Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income Tax vs Varinder Agro Chemicals Ltd. on 31 January, 2007
Equivalent citations: (2007)107TTJ(CHD)842
ORDER
G.S. Pannu, A.M.
1. This appeal of the Revenue is directed against the order of the CIT(A), Ludhiana dt. 4th Aug., 2005 pertaining to asst. yr. 2000-01. In its appeal, the Revenue has assailed the order of the CIT(A) whereby the order passed by the AO under Section 154 of the Act has been cancelled insofar as it related to computation of income under Section 115JA of the IT Act, 1961 (in short 'the Act').
2. Briefly stated, the facts are that assessment in this case was completed under Section 143(3) on 31st March, 2003 at 'nil' income. In the return of income, the assessee had claimed deduction under Section 80-IA with respect to its power co-generation unit to the extent of gross total income available i.e. Rs. 2,47,11,686. In the P&L a/c of the power co-generation unit, the assessee had computed profits at Rs. 3,30,44,329. At the time of assessment, the AO determined the gross total income before allowing deductions under Chapter VI-A at Rs. 3,42,68,514 and the amount of deduction under Section 80-IA was accordingly allowed at Rs. 3,30,44,329. The assessment order, so finalized was rectified by the AO under Section 154 of the Act on 1st June, 2004. In the order passed under Section 154, the AO reworked the income of the assessee by allowing depreciation pertaining to power co-generation unit and paper units before allowing deductions under Section 80-IA of the Act whereas in the assessment originally finalized under Section 143(3), the deduction under Section 80-IA was allowed before allowing depreciation under Section 32 of the Act in relation to the power co-generation unit and paper units of the assessee. As a result of this adjustment, the gross total income arrived before allowing of deductions under Chapter VI-A (i.e. Section 80-IA regarding power co-generation unit also) came to a negative figure and hence deduction under Section 80-IA was not allowable. Simultaneously, in the order passed under Section 154, the AO also worked out the income under Section 115JA of the Act as under:
Computation of profits under Section 115JA Profits as per PBI account Rs. 3,23,00,114 Less profits of co-generation of power unit included in Nil the above as per Sub-clause (iv) of Explanation to Section 115JA(2) and para 5 above Profits under Section 115JA Rs. 3,23,00,114 Income under Section 115JA @ 30% of Rs. 3,23,00,114 Rs. 98,90,034
3. The assessee challenged the order passed by the AO under Section 154 with respect to the calculation of income under Section 115JA before the CIT(A). In appeal the assessee contended that the notice under Section 154 issued to the assessee was only with respect to the calculation of deduction under Section 80-IA as per originally allowed before allowing depreciation under Section 32 on machineries installed in the power co-generation unit and paper units of the assessee. That there was no specific notice issued by the AO for recalculation of book profits under Section 115JA of the Act. Secondly the assessee contested that the computation of book profits under Section 115JA made by the AO was not in accordance with provisions of Section 115JA. The CIT(A) has since upheld the stand of the assessee. The CIT(A) records a finding that there was no specific notice issued by the AO regarding his intention of re-calculating "book profits" under Section 115JA of the Act. The CIT(A) has also referred to and relied upon the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT to hold that the adjustments purportedly made by the AO under Section 115JA was not authorized. Lastly it is also inferred by the CIT(A) that since there were two reasonable views possible on the merits of the issue, the same is outside the purview of Section 154 of the Act. For all the above reasons, the CIT(A) has not sustained the order passed by the AO under Section 154 of the Act, against which the Revenue is in appeal before us.
4. Before us, the learned Departmental Representative has vehemently argued that the recalculation of the "book profits" under Section 115JA made by the AO was a consequential rectification. The learned Departmental Representative pointed out that after allowing the depreciation under Section 32 with respect to power co-generation unit, there does not remain any positive income and thus 'nil' deduction under Section 80-IA was allowable. This has been rectified in the order passed under Section 154 by the AO to which the assessee had no objection. Consequently, the "book profits" under Section 115JA were also required to be rectified, although in the notice issued by the AO under Section 154 dt. 30th April, 2004, no mention of recalculation of the book profits under Section 115JA has been made. The learned Departmental Representative also argued that the order of the CIT(A) was rather cryptic and did not bring out the controversy on hand.
In contrast, the earned Counsel for the assessee made a reference to the notice of the AO issued under Section 154 wherein the only rectification proposed was with respect to deducting depreciation before allowing deduction under Section 80-IA of the Act. There was no mention of any reworking of 'book profit' under Section 115JA of the Act. Earned Counsel also pointed out that in the assessment originally framed under Section 143(3), there was no computation of income in terms of Section 115JA and that such a computation has been made for the first time in terms of impugned order of the AO passed under Section 154 of the Act. On merits, the earned Counsel pointed out that in any case the adjustment made to the "book profits" under Section 115JA was contrary to the statutory provisions. For this proposition, the earned Counsel has relied upon the decision of the Kerala High Court in the case of CIT v. G.T.N. Textiles Ltd. as also the decision of the Mumbai Bench of the Tribunal in the case of Dy CIT v. Govind Rubber (P) Ltd. (2004) 82 TTJ (Mumbai) 615 : (2004) 89 ITD 457 (Mumbai). Reliance has also been placed on the decision of the Supreme Court in the case of Apollo Tyres Ltd. (supra).
5. We have considered the rival submissions carefully. First of all the facts which have a bearing on the dispute on hand. In the assessment originally framed under Section 143(3), the assessee was allowed deduction under Section 80-IA of Rs. 3,30,44,329 on a gross total income of Rs. 3,42,68,514. The AO noticed that the gross total income so computed was without taking into consideration, the depreciation allowable under Section 32 with respect to power co-generation unit and paper units of the assessee. For this purpose, the AO issued a notice under Section 154 dt. 30th April, 2004 proposing as under:
Deduction under Section 80-IA is to be allowed after allowing depreciation under Section 32 on machinery of co-generation power plant and paper unit.
The assessee filed a 'no objection1 to the above rectification. The AO in the order passed under Section 154 on 1st June, 2004 recomputed the gross total income at negative figure of Rs. 20,28,76,929 after considering the depreciation allowable in respect of power and units. Thus, no deduction under Section 80-IA was allowed.
6. It is pertinent to notice here that the assessee is eligible for 80-IA benefits in relation to the profits of power co-generation unit. In the P&L a/c, the assessee had declared net profits to the tune of Rs. 3,23,00,114. Now in the order passed under Section 154, the AO, by resorting to Clause (iv) of Explanation to Section 115JA(2) recomputed the amount of 'book profits'. From the amount of above net profit declared in the P&L a/c, the AO, in terms of Clause (iv) reduced 'nil', since no deduction was allowable to the assessee under Section 80-IA of the Act. This resulted in 'book profit' of Rs. 3,23,00,114 for the year under consideration. In contrast the stand of the assessee on merits in relation to the said adjustments is that what is required to be reduced in terms of Clause (iv) of Explanation to Section 115JA(2) is the profits as declared in the books of account of the eligible unit i.e. a sum of Rs. 3,30,44,729. This is the dispute on the merits of adjustment.
7. Before we adjudicate on the merits, we find that there is no defence to the plea of the assessee that the recalculation of book profits under Section 115JA was never the subject-matter of notice issued by the AO under Section 154 of the Act. We have perused the said notice and also the findings of the CIT(A) in this regard and find ourselves in agreement with the stand of the assessee. On this aspect itself, we are inclined to sustain the order of the CIT(A) that the impugned order of the AO passed under Section 154 to the above extent is untenable.
8. Now even with regard to the merits of the issue, we find that the pleas of the assessee have ample force. The Explanation below Section 115JA(2), Clause (iv) reads as under:
The amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or....
The amount referred above is to be reduced from the net profit, as shown in the P&L a/c for the relevant previous year prepared in accordance with para 2 and 3 of Sch. (VI) to the Companies Act, 1956 in order to compute 'book profits' for Section 115JA of the Act. The assessee contends that what is excludible is the amount of profits of the eligible undertaking computed by it in terms of the books of account and not in terms of the computation provisions of the Act. The Revenue, on the other hand, contends that what is excludible is the actual amount of deduction which is ultimately allowed in respect of such profits. In this regard, we find that a similar controversy arose before the Kerala High Court in the case of G.T.N. Textiles Ltd. (supra) in relation to the amount to be excluded in terms of Clause (iii) of the Explanation to Section 115J of the Act. Clause (iii) of the Explanation below Section 115J(1A) relates to the amount deductible from the net profit m relation to the profits which are eligible for deduction under Sections 80HHC or 80HHD of the Act, in order to compute 'book profits'. Section 115J also relates to taxation of 'book profits' in the case of a company incorporated under the Companies Act, 1956. The Explanation below 115J(1A) provided that 'book profit' means the net profit shown in the P&L a/c of the relevant previous year as increased or decreased by the adjustments specified therein. Clause (iii) of the Explanation provided that the amounts attributable to the business whose profits are eligible for deduction under Section 80HHC or 80HHD are deductible. In this context, the Hon'ble Kerala High Court observed that what is excludible is the profits which are eligible for deduction under Sections 80HHC/80HHD as determined in the manner provided in Section 115J itself i.e. net profit with reference to the P&L a/c for the relevant previous year prepared in accordance with the provisions of Parts II and HI of Sch. VI to the Companies Act, 1956 and it does not envisage merely the amount of deduction computed under Section 80HHC. According to the Hon'ble High Court, the presence of the expression 'profits' in Clause (iii) of the Explanation justifies the inference that the adjustments are in relation to the 'profit' shown in the P&L a/c and not as computed in the manner laid down in the Act. To the similar effect is the decision of the Mumbai Bench of the Tribunal in the case of Govind Rubber (P) Ltd. (supra).
9. Insofar as the present case is concerned, it relates to Clause (iv) of the Explanation below Section 115JA(2) of the Act. Section 115JA inserted w.e.f. 1st April, 1997 also seeks to impose tax on the 'book profits' of a company incorporated under the provisions of the Companies Act, 1956. The said section also refers to the 'net profit' as shown in the P&L a/c for the relevant previous year prepared in accordance with provisions of Parts II and IE of Sch. VI to the Companies Act, 1956 and subject to the adjustments as outlined in the Explanation below Sub-section (2). The erstwhile Section 115J is pari materia to Section 115JA which we are presently dealing with, insofar as it relates to the controversy on hand. In our view the parity of reasoning enunciated by the Hon'ble Kerala High Court in the case of G.T.N. Textiles Ltd. (supra) is squarely applicable in the instant case to understand the amount deductible in terms of Clause (iv) of the Explanation below Section 115JA(2) of the Act. Following the aforesaid, in our view, for the purposes of Clause (iv) of the Explanation to Section 115JA(2) it is not the actual deduction under Section 80-IA which is relevant but what is relevant is the profits of eligible undertaking computed in terms of the P&L a/c for the relevant previous year prepared in accordance with the provisions of Parts II and HI of Sch. VI to the Companies Act, 1956. Considering the order of the AO in the aforesaid light, the same clearly emerges to be untenable in the eyes of law.
10. Factually speaking, there is no dispute that the net profit of Rs. 3,30,44,729 has been computed for the power co-generation unit of the assessee is in terms of the P&L a/c prepared in accordance with the provisions of Parts II and IE of Sch. VI to the Companies Act, 1956. Therefore, in terms of Clause (iv) it is the amount of Rs. 3,30,44,729 that is deductible to arrive at 'book profits' under Section 115JAofthe Act.
11. We also find the action of the AO as untenable on another angle. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) has held, in the context of Section 115J, that the AO had no power to make adjustment to the 'net profit' as shown in the P&L a/c for the relevant previous year prepared in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956, except to the extent and the manner in which it is provided in the relevant section itself. The permissible adjustments to the 'net profit' as shown in the P&L a/c have been listed in the Explanation below Section 115J(1A) of the Act. The -analogy of the decision of the Supreme Court in the case of Apollo Tyies Ltd. (supra) is also squarely applicable to the section, we are presently dealing with, i.e. Section 115JA of the Act. As noted earlier, both the sections stand on equal footing insofar as they relate to the controversy on hand. In the scheme of Section 115JA also, the adjustments to the 'net profit' declared in the P&L a/c, which are permissible, to compute 'book profits' are so provided for in the Explanation below Section 115JA(2) of the Act. Clause (iv) of the Explanation merely allows reduction of 'amount of profits' derived by an industrial undertaking to compute the 'book profits' and not the amount of deduction computed under Section 80-IA of the Act. Therefore, the AO while reducing the amount of deduction allowed under Section 80-IA from the 'net profits' shown in the P&L a/c for the instant year prepared in accordance with the provisions of Parts II and III of the Sch. VI of the Companies Act, in order to compute 'book profit' squarely fell in error. The said action of the AO is clearly not warranted by the statutory provisions. Hence in terms of the ratio of the decision of the apex Court also, in the instant case, the AO exceeded his jurisdiction while computing 'book profits' under Section 115JA of the Act by seeking to exclude the actual amount of deduction allowable under Section 80-IA in contrast to the actual profits of the eligible unit.
12. In view of the aforesaid discussion, we hereby affirm the decision of the CIT(A) and stand of the Revenue is hereby dismissed.
13. In the result, appeal of the Revenue is dismissed.