20TH F EB. 2003. THE RELEVANT ASSESSMENT YEAR IS 1998-99. THE SUBSTANTIAL QUESTION OF LAW FORMULATED FOR ENTERTAI NMENT OF THE APPEAL IS AS FOLLOWS: 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE HAV ING NO PROFITS FROM THE EXPORT IS ELIGIBLE FOR THE DEDUCTI ON UNDER S. 80HHC ON ITS BOOK PROFITS UNDER S. 115J ?' 2. FOR THE ASST. YR. 1998-99 THE ASSESSEE FILED IT S RETURN. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF THE DEDUCTION UNDER S. 80HHC ON THE GROUND THAT THE BO OK PROFIT INCOME COMPUTED UNDER S. 115JA WAS A NEGATIVE INCOM E. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE FILE D AN APPEAL TO THE CIT(A). THE CIT(A) CONFIRMED THE ASSESSMENT ORDER ON THE GROUND THAT THE ASSESSEE DID NOT HAVE ANY PROFI T OR GAIN FROM THE BUSINESS UNDER SS. 28 TO 44B OF THE ACT. T HE CIT (A) HELD THAT THE BOOK PROFITS WILL NOT BE ELIGIBLE FOR DEDUCTION UNDER S. 80HHC OF THE ACT. AGGRIEVED BY THE ORDER O F THE CIT(A) THE ASSESSEE FILED APPEAL TO THE TRIBUNAL A ND THE TRIBUNAL ALLOWED THE APPEAL. THE CORRECTNESS OF THE SAID ORDER IS CANVASSED IN THIS APPEAL. 3. WE HEARD THE ARGUMENTS OF LEARNED COUNSEL ON EIT HER SIDE AND PERUSED THE MATERIALS ON RECORD. 4. WE ARE NOT ABLE TO SUBSCRIBE OUR VIEW TO THE GRO UNDS TAKEN IN THE APPEAL THAT THE DEDUCTION UNDER S. 80HHC IS ALLOWABLE ONLY ON THE PROFITS AND GAINS ARRIVED AT UNDER SS. 28 TO 44B OF THE IT ACT. IN THE CASE ON HAND IT IS THE STAND OF THE ASSESSEE THAT THE RELIEF UNDER S. 80HHC SHOULD BE BASED ON T HE PROFIT ASCERTAINED UNDER S. 115JA ONLY BUT NOT ON INCOME C OMPUTED UNDER SS. 28 TO 44 OF THE ACT. THE TRIBUNAL AFTER C ONSIDERING THE JUDGMENTS OF THE SUPREME COURT IN THE CASE OF S URANA STEELS (P) LTD. VS. DY. CIT (1999) 153 CTR (SC) 193 : (1999) 237 ITR 777 (SC) AND IN THE CASE OF APOLLO TYRES LTD. V S. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) AND ANA LYSING THE ORDER IMPUGNED FOUND THAT THE PROVISIONS OF S. 115J ARE 7 SIMILAR TO THE PROVISIONS OF S. 115JA OF THE ACT. I N ORDER TO COME TO THE CONCLUSION THE TRIBUNAL HAS ALSO TAKEN NOTE OF SUB-S. (4) OF S. 115JA AND REFERRED TO THE DICTUM L AID DOWN BY THE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (SUPRA) WHEREIN IT WAS HELD THAT THE AO WHILE COMP UTING THE BOOK PROFITS OF A COMPANY UNDER S. 115J OF THE IT A CT 1961 HAS ONLY THE POWER TO EXAMINE WHETHER SUCH BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIE S ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE AO THEREAFTER HAS THE LIMITED PO WER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO S. 115J. THE AO DOES NOT HAVE THE JU RISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE P&L A/C E XCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS 'IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT' IN S. 115J WAS MADE FOR THE L IMITED PURPOSE OF EMPOWERING THE AO TO RELY UPON THE AUTHE NTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOK ING INTO THE ACCOUNTS OF THE COMPANY THE AO HAS TO ACCEPT T HE 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 SCRUTINISED AND CERTIFIED BY THE STA TUTORY 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 MAIN TAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES A CT. SUB- S. (1A) OF S. 115J DOES NOT EMPOWER THE AO TO EMBAR K UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. 5. THE AO IS NOT ENTITLED TO TOUCH THE P&L A/C PREPARE D BY THE ASSESSEE AS PER THE PROVISIONS CONTAINED IN THE COM PANIES ACT WHILE ARRIVING AT THE BOOK PROFIT UNDER S. 115 J AND THE BOOK PROFIT SO ARRIVED AT SHOULD BE THE BASIS FOR T AXATION AND THEREFORE THE COMPUTATION UNDER S. 80HHC SHOULD BE LIMITED TO THE CASE OF PROFITS OF ELIGIBLE CATEGORY ONLY. T HE TRIBUNAL HAS ALSO COME TO THE CONCLUSION THAT IN VIEW OF THE NON OBSTANTE CLAUSE AVAILABLE IN S. 115JA IT WAS CLEAR THAT THE PROVISION IS A SELF-CONTAINED ONE AND NO OTHER PROV ISION WOULD HAVE EFFECT ON IT AND THEREBY IT WAS TO BE IMPLEMEN TED AS CONTAINED IN THE SAID PROVISION. THE TRIBUNAL HAS A LSO FURTHER GIVEN A REASON TO THE EFFECT THAT S. 80HHC IS CLEAR ABOUT THIS ASPECT THAT PROFIT ONLY IS TO BE TAKEN INTO ACCOUNT BUT NOT INCOME AND SUB-S. (3) OF S. 115JA ITSELF TOOK CARE OF THE 8 PROVISIONS RELATING TO THE ADJUSTMENT OF LOSS OR DE PRECIATION AND CARRY FORWARD OF THE INCOME. THE FINDING ARRIVE D AT BY THE TRIBUNAL IS CORRECT AND FOLLOWED THE DECISION OF TH E SUPREME COURT. WE ARE OF THE VIEW THAT THE CONCLUSION ARRIV ED AT BY THE TRIBUNAL CANNOT BE COMPLAINED OF. 11 WE FIND THAT THE RELEVANT PORTION OF SECTION 115 JA READS AS UNDER:- EXPLANATION : FOR THE PURPOSES OF THIS SECTION 'BO OK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-S ECTION (2) AS INCREASED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE AND T HE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS M ADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILI TIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SU BSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROP OSED; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTER II I APPLIES; [(G) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (G) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY ] (I) THE AMOUNT WITHDRAWN FROM ANY RESERVES OR PROVISION S IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LO SS ACCOUNT : PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO AN ASSESSEE IN ANY PREVIOUS YEAR (INCLUDING THE RELEVANT PREVIO US YEAR) THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVI SIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL 1997 1318B [BUT 9 ENDING BEFORE THE 1ST DAY OF APRIL 2001 ] SHALL NO T BE REDUCED FROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATI ON; OR (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTER III APPLIES IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR 1318BA [ (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSOR BED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACC OUNT. EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY I F THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR] (IV) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER; OR (V) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING LOCATED IN AN INDUSTRIALLY BACKWARD STATE OR DISTRI CT AS REFERRED TO IN [SUB-SECTION (4) AND SUB-SECTION (5) OF SECTION 80-IB] FOR THE ASSESSMENT YEARS SUCH INDUSTRIAL UN DERTAKING IS ELIGIBLE TO CLAIM A DEDUCTION OF HUNDRED PER CENT O F THE [PROFITS AND GAINS UNDER SUB-SECTION (4) OR SUB-SEC TION (5) OF SECTION 80-IB]; OR (VI) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF DEVELOPING MAINTAINING AND OP ERATING ANY INFRASTRUCUTRE FACILITY [AS DEFINED IN THE EXPL ANATION TO SUB- SECTION (4) OF SECTION 80-IA AND SUBJECT TO FU LFILLING THE CONDITIONS LAID DOWN IN THAT SUB-SECTION]; OR (VII) THE AMOUNT OF PROFITS OF A SICK INDUSTRIAL CO MPANY FOR THE ASSESSMENT YEAR COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COM PANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIA L PROVISIONS) ACT 1985 AND ENDING WITH THE ASSESSME NT YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY B ECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. EXPLANA TION : FOR 10 THE PURPOSES OF THIS CLAUSE 'NET WORTH' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA) OF SUB-SECTIO N (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986) [OR] [(VIII) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTIO N UNDER SECTION 80HHC COMPUTED UNDER CLAUSES (A) (B) OR ( C) OF SUB- SECTION (3) OR SUB-SECTION (3A) AS THE CASE MAY BE OF THAT SECTION AND SUBJECT TO THE CONDITIONS SPECIFIED IN SUB- SECTIONS (4) AND (4A) OF THAT SECTION; (IX) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION U NDER SECTION 80HHE COMPUTED UNDER SUB-SECTION (3) OF THAT SECTI ON.] 12 THE RELEVANT PORTION OF SECTION 115JB READS AS UNDER:- EXPLANATION [1]: FOR THE PURPOSES OF THIS SECTION 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-S ECTION (2) AS INCREASED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE AND T HE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES BY WHATEVE R NAME CALLED [ OTHER THAN A RESERVE SPECIFIED UNDER SECT ION 33AC ]; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS M ADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILI TIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SU BSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROP OSED; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [ SECTION 10 [OTHER THAN THE PROVIS IONS CONTAINED IN CLAUSE (38) THEREOF]] OR [* * * *] SEC TION 11 OR SECTION 12 APPLY; OR] (G) THE AMOUNT OF DEPRECIATION ] [(H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION THEREFOR [ 11 (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY ] (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT) IF ANY SUCH AMOUNT IS CREDITED TO TH E PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR THE AMOUNT WITHDRAWN FROM RES ERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL 1997 SHALL NOT BE REDUCED FROM THE BOOK PROFIT UNLE SS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOS E RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WIT HDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW SECOND PROVISO TO SECTION 115JA AS THE CASE MAY BE; OR] (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE [PROVISION S OF [SECTION 10 [OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF]]] OR [* * * *] SECTION 11 OR S ECTION 12 APPLY IF ANY SUCH AMOUNT IS CREDITED TO THE PRO FIT AND LOSS ACCOUNT; OR. (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO THE PR OFIT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS); OR (IIB) THE AMOUNT WITHDRAWN FROM REVALUATION RESERV E AND CREDITED TO THE PROFIT AND LOSS ACCOUNT TO THE EXT ENT IT DOES NOT EXCEED THE AMOUNT OF DEPRECIATION ON ACCOU NT OF REVALUATION OF ASSETS REFERRED TO IN CLAUSE (IIA ); OR] [(III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSO RBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACC OUNT. EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; 12 (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY IF TH E AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR] (IV) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION U NDER SECTION 80HHC COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF SUB-SECTION (3) OR SUB-SECTION (3A) AS THE CASE MAY BE OF THAT SECTION AND SUBJECT TO THE CO NDITIONS SPECIFIED IN THAT SECTION; OR (V) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UN DER SECTION 80HHE COMPUTED UNDER SUB-SECTION (3) OR SUB - SECTION (3A) AS THE CASE MAY BE OF THAT SECTION AND SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION ; OR (VI) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION U NDER SECTION 80HHF COMPUTED UNDER SUB-SECTION (3) OF THA T SECTION AND SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION; OR (VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMP ANY FOR THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY U NDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIA L COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986 ) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE EN TIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEE DS THE ACCUMULATED LOSSES. EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE 'NET WORTH' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA ) OF SUB- SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COM PANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986). [(VIII) THE AMOUNT OF DEFERRED TAX IF ANY SUCH AMO UNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT.] 13 THUS IT IS OBSERVED THAT THE LANGUAGE EMPLOYED BY THE LEGISLATURE IN SECTION 115JB IS EXACTLY THE SAME AS IS EMPLOYED IN SECTION 115JA OF THE ACT. THUS IN OUR CONSIDERED V IEW THE ABOVE QUOTED DECISION OF THE HON'BLE MADRAS HIGH COURT IS FULLY APPLICABLE IN RESPECT OF COMPUTATION OF BOOK PROFIT U/S 115JB ALSO. WE 13 THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISIO N OF THE HON'BLE MADRAS HIGH COURT ARE OF THE VIEW THAT FOR COMPUTI NG DEDUCTION UNDER CLAUSE (IV) OF SEC. 115JB THE CALCULATIONS AR E TO BE MADE WITH REFERENCE TO THE ADJUSTED BOOK PROFIT AND NOT WITH REFERENCE TO INCOME ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. WE THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE MATTER BACK TO THE FILE O F THE LEARNED ASSESSING OFFICER FOR COMPUTING DEDUCTION ADMISSIBL E UNDER CLAUSE (IV) OF EXPLANATION TO SECTION 115JB(2) OF THE ACT IN LIGHT OF THE DISCUSSIONS MADE ABOVE AFRESH AND THEREAFTER RE-COM PUTE THE BOOK PROFIT AND TOTAL INCOME OF THE ASSESSEE AS PER LAW. THE LEARNED ASSESSING OFFICER IS ALSO DIRECTED TO ENSURE THAT T HE CONDITIONS OF SECTION 80HHC ARE SATISFIED IN THE INSTANT CASE WHI LE COMPUTING THE DEDUCTION ALLOWABLE TO THE ASSESSEE OUT OF ADJUSTED BOOK PROFIT. THE LEARNED ASSESSING OFFICER SHALL ALLOW REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE COMPLETING THE ASSES SMENT AFRESH. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. 14 GROUND NO.4 OF THE APPEAL IN ASSESSMENT YEAR 200 2-03 AND GROUND NO.3 OF THE APPEAL IN ASSESSMENT YEAR 2003-0 4 ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS) CONFIRMING THE ACTION OF THE LEARNED ASSE SSING OFFICER IN LEVYING INTEREST U/S 234B AND 234C OF THE ACT WHEN THE INCOME WAS ASSESSED U/S 115JB OF THE ACT. 15 AT THE TIME OF HEARING THE LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE VERY FAIRLY CONCEDED THAT THIS GROU ND OF APPEAL IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE BY THE DECISION OF THE THIRD MEMBER OF AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF KANEL OIL & EXPORT INDUSTRIES LTD. VS. JCIT (ASSTT.) SR-2 14 AHMEDABAD (2009) 121 ITD 596 (AHD) (TM) WHEREIN IT WAS HELD AS UNDER:- THE ATTENTION OF THE BOMBAY HIGH COURT IN SNOWCEM INDIA LTD. WAS NOT DRAWN TO SUB-S. (4) OF S. 115JA AS HA S BEEN POINTED OUT BY THE AM IN HIS DISSENT. THE HIGH COUR T THEREFORE HAD NO OCCASION TO EXAMINE THE QUESTION WHETHER THE DECISIONS OF THE KARNATAKA HIGH COURT AND THE SUPRE ME COURT IN KWALITY BISCUITS LTD. RENDERED IN THE CONTEXT O F S. 115J WHICH DID NOT HAVE A SUB-SECTION SIMILAR TO SUB-S. (4) OF S. 115JA WOULD STILL BE APPLICABLE AS BINDING PRECEDEN T IN A CASE WHICH ARISES UNDER S. 115JA. THIS ASPECT HAS ALSO B EEN HIGHLIGHTED BY THE LEARNED AM. THE ARGUMENT ON BEHA LF OF THE ASSESSEE THAT THE SECTION IN ITS ENTIRETY WAS BEFOR E THE BOMBAY HIGH COURT IN SNOWCEM INDIA LTD. WHICH INCL UDES SUB- S. (4) IS NOT SUSTAINABLE BECAUSE THE SUB-SECTION I S CONSIDERED CRUCIAL AND IT IS THE CONTENTION OF THE DEPARTMENT THAT IT HAS MADE ALL THE DIFFERENCE BETWEEN S. 115J ON THE ONE HAND AND SS. 115JA AND 115JB ON THE OTHER AND THEREFORE NO N- ADVERTANCE TO THE SAME MAKES IT IMPOSSIBLE FOR THE ASSESSEE TO RELY ON THE JUDGMENT AS AUTHORITY ON THE INTERPR ETATION OF THE SUB- SECTION. IT IS FUTILE TO SPECULATE WHAT WO ULD HAVE BEEN THE DECISION IF SUB-S. (4) OF S. 115JA HAD BEE N BROUGHT TO THE NOTICE OF THE BOMBAY HIGH COURT BUT SUFFICE TO SAY FOR THE PRESENT PURPOSE THAT THE JUDGMENT CANNOT BE RE LIED UPON BY THE ASSESSEE AS BEING ENTIRELY IN ITS FAVOUR ON ALL THE ASPECTS OF S. 115JA OR MORE PARTICULARLY ON THE INTERPRETATION OF SUB-S. (4) OF THAT SECTION AND TH EREFORE IT CANNOT BE SAID THAT IT SHOULD BE FOLLOWED IN PREFER ENCE TO THE ORDER OF THE SPECIAL BENCH IN ASHIMA SYNTEX LTD. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE RELYING ON SEV ERAL AUTHORITIES THAT THE EFFECT OF THE JUDGMENTS OF TH E KARNATAKA HIGH COURT AND THE SUPREME COURT IN KWALITY BISCUIT S LTD. IS THAT THERE IS AN INHERENT IMPOSSIBILITY IN THE COMP ANIES ESTIMATING THEIR BOOK PROFIT FOR THE PURPOSE OF PAY ING ADVANCE TAX BECAUSE THE BOOK PROFIT ITSELF CAN BE ASCERTAIN ED ONLY WHEN THE ACCOUNTS ARE CLOSED ON THE LAST DAY OF THE PREVIOUS YEAR AND THAT WAS WHY IT WAS HELD IN THE JUDGMENTS THAT THE PROVISIONS RELATING TO ADVANCE TAX CANNOT APPLY TO COMPANIES WHICH ARE REQUIRED TO PAY TAX ON BOOK PROFIT (MAT). THIS ARGUMENT CANNOT BE CONSIDERED SINCE SUCH AN ARGUMEN T APPEARS TO HAVE BEEN ALREADY CONSIDERED AND REJECTE D BY THE SPECIAL BENCH IN ASHIMA SYNTEX LTD. SITTING AS THIR D MEMBER ON A DISSENT THE RIGHT COURSE OPEN IS TO FOLLOW TH E VIEW OF THE SPECIAL BENCH WHICH IS BINDING. THE THRUST OF THE DIFFERENCE OF OPINION BETWEEN THE MEMBERS IS NOT SO MUCH ON TH E MERITS 15 OF THE CHARGEABILITY OF THE INTEREST AS IT IS ON TH E QUESTION AS TO WHETHER THE ORDER OF THE SPECIAL BENCH IN ASHIMA SYNTEX LTD. HAS TO BE FOLLOWED OR THE LATER JUDGMENT OF TH E BOMBAY HIGH COURT IN SNOWCEM INDIA LTD. HAS TO BE FOLLOWED . ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE INTEREST U NDER S. 234B AND UNDER S. 234C IS LEVIABLE FOR INCOME COMPU TED UNDER S. 115JA.ASSTT. CIT VS. ASHIMA SYNTEX LTD. (2009) 120 TTJ (AHD)(SB) 721 : (2009) 117 ITD 1 (AHD)(SB) FOLLOWED ; SNOWCEM INDIA LTD. VS. DY. CIT (2009) 221 CTR (BOM) 594 : ( 2009) 18 DTR (BOM) 58 NOT FOLLOWED. 16 FURTHER IT IS OBSERVED THAT THE LEARNED COMMISS IONER OF INCOME-TAX (APPEALS) HAS FOLLOWED THE DECISION OF T HE HON'BLE KARNARTAKA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER CO. LTD. VS. DCIT REPORTED IN 286 ITR 182 (KAR) WHEREIN IT WAS HELD THAT LIABILITY FOR PAYMENT OF ADVANCE TAX IN RESPECT OF INCOME CHARGEABLE UNDER S. 115JB AROSE ON THE INSERTION OF S. 115JB BY FINANCE ACT 2000 AND NOT ONLY IN VIEW OF THE P ROVISIONS OF S. 115JB(1) AS AMENDED BY FINANCE ACT 2002 AND T HEREFORE RETROSPECTIVE AMENDMENT OF S. 115JB(1) BY THE FINAN CE ACT 2002 W.E.F. 1ST APRIL 2001 CANNOT AT ALL BE SAID TO BE UNREASONABLE EXCESSIVE OR HARSH SO AS TO DECLARE I T AS UNCONSTITUTIONAL; PETITIONER WAS LIABLE TO PAY INTE REST UNDER SS. 234B AND 234C FOR ASST. YRS. 2001-02 AND 2002-0 3 EVEN THOUGH ITS INCOME WAS ASSESSED UNDER S. 115JB. THEREFORE THIS GROUND OF APPEAL OF THE ASSESSEE I S DISMISSED. 17 IN THE RESULT THE APPEALS OF THE ASSESSEE ARE P ARTLY ALLOWED AS ABOVE. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 26-02-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 26-02-2010 16 COPY OF THE ORDER FORWARDED TO : 1. M/S AARVEE DENIMS & EXPORTS LIMITED 188/2 RANI PUR PATIA NAROL AHMEDABAD 2. THE ITO WARD-1(3) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-V AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD