TMI Blog2005 (7) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in this profit and loss account which has been audited, approved by the AGM and certified by the Registrar of Companies. Hence the exercise of jurisdiction by the Commissioner of Income-tax under section 263 was not sustainable nor its affirmance by the Tribunal - - - - - Dated:- 22-7-2005 - Judge(s) : RAJESH BALIA., R. S. CHAUHAN. JUDGMENT The Income-tax Appellate Tribunal, Jodhpur, has submitted the statement of case and referred the following questions of law arising out of the appellate order dated January 10, 1995, passed in Income-tax Appeal No. 1047/JP/94 for the assessment year 1990-91 at the instance of the assessee on an application for assessment under section 256(1) of the Income-tax Act, 1961. "Question No. 1: Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the order passed by the Commissioner of Income-tax under section 263 was correct and thereby upholding the same? Question No. 2: Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the order passed by the Assessing Officer was erroneous and prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 143(3) and computing the total income under the provisions of the Income-tax Act has not considered the applicability of section 115J of the Income-tax Act by way of reasoned order. So far as the consideration of the applicability of section 115J is concerned, the Assessing Officer has observed that the applicability of section 115J was also considered. The Assessing Officer has further considered that certain additions are required to be made in the return of the assessee in its correct perspective and on the basis of which, he has made certain modifications in computing the total income of the assessee and also computed the amount for carrying forward of losses/unabsorbed depreciation to subsequent years with which we are not concerned here. The power of the Commissioner under section 263 was exercised in respect of the finding that the computation of book profit made under section 115J by the Assessing Officer was erroneous. For this purpose, he referred to the following Table about the information furnished by the assessee in his return regarding the applicability of section 115J(4): Rs. Rs. Profit as per profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the order of the Assessing Officer if read in the light of applicability of section 115J, no reference is found to section 115J in the entire order only observation is made about section 115J, however, there is no discussion whatever in the order that section 115J is not applicable. Section 115J being an important provision, some discussion in the order would not have been out of place. This sort of passing reference by the Assessing Officer may lead a superior officer to think as to whether the subordinate officer must have considered all the aspects of law as well as facts or not in arriving at a particular conclusion. On these premises, the Tribunal found that the Commissioner of Income-tax was right in holding that the order of the Assessing Officer was erroneous to that extent. The other objection of the assessee was that there was nothing on the basis of which, the Commissioner of Income-tax could also find the order to be prejudicial to the interests of the Revenue. The Tribunal went into various provisions of the Companies Act to find what is the purpose of maintaining accounts and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. has been provided on written down value method at the rates specified in Schedule XIV to the Companies Act, 1956 for the whole year instead of pro rata for the period of use. As a result of the above, charge on account of depreciation for the year is higher by Rs. 426.35 lakhs, the resultant profit for the year is lower to this extent" and came to the conclusion that by considering the various aspects of the accounting and the different requirements of the Companies Act for the purpose of providing of depreciation under section 350 and the general guidelines issued by the Institute of Chartered Accountants, it came to the conclusion that by not providing pro rata depreciation in the new acquired assessment during the previous year relating to the assessment year, the books of account do not give true and fair value of the profit and loss account of the company in terms of section 211(2). This addition made in the book profits on account of depreciation charged referred to above was added back to the book profit, otherwise shown in the profit and loss account of the company and affirmed the order of the Commissioner of Income-tax passed under section 263 of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter whether the book profit declared by the assessee company reflects the true and fair result for the relevant period is a matter which is open to be inquired into and is required to be inquired into by the Assessing Officer, while considering the applicability of section 115J in respect of any company. It may be noticed that section 115J is to be resorted to in the alternative to a regular assessment by computing the taxable income of a company in accordance with the provisions of the Income-tax Act. It is only where the result arrived at by regular assessment of the company by computing its income in accordance with the provisions of the Income-tax Act, if the assessee's total taxable income be less than 30 per cent. of the income admitted by the assessee through declaration of book profits in its profit and loss account presented before the A.G.M. for the purpose of distributing the dividends. This is with the object that the company is at least held liable to pay tax on 30 per cent. of such admitted profits, which has been placed before the A.G.M. for the purpose of distributing its dividends. The object of insertion of section 115J initially with effect from April 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part II and Part III of Schedule VI to the Companies Act, 1956. It did not rest merely with that requirement, but further ordained that net profit shown in the profit and loss account for the relevant previous year prepared as per sub-section (1A) is to be increased by such items specifically detailed under clause (a) to clause (ha) 6t the Explanation and further ordained that after the book profit is augmented by additions made as per clauses (a) to (ha), it be reduced by items shown in clause (i) to clause (iv) relating to the amounts to be reduced from the book profits so derived. Therefore, for the purpose of section 115J, a complete code was laid down to take the net profit as shown in the profit and loss account of the company and not the net profit as computed by the Assessing Officer as per his opinion of the true and correct result of working of company as the basis for making the adjustments, which have been specified in the Explanation. No additional adjustments are permissible whether by way of addition or by way of reduction other than those enumerated in the Explanation. One fact which may be noticed in this connection is that even before insertion of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the first day of April, 1988 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 amounts (as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii)) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low any claim to specific deductions or exemptions of benefit of tax concessions by resorting to regular computation of income at that stage. It is open to the Assessing Officer while computing the income of any company in accordance with the provisions of the Income-tax Act to find whether the depreciation or other adjustments permissible to be made under the Income-tax Act, while computing the taxable income of the company. In fact the assessment order itself shows that the Assessing Officer has gone into the details of acceptable W.D.V., the claim to depreciation on specific assets and has also gone into the reason for claim to enhanced depreciation amount. Many of the assessee's claims have been denied while determining finally how much depreciation is entitled to be deducted from the assessee's income. It would be pertinent to mention that while computing the assessee's income in accordance with the provisions of the Income-tax Act, the claim of depreciation to which the subject-matter of controversy relates, had fully been held to be allowable in computing the taxable income of the company and on that premise, the assessment had been made. The order of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in its profit and loss account which according to the Revenue was not in accordance with Parts II and III of Schedule VI to the Companies Act. Hence, the Assessing Officer while considering the case of the assessee-company under section 115J of the Income-tax Act recomputed the said profit and loss account of the company so as to exclude the provision made for arrears of depreciation. The said action of the Assessing Officer in questioning the correctness of the accounts maintained by the company was challenged by the company before the Income-tax Appellate Tribunal which among other things held that the Assessing Officer has no authority to reopen the accounts of a company which are certified by the auditors of the company as having been maintained in accordance with the provisions of the Companies Act and which account has been accepted in the general meeting of the company as well as by the Registrar of Companies. This view of the Tribunal was not accepted by the High Court which held that the Assessing Officer has the authority to examine whether the accounts of the company have been maintained in accordance with the requirements of sub-section (1A) of section 115J and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... henticity 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, we find it difficult to accept the argument of the Revenue that it is still open to the Assessing Officer to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act." The court further held that: "Sub-section (1A) of section 115J of the income-tax Act in support of the above contention is misplaced. Subsection (1A) of section 115] does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and loss account which has been duly audited, approved by the AGM of the company and has been filed before the Registrar of Companies who had no objection to the correctness to be beyond the scrutiny of the Assessing Officer. If that is so, then the Commissioner of Income-tax was apparently in error in going through the book profit shown by the assessee and taking upon himself to examine whether any amount has been wrongly taken into consideration while preparing the profit and loss account declaring the book profits to be contrary to the provisions of the Companies Act by resorting to his own view of the true and fair result of the company's working, whereas the company's accounts have been certified by its auditors to be in accordance with the provisions of the Act and approved in the annual general meeting of the company and thereafter have also been certified by the Registrar of Companies. This enquiry being beyond the jurisdiction of the Assessing Officer under the Income-tax Act, the assumption of jurisdiction by the Commissioner of Income-tax on the ground that the assessment order was erroneous and prejudicial to interest was not sustainable. It may further be noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation to section 115J(1A). An alternative which is founded on admission of the assessee, cannot be considered to find out whether such admission is acceptable or not. The provision does not give any authority to any instrumentality functioning under the Act to probe into finding book profit de hors what has been shown in the audited books of account which are placed before the AGM and approved by the shareholders and certified by the Registrar of Companies when the same is filed with him. That is the acceptance by the shareholders and the statutory authorities to be the result of the company's affairs. Such accepted book profit has to be accepted by the Assessing Officer to find whether income computed by him in accordance with the Income-tax Act is more than or less than such admitted income. It is only if as a result of the company's total taxable income in accordance with the Income-tax Act by the Assessing Officer, is found to be less than 30 per cent. of the admitted book profits as discussed above, that resort has to be had to section 115J and not otherwise. If the computation in accordance with the provisions of the Income-tax Act gives better taxi results, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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