1993 (3) TMI 147 - AT - Income Tax

Additional Depreciation, Assessing Officer, Change In Method, Income Returned, Sales Tax Refund, Total Income

Summary

Issues Involved:
1. Legality of adjustments made under Section 143(1)(a) of the Income-tax Act, 1961.
2. Validity of adjustments made under Section 115J of the Income-tax Act, 1961.
3. Computation of book profit and additional tax.
4. Inclusion of prior period items in book profit.
5. Refund of countervailing duty and its treatment.
6. Additional depreciation and its treatment.
7. Sales tax refund and its treatment.
8. Interest under Sections 234B and 234C.

Detailed Analysis:

1. Legality of Adjustments under Section 143(1)(a):
The primary issue was whether the adjustments made by the Assessing Officer (AO) under Section 143(1)(a) were prima facie adjustments and legally sustainable. The assessee contended that the adjustments did not relate to deductions, allowances, or reliefs wrongly claimed and were not within the purview of Section 115J. The Tribunal held that the AO was obliged to look at the book profit in terms of Section 115J due to the assessee's own conduct in furnishing another statement. The adjustments made by the AO were considered permissible under Section 143(1)(a) as they were in the realm of arithmetical errors.

2. Validity of Adjustments under Section 115J:
The Tribunal examined the adjustments made by the AO under Section 115J. It was held that the AO was correct in starting the computation with the figure of Rs. 87,95,707, as the assessee itself had furnished this figure in its second statement. However, the Tribunal found that the adjustments made by the AO regarding the refund of countervailing duty and additional depreciation were not sustainable under Section 115J.

3. Computation of Book Profit and Additional Tax:
The AO computed the book profit at Rs. 3,78,04,906 and took 30% of the same at Rs. 1,13,41,471, which was higher than the income computed under other provisions of the Income-tax Act. Consequently, the AO levied additional tax and interest under Sections 234B and 234C. The Tribunal re-cast the book profit computation, ultimately determining the total income of the assessee under Section 115J to be Rs. 34,35,330.

4. Inclusion of Prior Period Items in Book Profit:
The Tribunal held that prior period items, as specified in Schedule 9 to the profit and loss account, should be included in the profits of the year under review. This was in accordance with clause 2(b) of Part II of Schedule VI to the Companies Act, which requires the disclosure of every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature.

5. Refund of Countervailing Duty:
The AO added back the refund of countervailing duty amounting to Rs. 1,00,62,986 to the net profit. The Tribunal found that this sum was already embedded in the starting figure of Rs. 87,95,707, and thus, the AO's addition resulted in a double addition. The Tribunal did not uphold the computation of either the assessee or the AO regarding this sum.

6. Additional Depreciation:
The Tribunal noted that the additional depreciation of Rs. 75,46,881 was treated as a prior period expense in Schedule 9 and was already adjusted against prior period income. The Tribunal held that the assessee's addition of this sum in its second statement was an error, and the AO's adoption of this adjustment was also incorrect. Therefore, this adjustment was deleted.

7. Sales Tax Refund:
The AO included a sales tax refund of Rs. 5,681 in the book profit computation. The Tribunal held that since this refund was not credited to the profit and loss account, it could not be taken into account for quantifying the book profit under Section 115J.

8. Interest under Sections 234B and 234C:
The CIT (Appeals) had given directions for the modification of interest under Sections 234B and 234C. The Tribunal's re-computation of the book profit and total income would necessitate a corresponding adjustment in the interest levied.

Conclusion:
The Tribunal partly allowed the appeal, re-computing the book profit and total income of the assessee. It emphasized the importance of scrutiny assessments in cases where Section 115J is applicable, to avoid disputes and ensure fairness. The final book profit was determined to be Rs. 1,14,51,101, with 30% thereof amounting to Rs. 34,35,330 as the total income under Section 115J.