2019 (11) TMI 1077

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....tion, manufacturing & sale of tea. It also purchases tea leaves from third parties and carries out manufacturing process and sales tea so manufactured. While computing the book profit u/s 115JB of the Act for A.Y. 2009-10, the assessee had deducted Rs. 9,84,06,438/- being 60% of composite profit of Rs. 16,40,10,729/- which comprised of profit from growing, manufacturing & selling of tea as well as profit from sale of tea manufactured from tea leaves purchased from third parties. In the assessment completed u/s 143(3) vide an order dated 24.09.2012, the AO allowed this deduction as claimed by the assessee while computing the books profit u/s 115JB. The records of the said assessment came to be examined by the Ld. CIT and on such examination, he was of the view that the assessee was entitled for deduction while computing book profit u/s 115JB only to the extent of Rs. 2,09,11,766/- being 60% of the proportionate profit of Rs. 3,48,52,944/- relating to the activity of growing, manufacturing and selling of tea made from its own grown tea leaves. According to him, the income from sale of tea manufactured and sold from tea leaves purchased from third parties was from non-agricultural act....

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....was decided by the Tribunal on merit in favour of the assessee vide paragraph no. 20 to 24 which read as under: "20. We have given a very careful consideration to the rival submissions. It is no doubt true that the assessee had income from growing, manufacturing and sale of tea as well as income from tea leaves purchased from third parties which were processed /manufactured and sold by the assessee. In so far as the first category of income is concerned, the same has to be regarded as part of the composite income for the purpose of applying Rule 8(1) of the Rules. In so far as the second category of income is concerned it cannot be regarded as part of the composite income under rule 8(1) of the Rules. This position has been accepted by the assessee itself in the computation of the total income under the normal provisions of the Act. We have referred to the computation of the total income by the assessee under the normal provisions of the Act in the earlier part of this order. 21. Now the question is whether the position will change when it comes to computation of book profit u/s 115JB of the Act. In the context of section 115J of the Act, the CBDT in Circular No.4....

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....of the Rules, is nothing but income exempt u/s.10(1) of the Act and hence the same should be reduced from the book profits under Explanation 1 clause (ii) listing amounts to be reduced u/s 115JB of the Act. We are of the view that the stand taken by the revenue deserves acceptance. The CBDT in the context of Sec.115J of the Act had in CIRCULAR NO. 495 DATED 22ND SEPTEMBER, 1987 in para 36.4 taken the same view: "36.4 In the case of a tea company where income is derived from the sale of tea grown and manufactured by the seller, only 40 per cent of such income is liable to tax under r. 8 of the IT Rules, 1962. Sixty per cent of the income, which is disregarded for the purposes of taxation is considered to be agricultural income and is, therefore, exempt under the provisions of Chapter III. The net profit determined in accordance with Schedule VI to the Companies Act, 1956, has to be adjusted, inter alia, in accordance with cl. (f) and sub- cl. (ii) of the Explanation to s. 115J(1). In the case of the tea companies, the book profit should be computed by making all the adjustments referred to in the Explanation. However, no adjustment in respect of cl. (f) and sub-cl. (ii) of ....

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....hat the provisions of Sec.115J were being inserted so that all profitable companies pay some tax and hence a provision whereby every company will to have to pay a "minimum corporate tax" on the profits declared by it in its own accounts was being introduced. The Hon'ble Court thereafter held that for the said purpose, Section 115-J makes the income reflected in the companies books of accounts as the deemed income for the purpose of assessing the tax. The books of accounts of the company is prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The Hon'ble Court held that 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 th....