Gujarat High Court
Acit vs Norma Detergent (Pvt) ... on 5 January, 2015
Author: Jayant Patel
Bench: Jayant Patel, S.H.Vora
O/TAXAP/419/2000 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 419 of 2000
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE S.H.VORA
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1 Whether Reporters of Local Papers may be allowed to see Yes
the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as No
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ? No
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ACIT....Appellant(s)
Versus
NORMA DETERGENT (PVT) LTD.....Opponent(s)
================================================================
Appearance:
MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1
MR SN SOPARKAR, ADVOCATE for the Opponent(s) No. 1
================================================================
CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE S.H.VORA
Page 1 of 16
O/TAXAP/419/2000 JUDGMENT
Date : 05/01/2015
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE JAYANT PATEL)
1. The present appeal is directed against order dated 8.9.1999 passed by the Tribunal in I.T.A. No.2439/Ahd/1994 for assessment year 1990-91 whereby, the Tribunal has dismissed the appeal of the Revenue.
2. The short facts of the case appear to be that the respondent - Company filed return under the Income Tax Act, 1961 (hereinafter referred to as the 'Act') on 29.12.1990 declaring the total income of Rs.1,15,57,730/-. Subsequently, revised return was filed on 26.3.1991 declaring total income of Rs.1,14,49,920/- wherein, the claim for previous year adjustment for Rs.1,96,117/- was made. The notices were issued under Sections 143(2) and 142(1) of the Act. Thereafter, the Assistant Commissioner of Income Tax (hereinafter referred to as the 'A.O.') passed order on 31.3.2013 whereby, the claim under Section 32AB of the Act for Rs.1,96,117/- which, as per the A.O. pertained to previous year, was not allowed.
3. There were also other aspects on the admissibility of the deduction, but as the same is not the subject matter relating to the question of law formulated, we need not discuss the same. It appears that against the assessment order, the matter was carried in appeal before the Commissioner of Income Tax and vide order dated 31.3.1994, the appeal was Page 2 of 16 O/TAXAP/419/2000 JUDGMENT partly allowed, but the relevant aspect is that, in the appeal, the contention of the assessee for admissibility of deduction under section 32AB for the amount of Rs.1,96,117/- was accepted. The matter was further carried in appeal before the Tribunal and the Tribunal vide order dated 8.9.1999 did not interfere with the said part of the decision in appeal. Under the circumstances, the present appeal before this Court under section 260-A of the Act. It may be recorded that the appellant had preferred appeal on two grounds formulated as the questions of law. However, when the appeal came to be admitted by this Court, following question was formulated by this Court.
"Whether the Appellate Tribunal is right in law and on facts in allowing the claim of the assessee under section 32AB of the Act."
4. Under the circumstances, we need to examine the said question in the present appeal.
5. Before we consider the factual aspects, it is necessary to consider the relevant statutory provisions. Section 32AB provides for the investment deposit account and the same reads as under:
"32AB. Investment deposit account.- (1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head "Profits and gains of business or profession", has, out of such income,--
(a) deposited any amount in an account (hereafter in this section referred to as deposit account) Page 3 of 16 O/TAXAP/419/2000 JUDGMENT maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, which-ever is earlier; or
(b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of--
(i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or
(ii) a sum equal to twenty per cent of the profits of business or profession as computed in the accounts of the assessee audited in accordance with sub-
section (5), whichever is less :
Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals:
Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year.
(2) For the purposes of this section,--
(i) Omitted
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O/TAXAP/419/2000 JUDGMENT
(ii) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India;
(iii) "new machinery or plant" includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely :--
(a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside India; and
(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee;
(iv) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953). (3) The profits of business or profession of an assessee for the purposes of sub-section (1) shall be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Schedule VI to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of--
(i) the amount of depreciation;
(ii) the amount of income-tax paid or payable, and provision therefor;
(iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964);
(iv) the amounts carried to any reserves, by whatever name called;
(v) the amount or amounts set aside to provisions Page 5 of 16 O/TAXAP/419/2000 JUDGMENT made for meeting liabilities, other than ascertained liabilities;
(vi) the amount by way of provision for losses of subsidiary companies; and
(vii) the amount or amounts of dividends paid or proposed, if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account .
(4) No deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase of--
(a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house;
(b) any office appliances (not being computers);
(c) any road transport vehicles;
(d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;
(e) any new machinery or plant to be installed in an industrial undertaking, other than a small-scale industrial undertaking, as defined in section 80HHA, for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule.
(5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly Page 6 of 16 O/TAXAP/419/2000 JUDGMENT signed and verified by such accountant :
Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section.
(5A) Any amount standing to the credit of the assessee in the deposit account shall not be allowed to be withdrawn before the expiry of a period of five years from the date of deposit except for the purposes specified in the scheme or in the circumstances specified below :--
(a) closure of business;
(b) death of an assessee;
(c) partition of a Hindu undivided family;
(d) dissolution of a firm;
(e) liquidation of a company.
Explanation.--For the removal of doubts, it is hereby declared that nothing contained in this sub- section shall affect the operation of the provisions of sub-section (5AA) or sub-section (6) in relation to any withdrawals made from the deposit account either before or after the expiry of a period of five years from the date of deposit.
(5AA) Where any amount, standing to the credit of the assessee in the deposit account, is withdrawn during any previous year by the assessee in the circumstance specified in clause (a) or clause (d) of sub-section (5A), the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if the business had not closed or, as the case may be, the firm had not been dissolved.
Page 7 of 16O/TAXAP/419/2000 JUDGMENT (5B) Where any amount standing to the credit of the assessee in the deposit account is utilised by the assessee for the purposes of any expenditure in connection with the business or profession in accordance with the scheme, such expenditure shall not be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
(6) Where any amount, standing to the credit of the assessee in the deposit account, released during any previous year by the Development Bank for being utilised by the assessee for the purposes specified in the scheme or at the closure of the account 75 [[in circumstances other than the circumstances specified in clauses (b), (c) and (e) of sub-section (5A), is not utilised in accordance with , and within the time specified in,] the scheme, either wholly or in part, the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year.
(7) Where any asset acquired in accordance with the scheme is sold or otherwise transferred in any previous year by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the deductions allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that previous year:
Provided that nothing in this sub-section shall apply--
(i) where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation established by or under a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or Page 8 of 16 O/TAXAP/419/2000 JUDGMENT
(ii) where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme continues to apply to the company in the manner applicable to the firm.
Explanation.--The provisions of clause (ii) of the proviso shall apply only where--
(i) all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company;
(ii) all the liabilities of the firm relating to the business or profession immediately before the succession become the liabilities of the company; and
(iii) all the shareholders of the company were partners of the firm immediately before the succession.
(8) The Central Government may, if it considers it necessary or expedient so to do, by notification in the Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh Schedule.
(9) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the provisions of this section shall not apply to any class of assessees, with effect from such date as it may specify in the notification.
(10) Where a deduction has been allowed to an assessee under this section in any assessment year, no deduction shall be allowed to the assessee under sub-section (1) of section 32A in the said assessment year (hereinafter referred to as the initial assessment year) and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year.
Page 9 of 16O/TAXAP/419/2000 JUDGMENT Explanation.--In this section,--
(a) "computers" does not include calculating machines and calculating devices;
(b) "Development Bank" means--
(i) in the case of an assessee carrying on business of growing and manufacturing tea in India, the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);
(ii) in the case of other assessees, the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964) and includes such bank or institution as may be specified in the scheme in this behalf."
6. The relevant part of section 32AB for considering the question of law formulated in the present matter is sub section (1), sub section (3) and sub section (5). As per sub section (1), the amount of investment deposit permissible in the percentage provided is to be derived from Profit and gains of the business or profession. Sub section (3) provides that such profit of business or profession of an assessee should be arrived at after first considering the amount of profit computed in accordance with the requirement of Part II and III of the Schedule VI of the Companies Act, 1956 and thereafter, the amount of other deduction as provided under sub section (3) from clause (i) to (vii) are to be calculated and thereafter, the figure may be arrived at. Sub section (5) of section 32AB provides that the deduction under sub section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed, have been audited by an accountant and the report of such audit in the prescribed form duly signed and verified by such Page 10 of 16 O/TAXAP/419/2000 JUDGMENT accountant is produced. Hence, as per scheme of section 32AB, the profit of business or profession in respect of any company is to be computed in accordance with Part II and III of the Schedule VI of the Companies Act, 1956 and such accounts are required to be audited and the auditor's report is to be produced, and as observed earlier, after such reports are produced, as per sub section (3), the amount relating to item No.1 (i) to (vii) is to be given separate treatment and thereafter, the figure is to be arrived at for the purpose of claiming benefit under section 32AB. In our view, generally, it can be said that when the profit and gain as per the Books of Account of the company prepared and duly audited by the auditor are certified, the figure arrived at of the profit of such company is to be accepted save and except the different treatment to be provided to certain items as identified in clause (i) to (vii) of section 32AB of the Act and the AO will have no power to sit in appeal or to further scrutinize the admissibility of any item as if the income earned for the revenue expenditure or any other business expenditure, because it can be said that the AO has to go by the Books of Account duly certified by the auditor under the Companies Act.
7. However, the aforesaid would not mean that if any aspect, which goes to the root of the matter pertaining to the scope and ambit of the assessment year cannot be looked into by the AO. To put it otherwise, if any transaction or any entry in the Books of Account is pertaining to the period prior to the assessment year and the profit is earned in the previous year, though otherwise shown in the Books of Account by way of adjustment entry or otherwise in the assessment year, such Page 11 of 16 O/TAXAP/419/2000 JUDGMENT cannot be at all inquired by the AO. At this stage, we may refer to certain provisions of the Act. Section 4 of the Act for the charge of income tax reads as under:
"4. Charge of income- tax (1) Where any Central Act enacts that income-
tax shall be charged for any assessment year at any rate or rates, income- tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income- tax) of, this Act] in respect of the total income of the previous year of every person:
Provided that where by virtue of any provision of this Act income- tax is to be charged in respect of the income of a period other than the previous year, income- tax shall be charged accordingly.
(2) In respect of income chargeable under sub-
section (1), income- tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act."
8. The aforesaid shows that the income tax can be charged for any assessment year. Meaning thereby, the relevant period for the charge of income tax would be the assessment year unless the income tax is expressly made chargeable by any other provisions of the Act. Section 2(9) of the Act, which defines assessment year as under:
"Assessment year means the period of 12 months commencing on the first date of April every year."
9. Therefore, the scope of chargeability of the income tax should relate to the transaction, which could be said as complete in the eye of law for the respective assessment year for which the return is filed. Section 3 provides for the Page 12 of 16 O/TAXAP/419/2000 JUDGMENT definition of previous year, the same reads as under:
"Previous year' defined.
3. For the purposes of this Act, "previous year"
means the financial year immediately preceding the assessment year:
Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year."
10. On conjoint reading of the aforesaid provision of sections 3, 4 read with the definition of the assessment year, it can be said that for earning of profit from business or profession, the relatable period would be the respective period of assessment year. If any profit on business or profession is earned by any company during the period of respective assessment year on the basis of which the return has been filed based on the Books of Account duly certified by the auditor after audit, the AO has to consider the said figure and except for the items provided under sub section (3), different treatment cannot be given to any other items which are forming part of income earned or business expenditure or any other expenditure which may be relevant for the purpose of accounting in the Books of Account of the company. However, if, for any profit which is not earned in the assessment year, but is earned in the previous year to the assessment year or to say in other words beyond the span of the assessment year, the same can be examined by the AO for the purpose of arriving at the figure of the actual allowance available under section 32AB of Page 13 of 16 O/TAXAP/419/2000 JUDGMENT the Act since in our view, the said aspects would touch to the root of the matter.
11. Examination of the facts of the present case further shows that so far as the AO is concerned, he did consider the said aspect and disallowed the amount for the purpose of computation under section 32AB for an amount of Rs.1,96,117/-. The CIT (Appeals) except observing that the AO was not justified in ignoring the actual accounting procedure and denying the deduction of Rs.1,96,117/-, has not further examined the matter in context to the span and ambit of the period of the assessment year. In the decision of the Tribunal also, there is no consideration except the reproduction of the observations of the CIT (Appeals). The Tribunal has only recorded that the finding recorded by the first appellate authority calls for no interference, but why and in what basis is not considered by the Tribunal.
12. In any case, in view of the observations made by us herein above, even if, we consider that the AO had power or authority to inquire the aspects in relation to a transaction beyond the scope and span of the assessment year, then also, whether the transaction could be considered for the present assessment year or not and what is the nature of the transaction and the effect in the assessment year are also the aspects, which may be required to be considered. The Tribunal being the final fact finding authority needs to reexamine the matter as per the observations made by us herein above and it may not be possible for this Court to consider the aspect of finding of fact in the present appeal for which the scope of judicial scrutiny is limited to substantial Page 14 of 16 O/TAXAP/419/2000 JUDGMENT question of law.
13. Mr. Soparkar, learned counsel appearing for the respondent - assessee attempted to relied upon the decision of the Apex Court in case of Apollo Tyres Limited Vs. Commissioner of Income Tax reported at 255 ITR 273 and contended that similar provision is made under the Act by section 115J and more or less, similar section or the mechanism has been provided for arriving at the figure for the application of section 115J. He submitted that the Apex Court, as per the above referred decision, has ruled that save and except the circumstances as mentioned in the explanation to sub section (1A) of section 115J, the AO has no power to act behind the entry of Books of Account or to alter the figure of profit from any business or profession. He therefore, submitted that the AO will have no jurisdiction to examine as to whether profit earned out of any transaction for the preceding year, if accounted, can be considered for assessment year in respect of which return has been filed.
14. There cannot be any different view than the view taken by the Apex Court in the above referred decision for the applicability and the scope and ambit of section 115J of the Act, but the relevant aspect is that the facts of the said case cannot be equated with the facts of the present case, inasmuch as it was not a matter where any entry in the Books of Account for showing profit related to the profit earned in the preceding year than the assessment year or to say in other words rather beyond the time span of the assessment year. Hence, the said decision is of no help to the respondent.
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15. In view of the aforesaid, we find that when the AO had the authority or power to examine, but nature of transaction, effect on the profit of the assessment year and the other incidental aspects, which may touch to the finding of fact, are not examined by the Tribunal, it would be just and proper to remand the matter to the Tribunal for the limited aspect of admissibility of the amount of Rs.1,96,117/- for the purpose of calculating the investment allowance available under section 32AB of the Act.
16. In the result, the question is answered in negative. Hence, the impugned order passed by the Tribunal dated 8.9.1999 in Appeal No.2439/Ahd/1994 for the assessment year of 1990 - 1991 is set aside with the direction that the aspect of adjustment of Rs.1,96,117/- and consequentially the effect for the availability of the allowance under section 32AB of the Act shall be reexamined by the Tribunal in light of the observations made by this Court in the present judgment and it is further observed that the Tribunal shall decide the appeal as early as possible, preferably within a period of six months from the date of the order of this Court. The appeal is partly allowed to the aforesaid extent. Considering the facts and circumstances, no order as to costs.
(JAYANT PATEL, J.) (S.H.VORA, J.) shekhar Page 16 of 16