M/S. MATERIALS CHEMICALS AND PERFORMANCE INTERMEDIARIES PVT. LTD. (FORMERLY, MCC PTA INDIA CORP. PRIVATE LTD.),KOLKATA vs. ACIT, CIRCLE 11, KOLKATA, KOLKATA

Per Anikesh Banerjee, Judicial Member: The instant appeal of the assessee was filed against the order of Ld.

Commissioner of Income-tax (appeals)-22, Kolkata [in brevity ld. ‘CIT(A)’]

dated 01.11.2016 passed u/s 250 of the Income Tax Act, 1961 (in brevity the

‘Act’) for assessment year 2004-05. The impugned order was emanated from

2 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. the order of the ld. ACIT, Circle-11, Kolkata (in brevity the ‘AO’) passed u/s

143(3)/115JB of theActdated19.12.2006.

pursuing the Miscellaneous Applicationfollowed by the order of ITAT, SMC

Bench bearing M.A No. 35/Kol/2021 date of order 27.05.2022. As per the

order of the miscellaneous application of the assessee the main application of

appealwas recalled and fixed for the hearing before the Bench. By perusing the

order, we observed that the assessee has taken the additional ground during the

hearing before the ITAT. But the Tribunal has escaped attention and

adjudication of the additional ground was not done during dispensing of final

order. The assessee has filed MA before the ITAT and against the order of

MAthe appeal is recalled. In fact, the assessee has claimed deduction u/s

80HHC amounting to Rs. 20,35,75,401/- out of book profit. The assessee

claimed deduction after claiming of brought forward loss and unabsorbed

depreciation and the assessee has reduced profit to nil. The revenue has

disagreed with the assessee’s computation and claim was rejected by the Ld.

AO.

as covered matter in the case of CIT vs. Bhari Information Technology

Systems Pvt. Ltd. in [2012] 17 taxmann.com 62 (SC), the order of the Special

3 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. Bench of Mumbai ITAT in the case of DCIT vs. Syncome Formations

IndiaLtd. [2007] 106 ITD 193 (Mum). The assessee claimed that the

deduction U/s 80HHC is eligible after obtainingthe computation u/s

115JA/115JB of the Act. The Ld. CIT(A) had passed the order but as per the

assessee had not made any proper direction to the Ld. AO. The assessee has

taken additional ground before the ITAT for adjudication.

attention in order of the MA No. 35/Kol/2021. The relevant paragraphs are

extracted as below:

“2. The first and foremost contention of the applicant-assessee is that the assessee had moved an application dated 23.11.2020 received by the Registry on 26.11.2020 for seeking admission of additional grounds of appeal. The assesseevide this aforesaid application has sought to raise four additional grounds of appeal bearing Ground no.10 to Ground no.13 which read as under: Ground 10: Considering Adjusted Book Profits instead of Income under the normal provisions for computing the deduction allowable under section 80HHC of the Income Tax Act, 1961 ("the Act') under the provisions of Minimum Alternate Tax (MAT') On the facts and in the circumstances of the case and in law, Ld. Commissioner of Income-tax (Appeals) ['CIT(A)] has erred in not giving specific directions to compute deduction towards section 80HHC of the Act under MAT by considering adjusted book profits instead of the income under normal provisions, in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Bhari information Technology Systems (Pvt.) Ltd [(2012) 17 taxmann.com 62 (SC)]. Ground 11: Re-computing deduction allowable under section 80HHC of the Act under the MAI without regard to the sub-section (1B) of Section BOHHC On the facts and in the circumstances of the case and in law, the Appellant humbly requests appropriate directions to allow deduction of hundred percent of profits eligible under section 80HHC of the Act under MAT, in view of subsequent decision of the Hon'ble Supreme Court in the case of Ajanta Pharma vs CIT (2010) 327 ITR 0305]. A copy of the judgment is enclosed as Annexure 1.

4 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. Ground 12: Allowance of deduction under clause (ii) to Explanation 1 of Section 115JB(2) of the Act relating to lower of brought forward business loss or unabsorbed depreciation 12.1 On the facts and in the circumstances of the case and in law, the Appellant prays that appropriate directions be given to the learned AO to allow deduction of lower of the amount of brought forward loss or unabsorbed depreciation as per books of accounts as per the provisions of clause (iii) to Explanation 1 of Section 115JB(2) of the Act. 12.2 On the facts and in the circumstances of the case and in law, the learned AO be directed to compute the brought forward business loss and unabsorbed depreciation available in FY 2003-04 after setting off the book profits of FY 2002-03 amounting to Rs. 17,46,408 in the proportion of brought forward business loss of Rs. 4,64,058 and unabsorbed depreciation of Rs. 15,37,307 available in FY 2002-03 as per books of accounts. Detailed calculations of the same are enclosed as Annexure 2. Ground 13: Interest under section 244A of the Act On the facts and in the circumstances of the case, Appellant requests for appropriate direction to compute interest under section 244A of the Act on the amount of refund computed pursuant to the order of the Hon'ble ITAT against the captioned appeal. The Appellant craves leave to add to, alter, delete or modify the above grounds of appeal.”

accepting the order of Special Bench of ITAT Mumbai and the order of Hon’ble

Apex Court, but no specific direction was made to the ld. AO for re-

computation.So, the Ld. A.R prayed that ground no. 10,11 and 12 should be

remitted back to the file of Ld. AO after considering the judicial directions the

computation u/s 115JA/115JB read with Section 80HHC should be passed. The

relevant paragraphs of the appeal order are reproduced as below:

“I have carefully examined the action of the Ld AO in disallowing the claim for deduction of Rs.2,03,75,401/- under section 80HHC of the Act while arriving at the book profit under section 115J8 of the Act. The Ld AO noticed that the assessee-

5 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. company claimed deduction u/s 80HHC amounting to Rs.20,35,75,4017- out of Book Profit. The Ld AO reckoned that it is provided in explanation -(iv) to section 115-JB, and as-the assessee-company has reduced its profit to NIL after setting off brought forward unabsorbed depreciation and business losses, there is no residual profit which is eligible for deduction u/s. 80HHC. According to the Ld.AO, in that section read with Section 80AB and 80(v), It is provided that where any deduction is required to be made or allowed under any section included in this chapter. Under the heading "C- Deduction In respect of certain incomes"- in respect of any income of the nature specified in that section which is included in the Gross Total Income of the assesses, hence not withstanding anything contained in that section for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act ( Before making any deduction under this chapter) shall along be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his Gross Total Income. The Ld. AO reckoned that further to the said provision, it is also noticed that all the section, Chapter-VI including 72 shall have to be taken into consideration to arrive at the Gross Total Income. Hence reduction u/s 80HHC of eligible profit for the purpose of the MAT as provided in explanation- (Iv) to sec, 115JB(2) shall amount to NIL. The Hon'ble Supreme Court in the case of M/s. IPCA Laboratories- vs. GIT [266 ITR 52] held that section-SQHHC can be allowed only in case of sufficiency of the GrossTotal income add not otherwise. As in the case, the Gross Total Income after setting off the unabsorbed Depreciation and business loss will be NIL. Therefore, the claim of the assessee company for reduction from amount of Book Profit of Rs, 2,03,75,401/- u/s. 80HHC is disallowed. Further, it is seen that the assessee company has not added back provision of Wealth Tax u/s40(a)(ia) amounting to Rs. 12,36,043/-. To arrive at book profit for MAT u/s, 115JB, the same has been taken into consideration for computation of Book Profit. 2. On the other hand, it has been argued by the Ld. A.Rs for the appellant-company during the appeal that: a. The issue has been recently settled by the decision of Special Bench of the Hon'ble Mumbai Tribunal in the case of DCIT vs. Syncome Formulations (I) Limited 106 ITD 193 (2007) (Mum.) wherein it has been held that for computing the book profits, the deduction under section 80HHC of the Act had to be worked out by considering adjusted book profits as per section 1151, section 115JA and section 115JB of the Act. The appellant has also enclosed a copy of the said decision, and relyingo the same has filed e an additional, ground with a prayer to direct the AO to re-determine the deduction under section 8DHHC of the Act by considering the adjusted book profit for the purposes of section 1153B of the Act. b. The appellant-assessee has also relied upon the decisions in the following cases: ’ i. Case of Futura Polyster Ltd [ 2010 ] 186 Taxman 51 (Madras) ii. Magna Electro castings Ltd [ 2009] 184 Taxman 79 (Madras) iii. BanswaraSyntex Limited VS. AO (2007) 109 TO 274 (Jaip.) iv. Godrej Industries Ltd [ 2015] 62 taxmann.com 354 (Bombay ] / [2015] 377 ITR 1 ( Bombay)

6 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. v. Amalgamated Bean Coffee Trading Co [2008] 19 SOT 1 [Bangalore ] / [2008] 117 TTJ 424 [Bangalore] vi. Circular No. 680 on February 21, 1994 206 ITR 297 (St.) in the context of section 1153 of the Act wherein It Is stated that certain doubts have been expressed as to whether the amount quantified under 80MHC sub section (3) or sub section (3A) of the Act or section 80HHD sub section (3) of the Act itself should be deducted under sub section (iii) under section ,115J of the Act or whether only on the manner of computation specified in those sections should be followed to quantify the amount of deduction. vii. Order of the Ld CIT(A) for the A.Y 2003-04 passed on 13.08,2014 In Appeal No. 398/XII/Cir-11/09-10. 3. Having carefully perused the action of the Ld AO, and the submissions of the LdA.Rs for the appellant, I find tha| the matter has been decided In favour of the appellants, and the same is covered In appellant's favour. Hon'ble Supreme Court in CIT Vs Bhari information Technology Systems (Pvt )Ltd [2012] 17 taxtnanri.com 62 (SC) , by their order dated'20th October, 2011 have decided the matter [ head notes] as follows; [ quote] IT ; Deduction claimed under section 80HHE has to be worked out on basis of adjusted book profit under section ll53A and not on basis of profits computed under regular provisions of law applicable to computation of profits and gains of business Section 1153A, read with section 80HHE of the Income-tax Act, 1961 - Minimum Alternate Tax - Assessment year 2000-01 - Assessee claimed deduction under section 80HHE of Rs. 1,56,33,719 against net profit of Rs. 3,07,84,105 to arrive at book profit of Rs. 1,51,50,386 under section 115JA - Claim for deduction was rejected by Assessing Officer on ground that since in normal computation there was no profit after carry forward loss of earlier years, deduction under section 80HHE for computing book profit under section 1153A was not admissible - In appeal. Commissioner (Appeals) upheld order of Assessing Officer - However, Tribunal held matter in favour of assessee - Tribunal came to conclusion that deduction claimed under section 80HHE had to be worked out Onbasis of adjusted book profit under section 115.3A and not on basis of profits computed under regular provisions of law applicable to, computation of profits and gains of business - Judgment of Tribunal had been upheld by High Court -Whether there was no reason to interfere with impugned judgment - Held, yes [In favour of assessee]

CASE REVIEW CIT v. Bhari Information Technology Systems (P.) Ltd. [2010] 328 ITR 380 (Mad,) affirmed. Dy. CIT v. Syncome Formulations (I) Ltd. [2007] 106 ITD 193 / 13 SOT 414 (Mum.) (SB)approved.

CASES REFERRED TO

7 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd.

Dy. CIT v. Syncome Formulations (I) Ltd. [2007] 106 ITD 193 / 13 SOT 414 (Mum.) (SB) (para 3).

Bishwajit Bhattacharya, Arijit Prasad, Vikas Malhotra, Ajay Singh, Judy James, Ms. N. Swarup and B.V. Bala ram Das for the Petitioner. Ramesh Singh, Pratap Venugopal and Ms. Namrata Sood for the Respondent,

ORDER: 1. Assessee filed its return of income for asst. yr. 2000-01, Assessee claimed deduction under s. 80HHE to the extent of Rs, 1,56,33,719 against net profit as per P&L a/c amounting to Rs. 3,07,84,105 to arrive at the book profit of Rs. 1,51,50,386 under s. 1153A of the IT Act, 1961 (See : Vol. R/l of I.A. paper book-p. 6). 2. This claim for deduction made by the assessee was rejected by the AO saying that since in normal computation there is no profit after carry forward loss/deduction under s. 80HHE to the extent of Rs. 1,56,33,719 for computing book profit under s. 115JA was not admissible.

According to the AO since in the present case in normal Computation no net profit was left after the brought forward losses of the earlier years got adjusted against the current year's profit, the assessee was not entitled to deduction under s. 8QHHE to the extent of Rs. 1,56,33,719.

The said judgment of the Special Bench was with regard to computation of deduction under s. 80HHC which, like s. 80HHE, falls under Chapter VI-A of the IT Act, 1961. In the said judgment of Special Bench, which squarely applies to the facts of the present case, the Tribunal held that the deduction under s. 80HHC (s, 80HHE also fails In Chapter VI-A) Is to be worked out not on the basis of regular income-tax profits but it has to be worked out on the basis of the adjusted book profits in a case where s. 1153A is applicable. In the said judgment the dichotomy between regular Income-tax profits and adjusted book profits under s, 115JA is clearly brought out. The Tribunal in the said judgment rightly held that in s. 115JA relief has to be computed under s. 80HHC(3)/(3A).

According to the Tribunal, once the law itself declares that the adjusted book profit is amenable for further deductions on specified grounds, in a case where s. 80HHC (8QHHE in the present case) is operational, It becomes clear that computation for the deduction under those sections needs to be worked out on the basis of the adjusted book profit. [See : para 61 of the judgment of the Tribunal in Syncome Formulations (supra)].

8 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. 4. In the present case we are concerned with s. 80HHE which is referredtp in the Explanation to s, 115JA, d. (lx). In our view, the judgment of the Special Bench of the Tribunal in Syncome Formulations (I) Ltd., (supra) squarely applies to the present case. Following the view taken by the Special Bench in Syncome Formulations (I) Ltd. (supra), the Tribunal in the present case came to the conclusion that Reduction claimed by the assessee under s. 80HHE has to be worked out on the basis of adjusted book profit under s. 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. We see no reason to interfere with .the impugned judgment. We agree with the view taken by the Special Bench of the Tribunal in the case of Syncome Formulations (I) Ltd. [supra) vide para 61 of the judgment. Accordingly, the special leave petition filed by the Department stands dismissed with no order as to costs. [ unquote] CONCLUSION: The issue having been settled in favour of the assessee by various Hon'ble Court Rulings, the Ld. Assessing Officer is directed to allow the deduction u/s 80HHC of Rs.2,03,75,401/-, while computing book profit u/s 115JB of the Income Tax, act, The Ground taken by the appellant-company accordingly stands allowed.”

The Ld. A.R are not pressed ground no. 13 as it is consequential in nature.

and prayed that for setting aside the matter to the file of the Ld. CIT(A).

in the record. The assessee filed a miscellaneous application for considering the

additional ground which was escaped the attention of the Bench. The additional

groundS of the assesseeare duly claimed deduction u/s 80HHC of the Act

amounting to Rs. 2,03,75,401/- which was arriving on the book profit u/s 115JA

of the Act after allowing the carry forward loss and unabsorbed depreciation.

We respectfully follow the direction of the Hon’ble Apex Court in the case of

Bhari Information Technology Systems Pvt. Ltd. (supra) and Syncome

9 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd. Formations (I) Ltd. (supra). The assessee is in appeal, against the order of the CIT(A), before the Tribunal which, following the judgment of the Special Bench of the Tribunal in the case of Syncome Formulations (I) Ltd. took the view that the MAT scheme which includes Section 115JA did not take away the benefits given under s. 80HHC.The entire issue related to additional ground no.10 to 12 are remitted back to the file of Ld. AO for the computation u/s 80HHC after considering the judgment of Hon’ble Apex Court (supra) and Special Bench of Mumbai Tribunal (supra). Needless to say, the assessee should get a reasonable opportunity of hearing in the set aside proceedings.

Order is pronounced in the open court on 7th February, 2024

Sd/- Sd/- (Dr.Manish Borad/डॉ मनीष बोरड) (Anikesh Banerjee /अ�नकेश बनज�) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 7th February, 2024 SM, Sr. PS

10 I.T.A. No.388/Kol/2017 Assessment Years: 2004-05 M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd.

Copy of the order forwarded to: 1. Appellant- M/s Materials Chemicals and Performance Intermediaries Pvt. Ltd., 22, Camac Street, 4th Floor, Block-C, Kolkata-700016 2. Respondent – ACIT, Circle-11, Kolkata 3. Ld. CIT(A)- 22, Kolkata 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)