TaxTMI 
TaxTMI 
2011 (3) TMI 811
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..... But the assessing officer is of the opinion that the assessee company became sick unit during the assessment year 1992-93 and the entire net worth of the assessee company exceeded cumulative losses during the assessment years 1994-95 itself. So the deduction of impugned profit was not allowable as deduction in this assessment years because the relevant year in which the assessee's net worth exceeded the cumulative losses in these assessment year 1994-95 and not these assessment years viz., 2000-01, 2001-02, 2002-03 and 2003-04. Against this, the assessee is in appeal before us. 3. The Learned Authorized Representative for the assessee submitted that the assessee company is a public sector undertaking jointly owned by the AP State Govt. and the Central Govt. The AP state Govt. Owns majority of the shares in this undertaking. The company suffered loses for a number of years in the past and was declared a sick industrial company as defined under the sick industries companies (special Provisions) Act, 1985. In the assessment year 2000-01, while computing the book profits as defined in Explanation to section 115JA(2) of the IT Act 1961, the company reduced a sum of Rs.3,75,3....
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....isions 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 IIII applies g) The amount or amounts set aside as provision for diminution in the value of any asset. h) If any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by i) The amount withdrawn from any reserves or provisions if any, such amount is credited to the profit and loss account. Provided that, where this section is applicable to an assessee in any previous year including the relevant previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April 1997 but ending before the 1st day of April, 2001 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 amo....
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....gible for deduction under section 80HHE, computed under sub section (3) of that section. 5. Further, he submitted that the computations of book profits involve the reduction of clauses (i) to (ix) of "Explanation to S.115JA (2) and in particular to clause (vii) thereof of which the present appeal relates to. It may be noted at the outset that the assessee is not claiming "exemption" from the applicability of provisions of S.115JA of the Income Tax Act, 1961. The relevant provisions also do not provide for exemption of any company from the rigours of book profit taxation. In this connection, he drew our attention of to the provisions of sub section (1) of S.115J of the Income Tax Act, 1961 which earlier related to the charge of "book profits" tax and which was succeeded by S115JA of the Income Tax Act, 1961 S. 115J (1) ready as under: 115J.(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company [(other than a company engaged in the business of generation or distribution of electricity)], the total income, as computed under this Act in respect of any previous year relevant to the assessment year c....
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....kness. The year of assessment and the years of sickness need not be one and the same. 8. He drew our attention to the 3rd Para in Page No.14 of order of the CIT (A) where he has observed that: "that the period has been prescribed in the Act itself and that period is the time frame of the previous year in which the company has become a sick industrial undertaking to the end of the asst. Year in which the company recovers from sickness or in other words, the net worth of such company becomes equal to or exceeds the accumulated losses. This is an unambiguous and clear time frame during which whatever profits earned by the company shall be deducted, if at all there is any profit during some period or some months or due to some other units of the same company, then for calculation of book profits u/s 115JA, such profits of the sick period of such unit and such months or year shall be deducted.' Similar wordings has been given in the Income Tax Act enactment with regard to S2 (47)(xii) of the Income Tax Act. That section deals with Transfer of land by a sick industrial company managed by workers' cooperative and with effect from 1.4.1998, this newly inserted....
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....or deducted from a larger amount. He drew our attention to the meaning of "reduce" as given in Aiyar's judicial dictionary 11th edition which reads as follows: "Reduce to lessen in any way in size, weight, amount, value, price etc., to diminish, to lower as in rank or position, to decrease. 10. According to AR the word "reduce" is wide enough to include punishment or stoppage of increments in the future. [Longmal V Suptdt. of Police, AIR 1967 Raj 214: LLR (1996) 16 Raj 861]." If reduction or deduction as used by the Ld. CIT (A) are taken as synonyms, then obviously the reduction from the net profit of the year as shown in the profit and loss account prepared according to the provision of S.115JA (2) of the Income Tax Act, 1961. Coming to the question of similar wording used in S.47(xii) of the Income Tax Act, 1961 it is submitted by the AR that the context in which they are used are entirely different. While S.47(xii) is with reference to definition of "transfer" under capital gains tax during the period of sickness of the unit and is a positive act of alienation of property committed in that time frame, under Explanation to S.115JA (2)(vii), the context is with....
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....ed profits" or "carry forward profits". It is submitted that the objection of the CIT (A) on the words designedly omitted as stated by him are creation of his own imagination. The term "accumulated profits" is the same as amount of profits for the period covered by sickness. The term "carry forward profits" is a term unknown to statutes and definitely is not analogous to "carry forward of losses". He drew our attention to the 7th edition of Craises on statute law, page 107, wherein it was stated that "sometimes, if the meaning of an enactment is not plain, light may be thrown upon it by assuming that certain words "have been" annulled. According to the AR, herein the meaning of the enactment is very plain and hence resort to "words designedly omitted" is not warranted. 13. He submitted that according to the CIT(A), interpretation placed by the assessee is also to be rejected and he has given the reasons that if a company is sick for a large number of years a company maybe not be paying tax for large number of years as according to CIT (A) "in case of a company going sick for a large number of years like 50-100 years, if presumed to have allowance of such profits by carryi....
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....115JA (2)(vii) is concerned. The 'amount of profits' of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. 16. According to the AR, this reduction/deduction as stated in the enactment should be taken as the legislative intent. In this connection he drew our attention to the judgement of Supreme Court in the case of CIT vs Sodradevi 32 ITR 615. The logic is not difficult to perceive. The legislature in its wisdom has excluded the profits earned by a sick industrial company during the period of sickness from the rigour of S.115JA of the Income Tax Act, 1961 as succour to such companies by treating such profits as capital and not revenue nature. 17. He submitted that the CIT (A) stated that the benefit of doubt is to be given to the tax payer when there is a doubt in the interpretation of a statut....
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....he CIT (A) drew in his order. The Learned Authorized Representative for the assessee further submitted that the plain language of S.115JA is not what the CIT (A) claims in his order. In fact S.115JA does not state the year in which the company suffers sickness is the appropriate year for claiming exemption of such profits earned during the period of sickness. According to the AR, the assessee is entitled to claim the amount computed under explanation to S.115JA (2)(vii) as claimed by it. 20. The learned DR submitted that as per the language of the provision that the deduction is with reference to year of commencement of sickness and cannot go beyond the year when the company ceases to be sick. This is applicable to a company which is on the road to recovery when operating profits are reported for the year on a stand alone basis. But net worth continues to remain negative on account of accumulated losses. Such amounts are not to be claimed year after year as interpreted by the assessee. This provision is meant not to encourage sickness but to ensure that operating profits of a company during its period of sickness are not to be taxed as a measure of relief. According to DR....
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.... 2042223000 -3943917000 0 2042223000 -1901694000 3989486000 -8205352000 -12194838000 1997-98 3160680000 2146382000 1014298000 1014298000 0 0 2975188000 -8205352000 -11180540000 1998-99 3290317000 2158986000 1131331000 1131331000 0 0 1843857000 -8205352000 -10049209000 1999-00 5943468000 2371864000 3571604000 3571604000 0 0 0 -6477605000 -6477605000 2000-01 3035483000 2217242000 818241000 818241000 0 0 0 -5659364000 -5659364000 2001-02 5343305071 2291607268 3051697803 3051697803 0 0 0 -2607666197 -2607666197 23. Now the contention of the assessee's counsel is that the profit available for set off in the accounting year 1993-94 relevant assessment year 1994-95 at Rs. 375,30,28,000 being the profit earned in the earlier assessment year during the period of sickness is to be deducted from the book profit of assessment year 2000-01 i.e., present assessment year and according to him the year of assessment and the years of sickness need not be one and the same in view of the provisions of section 115JA/JB(2)(vii). Th....
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....e adjustment prescribed under this provision is under section 115JA(2)(vii)/JB (2)(vii). This provision is very clear and unambiguous. As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent (unsure) and do not manifest the intention of the Legislature. The words in the statute must, prima facie, be given their ordinary meanings. Where the grammatical construction is clear, manifest and without doubt, that construction ought to prevail unless there are some strong and obvious reasons to the contrary. It has to be reiterated that the object of interpretation of a statute is to discover the intention of parliament as expressed in the Act. The dominant purpose in constructing a statute is to ascertain the intention of the Legislature as expressed in the statute, considering it as a whole ....
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....counsel and the same is to be dismissed as devoid of merit in the assessee's appeals in ITA No.1261/H/2003, 446/H/2006, 447/H/2006 and 491/H/2007. 24. The next issue is with regard to exclusion of prior period expenditure from the net profit while computing both under normal computation and under section 115JA and 115JB. This issue is common in ITA Nos.465/H/2005, 447/H/06, 491/H/2007 and 243/H/2008 which is relevant to assessment years 2001-02, 2002-03, 2003-04 and 2004-05 respectively. 25. The learned AR for the assessee submitted that the CIT Vijaywada in his order dated 9.2.2005 passed u/s 263 for the asst. Year 1997-98 has verified the entire prior period expenses and allowed the same and particularly he drew our attention to the para 3.3 and 3.4 of the said order which is read as under: "The Learned Authorized Representative for the assessee further submitted that finance code wise, area wise detailed expenditure incurred in the assessment year 1997-98 pertaining to earlier years. For 14 areas and 22 financial code wise, details were furnished on various heads. The various heads are salaries, consumption of stores, and spares, coal transport, dep....
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....ills Co. Ltd. vs ACIT (60 ITD 99) wherein held that expenses relating to earlier years could be added back while computing book profits. He also placed reliance on the judgement in the case of CIT vs. Krishna Oil Extraction Ltd. 232 ITR 928 (MP) and ITO vs. Kanchan Ganga Estates P Ltd. 63 TTJ 553 (Mum). 28. We have head both the parties and perused the materials available on record. The above issue in assessment year 2000-01 is taken up by the CIT by invoking the provisions of S.263. In other assessment years it was disallowed while computing the assessment u/s 143(3). This prior period adjustment is disallowed while computing the income u/s 115JB in the assessment year 2000-01 and 2002-03 and under normal provision in the assessment year 2003-04 and 2004-05. In our opinion, earlier expenses debited to the profit and loss account of the years under consideration, the deduction of such expenses either from the book profit or from normal computation of income cannot be allowed. The incomes of the previous year under consideration alone have to be computed both under normal computation and u/s 115JA/JB. We find force in the argument of the departmental representative and rel....
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....an ascertained liability as mentioned u/s 115J of the Act and could not be excluded from the book profits. Accordingly the conclusion of the Tribunal in directing the Assessing Officer to rectify the alleged mistake of inclusion of the unascertained liability in the book profit could not be upheld. 33. He submitted that subsequent case law in this regard is pertinent and more relevant to the facts of this case. He relied on the judgement of the Supreme Court in the case of CIT vs. HCL Comnet Systems and Services Ltd. (2008) (305 ITR 409). 34. He submitted that the Finance Act 2009 introduced sub clause (1) to Explanation 1 to section 115JB (2) with retrospective effect from 1.4.2001 to the effect that any amount set aside as a provision for diminution in the value of any asset is a prescribed adjustment for computing income under MAT provisions. Since this amendment is retrospective in operation, effect has to be given to it in the assessment proceedings that are pending, before the Tribunal in the present case. He placed reliance on the Special Bench decision of the ITAT (Delhi) in the case of Aquarius Travels P Ltd. vs. ITO (111 ITD 53). Explaining the scope a....
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....arlier years has to be considered as advance tax paid and interest u/s 234B and C have to be calculated only after giving credit for the MAT tax u/s 115JA. 41. We have heard both the parties and perused the materials available on record. In our opinion, the interest u/s 234B is to be charged after allowing adjustment of MAT credit u/s 115JA/JB. We place reliance on the judgement of Madras High Court in the case of CIT vs. Chemplast Sanmar Ltd. and Other (314 ITR 231). This ground taken by the assessee is allowed. 42. Now we will take up the appeal in ITA No.464/H/2005 relating to assessment year 1997-98. 43. The first ground herein is with regard to invoking the provisions of section 263 of the IT Act and other grounds by the assessee is with regard to allowability of claim u/s 35E of the IT Act. 44. The AR submitted that the CIT(A) Vijayawada passed u/s 263 directing the Assessing Officer to allow entire prior period expenses and disallow the deduction u/s 35E in absence of profits to deduct the same. The AR further submitted that the assessment order is not erroneous in so far as prejudicial to the interest of the Revenue. The entire prior ....
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....scious decision to this effect was taken by the Assessing Officer. The CIT, on an examination of the records, found that the claim of the assessee was contradicted by clause (v) of section 35E. It stands to reason that such claims are not routine and that they were available for an examination by the Assessing Officer. When the facts demand an enquiry into a veracity of the claim and the assessment has been concluded without such an enquiry, this could amount to an error which is prejudicial to the interests of revenue within the meaning of section 263 of the IT Act. 46. He placed reliance on the following judgements: 1. Ashok Leyland vs. CIT (260 ITR 599 (Mad.) 2. Colocract Kashmira Ceramic Compound vs. ITO (105 ITD 599) (Mum) 3. Tejinder Singh Makker vs ACIT etc. 61 ITD 57(Mum-TM) 47. He submitted that the alternative ground of the assessee is that the expenditure is revenue in nature and hence qualifies for allowance u/s 37 is not acceptable. This is because prospecting expenditure in the mining sector is specifically provided for u/s 35E. This being so, it is specifically excluded by the opening words of sec.37 which specificall....
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....at order is prejudicial to the interest of revenue, which is the reason for invoking the provisions of S.263 by the assessing officer. We are placing reliance on the judgement of the Madras High Court in the case of Ashok Layland vs. CIT (260 ITR 599) and also the order of Mumbai Bench in the case Colocraft Kashmira Ceramic Compound vs. ITO (105 ITD 599) Mum. 50. The assessee has made alternative claim that it is a revenue expenditure and to be allowable u/s 37. This is not acceptable because, prospecting expenditure in the mining sector is specifically provided u/s 35E. This being so, it is specifically excluded by opening words of section 37 which is specifically exclude any expenditure that is provided for from section 32 to 36. 51. The assessee's counsel has also made a plea before us that even if allowed the total loss including the expenditure u/s 35E was carried forward set off as per section 72. According to AR, the CIT ignored these facts and gave a direction disallowing the expenditure u/s 35E. This argument of AR is misplaced. The unadjusted component of the expenditure u/s 35E has to be carried forward in accordance with the section 35E alone. This i....
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....ture of Rs. 119.4 lakhs incurred in earlier years, the AO has held that the deduction can be permitted in respect of those expenses and losses which are incurred in the relevant accounting year. The losses and expenses incurred before the commencement of that year cannot be the subject of any allowance. Irrespective of the nature of such expenditure, it is to be disallowed. Therefore, the entire expenditure of Rs. 119.4 lakhs expended on plantation during the previous year relevant to AY 2003-04 has been held not relating to assessment year under consideration. 55. The CIT(A) held that this is not the expenditure incurred on earlier years, but the current asset which came into existence in earlier year has been valued at market price instead of cost as adopted in earlier year. There is a change in method of valuation of current asset. The market value of the plantation was valued at 'nil' due to hostile terrain. 56. We have heard both the parties and also perused the material available on record. The main contention of the Revenue is that the expenditure on plantation does not create any trading asset. The Assessing Officer not considered the issue whether the e....