The Commissioner of Income Tax-II vs Sri Vishnu Shankar Mills Ltd.

F.M. Ibrahim Kalifulla, J.—The revenue has come forward with this appeal and seeks to raise the following question of law as substantial

question of law:

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

80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted books profits u/s 115JA of the Income Tax Act, 1961 is

valid?

This very question came to be considered by this Court in the decision reported in Commissioner of Income Tax Vs. Rajanikant Schnelder and

Associates P. Ltd., and after detailed analysis, has held as under in paragraph 5.

The Assessing Officer is not entitled to touch the profit and loss account pre pared 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.

It was fairly pointed out by the learned Standing Counsel that against the decision of this Court referred to above, the Bombay High Court took

a contrary view in the decision reported in The Commissioner of Income Tax-9 Vs. Ajanta Pharma Ltd., , which came to be again distinguished by

this Court in the decision reported in CIT v. Ambika Cotton Mills Ltd. 321 ITR 448. Subsequently, it is stated that the decision reported in The

Commissioner of Income Tax-9 Vs. Ajanta Pharma Ltd., , of the Bombay High Court came to be set aside by the Honourable Supreme Court in

the decision reported in Ajanta Pharma Ltd. Vs. Commissioner of Income Tax-9, Mumbai, .

Before the Honourable Supreme Court, the question of law framed for consideration was as under:

Whether for determining the ""book profits"" in terms of Section 115JB, the net profits as shown in the profit and loss account have to be reduced

by the amount of profits eligible for deduction u/s 80HHC or by the amount of deduction u/s 80HHC ?

The Supreme Court ultimately answered the question in paragraph 10, which reads as under:

One of the contentions raised on behalf of the Department was that if Clause (iv) of the Explanation to Section 115JB is read in entirety including

the last line thereof (which reads ""subject to the conditions specified in that section""),it becomes clear that the amount of profits eligible for

deduction u/s 80HHC, computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A), as the case may be, is

subject to the conditions specified in that section. According to the Department, the Assessee herein is trying to read the various provisions of

Section 80HHC in isolation whereas as per Clause (iv) of the Explanation to Section 115JB, it is clear that the book profit shall be reduced by the

amount of profits eligible for deduction u/s 80HHC as computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-

section(3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction

allowable would be only to the extent of deduction computed in accordance with the provisions of Section 80HHC. Thus, according to the

Department, both ""eligibility"" as well as ""deductibility"" of the profit have got to be considered together for working out the deduction as mentioned

in Clause (iv) of the Explanation to Section 115JB. We find no merit in this argument. If the dichotomy between ""eligibility"" of profit and

deductibility"" of profit is not kept in mind then Section 115JB will cease to be as elf-contained code. In Section 115JB, as in Section 115JA, it has

been clearly stated that the relief will be computed u/s 80HHC(3)/(3A), subject to the conditions under Sub-sections (4) and (4A) of that section.

The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a

compliance condition. Therefore, one cannot rely upon the last sentence in Clause (iv) of Explanation to Section 115JB (subject to the conditions

specified in Sub-sections (4) and (4A) of that section) to obliterate the difference between ""eligibility"" and"" deductibility"" of profits as contended on

behalf of the Department.

Inasmuch as the question of law raised in this appeal, is thus, covered by the decision of this Court in the decision reported in Commissioner of

Income Tax Vs. Rajanikant Schnelder and Associates P. Ltd., as well as that of the Supreme Court reported in Ajanta Pharma Ltd. Vs.

Commissioner of Income Tax-9, Mumbai, , there is no scope to entertain this appeal. Accordingly, the appeal fails and the same is dismissed.