THE COMMISSIONER OF INCOME TAX vs. M/S LAKHANI RUBBER UDYOG LTD.

ITA/81/2006HC Punjab & HaryanaPHHC01075382200611 December 2006Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE M.M.S. BEDI4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the argument of the Revenue was fallacious and unsustainable. It found no infirmity in the order of the CIT(A), which was affirmed by the ITAT. The Tribunal had held that for the purpose of Section 32AB(1), 'profits of the business or profession' are calculated after deducting depreciation as per the Companies Act, 1956. The Tribunal noted that Section 32AB(3) does not mention Section 35. Therefore, allowing a deduction under Section 35 does not reduce the profits eligible for deduction under Section 32AB. Consequently, the order passed by the AO under Section 154 was wrongly passed, and the order of the CIT(A) was upheld. The High Court concluded that no question of law arose for its consideration.

What were the facts?

The assessee, M/s Lakhani Rubber Udyog Ltd., Faridabad, filed its return of income for assessment year 1988-89 on July 29, 1988, declaring an income of Rs. 17,34,554. The Assessing Officer (AO) finalized the assessment on March 11, 1992. The assessee claimed a deduction of Rs. 27,61,348 under Section 35 of the Income Tax Act, 1961, for expenditure on scientific research. The AO allowed a deduction under Section 32AB of the Act. Subsequently, by an order dated March 10, 1998, the AO rectified the assessment under Section 154, holding that the deduction under Section 32AB was in excess. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal on October 10, 2001, restoring the deduction under Section 32AB. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal on June 27, 2005. The Revenue has now filed an appeal before the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT erred in law in confirming the order of the CIT(A) in holding that the profit of the business eligible for deduction under Section 32AB of the Act would not get reduced on allowing deduction of expenditure on scientific research under Section 35? 2. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT erred in law in confirming the order of the CIT(A) in holding that the order was wrongly passed by the Assessing Officer under Section 154 of the Act as there was no mistake apparent from record? Assessee's contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the High Court's reasoning implies that the assessee's position, as upheld by the CIT(A) and ITAT, was that the deduction under Section 35 did not affect the calculation of profits for Section 32AB. Revenue's contentions: The Revenue contended that once the AO allowed deduction under Section 35, the profits of the business or profession of the assessee got reduced, which should simultaneously reduce the eligible profits for the purpose of Section 32AB. Therefore, the deduction under Section 32AB entailed re-computation based on allowing the deduction under Section 35, making the excess deduction unsustainable. The Revenue argued that the order under Section 154 was correctly passed to rectify this mistake.

Which sections of the Income-tax Act were involved?

Section 32AB,Section 35,Section 154

AI-generated summary — verify with the full judgment below

ITA No.81 0f 2006 1 IN THE HIGH COURTOF PUNJAB AND HARYANA, CHANDIGARH. ITA No..81 of 2006 Date of decision:11.12.2006 Commissioner of Income Tax, Faridabad ....Appellant. vs. M/s Lakhani Rubber Udyog Ltd, Faridabad. ..Respondent CORAM: HON'BLE MR.JUSTI CE VIJENDER JAIN, CHIEF JUSTICE HON'BLE MR.JUSTICE J.S.NARANG. Present: Mr. Yogesh Putney, Advocate, for the appellant. -- J.S.NARANG,J. This judgment would dispose of two I.T.A Nos.81 and 82 of 2006, as common question of law and facts are involved in both these appeals. Facts are being taken from I.T.A. No.81 of 2006. The instant appeal has been filed by proposing the following questions of law for consideration:- (a) Whether on the facts and in the circumstances of the case the Hon'ble ITAT erred in law in confirming the order of the CIT (A) in holding that the profit of the business eligible for deduction under Section 32AB of the Act would not get reduced on allowing deduction of expenditure on scientific research under section 35 ?

ITA No.81 0f 2006 2 (b) Whether on the facts and in the circumstances of the case the Hon'ble ITAT erred in law in confirming the order of the CIT (A) in holding, that the order was wrongly pass

The order continues below.

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