COMMISSIONER OF INCOME TAX, COCHIN vs. M/S.G.T.N.INDUSTRIES LTD, ALUVA

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ITA/1642/2009HC KeralaKLHC01026403200915 July 2021Author: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial questions of law raised in the appeal are covered in favour of the assessee and against the Revenue, based on the principles laid down by the Supreme Court in the cited judgments. Specifically, the Court referred to Ajanta Pharma Ltd. v. Commissioner of Income-Tax, Kerala Chemicals and Proteins Ltd v. Commissioner of Income Tax, and Commissioner of Income-Tax v. Bhari Information Tech. System (P) Ltd. The Court noted that these judgments clarify that Section 115JB is a self-contained code and that the conditions in Section 80HHC(4) and (4A) are compliance conditions, not qualifying conditions. The Court found that the Tribunal's decision was in line with these Supreme Court pronouncements. Consequently, the substantial questions of law were held against the Revenue and in favour of the assessee. The appeal was dismissed accordingly.

What were the facts?

The Revenue, Commissioner of Income Tax, Cochin, is the appellant in this appeal filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (Tribunal), Cochin Bench. The respondent is M/s. G T N Industries Ltd. The appeal pertains to the Assessment Year 2002-03. The Assessing Officer had disallowed the assessee's claim under Section 80HHC of the Act. The Commissioner of Income Tax (Appeals) allowed the appeal in part. The Revenue's subsequent appeal to the Tribunal was dismissed, leading to the present appeal before the High Court.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was right in holding that the disallowance was under Section 115JB computation and not under normal computation, thus not invoking Section 14A, and in rejecting the ground that disallowance under Section 14A is justified. 2. Whether the Tribunal was right in interfering with the disallowance on account of 80HHC deduction based on the decision in 248 ITR 372, and if this interference was wrong and against the decision in 295 ITR 228 (SC). 3. Whether the computation of book profits under Section 115JB to work out the eligible deduction for Section 80HHC benefit was against law and the legislative intent. 4. Whether the decision of the Kerala High Court was correct and in accordance with law, and if the Tribunal was right in relying on it, in light of the Supreme Court decision in 295 ITR 228 and other Supreme Court cases. Assessee's Contention: The assessee argued that the issue is concluded in its favour by Supreme Court judgments in Ajanta Pharma Ltd. v. Commissioner of Income-Tax, Kerala Chemicals and Proteins Ltd v. Commissioner of Income Tax, and Commissioner of Income-Tax v. Bhari Information Tech. System (P) Ltd. These judgments, according to the assessee, establish that the dichotomy between 'eligibility of profit' and 'deductibility of profit' must be maintained and that Section 115JB is a self-contained code. The conditions in Section 80HHC(4) and (4A) are compliance conditions, not qualifying conditions. Revenue's Contention: The Revenue's contentions are reflected in the substantial questions of law raised, questioning the Tribunal's findings on the applicability of Section 115JB, Section 14A, and the interference with the 80HHC deduction, particularly in light of Supreme Court decisions.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 14A,Section 115JB,Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 15TH DAY OF JULY 2021 / 24TH ASHADHA, 1943 ITA NO. 1642 OF 2009 AGAINST THE ORDER IN ITA 35/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: COMMISSIONER OF INCOME TAX, COCHIN COCHIN. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.G.T.N.INDUSTRIES LTD, ALUVA ALUVA. BY ADVS. SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES SR.ADV.JOSEPH MARKOS 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.1642.2009 -2-

J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Senior Advocate Mr. Joseph Markos for the parties.

2.

Commissioner of Income Tax, Cochin/Revenue is the appellant. M/s. G T N Industries Ltd./assessee is the respondent. The appeal is directed against the order of Income Tax Appellate Tribunal (for short ‘Tribunal'), Cochin Bench in ITA No.35/Coch/2008 dated 27.02.2009. The appeal deals with the issues arising from the tax return filed by the assessee for the Assessment Year 2002-03. 3. The Assessing Officer through the assessment order in Annexure-A, disallowed the claim of the assessee under Section 80HHC of the Income Tax Act (for short 'the Act'). The I.T.A. No.1642.2009 -3- assessee filed appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. The Revenue filed appeal before the Tribunal and the Tribunal through order in Annexure-C dismissed the appeal. Hence, the instant Tax Appeal at the instance of the Revenue under Section 260A of the Income Tax Act (for short 'the Act'). The following substantial questions of law are raised by the Revenue:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law - i) in holding that the disallowance was under Sec. 115JB computation and it is not under normal computation so as to invoke section 14A? ii) in rejecting the ground that disallowance under section 14A is justified in this case; iii) in holding that the disallowance is not justified?

2.

Whether, on the facts and in the circumstances of the case the Tribunal is right in law and fact in interfering with the "another disallowance on account of 80HHC deduction" noted in paragraph 7 of its order based on the decision reported in 248 ITR 372 ad is not the interference and the decision relied on wrong and against the decision reported in 295 ITR 228 (SC)?

I.T.A. No.1642.2009 -4-

3.

Whether, on the facts and in the circumstances of the case is not the computation of book profits under section 115JB to work out the eligible deduction for the purpose of section 80HHC benefit against law and the intendment of the legislature?

4.

Whether, on the facts and in the circumstances of the case and in the light of the decision of the supreme Court in 295 ITR 228 and other cases of the Supreme Court, the decision of the Kerala High Court is correct and in accordance with law and the Tribunal is right in relying on the same?

4.

The substantial questions of law raised in the appeal relate to eligibility of profits and deductibility of profits arising under Section 115JB of the Act; whether the assessee is entitled to claim deduction under Section 80HHC.

5.

The learned counsel appearing for the parties have invited the attention of this Court to the reported judgments in Ajanta Pharma Ltd. v. Commissioner of Income-Tax1, order of the Supreme Court in Kerala Chemicals and Proteins Ltd v. 1 [2010] 327 ITR 305 (SC)

I.T.A. No.1642.2009 -5- Commissioner of Income Tax2 and Commissioner of Income-Tax v. Bhari Information Tech. System (P) Ltd3 to state that the issue is concluded by these judgments in favour of assessee. The operative portion of the judgments is excerpted hereunder: “Ajanta Pharma Ltd If the dichotomy between "eligibility of profit and "deductibility" of profit is not kept in mind then section 115JB will cease to be a self-contained code. In section 115JB, as in section 115JA, it has been clearly stated that the relief will be computed under section 80HHC(3)/(3A), subject to the conditions under sub-sections (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB (subject to the conditions specified in sub- sections (4) and (4A) of that section) to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department. 2 Civil Appeal No.6901/2012, arising out of SLP(C) No.22881/2011 3 [2012] 340 ITR 593 (SC)

I.T.A. No.1642.2009 -6- For the above reasons, we set aside the impugned judgment of the High 11 Court and restore the judgment of the Tribunal. Accordingly, the civil appeal of the assessee is allowed with no order 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 the judgements of this Court in the case of Ajanta Pharma Limited vs. 327 I.T.R. Commissioner of Income Tax, 305 and Commissioner of reported in [2010] Income Tax vs. Bhari Information 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 80HHE which is referred to in the Explanation to section 115JA, clause (ix). In our view, the judgment of the Special Bench of the Tribunal in Syncome Formulations¹ squarely applies to the present case. Following the view taken by the Special Bench in Syncome Formulations, the Tribunal in the present case came to the conclusion that deduction claimed by the assessee under section 80HHE has to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. The judgment of the Tribunal has been upheld by the High Court.

I.T.A. No.1642.2009 -7-

5.

1 Substantial questions having regard to the principles laid down by the Supreme Court in the reported and unreported judgments referred to above, is covered in favour of the assessee and against the Revenue. The questions framed in the appeal, since are held against the Revenue and in favour of assessee the appeal stands dismissed accordingly. S.V.BHATTI JUDGE BECHU KURIAN THOMAS JUDGE jjj

I.T.A. No.1642.2009 -8-

Appendix — schedule of exhibits
APPENDIX OF ITA 1642/2009 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 15.03.2006 FOR THE ASSESSMENT YEAR 2002-03. ANNEXURE B TRUE COPY OF THE ORDER DATED 18.10.2007 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURE C TRUE COPY OF THE ORDER DATED 27.02.2009 OF THE INCOME TAX APPELLATE TRIBUAL, COCHIN BENCH IN ITA NO.35/COCH/2008

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