TaxTMI 
TaxTMI 
2008 (1) TMI 519
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purpose of minimum alternate tax (MAT) may be different from the one placed before the AGM as held by the Tribunal in case of Atul Ltd. vs. Asstt. CIT (1999) 64 TTJ (Ahd) 741 : (1999) 69 ITD 187 (Ahd) and Arvind Mills Ltd. vs. Dy. CIT (Asst.) ITA No. 4636/Ahd/1998. 1.2 The learned CIT(A) grossly erred in law and on facts in ignoring the fact that the claim for deduction under s. 42 of the Act was set out in the note appended to the Sch. H. Item (IV) inasmuch as the notes appended to the accounts were required to be treated as part of P&L a/c as held under the binding decision of the Hon'ble Gujarat High Court in the case of Nagri Mills Co. Ltd. vs. CIT (1981) 131 ITR 257 (Guj). 1.3 The learned CIT(A) grossly erred in law and on facts in levying additional tax on the basis of book profit under s. 115JA of the Act ignoring the claim for statutory deduction under s. 42 of the Act amounting to Rs. 12.50,72,810 as a result of which book profits stood at loss of Rs. 3,12,25,652. The appellant states that the learned CIT(A) was wholly unjustified both in law as well as on facts of the case in ignoring the claim for statutory deduction under s. 42 of the Act and thereby levy....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; (-) 93,67,696" --------------- 4. The AO noticed that the assessee has claimed deduction under s. 42 out of book profit disclosed in the accounts as approved by the AGM. The AO issued show-cause notice as to why deduction under s. 42 of the Act as claimed should not be disallowed, as no such deduction has been provided under s. 115JA. The AO during the course of assessment has not accepted the contention of the assessee that deduction under s. 42 of the Act was available for determining the book profit under s. 115JA and computed assessee's income under s. 115JA as per the book profit Shown in the annual accounts subject to other additions and thereby computed total income at 30 per cent of book profit at Rs. 3,36,95,570. The computation is given in the orders of lower authorities and the same is being reproduced as it is: "1. Book profit as per P&L a/c &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a View to introduce from backdoor such deductions or concessions which are otherwise not available to the total income of the assessee under the head 'Income from business or profession' as required to be computed in accordance of ss. 28 to 43 as contained in Para D of Chapter IV. As per CIT(A), s. 42 of the Act which forms part of the above computation of business income has to exist in the framework of computation of business income and cannot travel beyond its scope. Finally, he held that deduction claimed by the assessee under s. 42 cannot be considered for the purposes of computing book profit under s. 115JA of the Act. Accordingly, he rejected the claim of the assessee. 6. The learned senior counsel S.N. Soparkar, first of all drew our attention to assessee's paper book consisting pp. 1 to 28, he referred to the facts and figures for asst. yr. 1998-99 and he argued that, whether statutory deduction under s. 42 of the Act has to be claimed while computing book profit under s. 115JA of the Act or not. The learned counsel of the assessee referred to the provision of s. 115JA to claim that by overriding provisions as enacted in the case of Companies Act, 1956, where total inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....15JA of the Act and asked the Bench to uphold the same. 7. We have heard the rival contentions, gone through the relevant documents and facts and circumstances of the case. We have also gone through the assessment order as well as order of CIT(A). We have also gone through the paper book filed by learned counsel of assessee consisting pp. 1 to 28. The assessee company is a company of Government of Gujarat and it had entered into production-sharing contract with Government of India and in joint venture with Niko Resources Ltd. and HOEC Ltd, The assessee in his return of income claimed special deduction under s. 42 of the Act, which provides for special provision for deduction in the case of prospecting etc. of mineral oils. The provisions of s. 42 of the Act provide for deduction on account of mineral oils in relation to which the Central Government had entered into an agreement and the deduction is allowable under this Act as specified in the agreement, The assessee referred that the other provisions of this Act were deemed for this purpose of find, modify to the extent necessary book effect to the terms of agreement and argued that by fiction enacted under s. 42 of the Act. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. 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 amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; if any amount referred to in cls. (a) to (f) is debited to the P&L a/c, and as reduced by,- (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the P&L a/c: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the am....
X X X X Extracts X X X X
X X X X Extracts X X X X
....puted under cl. (a), (b) or (c) of sub-s. (3) or sub-s. (3A), as the case may be, of that section, and subject to the conditions specified in sub-ss. (4) and (4A) of that section; (ix) the amount of profits eligible for deduction under s. 80HHE, computed under sub-s. (3) of that section. (3) Nothing contained in sub-s. (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-s. (2) of s. 32 or sub-s. (3) of s. 32A or cl. (ii) of sub-s. (1) of s. 72 or s. 73 or s. 74 or sub-s. (3) of s. 74A. (4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section." 8. In view of the above provisions, whether or not the accounts, which are prepared in conformity with Schedules (sic-Parts) II and III of Chapter (sic-Schedule) VI of the Companies Act, 1956 could differ from the accounts placed before the AGM of the company. The proviso to s. 115JA provides that a separate set of accounts could be prepared where company has adopted the financial year under the Companies Act, 1956....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s under: "In view of the deduction available under s. 42 of the IT Act, 1961 in respect of expenditure on exploration and exploitation of oil and gas, the company did not expect any income-tax liability and hence no provision has been made in respect thereof." Before the AO it was claimed that provision for the liability had been made by way of footnote in the balance sheet and this was in accordance with the accountancy principles and it was also argued before us also that the existing business entries in the books of account were not decisive or conclusive, whether deduction is allowable or not which is otherwise permissible. From the bare facts, it is clear that assessee has maintained 2 sets of P&L a/c, one which was laid before the company at its AGM in accordance with the Parts II and III of Sch. VI of the Companies Act, 1956. The assessee in its return of income filed for the assessment years under appeal had furnished statement of total income wherein it has computed the book profit under s. 115JA after reducing book profit by the amount which statutory deduction available under s. 42 of the Act. Notes appended to the accounts above for claiming deduction under s. 42 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cordingly, it is held the assessee company cannot claim any special benefit under s. 42 in the calculation of its book profit by resorting to s. 115JA of the Act. The AAR in Niko Resources Ltd., In re, has finally elaborated the issue as under: "The scheme of the income-tax is to levy tax on the total income of an assessee for any assessment year at a prescribed rate. Income has been classified in Chapter IV under various heads. Under each head of income, deductions and allowances have been provided for the purpose of computation of income under that head. In order to compute the total income of the assessee for any particular assessment year, it is necessary to classify and assess income under each appropriate head. If an assessee is engaged in the business of prospecting for or extraction or production of mineral oil, his income will be assessed under the business head. If he fulfils the conditions laid down in that section, he will get the benefit of s. 42 in the computation of his business income. But this is only a step in the computation of total income. In the process of computation of total income, if any relief has been given to an assessee under any other section that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Every notification issued under this section shall be laid before each House of Parliament. Explanation-For the purposes of this section,- (a) 'mineral oil' includes petroleum and natural gas; (b) 'status' means the category under which the assessee is assessed as 'individual', 'HUF' and so on.' Sec. 293A has nothing to do with computation of total income. It lays down that the Central Government may by notification grant exemption or reduction in rate of tax or other modifications in respect of income-tax in favour of certain classes of assessees. We were referred to two notifications issued under s. 293A, dt. 31st March, 1983, and 6th July, 1987. Both the notifications pertain to rates of tax payable by foreign companies under certain circumstances. We fail to see the relevance of these two notifications for the purpose of the present case. Neither s. 293A nor the two notifications issued there under can cut down the scope or effect of s. 115JA which stands on a different footing altogether. It does not contain a machinery for computation of business income or total income of an assessee. It provides a rough and ready formula. A minimum amount of tax will have to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n business income is computed under Chapter IV-D of the IT Act. Sec. 42 6f the IT Act cannot override the provisions of s. 115JA. The provisions of s. 115JA will clearly apply in the case of the applicant company." The book profit is defined in s. 115JA(2) and the expression book profit for the purpose of s. 115JA(2) so as to 'The net profit as shown in the P&L a/c for the relevant previous year prepared under s. 115JA(2) as increased by amount(s) mentioned in cls. (a) to (f) and as reduced by amount(s) covered by cls. (i) to (ix) of the said Explanation.' 10. From the above it is clear that what is book profit has been defined and explained in the above Explanation. The P&L al c for the purpose of book profit has to be prepared in accordance with the provisions of Companies Act. Sec. 115JA (2) enjoins upon every assessee company to prepare for the purposes of s. 115JA its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act and only adjustments to this is to be made by which net profit has to be increased or reduced as per Explanation to s. 115JA(2) of the Act. 11. The scheme of the IT Act was to l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder s. 42 of the IT Act for the purpose of computing the book profit under s. 115JA is misconceived in view of the language of sub s. (1) of s. 115JA which reads under: "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 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." The above sub-section clearly states that the provisions of this section are in total exclusion of this thing contained any other provision of this Act. The above sub-section clearly states that first the total income of the appellant being a company is to be computed under the provisions of this Act allowing the appellant all deductions, rebates and concessions to which he is entitled as per the provisions of the IT Act. The AO is, therefore, required to consider the total income so computed with reference to the book profi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany while determining its net profit for the relevant accounting year has provided for arrears of depreciation in its P&L a/c which according to the Revenue is not in accordance with Parts II and III of Sch. VI to the Companies Act, 1956 (the 'Companies Act'). Hence, the AO while considering the case of the assessee company under s. 115J of the IT Act recomputed the said P&L a/c of the company so as to exclude the provision made for arrears of depreciation. The said action of the AO in questioning the correctness of the accounts maintained by the company was challenged by the company before the Tribunal which among other things held that the AO has no authority to reopen the accounts of a company which is 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 RoC. This view of the Tribunal was not accepted by the High Court wl1ich held that the AO has the authority to examine whether the accounts of the company have been maintained in accordance with the requirement of sub-s. (1A) of s. 115J and in that process if he finds ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny to maintain its account in a manner provided by the Companies Act and the same to be scrutinised 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 RoC 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 AO to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-s. (1A) of s. 115J of the IT Act in support of the above contention is misplaced. Sub-s. (1A) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led before RoC and as a statutory authority RoC is under obligation to examine and to be satisfied with the accounts of the company which are maintained in accordance with the requirement of the Companies Act. Similar is the situation in the present case, where the assessee also again placed before the AO the accounts which are not laid before the AGM of the company and not approved by the auditors and RoC. The AO was very well within his rights to accept only the accounts which are approved by AGM and placed before the auditor of the company as well RoC. The learned counsel of the assessee relied on the case law of Hon'ble Gujarat High Court in the case of Nagri Mills Co. Ltd. vs. CIT (1981) 131 ITR 257 (Guj) but after going through this case law it is seen that the issue before the Hon'ble Gujarat High Court is entirely different from the present case. Before the High Court issue was as regards to a claim for deduction is not dependent upon whether relevant entries have been made in the books of account or not. What determines the claim for deduction is tile right accruing to the assessee under the law in regard to such deduction i.e., deduction under s. 36(1)(v) as regards to pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act. After going through the above provision and case law of Hon'ble apex Court in the case of Apollo Tyres Ltd. as well as Niko Resources Ltd., In re, the claim of the assessee that from the book profit deduction claimed under s. 42 should be reduced, for the purpose of computing the book profit under s. 115JA is misconceived and cannot be allowed. Accordingly, we feel that the deduction claimed by the assessee under s. 42 cannot be considered for the purpose of computing the deemed income under s. 115JA of the Act. Accordingly, this issue of the assessee's appeal is decided against assessee and in favour of Revenue. 14. The next issue in ITA No. 2359/Ahd/2000 of the assessee's appeal is as regards to addition made in respect of gas contract of Rs. 1,81,78,084 and additional revenue from Gujarat Gas Company of Rs. 2,93,326. The main ground was that the CIT(A) has grossly erred in law and on the facts in bringing to tax this sum on the ground that the assessee has not accounted for income in respect of gas contract with Gujarat Gas Company Ltd. inasmuch as assessee was following mercantile system of accounting and the said amount was liable to be taxed on accrual basis. The ....