The Commissioner of Income Tax vs Chandra Textiles Ltd.

K. Raviraja Pandian, J.—The revenue is on appeal against the order of the Income Tax Appellate Tribunal, Madras ''D'' Bench, Chennai

dated 20.07.2007 made in ITA No. 1469(Mds)/2005.

The facts necessary for the disposal of the appeal are as follows : The assessee, a company, filed a return of income on 22.10.2001 admitting

Nil income as per the normal provisions of the Income Tax Act and Rs. 64,93,574/- computed u/s 115JB of the Act. The return was processed

u/s 143(1) of the Act on 22.10.2002 and the case was selected for scrutiny for verifying the correctness of the claim of deduction u/s 80HHC of

the Act. The assessee, in the meantime, filed a revised return on 07.10.2002 admitting Nil income under the normal provisions of the Act and Rs.

69,38,065/- computed u/s 115JB of the Act. The assessing officer finalised the assessment by rejecting the claim of the assessee for deduction u/s

80HHC of the Act from the income computed u/s 115JB of the Act. The assessee carried the matter on appeal before the Commissioner of

Income Tax (Appeal), who allowed the appeal in favour of the assessee. The Tribunal also confirmed the order of the Appellate authority on an

appeal filed by the revenue. The correctness of the same is now canvassed before us by the revenue by raising the following substantial questions

of law:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that deduction u/s

80HHC of the Act in the case of MAT assessment is to be worked out on the basis of the adjusted book profits u/s 115JA of the Act and not on

the basis of profit computed under regular provision of law applicable to computation of profit and gains of business or profession?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that disallowance made

u/s 80HHC of the Act adopting book profit u/s 115JB of the Act as profit from export business and also without restricting it as provided u/s

80HHC(1B) of the Act is proper?

Heard the learned Counsel for the appellant and perused the materials available on record.

Similar question of law came up for consideration before the Division Bench of this Court in which one of us was a party (K. Raviraja Pandian,

J.) in the case of Commissioner of Income Tax Vs. Rajanikant Schnelder and Associates P. Ltd., . While considering the issue, the Division Bench

has observed 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 profits 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 under Sections 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 analyzing 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 account 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 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 scrutinized and certified by the 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 115H 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 obstante Clause available in Section 115JA it was clear that the provisions 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.

The above extracted observation of the Division Bench which followed the Supreme Court Judgments would answer even the 2nd question of

law extracted above. Following the said decision, the appeal is dismissed. No costs.