TaxTMI 
TaxTMI 
1987 (2) TMI 89
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....sp; 11,20,536 2. Amount of statutory deduction as computed in Part III 13,30,765 3. Amount of chargeable profit (2-1) Deficit(-) 2,10,229 4. Income, profits and gains attributable to the business of manufacture of articles in paragraph 2 of the Third Schedule nil Part II : Computation of chargeable profits 11,20,536 Amount of chargeable profit carried to Part I 1,33,07,659 Part III : Computation of capital 9. Net amount of capital &nbs....
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....ITR 387 (Mad.), Sri Ganapathi Mills Co. Ltd. V. CIT [1974] 94 ITR 429 (Mad.), Vazir Sultan Tobacco Co. Ltd. v. CIT [1974] 96 ITR 734(Ap) and United Nilgiri Tea Estates Co. Ltd. v. CIT [1974] 96 ITR 734(Mad) and ITAT, Bench 'A' Ahmedabad's order dated 15-9-1975 in SPTA No. 1 (Ahd.) of 1974-75 in the case of Nagri Mills Co. Ltd. 3. While computing the capital the general reserve of Rs. 32,55,210 is reduced by Rs. 5,42,370 being the proposed dividend, in view of rule 1A in the Second Schedule inserted by the Finance Act, 1978. 4. It is further claimed that while computing net chargeable profits, surtax payable, if any, should be deducted from the business income. The surtax payable is not a business expenditure and, cannot be deducted from the business income. The surtax payable is not a business expenditure and, cannot be deducted from the business profits. Further there is no provision in the surtax Act for such deduction." The STO worked out the net chargeable profit of Rs. 4,96,941 in the following manner: Rs. "Total income as per assessment order dated 15-3-1978 &n....
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....0 ---------- 4. Increase of paid-up capital 2,22,222 9,20,500 --------- -------- Net chargeable profits 4,96,941"  ....
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....nd Schedule other reserves (including general reserve) have to be reduced by the amounts credited to such reserve as have been allowed as a reduction in computing the total income. The assessee-company is creating development rebate reserve at 75 per cent while development rebate is fully allowed. Hence, to the extent of the excess of the development rebate allowed over the development reserve, it can be said that the general reserve is more and hence the general reserve should have been reduced by such an excess. The excess of development rebate allowed over the reserve amounts to Rs. 2,87,540 as worked out below. This amount needs to be reduced from the general reserve." 7. The assessee resisted the action of the STO on the ground that according to it, the assessment is attempted to be reopened on mere change of opinion, since all the relevant material was placed before the STO at the time of the original assessment and the STO after scrutinising the same, had framed the assessment on 24-7-1978. It was, therefore, urged that the proceedings initiated under section 8(b) should be dropped. The STO, however, rejected the assessee's contention and framed the assessment under secti....
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....e as per rule 1(iii) of the Second Schedule. Assessee's representative also objected to the deduction of capital by the amount of development reserve made in excess of statutory requirement. As per rule 1(iii) of the Second Schedule, other reserves (including general reserve) have to be reduced by amounts credited to such reserves as have been allowed as a deduction in computing the total income. It is seen from the records, the assessee-company is creating development rebate reserve at 100 per cent. The development rebate is fully allowed in assessment. Hence, the general reserve requires to be reduced by the excess of statutory requirement, i.e., 75 per cent of the development rebate. Regarding computation of statutory deduction it is seen that a sum of Rs. 2,22,222 has been included as increased paid up capital in working of the capital base. In this respect it is argued by the assessee's representative that as per provisions of rule 1(iii) of the Second Schedule after the first day of the previous year the company increased its paid up capital and accordingly proportionate increase was made in its paid up share capital and nowhere in the provisions of the Second Schedu....
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....ppeals) is set aside on this point and the case is restored back to him for his decision on the ground taken by the assessee in respect of reopening of the assessment. Since we are setting aside the order, we also set aside the order on the aspect of merits with the direction that the Commissioner of Income-tax (Appeals) should consider the decision of the Bombay High Court in the case of CIT v. Century Spg. & Mfg. Co. Ltd. [1978] 111 ITR 6 and after giving an opportunity to both the parties pass the orders appropriately in accordance with law." 10. It appears that the Commissioner (Appeals) took his own time in passing a fresh order. In the meanwhile on 15-11-1984, the STO passed the following order giving effect to the order of the Tribunal: "The ITAT, Ahmedabad Bench 'A' has passed an appellate order on 11-10-1984 setting aside the Commissioner of Income-tax-V, Ahmedabad's Appellate order dated 29-9-1983. Thus, the ITO's order passed under section 6(2), read with section 8(b) of the Companies (Profits) Surtax Act passed on 16-12-1981 is restored. 2. Net chargeable profit worked out as per ITO's order dated 16-12-1981 remains to be unchanged at Rs. 5,47,917. The surtax p....
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....was served on the assessee on 19-11-1984. 11. Against the order of the STO dated 15-11-1984, the assessee once again filed an appeal before the Commissioner (Appeals) wherein, the grounds taken up read as under: "Your appellant being dissatisfied with the order passed by the learned Income-tax Officer, Ahmedabad, presents this appeal against the same on the following amongst other grounds: (1) The learned Income-tax Officer erred in passing order giving effect to Appellate Tribunal order and determining chargeable profit at Rs. 5,47,917. Your appellant submits that the Appellate Tribunal has set aside the entire order of the Commissioner of Income-tax (Appeals), only for limited purposes, having for his decision as regards challenge to the re-opening of the assessment and to consider whether the assessee's case falls within the ratio laid down in the case of CIT v. Century Spg. & Mfg. Co. Ltd. [1978] 111 ITR 6 (Bom.). Your appellant, therefore, submits that the Income-tax Officer has exceeded his jurisdiction while passing the above order. It is submitted that it be so held now and the order passed by the Income-tax Officer be cancelled now." 12. Thereafter, on 1-10-198....
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....e in order to grant statutory deduction as contemplated under section 2(8). As regards inclusion of the excess development rebate reserve of Rs. 2,87,540 in the capital base reliance was placed on a circular issued by the CBDT viz. No. 53 (F. NO. 7/2/68-TPL), dated 11-1-1971. It was, therefore, urged that even on the merits of the case, the STO was not justified in reducing the capital base by the amounts of Rs. 2,22,222 and Rs. 2,87,540. 14. Relying on certain reported decisions mentioned in his order under appeal, the Commissioner (Appeals) held that the reopening of the assessment was valid and that the STO was fully justified in reducing the capital base by the aforesaid two amounts. In other words, the Commissioner (Appeals) dismissed the appeal preferred by the assessee. 15. Being aggrieved by the order of the Commissioner (Appeals), the assessee has again come up in appeal before the Tribunal. 16. The learned counsel for the assessee strongly argued that the STO was not justified in reopening the assessment under section 8(b) on mere change of opinion on the material which were already considered by him in the assessment originally farmed. In this connection, he fur....
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....base for the purpose of granting statutory deduction as contemplated under section 2(8). He, therefore, submitted that since both in respect of the initiation of the proceedings under section 8(b) and determination of the capital base for the purpose of granting statutory deduction under section 2(8) the order of the STO passed on 16-12-1981 was had in law, the Commissioner (Appeals) ought to have set aside the same instead of confirming it in the manner he did. 17. The learned representative for the department, on the other hand, strongly relied on the orders of the surtax authorities and justified their action. According to him, in view of the aforesaid decision of the Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society Ltd. the STO was fully justified in reopening the assessment under section 8(b), on the basis of the internal audit report. He further submitted that even though the aforesaid decision of the Hon'ble Madras High Court in the case of Sundaram Clayton Ltd. was rendered on 21-10-1981, i.e., after the STO initiated the proceedings under section 8(b), the same clearly supports the action of the STO in reopening the assessment under section 8(b). ....