TMI Blog2006 (10) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... sst. 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) determined the total income at Rs. 1,52,26,19, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta High Court/Supreme Court. The Hon'ble Supreme Court held that the direction of the RBI is binding on the assessee. The Hon'ble apex Court, however, directed the RBI to consider the assessee's submission made before it that the collection charges of Rs. 10 per application is too low. The assessee's request 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 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in asst. yr. 1997-98 onwards. Thus, neither in computing the total income under the provisions of IT Act nor in computing the book profit under s. 1153A, the liability is claimed twice. He, therefore, stated that the AO was not at all justified in coming to the conclusion that the assessee has claimed the deduction of Rs. 120.39 crores twice. 6. The learned counsel further stated that the assessee has prepared the P L a/c of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dt. 15th July, 2005. Before passing the order of rectification, the AO has allowed adequate opportunity of being heard to the assessee and has passed the order under s. 154 after considering the assessee's contention. Therefore, the order of the AO under s. 154, dt. 15th July, 2005 should be upheld and the assessee's appeal should be dismissed. 9. We have carefully considered the arguments of both the sides and perused the material 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion that in view of the directions of the RBI and especially of cl. (7) thereof, the liability is certainly to be discharged in its entirety at some future point of time or other. If for some reason or other, a small part of the liability cannot actually be discharged, then such amount of liability will have to be written back in the accounts of the assessee and offered for taxation. However, that by itself cannot be considered to be a good reason to deny the claim of liability in this very year. It is a trite law that under the mercantile system, it is only the accrual 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 paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In the regular assessment, the AO disallowed the same. Now, the question is whether the sum of Rs. 120.39 crores should also be included in the book profit for the purpose of s. 115JA. Sec. 115JA(1) and (2) reads as under: "115JA. (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 but 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of a company has only power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act, 1956. If it is so maintained, the AO does not have the jurisdiction to go behind the net profit shown in the P L a/c, except to the extent provided in the Explanation. It is not in dispute that the assessee has got the accounts audited from a statutory auditor as required under the Companies Act and such certified P L a/c and balance sheet were produced before the AO. It is not 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: "Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of financial year 1995-96 relevant to asst. yr. 1996-97. The claim of deduction from total income of Rs. 613.21 crores in asst. yr. 1996-97 will not debar the assessee from debiting the amount in the books of account in the subsequent years. In fact, debiting of the amount in the books of account is essential; otherwise the balance sheet of the assessee will not depict the true and fair financial position of the assessee company. Therefore, we are unable to accept the contention of the Revenue that deduction of Rs. 120.39 crores was claimed twice for the purpose of s. 115JA. In fact, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to this case. The learned counsel for the assessee though agreed with the above submission of the learned Departmental Representative, has further stated that in this case the addition has been made by the AO by invoking the powers of rectification under s. 154 of the Act. Any debatable matter is beyond the scope of rectification under s. 154. He, therefore, stated that irrespective of the outcome of the decision of the Special Bench, since the issue is debatable, the addition made by the AO was not justified. He further submitted that since there were conflicting decisions of the Tribunal 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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