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TMI Blog2006 (6) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... erest free loan was granted for deferred payment of sales tax for the financial years ( sic ) 1994-95 ( sic ) and 1998-99 ( sic ). The CIT(A) observed that the sanction granting interest free loan for deferred payment of sales tax to the assessee-company covers the period relevant to both the assessment year s involved. Also taking into consideration the CBDT Circular No. 674 dated 29-12-1993 he found merit in the submission of the assessee and allowed the appeal of the assessee. 4. Being aggrieved the revenue is in appeal before us. 5. The ld. DR argued and submitted that since the sales tax liability was not converted into the loan during Financial Year and as no evidence in support of the same was filed before the assessing officer, the assessing officer was justified in adding the amounts under section 43B to the income of the assessee. It was also the submission of the ld. DR that also in view of the decision of the Hon ble Supreme Court in the case of Chaurangi Sales Bureau 87 ITR 542 (SC) even if the liability are paid outside the profit loss account they fall into the ambit of Section 43B of the Income-tax Act. Hence the order of the Assessing Officer should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en granted according to the provisions of Rule 28A of the Haryana General Sales Tax Act, 1963 for the period from 28-11-92 to 27-11-99. This covers the Financial Years 1995-96 and 1997-98 which are the years involved in the present appeal. We find that this certificate is dated 28-3-95. Keeping in view the above facts and circumstances of the case, we are of the view that as the sales tax liability was converted into an interest free loan by the State Government the same amounted to payment of the sales tax liability to the State Government and, therefore, the Assessing Officer was not justified in making addition under section 43 B of the Act. 8. The other argument of the ld. DR was that since the assessee has not credited the sales tax amount in the profit loss account and according to the decision of the Hon ble Supreme Court in Chaurangi Sales Bureau 87 ITR 542 (SC) the same was a trading receipt and liable to tax. We are of the considered opinion that under Section 28 of the Income-tax Act, we are not to tax the receipt of the assessee but the income embedded in such receipts. If the sales tax liability is treated as a trading receipt and credited in the profit loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer whereas the ld. AR of the assessee fully justified the order of the CIT(A). 12. We have heard the rival submissions and perused the orders of both the lower authorities and materials available on record. The issue to be decided by us is that whether the CIT(A) was right in holding that the amounts of business loss, unabsorbed depreciation, unabsorbed investment allowance, etc., as at the beginning of the accounting year are required to be adjusted and set off to the extent such brought forward business loss, unabsorbed depreciation, etc., would have been adjusted and set off had the assessee been assessed to tax in the regular way in accordance with the provisions of sections 28 to 43 of the Income-tax Act, 1961, and not by way of application of the provisions of section 115J(1) and that the resultant amounts of losses, unabsorbed depreciation, unabsorbed investment allowance etc., only will be required to be carried forward to the next year? 13. The ld. AR of the assessee has relied on the decision of the Hon ble Calcutta High Court in the case of Singh Alloys And Steels Ltd. ( supra ) wherein the Hon ble High Court held that the intention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable income less than 30 per cent of the book profit, entitling it to pay tax only on 30 per cent of its book profit. In deeming the total income to be 30 per cent of the book profit, the deductions claimed are not ignored as contended by the appellants but are a necessary ingredient of the formula for applying the fictional total income. The decisions cited in the context of the operation of statutory fictions are not apposite as there is no notional or fictional but actual deduction. Once the deductions are taken into consideration and the assessee is put into the category of those companies covered by section 115J(1) only then is the assessee required to pay on a notional income of 30 per cent of its book profits. Had section 115J not been introduced, the assessee would have been entitled under the provisions of sections 32(3), 32A(3), 72 (1)( ii ), 73, 74, 74A(3) and 80J(3) to carry forward only the unabsorbed depreciation allowance under section 32, investment allowance under section 32A, losses under sections 72, 72A, 73, 74 and permissible deductions under section 80J to the following assessment year to be set off against the profits and gains of that assessment year. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition of book profit by incorporating the requirement of section 205 of the Companies Act in the computation of the book profit. Brought forward loss or unabsorbed depreciation whichever is less would be reduced in arriving at the book profits. Sub-section (2), however, provides that the application of this provision would not effect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off, and deduction under section 80J, to the extent not set off as computed under the Income-tax Act." The Division Bench of the Andhra Pradesh High Court in Suryalatha Spg. Mills Ltd. [1997] 223 1TR 713, had construed section 115J in favour of the revenue, inter alia, because (page 726) : "the very object of the provision of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J, if any loss equal to the income thus determined is allowed to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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