TaxTMI 
TaxTMI 
2011 (9) TMI 136
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....f accounting is mercantile. The assessee duly maintains books of accounts and documents which are duly audited under the Companies Act, 1956 and under Section 44AB of the Act. b) The assessee filed the return of income on 27th December, 1989 for a period of 18 months from 1st October, 1988 to 31st March, 1989 corresponding to the Assessment Year 1989-90 showing a total income of Rs.2,33,05,920/-. The assessment was originally processed under Section 143(1)(a) of the Act by the Deputy Commissioner of Incometax, Special Range-15, Kolkata, the Assessing Officer of the company, on 1st March, 1990. The computation of the aforesaid total income and the return filed by the assessee was accepted by the Assessing Officer. Subsequently, the Assessing Officer issued notice under Section 154 of the Act on 7th February, 1991 alleging that there was an error apparent from record in computation of income-tax under Section 115J of the Act for the Assessment Year 1989-90. c) The assessee filed a reply against the notice under Section 154 of the Act on 15th February, 1991 explaining, inter alia, in details on the points which were sought to be rectified by the said notice under Section 154 of the ....
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....isions made prior to 1st April, 1988 on fixed assets sold have been excluded from the computation of the book profit for the purpose of tax under Section 115J of the Act. The Assessing Officer sought to include this provision for depreciation in the computation of income under Section 115J as income escaping assessment. The assessee in reply to the said notice had given detailed explanation contending that Section 115J(1) clearly prescribed items to be included and/or excluded for the purpose of computation of book profit and the computation given by the assessee was in accordance with the provisions of the Act. j) The Assessing Officer, however, rejected the contention of the assessee and recomputed the income under Section 115J of the Act including depreciation as provided in the books of account prior to 1st April, 1988 in respect of assets sold during the Assessment Year 1989-90 amounting to Rs.11,71,39,380/- and raised additional demand including interest for Rs.3,05,75,846/- vide order dated 31st January, 1996. k) The assessee preferred an appeal against such order before the CIT (Appeals) on twofold grounds. First, the Assessing Officer erred in concluding that depreciatio....
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....e time of admission of this appeal formulated the following questions of law for determination: "(1) Whether the Learned Tribunal on a true and proper interpretation of the provisions of Section 115J of the Act and also the Companies Act was justified in law in disallowing the provision for bad and doubtful debts and advances on the grounds that the said provision is not an amount set aside towards the provisions made for meeting liabilities which are not the ascertained liability. "(2) Whether the Learned Tribunal failed to appreciate that the expression provision in any event is capable of interpretations on which there are two conceivable views and as such the said mistake, if any, is not a mistake apparent from record and cannot be the subject matter of rectification under Section 154 of the Act. "(3) Whether the Learned Tribunal was justified in affirming Assessing Officer's decision that depreciation provision prior to 1.4.1998 written back in the profit and loss account is to be included as part of book profit, as Section 115J of the Act does not empower the Assessing Officer to go beyond the net profit as disclosed in profit and loss account and balance sheet certified b....
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....89." Dr. Pal, the learned Senior Advocate appearing on behalf of the assessee, however, restricted his submission to only the grounds Nos.1, 2 and 4 indicated above, as according to him, those three questions are the real disputes involved in this appeal and the other points formulated are really the repetition of the selfsame points. So far as the first question is concerned, Dr. Pal strongly relied upon a decision of the Supreme Court in the case of Commissioner of Income-tax Vs. HCL Comnet Systems and Services Ltd., reported in [2008] 305 ITR 409 (SC) and particularly, upon the following observations made by the Supreme Court in the said decision : "As stated above, the said Explanation has provided six items, i.e., item Nos. (a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with item No. (c) which refers to the provision for bad and doubtful debts. The provision for bad and doubtful debts can be added back to the net profit only if item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilit....
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.... is correct as the same is in tune with the principles laid down by the Supreme Court in the abovementioned case of Commissioner of Income-tax Vs. HCL Comnet Systems and Services Ltd. On the third question involved, Dr. Pal strongly relied upon the audited balance-sheet of the company and contended that the learned Tribunal failed to appreciate that the amount of depreciation for the period up to September 30, 1987 which has been added back to the net profit of the assessee for the current year is to be reduced from the profit as disclosed in the book profit according to the Schedule VI to the Companies Act and the said amount of depreciation which were provided for up to September 30, 1987 according to specific provision of the Explanation have to be reduced from the book profit prepared according to the Companies Act and as such, non-reduction of the said amount was clearly illegal, invalid and without any legal basis.. Mr. Dutt, the learned Advocate appearing on behalf of the Revenue, on the other hand, has supported the order passed by the authorities below and has prayed for dismissal of this appeal by relying upon the reasons given by the authorities below. So far the first ....
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....ecified in section 80HHD or sub-section (1) of section 33AC), 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 proposes; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or (g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section; or (h) the amount credited to the reserve account under section 80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section; (ha) the amount deemed to be the profits under sub-section (3) of section 33AC; if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,- (i) the amount withdrawn from reserves (other than the reserves specified in section 8....
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....s that for the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by various amounts as indicated in clauses (a) to (ha), and as reduced by as provided in clause (i), the amount withdrawn from reserves (other than the reserves specified in section 80HHD) or provisions, if any such amount is credited to the profit and loss account. The proviso to the said clause lays down that where Section 115J(1A) is applicable to an assessee 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 1st 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. In the case before us, the previous year for the relevant Assessment Year 1989-90 is the period from 1st October, 1987 to 31st March, 1989 as would appear from pages 100 and 61 of the paper book which refer to the previous year being 18 months ....
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....in the Tribunal's order which is quoted herein below:- "ii) Depreciation provided on assets sold written back : up to 30.9.87 assessment year 1988-89 Rs.11,71,39,380/- up to 31.3.89 assessment year 1989-90 Rs. 12,52,620/- Rs.11,83,91,000/-" Therefore, it is apparent that the sum of Rs.11,71,39,380/- which is the depreciation on fixed assets and which were sold or disposed of was provided for in the previous year ending on 30th September, 1987 and had been credited/written back to the Profit & Loss Account for the current year. Clause (i) of Explanation to Section 115J(1A) is clearly attracted and the said amount is to be reduced from the book profit. The Tribunal, in its order impugned in this appeal, has recorded that there is no dispute that the sum of Rs.11,71,39,380/- on account of depreciation provided on assets sold up to September 30, 1987 has been written back in the books of account as would appear from page 25 of the Paper Book, but in spite of such finding, affirmed the orders of the authorities below. The Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT, reported in AIR 2002 SC 2131 had the occasion to consider the question whether an Assessing Officer while a....
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.... While so looking into the accounts of the company, an assessing officer under the IT Act has to accept the authenticity 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 scrutinised and certified by 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 re-scrutinise 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-section (1A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115-J does not empower the assessing o....