1. This appeal has been filed by the assessee for A.Y.2002-03, which is directed against the order of the CIT(A), Udaipur dated 20.12.2004.
2. Briefly stated, the facts of the case are that the assessee-company filed its return declaring "Nil" income for A.Y.2002-03, on 23.10.2002, after claiming depreciation of Rs. 9,93,17,254/-. This return was processed on 28.2.2003 Under Section 143(1) of the Act. The assessee-company has shown total income at Rs. 2,06,09,595/- on the basis of book profit calculated Under Section 115JB of the Act.
The assessee also paid a tax of Rs. 15,76,634/-, as a MAT. For the purpose of computing income Under Section 115JB, the assessee-company has claimed deduction Under Section 80HHC at Rs. 1,11,01,306/- out of the book profit on the basis of a decision of Hon'ble Kerala High Court in the case of GTN Textile v. CIT reported in 164 CR 185 [Kerala]; and Clause (iv) of explanation given Under Section 115JB which according to the assessee-company, entitled it to reduce the amount of profits eligible for deduction Under Section 80HHC from the book profit.
Alongwith a computation of book profit Under Section 115JB, the assessee-company appended a footnote to that effect. The assessee-company has also filed a report from an Accountant in Form No.29B in which claim of Rs. 1,11,01,306/- for deduction Under Section 80HHC has been made for arriving at income Under Section 115JB. The assessee-company has also filed a certificate in Form No. 10CCAC for claiming a deduction Under Section 80HHC. The Assessing Officer initially allowed this claim of the assessee but subsequently withdrew the same by resorting to the provisions of Section 154 of the Act.
3. In the order dated 31.03.2004, passed Under Section 154 of the Act, the Assessing Officer has observed that the assessee-company has declared 'Nil' income after claiming depreciation of Rs. 9,93,17,254/-.
According to the Assessing Officer, book profit as per Section 115JB, is computed after making some adjustments as prescribed in this Section. According to the Id. Assessing Officer one of such adjustments is deduction on account of export profit Under Section 80HHC and the assessee-company has filed a requisite certificate in Form No. 10CCAC for claiming deduction Under Section 80HHC for Rs. Nil, whereas in the computation of book profit deduction has been wrongly claimed at Rs. 1,11,01,316/- Under Section 80HHC. Hence, the Assessing Officer issued notice Under Section 154 of the Act, to the assessee-company on 9.9.2003. The assessee explained vide its letter dated 22.9.2003, that for the purpose of computing income Under Section 115JB it has claimed deduction Under Section 80HHC at Rs. 1,11,01,306/- out of the book profit on the basis of the decision of Kerala High Court and Clause (iv) of explanation given Under Section 115JB which entitles it to reduce the amount of profits eligible for deduction Under Section 80HHC from book-profit. According to the Id. Assessing Officer, as per the provisions of Section 115JB book profit is computed after making some adjustments as prescribed in the explanation to second proviso to Section 155JB(2). The Assessing Officer stated that one of the adjustments is regarding deduction on account of export profit Under Section 80HHC. According the Assessing Officer, the eligible deduction Under Section 80HHC has to be computed on the basis of profit of business computed under the head "profit and gains of business or profession", under Clauses (1)(b) or (c) of Sub-section (3) or (3A) of Section 80HHC. According to the Id. Assessing Officer, the computation of deduction 80HHC is governed exclusively by Section 80HHC and whatever is quantified under this section can only be considered Under Section 115JB. The Clause (iv) of Explanation 2 to proviso of Section 115JB(2) simply provides for adjustment of deduction available Under Section 80HHC. But Section 115JB does not provide that the calculation of deduction Under Section 80HHC should be based on book profit method.
In other words, according to the Id. Assessing Officer, the book profit Under Section 115JB is never the basis for deduction Under Section 80HHC, although for the book profit of Section 115JB, a deduction Under Section 80HHC is one of the adjustments.
4. The Id. CIT(A), followed suit and dismissed the appeal of the assessee-company. Now, the assessee is before us and has raised the following grounds of appeal: (1) Under the facts and in the circumstances of the case the Id.
CIT(A) has erred in sustaining the order passed by the Assessing Officer Under Section 154.
(2) Under the facts and in the circumstances of the case the Id.
CIT(A) has erred in confirming the Assessing Officer action of not allowing the claim of deduction Under Section 80HHC at Rs. 1,11,01,336/- in computing the book profit Under Section 115JB.5. We have heard the rival submissions and perused the evidence on record.
6. Evidently, the grounds of appeal are interrelated and intertwined, so these are being disposed of simultaneously. Before, we come to the facts of the give case we would like to trace the history and the scope of the relevant provisions of Section 115JB of Act, inter alia. Section 115JB was brought on the statute by Finance Act 200, w.e.f. 1.4.2001.
This provides for a special provision for payment of tax by certain Companies. Prior to insertion this section, Section 115JA provided for the deemed income relating to certain Companies. This provision was relevant in respect of any previous year relevant to the A.Y.commencing on or after 1st day of April 1997 but before 1st day of April 2001. One Chapter XIIB, containing Section 115JB, was inserted by the Finance Act, 1987 (11 of 1987), w.e.f. 1988, which provided "Special Provisions Relating to Certain Companies". As a result of various tax concessions and incentives, certain Companies, making huge profits and also declaring substantial dividends, were managing their affairs in such a way as to avoid payment of income-tax. Accordingly, as a measure of equity, Section 115JB was introduced that in case of a company whose total income as computed under the provisions of the Income-tax Act, is less than 30% of the book profit as computed under the section, the total income chargeable tot ax will be 30% of the book profit, as computed. For this purpose book profit was to be the net profit as shown in the profit and loss account prepared in accordance with the provisions of the Sixth Schedule to the Companies Act, 1956, after certain adjustments. The net profit as above will be increased by the income-tax paid or payable or the provision thereof, amount, carried to any reserve, provision made for liabilities other than ascertained liabilities, provisions for losses of subsidiary companies etc., if the amounts are debited to the profit and loss account. The amount so arrived at is to be reduced by: (i) amounts withdrawn from reserves, if any, such amount is credited to the profit and loss account; (ii) the amount of income to which any of the provision of Chapter III applied, if any such amount is credited to the profit and loss account; and (iii) the amount of any brought forwards losses or unabsorbed depreciation, whichever is less, a computed under the provisions of Section 205(1)(b) of the Companies Act, 1956, for the purposes of declaration of dividends. Section 205 of the Companies Act required every company desirous of declaring dividend to provide for depreciation for the relevant accounting year. Further, the company is required Under Section 205 to set-off against the profit of the relevant accounting year, the depreciation debited to the profit and loss account of any earlier year(s) or loss, whichever is less.
7. Section 115J, therefore, involves two processes. Firstly, an assessing authority has to determine the income of the company under the provisions of the Income-tax Act. Secondly, the book profit is to be worked out in accordance with the Explanation to Section 115J(1) and it is to be seen whether the income determined under the first process is less than 30% of the book profit. Section 115J would be invoked if the income determined under the first process is less than 30% of the book profit. The Explanation to Sub-section (1) of Section 115J gives the definition of the "book profit" by incorporating the requirement of Section 205 of the Companies Act in the computation of the book profit.
Brought forward losses or unabsorbed depreciation, whichever is less, would be reduced in arriving at the book profits. Sub-section (2), however, provides that the application of this provision would not affect to carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set-off, and deduction Under Section 80J to the extent not set off as computed under the Income-tax Act.
8. A plain reading of Section 115J shows that if the assessee is a company and its total income determined under the Income-tax Act, in respect of previous year, is less than 30% of its book profit, fictitiously it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to 30% of such book profit. The total income of the assessee shall first to be computed in accordance with the provisions of the Income-tax Act and if the total income so computed is less than 30% of the book profit, then the profit and loss account of the company for the relevant previous year shall have to be prepared Under Section 115J(IA) in accordance with Parts-II and III of Schedule VI of the Companies Act, 1956. This book profit shall be suitably adjusted so as to satisfy the requirements of Clauses (a) to (ha) of the Explanation to Section 115J(IA) and be reduced by the amounts mentioned under Clauses (i) to (iv) of this Explanation.
Amounts by which the 'net profit' has to be reduced are given under: (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account.
It is also provided that, where Section 115JA is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in previous year relevant to the A.Y.1997-98 or any subsequent A.Y. shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the s aid amount was withdrawn) under the Explanation to Section 115JA (2); or (ii) the amount of income to which any of the provisions of Chapter III, containing Sections 10 to 13A, applies, if any such amount is credited to the profit and loss account; or (iii) the amount of loss brought forwards or unabsorbed depreciation, whichever is less as per books of accounts.
It is clarified that, for the purposes of this Clause (iii), the loss shall not include depreciation; or (iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or (v) the amount of profits derived by an industrial undertaking located in an industrially backward state or district as referred to in Section 80IA(2)(iv)(b) or Section 80IA(2)(iv)(c) [(w.e.f.
1.4.2000) Section 80-IB(4) and Section 80IB(5)], for the assessment years such industrial undertaking is eligible to claim deduction of 110 percent of the profits and gains Under Section 80IA(5) [(w.e.f.
1.4.2000) profits and gains Under Section 80IB(4) or Section 80IB(5)]; or (vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility as defined in Section 80-IA(12), and subject to fulfilling the conditions laid down in Section 80-IA(SA) [(w.e.f.
1.4.2000) in the Explanation to Section 80-IA(4), and subject to fulfilling the conditions laid down in that Section 80-IA(SA) ]; or (vii) the amount of profits of sick industrial company for the A.Y. commencing from the A.Y. relevant to the previous year in which the said company has become a sick industrial company Under Section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), and ending with A.Y. during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
It is clarified that, for the purposes of this Clause (vii), 'net worth' shall have the meaning assigned to it in Section 3(1)(ga) of Act 1 of 1986. For such definition, reference may be made to page 2799 of Vol. 2; or (viii) (for and from A.Y. 1998-99) the amount of profits eligible for deduction Under Section 80HHC, computed under Clauses (a)(b) or(c) of Section 80HHC(3) or Section 80HHC(3A), as the case may be, and subject to the conditions specified in Section 80HHC(4) and 80HHC(4A); or (ix) The amount of profits eligible for deduction Under Section 80HHE, computed Under Section 80HHE(3).
9. Now, Section 115JB which provided special provisions for payment of tax by certain companies has been inserted by Finance Act 2000, w.e.f., 1.4.2001, as has already been mentioned. This section reads as under: (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent. Of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one-half per cent.
(2) Every assessee, being, a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956(1 of 1956): 10. From the reading of Section 115JA and 115JB, it seems that Clause (iv) to proviso beneath Explanation to Section 115JB and Clause (viii) to proviso beneath Explanation are exactly identical. The provisions of Section 115JB are applicable upto 1st day of April 2005. The scope of this special provision has been enlarged and certain other requirements are also provided, but the provisions relating to incentive benefits Under Section 80HHC, have not been tinkered with.
11. Now, the claim of the assessee-company is that the deduction Under Section 80HHC has to be reduced by virtue of express provisions of the Act given under Clause (iv) of explanation for computing book profit Under Section 115JB which reads as under: The amount of profits eligible for deduction Under Section 80HHC, computed under Clause (a)(b) or (c) of Sub-section (3) or Sub-section. (3A), as the case may be of that section, and subject to the conditions specified in Sub-section (4) and 4(A) of that section.
(i) the amount of profits eligible for deduction Under Section 80HHC and; (ii) computed under Clauses (a)(b) or (c) of Sub-section (3) or (3A) of Section 80HHC.13. Obviously, the first part simply refers to the export a profit, which is the part of the net profit as shown in the profit and loss account of the company, and the second part refers to the manner of computation.
Here it would be relevant to understand the scheme provided by the law to compute the book profit for the purpose of Section 115JB. The explanation to Sub-section (2) of Section 115JB reads as under: Explanation.- For the purpose of this section., "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under Sub-section (2), as increased by - if any amount referred to in Clauses (a) to (f) is debited to the profit & loss account, and as reduced by - The very reading of these provisions and the nature of all the adjustments referred suggest that the adjustments have to be made of the amount which as such are part of the calculation of net profit.
This would lead to an interpretation that the amount calculated, based on some other figure (profits and gains of business and profession included in calculating the total income under the normal provisions) has got no relevance in computation of book profit. This logical interpretation is supported by the legislative intent.
The above Clause is same to the Clause (viii) similarly embedded in the provisions of Section 115JA. This same Clause (viii) in explanation to Section 115JA by the Finance Act, 1997, w.e.f. 1st April 1998, i.e. a year later than the enactment of the provisions of Section 115JA, which were brought into the statute book w.e.f. 1st April 1997. The object of insertion of the said Clause (viii), as per the speech of the Finance Minister is to exempt the export profit from MAT. The relevant extract of para 99 of the budget speech is as under: I, therefore, propose to make the following changes in the provisions of MAT: i) Export profits will be exempt from MAT and will be eligible for full deduction under Section 80HHC. " It is proposed to exempt the export profits which ore eligible for deduction under Section 80HHC from the purview of this section.
Further, the following is the para 27 of the Speech of Finance Minister in Lok Sabha on 7.5.1997: Clause 37 proposes to amend Section 115JA of the Income Tax Act regarding MAT so as to exclude the profits derived from the export of goods or merchandise to which Section 80HHC applies from the purview of MAT. I propose to extend the exclusion to profits derived from export of software which are exempt under Section 80HHE of the Income Tax Act....
Also Clause (iii) of Section 115J was inserted by the Direct Tax Laws (Amendment) Act, 1989. Para 9.2 of the Circular 559 reads as under: It was pointed out that the provisions of Section 115J took away the 100% exemption which was to be allowed in respect of export profits earned by the exporters and tourism related industry and thus watered down the encouragement, which was to be provided to such foreign exchange earning activities. Since the intention was that 100% of such profit should be exempt, it was decided that the profits, which are exempt under Section 80HHC and 80HHD, should be excluded from the purview of Section 115J....
The above discussion clarifies the legislative intend to exclude the export profits from the purview of MAT Under Section 115JA.14. Further, Hon'ble High Court of Kerala 164 CTR 185 has resolved the issue for computing book profit as per Section 115J(1A) in the case supra in which the High Court has given the following findings: Para 5: Section 115J begins with non obstante Clause. According to this Clause, book profit is to be treated as net profit. Section 80HHC(3) and (3A) give concession to the exporters and ---.
Originally, Section 115J of the Act did not take into account the deductions Under Section 80HHc and ---. It was only included subsequently, as it was found that non-inclusion of the provision Under Section 80HHC and ---- will cause great hardship to the assessee. If the profits is to be computed on the basis of the profits and gains of business or profession that will go against the very object of Section 115J of the Act. Section 115J(1A)(iv) says that the amount of loss or the amount of depreciation which would be required be set off against the profit of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section 205 of the companies Act are entirely made applicable.
Such an intention is not there in Clause (ii). Hence, we are of the view that under Clause (iii) Explanation it is not the profit as computed under the head "profits and gains of business or profession" that is to be applied, According to us, instead of words "profits and gains of business or profession" occurred in sub Section (3) and (3A) of Section 80HHC or ----, the word profit that is mentioned in Section 115J has to be applied.
Para 6, last sub paragraph: Clause (ii) of Section 115J does not say that Section 80HHC of the Act is made applicable to the extent only for calculating the deduction.
Para 7: Hence, we are of the view that the Tribunal was correct in interpreting that under Section 115J(1A)(iii) of the Act, profits will be taken into consideration as profit as per the books of accounts and not calculated under the Act.
In view of above findings of the High Court of Kerala, it is Clear that the profit should be taken as net profit credited in profit & loss account after making additions and deductions as required to be made in accordance with the Explanation to Section 115JB. If not so, the very purpose of the legislation would be defeated in the situation like facing by the assessee where though on one hand assessee is having export profit eligible for deduction Under Section 80HHC during the year but it is paying tax on the income without reducing the benefit of the export profit.
15. Hon'ble ITAT, Hyderabad 'B' Bench in the case of Starchik Specialties Ltd. v. Dy. CIT  90 ITD 34 [Hyd.] has held that the same principles would apply to Clause (viii) used in Section 115JA. In para 9 of the order, Hon'ble Bench has held as under: It is evident from the above decision that in terms of Explanation to Section 115J or Section 115JA, the profit to be taken into consideration is the book profit, subject to specified adjustment and not the total income as computed under the normal provisions of the IT Act. Actually, the contention of the revue goes against the provisions specified both in Section 115J and Section 115JA of the Act. Both these provisions levy what is known as the minimum alternative tax, and are applicable to what are know as 'Zero Tax Companies'. These companies have substantial book profit and declares dividend to shareholders, but they do not pay Income-tax, by availing various deductions and exemptions which are available under the normal provisions of the Act. So, under both Section 115J and Section 115JA, tax is levied on the basis of the book profit subject to certain adjustment section these provisions come into picture when the total income of the assessee chargeable to tax under the provisions of the Act is nil or less than the specified percentages of the book profit. So, the invocation of Section 115J and Section 115JA implies two distinct procedures - (1) determination of income under the normal provisions of the Act, which include Section 80A(2) and Section 80B(5) relied on by the Revenue, and (2) determination of the book profit subject to the specified adjustments and a comparison of the two results obtained by the two procedures. So, we are of the view that Section 80A(2) and Section 80B(5) which are applicable only in the first procedure, have no role to play in working out the deduction under Section 80HHC eligible for being reduced for arriving at the book profit in terms of Clause (iii) of Explanation to Section 115J or Clause (viii) of explanation to Section 115JA. The revenue has also contended that in terms of Section 115JA(4) all other provisions of the Act shall apply to every assessee in respect of whom provisions of Section. 115JA are invoked, and so, Section 80A(2) and Section 803(5) are also applicable for the purpose of determining the book profit under Section 115JA. We find no force in this contention.
Section 115JA(4) itself makes it clear that other provisions apply only when it is not otherwise provided in the section. We find that the language of Section 115JA(1) and Explanation thereto rules out applicability of Section 80A(3) and Section 808(5). At any rate, this issue is covered in favour of the assessee by the decision of the Kerala High Court discussed above, and no contrary decision has been brought to our notice. We accordingly decide this aspect of the matter in favour of the assessee.
16. Hon'ble ITAT Pune Bench, maintaining judicial proprietary, has followed this decision of in the case of Smruthi Organics Ltd. v. Dy.
CIT (2006) 101 ITD 205.
In the present case assessee is having the profits eligible for deduction Under Section 80HHC but due to the carry forward of losses as per the income tax act the deduction Under Section 80HHC is nil.
Section 115JB is a separate, independent and complete code for computation of tax with starts with a non-obstante Clause. Section 115JB by its legal fiction tax that income of the assessee, which is otherwise not taxable as per the normal provisions of the Income Tax Act. Therefore it is a hardship on the assessee. Now Clause (viii) of its Explanation provides that book profit of the assessee shall get reduced by the amount of profits eligible for deduction Under Section 80HHC. The intention of the legislature behind introducing this provision was very clear from the above paragraph is to provide the assessee benefit of the export profit. Now assessee is having eligible export profit and it should get the deduction of the same from the book profit. If we go with the interpretation taken by the assessing officer and Id. CIT(A) it will not only be the double hardship on the assessee but shall also defeat the very intention of the legislature.
We may also submit that it is settled principle of law that the provisions allowing fiscal benefit to the assessee should be liberally construed.
Otherwise also under Under Section 154 of the Income Tax Act, 1961 deals with the order for rectification of mistakes in the order or an intimation made by the Assessing Officer, which are apparent on records. From the plain reading of the section it is very clear that only the mistakes, which are apparent on the record can be rectified under this section. Further, it is a well settled law that where a issue on which a rectification is proposed is one which involves a debatable point of law or where it involves a statutory provision and there is a reasonable scope for more than one kind of interpretation being placed on the provision in question, the remedy of rectification cannot be available in this section. In the present case assessee had claimed the deduction on the basis of Kerala High Court decision reported at 164 CTR 185. Hence now holding that the assessee has wrongly claimed the deduction is apparently a debatable issue, which cannot be said to be a mistake apparent on the records. Such a debatable issue cannot be the subject matter of order Under Section 154. A 'mistake apparent' is a mistake that is manifest, plain or obvious, a mistake that can be realized without a debate or dissertation. The plain meaning of the word 'apparent' is that it must be something, which appears to be ex facie that it is incapable of argument or debate. The mistake can be regarded as 'apparent' only when it is glaring obvious or self- evident mistake. The Supreme Court in the case of ITO v. Volkart Brothers 82 ITR 50 has held that a mistake apparent on record must be an obvious and patent mistake and not some thing which can be establish by a long drawn process of reasoning on points on which there are conceivably be two opinions A decision on a debatable point of law is not a mistake apparent from the record.
Reliance can also be placed on the following decisions: It is also evident from the submissions of the Id. A.R., that department itself is taking different view in different assessment years In assessment year 1998-99, the AO allowed the claim of the assessee after considering the decision of Hon'ble Kerala High Court.
For A Y 2002-03, the appeal of the assessee is allowed by the CIT(A) on this issue. Since the disallowance made by the AO is not a mistake apparent from the record as envisaged by law, the order passed Under Section 154 is liable to be quashed. Consequently, we quash the impugned order passed Under Section 154 of the Act.