AVT Natural Products Ltd. vs Dy. CIT

M.M. Sundresh, J.—The Assessee has come up on appeal challenging the order passed by the Tribunal in I. T A. No. 3086/Mds/1993, dated 29-7-2002 by raising the following questions of law:

Whether the Tribunal was, in the light of Circulars Nos. 559 of 1990 and 680 of 1994 and the decision of the Supreme Court in K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, Paper Products Ltd. Vs. Commissioner of Central Excise, and Commissioner of Sales Tax, U.P. Vs. M/s. Indra Industries, and this Hon''ble court in the case of Special Steel Products Vs. Commissioner of Income Tax and Another, right in law in not dismissing the appeal filed by the department as not maintainable in so far as it relates to the computation of relief in respect of export profit under Clause (iii) of the Explanation to Section 115J?

Whether on the facts and in the circumstances of the case and in the light of Circulars Nos. 559 of 1990 and 680 of 1994 issued by the Central Board of Direct Taxes which has been upheld by the Kerala High Court, as correct in Commissioner of Income Tax Vs. G.T.N. Textiles Ltd., whether the Tribunal was right in upholding the order of the assessing officer denying the Appellants claim for deduction in respect of export profit as envisaged under Clause (iii) of the Explanation to Section 115J of the Income Tax Act, 1961 while computing the book profit under the said section?

The facts in brief:

The Assessee is a company registered under the Companies Act, 1956. For the assessment year 1990-91, the Assessee filed its return of income declaring an income of Rs. 22,09,360 being 30 per cent, of the book profit, as prescribed u/s 115J of the Income Tax Act. The assessment was initially completed u/s 143(1)(a) of the Act and the assessing officer, in pursuance of the intimation given u/s 143(2) of the Act, has completed the assessment u/s 143(3) of the Act, rejecting the claim of the Assessee for deduction in respect of export profits under the provisions of Clause (iii) of the Explanation to Section 115J of the Act.

2.2 Challenging the said order of rejection of the Assessees request for declaring an income bearing 30 per cent, of the book profit, the Assessee filed an appeal. The Commissioner (Appeals) has allowed the appeal by holding that the book profit entered into by the Assessee and verified by the authorities under the Companies Act, will have to be accepted by the assessing officer.

2.3 The further appeal made by the revenue was allowed by the Tribunal and therefore, the Assessee has filed the present appeal.

The questions of law raised in this appeal have already been decided by this Court in Commissioner of Income Tax Vs. Rajanikant Schnelder and Associates P. Ltd., wherein this Court was pleased to hold that the assessing officer does not have any power to embark upon a further enquiry relating to the entries made in the books of the company. In other words the book profit arrived at should be the basis for taxation. It is further held that the assessing officer while computing the book profit of a company u/s 115J of the Act, has only a power to examine as to whether such books of account are certified by the authorities under the Companies Act. Therefore, the assessing officer is not entitled to go into the profit and loss account prepared by the Assessee as per the provisions contained under the Companies Act and the book profit arrived at should be the basis for taxation and therefore, the computation u/s 80HHC of the Act, should be limited to the case of profits of eligible category only. It is also admitted by the learned Counsel for the Respondent that the said decision of the Division Bench of this Court, was subsequently followed by this Court in another case as well.

Considering the law laid down by this Court and applying the same to the facts on hand, we are of the opinion that the questions of law raised will have to be answered in favor of the Assessee. Accordingly, the questions of law are answered in favor of the Assessee and the appeal is allowed by setting aside the order of the Tribunal and restoring the order passed by the Commissioner (Appeals). No costs. Consequently, M.P. No. 1 of 2010 is closed.