TMI Blog2008 (7) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... for this year. The assessee wrote off the stock of ₹ 3.54 crores in its books of account as obsolete. On being called upon to explain the justification for claiming this deduction, it was stated that out of the total inventories as on March 31, 1998 acquired by it from the unit of Kopran Ltd., the assessee identified the obsolete items valued at ₹ 3,54,52,494 which were written off in the books of account for the year ending March 31, 1998 prepared and finalised on May 20, 1999, i.e., after the date of receipt of the High Court order approving the scheme of arrangement transferring the bulk drugs division of Kopran Ltd. to the assessee-company with effect from January 1, 1998. It was stated that the following items of inventories were identified as obsolete items: (i) Amoxycillin 16462.02 kgs. (ii) Ampicillin 9712.50 kgs. (iii) Cloxacillin 2021.08 kgs. It was further submitted that efforts were made to reprocess these items and salvage from the aforesaid was recovered and the following quantities were lost : Quantity Rate Value Amoxycillin 10,462.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwards of the paper book. However, this arrangement was approved by the hon ble Bombay High Court vide its order dated December 24, 1998. The assessee had originally filed its return on November 30, 1998, that is prior to the grant of the approval to the scheme by the hon ble High Court. Pursuant to the approval, the assessee incorporated all the transactions relating to bulk drugs division in its books of account with effect from January 1, 1998 being the date of agreement and that is why the business from January 1, 1998 to March 31, 1998 was also accounted for in the books of account. When we go back to the scheme of arrangement, it comes up from paragraph 3.3 that Kopran Ltd. shall make a statement of accounts as on the appointed date in respect of the assets and liabilities of the bulk drugs division and the said statement of accounts shall be drawn up on the basis of books of account of Kopran Ltd. The appointed date has been given in the scheme of arrangement as January 1, 1998 in the definition clause under point 1(b). The relevant part of clause 5 of the scheme of arrangement is as under : 5. Conduct of business by KL from appointed date 5.1 With effect from the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olete items. Only pursuant to the approval granted by the hon ble Bombay High Court in December 1998 the assessee took the physical possession of the assets including inventory and started the process of identifying the obsolete items in 1999. The learned Commissioner of Income-tax (Appeals) has not controverted the valuation of the obsolete items. He has sustained the addition only on the ground that these losses on reprocessing resulted in the subsequent year when the reprocessing was completed and not in the year in question. We are not convinced with the view canvassed by the learned Commissioner of Income-tax (Appeals) on the ground that such inventory was acquired by the assessee after the close of the year by virtue of the order passed by the hon ble Bombay High Court but with effect from January 1, 1998. In this scenario the assessee became the owner of all the assets and became liable for the liabilities of this division of Kopran Ltd. with effect from January 1, 1998 and that is the reason that the business transacted by Kopran Ltd. in the bulk drugs division from January 1, 1998 to March 31, 1998 was recorded by the assessee in its account. In other words, all the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to reduce the sum of ₹ 3.54 crores for arriving at the book profit under section 115JA. We have heard the rival submissions and perused the relevant material on record. Section 115JA is a deeming provision applicable to a company under which the total income chargeable to tax is deemed to be an amount equal to 30 per cent. of the book profit where the total income computed under the regular provisions of the Act is less than that. Book profit has been defined in the Explanation below to sub-section (2) to mean the net profit as shown in the profit and loss account as increased by certain items specified under clauses (a) to (f), with which we are not concerned and then as reduced by certain items mentioned at serial Nos. (i) to (ix). In the present ground, we are concerned with clause (i) of this Explanation which states that the net profit as shown in the profit and loss account and as increased by the items under clauses (a) to (f) shall be reduced by,- (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account : Provided that, where this section is applicable to an assessee in any previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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