2002 (8) TMI 274 - AT - Income Tax

Issues Involved:

1. Jurisdiction of Assessing Officer to recalculate book profit.
2. Inclusion of waived interest in book profit for assessment year 1997-98.
3. Applicability of Accounting Standards (AS-4 and AS-5).
4. Levy of interest u/s 234A and 234B.
5. Disallowance u/s 43B for profession tax and property tax.
6. Disallowance of Rs. 3,81,004 under the head "P.F. Loan".
7. Addition of Rs. 10,51,91,185 in assessment year 1997-98.

Summary:

1. Jurisdiction of Assessing Officer to Recalculate Book Profit:

The Tribunal held that the Assessing Officer (AO) does not have the jurisdiction to recalculate the book profits for the year ended 31-3-1996 or 31-3-1997. This decision is based on the Supreme Court judgment in the case of Appolo Tyres Ltd. v. CIT [2002] 255 ITR 273, which states that the AO can only examine whether the books of account are certified by the authorities under the Companies Act and has limited power to make increases and reductions as provided in the Explanation to section 115J.

2. Inclusion of Waived Interest in Book Profit for Assessment Year 1997-98:

The Tribunal found that the waiver of interest amounting to Rs. 5,37,42,942 should not be included in the book profit for the assessment year 1997-98. The AO's action of including this amount was based on the assumption that the conditions for waiver were not existing as on 31-3-1996. However, the Tribunal held that the AO does not have the power to recast the profit and loss account certified by the auditors as per the Companies Act.

3. Applicability of Accounting Standards (AS-4 and AS-5):

The Tribunal did not delve into the applicability of AS-4 and AS-5 due to the Supreme Court's ruling that the AO cannot go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J. The Tribunal noted that the waiver of interest was shown in the accounts for the year ended 31-3-1996 as per AS-4, which requires consideration of events after the balance-sheet date that materially affect the assets and liabilities.

4. Levy of Interest u/s 234A and 234B:

The Tribunal upheld the levy of interest u/s 234A and 234B, relying on the Supreme Court's decision in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1, which held that the levy of interest under these sections is mandatory. The Tribunal did not follow the Karnataka High Court's decision in Kwality Biscuits Ltd.'s case, which had held that interest under sections 234B and 234C cannot be charged in a 115J assessment.

5. Disallowance u/s 43B for Profession Tax and Property Tax:

The Tribunal set aside the issue of disallowance u/s 43B for profession tax and property tax to the AO for verification and necessary action, as the assessee claimed that these taxes were paid in time but no proof was furnished.

6. Disallowance of Rs. 3,81,004 under the Head "P.F. Loan":

The Tribunal also set aside the disallowance of Rs. 3,81,004 under the head "P.F. Loan" to the AO for verification. The assessee contended that this amount represents loans sanctioned to employees and does not come within the ambit of section 43B.

7. Addition of Rs. 10,51,91,185 in Assessment Year 1997-98:

The Tribunal set aside the addition of Rs. 10,51,91,185 to the AO for fresh consideration. The assessee argued that this amount was part of the interest waived and should not be added under section 41(1) as it had not been allowed as a deduction on the basis of section 43B.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with several issues being set aside to the AO for verification and fresh consideration.

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