TaxTMI 
TaxTMI 
1994 (8) TMI 69
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....rn disclosing loss of Rs. 59,02,550 as under: 2. Profits and gains of business or profession Rs. 24,32,110 5. Aggregate of items 1 to 4 Rs. 24,32,110 6. Deduct : (a) Unabsorbed losses/allowances brought forward Rs. 83,34,656 7. Gross total income (-) Rs. 59,02,546 9. Balance (-) Rs. 59,02,546 10. Thirty per cent of book profits computed under s. 115J (Annexure D) Rs. NIL 11. Total Income . . Item 9 or item 10, whichever is higher (-) Rs. 59,02,550 Pursuant to the filing of the return as above, the Assessing Officer in his office note dt. 9th Jan., 1992 decided to reopen the assessment in the following terms: "In this case the assessee-company failed to file a return of income for asst. yr. 1988-89 and, therefore, notices under s. 139(2) and 142(1) were issued. On 31st Oct., 1989, the assessment was closed as N.A. A return of income was filed by the assessee-company on 15th March, 1990, which is delayed and considered non est. In view of the return filed, there is information to the effect that income assessable under the provisions of s. 115J of the Act, has escaped assessment. I am, therefore, satisfied ....
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....unt of loss or depreciation to be set off under s. 205(1)(b) of the Companies Act (as per working given in separate sheet attached) 5,18,387 Balance : 20,03,341 30% thereof : Rs. 6,01,002 . Profit assessed under s. 115J : Rs. 6,10,000 . and subjected the assessee to tax on the same. . 3. The assessee filed an appeal objecting to the reassessment proceedings as well as the quantum of income as determined by the Assessing Officer. The learned CIT(A) after adverting to the facts of the case held that no assessment had been made even though notices under s. 139(2) and 142(1) were issued to the assessee. Even after filing the return by the assessee on 15th March, 1990 no assessment order was passed on the basis of the return and, therefore, the Assessing Officer was justified in reopening the assessment in terms of cl. (b) of Expln. 2 of s. 147. Further the learned CIT(A) held that from the facts it was seen that the profits chargeable to tax under the provisions of s. 115J had escaped assessment and the argument of the assessee that the "deemed income" under the aegis of s. 115J cannot be equated to the real income that has escaped tax was negatived by the....
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....sustainable in law and he relied on the decision of the Patna High Court in C.M. Rajgharia & Anr. vs. ITO & Ors. (1975) 98 ITR 486 (Pat). Though s. 147 is only a machinery section, it does not relate to procedure pure and simple but it effects also the substantive right or protection given to the assessee by ensuring that he is not subjected to reassessment except only under certain conditions and within a certain time as has been held by the Calcutta High Court in Calcutta Discount Co. Ltd. vs. ITO (1952) 21 ITR 579 (Cal). He further submitted that so long as the assessment proceedings were pending against the assessee and no final order had been passed thereon, it would be premature to suggest that income of the assessee had escaped assessment and, therefore, no action can be taken under s. 147. In this connection, he relied on the decision of the Supreme Court in Ghanshyamdas vs. Regional Asstt. Commissioner of Sales-tax & Ors. (1964) 51 ITR 557 (SC) and of the Allahabad High Court in S.P. Kochar vs. ITO (1983) 37 CTR (All) 49 : (1984) 145 ITR 255 (All). For the proposition that a mere 'N.A.' will not tantamount to passing an order of assessment, he relied on the decision of the....
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....he mind on the part of the Assessing Officer to the past records of the assessee even though no return of income was pending before him. As a result of the past history of the assessee from 1984-85 onwards, he had came to the conclusion that there was no taxable income and closed the assessment as 'N.A'. Thus, the impugned entry, in our considered opinion, will amount to an order under s. 144 of the IT Act. The mere fact that it was not communicated to the assessee will not make such an assessment recorded in the order illegal as has been held in the case of Sivalingam Chettiar vs. CIT (1966) 62 ITR 678 (Mad), Commr. of Agrl. IT vs. K.M. Parameswara Bhat (1974) 97 ITR 190 (Ker) and CIT vs. Trustees of H.E.H. The Nizam's Second Supplemental Family Trust (1984) 40 CTR (AP) 96 : (1985) 151 ITR 562 (AP). The Supreme Court in CIT vs. Bidhu Bhusan Sarkar held that the endorsement filed may amount to dropping of the proceedings or disposal of the proceedings and that would not bar further proceedings under s. 147. The other cases relied on by the learned senior Departmental Representative support the action of the Assessing Officer in invoking the provisions of s. 147. Thus we reject the ....
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.... 7,31,542 1978-79 1,50,971 (-) 4,20,981 1,50,971 -- 8,82,513 1979-80 81,311 (-) 20,27,100 81,311 -- 9,68,824 1980-81 68,648 (-) 15,72,178 68,648 -- 10,32,472 1981-82 41,486 (+) 9,14,419 -- 9,14,419 1,18,054 1982-83 1,98,511 (+) 10,70,975 -- 1,18,053 -- 1983-84 1,10,295 (-) 27,71,357 1,10,295 -- 1,10,295 1984-85 1,68,693 (-) 38,65,179 1,68,693 -- 2,78,295 1985-86 1,37,727 (-) 80,988 80,988 -- 3,59,976 1986-87 85,104 (-) 2,39,142 85,104 -- 4,45,080 1987-88 82,539 (-) 73,307 73,307 -- 5,18,387 1988-89 69,351 (+) 25,17,908 -- 5,18,387 -- The learned CIT(A) saw no reason to interfere with the quantification as done by Assessing Officer. 13. The assessee's contentions are two-fold before us, viz., (a) The amount of loss or the amount of depreciation whichever is less in respect of the years in which the loss was incurred, if those years fell after the commencement of the Companies (Amendment) Act, should be taken into account for adjustment against the profits of the impugned asses....
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....o which any of the provisions of Chapter III applies, if any such amount is credited to the P&L a/c, and (iii) the amount of any brought forward losses or unabsorbed depreciation whichever is less as computed under the provisions of s. 205(1)(b) of the Companies Act, 1956, for the purposes of declaration of dividends. Sec. 205 of the Companies Act requires every company desirous of declaring dividend to provide for depreciation for the relevant accounting year. Further, the company is required under s. 205 to set off against the profit of the relevant accounting year, the depreciation debited to the P&L a/c of any earlier year(s) or loss whichever is less. 36.3 Sec. 115J, therefore, involves two processes. Firstly, an assessing authority has to determine the income of the company under the provisions of the IT Act. Secondly, the book profit is to be worked out in accordance with the Explanation to s. 115J(1) and it is to be seen whether the income determined under the first process is less than 30 per cent of the book profit. Sec. 115J would be invoked if the income determined under the first process is less than 30 per cent of the book profit. The Explanation to sub-s. (1) o....
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.... (-) 10,00,000 . Unabsorbed depreciation to be carried forward (-) 2,00,000 . . Year 1987 . Net profit 10,00,000 . Book depreciation 2,00,000 . APPLICATION OF SECTION 115J . Rs. Profit before depreciation 10,00,000 Less : Book depreciation 2,00,000 . 8,00,000 Less : Deduction under s. 205(2) 2,00,000 . 6,00,000 Out of the amount whichever is less : . 1984 : Business loss. 3,00,000 1986 : Business loss. 10,00,000 Total loss 13,00,000 Assessable income 30% of Rs. 6 lakhs, i.e. Rs. 1.8 lakhs." Thus in the above example, the loss or depreciation whichever is less is first adjusted against past profits before depreciation. The provisions of s. 205(1) & (2) of the Companies Act, 1956 are as follows: "DIVIDENDS AND MANNER AND TIME OF PAYMENT THEREOF 205 Dividend to be paid only out of profits.— (1) No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-s. (2) or out of the profits of the company for any previous fi....
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....of writing off by way of depreciation ninety-five per cent of the original cost to the company of each such depreciable asset on the expiry of the specified period; or (d) as regards any other depreciable asset for which no rate of depreciation has been laid down by this Act or any rules made thereunder on such basis as may be approved by the Central Government by any general order published in the Official Gazette or any special order in any particular case: Provided that where depreciation is provided for in the manner laid down in cl. (b) or cl. (c), then, in the event of the depreciable asset being sold, discarded, demolished or destroyed the written down value thereof at the end of the financial year in which the asset is sold, discharged, demolished or destroyed, shall be written off in accordance with the proviso to s. 350." 14. The salient features of s. 205 of the Companies Act, 1956 are as follows: I. Dividends can be declared for any financial year only out of the profits of that year or out of the profits of any previous financial year or years. For example for the financial year 1987-88 dividends can be declared out of the profits of the financial year 1987....
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....Amendment) Act, 1960, except in relation to the financial years 1983-84, 1985-86 and 1986-87. In such an event, if the company desires to declare dividends in respect of the financial year 1987-88, it has, under the first option, to set off the loss or depreciation, whichever is less, from the commencement of the Companies (Amendment) Act, against the profits of the financial year 1987-88. Under the second option, it can also set off the loss or depreciation whichever is less in respect of the years after the commencement of the Companies (Amendment) Act in which the loss was incurred against the profits of the previous financial years, viz., 1983-84, 1985-86 and 1986-87. The illustration given in the Board's Circular cited supra, follows the second option, on which the Assessing Officer's working is based. The assessee relies on the computation in accordance with the first option. In our considered opinion, the option that is favourable to the assessee can be adopted for the reason that it lies within the competence of the company to follow one of the options which is in its favour. In this view of the matter, we hold that the assessee is entitled to set off the amount of loss or ....
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.... purpose, the issue is restored to the Assessing Officer. 15. The next grievance of the assessee is that it has not been allowed deduction under s. 80HHC of the IT Act from the book profits. The learned Assessing Officer held that such deduction would be permissible only w.e.f. 1st April, 1989, that is to say, for and from the asst. yr. 1988-89 and not before. Thus he rejected the claim of the assessee. The learned CIT(A) upheld the order of the Assessing Officer. 16. We have heard rival submissions. The claim made by the assessee falls under item (g) of the Explanation to sub-s. (1A) of s. 115 of the IT Act. Sub-s. (1A) was inserted by the Finance Act, 1989 w.e.f. 1st April, 1989. Item (g) in the Explanation thereto was also inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989. Therefore, the authorities have rightly held that the deduction under s. 80HHC cannot be made from the book profits in relation to the asst. yr. 1988-89. Thus, the issue is found against the assessee. 17. The last issue in the appeal in against the inclusion of the profit on the sale of capital asset amounting to Rs. 66,242 in computing the book profit. The CIT(A) held that....