AP. STATE SEEDS DEVELOPMENT CORPORATION, HYD. V. THE COMMISSIONER OF INCOME TAX-I, HYD.

ITTA/232/2006

AI Insights

The case revolves around the dispute concerning the inclusion or exclusion of prior period adjustments in the calculation of book profit under Section 115J of the Income Tax Act, 1961, for the assessment year 1990-91. The appellant, A.P. State Seeds Development Corporation Ltd., had adjusted prior period expenses from its net profit figure, which was contested by the tax authorities. The Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) upheld the exclusion of these adjustments, leading to the appeal in the High Court. The High Court, referencing the Supreme Court's decision in Apollo Tyres Ltd., reversed the lower authorities' decisions, allowing the inclusion of prior period adjustments in the book profit calculation.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 753118 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 21-12-2022
• Assessment Year: misc
• Other Referred Cases: Apollo Tyres Ltd. v. Commissioner of Income Tax [2002] 255 ITR 273 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K MAMATA CHOUDARY
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Assessment Year 1990-91; Book profit; Income Tax; Prior period adjustments
• Section: 260A; 115J

Judgement Text

"IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY,THE TWENTY FIRST DAY OF DECEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN THE HON'BLE SRI JUSTICE C.V. BHASKAR REDDY INCOME TAX TRIBUNAL APPEAL NO: 232 OF 2006 Appeal Under Section 260A of the lncome Tax Act 196'l against the order dated 23-12-2005 in 4411 Hyd/ 2000 ( Asst. Year 1990-91 ) on the file of the lncome Tax Appellate Tribunal, Hyderabad Bench - B, Hyderabad preferred against the order of the Commissioner of Income Tax ( Appeals) lV , Hyderabad dated 15-03-2000 in Appeal No. 677 / DCSR .1 /ClT (A) lV / 99 - 2000 preferred against the order of the Deputy Commissioner of lncome Tax (Assts ) Special Range -1 , Hyderabad dated 30-09-1992 in PAN/ GIR No. A- 7 Between: A.P.State Seeds Development Corporation Ltd., 11-5-47111 , Red Hills, Hyderabad - 4. ...APPELLANT The Commissioner of lncome Tax-|, Aayakar Bhavan, Basheerbagh, Hyderabad - 500 00't. ...RESPONDENT AND Counsel for the Appellant: SRl. C. P. RAMASWAMI Counsel forthe Respondent: Ms. K. MAMATACHOUDARY SENIOR SC FOR I.T. DEPT. FOR SRI B. NARASIHMA SARMA The Court made the following: ORDER D THE HO] I'I]LE THE CHIEF JUSTICE UJJAL BHITYAN AND THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY JUDGMENT: l . t:.e Hoi'ble the C'tticl JLtstice u.j.jc,l Brluyon) Heard Mr. C.P.Ramaswami, lea-rned counsel for the appellant and Ms. K.Mamata Choudary, learned Senior Standing Cour sel for Income Tax Department appearing on behalf of Mr. I].Narasimha Sarma, learned counsel for the respondent. 2. This is a-r appeal under Section 260A of the Income Tax Act, 196 1 (briefly, \"the Act\" hereinafter) liled by the assessee as the appellant against the order dated 23.l2.2OO5 passed by the Income Tax Appellate Tribunal, Hyderabad Ilench ts', Hyderabad (Tribunal) 1n I.T.A.No.44 1 lHvd/2OOO for the assessment year 1990-91. 3. From th: docket proceedings we find that on 26.06.2006 thr: appeal u,as admitted for hearing, but no substantial que stion of law was framed. I.T.T.A.No.232 of 2006 2 4 . However, in the memo of appeal the appell4nt has proposed the following questions as substantial questions of law: 1. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in confirming tJle addition of prior period adjustments of Rs.3,O9,5O4.00 by the lower authorities to the book profits arrived at in accordance with parts II and III of Schedule VI of the Companies Act when no such addition is permitted in terms of Explanation below sub-section (lA) to Section I l5J of the Act? 2. Whether on the facts arrd in the circumstances of the case, the Tribunal is correct in law in dismissing the appellant's appeal despite Tribunal's considered opinion that the assessee's case is squarely covered by the decision of the Supreme Court in Apollo Tyres Ltd. v. Commissioner of Income Tax ([2002] 255 lTR 273 (SC))? 5. Short point for consideration in this appeal 1S whether prior period adjustments are to be included or excluded for working out book profit for the purpose of Section 115J of the Act? 6. Appellant before us is an assessee under the Act having the status of a company in which public are substantially interested. The assessment year under .) 'n consideration is 1990-9i. For the assessment year -under consideration appellant had filed return of income declaring net loss of Rs.13,47,830.00. While computing the income from business, assessing officer vide the assessment crcler dated 30.O9.1992, noted that net prolit as per the profit and loss account was Rs.33,222.O0. However, rvh le computing the tax to be levied under Section 1 1 5.J of the Act, the net profit was taken at Rs.3,42,727.C0 by excluding prior period adjustment of Rs.3,09,50a.00. 7. In appe before the Commissioner of Income Tax (Appeals) IV, I{yderabad (briefly, \"the CIT(A)\"), the first appellate atrt hority took the view that action of the assessing ofli:er was supported by a decision in CIT v. Krishna Oil E xtraction Limitedt which had given a clear finding that prior period adjustments are to be excluded for working out b rok proht for the purpose of Section 115J of the Act I rlrsesl rso crR (r tp) 13l 4 8. On further appeal before the Tribunal it was held as follows: 3. We have heard both the parties and perused the record. As has been noted at page-2 of the CIT(A)'s order, the appellant in its annual account has worked out net profit at a figure of Rs.3,42,7 26. From this, it has claimed a prior period adjustment of Rs.3,09,504. This being the treatment glen by the assessee as per Part II and III of Schedule Vl of the Companies Act, we are of the considered opinion that the assessee's case is squareiy covered by the Supreme Court's decision in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273 (SC). We, therefore, find no merit in the submission of the assessee and uphold the order ofthe ld. CIT [A). 9. Thus, Tribuna-l held that appellant had adjusted prior period of expenses of Rs.3,09,504.00 from the net profit Iigure of Rs.3,42,726.OO to arrive at the figure of Rs.33,222.00 as the net prolit which according to the appellant should also be taken as the book profit in terms of Section 115J of the Act. However, after noting that case of the appellant is clearly covered by the decision of the Supreme Court in Apollo Tyres Limited v. Commissioner of Income Tax2, Tribuna-l instead of setting aside the order of the assessing officer as affirmed by the CIT(A), however I 'I2oo2l2ss rrR 223 (sc) I I R upheld the order of CIT(A) and dismissed the appeal-of the appeilant. 1 0. To app 'eciate the above, we may advert to the relevant porti )r1 of Section 1 15J of the Act which reads as follows: 115-J. (1 Notwithstanding anything contained in any other pro,,ision of this Act, where in the case of an assessee being a company (other than a company engaged i r the business of generation or distribution of electricity , the total income, as computed under this Act in respet t of aly previous year relevant to the assessmer rt year commencing on or aJter the lst day of April, l9ti8 but before the lst day of April, 1991 (herein:rftr r in this section referred to as the relevant previous lezu), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for th€ relevant previous year shall be deemed to be ar1 afiloun equal to thirty per cent of such book prolit. (1A) Ever5 assessee, being a company, shall, for the purposes rf this section, prepare its profrt and loss account fr r the relevant previous year in accordance with the p:ovisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 ol 1956). Explanatio e- For the purposes of this section, 'book proht' mears the net profits as shown in the profrt and loss account for the relevant previous year prepared under Sub.section (1A), as increased by -- t I ,/ I t' (t (b) the amounts carried to any reserves (other thal the reseryes specilied in Section 8OHHD 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 proposed; or (f) the amount or arnounts 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 piofits 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 I I (a) tJle amount of income-tax paid or payable, and the provision therefor; or 7 (5 clauses (l) and (h) is not credited to the profit and loss accounl. rnd as reduced by -- (i) the an ount withdrawn from reserves (other than the resenres ;pecified in Section 80HHD) or provisions, if any su<:L amount is credited to the [profit and loss account : Provided tlrat, where this section is applicable to an assessec in any previous year (including the relevant previous ycar), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the lst day of April, 1188 shall not be reduced from the book proht unless tht book profit of such year has been increased by those r'eserves or provisions (out of which the said amount wirs witidrawn) under this Explanation; or (i) the am< unt of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit z nd loss account; or (ii) the .rm runts las arrived at after increasing the net profit b1' tl e amounts referred to in clauses (a) to (f) and reducing t. rc net profit by the amounts referred to in clauses (i) and (ii)l attributable to the business, the profits lrorn which are eligible for deduction under Section 80lHC or Section 80HHD; so, however, that such amou rts are computed in the manner specified in sub-section (3) or sub-section (3A) of Section SOHHC or sub-section (3) of Section SOHHD, as the case may be; or (iv) the amo rnt of the loss or the amount of depreciation which woul l be required to be set off against the profit I / 8 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 (l) sha.ll a-ffect 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. 11. From the above, it is seen that as per sub-section (1), which starts with a non-obstante clause, in case of an assessee which is a company (other than a company engaged in the business of generation or distribution of electricity) the tota-l income as computed under the Act in respect of any previous year relevant to the assessment year commencing on or a-fter the first day of April, 1988 but before the first day of April, 199 1, was less than 30% of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be al arnount equa,l to 30% of such book profit. Sub-section (1A) clarifies that the profit and loss account to be prepared by I I I () ) the assessee 'or the aforesaid previous years should'be in accordance r.'i1-h the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Explanation below sub-se, :t Lon (1A) defines 'book proht' to mean, the net prolit as ;hown in the profit and loss account for the relevant previ,)l-1s year prepared under sub-section (1A) and as increased 1ry the provisions mentioned in clauses (a) to (i) thereunder. 12. From th: above it is seen that the statute does not provide that p -ior period adjustments are to be excluded to work out the Look profit as per sub-section (1A). 13. In Apollo Tyres Limited (supra) Supreme Court was considering arr()ngst others the question as to whether an assessing offic:r while assessing a company under Section 115J of the Ar:t can question the correctness of the profit and loss accorrnt prepared by the assessee in accordance with Parts II a rd III of Schedule VI to the Compalies Act, 1956. 14. In the aborze context, Supreme Court referred to the object behind insertion of Section 1 15J in the Act and t I -7 10 thereafter observed that income tax authorities were unable to bring certain companies within the net of income tax because these companies were adjusting their accounts was with a view to bring such companies within the tax net that Section 1 15J was introduced in the Act having a deeming provision that the company would be liable to pay income tax on at least 3O%o of its book profit as shown by itself in its own account. Thereafter, Supreme Court analysed the above provision and held that use of the words \"in accordance with prouisions of Parts II and III of Schedule VI to the Companies Acl\" was made for the limited purpose of empowering the assessing authorit5r to rely upon the authentic statement of accounts of the company. Whiie so looking into the accounts of the company, an assessing officer under the Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, 1956, which obligates the company to maintain its account in a manner provided by the Companies Act, 1956. Therefore, an assessing oflicer while computing the income under Section 115J has only - t- t in such a manner as to attract no tax or very little tax. It tl I the power to r:xamine vi'hether the books of accounts are certified by th e authorities r-rnder the Companies Act, 1956, as having br,en properlv maintained in accordance with the Companies A,:t, 1956. Assessing officer thereafter has the limitecl powe : of making increases and reductions as provided for irr the Explanation to the said Section. Putting it differentlv. Jupreme Court held that an assessing officer does not havt the jurisdiction to go beyond the net prolit shown in the profit and loss account except to the extent provided in th: Explanation to Section 115J of the Act. i 5. Il that I re the position, assessing oflicer could not have taken ar other figure as the net profit instead of the account prepa:t:d in terms ol Parts II and III of Schedule VI to the Comparies Act, 1956. 16. That beirrg the position, the substantial questions of law as extrac ted above are answered in favour of the appellant and rrgainst the respondent. 17. Appeal is accordingly allowed. 0 t net profit of R;.33,222.00 shown as per the profit and loss 12 Miscellaneous applications pending' if any'\" shall stand closed. However, there shall be no order as to costs' Sd/.M,VIJAYA BHASKAR JOINT REGISTRAR //TRUE COPY// SECTION OFFICER To 1. The lncome Tax Appellate Tribunal, Hyderabad Bench - B, Hyderabad 2. The Commissioner of lncome Tax ( Appeals) lV , Hyderabad 3. the Deputy Commissioner of lncome Tax ( Assts ) Special Range -1 , Hyderabad 4. One CC to SRl. C P RAMASWAMI Advocate [OPUC] 5. One CC to Sri B. NARASIMHA SARMA, Advocate (OPUC) 6. One CC to SRl. J V PRASAD (SC FOR INCOME TAX) IOPUC] 7. Two CD Copies ( J. +e- I HIGH COURT DATED:21l1212022 JUDGMENT ITTA.No.232 o12006 ALLOWTNG I }TE APPEAL o E T A T 5 $ FE D 1 .tr 1 0r o L) NLl I r t}. $r/ I I I I I I I -r: , f:i btl "