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TMI Blog2006 (10) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... . That, since the appellant's P&L a/c for asst. yr. 1997-98 was prepared in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956, as required by s. 115JA(2) of the IT Act and as the same has not been disputed by the learned AO or by the learned CIT(A), they were not justified in going beyond the net profit of Rs. (-)30,32,03,000 as shown therein and computing the 'correct net profit' of Rs. 90,06,97,000 for the purpose of computation of its 'book profit' for asst. yr. 1997-98. 3. That, on the facts and in the circumstances of the case, both the learned AO and the CIT(A) erred in holding that there was an apparent mistake within the meaning of s. 154(1) of the IT Act in the net profit of Rs. (-)30,32,03,000 as per the appellants P&L a/c for asst. yr. 1997-98 and in that view they erred in rectifying the said net profit by adding to it a sum of Rs. 1,20,39,00,000 crores for the purpose of computing its 'book profit' under s. 115JA of the IT Act." 3. The facts of the case are that for the year under consideration the assessee filed a return showing total loss of Rs. 7,01,31,754. The AO in the order dt. 30th March, 2000 passed under s. 143(3) deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002) 255 ITR 273 (SC) as relied upon by the assessee company is not applicable to the facts and circumstances of the instant case. In the above referred case, Hon'ble Court has discussed the issue regarding recomputation of book profit on account of disallowance of claim on account of depreciation. In the instant case, the question of correction of net profit is concerned. The fact and circumstance of the above referred case are, therefore, distinguished from the instant case. Subject to the above observation, order passed under s. 143(3)/251, dt. 7th April, 2003 is rectified under s. 154 as under. Penalty proceeding under s. 271(1)(c) is initiated separately for evasion of tax on book profit. Total income as per order under s. 154 dt. 31st Dec., 2001 Rs. 29,22,49,264 Calculation of book profit under s. 115JA : Net profit as per P&L a/c (-) Rs. 30,32,03,000 Add: Excess collection of processing charges from the certificate holders (Rs. 120.39 crores are included in Rs. 6,13,20,95,582 which were credited to P&L a/c for the financial year 1995-96 but shown as income in the asst. yr. 1996-97 and amount of Rs. 120.39 is debited to P&L a/c for the financial year 1996-97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est for enhancement of the rate of processing charges was accepted by the RBI to some extent. At the same time, the RBI directed that the processing charges already collected in excess of the revised prescribed rate should be credited to the accounts of the certificate holders. The learned counsel further submitted that in compliance with this direction of the RBI, the assessee computed the excess collection of processing charges during the financial years 1992-93 to 1994-95 at Rs. 613.21 crores. This amount was not debited to the assessee's P&L a/c for financial year 1995-96 relevant to asst. YI. 1996-97, but claimed as deduction in the computation of its total income. In support of this contention, he referred to the computation of total income for asst. YI. 1996-97 wherein the computation began with net loss as per P&L a/c at Rs. 42.22 crores, and a deduction of Rs. 613.20 crores was claimed as additional liabilities representing processing charges. He stated that the claim was disallowed by the AO but allowed by the Tribunal vide order dt. 31st Oct., 2001 in ITA Nos. 672 and 851/Cal/2000. In addition to this liability, the RBI also held that there was unprovided liability to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration as per Parts II and III of Sch. VI to the Companies Act. That the Hon'ble apex Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) has held that if the P&L a/c is prepared in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act and such statement is certified by the statutory auditor of the company, the learned AO has no authority to modify and/or recompute the net profit. The AO can only make the adjustment as provided in items Nos. (a) to (f) of the Explanation below s. 115JA He stated that the addition made by the AO does not fall in any of the items of the Explanation. He, therefore, stated that the addition made by the AO is unjustified and liable to be deleted. 7. The learned counsel further stated that the AO has made the addition under s. 154. The scope of s. 154 is limited to the extent of rectifying any mistake which is apparent from record. The issue of debatable nature is out of the purview of the rectification of mistake under s. 154. The view taken by the AO certainly does not fall within the ambit of rectification of mistake under s. 154. Therefore, the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial placed before us. As per the P&L a/c of the year under consideration, the assessee has disclosed the loss of Rs. 30,32,03,000. The AO has made the addition of Rs. 120.39 crores which is debited by the assessee in the P&L a/c of the year under consideration for return to certificate holders. The assessee has been collecting the processing charges from the certificate holders from the financial year 1989-90 onwards. The RBI directed the assessee not to collect the processing charges in excess of Rs. 10 per application. The direction of the RBI was challenged by the assessee before the Hon'ble High Court/Supreme Court. The Hon'ble Supreme Court directed the RBI to consider the assessee's submission that the collection charges of Rs. 10 per application are too low. Thereafter, the RBI revised its direction. However still, the collection made by the assessee from the certificate holders was in excess of the collection charges permitted by the RBI. The RBI also directed the assessee that the processing charges already collected in excess of prescribed rate should be credited to the accounts of the certificate holders. On the basis of such direction of the RBI, the assessee claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual of the liability and not the actual discharge thereof which is required to be taken into consideration for determining the amount deductible for income-tax purposes. In this connection, we would like to refer to a recent judgment of the Supreme Court in the case of Bharat Earth Movers Ltd. vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC). In this particular case also, the issue was the allowability of the liability in respect of leave salary accruing to the employees of that assessee company by virtue of their rendering of services during that particular year. The leave salary was certainly not payable during the year but was required to be accounted for by way of actual payment of the amount or adjustment against the leave taken by the employees in some future year. The Supreme Court however held by reversing the judgment of the Karnataka High Court that the assessee would be entitled to deduction in respect of the provision made by the assessee company for meeting the liability towards leave encashment, proportionate to entitlement earned by the employees of the company subject to the ceiling on accumulation as applicable on the relevant date. The Supreme Court gave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. (2) 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 Sch. VI to the Companies Act, 1956 (1 of 1956)." Thus, if 30 per cent of the book profit exceeds the total income of the assessee as computed under the IT Act, then 30 per cent of book profit shall be deemed to be the total income of the assessee. As per sub-s. (2) of s. 115JA, the assessee has to prepare the P&L a/c in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. Hon'ble apex Court in the case of Apollo Tyres Ltd., while examining the provisions of s. 115J held as under: "The AO, while computing the book profits of a company under s. 115J of the IT Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case of the AO that the books of account were not properly certified by the chartered accountant as required under the Companies Act. It is also not the case of the AO that the P&L a/c and balance sheet are not prepared as per the provisions of Parts II and III of Sch. VI to the Companies Act. As per the audited P&L a/c, which is duly certified by the statutory auditor, the net loss was Rs. 30.32 crores. As per the above decision of Hon'ble apex Court, the AO cannot modify the profit shown in the P&L a/c except to the extent provided in the Explanation. Explanation to s. 115JA reads as under: "Explanation-For the purposes of this section, 'book profit' means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of deduction twice by the assessee is while computing the total income as per provisions of IT Act and not under s. 115JA. The assessee has already claimed the deduction of Rs. 613.21 crores while computing the total income for asst. yr. 1996-97. In the year under consideration, it has again claimed the deduction of Rs. 120.39 crores while computing its total income. The same is disallowed by the AO. If the assessee files the appeal against the addition of Rs. 120.39 crores to the total income, then Revenue would be quite justified in contending that the deduction of Rs. 120.39 crores is claimed twice while computing the total income of the assessee. However, so far as the computation of book profit is concerned, the claim of deduction from the book profit is only once and not twice. In view of the above, we respectfully, following the decision of Hon'ble apex Court in the case of Apollo Tyres Ltd., hold that the AO was not justified in making the addition of Rs. 120.39 crores to the book profit. The same is directed to be deleted while computing the book profit of the assessee for the purpose of s. 115JA of the IT Act. ITA No. 449/Kol/2006-Asst. yr. 1998-99 (Assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the matter was referred to the Special Bench which itself proves that the issue was debatable and thus out of the purview of rectification under s. 154. 15. We have carefully considered the rival submissions of the parties and perused the material placed before us. The Special Bench has already adjudicated this issue in the case of Usha Martin Industries Ltd. vide order dt. 6th Oct., 2006. In the said case, the Special Bench has held that Expln. (c) below s. 115JA would not be applicable in respect of provision for doubtful debt and also for diminution in the value of investment. The ratio of the above decision of the Special Bench would be squarely applicable to the case under consideration before us, because the facts are identical and the Revenue in the grounds of appeal has claimed that the provision for bad and doubtful debt and the provision for diminution in the value of investment is liable to be added under Expln. (c) to s. 115JA. We, therefore, respectfully following the above decision of the Special Bench of Tribunal, hold that the CIT(A) was justified in deleting the addition made by the AO on account of provision for doubtful debt and provision for dim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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