Deputy Commissioner of Income Tax (Assessment) vs Arvind Mills Ltd.

D.A. Mehta, J.—At the time of admission on July 9, 2007, the following two questions were formulated by the High Court:

(1) That the Appellate Tribunal has seriously erred in law and on facts in holding that preparation of profit and loss account in accordance with Schedule VI, Parts II and III of the Companies Act which is different from the profit and loss account approved at the annual general meeting is permissible?

(2) That the Appellate Tribunal has erred in law and on facts in allowing the claim of interest of Rs. 9,64,179 payable on disputed excise duty?

The assessment year in question is 1989-90, the relevant accounting period being previous year ended on March 31, 1989. The respondent-assessee, a limited company, declared a total income of Rs. 1,31,118 as computed u/s 115J of the Income Tax Act, 1961 ("the Act"), as per the return of income filed on December 28, 1989. This return came to be revised for the first time on March 22, 1990. Subsequently, a second revised return was filed on December 28, 1990, and the second revision was necessitated by three reasons recorded in paragraph No. 1 of the assessment order. For the present, only the third reason is relevant, which pertains to computation u/s 115J of the Act.

According to the Assessing Officer, for the purpose of Section 115J of the Act, profit before taxation was shown at Rs. 4,64,91,985 by virtue of the audited accounts presented before the annual general meeting, but in the second revised return such figure of profit before taxation was reduced to a sum of Rs. 4,48,15,000. The variation was on account of certain deferred revenue expenses which were originally debited at 1/5th to the profit and loss account while the revised accounts debited the entire deferred revenue expenses to the profit and loss account. The Assessing Officer held that for the purpose of computation of book profit u/s 115J of the Act only the figure of book profit approved at the annual general meeting had to be considered by observing as under:

The strategy of the assessee to prepare different profit and loss account for the previous year ending March 31, 1989 (i) in which the entire expenses are debited, and (ii) other in which only 1/5th expenses are debited, is apparently for the purpose of getting approval of the shareholders by presenting its profitability in the better line but for the purpose of income this device would not hold true. For the purpose of computation u/s 115J, the book profit as worked out in the profit and loss account as per the published audited accounts, approved by the annual general meeting, showing the profit at Rs. 4,64,91,985 would alone be considered.

The assessee carried the matter in appeal before the Commissioner (Appeals) but did not succeed. In second appeal filed before the Tribunal, the assessee succeeded for the reasons recorded in the impugned order dated January 6, 1999.

The learned Counsel for appellant-Revenue submitted that the Assessing Officer was justified in discarding the accounts filed with the revised return of income as the same were not in consonance with the requirements of the Companies Act, the same having not been presented before the annual general meeting of the company. It was submitted that unless and until the recast accounts are authenticated by a chartered accountant as statutorily required under the provisions of the Companies Act, 1956, such accounts would have no relevance and the Assessing Officer was entitled to ignore the same. Referring to the provisions of Section 115J(1A) of the Act, it was submitted that for the purpose of book profit, the assessee-company was obliged to 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, which meant that all requirements prescribed under the Companies Act had to be fulfilled. In support of the submissions made, attention was invited to the observations made by the apex court in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, with special emphasis on the observations made at page Nos. 279 and 280 of the reports. The learned Counsel, therefore, submitted that the Tribunal had committed an error in reversing the orders made by the Assessing Officer and the Commissioner (Appeals) on this count.

In so far as the second question is concerned, the learned Counsel for the appellant-Revenue referred to the impugned order of the Tribunal to point out that in paragraph No. 6 the Tribunal had referred to and relied upon its own order in the case of Dinesh Mills v. Deputy CIT I.T.A. No. 2627/Ahd/92-93. That the said order of the Tribunal in the case of CIT v. Dinesh Mills was carried by way of Income Tax Reference No. 122 of 1996 before this High Court and, vide judgment reported in Commissioner of Income Tax Vs. Dinesh Mills Ltd., the High Court upheld the view expressed by the Tribunal. That the issue raised by the second question, therefore, stood concluded by the aforesaid judgment.

The learned advocate appearing for the respondent-assessee in the first instance pointed out an unreported oral order dated March 14, 2007, in case of CIT v. Bell Ceramics Ltd. rendered in Income Tax Reference No. 67 of 1999 to submit that identical issue was involved in the said matter, vide question No. 3 therein and the court had upheld similar opinion expressed by the Tribunal. Secondly, reliance was placed on the Bombay High Court decision in the case of Kinetic Motor Co. Ltd. Vs. Deputy Commissioner of Income Tax, to submit that applying the ratio of the apex court decision in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, the Bombay High Court had in an identical fact situation held that the Assessing Officer does not have jurisdiction to go beyond the net profits shown in the profit and loss account except to the extent provided in the Explanation to Section 115J of the Act. Lastly, it was submitted that, on the facts, as the Assessing Officer had not recorded any finding as to the revised accounts tendered with the revised return of income, a specific averment had been made by the asses-see before the Commissioner (Appeals) as recorded by the Commissioner (Appeals) in paragraph No. 2.3 of the appellate order that the assessee-company had prepared the profit and loss account as required by the provisions of Section 115J(1A) of the Act, got such account certified by the chartered accountants and thereafter submitted the revised return. Therefore, according to the learned advocate, the basis adopted by the Assessing Officer and the Commissioner (Appeals) was erroneous and the Tribunal had rightly decided this issue in favour of the assessee.

The frame of question No. 1 itself indicates that the profit and loss account which was prepared subsequently was in accordance with Parts II and III of Schedule VI to the Companies Act, but was different from the profit and loss account approved at the annual general meeting, and whether such an exercise was permissible. Applying the ratio of the apex court decision, one can say that the only requirement of the provisions of Sub-section (1A) of Section 115J of the Act is that the accounts, more particularly, the profit and loss account, for the relevant previous year have to be prepared in accordance with Parts II and III of Schedule VI to the Companies Act and accounts so prepared have to be certified by the chartered accountants. In the facts of the present case, it is not found by any authority that the revised accounts submitted with revised return of income filed on December 28, 1990, were not audited. In fact, the positive averment made by the assessee before the Commissioner (Appeals) remains unrefuted.

In the circumstances, the Assessing Officer had no powers or jurisdiction under the provisions of the Act to take a different view of the matter and had no option but to proceed to determine the taxable profits u/s 115J of the Act as per the said provisions without disturbing the accounts in any manner whatsoever, including discarding of such accounts, except to the extent provided in the Explanation to Section 115J of the Act. The Assessing Officer is not vested with any powers to ignore the accounts prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act. Therefore, the impugned order of the Tribunal which holds so does not suffer from any legal infirmity so as to warrant interference.

In so far as the second question is concerned, admittedly, the issue stands concluded against the Revenue by virtue of the aforesaid judgment rendered in case of Commissioner of Income Tax Vs. Dinesh Mills Ltd.,

Accordingly, both the questions are answered in favour of the assessee and against the Revenue. The appeal is accordingly dismissed with no order as to costs.