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TMI Blog1998 (1) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... l be clear from the provisions of sections 32AB(3) that the computation of profits of eligible business or profession will have to be made by taking into consideration the profits as per the requirements of Schedule VI of the Companies Act (Parts II & III) and then making adjustments for the items mentioned in sub-section (3)(a). It is on this profit so arrived at one has to apply 20% to arrive at the maximum deduction eligible under section 32AB. 5. In the light of the above, the points raised by the audit are dealt with below: - (a) Inclusion of dividend income: Net profits of the Company as per the requirement of Schedule VI of the Companies Act should include income from dividend. Sub-section 3(a) of section 32AB does not specify that the dividend income should be excluded while computing the income from the profits of eligible business or profession. Thus, there is no need to delete the amount of dividend credited to the P & L A/c. It is irrelevant for this purpose in what manner, the business income is computed under Chapter IV of the Income-tax Act. (b) Inclusion of profit on sale of capital assets: This income has been credited to the P & L A/c as per the requirement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated in sub-section 3(a) of section 32AB. Therefore, there is no need to deduct this amount of Rs. 95,25,670 from the net profit to arrive at the profits of eligible business or profession. It will be relevant to state that the withdrawal of reserves or provisions contemplated in sub-section 3(a) is complementary to the add back of amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities as stated in sub-clause (v) of subsection 3(a). 6. It will, therefore, be seen that the profits of eligible business or profession for the purposes of ascertaining the amount of deduction is not the same as the 'Income from business'. Such profits for the purpose of investment deposit will have to be specifically calculated in the manner provided. Accordingly, the audit comment is not correct in stating that the amount of Rs. 18,54,101 calculated and allowed in assessment under section 32AB of the Act is not correct." 4. The Assessing Officer considered the aforesaid reply of the assessee and rejected the same after making the following observations: (1) Write back of liability amounting to Rs. 95.25 lacs: As per the provisions of claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company and is being rectified as below: Amount of deduction under section 32AB: Net amount as arrived by the assessee-company on which 20% being deduction under section 32AB has been allowed. 82,70,507 Less : The amounts which are not includable for deduction under section 32AB as discussed above : (a) Write back of liability 95,25,670 (b) Capital gain 10,75,408 (c) Income from other source 5,04,648 1,11,05,726 --- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and the provision was taken to the P & L Account in the assessment year under consideration when the Patna High Court gave favourable judgment. He added that the transfer of the provision to the P & L Account did not amount to profit for the year under consideration as per Parts II & III of the VIth Schedule of the Companies Act read with section 32AB(2)(i) and section 32AB(3)(vii) of the IT Act. With these observations he confirmed the Assessing Officer's order. 8. The ld. CIT(Appeals) further held that the mistake was apparent from record and the issue was not at all debatable and, as such, the order passed under section 154 was valid. He was of the view that the Supreme Court's judgment in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 was not applicable to the present case. 9. Aggrieved further, the assessee has come up in second appeal before this Bench. 10. The ld. counsel at the outset submitted that it was not a case covered under section 154 of the IT Act. He added that there was no mistake apparent from record as the matters in dispute were debatable issues. He further added that the action under section 154 was initiated by the Assessing Officer on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty raised by the Central Excise Authority. The assessee followed mercantile system of accounting with regard to the liability in question and, as such, the demand raised by the Central Excise Authorities had been claimed as deduction. It was clearly an ascertained liability on the basis of the demand raised and the view of the ld. CIT(Appeals) that it was a provision was totally misconceived and wrong. He further added that the question of actual payment of liability was not a factor to determine whether the liability was ascertained or not. Therefore, the ld. CIT(Appeals) was wrong in his view that because the liability had not been paid it was a provision and not an ascertained liability. 13. The ld. counsel further submitted that when the Patna High Court gave favourable order and the liability had become non-existent, the same had been added to the profit and loss account as provided under section 41(1) of the IT Act for the assessment year in question. He contended that the amount of liability written back was clearly a profit as provided in section 41(1) of the IT Act. He added that view of the ld. CIT (Appeals) that it was not a profit but a provision was totally misconceiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of Rs. 95.25 lakhs fell within the definition of provision and reserve. 17. We have given careful consideration to the facts of the case, the submissions of the rival parties, the provisions of law and the decisions relied upon. We are of the view that the aforesaid 3 items were includible in the profit of the company for the purpose of computation of deduction under section 32AB of the IT Act. At the outset it must be clearly understood that the profits of business or profession of an assessee for the purpose of deduction under section 32AB have to be computed in accordance with the requirement of Parts II & HI of Schedule VI to the Companies Act subject to increase or decrease or profit as provided in sub-section (3) and also in Parts II & III of Schedule VI to the Companies Act. It is, thus, clear that the computation of the profits of business or profession for the said purpose is not to be made in accordance with the provisions of the IT Act. Hence, the bifurcation of the profit of the business of the company into different heads of income like profits and gains of business or profession, income from house property, income from capital gains and income from other so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance or deduction has been made in an assessment for a year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) 20. Further Explanation 1 to section 41(1) provides as under: "Explanation 1. - For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first-mentioned pers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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