Income Tax Appellate Tribunal - Hyderabad
M/S. Sujana Universal Industries Ltd., ... vs Assessee on 11 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
I.T.A. No. 877/HYD/2012
Assessment Year: 2006-07
M/s. Sujana Universal Dy. Commissioner of
Industries Ltd., Vs Income Tax,
HYDERABAD Circle-3(2),
[PAN: AACCS8630H] HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri P. Murali Mohan Rao, AR
For Revenue : Shri D.Sudhakar Rao, DR
Date of Hearing : 06-01-2015
Date of Pronouncement : 11-03-2015
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee filed against the order of the Commissioner of Income Tax-III, Hyderabad dated 29-03-2012 u/s.263 of the Income Tax Act (Act). Assessee has raised various grounds running to 15 in number contesting not only the jurisdiction to initiate proceedings u/s.263 but also various proposed additions/directions give by the CIT in the order. Assessee also filed precise grounds of appeal which are as under:
"1. The Commissioner of Income Tax erred while proposing the addition of Liquidate damages Rs.194.63 Lacs as a prior period item by way of crediting to P&L A/c U/s.41(1) under normal provision of the Income Tax Act, 1961.ITA No. 877 /Hyd/2012
:- 2 -: M/s. Sujana Universal Industries Ltd.,
2. The Commissioner of Income Tax erred while proposing the addition of prior period items Rs.2,828.32 Lacs to book profit U/s.115JB of the Income Tax Act, 1961.
3. The Commissioner of Income Tax erred while proposing the addition of outstanding interest payable to IDBI Rs.584.80 Lacs and IFCI Rs.985.39 Lacs under Section. 43B of the Income Tax Act, 1961.
4. The assessee may add, alter, or modify or substitute any other points to the Grounds of appeal at any time before or at the time of hearing of the appeal".
2. Briefly stated, assessee-company filed its return of income admitting income at Rs.1,79,90,895/- (before set-off of loss) under the normal provisions of Income Tax Act, 1961 and income of Rs.17,05,76,352/- under the provisions of Section 115JB of the Act. Assessing Officer completed the assessment u/s.143(3) on 15-07-2009 determining income at NIL after set-off of brought forward losses and accepting the income returned under the provisions of Section 115JB. As seen from the assessment order, the assessment has been completed after directing assessee to get its accounts audited as per the provisions of Section 142(2A). Assessing Officer also asked for various details and Assessing Officer completed assessment after making disallowances of ROC fees, GDR issue expenses and disallowance u/s.40(a).
3. Ld.CIT after examining the assessment record has come to a conclusion that order passed by Assessing Officer is erroneous and prejudicial to the interest of Revenue as Assessing Officer had not verified the credit of prior period expenditure which should have been considered under the provisions of Section 41(1) and also under the provisions of Section 115JB. He also noticed that certain interest to financial institutions claimed by assessee should have been disallowed u/s.43B of the Act. Accordingly, he issued a notice asking assessee to ITA No. 877 /Hyd/2012 :- 3 -: M/s. Sujana Universal Industries Ltd., file its objections if any. Assessee filed detailed written submissions against the proposed revision, point-wise to submit that Assessing Officer has asked for details of the prior period adjustments and also the financial interest claims made and there is no omission from assessee. Further, it was submitted that special audit also had examined issues in detail and had not proposed any disallowance or additions under the above two heads. Assessee relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd., Vs. CIT [243 ITR 83] for the proposition that assessee having submitted the required details asked for and accordingly assessment order has been passed, CIT does not acquire jurisdiction by mere changing of opinion. It was contended that the order cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is un-sustainable in law.
4. Ld.CIT however did not accept the same. As far as jurisdiction is concerned, he has rejected the same on the basis of the decision of full bench of the Gauhati High Court in the case of CIT Vs. Shri Jawahar Bhattacharjee in ITA No.02/2008 dt. 07-02-2012 [ 2012 (4) TMI 222 (Gau.) (HC)] Vide para 7 & 8 of the order of Ld.CIT discussed that assessee did not adduce any documentary evidence in support of its contentions and therefore he held that the objections of assessee against assumption of jurisdiction are devoid of merit.
5. Coming to the issues taken up by Ld.CIT, on the issue of taxability of prior period income of Rs.28,28,29,474/- and u/s.41(1), the CIT directed that an amount of Rs.194.63 Lakhs representing liquidated damages should be brought to tax under the normal provisions of the IT Act. However, the CIT gave direction to include the entire amount of prior period income for the purpose of Section 115JB computation and ITA No. 877 /Hyd/2012 :- 4 -: M/s. Sujana Universal Industries Ltd., directed the Assessing Officer to adopt the base figure of Rs.37,78,82,427/- as against base figure of Rs.17,05,86,352/- adopted by assessee in its computation.
6. Coming to the issue of disallowance u/s.43B, assessee's claim of deemed payment of Rs.5,84,80,000/- payable to IDBI which was converted into equity and similar amount of Rs.985.39 Lakhs payable to IFCI which was also converted into equity was not allowed and directed Assessing Officer to disallow the above amounts u/s.43B, relying on the CDBT Circular No.7/2006 dt.17-07-2006. Assessee is in appeal against the directions given by CIT both under normal computation as well as under the provisions of Section 115JB.
7. Ld.Counsel referring to the Paper Book filed in this regard stated that company's Books of Accounts were audited under the Companies Act. Further Assessing Officer has directed a special audit under the provisions of I.T. Act and also issued show cause notices and assessee clarified the amounts credited to P&L A/c as prior period expenditure. It was explained that the same is not an income under the provisions of Section 41(1) as assessee has not claimed any interest as deduction in earlier years, as the same was governed by the provisions of Section 43B. Therefore, direction of the Ld.CIT in adding the amount of Rs.194.63 Lakhs is not correct on the facts of the case.
8. Coming to the issue of disallowances u/s.43B of the payments deemed to have been paid on conversion of equity, Ld.Counsel pointed out that the Board circular referred to by the CIT is applicable only when the amounts payable are converted to loans or borrowings and not into equity. It was submitted that the banks have converted the amounts into equity and since the same were allotted to the said banks, the ITA No. 877 /Hyd/2012 :- 5 -: M/s. Sujana Universal Industries Ltd., interest to that extent has to be considered as 'actual payment' under the provisions of Section 43B. It was submitted that this issue was also examined by the Assessing Officer and therefore, CIT has no jurisdiction to direct the same for disallowances.
9. Ld.Counsel further submitted that as far as the applicability of prior period income of Rs.28,28,29,474/-under the provisions of Section 115JB, the direction of the CIT is not tenable as Sub-section 2 of 115JB does not specify the addition of prior period income. Assessee's computation being that year's profit is according to the provisions of the Act. Further, it was submitted that assessee did not make any claim or got any benefit in earlier years as most of the amounts were treated as 'Deferred Revenue Expenditure' and there is no impact on computation of 115JB in earlier years. Consequently, the treatment of the above amount as prior period income during the year should not affect the computation of 115JB.
10. At our instance, Ld.Counsel also placed on record the computations, annual reports of earlier three years so as to examine the claims of not claiming the amounts treated as prior period income during the year.
11. Ld.DR however, defended the order of the CIT both on the facts and on law.
12. We have considered the rival contentions and perused the Paper Book placed on record. As far as the issue of expenditure of interest is concerned, the Assessing Officer has enquired vide his letter dt.03-07- 2009 and assessee replied vide letter dt.09-07-2009 including the ITA No. 877 /Hyd/2012 :- 6 -: M/s. Sujana Universal Industries Ltd., detailed note on the claim of interest u/s.43B. Submissions of assessee are as under:
"The claim of Interest Rs.584 lacs paid to IDBI for the asst. year 2006-07 previous year 2005-06.
The Company had debited an amount of Rs.27,63,75,174/- to Profit & Loss Account during the previous year 2004-05 for Assessment Year 2005-06 towards interest and other financial charges including interest on term loans and not claimed in Income tax return under Sec.43B due to non payment of the same.
IDBI on Term Loan 15,13,41,984
IDBI on working capital 5,23,16,720
IFCI 7,27,16,470
---------------------
27,63,75,174
---------------------
The company had made representations to Financial Institutions for the restructure of Term liabilities of principal and overdue interests up to 31.3.2005 keeping in view of the difficult financial position.
IDBI has restructured the term liabilities of the Company up to a cut off date i.e., 31st March, 2005 with reduced rate of interest @ 8%. Accordingly, the over due interest up to 31st March, 2005 was converted into Equity and CRP Shares of the Company.
Accordingly as per the restructuring packages of IDBI, the interest for the financial year 1.4.04 to 31.3.05 (AY 05-06) has been worked out to Rs.5,84,80,000 lacs @ 8% p.a as against 1513.42 lacs and the same has been converted into equity capital of the company by IDBI and the excess of interest over 8% was waived.
A copy of the sanction of restructuring of liabilities vide letter dt.28.05.2005 and 29.10.2005 is enclosed herewith for your information.
As such during the assessment year 06-07, the interest paid to IDBI to Rs.584.80 lac pertaining to 05-06 has been claimed as deduction under Sec.43B as the same has been restructured.
For the Assessment Year 2006-07 During the assessment year 2006-07 the company had debited an amount of Rs.24,56,24.260 to Profit & Loss account as follows:ITA No. 877 /Hyd/2012
:- 7 -: M/s. Sujana Universal Industries Ltd.,
Term loans
IDBI 584.80
IFCI 985.39
UCO Bank 2.84
Bank of India 2.42
Sub total 1575.45
Interest on working capital & 880.79
other financial charges
Total Interest debited
Out of the above IDBI had converted the interest of Rs.584.80 into CRPS/Equity of the company.
Regarding payment of interest to IFCI Limited of Rs.985.39, IFCI while restructuring the term liabilities vide their letter No.HRO.E.129/2006/2006-688 dt. 21.07.2006, the interest out standing up to the cut off date i.e., February, 2006 was reduced to Rs.1200 lacs and the same be converted into Optional Fully convertible Debentures (OFCD) which are subsequently be converted into Equity shares of the company.
Accordingly the interest liability as follows:
Interest for the asst. yr.2005-06 7,27,16,470
Interest for the asst. yr.2006-07 9,85,39,389
Total interest payable 17,12,55,859
IFCI agreed interest dues 12,00,00,000
Interest claimed as expenditure
in asst. year 2006-07 9,85,39,859
To be claimed 2,14,60,141
13. Thus, as can be seen from the replies given by assessee during the course of scrutiny, the claim of allowance u/s.43B of the above amounts stated to have been converted to equity was examined by the Assessing Officer and allowed. The reliance of Ld.CIT on the Board circular is not correct as the Board circular refers to conversion of outstanding interest payable into loans or borrowings, but not to equity. The explanation 3C to Section 43B also refers conversion to loans and borrowings but not to equity. In view of this, the CIT's reliance on the Board circular so as to ITA No. 877 /Hyd/2012 :- 8 -: M/s. Sujana Universal Industries Ltd., reject assessee's claims of constructive payment of above amounts cannot be approved. Since this issue was also examined by the Assessing Officer in the course of assessment proceedings and having accepted as a constructive payment, the opinion of the CIT can only be considered as change of opinion. Therefore, to that extent of direction of the CIT given to Assessing Officer for disallowing the above amounts vide para 11 & 12 of Rs.5,84,80,000/- on amount of interest payable to IDBI and on Rs.985.39 Lakhs on amounts payable to IFCI, which were indeed converted into equity cannot be approved. To that extent, the directions in para 11 & 12 of Ld.CIT are set aside.
14. Coming to the issue of addition of liquidated damages, Ld.CIT gave a finding that an amount of Rs.194.63 Lakhs representing liquidated damages were allowed in earlier years as a deduction and hence provisions of Section 41(1) applies to the above amount. It was the contention of assessee that this amount has never been claimed as deduction. It was further submitted that interest and liquidated damages were levied by the bank together and those amounts were charged to P&L A/c. Since no amount was allowable u/s.43B, as there was no payment, assessee has not claimed any deduction. We have verified the statement of dues and interests on the loans obtained by assessee during the period and the statement given by assessee is as under:
( in Rs lakhs ) Particu Amount Dues June Total Restricted Waiver of Total lars of Loan qtr Dues March 2001- 2002-03 2003- 2004- upto @8% Int LD Waivers 01 02 04 05 31.3. 2003 2003 03 -04 -04 1 2 3 4 5 6 7 8 9 6-
(7+8+
9) (1+2 +3) Corpor 75.00 0.23 18.45 17.78 16.51 4.75 57.72 36.4 6.00 1.50 13.76 2.0 15.84 ate 6 8 Loan-I ITA No. 877 /Hyd/2012 :- 9 -: M/s. Sujana Universal Industries Ltd., EFS 0.00 0.21 0.04 0.02 0.00 0 0.27 0.27 0.00 0.00 0.00 0.0 0.01 1 PFS- 485.00 19.54 85.98 108.13 100.14 29.25 343.0 213. 38.8 9.67 80.92 12. 93.28 BDE 4 65 0 36 PFS- 2500.00 108.22 361.41 480.16 454.42 128.0 1532. 949. 200. 49.8 332.6 55. 387.82 ADE 4 24 78 00 6 0 22 STL- 2000.00 30.95 143.10 191.00 331.84 91.66 788.5 365. 160. 39.8 223.6 28. 252.03 WCL 5 05 00 9 1 42 STL 750.00 79.86 355.55 292.04 128.73 35.74 891.9 727. 60.0 14.9 89.51 32. 121.66 1 44 0 6 15 CORPO 1500.00 65.94 287.74 293.43 276.93 78.12 1002. 647. 120. 29.9 205.1 36. 241.25 RATE 16 11 00 2 3 12 LOAN-
II FITL 191.23 465.60 127.2 784.0 191. 0.00 0.00 592.8 28. 621.10 4 7 23 4 26 total 7310.00 304.94 1252.2 1573.79 1774.1 494.8 5399. 3130 584. 145. 1538. 194 1732.99 6 7 0 96 .99 80 80 37 .62 Less: 7.50 Cash Paid 1725.49
15. Since liquidated damages and interest were charged together and as assessee got waiver of the same, we are unable to understand how Ld. CIT could give a finding that liquidated damages were allowed. Provisions of I.T.Act do not permit payment of interest or any penalty thereon in the form of liquidated damages, unless they are paid under the provisions of Section 43B. As seen from the computation of earlier years, out of total claim payable by assessee, assessee charged part amounts in the P&L A/c under the head 'Financial Expenses' and part of it was deferred. The amounts were disallowed in the computation of Income Tax as 'the amounts not paid'. As seen from the order of CIT, he has not given any finding that the interest was allowed in earlier years. Therefore, we are of the opinion that his finding of 'liquidated damages were allowed' is without any merit. As seen from the statement filed before us, we prima facie agree with assessee that no claim of liquidated damages were allowed in earlier years. However, we could not give any clear finding on this issue as assessee converted part interests into deferred revenue expenditure and claimed only part in the P&L A/c and disallowed the amounts. These amounts require reconciliation year-wise ITA No. 877 /Hyd/2012 :- 10 -: M/s. Sujana Universal Industries Ltd., and as more than three years are involved, we cannot delete the same outrightly. Therefore, we modify the order of the CIT i.e., the direction to Assessing Officer to disallow the amount outright to a direction to the Assessing Officer to examine the amounts and to consider the amounts which were allowed as deduction earlier years as income u/s.41(1) in this year. To that extent, CIT's direction is modified and assessee's ground is allowed for statistical purposes. Assessing Officer is directed to examine the amounts claimed in the P&L A/c and disallowed in the computation of income, then only arrive at any addition u/s.41(1) to the extent of amounts allowed in earlier years. He should reconcile the amounts and should not disallow, without examining the issue, on the pretext of amounts are not tallying as was done in consequential order.
16. The last issue to be considered is about the direction of the CIT on the inclusion of prior period income of Rs.28,28,29,474/- under the provisions of Sec.115JB. During the year, assessee got waiver of interest and also conversion of some of the outstanding amounts to equity under the restructuring scheme with the banks. Consequently, assessee has written back an amount of Rs.28,28,29,474/- in the P&L A/c as prior period income, generally known as below the line adjustments. Assessee's profit before taxation as per P&L A/c stood at Rs.17,05,76,352/-. This is the amount which was adopted by assessee for the purpose of 115JB and also accepted by the Assessing Officer in the order u/s.143(3). However, in the P&L A/c after arriving at the profit before taxation, assessee made various provisions for income tax, deferred tax liability and arrived at profit after taxation of Rs.9,50,52,953/-. Thereafter, assessee added amount of prior period adjustment at Rs.28,28,29,474/-. By further increasing the balance from the brought forward profit of Rs.80,81,17,143/-, profit available for appropriation was arrived at Rs.56,99,99,569/-. Ld.CIT after discussing ITA No. 877 /Hyd/2012 :- 11 -: M/s. Sujana Universal Industries Ltd., the issue on legal principles directed the Assessing Officer to adopt the amount at Rs.37,78,82,427/- in his order at para 10 as under:
"10. With regard to the issue of taxability of prior period income of Rs.28,28,29,474/- under the specific provisions of section 115 JB of the I.T.Act, 1961, the contention of the assessee is not tenable. Sub- s.(2) of s.115JB provides that every assessee company shall prepare its P&L a/c in accordance with the provisions of Part-II and Part-III of Sch.VI to the Companies Act, 1956. The said Sch.VI does not make any distinction between P&L a/c and P&L appropriation account (after considering extra ordinary items and prior period adjustments). In fact the Schedule does not speak of the appropriation account at all. It is only as a matter of presentation that most of the companies segregate to reflect as to what has been appropriated out of the profits earned by them. Further, sub-cls.(a) and (b) of cl.(viii) of Note II in para 3 of Part II of Sch.VI specifically provide that the aggregate amounts set aside or proposed to be set aside to reserves should be distinctly shown in the P&L a/c. Similarly, sub-cl(b) and sub-cls(a) and (b) of cls.(xii) and (xiii) respectively in Note II of part II of Sch. VI provide that profits or losses in respect of transactions not usually undertaken or undertaken in exceptional circumstances or which are of non- recurring nature should be shown in the P&L a/c. The aggregate amount of dividends paid and proposed is also to be shown in the P&L a/c. All the above items discussed above are classified in the appropriation account and are necessarily to be included in the P&L a/c prepared as per Parts II and II of Sch. VI to Companies Act.
10.1 Therefore, the starting point for computation of book profits for the purposes of s.115JB should be the final balance in the P&L a/c carried to balance sheet (after considering prior period adjustments and extra ordinary items). For the above proposition, reliance is placed on jurisdictional ITAT's decision in the case of Gulf Oil Corporation Ltd Vs. ACIT reported in 111 ITD at pp.124 and the decision of Hon'ble Delhi High Court in the case of CIT Vs. Khaitan Chemicals and Fertilizers Ltd (2008) reported in 307 ITR at Pp.150.
10.2 It may also be noted from the above discussion that even extraordinary items and prior period adjustment have to be taken to the P&L a/c. The starting point adopted as above has to be increased by the items specified in cls. (a) to (f) of Explanation 1 and has to be reduced by the items specified in cls.(i) to (vii) given in the said Explanation. No other adjustment is permitted by law as laid ITA No. 877 /Hyd/2012 :- 12 -: M/s. Sujana Universal Industries Ltd., down by the Supreme Court in the case of Apollo Tyres. None of the clauses given in the Explanation provides for the increase or decrease of the book profits by extraordinary items and prior period adjustments. The AS-5 merely says that prior period and extraordinary items should be separately disclosed along with their nature so that their impact on the operating results can be properly gauged. It does not say that they are not part of the P&L a/c. Similarly, the Guidance Note issued by the ICAI also does not help the case of the assessee, as it merely says that sometimes, appropriation account is included as a separate section of the P&L a/c. But, as discussed above, Parts II and III of Sch. VI to the Companies Act do not speak of appropriation account at all. In the light of the above discussion, it was in accordance with law for the Assessing Officer to have taken Rs.37,78,82,427/- as the base figure to compute the book profits for the purpose of section 115JB as against the base figure of Rs.17,05,76,352/- adopted by the assessee company.
10.3 In view of the foregoing, the Assessing Officer is directed to recompute book profits of the assessee company by adopting Rs.37,78,82,427/- as the starting point and the same is to be increased by the items specified in clauses (a) to (f) and has to be reduced by the items specified in clauses (i) to (vii) given in the explanation".
17. As far as principle of law is concerned, we have to uphold the order of the CIT that the computation for the purpose of 115JB should not start from the 'profit for the year' but from the 'final balance in the P&L A/c carried to balance sheet'. The case law relied upon by Ld.CIT in para 10.1 is directly on the issue. Hon'ble Delhi High Court in the case of CIT Vs. Khaitan Chemicals and Fertilizers Ltd., reported in 307 ITR 150 has held as under:
"Accounting starndards are recommended by the Institute of Chartered Accountants of India. Accounting Standard (A-5) stipulates that prior period items are income or expenses which arise "in the current period" as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. Therefore, the income or expenses relatable to prior period items are those which arise in the current period, i.e., the period relavant for the purpose of computing the net profit or loss. Prior period items ITA No. 877 /Hyd/2012 :- 13 -: M/s. Sujana Universal Industries Ltd., are to be included in the determination of net profit or loss. If a prior period item is an expense, it would go towards reducing the net profit or increasing the loss, as the case may be. On the other hand, if the prior period item is an income, it would go towards increasing the net profit or reducing the loss, as be income or expenses. Prior period items and extraordinary items form part of the net profit or loss. Paragraph 7 of AS-5 stipulates that teh net profit or loss, inter alia, comprises extraordinary items and should be disclosed on the face of the statement of profit and loss. Paragraph 15 of AS-5 stipulates that the nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the "current" profit or loss can be perceived. Two approaches have been indicated in paragraph 19 of the said Accounting Standard (AS-5). The normal approach is to include the prior period items in the determination of net profit or loss for the current period. The alternative approach is to show such items in the statement of profit and loss after determination of the current net profit or loss. The object is to indicate the effect of such items on the current profit or loss.
While calculating the tax under section 115JA of the Income-tax Act, 1961, the assessee computed the net profit as per the profit and loss account after reducing the prior period expenses/extraordinary items and profit from generation of power plant. According to the Revenue, the amount of the prior period expenses/extraordinary items could not be deducted for arriving at the net profit for the purpose of section 115JA. According to the assessee, the net profit was to be computed on the basis of the profit and loss account which, in turn, was to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The assessee contended that such a computation of net profit, in view of the prescribed Accounting Standard (AS-5) required the prior period expenses/extraordinary items to be shown separately. This did not mean that because these items were shown separately they did not constitute part of the net profit. The Tribunal accepted the assessee's contention. On appeal:
Held, dismissing the appeal, that because of the prescribed accounting standard which had to be followed by the assessee in view of the provisions of section 115JA(2) read with section 211 of the 1956 Act, the assessee was required to show the prior period items/extraordinary items separately so that their impact on the current profit or loss could be perceived. The fact that the assessee adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, did not mean that these items were not to be taken into account in computing the net profit as envisaged in section 115JA. Thus, what the assessee had done was only to indicate the prior period items/extraordinary items separately. This did not mean that the figure of net profit was to be arrived at de hors these items. Thus, the Tribunal was correct in law in holding that the Assessing Officer had failed to appreciate ITA No. 877 /Hyd/2012 :- 14 -: M/s. Sujana Universal Industries Ltd., that the net profit for the purpose of section 115JA was to be computed only after deducting the prior period expenses/extraordinary items. expenses/extraordinary items".
Not only that even the principles laid down by the Hon'ble Supreme Court in the case of Apollo Tyres Vs. CIT [255 ITR 273] (SC) and followed by the Hon'ble Madras High Court in the case of Tamil Nadu Cements Corporation Ltd., Vs. JCIT [349 ITR 58] (Mad) also supports the above. In fact in the above referred later case, while examining the issue whether the claim of prior period expenses are disallowable u/s.115JB, the Hon'ble Madras High Court held as under:
"In Apollo Tyres V. CIT [2002] 255 ITR 273 (SC) the Supreme Court pointed out that sub-section (1A) of section 115J of the Income-tax Act, 1961, does not empower the Assessing Officer to embark upon a fresh inquiry with regard to the entries made in the books of accounts of the company. Sub-section (1A) mandates the company to maintain its accounts in accordance with the requirements of the Companies Act, 1956, and the assessing authority has a limited jurisdiction to satisfy himself that the accounts are maintained in accordance with the provisions of the 1956 Act. Beyond that, the assessing authority has no jurisdiction to go further into the accounts.
Held, allowing the appeal, that in computing the net profit the assessee had adjusted the prior period expenses and offered the book profit for assessment. No exception could be taken to the course adopted by the assessee in adjusting the prior period expenses in computing the net profit".
18. In view of the above, it is very clear that the computation has to start from the final figure of P&L A/c and necessary adjustments as provided in Explanation to Section 115JB has to be considered, while computing the book profit for the purpose of 115JB. Thus, in the given case, the amount to be considered for starting the computation is Rs.56,59,99,569/- and not Rs.17,05,76,352/- as accepted by the Assessing Officer. There seems to be no inquiry under the provisions of Section 115JB and therefore to that extent, order of the Assessing ITA No. 877 /Hyd/2012 :- 15 -: M/s. Sujana Universal Industries Ltd., Officer is not only erroneous on the facts but also on the principles of law. We therefore uphold invoking the jurisdiction by CIT on the order of Assessing Officer.
19. Having approved the principles to be adopted while computing the book profits u/s.115JB, we however, could not understand the directions of the CIT in directing the Assessing Officer to adopt the amount at Rs.37,78,82,427/-. Ld.Counsel also expressed surprise how this amount was arrived at by Ld.CIT. If one were to consider that amount of Rs.28,28,29,474/- i.e., prior period income was added to the base figure of Rs.17,05,76,352/-, the amount should come to Rs.45,34,05,826/-. Surprisingly, CIT determined the amount at Rs.37,78,82,427/- without any explanation. Even the Assessing Officer in consequential order has blindly followed the same. Since this amount is also not correct as per the provisions of law, we consequently modify the direction of the CIT and direct the Assessing Officer to recompute the book profits of the assessee-company, by following the provisions of 115JB, strictly after giving due opportunity to assessee. To that extent, CIT's order u/s.263 was upheld on the principle of computation of 115JB, but not the direction on computation which stands modified. Assessing Officer is directed to recompute the entire working as per the provisions of law. Assessee should be given due opportunity to make submissions, which should be examined and properly considered.
20. Consequential order passed as per the direct ions of Ld.CIT is also set aside so as to modify the same as per the above directions.
21. Ld.Counsel in the course of arguments relied on the decision of ITAT Bench 'B' in the case of Bartronics India Ltd., Vs. ACIT [22 Taxmann.com 5 (Hyd)] for the proposition that once the accounts were ITA No. 877 /Hyd/2012 :- 16 -: M/s. Sujana Universal Industries Ltd., referred to special audit u/s.142(2A) and Assessing Officer accepting the same, Ld.CIT has no jurisdiction to revise the order.
22. We have perused the order of the co-ordinate bench in the above referred case and noticed that the facts in the above case are different from the facts of assessee's case. In the above referred case, Assessing Officer having referred the accounts to undergo special audit, however, did not consider the report and rejected the Books of Accounts. In those set of facts, the ITAT held that Assessing Officer was not correct in ignoring the special audit report and re-allocating common expenditure. The issue therein is entirely different from the issue before us. Therefore, the said case law relied on by the Counsel does not apply. Having examined the record and evidences placed before us in the Paper Book, we are of the opinion that there was limited enquiry on the claims u/s.43B and prior period expenditure and no enquiry by the Assessing Officer on the issue of computation u/s.115JB. In view of this, we have partly upheld Ld.CIT's directions on the issue of jurisdiction.
23. In the result, Assessee's appeal is partly allowed for statistical purposes.
Order pronounced in open Court on 11th March, 2015.
Sd/- Sd/-
(SAKTIJIT DEY) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 11th March, 2015.
TNMM
ITA No. 877 /Hyd/2012
:- 17 -: M/s. Sujana Universal Industries Ltd.,
Copy to :
1. M/s. Sujana Universal Industries Ltd., Hyderabad; C/o. Shri P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad-82.
2. Dy. Commissioner of Income Tax, Circle-3(2), Hyderabad.
3. CIT-III, Hyderabad.
4. Addl.CIT, Range-3, Hyderabad.
5. D.R. ITAT, Hyderabad.