Commissioner of Income Tax vs Rajanikant Schnelder and Associates P. Ltd.

K. Raviraja Pandian, J.—The appeal is filed against the order of the Income Tax Appellate Tribunal, Madras "A" Bench, made in I.T.A. No. 346/Mds/2002 dated February 20, 2003. The relevant assessment year is 1998-99. The substantial question of law formulated for entertainment of the appeal is as follows:

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee having no profits from the export is eligible for the deduction u/s 80HHC on its book profits u/s 115J?

For the assessment year 1998-99, the assessee filed its return. The Assessing Officer disallowed the claim of the assessee in respect of the deduction u/s 80HHC, on the ground that the book profit income computed u/s 115JA was a negative income. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the assessment order on the ground that the assessee did not have any profit or gain from the business under Sections 28 to 44B of the Act. The Commissioner of Income Tax (Appeals) held that the book profits will not be eligible for deduction u/s 80HHC of the Act. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee filed appeal to the Income Tax Appellate Tribunal and the Tribunal allowed the appeal. The correctness of the said order is canvassed in this appeal. We heard the arguments of learned Counsel on either side and perused the materials on record.)

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 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 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 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 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 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 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.

Further, the tax effect in this case is less than as provided in the Central Board of Direct Taxes Circular in F. No. 279/126/98-ITJ and hence the appeal filed by the Revenue in the light of the circular cannot be legally maintainable. Hence on the abovesaid view of the matter, the appeal requires no consideration and the same is dismissed.