Commissioner of Income Tax vs Ucal Fuel Systems Ltd.

K. Raviraja Pandian, J.—By formulating the following Substantial Question of Law, the Revenue is on appeal against the order of the

Income Tax Appellate Tribunal, Madras ""C"" Bench, dated 11.5.2007 made in ITA. No. 1610/Mds/2006. The relevant assessment year is 2001-

2002.

Whether, in the facts and circumstances of the case, the Tribunal was right in allowing deduction u/s 80HHC on the basis of book profits u/s

115JB even though the eligible profits u/s 80HHC was Nil as per normal computation?

The facts as culled out from the statement of facts in the memorandum of grounds are as follows:

For the assessment year 2001-02, the assessment was made on book profit basis. The assessee claimed that the benefit u/s 80HHC of the Act

should be calculated taking the book profit as profits of the business. Since the actual profits of the business as per regular working was Nil and the

carried forward losses had been set off, the Assessing Officer held that the assessee is not eligible for deduction u/s 80HHC of the Act. Aggrieved

by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of

Income Tax (Appeals) confirmed the order of the Assessing Officer upheld the terms of the provisions contained in Sub-clause (iv) to explanation

(2) to Section 115JB of the Act. However, the Income Tax Appellate Tribunal on appeal being taken to it held that the computation of deduction

u/s 80HHC of the Act is to be worked out on the basis of the adjusted book profits, since this is a MAT assessment. The correctness of the said

order is now canvassed before this Court by filing this appeal.

We heard the argument of the learned Senior Standing Counsel for the Revenue, who fairly submits that the issue involved in this case is covered

by a decision of the Division Bench of this Court in which one of us is a party (K.Raviraja Pandian, J.) in Commissioner of Income Tax Vs.

Rajanikant Schnelder and Associates P. Ltd., , wherein after taking into consideration the ratio laid down by the Apex Court in M/s. Surana Steels

Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax and Ors, and in Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, , this Court

has held as follows:

We are not able to subscribe our view to the grounds taken in the appeal that the deduction u/s 80HHC is allowable only on the profit 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 u/s 80HHC should be

based on the profit ascertained u/s 115JA only but not on income computed u/s 28 to 44 of the Act. The Tribunal after considering the judgments

of the Supreme Court in the case of M/s. Surana Steels Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax and Ors, and in the case of

Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, and analysing 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. Commissioner of Income Tax,

Kochi, , wherein it was held that the assessing officer while computing the book profits of a company u/s 115J of the Income Tax Act, 1961, has

only the power to examine whether such books of accounts 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 to 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 scrutinised and certified by 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 115J 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.

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 u/s 115J and the book profit so arrived at should be the basis for taxation and therefore the

computation u/s 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 obstinate Clause available in Section 115JA it was clear that the provision 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.

Following the same, the tax case appeal is liable to be dismissed and accordingly, the same is dismissed.