2003 (6) TMI 178 - AT - Income Tax

Summary

Issues Involved:
1. Justification of the CIT(A) in deleting the addition made by the Assessing Officer on account of interest related to the capital employed in setting up a new project while computing income under section 115JA.

Issue-Wise Detailed Analysis:

1. Justification of the CIT(A) in Deleting the Addition Made by the Assessing Officer:

The Revenue filed an appeal against the order of CIT(A) Ludhiana for the assessment year 1998-99. The primary issue was whether the CIT(A) was justified in deleting the addition made by the Assessing Officer on account of interest related to the capital employed in setting up a new project, known as "HR Project," while computing the income under section 115JA.

Facts of the Case:
The assessee was setting up a new project and capitalized the interest related to the borrowed capital used in the project. This interest was not debited to the Profit & Loss (P&L) account prepared under the Companies Act. However, in the statement of income filed with the return, the assessee claimed a deduction for the interest amounting to Rs. 7,27,04,550, showing a net loss of Rs. 5,09,19,856. The Assessing Officer processed the return under section 143(1)(a) and adopted the book profit as shown in the P&L account without allowing the deduction for the interest related to the HR Project.

Assessing Officer's Reasoning:
The Assessing Officer stated that the assessee wrongly computed deemed income under section 115JA by reducing the interest of the HR Project from the book profits. Section 115JA does not provide for such a reduction, and only specified amounts can be increased or decreased from the book profits. Therefore, the book profits for the purpose of section 115JA were Rs. 2,17,84,694, and 30% of that would be deemed income.

CIT(A)'s Decision:
The assessee appealed to the CIT(A), arguing that the issue was debatable and fell outside the scope of section 143(1)(a). The CIT(A) accepted this contention and deleted the adjustment made by the Assessing Officer, computing the income at Rs. 2,17,84,694 under section 115JA. The Revenue, aggrieved by this order, filed the present appeal.

Revenue's Argument:
The Departmental Representative for the Revenue argued that the interest related to the HR Project was capitalized and not debited to the P&L account. The adjustment claimed by the assessee was not permitted while computing book profit under section 115JA, and the Assessing Officer acted in accordance with the clear provisions of the Act. Therefore, CIT(A) was not justified in deleting the adjustment.

Assessee's Argument:
The counsel for the assessee argued that the issue was debatable and fell outside the scope of prima facie adjustment under section 143(1)(a). He cited the proviso below section 115JA(2) and argued that there could be two balance sheets as per the provisions of section 115JA. The issue of whether the assessee could claim a deduction for interest in respect of a new project in the statement of income or debit it to the P&L account was debatable. He also relied on the ITAT Ahmedabad Bench decision in the case of Atul Ltd. v. Asstt. CIT.

Tribunal's Analysis:
The Tribunal heard both parties and considered the submissions. The undisputed facts were that the assessee had not debited the interest of Rs. 7,27,04,550 to the P&L account prepared under the Companies Act and claimed this deduction in the statement of income filed with the return. The Assessing Officer made the adjustment by adopting the book profit as shown in the P&L account without allowing any adjustment of interest claimed in the statement of income.

The Tribunal agreed with the assessee's counsel that the Assessing Officer's powers under section 143(1)(a) are limited to rectifying arithmetic errors and allowing or disallowing deductions based on the information available in the return. The Assessing Officer is not empowered to make substantial adjustments requiring examination of evidence or a hearing. All debatable issues fall outside the scope of prima facie adjustments under section 143(1)(a).

Main Issue Considered:
The Tribunal considered whether the issue involved was debatable or if the Assessing Officer's action in making the adjustment was in accordance with the provisions of the Income-tax Act, 1961. Section 115JA provides for alternative minimum tax on companies with book profits and paying dividends but not paying tax. The scheme envisages a minimum tax by deeming 30% of the book profits as taxable income if the total income is less than 30% of the book profit.

Section 115JA(2) requires every company to prepare its P&L account for the relevant year in accordance with the Companies Act. The expression 'book profit' is defined in the Explanation to section 115JA(2) and includes specific adjustments. The Tribunal noted that the adjustment claimed by the assessee was not listed in the specified items for adjustment under section 115JA. Therefore, the assessee could not reduce the book profit by claiming a deduction for interest not debited to the P&L account.

Supreme Court Judgment in Apollo Tyres Ltd.:
The Tribunal referred to the Supreme Court judgment in Apollo Tyres Ltd. v. CIT, which held that the Assessing Officer must accept the authenticity of the accounts prepared under the Companies Act and certified by statutory auditors. The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the P&L account except as provided in the Explanation to section 115J. The Tribunal observed that the provisions of section 115JA are similar to section 115J, with minor changes, and the Supreme Court's judgment applies to section 115JA as well.

Conclusion:
The Tribunal concluded that the Assessing Officer's action was in accordance with the clear provisions of the Act and the Supreme Court's judgment in Apollo Tyres Ltd. The CIT(A) was not justified in deleting the adjustment. Therefore, the Tribunal set aside the order of the CIT(A) and restored that of the Assessing Officer.

Result:
The appeal of the Revenue was allowed.