Commissioner of Income Tax vs Lakhani Rubber Udyog Ltd.

J.S. Narang, J.—This judgment would dispose of two I.T.A Nos. 81 and 82 of 2006, as common questions of law and facts are involved in both these appeals. The facts are being taken from I.T.A. No. 81 of 2006.

The instant appeal has been filed by proposing the following questions of law for consideration:

(a) Whether on the facts and in the circumstances of the case the hon''ble Income Tax Appellate Tribunal erred in law in confirming the order of the Commissioner of Income Tax (Appeals) in holding that the profit of the business eligible for deduction u/s 32AB of the Act would not get reduced on allowing deduction of expenditure on scientific research u/s 35 ?

(b) Whether on the facts and in the circumstances of the case the hon''ble Income Tax Appellate Tribunal erred in law in confirming the order of the Commissioner of Income Tax (Appeals) in holding, that the order was wrongly passed by the Assessing Officer u/s 154 of the Act as there was no mistake apparent from record ?

The brief facts which need to be noticed are that the assessee filed a return of income on July 29, 1988, declaring income of Rs. 17,34,554. The assessment had been finalised by the Assessing Officer vide order dated March 11, 1992, for the assessment year 1988-89. The assessee had made a claim of Rs. 27,61,348 u/s 35 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The total cost of assets on account of scientific research has been given as Rs. 36,57,523. The total cost of land and depreciation thereon have been quantified as Rs. 1,50,350 and Rs. 7,45,825 respectively. The net claim of Rs. 27,61,348, has been made. A reference had been made to the prescribed authority. The report had not been received and the assessment was getting barred by limitation as on March 31, 1992. Thus, the report was not awaited and the assessment was finalised. The deduction u/s 32AB of the Act, i.e., 1/5th of the amount so determined had been allowed.

By order dated March 10, 1998, the deduction u/s 32AB of the Act, was held to be in excess and the same was rectified vide the aforesaid order.

The assessee challenged the aforesaid order by way of an appeal before the Commissioner of Income Tax (Appeals), which was allowed, vide order dated October 10, 2001 and the deduction u/s 32AB of the Act, had been allowed.

The Revenue felt aggrieved by the aforesaid order and challenged the same by way of an appeal before the Income Tax Appellate Tribunal, Delhi Bench, New Delhi. The appeal has been dismissed, vide order dated June 27, 2005, which has been questioned in the instant appeal by way of proposing the aforesaid questions of law.

The question considered by the Tribunal is: Whether as per the provisions of Section 32AB of the Act, the profits of the business eligible for deduction under the said provision would get reduced on allowing deduction of expenditure on scientific research u/s 35 of the Act ? It has been interpreted that as per Section 32AB(3) "profits of the business or profession" for the purpose of Section 32AB(1) of the Act, would be an amount arrived at after deducting an amount equal to the depreciation computed according to the requirements of Part II and Part III of Schedule VI to the Companies Act, 1956. It is obvious that there is no mention of Section 35 of the Act in the provision contained u/s 32AB of the Act. Thus, it would not be correct to say that on allowing deduction of expenditure on scientific research u/s 35, the profits of the business eligible for deduction u/s 32AB would get reduced. Result-antly, the Tribunal has held that the order u/s 154 of the Act, had been wrongly passed by the Assessing Officer. The order of the Commissioner of Income Tax (Appeals) has been upheld.

Learned Counsel for the appellant has not been able to address any meaningful argument to controvert the view taken by the Commissioner of Income Tax (Appeals), which has been further affirmed by the Tribunal. The contention is that it is a case of simple accountancy; once the Assessing Officer allowed deduction under 35, the profits of business or profession of the assessee got reduced, simultaneously reducing the eligible profits for the purpose of Section 32AB of the Act, would not be sustainable. Thus, deduction u/s 32AB of the Act entailed recomputation on the basis of allowing deduction u/s 35. Thus, the excess deduction would not be sustainable.

We find that the argument is totally fallacious and is not sustainable. We do not find any infirmity in the order dated October 10, 2001, passed by the learned Commissioner of Income Tax (Appeals), which has been further affirmed by the Tribunal by making a categoric observation that the profits of the business or profession shall be an amount equal to the depreciation computed according to the requirements of Part II and Part III of Schedule VI to the Companies Act, 1956. No question of law arises for consideration of this court.

Dismissed.