COMMISSIONER OF INCOME TAX Vs. PACKWORTH UDYOG LTD

JUDGEMENT

(1.) In these appeals filed by the revenue, the only question raised is whether the assessees are entitled to deduction under S.80HHC in the computation of book profit under S.115JB of the Income Tax Act. Even though in respect of one assessee, the provision involved is S.115JA, there is no need to consider the issue separately because applicability of S.80HHC in the computation of book profit is one and the same both under S.115JA and S.115JB of the Act.

(2.) When huge amount of carried forward business loss and unabsorbed depreciation were set off by the assessees, the gross profit became a negative figure. Therefore the assessees were not entitled to deduction under S.80HHC of the Act by virtue of operation of S.80AB and S.80B(5) of the Act. However, the assessing officer proceeded to make assessment on book profit under S.115JB of the Act. In the computation of book profit, the assessing officer declined deduction under S.80HHC, though the assessee claimed it under S.115JB(2)(iv) of the Act. When the matter was heard before the Division Bench, the assessees relied on the decision of the Division Bench of this Court in CIT v. G.T.N. Textiles Ltd., 1997 KHC 584 : 248 ITR 372 : ILR 1997 (1) Ker. 244 , which was in their favour. However, standing counsel appearing for the revenue contended that the Division Bench judgment of this Court requires reconsideration in view of subsequent decisions of the Supreme Court in IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax, 2004 KHC 1735 : 2004 (266) ITR 521 : 2004 (12) SCC 742 : AIR 2004 SC 3046, A. M. Moosa v. Commissioner of Income Tax, 2007 (3) KHC 921 : 2007 (294) ITR 1 (SC) : JT 2007 (11) SC 102 : 2007 (4) KLT 909 : 2007 (7) SCC 647 and CIT v. Shirke Construction Equipments Ltd., 2007 KHC 3772 : 2007 (291) ITR 380 : JT 2007 (8) SC 356 : AIR 2007 SC 2089. In view of the contentions raised by the revenue, the matter was referred to Full Bench and hence these appeals are before us. We have heard senior standing counsel appearing for the revenue and senior counsel Sri. Joseph Markose, and Advocate, Sri. P. Balakrishnan, appearing for the respondents.

(3.) Counsel appearing for both sides brought to our notice the latest decision of the Supreme Court on S.115JB in Ajanta Pharma Ltd. v. CIT, 2010 KHC 4656 : 2010 (327) ITR 305 (SC) : 2010 (9) SCC 455 wherein the issue decided is assessee's eligibility for deduction under S.80HHC of the Act in the computation of book profit under S.115JB. While the case of the assessees is that issue is squarely covered by this judgment of the Supreme Court in their favour, standing counsel for the revenue contended all what the Supreme Court has said is that ceiling of deduction provided under S.80HHC(1B) at 80% should not be applied in the computation of book profit and assessees are entitled to deduction of the entire eligible export profit computed under S.80HHC of the Act. In other words, standing counsel contended that in the computation of book profit, deduction under S.80HHC should be considered by applying the provisions of S.80AB and S.80B(5), etc., of the Act. Therefore according to him, if the total income computed before considering the claim of deduction under Chapter VIA - C is a negative figure then the assessees shall not be entitled to deduction under S.80HHC at all. His contention is that in the case of all the assessees herein carried forward business loss and depreciation from previous years are such that gross profit, after setting off the same from the gross total income, is a negative figure which disentitles the assessees for deduction under any of the provisions of Chapter VIA - C of the Act. Therefore the contention of the revenue is that assessees are not entitled to deduction under S.80HHC of the Act, even in the computation of book profit for assessment.