High Court of KeralaDivision Bench2021-07-15Revenue’s appeal under ITA No.1699/2009 is dism...

Commissioner of Income Tax, Cochin v. M/s. G.T.N. Industries Ltd., Aluva

Case / Petition Number:ITA No.1699/2009

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: S. V. Bhatti
Bechu Kurian Thomas
Judgment Date: 2021-07-15
Court Decision / Holding: The Revenue’s ITA appeal is dismissed; the High Court holds in favor of the assessee. It upholds the Tribunal’s approach that 80HHC relief is to be determined with reference to the adjusted profits under section 115JB, rejects the Revenue’s arguments to revert to normal computation for 14A and related issues, and thereby affirms the assessee’s deductions. The Tribunal’s order in ITA No.36/Coch/2008 is upheld in the assessee’s favor; the appeal is dismissed accordingly.
Final Disposition: Revenue’s appeal under ITA No.1699/2009 is dismissed; the High Court affirms the Tribunal’s decision in favor of the assessee, upholding the ASSESSEE’s entitlement to 80HHC relief computed via adjusted profits under 115JB and the related deductions; the matter is decided in the assessee’s favour.

Parties to the Case

Appellants / Petitioners

The Commissioner of Income Tax, Cochin

Respondents

M/s. G.T.N. Industries Ltd., Aluva

Legal Representation & Advocates

Counsels for Petitioners

• Sri. Jose Joseph, SC

Counsels for Respondents

• Sri. Joseph Kodianthara
• Sri. Terry V. James
• Sr. Adv. Joseph Markos

Case Synopsis & Summary

This Income Tax Appellate Tribunal (ITAT)–to–High Court appeal concerns the taxpayer’s claim for relief under section 80HHC and its interaction with the profits adjustments under section 115JB for AY 2003-04, challenged by the Revenue. The Tribunal’s order in ITA No.36/Coch/2008 (27.02.2009) framed the disallowance under 14A and the computation of book profits under 115JB, and the Commissioner of Income Tax (Appeals) had partly allowed the appeal, while the Tribunal dismissed the Revenue’s further challenge. The Revenue contends that the Tribunal misapplied 115JB and 80HHC, arguing that disallowance under section 14A should be computed under normal provisions and that the 80HHC relief is determined with reference to regular profits, not the adjusted book profits under 115JB. The Respondent-assessee relies on established Supreme Court precedents, notably Ajanta Pharma Ltd. v. C.I.T., and Bhari Information Tech. Sys. (P) Ltd., to argue that the relief under 80HHC requires computation against the adjusted book profits prescribed under 115JB and that the dichotomy between “eligibility” and “deductibility” of profits must be kept in mind. The High Court refers to these judgments as supportive of the assessee’s position and ultimately holds in its favour, discarding the Revenue’s contentions. The judgement also discusses Syncome Formulations and related Supreme Court guidance to emphasize the cohesive treatment of these provisions. The final disposition is that the Revenue’s ITA appeal is dismissed, and the assessee’s position is upheld, with the tribunal’s order effectively restored in its favour.

Provisions of Law Cited

Section 80HHCSection 14ASection 115JBSection 260ASection 115JA

Legal Doctrines & Maxims

Dichotomy between eligibility and deductibility of profits (doctrine)
Self-contained code principle (115JB)
Compliance condition vs qualifying condition (80HHC/115JB context)
Eligibility vs deductibility distinction governing relief under 80HHC (115JB framework)

Submissions & Arguments

Contentions of Appellants / Petitioners

The Revenue contends that the Tribunal erred in applying 115JB for computing relief under 80HHC and challenged the tribunal’s stance on disallowance under section 14A, contending the 14A disallowance should align with normal computation rather than 115JB. It questions the Kerala High Court’s reliance on related Supreme Court rulings and seeks a consistent interpretation that limits 80HHC relief to standard tax computation frameworks and maintains the dichotomy between eligibility and deductibility. The Revenue also disputes the Tribunal’s reliance on certain precedents, including judgments cited to argue that 115JB must govern the 80HHC relief, seeking reversal of the Tribunal’s conclusions.

Contentions of Respondents

The assessee argues that the relief under 80HHC must be computed on the basis of adjusted book profits under section 115JA/115JB, consistent with the Supreme Court’s treatment of similar issues (Ajanta Pharma; Bhari Information Tech). It contends that the dichotomy between eligibility and deductibility requires recognizing that 80HHC relief is to be computed with reference to the adjusted profits under the self-contained code of 115JB, and that the Tribunal’s approach aligns with this doctrine. It relies on Ajanta Pharma and Bhari Information Tech. Sys. (P) Ltd. and related decisions (including Syncome Formulations) to support the assessee’s position, arguing that the law requires reading relief under 80HHC in light of 115JB adjustments rather than in isolation.

Cited Precedents (5)

Case Name	Citation	Treatment	Explanation
Ajanta Pharma Ltd. v. Commissioner of Income Tax	327 ITR 305 (SC)	Positive	SC held that relief under 80HHC (3)/(3A) must be computed with reference to the 115JB framework; supports assessee's position on the interrelation of 80HHC with 115JB.
Kerala Chemicals and Proteins Ltd. v. Commissioner of Income Tax	SC (year unknown)	Positive	Cited as precedential authority in favor of assessee’s interpretation of 80HHC/115JB interplay.
Commissioner of Income Tax v Bhari Information Tech. Sys. (P) Ltd	340 ITR 593 (SC)	Positive	SC decision cited to support computation of relief under 80HHC based on adjusted book profits under 115JB.
Syncome Formulations	Special Bench, ITAT	Positive	Special Bench view applied to support calculating 80HHC relief using 115JA/115JB adjustments.
Unknown Supreme Court case cited as 295 ITR 228 (SC)	295 ITR 228 (SC)	Positive	Cited in contrast to the Tribunal’s reliance on another decision; Supreme Court authority that shapes the Court’s reasoning on the issue.

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Extracted Judgment Text

Exact text extracted from official judgment records.

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 15[TH] DAY OF JULY 2021 / 24TH ASHADHA, 1943 ## ITA NO. 1699 OF 2009 AGAINST THE ORDER IN ITA 36/2008 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: M/S.G.T.N.INDUSTRIES LTD., ALUVA BY ADVS. SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES SR.ADV.JOSEPH MARKOS THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 15.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **I.T.A. No.1699/2009** **-2-** ## **J U D G M E N T** S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Senior Advocate Mr. Joseph Markos for the parties. 2. Commissioner of Income Tax, Cochin/Revenue is the appellant. M/s. G T N Industries Ltd./assessee is the respondent. The appeal is directed against the order of Income Tax Appellate Tribunal (for short ‘Tribunal'), Cochin Bench in ITA No.36/Coch/2008 dated 27.02.2009. 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.1699/2009** **-3-** assessee filed appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. 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, the Tribunal is right in law - i) in holding that the disallowance was under Sec. 115JB computation and it is not under normal computation so as to invoke section 14A? ii) in rejecting the ground that disallowance under section 14A is justified in this case; iii) in holding that the disallowance is not justified? 2. Whether, on the facts and in the circumstances of the case the Tribunal is right in law and fact in interfering with the "another disallowance on account of 80HHC deduction" noted in paragraph 7 of its order based on the decision reported in 248 ITR 372 ad is not the interference and the decision relied on wrong and against the decision reported in 295 ITR 228 (SC)? **I.T.A. No.1699/2009** **-4-** 3. Whether, on the facts and in the circumstances of the case is not the computation of book profits under section 115JB to work out the eligible deduction for the purpose of section 80HHC benefit against law and the intendment of the legislature? 4. Whether, on the facts and in the circumstances of the case and in the light of the decision of the supreme Court in 295 ITR 228 and other cases of the Supreme Court, the decision of the Kerala High Court is correct and in accordance with law and the Tribunal is right in relying on the same? 4. The substantial questions of law raised in the appeal relate to eligibility of profits and deductibility of profits arising under Section 115JB of the Act; whether the assessee is entitled to claim deduction under Section 80HHC. 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-Tax_[1] , order of the Supreme Court in _Kerala Chemicals and Proteins Ltd v._ 1 [2010] 327 ITR 305 (SC) **I.T.A. No.1699/2009** **-5-** _Commissioner of Income Tax_[2] and _Commissioner of Income-Tax v. Bhari Information Tech. System (P) Ltd_[3] to state that the issue is concluded by these judgments in favour of assessee The operative portion of the judgments is excerpted hereunder: ## “ _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 subsections (4) and (4A) of that section) to obliterate the difference between and of as "eligibility" "deductibility" profits contended on behalf of the Department. > 2 Civil Appeal No.6901/2012, arising out of SLP(C) No.22881/2011 > 3 [2012] 340 ITR 593 (SC) **I.T.A. No.1699/2009** **-6-** 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 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 **I.T.A. No.1699/2009** **-7-** computation of profits and gains of business. The judgment of the Tribunal has been upheld by the High Court.” 5.1 Substantial questions 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. The 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 **-8-** ## **I.T.A. No.1699/2009** ## **APPENDIX OF ITA 1699/2009** PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 15.03.2006 FOR THE ASSESSMENT YEAR 2003-04. ANNEXURE B TRUE COPY OF THE ORDER DATED 18.10.2007 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURE C TRUE COPY OF THE ORDER DATED 27.2.2009 OF THE INCOME TAX APPELLATE TRIBUAL, COCHIN BENCH IN ITA NO.36/COCH/2008