TMI Blog2011 (9) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided in favor of assessee. - I.T.A. No.80 of 2003 - - - Dated:- 29-9-2011 - Mr. Justice Bhaskar Bhattacharya, Mr. Justice Sambuddha Chakrabarti, JJ. For the Appellant: Dr. Debi Prasad Pal, Mr. Somak Bose. For the Respondent: Mr. S. N. Dutta, Mrs. S. Chatterjee. Bhaskar Bhattacharya, J.: This appeal under Section 260A of the Income-tax Act, 1961 ( Act ) is at the instance of an assessee and is directed against an order dated 18 th November, 2002 passed by the Income-tax Appellate Tribunal, C Bench, Kolkata, in ITA No.2180 (Cal) of 1995 and ITA No.1806 (Cal) of 1997 relating to the Assessment Year 1989-90 by which the Tribunal dismissed the appeals preferred by the assessee. Being dissatisfied, the assessee has come up with the present appeal. The facts giving rise to filing of this appeal may be summed up thus: a) The assessee is a company incorporated under the Companies Act, 1913 and has been carrying on business of manufacturing and trading in paints, specially chemicals etc. and the method of accounting is mercantile. The assessee duly maintains books of accounts and documents which are duly audited under the Companies Act, 1956 and under Section 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 1(A) of Section 115J of the Act. f) Although it was contended on behalf of the assessee that the Clause (c) of Explanation to sub-Section 1(A) of Section 115J of the Act required adding back of the amount provided to meet the liabilities other than ascertained liabilities and the provision for bad and doubtful debts and advances which is for diminution in the value of the assets is not a provision to meet the liabilities which is not an ascertained liability, such contention was not accepted by the Assessing Officer. g) The assessee preferred an appeal before the Commissioner of Incometax (Appeals) against the said order under Section 154 of the Act passed by the Assessing Officer but the Appellate Authority affirmed the order of the Assessing Officer. h) Being dissatisfied, the assessee preferred an appeal before the Tribunal below being I.T.A. No.2189 of 1995. i) In the meantime, in March 1994, the Assessing Officer sent a notice under Section 148 of the Act to the assessee asking it to explain why depreciation provisions made prior to 1st April, 1988 on fixed assets sold have been excluded from the computation of the book profit for the purpose of tax under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account maintained in accordance with the Companies Act which is also certified by the Auditors. It was further argued on behalf of the appellant that although Section 115J(2) of the Act gave full protection for unabsorbed depreciation, the Assessing Officer had wrongly set off depreciation against income which had already offered tax and thereby defeated the provisions of Section 115J(2) of the Act. l) The Commissioner of Income-tax (Appeals), however, turned down those contentions. m) Being dissatisfied, the assessee preferred an appeal before the Tribunal below being I.T.A No.186 of 1997 and the Tribunal below by a common order dated November 18, 2002 disposed of both the aforesaid appeals preferred by the assessee and thereby decided all the grounds in favour of Revenue and against the assessee. n) The assessee, being dissatisfied, has preferred the present appeal and has paid double the amount of court fees for challenging the common order of the Tribunal disposing of the two appeals. A Division Bench of this Court at the time of admission of this appeal formulated the following questions of law for determination: (1) Whether the Learned Tribunal on a true and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal is clearly erroneous and not tenable in the eye of law when the assessee has prepared its account according to the provisions of Schedule VI to the Companies Act and there is no objection or allegation that the said profit and loss account has not been prepared according to the provisions of the Companies Act and in view of the settled law that the Assessing Officer has no competence, jurisdiction and/or authority to go beyond the said balance sheet and profit and loss account prepared according to Companies Act. (7) Whether the Learned Tribunal was justified in holding that the amount of Rs.11,71,39,380/- being the depreciation for the year prior to 30.9.87 was not reflected under the head provision as stood on 30.9.87 and was not provided in a year prior to the year relevant to the assessment year commencing on or after 1.4.88. (8) Whether the aforesaid observations of the Tribunal is patently illegal, perverse and contrary to the facts on records as will appear from the balance sheet as on 31st September, 1987 and 31st March, 1989. Dr. Pal, the learned Senior Advocate appearing on behalf of the assessee, however, restricted his submission to only the grounds Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view, item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the Assessing Officer was not justified in adding back the provision for doubtful debts of Rs.92,15,187/- under clause (c) of the Explanation to section 115JA of the 1961 Act. (Emphasis supplied by us). Relying upon the aforesaid observations, Dr. Pal contended that there is no scope of contending that a debt receivable by the assessee can be said to be a provision for a liability, because even if a debt is not recoverable, no liability could be fastened upon the assessee and therefore, Clause (c) of the Explanation is not attracted to the facts of the present case. Regarding second question involved, Dr. Pal submitted that there was no justification of invoking power under Section 154 of the Act when the view earlier adopted by the Assessing Officer is a debatable one and in this case, original order passed by the Assessing officer is correct as the same is in tune with the principles laid down by the Supreme Court in the abovementioned case of Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent 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 prevision 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable. (2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward 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. After hearing the learned Counsel for the parties and after going through the materials on record including the aforesaid provisions of law, we find that Section 115J(1A) provides that every assessee, being a company, shall, for the purposes of that 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. The Explanation added to the said section elucidates that for the purposes of this section, book profit means the net profit as shown in the profit and loss acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which had been sold and/or disposed of during the relevant previous year are shown at Rs.11,83,91,000/-. Therefore, the depreciation on fixed assets which were sold or disposed of during the year amounting to Rs.11,83,91,000/- had been credited to the Profit Loss Account in the relevant year. This position is clearly shown in the accounts at page 17 of Vol.- II or Book No.- II, for the Assessment Year 1989-90. At page 17, the accounts position shows withdrawal from provision for depreciation on fixed assets disposed of at Rs.11,83,91,000/-. The Auditors in their note also at page 17 of Vol.- II or Book No. II observed as follows: Of which Rs.11,71,39,380/- relates to withdrawal of provision for depreciation created prior to 1.4.1988 . The above position has been noted by the Tribunal at page 22 of the Paper Book under clause (ii) depreciation provided on assets sold written back up to September 30, 1987 Assessment Year 1988-89 at Rs.11,71,39,380/-, up to March 31,1989 Assessment Year 1989-90 at Rs.12,52,620/-. This position is clearly stated at page 22 of the Paper Book in the Tribunal s order which is quoted herein below:- ii) Depreciation provided on assets sold wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores." 7. The above Speech shows that the income tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that Section 115-J was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30% of its book profits as shown in its own account. For the said purpose, Section 115-J makes the income reflected in the companies books of accounts as the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an assessing officer under the IT Act has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115-J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal. 8. Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J. (Emphasis and underline supplied by us). Thus, the authorities below committed substantial error of law in adding the amount of Rs.11,71,39,380/- by totally misinterpreting the provisions of Section 115J of the Act and ignoring the aforesaid observations of the Supreme Court. We, therefore, direct the Assessing officer to delete the said amount of Rs.11,71,39,380/- in terms of Section 115J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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