(Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The revenue before this Court in this appeal against the order of the Income Tax Appellate Tribunal, dated 27.08.2008 passed in ITA No.1016/Mds/2006 in respect of the assessment year 1998-99.
2. The assessee is a Public Limited Company, manufacturing Fabrics and Garments filed its return of income for the assessment year 1998-99 on 30.11.1998 admitting a total income of Rs.1,29,70,280/- arrived at under Section 115JA of the Income Tax Act. The return was processed on 04.12.1998 and a prima-facie adjustment relating to deduction under
Section 80HHC was made by the Assessing Officer. That order of assessment was questioned by the assessee before the Commissioner of Income Tax (Appeals), who by his order dated 12.06.2002 directed the Assessing Officer to re-determine the issue on the ground that prima-facie adjustment relating to deduction under
Section 80HHC made by the Assessing Officer when the return is filed under Section 115JA is not correct. The Assessing Officer re-determined the income at Rs.1,29,70,280/- by his order dated 12.07.2002 by giving effect to the order of the Commissioner of Income-tax (Appeals). Again the Assessing Officer on 30.07.2002 issued a notice under
Section 148 on the premise that deduction under
Section 80HHC was wrongly allowed while computing the income u/s 115JA and for the purpose of computation of income under Section 115 JA, the book profit should be taken into consideration, however, only the profit and gains from business or profession in the regular method of accounting should be taken into consideration.
3. In the course of re-assessment proceeding, the assessee relied on the decision in the case of CIT Vs. G.T.N. Textiles Ltd., (115 Taxmann 55 (Ker) and claimed that for the purpose of computation of total income u/s 115JA of the Income Tax Act, the deduction was to be made with reference to the book profit. The Assessing Officer accepted the view and completed the re-assessment vide his order dated 27.02.2004 accordingly.
4. The Commissioner, by invoking his power under
section 263 of the Income Tax Act, revised the order by observing as follows:-
"On perusal of the relevant records and on consideration of the facts of the case and in the light of the language contained in Clause (vii) of Explanation of Section 115JA of the Act, it was found that the deduction as above was to be allowed in reference to the 'profits of the business' as defined in clause (baa) to Explanation of
Section 80-HHC of the Act and the ratio of the decision in the case of G.T.N.Textiles (supra), having been rendered in the context of clause (iii) of Explanation to section 115JA of the Act, has no application while working out deduction in terms of clause (vii) of Explanation to section 115JA of the Act. By not doing so, the Assessing Officer had worked out and had allowed deduction u/s 80-HHC to the assessee in excess of what was admissible. In such circumstances, I came to the view that the re-assessment order dated 27.02.2004 made by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of revenue".
5. The assessee taken the matter on appeal to the Tribunal. The Tribunal has set aside the order of the Commissioner on the premise that when two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income Tax did not agree, the order of the Assessing Officer could not be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Assessing Officer was shown to be unsustainable in law.
6. The only issue is as to whether the deduction under
Section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted books profits under Section 115JA of the Income Tax Act, 1961 is correct is now canvassed before this Court by filing this appeal.
7. We have heard the argument of the learned counsel for the revenue and perused the materials available on record.
8. Two questions of law framed for entertainment of this appeal are as follows:-
1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the disallowance deduction under
Section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted books profits under Section 115JA of the Income Tax Act, 1961 is valid?
2. Whether on the facts and in the circumstances of the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessment order was passed by the assessing officer is erroneous and quash the order passed by the Commissioner of Income Tax under
section 263 of the Income Tax is valid?".
9. In respect of the first question of law, the Division Bench of this Court in which one of us (K.Raviraja Pandian,J) was a party in the case of Commissioner of Income Tax vs. Rajanikant Schnelder and Associates P. Ltd., reported in 302 ITR 22) has observed as follows:-
"4. We are not able to subscribe our view to the grounds taken in the appeal that the deduction under Section 80 HHC 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 under
section 80HHC should be based on the profit ascertained under Section 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 Surana Steels P. Ltd., vs. Deputy CIT (1999) 237 ITR 777 and in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 (SC) and analyzing 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. CIT (2002) 255 ITR 273 wherein it was held that the Assessing Officer while computing the book profits of a company under Section 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 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 scrutinized 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 115H 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.
5. 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 under Section 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation under
section 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".
Hence, following the same, the first question of law is answered against the revenue.
10. In view of our finding in the first question of law against the revenue, the second question of law virtually becomes academic. Despite we will have to say the following few words in respect of the order passed by the Commissioner invoking power under
Section 263 of the Income-tax Act.
11. After referring to the view taken by the Income-tax Appellate Tribunal, Hyderabad in the case of STARCHIK SPECIALITIES LTD. VS. D.C.I.T. and extracting certain portion thereof, the Commissioner held that "with utmost respect to the Income-tax Appellate Tribunal I am to mention that the aforesaid view is contrary to the legislative mandate reflected in the expression 'computed under clause (a), or clause (b) or clause (c) of sub-sec. (3) or sub-section (3A), as the case may be, which occurs at clause (vii) below Explanation to Section 115JA of the Income-tax Act. There is no reason nor any basis to come to a conclusion that clause (iii) below Explanation to Section 115J and clause (vii) below Explanation to Section 115JA of the Act, though worded differently, would mean the same thing and do not make any material difference." On that basis, he has taken his own view, which is not only against the quasi-judicial discipline explained in various cases as to the binding nature of the Tribunal's order, which is vertically over and above the Commissioner in the hierarchal system and against the view taken by the Commissioner (Appeals) and virtually reversed the direction given by the Commissioner, which is impermissible in law.
12. We find no merit in this appeal. Hence, the same is dismissed.
rg To The Income Tax Appellate Tribunal, Chennai 'D' Bench, Chennai