TMI Blog2005 (10) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in reopening the assessment merely because of the change of opinion on the part of the Assessing Officer ignoring the fact that section 147 of the Income-tax Act, 1961 had been amended by the Direct Tax Laws (Amendment) Act, 1989 with effect from April 1, 1989 and the assessee s case falls under sub-clause (iv) of clause (c) below the Explanation 2 of section 147. The facts of the case are that the Assessing Officer passed the assessment order for the assessment year 1990-91 on September 16, 1991, and determined the income of the assessee under section 115J at Rs. 41,45,574. The computation of income made by the Assessing Officer is as under : Rs. Rs. Net profit as per profit and loss account 18,92,592 Add: investment allowance 52,58,321 71,51,913 Add: (1) Depreciation disallowed on account of capital subsidy 1,44,306 (2) Entertainment expenses disallowed under section 37(2A) 35,000 (3) Miscellaneous expenses 12,000 1,91,306 Less : Investment allowance curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against income computed under the head Profits and gains from business or profession . It resulted in excess carry forward of unabsorbed investment allowance to the subsequent year. For taking recourse to the provisions of section 147, he inferred that income has escaped assessment, as the assessment so made on September 16 1991, was subjected to excessive relief under the Act. The Commissioner of Income-tax (Appeals) cancelled the reopening of the assessment by observing as under : 6. Having considered carefully counsel s submissions, I am afraid the Assessing Officer is not justified in reopening the assessment in view of the case law relied upon by the appellant. I find that it was nothing but change of opinion, on the part of the Assessing Officer regarding the treatment book profit under section 115J for the purpose of determining the amount of investment allowance to be carried forward that had caused the reopening of the assessment. As stated earlier, the ultimate effect of the reassessment order is that the book profit under section 115J was adjusted against the brought forward investment allowance with the result that the investment allowance allowed to be carried fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, then the 30 percent of the book profit is to be treated as assessed income and tax is to be levied thereon. Secondly, as per the Explanation to section 147 (reproduced below for ready reference), if excess relief is allowed, it will be deemed to be a case of income escaped assessment. 147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason that 30 percent of the book profit is higher and is adopted for the purposes of levying tax, the normal assessment as per the Income-tax Act, 1961, does not become non-entity or non-existent. Since, the assessment of total income as per normal provisions of the Income-tax Act, 1961, very well stands, the escapement of income has to be seen therein only. Since excess relief has been allowed in the computation of income, this is a case of escapement of income and hence, the provisions of section 147 would be applicable. The learned Departmental Representative also submitted that the decision of the hon ble Gauhati High Court in Lallacherra Tea Co. P. Ltd. v. CIT [1999] 239 ITR 611, on which the Commissioner of Income-tax (Appeals) relied, has been reversed by the hon ble Supreme Court in Karnataka Small Scale Industries Development Corporation Ltd. v. CIT [2002] 258 ITR 770 ( KSSIDC for short). Against this, learned counsel for the assessee submitted that there is no escapement of income because originally assessed income was Rs. 21,45,574 and the reassessed income is also Rs. 21,45,574. There is no change in the income assessed in the regular assessment as well as in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax for the relevant previous year shall be deemed to be an amount equal to thirty percent of such book profit. (1A) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Explanation.-For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor ; or (b) the amounts carried to any reserves other than the reserves specified in section 80HHD or sub-section (1) of section 33AC, by whatever name called ; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; or (d) the amount by way of provision for losses of subsidiary companies ; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies ; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J. From a bare reading of the section, it is clear that this section provides two stages of assessment. One is computation of income of the assessee under the Act in respect of any previous year relevant to the assessment year commencing on or after April 1, 1988 and before April 1, 1991 and the second is computation of 30 percent of book profit. If 30 percent of the book profit is equal to or more than the income computed under the provisions of the Act, then 30 percent of the book profit will be deemed to be the total income of the assessee chargeable to tax for the relevant previous year. The first stage envisages computation of income under the Act, i.e., after taking into account the deductions allowable under the Act. It is only after the deductions are given effect to and if the resultant income is less than 30 percent of the book profit that, the assessee s total income would be deemed to be a notional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the balance of the unabsorbed deductions in the relevant previous year to the next assessment year. Section 115J does not create any right nor does it serve to allow all the deductions taken into consideration for determining whether the total income should be quantified under section 115J(1), to be carried forward under sub-section (2) of section 115J. It allows only the unabsorbed losses, depreciation, investment allowance, etc., which otherwise could have been carried forward, to be carried forward. This construction of sub-sections (1) and (2), section 115J is in keeping with the avowed purpose for which Chapter XII-B was introduced in the Act by the Finance Act, 1987. This was stated by the Finance Minister in his Budget Speech* in the following manner. It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so called zero-tax highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a minimum corporate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward allowances have to be allowed and whatever balance is left has to be carried forward to the next year. Here, the assessed income is only notional and deemed income being 30 percent of the book profit. The income computed as per normal provisions of the Act is also the assessed income. The status of income computed under the provisions of the Act is not less than the normally assessed income and that is why all the deductions and allowances are allowed to be set-off against income so computed and only balance of unabsorbed allowances are allowed to be carried forward. Without there being an assessment, and there being an assessed income under the normal provisions of the Act, no unabsorbed depreciation, loss or investment allowance could be allowed to be carried forward to the next year. Section 32A(3) provides for the carry forward of investment allowance, reads as under : (3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year [the total income for this purpose being c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a later assessment year. Further, it is apparent that for allowing unabsorbed investment allowance to be carried forward to the next year, total income has to be computed and investment allowance, brought forward from earlier years has to be first set-off against such income and if income is further available to be set-off then current year s investment allowance has to be set-off and balance of investment allowance not so set-off, if any, will be allowed to be carried forward to the subsequent years for being set-off against those year s income in such a manner that income of that year is nil. Thus, computation of income has to be carried out in accordance with the provisions of the Act for the purposes of setting-off investment allowance. In such a computation deduction under section 33 and section 33A is allowed but no deduction under Chapter VI-A will be considered before setting-off investment allowance. If any income is left in the current year then it will be available for adjusting deductions under Chapter VI-A. If a loss is arrived on computation before allowing any set-off of investment allowance, then such loss has to be intimated to the assessee as per section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed. At the initial stage when there is a prima facie allegation on the basis of some information or other material, that income has escaped assessment, it is not necessary that before reopening the assessment final computation is worked out. Material available at the initial stage of reopening may be later explained fully or partly resulting into computation of a lower amount in the finally reassessed income. Conversely information available at the initial stage of reopening may snowball into larger escapement of income than envisaged, due to further investigation and gathering more material and thus, the finally reassessed income may be more than what was originally thought at the time of reopening, and even come out to be more than 30 percent of the book profit computed as per section 115J. Therefore, merely because, after reassessment, the 30 percent of the book profit was still higher than the income computed as per normal provisions of the Act, it will not invalidate the reopening of the assessment. The validity of reopening does not depend upon the quantum of finally assessed income. Thus, we hold that there are two computations of income, before invoking the preferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
