THE COMMISSIONER OF INCOME TAX vs. KITEX GARMENTS LTD., KIZHAKKAMBALAM

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. 49 OF 2009 AGAINST THE ORDER IN ITA 798/2007 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX COCHIN. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: KITEX GARMENTS LTD., KIZHAKKAMBALAM BY ADV SRI.A.KUMAR OTHER PRESENT: THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 15.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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J U D G M E N T S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Advocate Mr. A Kumar for the parties. 2. Commissioner of Income Tax, Cochin/Revenue is the appellant. Kitex Garments Ltd, Kizhakkambalam/assessee is the respondent. The appeal is directed against the order of Income Tax Appellate Tribunal (for short ‘Tribunal'), Cochin Bench in ITA No.798/Coch/2007 dated 28.08.2008. The appeal deals with the issues arising from the tax return filed by the assessee for the Assessment Year 2003-04. 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.49/2009 -3- assessee filed appeal before the Commissioner of Income Tax (Appeals), the appeal was allowed. 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 and also in the light of the principle laid down by the supreme Court in IPCA (266 ITR 521) read with Section 80AB while computing book profit under Section 115JB, the assessee is entitled to claim deduction under Section 80 HHC for an amount of Rs.65,20,772/-? 2. Whether, on the facts and in the circumstances of the case and also in the light of reasoning contained in 265 ITR 114 (Bom) the assessee is entitled to claim depreciation at 40% on commercial vehicles used for assessee's own business?” 4. The first substantial question of law raised in the appeal relates to eligibility of profits and deductibility of profits

I.T.A. No.49/2009 -4- arising under Section 115JB of the Act; whether the assessee is entitled to claim deduction under Section 80HHC for an amount of Rs.65,20,772/-. The second substantial question of law refers to whether the percentage of depreciation accepted by the CIT (Appeals) and Tribunal at 40% is correct or not. 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. 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 reported judgments is excerpted hereunder: 1 [2010] 327 ITR 305 (SC) 2 Civil Appeal No.6901/2012, arising out of SLP(C) No.22881/2011 3 [2012] 340 ITR 593 (SC)

I.T.A. No.49/2009 -5- 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. 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

I.T.A. No.49/2009 -6- 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.” 5.1 Substantial question no.1 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. Hence, the question is answered accordingly in favour of assessee and against the

I.T.A. No.49/2009 -7- Revenue. 5.2 Substantial question no.2 deals with the percentage of depreciation which the assessee is entitled to on the vehicles used by the assessee for its commercial purpose. Paragraph 4 of the order of the Tribunal reads thus: “The Andhra Pradesh High Court in the case of CIT vs. AM constructions- 238 ITR 775 - has examined the expression "running on hire" and has held that it does not say that the business should be exclusively used for hire by the assessee. This judgment clinches the issue. If the assessee has not deployed its own vehicles in the business carried on by it, the assessee would have obliged to take vehicles on hire for transporting its goods and merchandise. It means the vehicles deployed by the assessee in its business were carrying on the same functions of the vehicles taken on hire. Therefore, in the light of the interpretation given by the Andhra Pradesh High Court in the above case, we find that the decision of the CIT(Appeals) is just and proper. This ground fails.” 6. Old appendix I applicable for the Assessment Year 2003-04 deals with different slabs of depreciation applicable to

I.T.A. No.49/2009 -8- vehicles used for different purposes. After juxtaposing the schedule with the nature of activity carried on by the assessee, we are of the view that the finding of fact recorded by the Tribunal is in accordance with the said schedule and the substantial question of law in the facts and circumstances of this case does not arise for consideration under Section 260A of the Act. The two questions framed in the appeal, since are held against the Revenue and in favour of assessee the appeal stands dismissed accordingly. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE jjj

I.T.A. No.49/2009 -9- APPENDIX OF ITA 49/2009 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 28.09.2006 FOR THE ASSESSMENT YEAR 2003-04. ANNEXURE B TRUE COPY OF THE ORDER DATED 19.06.2007 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURE C TRUE COPY OF THE ORDER DATED 28.8.2008 OF THE INCOME TAX APPELLATE TRIBUAL, COCHIN BENCH IN ITA NO.798/COCH/2007