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TMI Blog2015 (1) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1999-2000 and Rs. 14,55,44,365/- for the assessment year 2000- 2001 and a sum of Rs. 2,11,66046/- for the assessment year 2006-2007 from the book profit in the MAT computation by observing that the deferred revenue expenditure is shown in 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order, the revenue is in appeal. 7. The learned Counsel for the revenue assailing the impugned order contended that in view of the explanation to Section 115JA of the Act, 'book profit' means a net profit as shown in the 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. Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account as the deemed income for the purpose of assessing the tax. The words 'in accordance with the provisions of Part-II 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 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely-held company will pay tax of at least 15 per cent of its book profit. This measure will yield a revenue gain of approximately Rs. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the same is not shown and a portion of it is shown as deferred expenditure. That portion as deferred expenditure cannot be deducted. There cannot be two balance sheets - one for the purpose of income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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