TMI Blog2015 (1) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... ny profit at all. When once the assessee has incurred an expenditure and it is deducted in terms of Part-II of Schedule-VI of the Companies Act and the profit is arrived at, merely because in the printed P & L account for the purpose of showing to the shareholders that a profit is made by the Company, the entire expenditure is not deducted and a portion of it is shown as a deferred expenditure, the assessee cannot be denied the benefit of actual expenditure incurred. The assessee is not showing the actual expenditure incurred to avoid payment of tax. On the contrary when the actual expenditure is given deduction to, the profit margin gets reduced. It is by showing it to the P & L account, a portion of it as a deferred payment, artificially the profit has gone up. The object of Section 115JA being to avoid adjustment of account, manipulation of figures to avoid payment of tax. When the assessee has actually incurred expenditure and the tax liability is less when compared with the net profit arrived at after giving deduction to the actual expenditure, the tax payable is on that net profit and not on the fancy figure shown in the P & L account for the purpose of showing profit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books and there is no provision under Section 115JA of the Act to change the nature of expenses shown in the books of accounts. 4. The assessee contended that neither the Income Tax Act nor Schedule-VI of the Companies Act contemplate the concept of deferred revenue expenditure. According to the assessee to compute book profits under Section 115JA of the Act, the deferred revenue expenditure has to be deducted. 5. The Assessing Authority held that under Section 115JA of the Act, the amount equal to 30% of the book profits shall be deemed to be the total income of the assessee chargeable to tax for the relevant previous year, if the total income of the assessee as per the Act is less than 30% of its books of profits. As per Sub-section (2) of Section 115JA of the Act, every assessee, being a company, shall for the purposes of Section 115JA, prepare its profit and loss account in accordance with the provisions of Part-II and Part-III of Schedule-VI of the Companies Act, 1956. Explanation to Section 115JA of the Act provides that book profits mean that the net profit as per the P L account prepared under Sub-section (2) as increased by the items mentioned in clauses (a) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit and loss account for the relevant previous year prepared under Sub-section (2). If any amount is to be increased or decreased, it has to be in terms of the said explanation. The said explanation does not provide for decreasing the amount spent towards deferred expenditure and therefore, for the purpose of levying tax under the Act, the income shown in the profit and loss account is conclusive. The assessee is not entitled to meddle with the said defects by claiming deduction of the entire amount of expenditure incurred in that particular year. He relied on the judgments of the Apex Court as well this Court in support of his contentions and contended that the order passed by the Tribunal is erroneous and requires to be interfered with. 8. Per contra, learned Counsel for the assessee supported the impugned order. 9. This Court while admitting the appeals had framed the following substantial questions of law in these three appeals: 1. Whether the Tribunal was correct in upholding the case of the assessee that deferred revenue expenditure towards (advertisement, publicity, distribution and sales promotion) debited to the P L account and carried to the Balance Shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 Income-Tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter, to be filed before the Registrar of Companies, who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, they found it difficult to accept the argument of the Revenue that it is still open to the Assessing Officer to re-scrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provision of the Companies Act. Sub-Section (1A) of Section 115J does not empower the authority under the Income Tax Act to probe into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of approximately ₹ 75 crores. 13. From the aforesaid speech of the Hon'ble Finance Minister of India, it is clear that the IT authorities were unable to bring certain companies within the net 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 115J, was introduced in the Act with a deeming provision which makes the company liable to pay tax or at least 30% of its book profits as shown in its own account. Therefore, the object of this Section is to prevent the mischief. Therefore while applying the Section what is to be borne in mind is whether the assessee is trying to avoid payment of tax by any manipulative process by adjustment of accounts. Sub-Section (2) of Section 115J(1A) makes it clear that every assessee, being a company shall for the purpose of this Section, prepare its profit and loss account for the relevant previous year in accordance with the provision of Parts II and III of Schedule-VI of the Companies Act, 1956. Thereafter, the same shall be placed before the Company at its Annual General Meeting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax and another for the purpose of showing it to the share holders under the Income Tax Act and therefore, it was contended that the order passed by the Tribunal is incorrect. 16. As is clear from Section 115JA of the Act, it deals with the 'deemed income'. In other words it is not the actual income earned by the assessee. The object behind it is to prevent the assessee from adjusting the accounts or manipulating the accounts so as to avoid payment of tax on the ground that they have not earned any profit at all. Therefore, the said provision was introduced insisting of preparation of profit and loss account for the relevant previous year in accordance with the provisions of Part-II and III of Schedule-VI to the Companies Act, 1956. Once such an account is prepared and certified by the auditors, the same becomes the basis for levying tax on book profit. When once the assessee has incurred an expenditure and it is deducted in terms of Part-II of Schedule-VI of the Companies Act and the profit is arrived at, merely because in the printed P L account for the purpose of showing to the shareholders that a profit is made by the Company, the entire expenditure is not deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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