2007 (8) TMI 44 - HC - Income Tax

Book profit - AO contended that assessee had calculated tax liability without considering the Government subsidy on generator and accordingly issued notice to the assessee - Held that AO contention was not valid and dismissed

Summary

Issues:
1. Interpretation of Section 115JA of the Income-tax Act regarding calculation of book profit.
2. Applicability of judgments by the Apex Court in determining tax liabilities.

Analysis:

Issue 1: Interpretation of Section 115JA of the Income-tax Act regarding calculation of book profit:
The case involved a dispute regarding the computation of income under Section 115JA of the Income-tax Act. The respondent-assessee had filed a return of income, but the assessment was revised to tax the amount of Government Subsidy on a generator that was not deducted from the cost of machinery for depreciation purposes. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, stating that compliance with the law's provisions was necessary before relying on court decisions. The Tribunal, however, ruled in favor of the assessee, citing the judgment in the case of Apollo Tyres Ltd. vs. Commissioner of Income-tax. The Tribunal's decision was based on the principle that the Assessing Officer cannot question the profit and loss account if it is certified to be in accordance with the Companies Act.

Issue 2: Applicability of judgments by the Apex Court in determining tax liabilities:
The substantial questions of law raised in the appeal pertained to whether the Tribunal was correct in applying the decisions of the Apex Court in the cases of Apollo Tyres Ltd. and Rajaram Maize Products. The Revenue contended that the profit and loss account must be prepared in accordance with the Companies Act for the deemed income provisions to apply. However, the Tribunal relied on the Apex Court's decision in Apollo Tyres Ltd., emphasizing that once the account is certified as per the Companies Act, the Assessing Officer's power is limited to adjustments specified in the Explanation to Section 115J. As the law was settled by the Apex Court, the High Court dismissed the tax case, finding no substantial questions of law for consideration.

In conclusion, the judgment clarified the interpretation of Section 115JA and emphasized the significance of compliance with the Companies Act in determining tax liabilities. The decision highlighted the limited scope of the Assessing Officer's authority once the profit and loss account is certified under the Companies Act, as established by the Apex Court's rulings.