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Income tax v. Kovai Maruthi - TC.A.1104 of 2007  RD-TN 2601 (6 August 2007)
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 06.08.2007
THE HONOURABLE MR.JUSTICE D.MURUGESAN
THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA
Tax Case (Appeal) No.1104 of 2007
The Commissioner of Income-tax,
Salem. .. Appellant Vs.
M/s.Kovai Maruthi Paper & Board P. Ltd.,
Irrukkur, Kabilarmalai Post,
Paramathi Vellore Taluk,
Namakkal District. .. Respondent Appeal under Section 260A of the Income-tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Bench 'D', Chennai in I.T.A. No.721/Mds/04 dated 04.08.2006 for the assessment year 1997-98. For Appellant : Mr.N.Muralikumaran, Sr.Standing Counsel for Income-tax Department JUDGMENT
(Judgment of the Court was delivered by D.Murugesan, J.)
This appeal is directed at the instance of the Revenue against the order of the Income Tax Appellate Tribunal, Bench 'D', Chennai in I.T.A. No.721/Mds/04 dated 04.08.2006.
2. The brief facts that gives rise to the present appeal are as follows:- The respondent-assessee filed Return of income on 28.11.1997 admitting income of Rs.27,13,390/-, and after adjusting a sum of Rs.22,57,277/- towards carry forward loss for the year 1995-96 and a sum of Rs.4,56,113/- towards carry forward loss for the year 1996-97, the income returned was "Nil". However, the assessee has computed the income under Section 115JA of the Income-tax Act ("Act" in short) on the book profit as Rs.64,74,643/- and computed the tax liability at Rs.8,35,229/-. The Return was processed under Section 143(1) of the Act and notice was also issued. Ultimately, the assessment was revised under Section 154 of the Act to tax the amount of Government Subsidy on generator, a portion of which was received by the assessee but has not been reduced from the cost of machinery on which claim of depreciation in excess of eligible limit was allowed.
3. Questioning the said order, the assessee had preferred an appeal before the Commissioner of Income-tax (Appeals). Before the C.I.T.(A), it was contended on behalf of the assessee that Section 115JA of the Act speaks of net profit increased by certain items of expenses debited to profit and loss account. The treatment of generator power subsidy initially credited, in the absence of the Apex Court's decision, does not find place in any one of the items specified in Section 115JA and hence the same cannot be used against the assessee to calculate the book profit under Section 115JA of the Act. The assessee also had relied upon the decision of the Apex Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income-tax,  255 ITR 273 (SC). The C.I.T.(A) in its order, held as follows:- "Therefore, it is trite law that once the basic requirements of applying the provisions of law has not been met, then the assessee cannot be allowed to take recourse on decisions which have not been applicable to the facts of the case. In the case of Apollo Tyres Ltd., it has been held that, in case once the accounts have been prepared in consonance with the provisions of law and certified by the Auditor, then the Assessing Officer on his own cannot scrutinize the case for computation of profit u/s 115JA. In the first instance, compliance with the provisions of law is required, as it has not been done. But, unfortunately, the whole situation that came to be reversed due to the advent of the Hon'ble Supreme Court's decision in the case of Rajaram Maize Products reported in 251 ITR 427 (SC). After the decision, the whole exclusion on treatment of subsidy on power generator as a capital receipt and the claim of depreciation thereon undergoes a change, i.e. what should be treated as a capital receipt subject to claim of depreciation becomes revenue receipt subject to tax and other applications of the Act." Accordingly, the order of the Assessing Officer was upheld and the appeal filed at the instance of the assessee was dismissed.
4. The issue was taken on appeal to Income-tax Appellate Tribunal ("Tribunal" in short) by the assessee. By the order in question, the Tribunal, placing reliance on the judgment of the Apex Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income-tax,  255 ITR 273 (SC), cited supra, decided the issue in favour of the assessee. Hence the present tax case by the Revenue.
5. In the present case, the following substantial questions of law are raised:- "1. Whether in the facts and circumstances of the case, the Tribunal was right in applying the ratio of decision of the Apex Court in the case of Appollo Tyres, 255 ITR 273 (SC) and allowing the assessee's appeal? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the adjustment to the book profit is barred by application of the decision of the Apex Court in the case of Rajaram Maize Products, 251 ITR 457, which had resulted in calculation of tax under Section 115JA?"
6. For the disposal of the present appeal, the following provision of the Act is referrable. "Deemed income relating to certain companies.
115JA. (1) ...
(2) Every assessee, being a company, shall, for the purpose 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):" It is the contention of the learned Senior Standing Counsel appearing for the Revenue that in terms of the above section, only such of those profit and loss account for the relevant previous year prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 could be taken into consideration for the applicability of the deemed income. So long as the assessee has not prepared profit and loss account and balance sheet as per the Companies Act, he cannot take a shelter under the ratio of the Apex Court in the appeal and the Assessing Officer is entitled to go into the very preparation of profit and loss account.
7. We have heard Mr.N.Muralikumaran, learned Senior Standing Counsel appearing for the Revenue. The issue raised in this appeal is not res integra as it has been clearly covered by the decision of the Apex Court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income-tax,  255 ITR 273 (SC), cited supra. In that case, the Apex Court in fact considered the question as to whether the Assessing Officer while assessing a company for income-tax under Section 115J of the Act, 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. The Apex Court considered that once the profit and loss account prepared by the assessee-company is certified by the statutory auditors of the company as having been prepared in accordance with the requirement of the principles of the Companies Act, then there is no scope for the Assessing Officer while computing the income under Section 115J to find out as to whether the said profit and loss account was in fact prepared and properly maintained in accordance the Companies Act or not. In fact, we may quote the following paragraph in the said Apex Court judgment:- "Therefore, we are of the opinion, the Assessing Officer while computing the income under section 115J 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 115J." From a perusal of the above, it can be inferred that once the profit and loss account prepared by the assessee is certified by the authorities under the Companies Act, as having been properly maintained in accordance with the Companies Act, the Assessing Officer has only the limited power of making increases and reductions as provided for in the Explanation to the said Section, and he 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 115J.
8. In view of the above categorical pronouncement of law laid down by the Apex Court, we find every justification for the Tribunal in following the above judgment in the case in question and deciding the appeal against the Revenue. As the law is settled by the Apex Court, we do not find any substantial questions of law arise for consideration of this Court and accordingly the tax case is dismissed. No costs. km
1. The Assistant Registrar,
Income-tax Appellate Tribunal, Bench 'D',
2. The Commissioner of Income-tax (Appeals),
3. The Deputy Commissioner of Income-tax,
Company Circle II,
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