M/S. CHHEDA ELECTRICALS AND ELECTRONICS PVT.LTD,,PUNE vs. INCOME-TAX OFFICER, WARD - 1(3),, PUNE

आदेश / ORDER PER R.S. SYAL, VP : These two appeals by the assessee arise out of the separate orders dated 27-07-2017 & 13-12-2017 passed by the CIT(A)-1, Pune in relation to the assessment years 2013-14 & 2014-15. Since both the appeals have some commonality of facts, we have ergo clubbed them for disposal by this consolidated order. 2. The appeal for the A.Y. 2013-14 is time barred by 128 days. The assessee has filed an affidavit indicating reasons for the

2 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

belated filing of the appeal. We are satisfied with such reasons.

The delay is condoned and the appeal is admitted for hearing.

restricting the deduction u/s.80IC of the Income-tax Act, 1961

(hereinafter also called ‘the Act’) on the profits of Roorkee

undertaking to Rs.3,11,49,011/- instead of profits from eligible

undertaking at Rs.7,57,11,731/-.

engaged in manufacture of Auto Electrical and Electronics

components for two and three wheelers. Return of income was

filed on 30-11-2013 declaring total income under normal

computation at Nil. In such computation, the assessee claimed

deduction u/s.80IC of the Act amounting to Rs.3,11,49,011/- from

the gross total income of Rs.3,11,49,011/-. The Assessing Officer

(AO) observed that the assessee was having two plants located at

Pune and Roorkee in Uttarakhand. There was profit of Rs.7.57

crore in the eligible Roorkee unit and loss of Rs.4.26 crore in

Shirwal, non-eligible unit. The assessee claimed that the entire

profit from Shirwal unit was eligible for deduction u/s.80IC of the

Act. The AO noticed that the gross total income of the assessee

3 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

was only to the tune of Rs.3,11,49,011/- and hence, the amount of

deduction u/s.80IC r.w.s. 80A(2) was to be restricted to that level.

The ld. CIT(A) countenanced the decision of the AO, against

which the assessee has approached the Tribunal.

material on record. In the computation of total income under

normal provisions, the assessee computed gross total income at

Rs.3.30 crore. Thereafter, deduction was claimed u/s.80IC

amounting to Rs.7.57 crore. The view point of the authorities on

this issue is that deduction u/s.80IC is required to be restricted to

the amount of `gross total income’ of Rs.3.11 crore and odd.

Chapter VIA of the Act deals with the deductions to be made in

computing the total income. Section 80A(1) provides that: “In

computing the total income of an assessee, there shall be allowed

from his gross total income, in accordance with and subject to the

provisions of this Chapter, the deductions specified in sections

80C to 80U”. Sub-section (2) of section 80A provides that: “The

aggregate amount of the deductions under this Chapter shall not,

in any case, exceed the gross total income of the assessee”. The

term “gross total income” has been defined in section 80B(5) to

4 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

mean: ‘the total income computed in accordance with the

provisions of this Act, before making any deduction under this

Chapter”. On a conjoint reading of the above provisions, it

emerges that the total amount of deductions under the Chapter

VIA cannot breach the amount of gross total income, which, in

turn, means the total income computed in accordance with the

provisions of the Act immediately before making any deductions

under this Chapter. Thus, the procedure is to compute head-wise

income under Chapter IV; club incomes of other persons in the

assessee’s total income as per Chapter V; then apply the

provisions of set off and carry forward as per Chapter VI, so as to

reach the amount of gross total income. To put it simply, the

amount of gross total income is the total income of the assessee

immediately before the claim of deductions under Chapter VIA of

the Act. Going with the prescription of section 80A(2) of the Act,

if the gross total income is more than the aggregate amount of

deductions under Chapter VI-A, then such total amount of

deductions is reduced from it to find out the total income. If

however, the aggregate amount of deductions under this Chapter

happens to be more than the gross total income, then such

5 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

aggregate amount of deductions gets restricted to the amount of

the gross total income with the effect that the total income is

reduced to Nil and is not converted into loss so as to allow carry

forward of the amount of deductions under this Chapter to the

next year. The Hon’ble Supreme Court in M/s. Synco Industries

Ltd. Vs. AO and another (2008) 299 ITR 444 (SC) has also laid

down to this extent.

assessee’s final gross total income was Rs.3,11,49,011/-. Thus,

the total amount of deductions under Chapter VI could not have

breached the amount of gross total income. The authorities have

rightly restricted the amount of deduction u/s 80IC to the extent of

gross total income computed at Rs.3.11 crore. The ld. AR was

fair enough to accept this position against the assessee. The

ground is thus dismissed.

raising additional ground, which reads as under:

“Appellant contends that Appellant is eligible to claim deduction u/s.80IC of ITA, 1961 while computing book profit u/s.115JB of the ITA, 1961 considering presence of section 115JB(5) and keeping reliance on following decisions :

6 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

a) Neha Home Builders Private Limited V. CIT – 195 TTJ 506 (Mumbai) b) CIT V. Metal & Chromium Platers P. Ltd. - 415 ITR 123 (Madras). c) Best Trading & Agencies Ltd. V. DCIT – 119 taxman.com 129 (Karnataka)”.

deduction u/s.80IC be allowed in the computation of book profit

u/s.115JB of the Act in the light of sub-section (5) thereto.

additional ground, it is relevant to note that the assessee in its

computation of total income under regular provisions determined

total income at Nil. It, being a private limited company, was

governed by the provisions of section 115JB of the Act. Under

the second computation as per this section, the assessee computed

its book profit at Rs.6,90,68,947/- by taking the amount of profit

as per parts II and III of Schedule VI to the Companies Act at

Rs.5.46 crore as added by the amount of Income-tax u/s.40(a)(ii)

and Deferred tax liability. Thereafter, tax was calculated at

18.50% on the book profit of Rs.6.90 crore and the assessee

paid/adjusted the amount of tax due thereon at Rs.1,38,19,147/-.

The contention of the assessee is that in the computation of book

7 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

profit u/s.115JB, it did not reduce the amount of deduction

u/s.80IC at Rs.7.57 crore which ought to have been reduced in

terms of sub-section (5) of section 115JB of the Act. It is

apparent from the above discussion that the assessee suo motu

applied the provisions of section 115JB of the Act and rightly so.

Now, the claim through the additional ground is that the amount

of book profit computed for paying tax u/s.115JB was wrongly

computed which ought to have been reduced by the amount of

deduction u/s.80IC of the Act. The subject matter of the

additional ground goes to the root of the matter and is decisive of

the total tax liability of the assessee. This being a legal issue, the

relevant facts of which are already on record, involves

adjudication on question of law. The Hon’ble Supreme Court in

National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR

383 (SC) has observed that: “the purpose of the assessment

proceedings before the taxing authorities is to assess correctly the

tax liability of an assessee in accordance with law. If, for

example, as a result of a judicial decision given while the appeal

is pending before the Tribunal, it is found that a non-taxable item

is taxed or a permissible deduction is denied, we do not see any

8 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

reason why the assessee should be prevented from raising that

question before the tribunal for the first time, so long as the

relevant facts are on record in respect of that item”. Answering

the question posed before it in affirmative, their Lordships held

that on the facts found by the authorities below a question of law

arises (though not raised before the authorities) which bears on

the tax liability of the assessee and the Tribunal has jurisdiction to

examine the same. We find that the additional ground raised

before the Tribunal involves a pure question of law and no fresh

investigation of facts is necessary for its determination. As such,

the additional ground is admitted and espoused for disposal on

merits.

ground and gone through the relevant material on record. Section

115JB of the Act is a special provision for payment of tax by

certain companies. Sub-section (1) of section 115JB provides

that: `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

9 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

year commencing on or after the 1st day of April, 2012, is less

than eighteen 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 eighteen and one-half per

cent’. A careful circumspection of this sub-section transpires that

it opens with a non obstante clause and is also a deeming

provision. It provides a mechanism for determination of income

tax payable by a company at 18.5% of its book profit, if, the

amount of income tax payable under the normal provisions is less

than that. When that happens, two consequences result. Firstly, its

book profit is deemed as total income and secondly, such deemed

total income is subjected to tax at 18.5%. Because of the non-

obstante clause, no other provision of the Act can apply and come

in the way of the manner of determination of these two things,

namely, either the book profit (total income) or the rate at which

the tax is payable. The term `book profit’, as referred to in sub-

section (1), has been precisely defined in an exhaustive manner in

Explanation 1 to sub-section (2). It provides that: `For the

purposes of this section, "book profit" means the profit as shown

10 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

in the statement of profit and loss …’ as increased by items given

in clauses (a) to (k) and as reduced by, items given in clauses (i)

to (viii). The list of reductions does not include the amount of

deduction u/s.80IC etc., though there is reference for reduction of

the income u/s.10, 11 and 12 etc. under clause (ii).

predecessor of section 115JB, defined the term `book profit’

under Explanation to sub-section (2) of section 115JA expressly

providing for reducing the amount of deductions u/ss.80IB, 80IA,

80HHC and 80HHE in clauses (v), (vi), (viii) and (ix) in addition

to exemptions u/ss.10 to 12 as per clause (ii). However, the rate

of tax u/s.115JA was 30% of its book-profit. When section

115JB was inserted, it did away with specific deductions, such as,

sections 80IB, 80IA, 80HHC and 80HHE which were there

u/s.115JA but retained the exemptions u/ss.10 to 12 for the

purposes of determination of book-profit. The list of reductions

was curtailed in view of the slashing of the rate of tax to 18.50%

payable on the amount of book profit as against the earlier rate of

30%. This deciphers that in the computation of income-tax

payable u/s.115JB, the statute has not provided for reducing the

11 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

amount of book profit with the amount of deductions under

Chapter VIA which includes section 80IC also. Since the term

`book profit’ has been defined in an exhaustive manner and sub-

section (1) provides for charging tax at 18.5% by deeming such

book profit as total income and further this is locked with the non-

obstante clause in sub-section (1) qua any other provision of the

Act, the sequitur is that determination of tax liability by applying

the specified rate on the book profit of a company attains finality

in this manner alone and cannot be subjected to any other

provision of the Act insofar as these two aspects of book profit

and the rate to be applied thereon are concerned.

section 115JB for claiming reduction in the amount of book profit

on account of amount of deduction u/s.80IC. Sub-section (5)

provides: “Save as otherwise provided in this section, all other

provisions of this Act shall apply to every assessee, being a

company, mentioned in this section”. The salient features of this

sub-section are that it opens with a saving clause qua section

115JB and then proceeds to provide that all other provisions of

this Act shall apply. The effect of the saving clause is that

12 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

whatsoever has been enshrined in section 115JB will be secured

and protected. In that view of the matter, it is strictly

impermissible to go beyond the prescription of the definition of

book profit and suo motu import or export certain increases or

reductions as have not been expressly provided therein. The use

of the word `other’ in the expression `all other provisions’

reinforces that the mandate of section 115JB will remain

undisturbed by sub-section (5) and only the provisions, other than

section 115JB, which shall apply.

ante or post the computation of tax liability in the fashion as

prescribed in section 115JB. To clarify, the assessee would be

liable to pay advance tax with reference to the prescribed rate of

tax on such book profit deemed as total income and if such

advance tax is not paid, it will be visited with interest u/s 234B

and 234C; similarly if the return is not furnished in time, it will be

liable to pay interest u/s 234A for default in furnishing the return

of income. Thus, by no stretch of imagination, sub-section (5) can

have the effect of upsetting anything which is the subject matter

of section 115JB, including the book profit, which got locked by

13 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

virtue of sub-section (1) read with Explanation 1 to section 115JB

because of non obstante clause and got double locked by having

saving clause qua the entire section 115JB in sub-section (5). The

contention of the ld. AR would have merited acceptance if the

subject matter of sub-section (5) de hors its saving clause,

namely, applicability of all other provisions of the Act, had been

placed in Explanation (1) to section 115JB(2).

tax liability thereon as per sub-section (1) attains finality on its

computation itself and hence, that cannot be subjected to other

provisions of the Act including the deduction u/s.80IC of the Act.

The very fact that Explanation 2 to section 115JB specifically

provides for the reduction of the amount of income u/ss.10,11 and

12 etc., itself evidences that the intention of the legislature is to

allow reduction from the book profits only to this extent and not

to deduction u/s 80IC of the Act. If the contention of the ld. AR

about the applicability of sub-section (5) also to the determination

of book profit in sub-section (1) of section 115JB is taken to a

logical conclusion and it is supposed that the legislature intended

granting benefit of all the deductions in the computation of book

14 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

profit also u/s.115JB, then there was no need to specifically retain

clause (ii) to Explanation 1 providing for reduction of the income

u/ss.10, 11 and 12 from the amount of profit as per the profit and

loss account. In that case, sub-section (5) would have also

governed sections 10, 11 and 12, thereby rendering this clause

redundant. The presence of clause (ii) in Explanation 1 to section

115JB and omission of other clauses which were there in section

115JA providing for reducing some of the deductions under

Chapter VI-A, clearly shows that the intention of the legislature is

to continue with the reduction of income u/ss. 10 to 12 in the era

of section 115JB and omit the reduction of some of the deductions

under Chapter VIA in the computation of book profit.

of the applicability of sub-section (5) to the computation of `book

profit’ u/s.115JB of the Act with the consequence of reducing the

amount of deduction u/s 80IC of the Act therefrom. The first

decision is that of the Hon’ble Karnataka High Court in Best

Trading & Agencies Ltd. V. DCIT – 119 taxman.com 129

(Karnataka) in which the issue was about providing the benefit of

indexation to the cost of acquisition while computing the capital

15 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

gain for the purpose of computation of book profit u/s.115JB of

the Act. Taking note of sub-section (5) of section 115JB, the

Hon’ble High Court granted the benefit of indexation even though

such indexation has not been provided for in Explanation 1 to

section 115JB of the Act. The next judgment is that of the

Hon’ble Madras High Court in CIT Vs. Metal & Chromium

Plater (P) Ltd. (2016) 76 taxman.com 229 (Madras). The issue in

that case was about granting of relief u/s.54EC in the computation

of tax u/s.115JB which is otherwise not provided for in

Explanation to section 115JB(1). The Hon’ble High Court

invoked sub-section (5) and held that the adjusted book profit

would be further eligible to the benefits set out in other provisions

of the Act including section 54EC of the Act. The third decision

is of the Mumbai Tribunal in Neha Home Builders (2018) 54

CCH 0577 MumTrib holding that the assessee was entitled to

deduction u/s 80IB(10) while computing book profit u/s 115JB of

the Act in the light of sub-section (5).

towards some other judgments, inter alia, Sankhla Polymers (P)

Ltd. Vs. ITO (2013) 352 ITR 452 (Karnataka), and Jaintia Alloys

16 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

(P) Ltd. and others Vs. Union of India and others (2010) 320 ITR

442 (Guwahati) having bearing on the issue under consideration.

filed writ petition challenging the validity of the provisions of

section 115JB of the Act on the ground that it did not provide for

deduction u/s.80IB and the assessee had set up its unit in the

eligible area for availing benefit u/s.80IB. Dismissing the writ

petition, the Hon’ble High Court held that the curtailment of the

benefit earlier granted by legislative Act cannot be invalidated on

the principles of promissory estoppel. In other words, the benefit

of section us.80IB which was available u/s.115JA but taken away

by section 115JB, was declared as valid. In Sankhla Polymers (P)

Ltd. (supra), the assessee claimed deduction u/s.80IB in the

computation of income u/s.115JB, which was not allowed by the

AO and the action of the AO was approved in the consecutive two

appeals. The Hon’ble High Court, on a comparative reading of

section 80IB as well as section 115JB, held that section 115JB is

a special charging section and section 80-IB does not control the

provisions of Section 115JB of the Act. It further laid down that:

`The benefit under Section 80-IB is not denied, it works as it is. It

17 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

is only because the assessee happens to be a company to which

the provisions of Section 115JB is also attracted, levy as indicated

therein becomes operative’. Similar view was earlier taken by the

Hon’ble Uttarakhand High Court in Sidcul Industrial Association

vs. State of Uttrakhand (2011) 331 ITR 491. These judgments

make it palpable that deduction u/s.80B/80IC is not available in

the computation of book-profit u/s.115JB of the Act.

purpose of calculation of tax liability u/s.115JB of the Act, there

is no scope for reducing book profit by the amount of deduction

u/s.80IC. The Mumbai Tribunal in Neha Home Builders (supra)

has held that deduction u/s.80IC is permissible in computing book

profit u/s.115JB of the Act. Unfortunately, the above referred

judgments of the Hon’ble Guwahati, Uttarakhand and Karnataka

High Courts, which were prevailing on the date of hearing by the

Mumbai Bench, were not brought to its notice.

judgment of the Hon’ble Rajasthan High Court in Bishnu Krishna

Shrestha vs. CIT (2019) 414 ITR 405 (Raj). The assessee in that

case challenged the provisions of Section 115JB & 80IC of the

18 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

Act on the ground that the benefit granted under Section 80IC

could not have been withdrawn by introduction of section 115JB.

Thus the dispute was on the non-granting of deduction u/s 80IC in

the computation of tax liability u/s 115JB. Contention of the

assessee that the denial of the deduction was ultra vires the

Constitution of India came to be rejected. Although the SLP on

this issue has been admitted by the Hon’ble Supreme Court in

S.B.L. (P.) Ltd. vs. CIT (2019) 263 Taxman 477 (SC), but that

does neither make the ratio of the judgment otiose nor accord

such admission a status of binding precedent under Article 141 of

the Constitution. Ratio of the judgment in such cases continues to

have full force under Article 227 of the Constitution until it is

actually reversed and not on admission of the SLP.

disentitled the assesses to reduce the amount of deduction

u/s.80IB/80IC in the computation of book-profit u/s.115JB of the

Act, and not even a single divergent judgment of any Hon’ble

High Court has been brought to our notice, there is no scope for

taking a contrary view. Ex consequenti, the Tribunal, which is an

inferior authority, is incapacitated to lay down differently.

19 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

Reverting to the language of section 115JB(5) making all other

provisions of the Act applicable but by saving section 115JB and

sub-section (1) of section 115JB containing a non obstante clause

qua any other provision of the Act in the manner of computation

of income tax liability of a company at 18.5% of its book profit

and because of deeming provision in this sub-section regarding

the computation of book profit and further Explanation 1

defining book profit in an exhaustive manner, we hold that there

is no merit in the contention of the ld. AR in seeking reduction of

the book profit u/s 115JB with the amount of deduction u/s 80IC

of the Act. The additional ground, therefore, fails.

rendered infructuous and the same may be dismissed as such.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 04th May, 2022 Satish

20 ITA Nos.400 & 668/PUN/2018 M/s. Chheda Electricals and Electronics Pvt. Ltd.,

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-1, Pune 4. The Pr.CIT-1, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 5. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 02-05-2022 Sr.PS 2. Draft placed before author 04-05-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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