ITO, MYSORE vs. M/S LAB LAND BIO TECH PVT. LTD.,, MYSORE

In this appeal filed by Revenue, its grievance is that CIT (A) directed the AO to adopt income as per the profit and loss account while computing the book profit u/s.115 JB of the Income-tax Act, 1961 (‘the Act’ in short).

As per the Revenue, AO had correctly adopted the profit as per the profit and loss account appropriation account. As against this, assessee in its cross objection states that its income was agricultural in nature and exempt u/s.10(1) of the Act.

In the cross objection, assessee has taken certain other grounds also relating to disallowance of claim of depreciation and disallowance of its claim u/s.35 of the Act.

The claim of assessee that its income was exempt u/s.10(1) of the Act if accepted, would render the other grounds raised by both the Revenue and the assessee insignificant. Therefore this ground appearing in assessee’s cross objection is considered first for disposal.

Assessee a biotechnology company had filed its return declaring nil income. In the profit and loss account filed along with the return, assessee had shown a subsidy receipt of Rs.20,03,000/-, R & D expenditure of Rs.11,48,049/-. AO was of the opinion that the subsidy amount received had to be reduced from the cost of the assets. Accordingly after such reduction, AO curtailed the claim of depreciation. Against the depreciation claimed of Rs.15,86,647/-, AO allowed only Rs.12,86,197/- and the ITA.879 & CO.185/Bang/2015 Page - 3 balance was added to assessee’s income. In so far as R & D expenditure was concerned, AO was of the opinion that the said expenditure pertained to A. Y. 2008-09 and could not be allowed for the impugned assessment year.

During the course of assessment proceedings assessee vide its letter dt.14.12.2011, stated that whole of the income earned by it was exempt since it was agricultural in nature. Assessee relied on the amendment made to Section 2(1A) of the Act, according to which, income derived from sale of saplings and seedlings grown in a nursery was deemed to be agricultural income. However, AO did not accept this claim. According to him such claim ought to have been made through a revised return of income. Since assessee had not done so AO was of the opinion that assessee’s claim regarding agricultural nature of its receipts could not be allowed. Thereafter he computed income of the assessee under the normal provisions and also under the MAT provisions. While doing the calculation of tax under the MAT, he started from the profit as per the P & L appropriation account.

Aggrieved assessee moved in appeal before the CIT (A). As per the assessee, its claim that its income was agricultural in nature was wrongfully ITA.879 & CO.185/Bang/2015 Page - 4 rejected by the AO. In any case, as per the assessee nothing stopped the CIT (A) from entertaining this claim. Assessee pointed out to the CIT (A) that the limitations placed by the Hon’ble Apex Court through its judgment in Goetze (India) Ltd v. CIT [(2006) 284 ITR 323] was only on the AO and appellate authorities were free to consider such claims made by the assessee. Assessee also made submissions on merits, assailing the disallowance of depreciation and R & D expenditure. Assessee also put up a claim before the CIT (A) that profit as per the P & L account alone should be considered for computing tax u/s.115 JB of the Act, and not profit as per the P & L appropriation account.

CIT (A) was of the opinion that assessee’s claim regarding agricultural nature of its income could not be accepted in view of the judgment of Hon’ble Apex Court in Goetze (India) Ltd (supra). He also upheld the assessment in so far as it concerned the disallowance made by the AO for depreciation and unabsorbed R & D expenditure. However, CIT (A) was of the opinion that by virtue of the decision of Hon’ble Apex Court in the case of Apollo Tyres Ltd v. CIT [255 ITR 274], the profit that was to be reckoned for calculating the MAT was the profit as shown in the P & L account and not profit as shown in the P & L appropriation account.

Now before us, Ld. AR in support of his cross objection submitted that the judgment of Hon’ble Apex Court in Goetze (India) Ltd, placed restrictions only on the AO and not on the CIT (A) or this Tribunal. As per the Ld. AR once income of the assessee was exempt u/s.10(1) of the Act, there was no question of computing any book profits also.

Per contra, Ld. DR submitted that assessee having not preferred the claim of agricultural income through a revised return could not make such a claim before the AO or appellate authorities.

I have perused the orders and heard the rival contentions. Basis of charge of Income-tax has been set out in Section 4(1) of the Act which is reproduced hereunder :