The Commissioner Of Income Tax Central I, Chennai v. M/S. Jumbo Bag Ltd., 58 Halls Road Kilpauk Chennai 600 010

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 30.04.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeal)Nos.6 and 8 of 2009 The Commissioner of Income Tax Central I, Chennai ... Appellant in both this cases.Vs. M/s. Jumbo Bag Ltd.,58 Halls RoadKilpaukChennai 600 010.... Respondent in both this cases. Tax Case Appeals filed under section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal, Madras'B' Bench, Chennai, dated 4.07.2008 passed in ITA No.354and 355 /Mds/2008 relating to the assessment year 2001-2002 and 2002-2003against the order of Commissioner of Income Tax-Central-I,Madras-34dated.20.3.07 in C.No.1523/1A/C-1/06-07; & C.No.1523/1B/C-1/06-07,and arising out of the Assessment order of Assistant Commissioner ofIncome Tax, Central Circle-IV(2) Madras-34,dated.3.12.07; inPAN/GIR.No.AAACJ1784D respectively. For appellant :Mr.J.NarayanasamyJUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The revenue is on appeal against the order of the Income TaxAppellate Tribunal, dated 4.07.2008 passed in ITA Nos.354 and 355 /Mds/2008 relating to the assessment years 2001-02 and 2002-03. 2. The assessment in the case of the assessee for the assessmentyear 2001-02 was completed under section 143(3) r.w.147 of the I.T.Act on 31.1.2005 on the basis of computation book profit underSection 115JB Rs.77,57,105. The original assessment for theassessment year 2002-03 was completed under Section 143(3) on31.1.2005 determining the book profit under Section 115JB atRs.81,23,508/- While completing the assessment the Assessing Officer https://hcservices.ecourts.gov.in/hcservices/ (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The revenue is on appeal against the order of the Income TaxAppellate Tribunal, dated 4.07.2008 passed in ITA Nos.354 and 355 /Mds/2008 relating to the assessment years 2001-02 and 2002-03. 2. The assessment in the case of the assessee for the assessmentyear 2001-02 was completed under section 143(3) r.w.147 of the I.T.Act on 31.1.2005 on the basis of computation book profit underSection 115JB Rs.77,57,105. The original assessment for theassessment year 2002-03 was completed under Section 143(3) on31.1.2005 determining the book profit under Section 115JB atRs.81,23,508/- While completing the assessment the Assessing Officer https://hcservices.ecourts.gov.in/hcservices/ had allowed deductions under Section 80HHC of Rs.9,19,200/- on thebook profit under Section 115JB for the assessment year 2001-02 andRs.18,71,525/- on the book profit under Section 115JB for theassessment year 2002-03. On perusal of the records relating to theabove assessment years, the Commissioner of Income Tax found thatwhen the taxable income was nil after setting off depreciation forthe respective assessment years, no deduction under Section 80 HHCwas allowable. Hence, a notice under Section 263 was issued callingupon the assessee to submit its explanation as to why the claim ofdeduction under Section 80HHC should not be withdrawn. The assesseesubmitted its reply stating that when two views are possible andthe assessing officer had followed one view the Commissioner ofIncome Tax could not hold that the assessment was erroneous andprejudicial to the interests of the revenue and take action underSection 263 of the Act. The assessee placed reliance on thedecision of the Gujarat High court in the case of Commissioner ofIncome Tax Vs.Arvind Jewellers (259 ITR 502). The Commissioner ofIncome Tax did not accept the assessee's contention that theassessing officer had consciously followed a particular view. TheCommissioner of Income Tax has recorded a finding that the assessmentorder clearly showed that the assessing officer had not applied hismind to this issue at all. The Commissioner of Income Tax alsorejected the assessee's objection that when two views are possiblethe Commissioner of Income Tax could not invoke the jurisdictionunder Section 263. Thus, the Commissioner of Income Tax set asidethe assessments made by the assessing officer for the assessmentyears 2001-02 and 2002-03 with a direction to redo the assessmentafter withdrawing the deduction under section 80 HHC wrongly allowedwhile computing book profit under section 115JB. Aggrieved by theorder of the Commissioner of Income-tax , the assessee filed appealsbefore the Income-tax Appellate Tribunal and the Tribunal allowedthe appeals in favour of the assessee by following the decision ofthe Special Bench of Mumbai Tribunal in the case of DCIT VS. SYNCOMEFORMULATIONS (I) LTD (2007)(106 ITD 193) and the decision of theSupreme court in the case of MALABAR INDUSTRIES CO. LTD VS.COMMISSIONER OF INCOME TAX (243 ITR 83). Aggrieved by the same, therevenue has filed this appeal by formulating the following questionof law: "Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal wasright in cancelling the order of the Commissionerof Income Tax under section 263 on the ground thatdeduction under section 80HHC was allowable on thebasis of book profits and not on the basis ofeligible profits under Section 80HHC as percomputation under the normal provisions of theIncome Tax Act, while computing the books profitsunder Section 115JB ? 3. We have heard the argument of the learned counsel for therevenue and perused the materials available on record. "Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal wasright in cancelling the order of the Commissionerof Income Tax under section 263 on the ground thatdeduction under section 80HHC was allowable on thebasis of book profits and not on the basis ofeligible profits under Section 80HHC as percomputation under the normal provisions of theIncome Tax Act, while computing the books profitsunder Section 115JB ? 3. We have heard the argument of the learned counsel for therevenue and perused the materials available on record. 4. The issue involved in the present appeals is squarely coveredby the decision of a Division Bench of this Court in which one of us(K.Raviraja Pandian,J) was a party in the case of Commissioner ofIncome Tax vs. Rajanikant Schnelder and Associates P. Ltd., reportedin 302 ITR 22), wherein it has been observed as follows:- "4. We are not able to subscribe our view tothe grounds taken in the appeal that the deductionunder Section 80 HHC is allowable only on theprofits and gains arrived at under Sections 28 to44B of the Income Tax Act. In the case on hand, itis the stand of the assessee that the relief undersection 80HHC should be based on the profitascertained under Section 115JA only but not onincome computed under Sections 28 to 44 of the Act.The Tribunal after considering the Judgments of theSupreme Court in the case of Surana Steels P. Ltd.,vs. Deputy CIT (1999) 237 ITR 777 and in the caseof Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273(SC) and analyzing the order impugned found that theprovisions of Section 115J are similar to theprovisions of Section 115JA of the Act. In order tocome to the conclusion the Tribunal has also takennote of sub-section (4) of section 115JA andreferred to the dictum laid down by the SupremeCourt in the case of Apollo Tyres Ltd., vs. CIT(2002) 255 ITR 273 wherein it was held that theAssessing Officer while computing the book profitsof a company under Section 115J of the Income TaxAct, 1961, has only the power to examine whethersuch books of account are certified by theauthorities under the Companies Act as having beenproperly maintained in accordance with the CompaniesAct. The Assessing Officer thereafter has thelimited power of making increases and reductions asprovided for in the Explanation Section 115J. TheAssessing Officer does not have the jurisdiction togo behind the net profits shown in the profit andloss account except to the extent provided in theExplanation. The use of the words "in accordancewith the provisions of Parts II and III of ScheduleVI to the Companies Act" in Section 115J was madefor the limited purpose of empowering the AssessingOfficer to rely upon the authentic statement ofaccounts of the company. While so looking into theaccounts of the company, the Assessing Officer hasto accept the authenticity of the accounts with reference to the provisions of the Companies Act,which obligate the company to maintain its accountsin a manner provided by that Act and the same to bescrutinized and certified by the statutory auditorsand approved by the company in the general meetingand thereafter to be filed before the Registrar ofCompanies, who has a statutory obligation also toexamine and be satisfied that the accounts of thecompany are maintained in accordance with therequirements of the Companies Act. Sub-section (1A)of section 115H does not empower the AssessingOfficer to embark upon a fresh enquiry in regard tothe entries made in the books of account of thecompany. reference to the provisions of the Companies Act,which obligate the company to maintain its accountsin a manner provided by that Act and the same to bescrutinized and certified by the statutory auditorsand approved by the company in the general meetingand thereafter to be filed before the Registrar ofCompanies, who has a statutory obligation also toexamine and be satisfied that the accounts of thecompany are maintained in accordance with therequirements of the Companies Act. Sub-section (1A)of section 115H does not empower the AssessingOfficer to embark upon a fresh enquiry in regard tothe entries made in the books of account of thecompany. 5. The Assessing Officer is not entitled totouch the profit and loss account prepared by theassessee as per the provisions contained in theCompanies Act, while arriving at the book profitunder Section 115J and the book profit so arrived atshould be the basis for taxation and therefore, thecomputation under Section 80HHC should be limited tothe case of profits of eligible category only. TheTribunal has also come to the conclusion that inview of the non obstante clause available in Section115JA it was clear that the provisions is a self-contained one and no other provision would haveeffect on it and thereby it was to be implemented ascontained in the said provision. The Tribunal hasalso further given a reason to the effect thatsection 80HHC is clear about this aspect that profitonly is to be taken into account but not income andsub-section (3) of Section 115JA itself took care ofthe provisions relating to the adjustment of loss ordepreciation and carry forward of the income. Thefinding arrived at by the Tribunal is correct andfollowed the decision of the Supreme Court. We areof the view that the conclusion arrived at by theTribunal cannot be complained of". Sub.Asst Registrar krr/ To 1.The Commissioner of Income Tax, Central - I,Chennai. Central - I,Chennai. 2.The Asst.Commissioner of Income Tax, Income Tax, Central Circle-IV(2) Madras-34. Income Tax, Central Circle-IV(2) Madras-34. 3.The Asst.Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 90. Income Tax Appellate Tribunal, Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 90. + 2 cc to Mr.K.Subramanian,Advocate,SR.19522,19523 TS(CO)EM/8.6.09 T.C.(A)Nos.6 and 8 of 2009