TMI Blog1993 (3) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... of income the total income returned shown is of Rs. 30,07,420. As per the revised working given as per letter dated 7th March, 1990, the book profit under section 115J has been arrived at Rs. 26,80,439 but no revised return is filed. " The Assessing Officer acting under section 143(1)(a) of the Income-tax Act, 1961, read with the proviso thereto computed the book profit of the company as follows: Net profit as per published accounts Rs. Rs. 87,95,707 Add: Provision for taxation 20,00,000 Investment allowance reserve 10,23,800 Unascertained gratuity 2,00,000 Short provision for taxation 5,21,323 Additional depreciation 75,46,881 CVD refund as discussed above as per assessee's statement. 1,88,01,243 Sales tax refund 5,681 Rs. 3,00,98,928 -------------------------------- ----------------------------------- Rs. 3,88,94,635 Less : Depreciation under section 202 of the Companies Act as per assessee's statement. Rs. 10,98,729 ----------------------------------- Rs. 3,78,04,906 30 per cent thereof Rs. 1,13,41,471 ----------------------------------- In the above process, the learned Assessing Officer found three items in the profit and loss account of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year the refund has been crystalised and assessee has accounted the revenue receipt this year. Hence the assessee's claim for reducing the book profit by like amount is prima facie inadmissible. Further, it is noticed that the refund of countervailing duty amount to Rs. 87,88,257 does not appear to have been accounted as income/profit for this year because as per the published accounts para 5 of schedule J the auditors have certified receipt of Rs. 1,00,62,986 towards refund of countervailing duty to prior years and treated as income. No certificate whatsoever has been given about the receipt during this year of Rs. 87,88,257. Therefore, for prima facie adjustments under section 143(1)(a) the total countervailing duty treated as income for the purpose of computation of 30 per cent of book profit the refund of the sum total of countervailing duty is taken at Rs. 1,88,01,243. " As for the sum of Rs. 5,861 his reasons are as follows: " The assessee-company has not taken into account sales tax refund of Rs. 5,861 for the purpose of computation of income under section 115J. This is also taken as revenue receipt for the year under consideration. 30 per cent of the book profit is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------- Rs. 1,90,20,116 Less: Depreciation under section 202 Rs. 10,89,729 --------------------------------------- of the Cos. Act. Rs. 1,89,30,387 --------------------------------------- 30 per cent thereof Rs. 56,79,116 --------------------------------------- He also gave suitable directions for modification of interest under section 234B and 234C of the I.T. Act. In the result, the assessee obtained part relief. Not being satisfied with the same, the assessee is on second appeal. 3. Sri C. K. Nair, the learned Advocate submitted that the authorities erred in arriving at a different figure of book profit from the one adopted by the assessee in the statement accompanying the return of Income. The addition of refund of Rs. 1,00,62,986 or the additional sales-tax refund are not prima facie adjustments either under section 115J or under section 143(1)(a). A refund of excess duty might be an income by virtue of the provisions of section 41(1) of the I.T. Act, but it can never be a profit from the angle of businessman. Income is different from profit and this distinction was not borne in mind by the authorities. The second statement filed by the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts which he is entitled to make under the proviso to section 143(1) of the I.T. Act and the assessee cannot have any grievance against such adjustment. Elaborating his submission, Sri Abraham contended that the countervailing duty was paid in the earlier years and as a result of the Supreme Court judgment which was pronounced during the relevant previous year, the assessee was entitled to the refund and has, in fact, obtained such refund in the relevant previous year and had taken it into account as its income in the schedule to the profit and loss account. Therefore, its inclusion by way of adjustment in the intimation sent to the assessee was just and proper and had legal basis. Therefore, it cannot be said that the Assessing Officer has travelled beyond the statement accompanying the return of income in invoking the provisions of section 143(1) of the Income-tax Act, 1961. 5. We have thus heard rival submissions and perused the records. The first issue that arises before us for consideration is whether in an assessment under section 143(1) read with section 115J of the I.T. Act, the adjustments as have been made by the Assessing Officer or by the appellate authority are prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Nair vehemently contends that prior period adjustments by definition cannot be considered as profits of the year under review and submitted that the refund of countervailing duty can be treated as income only under section 41(1) of the I.T. Act and cannot be construed as profit. We do not uphold such a contention. We are not concerned with the income aspect of the book profit in applying the provisions of section 115J. We are concerned only with the book profit as such as revealed in the profit and loss account and recognised as profit by the assessee itself. Therefore, the adoption of the profit figure of Rs. 87,95,707 is proper on the part of the Assessing Officer. This is reinforced by the assessee taking the same figure of Rs. 87,95,707 in its second statement. The original profit figure of Rs. 57,27,649 adopted by the assessee in its computation accompanying the return of income should in such circumstances be viewed only as an arithmetical error which is a permissible adjustment in terms of section 143(1) of the I.T. Act. However, the other disputed adjustments whether made by the assessee or by the Assessing Officer cannot be sustained in terms of either section 143(1) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (Rs. 57,27,649 plus Rs. 30,68,058). The Assessing Officer is right in starting his computation with the figure of Rs. 87,95,707 and the assessee is also right in starting with such a computation in its second statement without filing a revised return. To this book profit certain additions have been made both by the assessee and by the Assessing Officer and these additions relate to the provision of tax, investment allowance reserve, unascertained gratuity liability and short provision for taxation. On these items there is no dispute and there can be no dispute also. The dispute centres round the adjustment made in respect of refund of countervailing duty. While the assessee sought to deduct it from the net profit in its second computation, the Assessing Officer has added it back to the net profit. In our considered opinion, both are in error. It should be remembered that in an exercise under section 115J, one is not concerned with the income aspect of the figures found in the profit and loss account, but only with the profit as disclosed in the books subject to certain specified adjustments. The assessee, while deducting the sum of Rs. 1,00,62,986 has, in fact, neutralised the ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit under section 115J of the Act, which has specified certain adjustments to be made, we hold that an item of refund (not of reserve) which was not at all credited to the profit and loss account cannot be taken into account for purpose of quantifying the book profit. So the book profit of the assessee for purpose of section 115J cannot take in its sweep the three adjustments that were made by the Assessing Officer. As far as the other adjustments are concerned, there is no dispute between the assessee and the revenue. On this basis, the book profit of the assessee is re-cast as follows:--- Net profit as per books Rs. 87,95,707 Add: Provision for taxation Rs. 20,00,000 Investment all. reserve Rs. 10,23,800 Unascertained gratuity. Rs. 2,00,000 Short provision for taxation. Rs. 5,21,323 Rs. 37,45,123 ----------------------------- ------------------------------ Rs. 1,25,40,830 Less: Depreciation under section 202 of the Companies Act as per assessee's statement Rs. 10,89,729 ------------------------------- Rs. 1,14,51,101 ------------------------------- 30 per cent of Rs. 1,12,51,101 = Rs. 34,35,330. ------------------------------- As the income compute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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