TMI Blog2011 (3) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... issed Regarding prior period expenditure - Held that: earlier expenses debited to the profit and loss account of the years under consideration, the deduction of such expenses either from the book profit or from normal computation of income cannot be allowed - Appeal is dismissed Regarding provision for doubtful debts - this issue is covered against the assessee by the judgement of Supreme Court in the case of CIT vs. HCL Comnet Systems and Services Ltd. (2008 -TMI - 30808 - SUPREME COURT) wherein it was held that any provision made towards ir-recoverability of a debt cannot be said to be a provision for liability Regarding interest u/s 234B and 234C while computing income u/s 115JA/JB - this issue is squarely covered by the recent judgement of Supreme Court in the case of JCIT vs. Rolta India Ltd. (2011 -TMI - 201466 - SUPREME COURT OF INDIA) wherein it was held that interest is chargeable u/s 234B and 234C on failure to pay advance tax in respect of tax payable u/s 115JA/JB Regarding treating the expenditure of Rs. 119.46 lakhs on plantations pertaining to earlier assessment year 2003-04 and debited it to the P and L A/c - During this assessment year assessee changed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for a number of years in the past and was declared a sick industrial company as defined under the sick industries companies (special Provisions) Act, 1985. In the assessment year 2000-01, while computing the book profits as defined in Explanation to section 115JA(2) of the IT Act 1961, the company reduced a sum of Rs.3,75,30,28,000 being the profits earned by the company during the period of sickness in assessment years 1992-93 and 1993-94. 4. He submitted that the company earned a profit of Rs.3,75,30,28,000/- during the period of sickness in assessment year 1992-93 and 1993-94. The facts relating to this claim are not disputed and he drew our attention to the provisions of S.115JA of the IT Act 1961 which reads as follows: 1. Notwithstanding anything contained in any other provisions of this act, where in the case of an assessee, being a company the total income, 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, 1997 (before the 1st day of April, 2001) (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing on or after the 1st day of April 1997 but ending before the 1st day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation: or ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account ; or iii) The amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account Explanation:- for the purposes of this clause:- a) The loss shall not include depreciation b) The provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil: or iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or v) the amount of profits derived by an industrial undertaking located in an industrially backward state or district as referred to in sub section (4) and sub section (5) of section 80IB for the assessment years such industrial undertaking is eligible to claim a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of generation or distribution of electricity)], the total income, 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 percent 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 percent of such book profit. 6. He submitted that where "exemption" is granted, the legislature is categorical in the charging section itself as in the case of power generating companies which were exempt u/s 115J of the income tax act, 1961. This comparison is made only to establish that the claim of the assessee is not for exemption from levy of book profit tax u/s 115JA of the income tax act, 1961. Consequently the obvious conclusions are that the claim of the assessee in the present case is not limited to the computation of book profits in the year of sickness. It is reiterated that the claim is for reduction of the impugned profit i.e. amount of profits earned during the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer of land by a sick industrial company managed by workers' cooperative and with effect from 1.4.1998, this newly inserted section 47(xii) states that any transfer of capital asset being a land of sick industrial company made under a scheme prepared and sanctioned u/s 68 of the Sick Industrial Companies (Special Provisions) Act, 1995 (1 of 1996) is not to be regarded for and from the assessment year 1998-99 as transfer for the purposes of capital gains tax levy, if such transfer made during the period: commencing from the previous year in which the said company has become sick industrial company u/s 17(1) of that Act and Ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. In that section, it may be seen that the wordings are similar and the periods are similar and the 'net worth' has also been defined in a similar way. The time frame given in that section is from the previous year in which the company became sick to the end of the previous year when the net worth of the company becomes equal or to exceed the accumulated losses. In such view of the matter, it is quite apparent that in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property committed in that time frame, under Explanation to S.115JA (2)(vii), the context is with reference to "reduction" of profits during the period of sickness from the profits as shown in Profit and Loss account. It is an accumulation of results of the company during the period of sickness. In both cases, the obvious legislative intent is to provide sick companies with relief from certain rigours of income tax. He relied on the judgement of Hon'ble Supreme Court in the case of CIT vs Venketeshwara Hatcheries (P) Ltd. 237 ITR 174 (SC) wherein the Hon'ble Supreme Court in para 13 and 14 of the said judgement refer to a salutary principle of law stated by Maxwell which is as follows: "But the presumption is not of much weight. The same words may be used in different senses in the same statute, and even in the same section." The same word if read in the context of one provision of the Act, may mean or convey one meaning and another in a different context. The legislature in its wisdom has chosen to place processed seeds and fish under the heading articles or things in the fifth schedule as legislature is competent to give artificial meaning to any word. We are, therefore, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like 50-100 years, if presumed to have allowance of such profits by carrying it forward then a situation may arise when a company does not pay any tax for another 50-100 years and this would make the enactment impracticable particularly when 115JA needs immediate tax even from loss making companies or zero tax companies". 14. He submitted that the CIT (A) has wrongly inferred that (a) the legislative intent is to collect tax from loss making companies and (b) if not an enactment like S.115JA would become impracticable. It is submitted that the CIT (A) has grievously erred in inferring that legislative intent is collect tax from loss making companies. The AR made reference to departmental circular no. 496 dated 22 September , 1987 Explanatory notes on the Provisions of - the Finance Act, 1987 explaining the introduction of section 115J at para 36.1 to 36.6, 36.1 which reads as under: (36.1) it is an accepted canon of taxation to levy tax on the basis of ability to pay. However, as a result of various tax concessions and incentives certain companies making huge profits and also declaring substantial dividends have been managing their affairs in such a way so as to avoid payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a doubt in the interpretation of a statute. According to CIT (A) there is no ambiguity because S.115JA never states that all the profits of all the years during the sickness period shall be adjusted against the profits of a future year for determination of book profits under section 115JA. According to the AR , the reliance placed by the CIT(A) in the judgement of Hon'ble Supreme Court in the case of CED vs Alladi Kuppuswamy (108 ITR 439 (SC) and in the case of CIT vs Ravi Talkies 137 ITR 176 (Orissa)) is misplaced. The principles enunciated in these cases are unexceptionable and the appellant does not dispute the ratio of those judgments. He contended that in fact the rationale of those judgments support the appellants case because the plain language of the enactment states that while computing the book profits the following steps are to be taken under S.115JA (2) read with the Explanation:- (1) Firstly, the net profit shown in the Profit and Loss account has to be taken and (2) Increased by the amounts shown in clauses (a) to (g) if any of such amounts are debited to the profit and loss account and (3) Reduced by the amounts stated in clauses (i) to (ix) (here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR, there is nothing in sub clause (vii) of explanation 1 to section 115JB(2) to suggest that: a) The year(s) to which the amount belongs and the year in which it is claimed need not be the same and b) The same amount can be claimed for more than one year 21. He submitted that the situation vide (a) above would militate against the scheme of computation of income in the Act. The situation vide (b) above would amount to a double/multiple deduction. It has been held by the Supreme Court in the case of Escorts Ltd. vs Union of India 199 ITR 43 that a multiple deduction has to be expressly provided and can never be a matter of inference. 22. We have heard both the parties and perused the material available on record. We have also carefully gone through the orders of the lower authorities. For better understanding we will reproduce herein the Statement of profit available for set off, unabsorbed business loss and unabsorbed depreciation for the purpose of section 115JA/JB of I.T. Act, 1961. We take relevant figures for the accounting year 1990-91 to 2001-02. Statement of unabsorbed business losses and unabsorbed business losses and unabsorbed depreciation for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounting year 1993-94 relevant assessment year 1994-95 at Rs. 375,30,28,000 being the profit earned in the earlier assessment year during the period of sickness is to be deducted from the book profit of assessment year 2000-01 i.e., present assessment year and according to him the year of assessment and the years of sickness need not be one and the same in view of the provisions of section 115JA/JB(2)(vii). This plea of the assessee is devoid of merit. The book profit of the assessee is to be computed with reference to each assessment year and the provisions of section 115JA(2)(vii) cannot be applied for assessment year 2000-01 after the assessee went out of the sickness. The book profit earned by the assessee in the assessment year 1994-95 at Rs. 375,30,28,000 has no relevance to the assessment year 2000-01 so as to determine the deduction u/s 115JA(2)(vii). The year of assessment and the year of sickness are to be one and same. As per the provisions of section 115JA/JB(2)(vii) while computing the book profit in any assessment year during the period of sickness, if there is any book profit in that assessment year that book profit inter-alia has to be deducted from the net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manifest and without doubt, that construction ought to prevail unless there are some strong and obvious reasons to the contrary. It has to be reiterated that the object of interpretation of a statute is to discover the intention of parliament as expressed in the Act. The dominant purpose in constructing a statute is to ascertain the intention of the Legislature as expressed in the statute, considering it as a whole and in its context. That intention, and, therefore, the meaning of the statute, is primarily to be sought in the words used in the statute itself, which must, if they are plain and unambiguous, be applied as they stand. Artificial and unduly latitudinarian (liberal/broad) rules of construction, which with their general tendency to 'give the taxpayer the breaks' are out of place where the legislation has a fiscal mission. Indeed, taxation has ceased to be regarded as an 'impertinent intrusion into the sacred rights of private property' and it is now increasingly regarded as a potent fiscal tool of state policy to strike the required balance required in the context of the felt needs of the time between the citizens claim to enjoyment of his property on the one hand and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order which is read as under: "The Learned Authorized Representative for the assessee further submitted that finance code wise, area wise detailed expenditure incurred in the assessment year 1997-98 pertaining to earlier years. For 14 areas and 22 financial code wise, details were furnished on various heads. The various heads are salaries, consumption of stores, and spares, coal transport, depreciation pertaining to earlier years, power and fuel, rates and taxes, maintenance charges on railways, sidings. Prior period coal sales adjustments, welfare expenses, interest, expenditure on removal of overburden etc. The assessee has furnished in four volumes, the details of vouchers head wise, area wise, financial code wise. It was found that for a vast company having gigantic operation, such type of prior period expenditure are normal. It is to be seen whether the entire expenditure of Rs.19.25 crores crystallized or not. Not only for the balance of Rs.6.21 crores but for the full amount of Rs.19.25 crores. Prior period expenditure details were analysed in depth. It has been found that such expenditure as claimed, actually crystallised during the assessment year 1997-98 pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the profit and loss account of the years under consideration, the deduction of such expenses either from the book profit or from normal computation of income cannot be allowed. The incomes of the previous year under consideration alone have to be computed both under normal computation and u/s 115JA/JB. We find force in the argument of the departmental representative and reliance placed by him is well founded and the same is to be upheld. This ground of the assessee in all the appeals is dismissed. 29. The next ground is with regard to addition of provision for bad and doubtful debts and other provisions debited to the profit and loss account while computing book profit. This issue is common in ITA No.465/H/05,. 446/H/2006, 447/H/2006 and 491/H/07 relating to assessment years 2000-01, 2001-02, 2002-03 and 2003-04 respectively. 30. The AR submitted that there is a retrospective Amendment by Finance Act, 2009 wherein there is an insertion of a new clause to Sec. 115JA/JB viz., clause (g) and (i) which read as follows: "The amount or amounts set aside as provision for diminution of value of any asset". 31. He submitted as follows: i) for the assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment is retrospective in operation, effect has to be given to it in the assessment proceedings that are pending, before the Tribunal in the present case. He placed reliance on the Special Bench decision of the ITAT (Delhi) in the case of Aquarius Travels P Ltd. vs. ITO (111 ITD 53). Explaining the scope and applicability of retrospective amendments and relying on the proposition of law laid down by the Supreme Court in CIT vs. Straw Products Ltd. (60 ITR 156), it was held that the amended law has to be given effect by assessee appellate authorities and courts if the matter is pending before them. For this reason also, the addition made to book profits by the Assessing Officer on account of provision for doubtful debts deserves to be upheld. 35. We have heard both the parties on this issue. In our opinion, this issue is covered against the assessee by the judgement of Supreme Court in the case of CIT vs. HCL Comnet Systems and Services Ltd. (2008) (305 ITR 409) wherein it was held that any provision made towards ir-recoverability of a debt cannot be said to be a provision for liability. Therefore, any provision for bad and doubtful debt is in fact a provision made for a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow entire prior period expenses and disallow the deduction u/s 35E in absence of profits to deduct the same. The AR further submitted that the assessment order is not erroneous in so far as prejudicial to the interest of the Revenue. The entire prior period expenses were allowable as the liability had crystallised during the relevant previous year. The issue of not allowing the claim for deduction u/s 35E on account of prospecting expenditure that even if allowed, the total loss including the S.35E expenditure was carried forward for set off as per section 72. The CIT ignoring this fact gave a direction disallowing the expenditure u/s 35E. The AR submitted that as per section 35(4) the unabsorbed expenses are to be carried forward for 10 years to be set off in the subsequent assessment years. He drew our attention to the provisions of section 35 sub sections 4 which reads as under: (4) The deduction to be allowed u/s.s. (1) for any relevant previous ear shall be a) An amount equal to one tenth of the expenditure specified in s.s. (2) such one tenth being hereafter in this sub section referred to as the instalment or b) Such amount as is sufficient to reduce to nil the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is because prospecting expenditure in the mining sector is specifically provided for u/s 35E. This being so, it is specifically excluded by the opening words of sec.37 which specifically excludes any expenditure that is provided for from section 30 to 36. The unadjusted component of the instalment specified in section 35E has to be carried forward in accordance with section 35E alone. This is distinguishable from a loss that is carried forward and set off u/s 70 to 72. 48. We have heard both the parties and perused the materials available on record. Section 35(iv) is reads as follows: a) an amount equal to one tech of the expenditure specified in sub section (2) (such one tenth being hereafter in the sub section referred to as the instalment); or b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation (whether or not such commercial exploitation is as a result of the operations or development referred to in sub section (2) of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR is misplaced. The unadjusted component of the expenditure u/s 35E has to be carried forward in accordance with the section 35E alone. This is distinguishable from a loss that is carried forward and set off u/s 70 to 72. In our opinion, invoking of provisions of section 263 by CIT is justified and the grounds of assesee in its appeal are dismissed. The appeal of the assessee in ITA No.464/H/2005 is dismissed. 52. The issues in assessee's appeal 490/Hyd/07 are similar to the issues in appeal No. 465/Hyd/05 and the appeal of the assessee in 490/Hyd/07 is dismissed on the same reason as stated in this order with reference to I.T.A. No. 465/Hyd/05. 53. Coming to the Departmental appeal in I.T.A. No. 249/Hyd/08, the first ground is with regard to treating the expenditure of Rs. 119.46 lakhs on plantations pertaining to earlier assessment year 2003-04 and debited it to the P and L A/c. for the instant assessment year as deductible expenditure for this year. 54. Brief facts of the issue are that the activities of the assessee are spread over to four districts of Andhra Pradesh. In the tax audit report, the auditor has commented that the company has treated the expenditure on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure on plantation does not create any trading asset. The Assessing Officer not considered the issue whether the expenditure on plantation has resulted in the creation of current asset or not. On the other hand, the contention of the assessee's counsel is that in earlier year the plantation expenditure was treated as current asset and the same was reflected in balance sheet. During this assessment year assessee changed the accounting policy with regard to this expenditure because of which expenditure incurred in the previous year relevant to the assessment year 2003-04 considered as a revenue expenditure. The argument of the learned AR is contradicting each other. Once he submits that it is a current asset and on the other hand assessee changed the accounting policy with regard to this expenditure. In our opinion the assessee cannot change the accounting policy and thereby cannot claim earlier expenditure which is capital in nature as revenue expenditure in the present year. However, if the assessee treated the plantation expenditure as a current asset in the earlier year and the same was valued at cost or market price whichever is lower and same method to be followed in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
