M/s. Vista Pharmaceuticals Ltd, Hyderabad V. DCIT, Circle-3(3), Hyderabad

MA 253/HYD/2011

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 7792 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 21 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 27-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: K C DEVADAS
• Keywords: Application of stay; Assessment record
• Section: 43B; 143(3); 115JB; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 840/HYD/2011 ASSESSMENT YEAR : 2006-07 M/S. VISTA PHARMACEUTICALS LTD., HYDERABAD PAN: AAACV7648G VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE-3(3) HYDERABAD APPELLANT RESPONDENT S.A. NO. 188/HYD/2011 ARISING OUT OF I.T.A. NO. 840/HYD/2011 ASSESSMENT YEAR : 2006-07 M/S. VISTA PHARMACEUTICALS LTD., HYDERABAD PAN: AAACV7648G VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE-3(3) HYDERABAD APPELLANT RESPONDENT M.A. NO. 253/HYD/2011 ARISING OUT OF SA NO. 136/HYD/2011 IN I.T.A. NO. 840/HYD/2011 ASSESSMENT YEAR : 2006-07 M/S. VISTA PHARMACEUTICALS LTD., HYDERABAD PAN: AAACV7648G VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE-3(3) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI K.C. DEVADAS RESPONDENT BY: SMT. K. MYTHILI RANI DATE OF HEARING: 25.01.2012 DATE OF PRONOUNCEMENT: 17.02.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT-III, HYDERABAD DATED 31.3.2011 FOR A.Y. 200 6-07. THE ASSESSEE ALSO FILED SA NO. 188/HYD/2011 AND M.A. NO . 253/HYD/ 2011 FOR THE SAME ASSESSMENT YEAR. SINCE ALL THESE INCLUDE I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 2 COMMON ISSUES, THE SAME ARE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GRIEVANCE OF THE ASSESSEE HEREIN IS WITH REGARD TO DIRECTION OF THE CIT TO CONSIDER THE INTEREST WAIVE D TO BE INCLUDED IN THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE INCOME-TAX ACT, 1961. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE FILE D RETURN OF INCOME FOR A.Y. 2006-07 DECLARING INCOME OF RS. 33, 37,012. THE ASSESSEE COMPUTED ITS BOOK PROFIT U/S. 115JB AT 'NI L' AFTER REDUCING THE AMOUNT OF INTEREST WAIVED BY BANK ON T HE GROUND THAT IT IS THE AMOUNT WITHDRAWN PROVISION FOR INTER EST TO FINANCIAL INSTITUTIONS DEBITED TO PROFIT AND LOSS A/C. IN EAR LIER YEAR NOW CREDITED TO PROFIT AND LOSS A/C. AND INCLUDED IN TH E BOOK PROFIT U/S. 115JB OF THE ACT. HOWEVER, THE CIT OBSERVED T HAT ON VERIFICATION OF ANNUAL REPORT OF THE EARLIER YEAR T HERE IS NO PROVISION MADE FOR INTEREST. FURTHER IT IS SEEN FR OM THE ASSESSMENT RECORD THAT THE ASSESSING OFFICER HAS NO T CALLED FOR AND EXAMINED THE REPORT PRESCRIBED UNDER RULE 40B I N FORM 29B PREPARED BY AN ACCOUNTANT (CA) VERIFYING COMPUTATIO N OF BOOK PROFIT OF THE COMPANY AS REQUIRED U/S. 115JB OF THE ACT. THE SAID FORM 29B SHOULD ACCOMPANY THE RETURN OF INCOME FILE D BY THE ASSESSEE. THE ASSESSEE HAS NOT FILED SUCH REPORT A ND THE ASSESSING OFFICER HAS NEITHER CALLED FOR NOR EXAMIN ED CORRECTNESS OF COMPUTATION OF THE BOOK PROFIT U/S. 115JB AS VER IFIED BY A CA. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT ON 30.11.2008 COMPUTING THE TOTAL INCOME OF THE ASSESSEE UNDER NORMAL PROVISIONS AND THE BOOK PROFIT U/S. 11 5JB WAS NOT COMPUTED IN THE ASSESSMENT ORDER. THUS, THE ASSESS ING OFFICER FAILED TO CALL FOR AND MAKE PROPER ENQUIRY ON THE C OMPUTATION OF I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 3 BOOK PROFIT U/S. 115JB FILED BY THE ASSESSEE BY CAL LING FOR REPORT OF THE CA IN PRESCRIBED FORM 29B AND EXAMINE THE SAME. ACCORDING TO THE CIT, THE ORDER PASSED BY THE ASSESSING OFFIC ER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON THE F OLLOWING COUNTS: (A) IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN D EBITING INTEREST PAYABLE BY IT TO THE IDBI BANK AMOUNTING T O RS. 16,10,71,358 IN DIFFERENT ASSESSMENT YEARS IN THE P AST UNDER THE HEAD 'FINANCIAL CHARGES'. IT WAS ALSO CO NFIRMED THAT THE SAID AMOUNT WAS ADDED BACK U/S. 43B OF THE STATEMENT OF COMPUTATION FOR ALL THE RELEVANT ASSES SMENT YEARS UNDER NORMAL PROVISIONS OF THE I.T. ACT. THE MOST RELEVANT ISSUE IS ABOUT COMPUTATION OF BOOK PROFIT U/S. 115JB AS DISTINGUISHED FROM THE PROCEDURE ADOPTED B Y THE ASSESSEE FOR COMPUTATION OF TAXABLE INCOME UNDER NO RMAL PROVISIONS OF THE I.T. ACT. (B) THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING AND THE INTEREST PAYABLE TO IDBI BANK, BEING ASCERT AINED LIABILITY AMOUNTING TO RS. 16,10,71,358 WAS ADMITTE DLY DEBITED TO PROFIT AND LOSS A/C. UNDER THE HEAD 'FIN ANCE CHARGES'. THUS, AS SEEN FROM ITS ANNUAL REPORT OF THIS YEAR AND EARLIER YEARS, THE ASSESSEE DID NOT REFLECT ANY PROVISIONS FOR INTEREST PAYABLE TO IDBI BANK WHICH IS NOT REQU IRED AS THE SAME WAS ALREADY DEBITED. DURING THE FINANCIAL YEAR 2005-06, WHEN THE IDBI BANK HAS WAIVED THE SAID INT EREST THE CORRESPONDING INTEREST DEBITED TO PROFIT AND LO SS A/C. IN EARLIER YEARS IS RIGHTLY CREDITED TO PROFIT AND LOS S A/C. THIS YEAR. (C) THUS, IT IS EVIDENT THAT THE BOOK PROFIT OF THE EAR LIER YEARS HAS NOT BEEN INCREASED BY THE INTEREST WHEREAS THE SAME IS I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 4 ADDED IN THE COMPUTATION OF INCOME UNDER NORMAL PROVISIONS. FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS, THE ASSESSEE CANNOT REDUCE THE INTEREST WHICH WAS D EBITED TO PROFIT AND LOSS A/C. EARLIER YEARS UNDER THE PRE TEXT THAT A 'PROVISION' IS MADE. ACCORDINGLY, THE ASSESSEE'S C LAIM OF SUCH ADJUSTMENT UNDER THE EXPLANATION OR EXPLANATIO N BELOW THE SECOND PROVISO TO SECTION 115JA IS MISCON CEIVED AND IS ACCORDINGLY REJECTED AND THE AMOUNT OF RS. 16,10,71,358 BEING THE AMOUNT OF INTEREST WAIVER IS TO BE INCLUDED IN THE COMPUTATION OF THE BOOK PROFIT U/S. 115JB. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CONTENTION OF THE DR IS THAT WHILE COM PUTING BOOK PROFIT U/S. 115JB OF THE ACT INTEREST WAIVER AMOUNT ING TO RS. 16,10,71,358 HAS TO BE ADDED TO THE BOOK PROFIT. A CCORDING TO THE AR THERE IS NO COMPUTATION OF BOOK PROFIT FOR THE A SSESSMENT YEAR UNDER CONSIDERATION AND BEING SO, THE CIT CANNOT TA KE UP THIS ISSUE BY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. FURTHER, HE SUBMITTED THAT THE ASSESSMENT WAS COMPL ETED U/S. 143(3) DATED 13 TH NOVEMBER, 2008 WHEREIN THE ASSESSING OFFICER ADDED THE IMPUGNED AMOUNT WHICH WAS NOT IN THE NATU RE OF INCOME TAXABLE UNDER THE PROVISIONS OF THE ACT AND THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONSI DERED SIMILAR ISSUE AND ALLOWED THE APPEAL OF THE ASSESSEE VIDE O RDER DATED 16 TH OCTOBER, 2009. BEING SO, ORDER OF THE ASSESSING OF FICER IS MERGED WITH THE ORDER OF THE CIT(A). IT WAS ALSO SUBMITTE D THAT THE LIABILITY TOWARDS INTEREST BEING AN ASCERTAINED LIA BILITY, NO ADDITION IS WARRANTED. SUCH DEBIT IS PART OF FINANCIAL STAT EMENT UNDER THE HEAD 'FINANCE CHARGES'. THE INTEREST WHICH WAS DEB ITED TO PROFIT AND LOSS A/C. WAS ADDED BACK ON ACCOUNT OF PROVISIO NS OF SECTION 43B OF THE ACT. IT IS ALSO AN ADMITTED FACT THAT T HERE WAS NO LIABILITY UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT FOR ALL THE I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 5 EARLIER YEARS, AS THERE WAS NEVER ANY BOOK PROFIT O WING TO THE FACT THAT THE INDUSTRIAL UNDERTAKING IS A SICK UNIT. DU E TO THE SICKNESS OF THE ASSESSEE, THE PRINCIPAL LOAN AMOUNT AND INTE REST LIABILITY BY THE BANK WAS WAIVED IN THE ASSESSMENT YEAR UNDER CO NSIDERATION. AS PER THE PROVISIONS OF CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB(2) 'ANY AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RES ERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BOOK PROF IT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUN T WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BE LOW SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE ; OR] 5. THUS, THE AMOUNT WITHDRAWN FROM A RESERVE OR PROVIS ION HAS TO BE CONSIDERED FOR BOOK PROFIT IF IT IS ALLOWED A S DEDUCTION IN EARLIER YEARS. IN THE CASE OF THE PRESENT ASSESSEE , THE AMOUNT WITHDRAWN FROM RESERVE OR PROVISION I.E., WAIVER OF INTEREST CANNOT BE CONSIDERED AS PART OF BOOK PROFIT SINCE IT WAS N EVER ALLOWED IN THE COMPUTATION OF BOOK PROFIT OF THE COMPANY IN AN Y OF THE EARLIER YEARS SINCE THE COMPANY NEVER HAD ANY BOOK PROFIT B EING SICK INDUSTRIAL UNDERTAKING. IT IS AN ADMITTED FACT THA T THE PROVISION FOR INTEREST WAS MADE IN EARLIER YEAR AS INTEREST P AYABLE WAS ADDED BACK TO THE INCOME OF THE ASSESSEE AS THE LIABILITY WAS NOT PAID IN VIEW OF THE PROVISIONS OF SECTION 43B WHILE COMPUTI NG THE REGULAR INCOME OF THE ASSESSEE. IT IS ALSO AN ADMITTED FAC T THAT IN THE EARLIER YEARS THERE IS NO COMPUTATION OF BOOK PROFI T EX CONSEQUENTIA, THERE WAS NO ASSESSMENT WITH REGARD TO COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. IT WAS HELD IN THE CASE OF NARAYANAN CHETTIAR INDUSTRIES VS. ITO (277 ITR 426) THAT IN I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 6 RESPECT OF REMISSION OF LIABILITY NO ADDITION CAN B E MADE UNLESS AN ALLOWANCE OR DEDUCTION IS ALLOWED TO THE ASSESSEE I N THE PREVIOUS YEAR. FURTHER IN THE CASE OF RAYALA CORPORATION PV T. LTD. VS. ACIT, 33 DTR 249, WHEREIN IT WAS HELD THAT RETURNS FOR EA RLIER YEARS HAVE BEEN FOUND DEFECTIVE BY THE ASSESSING OFFICER AND DECLARED TO BE NON-EST, AS THE ASSESSEE HAD FAILED TO RECTIFY T HE DEFECT IN SPITE OF NOTICE ISSUED U/S. 139(9) OF THE ACT, DEDUCTION OF INTEREST CLAIMED IN SUCH RETURNS CANNOT BE DEEMED TO HAVE BE EN ALLOWED AND, THEREFORE, INTEREST WAIVED BY BANK CANNOT BE C HARGED U/S. 41(1 OF THE ACT. 6. TAKING THE CLUE FROM THE ABOVE JUDGEMENTS, SIMILARL Y, UNLESS THE PROVISION CREATED BY THE ASSESSEE TOWARDS INTER EST LIABILITY ALLOWED AS A DEDUCTION WHILE COMPUTING THE BOOK PRO FIT U/S. 115JB WHEN THE ASSESSEE WRITES BACK THE SAME TO THE PROFIT AND LOSS A/C. THEN IT SHOULD BE CONSIDERED FOR DETERMIN ING THE BOOK PROFIT. IT IS NOBODY'S CASE THAT INTEREST LIABILIT Y HAS BEEN ALLOWED AS DEDUCTION IN EARLIER YEARS. IN OTHER WORDS, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN EARLIER YEARS IN RESPECT OF INTEREST LIABILITY WHILE COMPUTING THE BOOK PROFIT AND WRITI NG BACK THE SAME COULD BE ADDED TO THE BOOK PROFIT. A READING OF CLAUSE (I) TO EXPLANATION 1 TO SECTION 115JB(2) GIVES THE ABOVE M EANING. IT IS SETTLED LAW THAT THE LANGUAGE OF THE ACT IS PLAN AN D UNAMBIGUOUS, NO INTERPRETATION THEREIN IS CALLED FOR. FOR THIS PROPOSITION, HE DREW SUPPORT FROM THE JUDGEMENT OF SUPREME COURT IN THE CASE OF SMT. TARULATA SHYAM & ORS. VS. CIT, (108 ITR 345) WHEREIN IT WAS HELD AS UNDER: THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE W ORDS WHICH ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE, BUT TO AMEND, THE STATUTE. EVEN IF THERE BE A CASUS OMISSUS THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 7 7. FURTHER THERE IS A CLEAR DISTINCTION BETWEEN THE EX PRESSION TO BE ALLOWED WHICH IS EQUIVALENT TO THE WORD AL LOWABLE AND THE EXPRESSION ACTUALLY ALLOWED AS HELD IN THE CASE O F INDIAN OIL CORPORATION LTD. VS. S. RAJAGOPALAN, INCOME TAX OF FICER, 92 ITR 248 (BOM). BEING SO, WHEN THIS IMPUGNED INTEREST I S NOT ACTUALLY ALLOWED AS DEDUCTION IN EARLIER YEARS WHILE COMPUTI NG THE BOOK PROFIT, THE SAME CANNOT BE BROUGHT TO TAX IN THIS A SSESSMENT YEAR WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. THIS VIEW IS ALSO SUPPORTED BY THE ORDER OF TRIBUNAL IN THE CASE OF DCIT VS. TOSHA INTERNATIONAL LTD. (115 TTJ 941). 8. FURTHER IN THE CASE OF NCL INDUSTRIES LTD. V. JCIT, 88 ITD 150 (HYD) WHEREIN IT WAS HELD AS UNDER: IT IS NOW WELL-SETTLED POSITION OF LAW THAT IN THE INTERPRETATION OF STATUTES, ONE HAS TO ADOPT SUCH A CONSTRUCTION THAT WILL PROMOTE THE GENERAL LEGISLAT IVE INTENT AND PURPOSE UNDERLYING THE PROVISIONS. MINIMUM ALTERNATIVE TAX HAS BEEN INTRODUCED BY THE LEGISLATURE TO TAKE CARE OF THE PHENOMENON OF PROSPEROUS ZERO TAX COMPANIES WHICH HAD CONTINUED BUT WERE PAYING NO INCOME-TAX THOUGH THEY HAD PROFI TS AND WERE DECLARING DIVIDENDS. A MINIMUM CORPORATE TAX WAS SOUGHT TO BE ENSURED ON THESE PROSPEROUS COMPANIES. IT WAS NOT THE INDENTION OF THE LEGISLAT URE TO IMPOSE THIS MINIMUM ALTERNATIVE TAX ON NEW PROJECTS THAT HAD JUST BEGUN TO MAKE PROFITS AFTER SOME YEAR S OF LOSSES AND ALSO SICK COMPANIES THAT HAVE JUST TURNE D THE CORNER. THE ASSESSEE COMPANY WAS IN LOSSES FOR A NUMBER OF YEARS AND WHICH COULD NOT MEET THE COMMITMENTS FOR REPAYMENTS TOWARDS LOANS AND INTEREST TO VARIOUS BANKS AND FINANCIAL INSTITUTIONS. IT WAS A POTENTIA L SICK COMPANY. ALL THE PUBLIC FINANCIAL INSTITUTIONS AND PUBLIC SECTOR BANKS HAD COME TOGETHER AND ACCEPTED A ONE-TIME SETTLEMENT OF LIABILITIES TO BAIL OUT THE COMPANY AND IN THE PROCESS WAIVED SUBSTANTIAL PORTIONS OF T HE INTEREST DUE TO THEM. THUS TAXING SUCH A COMPANY UNDER THE PROVISIONS OF S. 115JA WAS ITSELF AGAINST THE LEGISLATIVE INTENT. THIS WAS DEFINITELY NOT A PROS PEROUS COMPANY PAYING DIVIDENDS. I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 8 THE FIRST AND FOREMOST GROUND OF THE ASSESSEE WAS T HAT THE ASSESSING OFFICER COULD NOT ASSUME JURISDICTION TO CALCULATE THE BOOK PROFITS FOR THE YEAR ENDED 31.3. 1996 AS WELL AS FOR THE YEAR ENDED 31.3.1997 WHICH WAS I N APPEAL. ON THAT GROUND THE ASSESSEE WAS BOUND TO SUCCEED IN VIEW OF THE RECENT JUDGMENT OF THE SUPRE ME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (200 2) 255 ITR 273/122 TAXMAN 562. IN THE INSTANT CASE, THE ASSESSING OFFICER IN EFFEC T RECALCULATED THE BOOK PROFITS NOT ONLY FOR THE YEAR ENDED 31.3.1997 BUT ALSO FOR THE YEAR ENDED 31.3.1996. O TS HAD TWO CONSEQUENCES, VIZ., (I) WAIVER AND (II) RED UCTION OF INTEREST PAYABLE. IF THE OTS HAD TO BE IGNORED I N TOTO THEN THE INTEREST OF RS. 11.43 CRORES WERE TO BE DE BITED TO THE P&L A/C FOR THE YEAR ENDED 31ST MARCH, 1996, AGAINST THE INTEREST OF RS. 4.5 CRORES DEBITED BY T HE ASSESSEE. ONLY ONE ASPECT OF THE ENTIRE TRANSACTIO N COULD NOT BE TAKEN WHILE IGNORING THE OTHER ASPECT. IN OTHER WORDS, THE ASSESSING OFFICER OUGHT TO HAVE D ONE A COMPLETE EXERCISE OF RECASTING THE P&L A/C AS AT 31ST MARCH, 1996, WHICH ONLY WOULD HAVE GIVEN HIM THE CORRECT FIGURE OF LOSS THAT HAD TO BE CARRIED FORWA RD. WITHOUT RECASTING ALL THE FIGURES OF THE EARLIER YE ARS, THE ACCOUNTS DRAWN UP BY THE COMPANY, CANNOT BE DISTURBED FOR THE SIMPLE REASON THAT IT WOULD GIVE AN ABSURD AND INACCURATE RESULT. ACCOUNTING IS MADE O N THE FUNDAMENTAL ASSUMPTION THAT THE CONCERN IN QUESTION IS A GOING CONCERN AND THE BALANCE CARRIED FORWARD OF THE EARLIER YEAR HAVE PROFOUND EFFECT ON THE RESULTS OF THE CURRENT YEAR. SEE HOW THE ASSESSING OFFICER CAN RECAST THE P&L A/ C IN THE YEAR ENDED 31ST MARCH, 1997, WITHOUT RECASTI NG THE P&L A/C FOR THE YEAR ENDED 31ST MARCH, 1996, BECAUSE THE CARRIED FORWARD LOSSES AS ON 31ST MARCH , 1996, WOULD HAVE TO UNDERGO A CHANGE IN CASE IT IS PERMITTED. GOING BY REASON GIVEN BY THE SUPREME COURT IN APOLLO TYRES'S CASE ONE HAS NO OTHER ALTERNATIVE BUT TO HOLD THAT THE ASSESSING OFFICER WHILE COMPUTING THE INCOME UNDER S. 115J HAS ONLY THE POW ER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT AS CERTIF IED BY THE AUDITORS UNDER THE COMPANIES ACT AS HAVING PROPERLY BEEN MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HA S THE LIMITED POWER OF MAKING INCREASES AND REDUCTION S AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECT ION. I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 9 HENCE, THE ISSUE AS TO WHETHER THE INTEREST WAIVER MUST BE TAKEN FOR THE YEAR ENDED 31ST MARCH, 1996 OR FO R THE YEAR ENDED 31ST MARCH, 1997 NEED NOT BE ADJUDICATED UPON AS IT WOULD ONLY BE AN ACADEMIC EXERCISE HAVING NO BEARING ON THE CASE FOR THE REAS ON THAT SUCH POWER WAS NOT GIVEN UNDER THE ACT. THE SECOND ARGUMENT PUT FORTH BY THE ASSESSEE WAS THAT THE WAIVER OF INTEREST AND CONSEQUENT REDUCTIO N IN LIABILITY IS NOT INCOME UNDER THE GENERAL LAW. TH E REVENUE HAS TAKEN ONLY A PART OF TOTAL WAIVER 5.37 LAKHS INTO CONSIDERATION, THE REASON BEING THE ASSE SSEE HAS TAKEN ONLY THAT AMOUNT AS ITS INCOME IN ITS P&L A/C. THE BALANCE HAS BEEN DIRECTLY TAKEN INTO THE BALANCE SHEET BY THE ASSESSEE-COMPANY. THE STAND O F THE REVENUE WOULD HAVE BEEN CONSISTENT HAD IT APPLI ED THE SAME YARDSTICK TO THE ENTIRE WAIVER OF INTERES T AND NOT GONE ONLY BY THE AMOUNT CREDITED BY THE ASSESS EE TO THE P&L A/C. IN THE JUDGEMENT OF THE SUPREME COURT IN CIT VS. BIPINCHANDRA MAGAN LAL & CO. LTD. (1961) 41 ITR 290 (SC), THOUGH DIFFERENT ON FACTS, THE PROPOSITION IS CLEARLY LAID DOWN THAT THERE IS A DISTINGUISHABLE RELATIONS HIP BETWEEN THE ASSESSABLE INCOME AND THE PROFITS OF BUSINESS CONCERN IN A COMMERCIAL SENSE. IT WAS FUR THER HELD THAT COMPUTATION OF INCOME FOR THE PURPOSE OF INCOME-TAX ASSESSMENT IS BASED ON A VARIETY OF ARTIFICIAL RULES AND TAKES INTO ACCOUNT SEVERAL FIC TIONAL RECEIPTS, DEDUCTIONS AND ALLOWANCES. THUS, A CLEAR DISTINCTION HAS BEEN DRAWN OUT BETWEEN COMMERCIAL PROFITS AND ASSESSABLE PROFITS. ON SIMILAR ANALOGY SECTION 41(1) WHICH WAS BROUGHT INTO THE STATUTE TO SUPERSEDE THE PRINCIPLE THAT UNDER GENERAL LAW REMISSION OF A TRADE LIABILITY IS INCOME CANNOT BE BROUGHT IN FOR THE PURPOSES OF CALCULATING BOOK PRO FIT UNDER S. 115JA. 9. FURTHER IN THE CASE OF JCIT VS. USHA MARTINE INDUST RIES LTD., (KOL.) (SB) 104 ITD 249, THE TRIBUNAL HELD AS UNDER : THE PROVISION OF SECTION 115JA HAS AN OVERRIDING E FFECT UPON THE OTHER PROVISIONS OF THE INCOME-TAX ACT. I T IS APPLICABLE ONLY IN THE CASE OF A COMPANY. AS PER T HIS SECTION, THE ASSESSING OFFICER HAS TO FIRST COMPUTE THE TOTAL INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF THE I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 10 INCOME-TAX ACT. THEREAFTER, HE HAS TO COMPUTE 30 P ER CENT OF THE BOOK PROFIT. THEN, HE HAS TO COMPARE T HE TOTAL INCOME, AS COMPUTED AS PER THE PROVISIONS OF ACT, WITH 30 PER CENT OF BOOK PROFIT, COMPUTED AS PER SE CTION 115JA. IF 30 PER CENT OF THE BOOK PROFIT IS MORE T HAN THE TOTAL INCOME, THEN 30 PER CENT OF THE BOOK PROFIT S HALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE FOR S UCH PREVIOUS YEAR. AS PER SUB-SECTION (2), THE ASSESSE E HAS TO PREPARE THE PROFIT AND LOSS ACCOUNT FOR THE RELE VANT PREVIOUS YEAR, IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES AC T, 1956. THE EXPLANATION DEFINES THE WORDS BOOK PROF IT, WHICH MEANS NET PROFIT AS SHOWN IN THE PROFIT AND L OSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR. SUCH BOOK PROFIT HAS TO BE INCREASED BY ITEMS MENTIONED IN CLAUSES ( A) TO (F) OF THE EXPLANATION IF THEY ARE DEBITED TO THE P ROFIT AND LOSS ACCOUNT AND FROM SUCH PROFIT ITEMS MENTION ED IN CLAUSES (I) TO (IX) OF THE EXPLANATION ARE TO BE REDUCED. THE FIGURE ARRIVED AT AFTER THE ABOVE EXERCISE WOUL D BE THE BOOK PROFIT OF THE ASSESSEE FOR THE RELEVANT PR EVIOUS YEAR. 10. FURTHER, THE ASSESSING OFFICER HAVING COMPUTED THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE NORMAL PROVI SIONS OF THE ACT AND THEREUPON DISALLOWED THE INTEREST PROVISION MADE BY THE ASSESSEE WHILE COMPLETING THE REGULAR ASSESSMENT, THERE WAS NO COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT THE REIN, THAT ASSESSMENT ORDER WAS SUBJECT MATTER OF APPEAL BEFOR E THE CIT(A), IN SUCH CIRCUMSTANCES, WE CANNOT HOLD THAT THE ASSE SSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. IN OUR OPINION, IN THE PRESENT CASE, THE CIT IS NOT JUSTIFIED TO TAKE UP THE ISSUE RELATING TO ADDING BACK OF INTEREST WAIVER TO THE BOOK PROFIT U/S. 263 OF THE ACT. APPEAL OF THE ASSESSEE IS ALLOWED. 11. NOW COMING TO THE STAY APPLICATION AND MISCELLANEOU S APPLICATION FILED BY THE ASSESSEE, SINCE WE HAVE D ISPOSED OF THE APPEAL ITSELF, THE STAY APPLICATION AND MISCELLANEO US APPLICATION I.T.A. NO. 840/HYD/2011 S.A. NO. 188/HYD/2011 M.A. NO. 253/HYD/2011 M/S. VISTA PHARMACEUTICALS LTD. ======================== 11 WHICH WERE FILED ON THE SAME ISSUE, BECOME INFRUCTU OUS AND THE SAME ARE DISMISSED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AN D THE STAY APPLICATION AND THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 17 TH FEBRUARY, 2012 COPY FORWARDED TO: 1. M/S. VISTA PHARMACEUTICALS LTD., 7-1-212/A/70, P LOT NO. 85, SHIVABAGH, AMEERPET, HYDERABAD-500 016. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3( 3), HYDERABAD. 3. THE CIT-III, HYDERABAD. 4. THE ADDL. CIT, RANGE-3, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD TPRAO