9911796707
TMI Blog1994 (8) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 2. Profits and gains of business or profession Rs. 24,32,110 5. Aggregate of items 1 to 4 Rs. 24,32,110 6. Deduct : (a) Unabsorbed losses/allowances brought forward Rs. 83,34,656 7. Gross total income (-) Rs. 59,02,546 9. Balance (-) Rs. 59,02,546 10. Thirty per cent of book profits computed under s. 115J (Annexure D) Rs. NIL 11. Total Income . . Item 9 or item 10, whichever is higher (-) Rs. 59,02,550 Pursuant to the filing of the return as above, the Assessing Officer in his office note dt. 9th Jan., 1992 decided to reopen the assessment in the following terms: "In this case the assessee-company failed to file a return of income for asst. yr. 1988-89 and, therefore, notices under s. 139(2) and 142(1) were issued. On 31st Oct., 1989, the assessment was closed as N.A. A return of income was filed by the assessee-company on 15th March, 1990, which is delayed and considered non est. In view of the return filed, there is information to the effect that income assessable under the provisions of s. 115J of the Act, has escaped assessment. I am, therefore, satisfied that for the reason stated above, this is a fit case for action under s. 147(b) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet attached) 5,18,387 Balance : 20,03,341 30% thereof : Rs. 6,01,002 . Profit assessed under s. 115J : Rs. 6,10,000 . and subjected the assessee to tax on the same. . 3. The assessee filed an appeal objecting to the reassessment proceedings as well as the quantum of income as determined by the Assessing Officer. The learned CIT(A) after adverting to the facts of the case held that no assessment had been made even though notices under s. 139(2) and 142(1) were issued to the assessee. Even after filing the return by the assessee on 15th March, 1990 no assessment order was passed on the basis of the return and, therefore, the Assessing Officer was justified in reopening the assessment in terms of cl. (b) of Expln. 2 of s. 147. Further the learned CIT(A) held that from the facts it was seen that the profits chargeable to tax under the provisions of s. 115J had escaped assessment and the argument of the assessee that the "deemed income" under the aegis of s. 115J cannot be equated to the real income that has escaped tax was negatived by the learned CIT(A). 4. Another contention of the assessee was that the amended provisions of s. 147 came into force w.e.f. 1st April, 1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh s. 147 is only a machinery section, it does not relate to procedure pure and simple but it effects also the substantive right or protection given to the assessee by ensuring that he is not subjected to reassessment except only under certain conditions and within a certain time as has been held by the Calcutta High Court in Calcutta Discount Co. Ltd. vs. ITO (1952) 21 ITR 579 (Cal). He further submitted that so long as the assessment proceedings were pending against the assessee and no final order had been passed thereon, it would be premature to suggest that income of the assessee had escaped assessment and, therefore, no action can be taken under s. 147. In this connection, he relied on the decision of the Supreme Court in Ghanshyamdas vs. Regional Asstt. Commissioner of Sales-tax & Ors. (1964) 51 ITR 557 (SC) and of the Allahabad High Court in S.P. Kochar vs. ITO (1983) 37 CTR (All) 49 : (1984) 145 ITR 255 (All). For the proposition that a mere 'N.A.' will not tantamount to passing an order of assessment, he relied on the decision of the Supreme Court in CIT vs. M.K.K.R. Muthukaruppan Chettiar (1970) 78 ITR 69 (SC). 8. Sri C. Abraham, the learned senior Departmental Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of the past history of the assessee from 1984-85 onwards, he had came to the conclusion that there was no taxable income and closed the assessment as 'N.A'. Thus, the impugned entry, in our considered opinion, will amount to an order under s. 144 of the IT Act. The mere fact that it was not communicated to the assessee will not make such an assessment recorded in the order illegal as has been held in the case of Sivalingam Chettiar vs. CIT (1966) 62 ITR 678 (Mad), Commr. of Agrl. IT vs. K.M. Parameswara Bhat (1974) 97 ITR 190 (Ker) and CIT vs. Trustees of H.E.H. The Nizam's Second Supplemental Family Trust (1984) 40 CTR (AP) 96 : (1985) 151 ITR 562 (AP). The Supreme Court in CIT vs. Bidhu Bhusan Sarkar held that the endorsement filed may amount to dropping of the proceedings or disposal of the proceedings and that would not bar further proceedings under s. 147. The other cases relied on by the learned senior Departmental Representative support the action of the Assessing Officer in invoking the provisions of s. 147. Thus we reject the preliminary objection of Sri Nair, the learned counsel for the assessee. 10. Sri Nair further contended that the amended provisions of s. 147 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- 9,14,419 1,18,054 1982-83 1,98,511 (+) 10,70,975 -- 1,18,053 -- 1983-84 1,10,295 (-) 27,71,357 1,10,295 -- 1,10,295 1984-85 1,68,693 (-) 38,65,179 1,68,693 -- 2,78,295 1985-86 1,37,727 (-) 80,988 80,988 -- 3,59,976 1986-87 85,104 (-) 2,39,142 85,104 -- 4,45,080 1987-88 82,539 (-) 73,307 73,307 -- 5,18,387 1988-89 69,351 (+) 25,17,908 -- 5,18,387 -- The learned CIT(A) saw no reason to interfere with the quantification as done by Assessing Officer. 13. The assessee's contentions are two-fold before us, viz., (a) The amount of loss or the amount of depreciation whichever is less in respect of the years in which the loss was incurred, if those years fell after the commencement of the Companies (Amendment) Act, should be taken into account for adjustment against the profits of the impugned assessment year and there is no justification to start the computation from the asst. yr. 1975-76. The actual computation should start from the asst. yr. 1970-71 onwards; and (b) The authorities erred in adjusting the loss or depreciation whichever is less against the profits in relation to the asst. yrs. 1981-82 and 1982-83 in giving effect to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equires every company desirous of declaring dividend to provide for depreciation for the relevant accounting year. Further, the company is required under s. 205 to set off against the profit of the relevant accounting year, the depreciation debited to the P&L a/c of any earlier year(s) or loss whichever is less. 36.3 Sec. 115J, therefore, involves two processes. Firstly, an assessing authority has to determine the income of the company under the provisions of the IT Act. Secondly, the book profit is to be worked out in accordance with the Explanation to s. 115J(1) and it is to be seen whether the income determined under the first process is less than 30 per cent of the book profit. Sec. 115J would be invoked if the income determined under the first process is less than 30 per cent of the book profit. The Explanation to sub-s. (1) of s. 115J gives the definition of the "book profit" by incorporating the requirement of s. 205 of the Companies Act in the computation of the book profit. Brought forward losses or unabsorbed depreciation whichever is less would be reduced in arriving at the book profits. Sub-s. (2), however, provides that the application of this provision would not aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total loss 13,00,000 Assessable income 30% of Rs. 6 lakhs, i.e. Rs. 1.8 lakhs." Thus in the above example, the loss or depreciation whichever is less is first adjusted against past profits before depreciation. The provisions of s. 205(1) & (2) of the Companies Act, 1956 are as follows: "DIVIDENDS AND MANNER AND TIME OF PAYMENT THEREOF 205 Dividend to be paid only out of profits.— (1) No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-s. (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government: Provided that— (a) if the company has not provided for depreciation for any previous financial year or years which falls or fall after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), it shall, before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in cl. (b) or cl. (c), then, in the event of the depreciable asset being sold, discarded, demolished or destroyed the written down value thereof at the end of the financial year in which the asset is sold, discharged, demolished or destroyed, shall be written off in accordance with the proviso to s. 350." 14. The salient features of s. 205 of the Companies Act, 1956 are as follows: I. Dividends can be declared for any financial year only out of the profits of that year or out of the profits of any previous financial year or years. For example for the financial year 1987-88 dividends can be declared out of the profits of the financial year 1987-88 or out of the profits of the previous financial years, such as, 1986-87, 1985-86 and 1983-84. However, before declaring dividends, depreciation in accordance with the provisions of sub-s. (2) should be provided against the profits of that financial year or against the profits of any previous year or against the profits of any previous financial year, as the case may be. II. Under cl. (a) of the proviso to s. 205(1), if the company had not provided for depreciation for any previous financial year or years, after the commencement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment) Act in which the loss was incurred against the profits of the previous financial years, viz., 1983-84, 1985-86 and 1986-87. The illustration given in the Board's Circular cited supra, follows the second option, on which the Assessing Officer's working is based. The assessee relies on the computation in accordance with the first option. In our considered opinion, the option that is favourable to the assessee can be adopted for the reason that it lies within the competence of the company to follow one of the options which is in its favour. In this view of the matter, we hold that the assessee is entitled to set off the amount of loss or the amount of depreciation whichever is less in respect of past years against the profits of the year ending on 30th Sept., 1987, relevant to the asst. yr. 1988-89. In this context it must be borne in mind that the expression "financial year" as defined in s. 2(5) of the Companies Act, 1956, is the same thing as "previous year" as defined in the IT Act, 1961. Further, in view of the provisions of the Companies Act, as admubrated in s. 205, the assessee is entitled to give effect to the provisions of cl. (iii) of Explanation to s. 115J as aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under item (g) of the Explanation to sub-s. (1A) of s. 115 of the IT Act. Sub-s. (1A) was inserted by the Finance Act, 1989 w.e.f. 1st April, 1989. Item (g) in the Explanation thereto was also inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989. Therefore, the authorities have rightly held that the deduction under s. 80HHC cannot be made from the book profits in relation to the asst. yr. 1988-89. Thus, the issue is found against the assessee. 17. The last issue in the appeal in against the inclusion of the profit on the sale of capital asset amounting to Rs. 66,242 in computing the book profit. The CIT(A) held that the inclusion of the impugned amount was in order as the said amount was noticed in the P&L a/c prepared as per Part II and Part III of Sch. VI of the Companies Act, 1956. 18. We have heard rival submissions. Though the profit from the sale of asset is assessable under the head capital gains, in view of the special provisions relating to companies for taxation of book profits as adumbrated in the provisions of s. 115J of the IT Act, which overrides any other provision contained in the IT Act, we hold that the profit on sale of asset shown in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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