1. In this appeal, the Revenue has objected to the order of the Commissioner of Income-tax (Appeals) in allowing deduction under Section 32AB at Rs. 46,423, in respect of machinery costing Rs. 1,95,376, which could not be purchased out of the income chargeable to tax amounting to Rs. 72,667. Smt. Sarangi, the learned Departmental representative, supported the order of the Assessing Officer.
2. Shri Chandiok, learned counsel for the appellant-company, submitted that the deduction that is to be allowed, is out of the income from the business, is of that amount that has been deposited with the IDBI or that has been utilised in the purchase of new machinery, which deposit or utilisation is further compared with twenty per cent. of the profit of the eligible business and it is the lower of the amount deposited or utilised or 20 per cent. of the profit, that would be allowed as deduction. The amount of profit of the eligible business, that has been defined in subSection (2)(i) of Section 32AB, has to be certified by an auditor, which has been so provided in Sub-section (5) of Section 32AB.3. He pleaded that, the appellant-company has purchased a new machinery at a cost of Rs. 1,95,376. The profit of the eligible business, as certified by the auditor, is Rs. 2,32,117. The figure of profit as computed as per the provisions of the Act, before allowing any deduction under Section 32AB, is computed at Rs. 72,670. The deduction is, therefore, to be allowed with reference to this profit of Rs. 72,670. The amounts that need to be compared, for allowing deduction under this Section are Rs. 72,670 and 20 per cent. of Rs. 2,32,117 and the amount that is lesser of the two, has to be deducted from the computed profit of Rs. 72,670. The amount of 20 per cent. of Rs. 2,32,117, being Rs. 46,423 is positively lower, and hence deduction was allowed to that extent. He thus supported the order of the Commissioner of Income-tax (Appeals).
4. The rival contentions on the above issue have been very carefully considered. The ground as raised by the Revenue is reproduced for the sake of facility. "On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) has erred in allowing deduction under Section 32AB at Rs. 46,423 which could not be purchased out of the income chargeable to tax amounting to Rs. 72,667 only".
5. The question that we have to consider, is whether, the assessee could be allowed deduction under Section 32AB, when the chargeable profit is only Rs. 72,667, while the utilisation in the purchase of a new machinery which was Rs. 1,95,376, exceeded the amount of chargeable profit. A perusal of the order of the Assessing Officer indicated that, he has proceeded on the basis that, the term "utilisation from the profit chargeable to tax", means that, the cost of the machinery must not exceed the amount of profit computed to tax, and it is only then, the deduction under Section 32AB is permissible. The Assessing Officer has held that, since the appellant had invested on the new machinery Rs. 1,95,376 which is much larger than the profit chargeable to tax of Rs. 72,667, the utilisation could not be said to be from out of the profit chargeable to tax and, therefore, the assessee is not entitled to any deduction.
6. The contention of the appellant-company before the Commissioner of Income-tax (Appeals) was that the assessee should be held to have utilised in the purchase of the new machinery, to the extent of the profit from business of Rs. 72,667, computed as chargeable to tax. It was further contended that, utilisation has to be compared with 20 per cent. of the profits of the eligible business and since, in the instant case, 20 per cent. of the eligible business was lower, the assessee was entitled to deduction to that extent, i.e., Rs. 46,423.
7. The Assistant Commissioner of Income-tax, who was present at the time of hearing, objected to the contention of the appellant that the Section does not permit treating part of the cost as utilisation on the purchase of a new machinery. The second objection of the Assistant Commissioner of Income-tax was that the computation of the eligible profit as certified by the auditor has taken into account, the profit on sale of assets which is given a different treatment under the Income-tax Act.
8. The Commissioner of Income-tax (Appeals) rejected the contentions of the Assistant Commissioner of Income-tax by observing that the plea of the assessee of having utilised to the extent of profit that is chargeable to tax as reasonable. He further observed that the deduction permissible under the Section is subject to the overall limit of the profit that is chargeable to tax and in no case it can exceed such profit. He also observed that the deduction permissible under the Act is either the amount utilised or 20 per cent of the profits of the eligible business, whichever amount is less. He also observed that even where the cost of the machinery that has been purchased is greater than the 20 per cent. of the profits of the eligible business, the entitlement to deduction is limited to 20 per cent. of the profits of the eligible business. On the calculation of the profits of the eligible business, he rejected the contention of the Assistant Commissioner of Income-tax, by observing that no defect had been pointed out.
9. We shall reproduce the relevant portion of Section 32AB for the sake of facility and for appreciating the controversy in the instant case.
" 32AB. (1) Subject to the other provisions of this Section, where an assessee, whose total income includes income chargeable to tax under the head 'Profits and gains of business or profession', has, out of such income,-- ...
(b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under Clause (a), in accordance with, and for the purposes specified in, a scheme (hereafter in this Section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from the earlier years is set off under Section 72) of -- (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised ; or (ii) a sum equal to 20 per cent. of the profits of the eligible business or profession as computed in the accounts of the assessee audited in accordance with Sub-section (5), (3) The profits of eligible business or profession of an assessee for the purposes of Sub-section (1) shall,-- (a) in a case where separate accounts in respect of such eligible business or profession are maintained, be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of Sub-section (1) of Section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of -- (ii) the amount of income-tax paid or payable, and provision therefor ; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964) ; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; (vi) the amount by way of provision for losses of subsidiary companies ; and if any debited to the profit and loss account ; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account ; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of Sub-section (1) of Section 32, the same proportion as total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on by the assessee . . .
(5) The deduction under Sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant." 10. The reading of the Section indicates that the deduction is permissible only if the total income as computed under the provisions of the Income-tax Act from the business or profession and that the income from business or profession should be a positive figure. The second condition is that the amount deposited or utilised must be from the income from business or profession, which is chargeable to tax. The third condition is that the amount utilised or deposited would be compared with twenty per cent. of the profits of the eligible business, as computed in the accounts. The fourth condition is the derived one, i.e., the extent of deduction allowable, which would be the lesser of the amount utilised or 20 per cent. of the profits of the eligible business.
11. In the instant case, the appellant-company has a total income of Rs. 72,667 which is entirely from business and the whole of such income is chargeable to tax. The first condition of the Section is thus satisfied. Since the assessee has profit that is chargeable to tax to the tune of Rs. 72,667, the assessee could utilise on the purchase of the new machinery to that extent. The cost of the new machinery being Rs. 1,95,376, the claim that to the extent of the available profit of business of Rs. 72,667, the cost of the new machinery was met from out of such profit of business that is chargeable to tax is fully justified. This is obvious because, the words "has out of such income" qualifies the words "whose total income includes income chargeable to tax under the head 'Profits and gains of business or profession'", indicating that, it is to be taken to mean that utilisation is permitted to the extent of the income from business that is chargeable to tax, and any excess cost of the machinery, would not be considered for this Section. Therefore, the second of the conditions of utilisation to the extent of income chargeable to tax of Rs. 72,667 is satisfied.
12. The third condition of the Section relates to the amount of profit of the eligible business. The auditor's report, as required under Section 32AB(5) of the Act, has been filed by the assessee. This report in col. No. 3 to a query "whether separate accounts in respect of eligible business or profession are maintained", the answer has been provided as "Yes". The Assistant Commissioner of Income-tax in his plea before the Commissioner of Income-tax (Appeals) had not challenged this fact of maintenance of separate books of account and it is also not the case of the Revenue that separate books of account are not maintained for the eligible business. The only objection of the Assistant Commissioner of Income-tax is, on the calculation of the profit of the eligible business which has been taken at Rs. 2,32,117, The Assessing Officer contended that since for computing the business income in Sections 28 to 43A of the Act, the profit on the sale of capital assets had been excluded, therefore, for computing the profits of the eligible business under Sub-section (3), the profit on the sale of capital assets of Rs. 1,55,109 should be excluded.
13. Sub-Section (3) of Section 32AB provides for the adjustment to be made for arriving at the profit of the eligible business, It provides two alternatives, one for those who maintain separate books of account of the eligible business and two, for those who do not maintain separate books of account of eligible business. We are presently concerned with the case of the assessee, who is maintaining separate books of account, as indicated in the report of the auditor issued under Sub-section (5) of Section 32AB, in col. No. 3 which has been reproduced earlier, since, it is not the case of the Assistant Commissioner of Income-tax, that, separate books of account are not maintained of the eligible business.
14. Sub-Section (3) clearly provides that, profit of the eligible business means that profit as is computed in the accounts of the assessee, audited according to Sub-section (5) of the Act. It further provides for the items to be added and reduced from this profit and the final derived profit figure, would be the profit of the eligible business, which would be relevant for this Sub-section (1) of Section 32AB of the Act. The starting point is the profit as shown in the profit and loss account, prepared as per Parts II and III of the Sixth Schedule to the Companies Act, 1956. The amounts that are to be deducted from this profit are fa) depreciation as allowable under Section 32(1) of the Income-tax Act ; and (b) amounts withdrawn from the provisions of reserves, if credited to the profit and loss account.
The amount so arrived at, we shall call, for the sake of convenience, as "profit plus". The amounts that are permitted to be added to the "profit plus" are those amounts that are debited to the profit and loss account, (a) depreciation as per books ; (b) income-tax paid or payable and provision for income-tax ; (c) surtax paid or payable ; (d) amount of any reserves ; (e) amounts of provisions for meeting ascertained liabilities ; (f) amount of provision of loss of subsidiary companies ; and (g) amounts of dividends paid or proposed.
15. The amount of profit of disposal of capital assets, is obviously credited to the profit and loss account, after which only the figure of profit of Rs. 1,78,712 has been arrived at, is not in dispute. The adjustments that are allowed, as listed above, do not provide for the exclusion of the profit on the sale of assets from the calculation of the profit of the eligible business. Since the Legislature had provided for items that are to be added and deducted from the profit computed as per Parts II and III of the Sixth Schedule to the Companies Act, 1956, and since, the profit on the sale of assets is not one of them, the objection of the Assessing Officer that the profit on the disposal of assets has to be excluded is clearly not tenable. If his objection has to be upheld, then it would mean insertion of a new item, not so intended by the Legislature and which would mean new enactment by the administrator of the statute, which power no administrator of the Act has. Therefore, the profit on the disposal of assets cannot be deducted from the calculation of the profit of the eligible business. The conclusion, therefore, is that the profit of the eligible business has been rightly arrived at at Rs. 2,43,117. The third condition requires comparison of the amount utilised and 20 per cent. of the profit of the eligible business. The amount utilised is Rs. 72,667 and 20 per cent.
of the profit of the eligible business is Rs. 46,423 (20 per cent. of Rs. 2,32,117) and these two figures need to be compared.
16. The fourth of the conditions is that the derivation of the amount to be allowed as a deduction from the income from profits and gains from business or profession. In this case, the amount utilised is Rs. 72,667 and 20 per cent. of the profits of the eligible business is Rs. 46,423 and the lesser of the two figures, is obviously Rs. 46,423, which would rank for deduction. The Commissioner of Income-tax (Appeals), had allowed deduction of Rs. 46,423. We, accordingly, uphold the order of the Commissioner of Income-tax (Appeals), for allowing the deduction of Rs. 46,423 under Section 32AB, which deduction is in accordance with the provisions of the law.
17. In the result, the appeal of the Revenue is without any merit and hence dismissed.
18. Having gone through the order of my learned brother, I find it difficult to subscribe to the view taken by him. The assessee-company claimed deduction of Rs. 46,423 under Section 32AB for having utilised its income for the purchase of electric transformer costing Rs. 1,95,376. The basis of the above deduction, as given in the audit report in Form No. 3AA, is as follows : The amount of profit computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 Plus : Amount of depreciation debited in the audited profit and loss account or income and expenditure statement Less : Amount of depreciation computed in accordance with the provisions of section 32(1) Twenty per cent. of the above amount, i.e. Rs. 46,423 wad claimed ad deduction.
The assesse, in its return, declared in income of Rs. 72,667 (without deduction under section 32AB) as per the following calculations: 19. The Assessing Officer accepted the above income but refused to allow deduction under Section 32AB. He was of the view that machinery worth Rs. 1,95,376 could not be purchased out of taxable profit of Rs. 72,677. He thus concluded that machinery was not purchased out of the income chargeable to tax under the head "Profits and gains of business and profession". He further observed that profits were not utilised for the purchase of new machinery, etc.
20. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) allowed deduction of Rs. 46,423 to the assessee as claimed, with the following remarks : " Shri N. C. Sharma, Assistant Commissioner of Income-tax, pleaded that Section 32AB does not provide part payment towards the cost of acquisition of the asset out of the income chargeable to tax. It was further argued that in such eventuality the assessee will get 20 per cent. of the deduction out of profit and the same may be more than the investment made in purchase of new plant and machinery. Section 32AB clearly takes care of such eventuality because the deduction under any circumstances cannot be more than 20 per cent of the profits or the cost of the machinery whichever is less. The second objection taken by the Assistant Commissioner of Income-tax is regarding the profit on account of sale of old assets. The profit is not to be taken note of so far as the income-tax assessment is concerned to the extent that a different treatment is to be given to the profit earned on sale of assets. So far as Section 32AB is concerned the profits have been defined in Sub-section (3). The learned Assessing Officer has not pointed out any defect in working out the profit in accordance with Sub-section (3) which is supported with a certificate from the C.A. Keeping in view the above discussion I am of the opinion that the appellant is entitled for reduction under Section 32AB and the Assessing Officer is directed to allow the claim of Rs. 46,423. " 21. The Revenue has brought the issue in appeal before the Appellate Tribunal and the main contention is that deduction of Rs. 46,423 cannot be allowed when income chargeable to tax is only Rs. 72,677. In other words, the assessee at best is entitled to deduction of Rs. 14,535, i.e., 20 per cent. of Rs. 72,677. .
22. It is clear from the facts recorded above that the controversy between the parties is whether profit on the disposal of fixed assets (Rs. 1,55,109) and profit on the sale of agricultural land (Rs. 3,476) which admittedly has not been charged to tax and is not "business income", is liable to be included for computing 20 per cent. of profit of eligible business on which deduction is to be computed as per Clause (ii) of Sub-section (1) of Section 32AB. In my view, the above two amounts cannot be included in the profits of eligible business for computing permissible deduction under Section 32AB.23. From a perusal of Section 32AB it is clear that for application of the provision, the assessee must utilise profits and gains of business during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, etc. If the above condition is satisfied, then the assessee is entitled to a deduction of 20 per cent.
of the profit of the eligible business. Sub-Section (5) of Section 32AB requires that claim under the Section should be accompanied by an audit report as stipulated in the Sub-section. But the said Sub-section has no role in computing the profits of "eligible business or profession" which is defined in Clause (i) of Sub-section (2). In view of the finding of the learned Commissioner of Income-tax (Appeals), which was not contradicted, I presume that the assessee carried on eligible business and is entitled to deduction under the provision in question.
24. To resolve the controversy as to what is the amount of profit of the eligible business, one has to go to Sub-section (3) which provides as under : " (3) The profits of eligible business or profession of an assessee for the purposes of Sub-section (1) shall, - (a) in a case where separate accounts in respect of such eligible business or profession are maintained, be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of Sub-section (1) of Section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of - (ii) the amount of income-tax paid or payable, and provision therefor ; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964) ; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; (vi) the amount by way of provision for losses of subsidiary companies ; and if any debited to the profit and loss account ; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account ; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of Sub-section (1) of Section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on by the assessee. " 25. It is clear from the above that Clause (a) is applicable where separate accounts in respect of "such eligible business or profession are maintained". Then, the profits are required to be computed in accordance with Parts II and III of the Sixth Schedule to the Companies Act, 1956, and increased as provided. The other Clause (b) is applicable where profits and receipts of eligible business are mixed with other receipts and profits. The context of the two clauses and homogeneous reading of the Section as a whole, make it abundantly clear that under both the clauses the Legislature intended to allow deduction exclusively on profits of eligible business. Non-eligible business is entirely excluded. In this connection, use of the words, "or are not available" in Clause (b) is significant as the above words would also cover a case where separate accounts are maintained but separate profit of eligible business is not available. In such a situation, profits of eligible business are to be computed on proportionate basis. The word "accounts" whether separate or otherwise in the two Clauses (a) and (b) is not used in a technical sense but refers to such accounts which contain "total sales turnover or gross receipts and profits" of eligible business either mixed or separately maintained, which can only mean profit and loss accounts. There is no lacuna in the expression and language employed to allow deduction on non-eligible business through any technical interpretation and thereby defeat the intention of the Legislature. Where separate profits are not available, Clause (b) provides machinery for excluding profits of non-eligible business. In the present case, the auditors have, no doubt, stated that separate accounts in respect of eligible business are maintained but this certificate cannot be treated as conclusive or binding and deduction is to be allowed in accordance with law. It is an admitted position that the net profit shown as per the profit and loss account amounting to Rs. 1,78,712 includes non-assessable profit on the sale of fixed assets and agricultural land. The assessee has itself given these receipts a treatment separate from, "profits of eligible business" for the purposes of computation. These receipts, therefore, cannot be taken as exclusive or separate profit of eligible business. Therefore, on the facts, I am to conclude that the profits of eligible business are not separately available in this case and Clause (b) is applicable.
Non-eligible business receipts are mixed in turnover or gross receipts of eligible business and profits for purposes of Sub-section (1) are to be computed on proportionate basis under Clause (b). The Commissioner of Income-tax (Appeals) was not justified in including profit on the sale of fixed assets and agricultural land in profits of eligible business. As profit and loss account has not been placed on record and relevant figures are not available, the matter, in my view, should go back to the Assessing Officer to recompute the deduction under Clause (b) mentioned above. I direct accordingly and set aside the order of the Commissioner of Income-tax (Appeals) and allow this appeal of the Revenue.
26. The Members could not agree on one of the issues. Accordingly the point of difference raised in the shape of questions is being referred for the opinion of the hon'ble Third Member :-- " 1. Whether, on the facts and in the circumstances of the case, for computing the profits of the eligible business as per Sub-section (3) of Section 32AB, the profit of sale of capital assets of Rs. 1,55,901 should be excluded 2. Whether, on the facts and in the circumstances of the case, the assessee-company is entitled for deduction under Section 32AB of Rs. 46,423?" 27. The Members could not agree on one of the issues. Accordingly, the point of difference raised in the shape of question is being referred for the opinion of the hon'ble Third Member : " Whether non-assessable profit on sale of fixed assets and agricultural land admittedly included in profits shown as Rs. 1,78,712 can be treated as part of profits of eligible business and entitled to deduction under Section 32AB of the Income-tax Act ?" 28. This is a case in which the learned Members constituting the Division Bench had passed differing orders. There was no unanimity among the learned Members even for identifying the questions of difference between them which are to be referred to the President for constituting a Third Member. Both the orders dated May 26, 1993, passed by Shri A. Kalyanasundharam, learned Accountant Member, and dated May 31, 1993, passed by Shri Vimal Gandhi, learned Judicial Member, were placed before the President on June 9, 1993, and a request was made to nominate the Third Member in this case. Then the President had nominated himself by designation on July 5, 1993. Since there was no unanimity in identifying the questions of difference between the Members, as a successor-President, I became the Third Member and thus I have the jurisdiction to deal with this matter. Since there was difference even in identifying the questions of difference among the Members constituting the Bench, firstly, it is my duty to identify the question of difference.
29. After a careful reading of the respective orders of the differing Members, I found out that the difference is projected more pointedly in the question referred by the learned Judicial Member which is as follows : " Whether non-assessable profit on sale of fixed assets and agricultural land admittedly included in profits shown as Rs. 1,78,712 can be treated as part of profits of eligible business and entitled to deduction under Section 32AB of the Income-tax Act ?" 30. So broadly stated, the question of difference between the Members is about correctly computing the business profits under Section 32AB(3) and while computing such profits to correctly decide whether the profits derived from the sale of capital assets held by the assessee form part of the business profits.
31. The further question which arises for consideration will be whether for purposes of determining business profits derived, whatever profit and loss account maintained by the assessee would be final or whether the profit and loss account should be maintained strictly in accordance with Parts I and II of the Sixth Schedule to the Companies Act, 1956.
Whether profits derived on the sale of capital assets would form part of the business profits in a correctly framed or prepared profit and loss account strictly according to Parts I and II of the Sixth Schedule to the Companies Act, 1956.
32. Another question which falls for consideration is whether the figure of business profits found in the certificate of the auditor should be taken as final under Section 32AB(5) and its correctness cannot be questioned and whether the correctness of such certificate cannot be questioned anywhere including the Tribunal.
The assessee is a private limited company engaged in the business of exhibiting cinematographic films in certain theatres at Delhi. In the year of account, relevant to the assessment year 1988-89, from the note given under the profit and loss account prepared for the assessee-com-pany as on October 51, 1987, a copy of which is filed along with the auditor's report filed under Form No. 3AA, it can be seen that an electrical transformer belonging to the assessee was insured for Rs. 1,69,945 against fire, etc. In fact, the said electrical transformer was damaged by accidental fire and the assessee-company had received Rs. 1,55,109 towards damages for sustaining the said loss of the assets in fire. Similarly, the assessee derived a profit of Rs. 3,427 on the sale of agricultural land belonging to it. The above two amounts were admittedly credited to the profit and loss account and they were shown to be part of profits derived from the business, The profit and loss account revealed a profit of Rs. 72,667 before deduction under Section 32AB. The assessee based his version of business profits on the calculation furnished along with the auditor's report in Form No. 3AA contemplated under Section 32AB(5) and the said calculation reveals the following : Amount of profit computed in accordance with the requirement of Parts II and III of the Sixth Schedule to the Companies Act.
Plus : Amount of depreciation debited in the audited profit and loss account or income and expenditure statement Less : Amount of depreciation computed in accordance with the provisions of section 32(1) 34. On the above amount 20 per cent. was claimed as deduction under Section 32AB and thus the assessee claimed Rs. 46,423 as relief under Section 32AB.35. The Assessing Officer issued letter dated October 8, 1990, calling upon the assessee to explain why this case should be taken to have not been covered by Section 32AB in view of the machinery not having been purchased out of income chargeable to tax, the income chargeable to tax being Rs. 72,667 and the cost of the machinery purchased being Rs. 1,95,376.
36. The assessee filed his reply through its letter dated October 25, 1990, which was extracted in the assessment order. Shortly stated, the assessee-company took the plea that the machinery was purchased from business receipts only, and no part of the income of the assessee-company was exempt from tax. Neither any borrowings were made for investment in the machinery nor the share capital of the assessee-company increased to any extent. The assessee also relied upon the Punjab and Haryana High Court decision in Ravi Kumar Mehra v. CIT [1988] 172 ITR 108.
37. The Assessing Officer held that the ratio of the cited case does not apply to the facts of the present case before us. The language of subSection (2) of Section 80C which had fallen for interpretation in the said decision is different from the unequivocal language used in Section 32AB. He held that in order to make the assessee eligible for deduction under Section 32AB, it has to purchase the machinery out of the income of the year chargeable to tax. In the facts of the present case, such income chargeable to tax was only Rs. 72,667 and, therefore, it cannot be said that machinery worth Rs. 1,95,376 can be purchased out of the profit of Rs. 72,667. On this reasoning, the Assessing Officer denied the deduction under Section 32AB altogether as per his assessment order dated October 26, 1990, 38. On appeal filed by the assessee against the order of the Assessing Officer dated October 26, 1990, referred to above, the assessment order is reversed by the learned Commissioner of Income-tax (Appeals) by the impugned order dated June 26, 1991, wherein he has directed the Assessing Officer to grant the whole of deduction claimed under Section 32AB, namely, Rs. 46,423. The whole of the reasoning of the learned Commissioner of Income-tax (Appeals) is found noted in the penultimate para of his order which is as follows : "The Assessing Officer has denied the claim of the appellant because the profits chargeable to tax were available to the extent of Rs. 72,667 whereas the machinery was purchased for Rs. 1,95,376. Section 32AB relates to the claim, if the total income chargeable to tax under the head 'Profits and gains of business or profession' is utilised during the previous year for purchase of any machinery or plant. The Section does not lay down any such condition that in which amount towards cost of machinery is to come from income chargeable to tax. In the case of the appellant, machinery worth Rs. 1,95,376 has been purchased and, accordingly, the claim of the appellant for Rs. 72,667 being the profit of the year has been utilised for purchase of the said machinery. The claim of Rs. 46,423 has been made in accordance with the certificate issued by the C.A. in Form No. 3AA. Shri N. C. Sharma, Assistant Commissioner of Income-tax pleaded that Section 32AB does not provide for part payment towards the cost of the assets out of the income chargeable to tax. It was further argued that in such eventuality, the assessee will get 20 per cent.
deduction out of profit and the same may be more than investment made in the purchase of new plant and machinery. Section 32AB clearly takes care of such eventuality because the deduction under any circumstances cannot be more than 20 per cent. of the profits or the cost of machinery whichever is less.
The second objection taken by the Assistant Commissioner of Income-tax is regarding the profit on account of sale of old assets.
The profit is not to be taken note of so far as income-tax assessment is concerned to the extent that a different treatment is to be given to the profit and on sale of all assets. So far as Section 32AB is concerned, the profits have been defined in Sub-section (3). The learned Assessing Officer has not pointed out any defect in working out the profit in accordance with Sub-section (3) which is supported with a certificate from the C.A." 39. The Revenue, having been aggrieved by the impugned order of the learned Commissioner of Income-tax (Appeals), filed the second appeal before this Tribunal.
40. The second appeal was heard by a Division Bench, and, as already stated, the learned Members constituting the Bench passed differing orders.
41. The learned Accountant Member supported the order of the learned Commissioner of Income-tax (Appeals) and confirmed it whereas the learned Judicial Member has reversed the order of the Commissioner of Income-tax (Appeals) and also further felt that the matter should go back to the file of the Assessing Officer to recompute the allowable deduction under Section 32AB(1)(b) of the Income-tax Act, 1961.
42. The reasoning of the learned Accountant Member found at pages 8 and 9 of his order dated May 26, 1993, contained the following ; " (1) The starting point of computation or deduction under Section 32AB is the profit figure arrived at in the profit and loss account.
The said profit figure is unalterable and cannot be changed. The auditor's certificate issued under Section 32AB(5) in the prescribed Form No. 3AA which should accompany the income-tax return and should be taken to be the last word on the subject of entitlement, to the grant of deduction under Section 32AB. (2) The case of the.assessee on a proper understanding should be held covered under Section 32AB(1)(a) and not 32AB(1)(b) since the assessee had been certified to have maintained regular books of account for eligible business.
(3) The profit of Rs. 1,78,712 includes no doubt the amount of profit derived on the disposal of the assets. Further, the adjustments that are to be allowed out of the above figures are the following : (i) Depreciation is allowable under Section 32(1) of the Income-tax Act.
(ii) Amount withdrawn from provision of reserves, if credited to profit and loss account. " 43. The amounts which are allowed to be added to the above figures are the following : 44. The learned Accountant Member held that the above list of adjustments do not provide for the exclusion of profit on the sale of assets and for that reason it cannot be excluded from the calculation of profit of eligible business. He held that the objection of the Assessing Officer that the profit on the disposal of assets has to be excluded is clearly not tenable. Therefore, the learned Accountant Member calculated that the profit derived from the eligible business was rightly arrived at at Rs. 2,43,117. The amount utilised for the purchase of new machinery was Rs. 72,667 and 20 per cent. of profit of eligible business is Rs. 46,423. (20 per cent. of Rs. 2,43,117).
45. The learned Judicial Member, broadly speaking, held that by the application of Section 32AB, the assessee must utilise the profits and gains of business earned during the previous year for the purchase of new ship, new aircraft, new machinery or plant, etc. Then only the assessee is entitled to 20 per cent. deduction out of profits of eligible business. No doubt, subSection (5) of Section 32AB requires that the claim under the said Section should be accompanied by an audit report. But the said Sub-section had no role in computing the profits of "eligible business or profession", which is defined under Clause (i) of Sub-section (2). The learned Commissioner of Income-tax (Appeals) held that the assessee had carried on eligible business, he was not contradicted and so it should be presumed that the assessee carried on eligible business and is entitled to deduction under Section 32AB. The context of the two clauses, after a reading of the Section as a whole, make it abundantly clear that under both the clauses, the Legislature intended to allow deduction exclusively on profit of eligible business.
Non-eligible business is entirely excluded. In this connection, use of the words "or are not available" in Clause (b) is significant as the above words would also cover a case where separate accounts are maintained but separate profit of eligible business is not available.
In such a situation profits of eligible business are to be computed on a proportionate basis. The word "accounts" whether separate or otherwise in the two Clauses (a) and (b) is not used in a technical sense but refers to such accounts which contain "total sales turnover or gross receipts and profits" of eligible business either mixed or separately maintained which can only mean profit and loss account.
Where separate profits are not available, Clause (b) provides machinery for excluding profits of non-eligible business. In the present case, the auditors had no doubt certified that separate accounts in respect of eligible business are maintained but this certificate cannot be treated as conclusive or binding and the deduction is to be allowed in accordance with law. The learned Judicial Member went on stating that it is an admitted position that the net profit shown as per the profit and loss account amounting to Rs. 1,78,712 includes non-assessable profit on the sale of fixed assets and agricultural land. The assessee has itself admitted and given these receipts a treatment separate from "profits of eligible business" for the purpose of computation. These receipts, therefore, cannot be taken as exclusive or separate profit of eligible business. Therefore, on the facts, the learned Judicial Member stated that he has to conclude that profits of eligible business are not separately available in this case and Clause (b) is applicable. He further recorded that non-eligible receipts are mixed in turnover or gross receipts of eligible business and profits for the purpose of Sub-section (1) are to be computed on a proportionate basis under Clause (b). He held that the learned Commissioner of Income-tax (Appeals) was not justified in including profit on sale of fixed assets and agricultural land in the profits of eligible business. The learned Judicial Member further held that as profit and loss account has not been placed on record and relevant figures are not available, the matter should go back to the Assessing Officer to recompute the deduction under Clause (b) mentioned above. In the view he had taken that he has set aside the order of the Commissioner of Income-tax (Appeals) and allowed the appeal of the Revenue.
46. I have heard Shri S. C. Gupta, Senior Departmental Representative for the department, and Shri V. K. Chandiok, learned counsel for the assessee. Even at the threshold of his arguments, the learned Departmental Representative contended Section 32AB is not applicable at all, since the assessee is not in the business of construction, manufacture or production of an article or thing. He argued that during the assessment year 1988-89, Sub-section (2) of Section 32AB defined "eligible business or profession" and the said definition clearly is a pointer to show to whom the benefits of Section 32AB were intended. It is further contended that when projectors were used in the cinema hall it was never the intention of the Legislature to concede any sort of investment allowance to them. He ultimately argued that the cinema exhibitors are not entitled to benefits of Section 32AB.47. The above argument was never advanced before the lower authorities and whether the assessee's business is an eligible business or not was not taken up by the Assessing Officer. Much less was the objection taken before the Commissioner of Income-tax (Appeals). Both the members constituting the Division Bench were unanimous in holding that the business of the assessee is an eligible business. Since the present argument is not germane to the point of difference, it cannot be taken up by me. The argument of the learned Department Representative is rejected as it cannot be entertained at the present stage. His reliance on the Supreme Court decision rendered in N. C. Budharaja's case [1993] 204 ITR 412, 434, for the above reason has no relevance. Both the Members have unanimously expressed the view that the assessee carried on eligible business and it is entitled to deduction under Section 32AB. The first question which arises, according to me, was whether profits derived from the sale of capital assets held by the assessee-company and the profits derived from the sale of immovable property held by it should be brought to the profit and loss account maintained by that company and the profit and loss account which had included those above two items can be strictly called profit and loss account prepared under Parts II and III of the Sixth Schedule to the Companies Act, 1956, which is an essential condition set out under Section 32AB(3) to find out the business profits of the assessee for purpose of Sub-section (1). Sub-Section (3) lays down how to compute the business profits which are eligible for deduction under Sub-section (1). Sub-Section (3) further says, inter alia, that the business profits should be computed in accordance with Parts II and III of the Sixth Schedule to the Companies Act, 1956. From the figures of such business profits, certain deductions and additions are to be made. From the gross profits, the amount of depreciation computed in accordance with the provisions of Sub-section (1) of Section 32 should be deducted and the balance should be increased by an aggregate amount mentioned in Clauses (i) to (vii) of Section 32AB(3). The profit and loss account is to be prepared under Section 210(2) of the Companies Act, 1956. The requirements as to profit and loss account are all set out in Parts II and III of the Sixth Schedule to the Companies Act, 1956. Clause (3) of Part II in the Sixth Schedule of the Companies Act clearly states what are the items of income and expenditure of a company arranged under the most convenient heads. For the purposes of preparing profit and loss accounts companies are divided into several categories like manufacturing companies, trading companies and companies which fall in more than one category mentioned above and other companies. Here, the assessee-company, in my opinion, is only a trading company. So the profit and loss account prepared under Parts II and III of the Sixth Schedule to the Companies Act should include credits or receipts and debits or expenses and it should be such which should be able to disclose the result of the working of the company. Further, it should disclose the purchases made, the opening and closing stock giving the break-up in respect of each class of goods traded in by the company and indicating the quantity. It is nowhere stated in Parts II and III of the Sixth Schedule to the Companies Act, 1956, that the receipts obtained on the sale of fixed assets should be included in the profit and loss account. So also it is not stated that the profit derived from the sale of immovable property should be included in the profit and loss account. Moreover, in my opinion, the profit derived on the sale of capital assets and profit derived from the sale of immovable property which is also in the nature of capital assets have to be distinguished from trading receipts. The capital assets are defined under Section 2(14) of the Income-tax Act, 1961. As far as it is relevant for our purposes, the capital assets mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession.
The assessee-company does not deal in sale of electrical transformers.
Therefore, the electrical transformers cannot be considered to be stock-in-trade of the assessee-company. Similarly, the assessee is not dealing with immovable property. So, therefore, the land sold cannot be considered to be stock-in-trade. So also neither the electrical transformers, nor the land can be considered either consumable stores or raw material held by the assessee for the purposes of its business.
The business of the assessee is exhibiting cinematographic films in the theatre run by it. Therefore, the profits derived on the sale of electrical transformer or the immovable property held by the assessee are only capital assets in the hands of the assessee. The sale of such capital assets yields only capital gains under Section 45 of the Income-tax Act, 1961. In fact income under the head "Capital gains" and income from "business or profession" falls under the two different categories of income enumerated under Section 14 of the Income-tax Act, 1961. Even though the electrical transformer had been used by the assessee in its business of exhibiting of films, it remains only a capital asset. If items of credit which do not relate to the business carried on by the assessee-company are found included in its profit and loss account, such a profit and loss account cannot in my opinion be called as profit and loss account prepared in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956. It is further to be held that the profits derived on the sale of electrical transformer or the immovable property yield only "capital gains" and they do not partake of the character of business profits. The ratio of the Calcutta High Court in CIT v. Sugauli Sugar Works (P.) Ltd. [1983] 140 ITR 286 is apposite in this connection. It is pertinent to note that in that case there was an amount of Rs. 3,45,000 lying in the suspense account of the assessee-company. In 1965-66, the whole of the suspense account was transferred by the assessee to its capital reserve account. The Income-tax Officer found that out of the said amount a sum of Rs. 2,56,529 which represented expenses had been allowed as a deduction in the earlier years. The Income-tax Officer invoking the provisions of Section 41(1) included the said amount as income of the assessee. The Tribunal held that even if the amounts were credited to the profit and loss account that would not become the assessee's profit under Section 41(1) and it deleted the addition. Ultimately, the order of the Tribunal was upheld by the High Court. Thus according to the ratio of the Calcutta High Court simply because a particular amount was credited to the profit and loss account, it cannot automatically be concluded as its income. Entries in the profit and loss account are not determinative of their true nature.
The Madras High Court in CIT v. A. V. M. Ltd. [1984] 146 ITR 355 postulated that it is quite possible for businessmen while carrying on their trade to obtain several kinds of receipts during the course of their business. Some of the receipts may be capital, some are revenue and some may be of the nature which are neither capital nor trading receipts. At page 363 of the reported decision, the following is stated : " Another error involved in the Income-tax Officer's logic is that since the money in question was received by the assessee not by way of parting with a capital asset, automatically the money in its hands must be regarded as chargeable trading receipts. The Income-tax Officer overlooked that there may be receipts and receipts of different kinds in the course of the assessee's carrying on of its trade. Some receipts may be of a capital character. Some receipts may be trading receipts to be brought into the reckoning as part of the trading profits ; but, there may yet be certain other receipts which may be neither capital receipts, nor trading receipts, but cannot nevertheless be brought to tax, even though they happened to get into the hands of the assessee in the course of trade. The security deposits, in the present case, must, in our opinion, be given the status of this peculiar kind of receipts." 48. Therefore, it is to be held that in the course of its business the assessee may be receiving several amounts but the nature of the receipts may be different and all of them cannot be treated equal, even some receipts may be of capital nature also among those receipts. The question whether profits derived from sale of assets should form part of profit and loss account correctly made under Parts II and III of the Sixth Schedule to the Companies Act, 1956, was earlier considered by the Full Bench of the Tribunal in Sutlej Cotton Mills Ltd. v. Asstt.
CIT [1993] 199 ITR (AT) 164 ; [1993] 45 ITD 22 (Cal). The Full Bench was considering Section 115J(1A) which is similar to Section 32AB(3).
In that case, the assessee-company held certain equity shares as investor. Revaluation of shares took place. The difference in revaluation which worked out to about Rs. 39 crores was taken to capital reserve account. One of the questions considered in that case was "is capital profit part of book profit for purposes of profit and loss account". At page 47 of the reported decision, the Full Bench held the following (at page 195 of 199 ITR (AT)) : "A reference to the requirements of the Companies Act shows that it is concerned with the result of the working of the company.
Consequently, it cannot be directly concerned with changes in the capital structure. In particular, the profit and loss account is concerned with items of income and expenditure and, therefore, any profit derived by realisation of the capital asset would not be an item of income." 49. At page 49, after elaborate discussion, the Full Bench held the following (at page 196 of 199 ITR (AT) : " We are, therefore, of the opinion that the profit realised by the sale of the shares by the assessee could not form part of the book profit as required to be shown in the profit and loss account under the provisions of the Companies Act, 1956." 50. The same was followed by a Division Bench in Oswal Agro Mills Ltd. v. Dy. CIT [1994] 51 ITD 447 (Delhi).
51. For all the above reasons, I hold that the profit derived on the sale of assets should not be shown as business profits in a properly prepared profit and loss account as per the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956.
52. I have already stated that the profit and loss account in this case was not prepared quite in accordance with Parts II and III of the Sixth Schedule to the Companies Act, 1956. The next question that falls for my consideration is whether profit and loss account prepared by the assessee is really determinative of the question of business profits.
In this regard, a fair reading of the order of the learned Accountant Member would show that he was holding the opinion that for determining profits derived in the eligible business, the profit and loss account prepared by the assessee and the audit report given by the auditor are conclusive of the matter because he stated in his order, the starting point is the profit as shown in the profit and loss account prepared as per Parts II and III of the Sixth Schedule to the Companies Act, 1956.
He also states the following : " Sub-Section (3) clearly provides that profit of the eligible business means that the profit as is computed in the accounts of the assessee audited according to Sub-section (5) of the Act." 53. However, the learned Accountant Member did not examine and find whether the profit and loss account prepared by the assessee is in accordance with Parts II and III of the Sixth Schedule to the Companies Act, 1956. He did not consider items which are to be included in the profit and loss account and whether the profit derived on the sale of capital assets can rightfully be included in the profit and loss account prepared according to Parts I and II of the Sixth Schedule to the Companies Act, 1956, or not. This important aspect missed his attention. On the other hand, he appears to be holding that the profit and loss account prepared by the assessee once audited is the last word on this subject of determining the profits derived in the business eligible for deduction under Sub-section (1) of Section 32AB. The question is whether this finding of the learned Accountant Member is correct. In my humble opinion, it is not correct. In this connection, I wish to consider the ratio of the Supreme Court decision in State Bank of India v. CIT [1986] 157 ITR 67. In the headnote of the decision, the following ratio is found to have been extracted correctly : " It is well-settled that the way in which entries are made by the assessee in its books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee might, by making entries which were not in conformity with proper principles of accountancy, have concealed profit or showed loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other." 54. So simply because capital gains earned by the assessee were shown as part of trading receipts in the profit and loss account prepared not in conformity with Parts II and III of the Sixth Schedule to the Companies Act, 1956, and simply because the accounts were audited under Sub-section (5) of Section 32AB, the nature of capital gains cannot change and they do not convert themselves into business profits or part of trading receipts. Another question which is to be considered is whether in the audit report prepared in Form No. 3AA of the Income-tax Rules, in fulfilment of requirements of Section 32AB(5), the business profits noted in column No. 4 set apart for that purpose in that form is the last word on this subject and that figure of profit alone should be considered and no one else even by the Tribunal which is a final fact-finding authority. In this connection, we will have to consider what is the purpose behind the requirement of filing of audit report along with the return for purposes of claiming deduction under Section 32AB. Sub-Section (5) of Section 32AB is as follows : " The deduction under Sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below Sub-section (2) of Section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant." 55. There are certain other Sections under the Income-tax Act which require compulsory audit. One such Section is 44AB and another is Section 115J(1A). The gist of the first of the Sections was that if the total sales, turnover or gross receipts derived in business exceeded Rs. 40 lakhs in the previous year then the accounts should be audited by an accountant mentioned in the Explanation below Sub-section (2) of Section 288 before the specified date. The constitutional validity of Section 44AB was questioned before the Madhya Pradesh High Court in Mohan Trading Co. v. Union of India [1985] 156 ITR 134. Speaking about the purpose of compulsory audit under Section 44AB and while upholding the constitutional validity of the said Section, the Madhya Pradesh High Court held the following as per the headnote of the decision at page 135 : " The requirement of compulsory audit is for the purpose of scrutinising the assessee's version in the accounts and to facilitate the assessing authority in making the assessment.
Obviously, this purpose cannot be served by depending only on the assessee's version. It is, therefore, not correct to say that the requirement of audit is unnecessary or is a mere formality. A perusal of the prescribed forms, which are substantially similar for the businessman as well as the professionals, indicates that the particulars required are material for proper scrutiny of the accounts and to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of the assessee." 56. The ratio of the Madhya Pradesh High Court which is laid down in connection with Section 44AB equally applies while considering the purpose of the audit certificate required under Sub-section (5) of Section 32AB. Had the intention of the Legislature been otherwise nothing prevented it from laying down that the disclosed profits in the audit certificate would be final and the deduction under Sub-section (1) of Section 32AB would be determined accordingly. However, in Sub-section (5) of Section 32AB, it is only stated that deduction under Sub-section (1) shall not be admissible unless the return is accompanied by an audit report. The purpose of the audit report in my opinion would be to help the Assessing Officer to determine the correct income and also to get assurance that the assessee had maintained the required books of account and they faithfully reflect the true income of the assessee and nothing more. So according to me, the finding of the learned Accountant Member that because the exclusion of profit on the sale of assets from the calculation of the profit of the eligible business was not mentioned specifically under Section 32AB(3), the objection of the Assessing Officer that the profit on the disposal of the assets has to be excluded is clearly not tenable, in my opinion, is misdirected and untenable. So also the view of the learned Accountant Member that the audit report is conclusive on the subject of ascertaining business profits and when once the specific amount is found to be noted in column No. 4 of the audit report, it should be taken as the last word on the subject is also untenable. On the other hand, I agree with the view of the learned Judicial Member that Sub-section (5) of Section 32AB has no role in computing the profits of eligible business or profession under Section 32AB(2)(i) which to my mind appears to be the correct interpretation. I am also in complete agreement with the learned Judicial Member when he states that the audit certificate cannot be treated as conclusive or binding. In my opinion, the audit report only comes to aid in determining the correct amount of business profits but it is not conclusive. In Sutlej Cotton Mills Ltd. v, Asstt, CIT [1993] 45 ITD 22 (Cal) (SB), the question whether the Income-tax Officer had the power and authority to verify and if necessary to recast the book profits as against those shown by the assessee in his books was considered. The following is what is held at page 50 of the reported decision : " The contention of the assessee was that the tax was on the book profit as shown by the assessee and whatever is shown has to be accepted without question. This proposition is too widely stated, for, obviously it cannot take into account a case of fraud or misrepresentation or a case where the profit and loss account was not prepared in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956. If the profit and loss account prepared by the assessee is fraudulent or misleading giving figures which are found to be false and even though such profit and loss account was approved by the board of directors of a company, still the Assessing Officer would be entitled to verify and satisfy himself whether the profit and loss account so prepared was in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956 . . .
If in a case the Assessing Officer finds that the net profit was not as shown by the profit and loss account or the profit and loss account was not prepared in accordance with Parts II and III of the Sixth Schedule to the Companies Act, 1956, he is entitled to adjust the profit. To this extent, we are of the opinion that the power to adjust the book profit will have to be conceded to the Assessing Officer. " 56. In view of the above clarification of the position in law, I hold that the finding of the learned Accountant Member that the profits disclosed as per books should be accepted as they are, that no adjustment of profit figure is possible for the Assessing Officer and he has also no authority to verify the correctness of the profits disclosed, cannot be accepted as correct under law.
57. However, I am not in agreement with the learned Judicial Member when he states that when the profits of eligible business are not separately available as in this case, Clause (b) comes into play and for the purpose of determining the business profits under Clause (b), the matter should go back to the Assessing Officer. In fact, the profit and loss account of the assessee-company for the year ending October 31, 1987, was already on record before the Assessing Officer and as part of the auditor's report. Except the two sums, Rs. 1,55,109 which is profit on the sale of fixed assets and Rs. 3,476 which is a profit on the sale of agricultural land from out of the amounts of credit in the profit and loss account all other credits and debits of the profit and loss account clearly represent the credits and debits relating to the trading activity of the assessee-company. Therefore, by excluding these two items, it is possible to re-write the profit and loss account and also possible to ascertain the correct business profits derived by the eligible business which is entitled for deduction under Section 32AB(1). The Assessing Officer stated that the assessee maintained accounts on the mercantile basis. He never expressed any doubt about determining the correct business profits on the basis of the books of the assessee. The learned Commissioner of Income-tax (Appeals) had categorically found that the Assessing Officer has not pointed out any defect in working out the profit in accordance with Sub-section (3) which is supported with a certificate from the chartered accountant. In my view, the finding of the learned Accountant Member that the assessee must be held entitled to 20 per cent. of Rs. 2,32,117 is not correct but in my considered opinion, the assessee must be held entitled to a relief at 20 per cent. of Rs. 72,667, namely, Rs. 14,533, under Section 32AB. Rs. 72,667 is the determined business profit by the Assessing Officer and, therefore, the assessee should be entitled to 20 per cent.
thereof as relief under Section 32AB. This Third Member decision should go before the Division Bench who should determine the case according to the view expressed by the Third Member.