Calcutta H.C : Proper interpretation of the provisions of Section 115J of the Act and also the Companies Act was justified in law in disallowing the provision for bad and doubtful debts and advances on the grounds that the said provision is not an amount set aside towards the provisions made for meeting liabilities which are not the ascertained liability

High Court Of Calcutta

ICI India Ltd. vs. CIT (Appeals) -IV, Kolkata

Assessment Year : 1989-90

Section : 115J

Bhaskar Bhattacharya And Sambuddha Chakrabarti, JJ.

IT Appeal No. 80 Of 2003

September 29, 2011

JUDGMENT

Bhaskar Bhattacharya, J. – This appeal under Section 260A of the Income-tax Act, 1961 (“Act”) is at the instance of an assessee and is directed against an order dated 18th November, 2002 passed by the Income-tax Appellate Tribunal, “C” Bench, Kolkata, in ITA No.2180 (Cal) of 1995 and ITA No.1806 (Cal) of 1997 relating to the Assessment Year 1989-90 by which the Tribunal dismissed the appeals preferred by the assessee.

2. Being dissatisfied, the assessee has come up with the present appeal.

3. The facts giving rise to filing of this appeal may be summed up thus:

(a)The assessee is a company incorporated under the Companies Act, 1913 and has been carrying on business of manufacturing and trading in paints, specially chemicals etc. and the method of accounting is mercantile. The assessee duly maintains books of accounts and documents which are duly audited under the Companies Act, 1956 and under Section 44AB of the Act.

(b)The assessee filed the return of income on 27th December, 1989 for a period of 18 months from 1st October, 1988 to 31st March, 1989 corresponding to the Assessment Year 1989-90 showing a total income of Rs. 2,33,05,920/-. The assessment was originally processed under Section 143(1)(a ) of the Act by the Deputy Commissioner of Income-tax, Special Range-15, Kolkata, the Assessing Officer of the company, on 1st March, 1990. The computation of the aforesaid total income and the return filed by the assessee was accepted by the Assessing Officer. Subsequently, the Assessing Officer issued notice under Section 154 of the Act on 7th February, 1991 alleging that there was an error apparent from record in computation of income-tax under Section 115J of the Act for the Assessment Year 1989-90.

(c)The assessee filed a reply against the notice under Section 154 of the Act on 15th February, 1991 explaining, inter alia, in details on the points which were sought to be rectified by the said notice under Section 154 of the Act. However, the Assessing officer while proceeding to make regular assessment issued notice under Section 143(2) of the Act and in response to the said notice, the authorised representative of the assessee duly produced all books of accounts and documents and furnished all the information required by the Assessing Officer.

(d)After full scrutiny, the Assessing Officer made an assessment for the Assessment Year 1989-90 under Section 143(3) of the Act by his assessment order dated 26th February, 1992 by which the Assessing Officer again accepted the computation of profit under Section 115J of the Act as shown in computation of income annexed to the return filed by the assessee company. The Assessing Officer, however, once again issued notice under Section 154 of the Act on 3rd March, 1994 and after discussing the matter with the assessee had recomputed the profit under Section 115J of the Act by adding back the provision for bad and doubtful debts and advances and thereby resulting in a demand of Rs. 14,06,160/- vide order dated 31st March, 1994.

(e)In the said order, the Assessing Officer alleged that the assessee while computing the book profit for the purpose of Section 115J of the Act did not add back the provision for bad and doubtful debts and advances which were required to be done as per Clause (c) to the Explanation to sub-Section 1(A) of Section 115J of the Act.

(f)Although it was contended on behalf of the assessee that the Clause (c) of Explanation to sub-Section 1(A) of Section 115J of the Act required adding back of the amount provided to meet the liabilities other than ascertained liabilities and the provision for bad and doubtful debts and advances which is for diminution in the value of the assets is not a provision to meet the liabilities which is not an ascertained liability, such contention was not accepted by the Assessing Officer.

(g)The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) against the said order under Section 154 of the Act passed by the Assessing Officer but the Appellate Authority affirmed the order of the Assessing Officer.

(h)Being dissatisfied, the assessee preferred an appeal before the Tribunal below being I.T.A. No.2189 of 1995.

(i)In the meantime, in March 1994, the Assessing Officer sent a notice under Section 148 of the Act to the assessee asking it to explain why depreciation provisions made prior to 1st April, 1988 on fixed assets sold have been excluded from the computation of the book profit for the purpose of tax under Section 115J of the Act. The Assessing Officer sought to include this provision for depreciation in the computation of income under Section 115J as income escaping assessment. The assessee in reply to the said notice had given detailed explanation contending that Section 115J(1) clearly prescribed items to be included and/or excluded for the purpose of computation of book profit and the computation given by the assessee was in accordance with the provisions of the Act.

(j)The Assessing Officer, however, rejected the contention of the assessee and recomputed the income under Section 115J of the Act including depreciation as provided in the books of account prior to 1st April, 1988 in respect of assets sold during the Assessment Year 1989-90 amounting to Rs. 11,71,39,380/- and raised additional demand including interest for Rs. 3,05,75,846/- vide order dated 31st January, 1996.

(k)The assessee preferred an appeal against such order before the CIT (Appeals) on twofold grounds. First, the Assessing Officer erred in concluding that depreciation provision prior to 1st April, 1988 written back in the profit and loss account arising out of sale of fixed assets is to be included as part of book profit for the computation of tax under Section 115J of the Act. It was further argued before the Appellate Authority that Section 115J was first inserted in the Act by the Finance Act, 1987 with effect from April1, 1988 with the intention of taxing the companies which disclosed book profits but no positive total income as computed under Section 28 of the Act. It was further pointed out that Part- II of Schedule-VI of the Companies Act laid down the requirement as to the profit and loss account and Section 3 in that part sets out various items relating to income and expenditure of the amount which has to be disclosed in the profit and loss account of which one of the items in Clause (IV) being in respect of an amount provided for depreciation, renewals or diminution in the value of fixed assets and the assessee prepared its account in strict terms of the Schedule-VI of the Companies Act and the explanation provision laid down in Schedule VI would apply and the sum of Rs. 11,71,39,380/-should be treated as withdrawn from the provision for depreciation created prior to April 1, 1988 of fixed assets disposed of during the year and the Assessing Officer had no jurisdiction to go beyond the account maintained in accordance with the Companies Act which is also certified by the Auditors. It was further argued on behalf of the appellant that although Section 115J(2) of the Act gave full protection for unabsorbed depreciation, the Assessing Officer had wrongly set off depreciation against income which had already offered tax and thereby defeated the provisions of Section 115J(2) of the Act.

(l)The Commissioner of Income-tax (Appeals), however, turned down those contentions.

(m)Being dissatisfied, the assessee preferred an appeal before the Tribunal below being I.T.A No.186 of 1997 and the Tribunal below by a common order dated November 18, 2002 disposed of both the aforesaid appeals preferred by the assessee and thereby decided all the grounds in favour of Revenue and against the assessee.

(n)The assessee, being dissatisfied, has preferred the present appeal and has paid double the amount of court fees for challenging the common order of the Tribunal disposing of the two appeals.

4. A Division Bench of this Court at the time of admission of this appeal formulated the following questions of law for determination:

“(1)Whether the Learned Tribunal on a true and proper interpretation of the provisions of Section 115J of the Act and also the Companies Act was justified in law in disallowing the provision for bad and doubtful debts and advances on the grounds that the said provision is not an amount set aside towards the provisions made for meeting liabilities which are not the ascertained liability.

(2)Whether the Learned Tribunal failed to appreciate that the expression provision in any event is capable of interpretations on which there are two conceivable views and as such the said mistake, if any, is not a mistake apparent from record and cannot be the subject matter of rectification under Section 154 of the Act.

(3)Whether the Learned Tribunal was justified in affirming Assessing Officer’s decision that depreciation provision prior to 1.4.1998 written back in the profit and loss account is to be included as part of book profit, as Section 115J of the Act does not empower the Assessing Officer to go beyond the net profit as disclosed in profit and loss account and balance sheet certified by the auditors and allowing the assessing officer to make the additions on the ground of bad and doubtful debt which have been disclosed in the profit and loss account prepared according to the Companies Act and certified by Auditors.

(4)Whether the Learned Tribunal was justified in not appreciating that the amount of depreciation for the period up to 30.9.87 which has been added back to the net profit of the assessee for the current year is to be reduced from the profit as disclosed in the book profit according to the Schedule VI to the Companies Act and the said amount of depreciation which were provided for up to 30.9.87 according to specific provision of the explanation have to be reduced from the book profit prepared according to the Companies Act and as such non-reduction of the said amount was clearly illegal invalid and without any legal basis.

(5)Whether the Learned Tribunal had misinterpreted and misconstrued the provisions of Section 115J of the Act read with Explanation and the proviso thereto and should have considered that the provision for depreciation made up to 30.9.87 is by reason of the expressed provisions of the Act is to be reduced from the books profit and as such the decision of the tribunal is clearly illegal invalid and not sustainable in law.

(6)Whether the purported decision of the Tribunal is clearly erroneous and not tenable in the eye of law when the assessee has prepared its account according to the provisions of Schedule VI to the Companies Act and there is no objection or allegation that the said profit and loss account has not been prepared according to the provisions of the Companies Act and in view of the settled law that the Assessing Officer has no competence, jurisdiction and/or authority to go beyond the said balance sheet and profit and loss account prepared according to Companies Act.

(7)Whether the Learned Tribunal was justified in holding that the amount of Rs. 11,71,39,380/- being the depreciation for the year prior to 30.9.87 was not reflected under the head provision as stood on 30.9.87 and was not provided in a year prior to the year relevant to the assessment year commencing on or after 1.4.88.

(8)Whether the aforesaid observations of the Tribunal is patently illegal, perverse and contrary to the facts on records as will appear from the balance sheet as on 31st September, 1987 and 31st March, 1989.”

5. Dr. Pal, the learned Senior Advocate appearing on behalf of the assessee, however, restricted his submission to only the grounds Nos.1, 2 and 4 indicated above, as according to him, those three questions are the real disputes involved in this appeal and the other points formulated are really the repetition of the selfsame points.

6. So far as the first question is concerned, Dr. Pal strongly relied upon a decision of the Supreme Court in the case of CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 409 / 174 Taxman 118 (SC) and particularly, upon the following observations made by the Supreme Court in the said decision :

“As stated above, the said Explanation has provided six items, i.e., item Nos. (a) to (f ) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with item No. (c) which refers to the provision for bad and doubtful debts. The provision for bad and doubtful debts can be added back to the net profit only if item ( c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee’s case would, therefore, fall within the ambit of item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than an ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract item (c ) of the Explanation to section 115JA. In our view, item (c) is not attracted. There are two types of “debt”. A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debit receivable by the assessee is an amount which the assessee has to receive from others. In the present case, the “debt” under consideration is a “debt receivable” by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of the asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for a liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view, item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the Assessing Officer was not justified in adding back the provision for doubtful debts of Rs. 92,15,187/- under clause (c) of the Explanation to section 115JA of the 1961 Act.” (Emphasis supplied).

7. Relying upon the aforesaid observations, Dr. Pal contended that there is no scope of contending that a debt receivable by the assessee can be said to be a provision for a liability, because even if a debt is not recoverable, no liability could be fastened upon the assessee and therefore, Clause (c ) of the Explanation is not attracted to the facts of the present case.

8. Regarding second question involved, Dr. Pal submitted that there was no justification of invoking power under Section 154 of the Act when the view earlier adopted by the Assessing Officer is a debatable one and in this case, original order passed by the Assessing officer is correct as the same is in tune with the principles laid down by the Supreme Court in the abovementioned case of HCL Comnet Systems & Services Ltd. (supra)

9. On the third question involved, Dr. Pal strongly relied upon the audited balance-sheet of the company and contended that the learned Tribunal failed to appreciate that the amount of depreciation for the period up to September 30, 1987 which has been added back to the net profit of the assessee for the current year is to be reduced from the profit as disclosed in the book profit according to the Schedule VI to the Companies Act and the said amount of depreciation which were provided for up to September 30, 1987 according to specific provision of the Explanation have to be reduced from the book profit prepared according to the Companies Act and as such, non-reduction of the said amount was clearly illegal, invalid and without any legal basis.

10. Mr. Dutt, the learned Advocate appearing on behalf of the Revenue, on the other hand, has supported the order passed by the authorities below and has prayed for dismissal of this appeal by relying upon the reasons given by the authorities below.

11. So far the first question indicated above is concerned, we find that the said point is squarely covered by the decision of the Supreme Court in the case of HCL Comnet Systems & Services Ltd (supra) relied upon by Dr. Pal and thus, the amount of Rs. 45,64,750/- could not be added as in the case before us, the debt involved being the amount receivable by the assessee and not any liability payable by the assessee and therefore, any provision made towards irrecoverability of the said debt cannot be said to be a provision for liability. Therefore, in our view, Clause (c) of the Explanation is not attracted to the facts of the present case.

12. As regards the second question, in view of our finding above on the first question, the same loses its significance as the decision on merit is not even tenable in law and thus, there was no necessity of taking recourse to Section 154 of the Act.

13. In order to appreciate the third question, it will be profitable to refer to the provisions contained in Section 115J of the Act as it stood at the relevant period and the same is quoted below:

“115J.(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such 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. (1A) 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 Schedule VI to the Companies Act, 1956 (1 of 1956).

Explanation : For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by-

(a)the amount of income-tax paid or payable and the prevision therefor; or

(b)the amounts carried to any reserves (other than the reserves specified in section 80HHD or sub-section (1) of section 33AC), 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 proposes; or

(f)the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or

(g)the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section; or

(h)the amount credited to the reserve account under section 80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section;

(ha)the amount deemed to be the profits under sub-section (3) of section 33AC;

if any amount referred to in clauses (a) to ( f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,-

(i)the amount withdrawn from reserves (other than the reserves specified in section 80HHD) or provisions, if any such amount is credited to the profit and loss account;

Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdraw) under this Explanation; or

(ii)the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or

(iii)the amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f ) and reducing the net profit by the amounts referred to in clauses ( i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) of sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be, or

(iv)the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b ) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable.

(2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii ) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J.”

After hearing the learned Counsel for the parties and after going through the materials on record including the aforesaid provisions of law, we find that Section 115J(1A) provides that every assessee, being a company, shall, for the purposes of that section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The Explanation added to the said section elucidates that for the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by various amounts as indicated in clauses (a) to (ha ), and as reduced by as provided in clause (i), the amount withdrawn from reserves (other than the reserves specified in section 80HHD) or provisions, if any such amount is credited to the profit and loss account. The proviso to the said clause lays down that where Section 115J(1A) is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions out of which the said amount was withdrawn.

14. In the case before us, the previous year for the relevant Assessment Year 1989-90 is the period from 1st October, 1987 to 31st March, 1989 as would appear from pages 100 and 61 of the paper book which refer to the previous year being 18 months i.e. 1st October, 1987 to 31st March, 1989. Therefore, for the previous year ending on September 30, 1987 the amount which was provided by way of depreciation for the block of fixed assets was shown at Rs. 208,26,17,000/- vide page 14 of Vol.- I or Book No. I for the previous year ending on September 30, 1987. Before this Court, the accounts of the assessee have been filed with the copies given to the learned Advocate for the Revenue from which the following facts would appear:-

The accounts for the previous year ending on 30th September, 1987 shows that the total amount of depreciation provided up to the period 30th September, 1987 is at a figure of Rs. 208,26,17,000/- vide page 14 of Vol.- I or Book No. I. The said depreciation was for the entire block of fixed assets.

15. In the relevant previous year i.e. from October 1, 1987 to March 31, 1989 relevant to the Assessment Year 1989-90, the accounts position appearing in Vol. II or Book No. II are as follows:-

At page 12 of Vol.-II or Book No. II of the account, it is clearly stated that the opening balance as on October 1, 1987 was Rs. 208, 26, 17,000/-. This corresponds to the same figure at the closing balance for the year ending 30th September, 1987. At page 12 of Vol.- II or Book No. II, the depreciation pertaining to the fixed assets which had been sold and/or disposed of during the relevant previous year are shown at Rs. 11,83,91,000/-.

16. Therefore, the depreciation on fixed assets which were sold or disposed of during the year amounting to Rs. 11,83,91,000/- had been credited to the Profit & Loss Account in the relevant year. This position is clearly shown in the accounts at page 17 of Vol.- II or Book No.- II, for the Assessment Year 1989-90. At page 17, the accounts position shows withdrawal from provision for depreciation on fixed assets disposed of at Rs. 11,83,91,000/-. The Auditors in their note also at page 17 of Vol.- II or Book No. II observed as follows:

“Of which Rs. 11,71,39,380/- relates to withdrawal of provision for depreciation created prior to 1.4.1988”.

The above position has been noted by the Tribunal at page 22 of the Paper Book under clause (ii) depreciation provided on assets sold written back up to September 30, 1987 Assessment Year 1988-89 at Rs. 11,71,39,380/-, up to March 31,1989 Assessment Year 1989-90 at Rs. 12,52,620/-. This position is clearly stated at page 22 of the Paper Book in the Tribunal’s order which is quoted herein below:-

“(ii) Depreciation provided on assets sold written back :

up to 30.9.87 assessment year 1988-89 Rs. 11,71,39,380/-

up to 31.3.89 assessment year 1989-90 Rs. 12,52,620/-

Rs. 11,83,91,000/-“

17. Therefore, it is apparent that the sum of Rs. 11,71,39,380/- which is the depreciation on fixed assets and which were sold or disposed of was provided for in the previous year ending on 30th September, 1987 and had been credited/written back to the Profit & Loss Account for the current year. Clause (i) of Explanation to Section 115J(1A) is clearly attracted and the said amount is to be reduced from the book profit. The Tribunal, in its order impugned in this appeal, has recorded that there is no dispute that the sum of Rs.11,71,39,380/-on account of depreciation provided on assets sold up to September 30, 1987 has been written back in the books of account as would appear from page 25 of the Paper Book, but in spite of such finding, affirmed the orders of the authorities below.

18. The Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 122 Taxman 562 had the occasion to consider the question whether an Assessing Officer while assessing a company for income tax under Section 115J of the Income Tax Act can question the correctness of the profit and loss account prepared by the assessee company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act. In that context, the Apex Court made the following observations:

“6. For deciding this issue, it is necessary for us to examine the object of introducing Section 115-J in the IT Act which can be easily deduced from the Budget Speech of the then Hon. Finance Minister of India made in the Parliament while introducing the said Section which is as follows:

“It is only fair and proper that the prosperous should pay at least some tax? The phenomenon of so-called “zero -tax” highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will to have to pay a “minimum corporate tax” on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30% of its book profit. In other words, a domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores.”

7. The above Speech shows that the income tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that Section 115-J was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30% of its book profits as shown in its own account. For the said purpose, Section 115-J makes the income reflected in the companies books of accounts as the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words “in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act” was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an assessing officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the assessing officer to re-scrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-section (1A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1A) of Section 115-J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company’s income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the account accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115-J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act. If the legislature intended the assessing officer to reassess the company’s income, then it would have stated in Section 115-J that “income of the company as accepted by the assessing officer”. In the absence of the same and on the language of Section 115-J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal.

8. Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-J 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 assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J.” (Emphasis supplied).

19. Thus, the authorities below committed substantial error of law in adding the amount of Rs. 11,71,39,380/- by totally misinterpreting the provisions of Section 115J of the Act and ignoring the aforesaid observations of the Supreme Court.

20. We, therefore, direct the Assessing officer to delete the said amount of Rs. 11,71,39,380/- in terms of Section 115J of the Act.

21. We, consequently, allow the appeal and set aside the order impugned by answering the points formulated in the following way:

First- Negative and against the Revenue.

Second- Affirmative and against the Revenue.

Third- Negative and in favour of the Assessee.

Fourth- Negative and in favour of the Assessee.

Fifth- Affirmative and in favour of the Assessee.

Sixth- Affirmative and in favour of the Assessee.

Seventh- Negative and in favour of the Assessee.

22. In the facts and circumstances, there will be, however, no order as to costs.

Sambuddha Chakrabarti, J. I agree.

[Citation : 347 ITR 442]

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