TaxTMI 
TaxTMI 
2006 (10) TMI 179
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....a/c for the said assessment year. 2. That, since the appellant's P&L a/c for asst. yr. 1997-98 was prepared in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956, as required by s. 115JA(2) of the IT Act and as the same has not been disputed by the learned AO or by the learned CIT(A), they were not justified in going beyond the net profit of Rs. (-)30,32,03,000 as shown therein and computing the 'correct net profit' of Rs. 90,06,97,000 for the purpose of computation of its 'book profit' for asst. yr. 1997-98. 3. That, on the facts and in the circumstances of the case, both the learned AO and the CIT(A) erred in holding that there was an apparent mistake within the meaning of s. 154(1) of the IT Act in the net profit of Rs. (-)30,32,03,000 as per the appellants P&L a/c for asst. yr. 1997-98 and in that view they erred in rectifying the said net profit by adding to it a sum of Rs. 1,20,39,00,000 crores for the purpose of computing its 'book profit' under s. 115JA of the IT Act." 3. The facts of the case are that for the year under consideration the assessee filed a return showing total loss of Rs. 7,01,31,754. The AO in the order dt. 30t....
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....Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) as relied upon by the assessee company is not applicable to the facts and circumstances of the instant case. In the above referred case, Hon'ble Court has discussed the issue regarding recomputation of book profit on account of disallowance of claim on account of depreciation. In the instant case, the question of correction of net profit is concerned. The fact and circumstance of the above referred case are, therefore, distinguished from the instant case. Subject to the above observation, order passed under s. 143(3)/251, dt. 7th April, 2003 is rectified under s. 154 as under. Penalty proceeding under s. 271(1)(c) is initiated separately for evasion of tax on book profit. Total income as per order under s. 154 dt. 31st Dec., 2001 Rs. 29,22,49,264 Calculation of book profit under s. 115JA : Net profit as per P&L a/c (-) Rs. 30,32,03,000 Add: Excess collection of processing charges from the certificate holders (Rs. 120.39 crores are in....
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.... Rs. 31,87,05,530" 4. The CIT(A) vide his order dt. 17th Feb., 2006 upheld the addition of Rs. 120.39 crores against which the assessee is in appeal. The CIT(A) deleted the addition of Rs. 26.42 crores made by the AO for provision of doubtful debts and Rs. 15.36 crores made by the AO for diminution in the valu9 of investment. The Revenue is in appeal against the relief allowed by the CIT(A). 5. At the time of hearing before us, the learned counsel for the assessee argued at length. He stated that the AO has made the addition merely on the ground that the assessee has claimed the deduction for the amount of Rs. 120.39 crores twice, once in asst. yr. 1996-97 and again by debiting the amount in the books of account in asst. yr. 1997-98. It is stated by the learned counsel that the AO has not appreciated the facts of the case properly. He submitted that the assessee is a residuary non-banking finance company (NBFC). Its business consisted of collection of subscriptions from the public in terms of various small saving schemes floated by it. Along with its first year's subscription from ....
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....e same to the P&L a/c. The assessee had treated the above liability of Rs. 771.22 crores as deferred obligation and debited the same in the books of account in several instalments during the financial years 1996-97 to 2000-01, the details of which are as under: Financial year 1996-97 Rs. 120.39 crores Financial year 1997-98 Rs. 325.15 crores Financial year 1998-99 Rs. 65.00 crores Financial year 1999-2000 Rs. 65.00 crores Financial year 2000-01 Rs. 195.68 crores ----------------- Total: Rs. 771.22 crores  ....
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....stake which is apparent from record. The issue of debatable nature is out of the purview of the rectification of mistake under s. 154. The view taken by the AO certainly does not fall within the ambit of rectification of mistake under s. 154. Therefore, the order of the AO passed under s. 154 should be quashed. 8. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below. He stated that the assessee has claimed the deduction of Rs. 120.39 crores twice, once in asst. yr. 1996-97 by way of claiming the deduction of Rs. 613.20 crores which includes the sum of Rs. 120.39 crores and, secondly, again by way of debiting the same to the P&L a/c for asst. yr. 1997-98. Such double deduction is not permissible and, therefore, the AO was fully justified in adding the same while computing the book profit for the purpose of s. 115JA With regard to rectification of mistake under s. 154, he stated that when the original assessment was completed under s. 143(3), the total income determined by the AO was Rs. 152.26 crores, which was much more than the book profit. Therefore, the applicability of s. 115JA was not considered. Even in the order....
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....ion charges permitted by the RBI. The RBI also directed the assessee that the processing charges already collected in excess of prescribed rate should be credited to the accounts of the certificate holders. On the basis of such direction of the RBI, the assessee claimed the deduction of Rs. 613.21 crores in asst. yr. 1996-97. The amount of Rs. 613.21 crores was in respect of excess collection pertaining to three years, the details of which are as under: Assessment year Excess amount of collection of processing charges 1993-94 Rs. 105.98 crores 1994-95 Rs. 202.25 crores 1995-96 Rs. 304.98 crores ----------------- &....
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....he amount deductible for income-tax purposes. In this connection, we would like to refer to a recent judgment of the Supreme Court in the case of Bharat Earth Movers Ltd. vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC). In this particular case also, the issue was the allowability of the liability in respect of leave salary accruing to the employees of that assessee company by virtue of their rendering of services during that particular year. The leave salary was certainly not payable during the year but was required to be accounted for by way of actual payment of the amount or adjustment against the leave taken by the employees in some future year. The Supreme Court however held by reversing the judgment of the Karnataka High Court that the assessee would be entitled to deduction in respect of the provision made by the assessee company for meeting the liability towards leave encashment, proportionate to entitlement earned by the employees of the company subject to the ceiling on accumulation as applicable on the relevant date. The Supreme Court gave a clear verdict that the liability could not be held as contingent liability simply on the ground that it was required to be....
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....h 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. (2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956)." Thus, if 30 per cent of the book profit exceeds the total income of the assessee as computed under the IT Act, then 30 per cent of book profit shall be deemed to be the total income of the assessee. As per sub-s. (2) of s. 115JA, the assessee has to prepare the P&L a/c in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. Hon'ble apex Court in the case of Apollo Tyres Ltd., while examining the provisions of s. 115J held as under: "The AO, while computing the book profits of a company under s. 115J of the IT Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO, thereafter, has the limited power of maki....
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....ed under the Companies Act. It is also not the case of the AO that the P&L a/c and balance sheet are not prepared as per the provisions of Parts II and III of Sch. VI to the Companies Act. As per the audited P&L a/c, which is duly certified by the statutory auditor, the net loss was Rs. 30.32 crores. As per the above decision of Hon'ble apex Court, the AO cannot modify the profit shown in the P&L a/c except to the extent provided in the Explanation. Explanation to s. 115JA reads as under: "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....
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....ns of IT Act and not under s. 115JA. The assessee has already claimed the deduction of Rs. 613.21 crores while computing the total income for asst. yr. 1996-97. In the year under consideration, it has again claimed the deduction of Rs. 120.39 crores while computing its total income. The same is disallowed by the AO. If the assessee files the appeal against the addition of Rs. 120.39 crores to the total income, then Revenue would be quite justified in contending that the deduction of Rs. 120.39 crores is claimed twice while computing the total income of the assessee. However, so far as the computation of book profit is concerned, the claim of deduction from the book profit is only once and not twice. In view of the above, we respectfully, following the decision of Hon'ble apex Court in the case of Apollo Tyres Ltd., hold that the AO was not justified in making the addition of Rs. 120.39 crores to the book profit. The same is directed to be deleted while computing the book profit of the assessee for the purpose of s. 115JA of the IT Act. ITA No. 449/Kol/2006-Asst. yr. 1998-99 (Assessee's appeal): 12. At the time of hearing, both the parties agreed that the grounds raised in the....