Ajanta Pharma Ltd v. I.t.a

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASTHURSDAY, THE 15 DAY OF JULY 2021 / 24TH ASHADHA, 1943 ITA NO. 49 OF 2009 AGAINST THE ORDER IN ITA 798/2007 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAXCOCHIN. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: KITEX GARMENTS LTD., KIZHAKKAMBALAM BY ADV SRI.A.KUMAR OTHER PRESENT: THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 15.07.2021,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No.49/2009 J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Advocate Mr. A Kumar for the parties. 2.Commissioner of Income Tax, Cochin/Revenue is theappellant. Kitex Garments Ltd, Kizhakkambalam/assessee is the respondent. The appeal is directed against the order of IncomeTax Appellate Tribunal (for short ‘Tribunal'), Cochin Bench inITA No.798/Coch/2007 dated 28.08.2008. The appeal deals withthe issues arising from the tax return filed by the assessee forthe Assessment Year 2003-04. 3.The Assessing Officer through the assessment order in Annexure-A, disallowed the claim of the assessee underSection 80HHC of the Income Tax Act (for short 'the Act'). The I.T.A. No.49/2009 assessee filed appeal before the Commissioner of Income Tax(Appeals), the appeal was allowed. The Revenue filed appealbefore the Tribunal and the Tribunal through order inAnnexure-C dismissed the appeal. Hence, the instant TaxAppeal at the instance of the Revenue under Section 260A of the Income Tax Act (for short 'the Act'). The following substantialquestions of law are raised by the Revenue: “1.Whether, on the facts and in the circumstances of thecase and also in the light of the principle laid down by thesupreme Court in IPCA (266 ITR 521) read with Section 80ABwhile computing book profit under Section 115JB, the assesseeis entitled to claim deduction under Section 80 HHC for anamount of Rs.65,20,772/-? 2.Whether, on the facts and in the circumstances of thecase and also in the light of reasoning contained in 265 ITR 114(Bom) the assessee is entitled to claim depreciation at 40% oncommercial vehicles used for assessee's own business?” 4.The first substantial question of law raised in the appeal relates to eligibility of profits and deductibility of profits I.T.A. No.49/2009 arising under Section 115JB of the Act; whether the assessee isentitled to claim deduction under Section 80HHC for an amountof Rs.65,20,772/-. The second substantial question of law refersto whether the percentage of depreciation accepted by the CIT(Appeals) and Tribunal at 40% is correct or not. 5.The learned counsel appearing for the parties haveinvited the attention of this Court to the reported judgments in Ajanta Pharma Ltd. v. Commissioner of Income-Tax[1], order of theSupreme Court in Kerala Chemicals and Proteins Ltd v.Commissioner of Income Tax[2] and Commissioner of Income-Tax v.Bhari Information Tech. System (P) Ltd[3] to state that the issue isconcluded by these judgments in favour of assessee. Theoperative portion of the reported judgments is excerptedhereunder: 1[2010] 327 ITR 305 (SC) 2Civil Appeal No.6901/2012, arising out of SLP(C) No.22881/20113[2012] 340 ITR 593 (SC)3[2012] 340 ITR 593 (SC) I.T.A. No.49/2009 Ajanta Pharma Ltd 5.The learned counsel appearing for the parties haveinvited the attention of this Court to the reported judgments in Ajanta Pharma Ltd. v. Commissioner of Income-Tax[1], order of theSupreme Court in Kerala Chemicals and Proteins Ltd v.Commissioner of Income Tax[2] and Commissioner of Income-Tax v.Bhari Information Tech. System (P) Ltd[3] to state that the issue isconcluded by these judgments in favour of assessee. Theoperative portion of the reported judgments is excerptedhereunder: 1[2010] 327 ITR 305 (SC) 2Civil Appeal No.6901/2012, arising out of SLP(C) No.22881/20113[2012] 340 ITR 593 (SC)3[2012] 340 ITR 593 (SC) I.T.A. No.49/2009 Ajanta Pharma Ltd If the dichotomy between "eligibility of profit and"deductibility" of profit is not kept in mind then section 115JBwill cease to be a self-contained code. In section 115JB, as insection 115JA, it has been clearly stated that the relief will becomputed under section 80HHC(3)/(3A), subject to theconditions under sub-sections (4) and (4A) of that section. Theconditions are only that the relief should be certified by thechartered accountant. Such condition is not a qualifyingcondition but it is a compliance condition. Therefore, onecannot rely upon the last sentence in clause (iv) of Explanationto section 115JB (subject to the conditions specified in sub-sections (4) and (4A) of that section) to obliterate the differencebetween "eligibility" and "deductibility" of profits ascontended on behalf of the Department. For the above reasons, we set aside the impugned judgment ofthe High 11 Court and restore the judgment of the Tribunal.Accordingly, the civil appeal of the assessee is allowed with noorder as to costs.” Civil Appeal No.6901 of 2012 [Arising out of S.L.P. (C) No.22881/2011] “The civil appeal filed by the assessee is allowed in view of thejudgements of this Court in the case of Ajanta Pharma Limitedvs. 327 I.T.R. Commissioner of Income Tax, 305 and I.T.A. No.49/2009 Commissioner of reported in [2010] Income Tax vs. BhariInformation Tech. Sys. P. Ltd., reported in [2012] 340 I.T.R. 593. Bhari Information Tech. Sys. P. Ltd. “In the present case, we are concerned with section 80HHEwhich is referred to in the Explanation to section 115JA, clause(ix). In our view, the judgment of the Special Bench of theTribunal in Syncome Formulations¹ squarely applies to thepresent case. Following the view taken by the Special Bench inSyncome Formulations, the Tribunal in the present case cameto the conclusion that deduction claimed by the assessee undersection 80HHE has to be worked out on the basis of adjustedbook profit under section 115JA and not on the basis of theprofits computed under regular provisions of law applicable tocomputation of profits and gains of business. The judgment ofthe Tribunal has been upheld by the High Court.” 5.1Substantial question no.1 having regard to theprinciples laid down by the Supreme Court in the reported andunreported judgments referred to above, is covered in favour ofthe assessee and against the Revenue. Hence, the question isanswered accordingly in favour of assessee and against the I.T.A. No.49/2009 Revenue. 5.2Substantial question no.2 deals with the percentageof depreciation which the assessee is entitled to on the vehicles used by the assessee for its commercial purpose. Paragraph 4 ofthe order of the Tribunal reads thus: 5.1Substantial question no.1 having regard to theprinciples laid down by the Supreme Court in the reported andunreported judgments referred to above, is covered in favour ofthe assessee and against the Revenue. Hence, the question isanswered accordingly in favour of assessee and against the I.T.A. No.49/2009 Revenue. 5.2Substantial question no.2 deals with the percentageof depreciation which the assessee is entitled to on the vehicles used by the assessee for its commercial purpose. Paragraph 4 ofthe order of the Tribunal reads thus: “The Andhra Pradesh High Court in the case of CIT vs. AMconstructions- 238 ITR 775 - has examined the expression"running on hire" and has held that it does not say that thebusiness should be exclusively used for hire by the assessee.This judgment clinches the issue. If the assessee has notdeployed its own vehicles in the business carried on by it, theassessee would have obliged to take vehicles on hire fortransporting its goods and merchandise. It means the vehiclesdeployed by the assessee in its business were carrying on thesame functions of the vehicles taken on hire. Therefore, in thelight of the interpretation given by the Andhra Pradesh HighCourt in the above case, we find that the decision of theCIT(Appeals) is just and proper. This ground fails.” 6.Old appendix I applicable for the Assessment Year 2003-04 deals with different slabs of depreciation applicable to I.T.A. No.49/2009 vehicles used for different purposes. After juxtaposing theschedule with the nature of activity carried on by the assessee,we are of the view that the finding of fact recorded by theTribunal is in accordance with the said schedule and thesubstantial question of law in the facts and circumstances ofthis case does not arise for consideration under Section 260A ofthe Act. The two questions framed in the appeal, since are heldagainst the Revenue and in favour of assessee the appeal standsdismissed accordingly. Sd/- S.V.BHATTIJUDGE Sd/- BECHU KURIAN THOMASJUDGE I.T.A. No.49/2009 PETITIONER ANNEXURE ANNEXURE A ANNEXURE B ANNEXURE C APPENDIX OF ITA 49/2009 TRUE COPY OF THE ASSESSMENT ORDER DATED 28.09.2006 FOR THE ASSESSMENT YEAR 2003-04. TRUE COPY OF THE ORDER DATED 19.06.2007 OF THE COMMISSIONER OF INCOME TAX (APPEALS) TRUE COPY OF THE ORDER DATED 28.8.2008 OF THE INCOME TAX APPELLATE TRIBUAL, COCHIN BENCH IN ITA NO.798/COCH/2007