K.K. Boliya, A.M. - (1.) THIS appeal has been filed by the assessee against the order dated 18-2-2002 of Commissioner (Appeal)-II, Mumbai. The ground Nos. 1 and 2, which pertain to same issue are as under: (i) On the facts and circumstances of the case and in law, the learned Commissioner (Appeal) erred in not accepting the contention of the appellant that what is required to be deducted in computation of book profit in terms of clause (v) of the Explanation to section 115JA is book profit of section 80-IA(b)(iv)(c) qualifying industrial undertaking as per its profit & loss account and not the amount of profit computed in terms of provisions of Chapter IV-D of the Income Tax Act. (ii) The learned Commissioner (Appeal) erred in not referring to and accepting the contention of the appellant that its claim was squarely covered by the decision of Kerala High Court in CIT v. GTN Textiles Ltd. (2001) 248 ITR 372 (Ker). The learned Commissioner (Appeal) ought to have followed the impugned judgment of the High Court as the only Judgment dealing directly with the issue on hand.
(2.) The relevant facts are that the appellant company is engaged in the manufacturing of positive displacement pumps. The manufacturing unit is located at Daman and the assessee is entitled to 100% exemption under section 80-IA of the Income Tax Act. In the return of income filed by the assessee, profits and gains arising from manufacturing activity were calculated as per the provisions of the Income Tax Act at Rs. 16,58,865. The aforesaid entire business income was claimed exempt under section 80-IA and the income from other sources of Rs. 2,15,615 was offered for tax. Similarly, the assessee company computed its book profits for the purpose of section 115JA. The total book profits amounted to Rs. 73,73,691, which included profits derived from the manufacturing activity at Rs. 71,32,210, which was claimed exempt under section 80-IA. Accordingly, the balance income of Rs. 2,41,481 being the book profits were considered by the assessee for the purpose of section 115JA. The assessing officer, while computing the profits for the purposes of section 115JA, recomputed the exemption admissible under section 80-IA as per the provisions of the Income Tax Act, with the result that the quantum of deduction available under section 80-IA was calculated by the assessing officer at Rs. 16.19 lakhs as against Rs. 71.32 lakhs calculated by the assessee. This variation was mainly on account of the fact that the assessee has considered depreciation as per the books of account at Rs. 27,27,801 whereas the assessing officer deducted depreciation at Rs. 81,86,700 as per the provisions of the Income Tax Act. The assessing officer's action has been confirmed by the learned Commissioner (Appeal) and that is how the dispute has come up before us for adjudication. The learned counsel appearing on behalf of the assessee forcefully contended that provisions of section 115JA do not visualize or permit adjustment made by the assessing officer in the quantum of income exempt under section 80-IA. It is submitted that depreciation as provided in the books of account cannot be varied by the assessing officer while computing book profits tinder section 80-IA. The learned counsel strongly relied on the Kerala High Court judgment in the case of GTN Textiles Ltd. (2001) 248 ITR 372 (supra) and invited our attention to the ratio of this judgment, which is reproduced below from the head note: "According to section 115J of the Income Tax Act, which begins with a non obstante clause, book profits are to be treated as net profit. Section 80HH(3) and (3A) give concessions to exporters and section 80HHD gives concessions to those people who earn in convertible foreign exchange. Originally, section 115J did not take into account the deductions under sections 80HHC and section 80HHD but this was included subsequently. If the profit was to be computed on the basis of the profits and gains of business or profession that would go against the very object of section 115J of the Act. In clause (iv) of the Explanation to section 115J the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 are entirely made applicable. Such an intention is not there is clause (iii). Hence, under clause (iii), Explanation, it is not the profit as computed under the head 'profits and gains of business or profession' that is to be applied. Instead of the words 'profits and gains of business or profession' occurring in sub-sections (3) and (3A) of section 80HHC or sub-section 30 of section 80HHD, the word 'profit' that is mentioned in section 115J has to be applied. Clause (iii) does not say that section 80HHC of the Act is applicable as such. It only say that the profit shall be determined in the manner provided in that section. Section 80HHC of the Act is made applicable to the extent only for calculating the deduction." In the above case, the High Court held that the Tribunal was correct in holding that under section 115J, Explanation, clause (iii) of the Act, profit to be taken into consideration was profit as per the books of account and not as calculated under the Act.
(3.) THE learned counsel also drew support from the ITAT, Hyderabad Bench decision in the case of Starchik Speciality Ltd. v. Dy. CIT (2004) 90 ITD 34 (Hyd). THE ratio of this case may be reproduced below from the headnote : "THE invocation of section 115J and section 115JA implies two distinct procedures, (1) determination of income under the normal provisions of the Act, which include section 80A(2) and section 80B(5), relied on by the revenue and (2) determination of the book profit subject to the specified adjustments, and a comparison of the two results obtained by the two procedures. So, section 80A(2) and section 80B(5) which are applicable only in the first procedure, have no role to play in working out the deduction under section 80HHC eligible for being reduced for arriving at the book profit in terms of clause (iii) of Explanation of section 115J or clause (viii) of Explanation to section 115JA. THEre was no force in the contention on behalf of revenue that in terms of section 115JA(4), all other provisions of the Act shall apply to every assessee in respect of whom provisions of section 115JA are invoked, and so, section 80A(2) and section 80B(5) are also applicable for the purpose of determining the book profit under section 115J. Section 115JA(4) itself makes it clear that other provisions apply only when it is not otherwise provided in the section. Thus, the language of section 115JA(1) and Explanation thereto rules out the applicability of section 80A(3) and section 80B(5). Accordingly, that aspect of the matter was to be decided in favour of the assessee." THE learned counsel for the assessee submitted that the revenue authorities were wholly unjustified in making adjustment, which is not permissible under the law.;