Case Law Details
DCIT Vs Luxmi Tea Company Ltd (ITAT Kolkata)
The issue under consideration is whether income from sale of tea manufactured and sold from tea leaves purchased from third parties was from non-agricultural activity and therefore, was not eligible for deduction of 60%?
In the Assessee-company was engaged in business of cultivation, manufacturing and sale of tea. It was also engaged in purchasing tea leaves from third parties and after carrying out manufacturing process was selling the tea so manufactured. While computing the book profit under section 115JB, the assessee deducted 60% of composite profit, which comprised of profit from growing, manufacturing and selling of tea as well as profit from sale of tea manufactured from tea leaves purchased from third parties. AO accepted the said claim of assessee. However, CIT invoked his revision power under section 263 and held that the income from sale of tea manufactured and sold from tea leaves purchased from third parties was from non-agricultural activity and the same, therefore, was not eligible for deduction of 60%.
ITAT states that on perusal of CBDT Circular No. 495 dated 22-9-1987, it was clear that there was no provision for bifurcating income from growing, manufacturing and sale of tea and income from manufacturing and sale of tea out of leaves purchased from third parties. Therefore, the proposed adjustment in the impugned order under section 263 was beyond the scope of determining of book profit under section 115JB read with CBDT Circular No. 495 dated 22-9-1987. The AO has to accept the profit as per the profit and loss account prepared in accordance with the companies Act and thereafter he can proceed to make the additions and deletions set out in the Explanation to Sec.115JB of the Act. He cannot make any adjustment which is not permitted under Explanation to Sec.115JB of the Act. The interpretation as above by the Hon’ble Supreme Court will equally apply to the provisions of Sec.115JB of the Act as well, as those provisions are identical to the provisions of Sec.115J of the Act with certain variations, which does not in any way alter the starting point of computation of book profit u/s.115J of the Act. If the CBDT Circular referred to above and the decision of the Hon’ble Supreme Court in the case of Apollo Tyres (supra) are read together, the only conclusion that can be reached that the computation of book profit as done by the Assessee is correct and cannot be termed as erroneous and prejudicial to the interest of the revenue.
FULL TEXT OF THE ITAT JUDGEMENT
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