9911796707
TMI Blog2007 (7) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax payable on the total income for the relevant previous year was less than 7½ per cent of the book profit, computation of tax was made as per provisions of section 115JB of the Act. The book profit so computed was Rs. 4,51,95,130. The Assessing Officer in the order under section 154 observed that for assessment year 2002-03 income was declared by the assessee at Rs. 71,96,700 and at the time of filing the return, the assessee himself had computed book profit of Rs. 4,51,96,130 as per Auditor Report. However, while computing the book profit under section 115JB, assessee did not add back Rs. 1,14,24,000 which was shown in the balance sheet as provision for deferred tax debited to Profit & Loss account. Since the book profit was under-assessed by this amount, the Assessing Officer after giving opportunity under section 154 had made rectification in the assess-ment order to recompute MAT under section 115JB. The order under section 154 was questioned before the ld. CIT(A) on two counts. Firstly, the adjustment of Rs. 1,14,24,000 was permissible under Accounting Standard-22 and secondly, under provisions of section 154 only such mistakes can be rectified which are apparent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded according to the Accounting Standard-22 issued by the Institute of Chartered Accountants of India and that, therefore, there is no need to rectify the book profit by adding the provision of deferred liability of taxation. I am enable to agree with the assessee for the simple reason that while calculation the book Profit all provisions including the provision for deferred liability debited to the P&L Account are added. The objection thus raised by the assessee is misconceived." The learned Assessing Officer thus erroneously increased the 'book profit' by the sum of Rs. 1,14,24,000, being the 'Deferred Tax Liability' appearing in the Profit & Loss Account. 5. The assessee preferred an appeal against the above order of the learned Assessing Officer. The learned CIT(A) rejected the appeal of the Assessee, stating at pages 3 and 4 of the order dated 16-11-2005, as follows :-- "the clear interpretation of the above language of statute under section 115JB clearly leads to only one conclusion and there is no question of any ambiguity or having inconsistent views thereof. The only conclusion which can be arrived at on the basis of the language of Explanation 115JB is that the book p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 143. . . .". The provisions of this section apply to the cases where basically there is a mistake; and when such a mistake is apparent from the records. The settled law, in view of the ruling given by the Hon'ble Supreme Court in the matter of T.S. Balaram , ITO v. Volkart Bros. [1971] 82 ITR 50 , is that : "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions and a decision on a debatable point of law is not a mistake apparent from the record". In the instant case neither there is a mistake at all nor there is one which could be called as obvious or patent on the face of the record. The learned Assessing Officer, therefore, had no jurisdiction to proceed and make an order under section 154 of the Act. There is no glaring mistake on the face of record either as viewed by the learned CIT(A). In any case, the learned CIT(A) has erred in holding : "here in the present case no interpretation is involved as it has only one and single meaning. Hence on this issue I do not agree with the argument of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted and followed. 9. Both, the Assessing Officer as well as the ld. CIT(A) have considered the 'Deferred Tax Liability' to be falling within the ambit of clause (a) of the said Explanation. Ld. CIT(A) has considered the same to be alternatively falling within the ambit of clause (c) of the said Explanation. The two clauses are reproduced herein for ready reference : "(a)the amount of income-tax paid or payable, and the provisions therefor; or (c )the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or." The said item namely 'Deferred Tax Liability' is neither the income-tax 'paid' or 'payable' nor is it a 'provision' against income-tax 'paid' or 'payable'. The term 'paid' need not be explained. The term 'payable', refers to an amount which has become legally due or enforceable. It is relevant to make a reference to the Advanced Law Lexicon (Third Edition 2005), which defines the term 'payable' as follows : "The word 'payable' is a descriptive word, meaning capable of being paid, suitable to be paid; admitting or demanding payment; justly due; legally enforceable." "Where a bank issued a paper which recited that a cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in value of assets, or retained by way of providing for any known liability, of which the amount cannot be determined with substantial accuracy." The 'Deferred Tax Liability' though not an item which is to be 'paid' or 'payable' under the provisions of the Act; but is nevertheless an 'ascertained liability', computed in accordance with the prescribed method under the said Accounting Standard and is required to be accounted for in terms of the relevant provision of law. The 'Deferred Tax Liability' can be better understood as the liability , the existence as well as the quantum whereof as on the date of the Balance Sheet, is absolutely ascertained, determined and certified. In contrast, the 'provisions' are those amounts where the amount cannot be determined with substantial accuracy/ certainty. Thus where the existence as well as the amounts is certain, it does not even need to be termed as a provision. 9.2 Secondly, it basically doesn't make difference at all, by what nomenclature the assessee or for that matter anyone may call it. What has to be seen and appreciated is that substance-wise, it is a well 'ascertained' sum, a finite amount whereof is well- ascertainable; and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g MAT then in terms of the clause (a) of the Explanation appended to the section 115JB. Accordingly, if the 'Deferred Tax Liability' is added back to the book profit first at the time when it is originally accounted for, as has been erroneously done by the Assessing Officer and upheld by the learned CIT(A), and then it is also added back when in future it gets converted into current tax, it would quite obviously lead to a double addition of the same substance to the net profit, though actually the 'Deferred Tax Liability' accounted for earlier would itself be turning into the current tax liability in future. Such double addition shall amount to double inclusion of the same substance leading to consequent double taxation, which is not at all tenable in law and can never be the intention of the Legislature. 9.7 In view of the foregoing, the appellant prays that increase of the net profit by adding thereto the 'Deferred Tax Liability', as done by the Assessing Officer and as upheld by the learned CIT(A), be deleted. 10. It is quite pertinent to mention here the following : (i)that the Institute of Chartered Accountants of India (ICAI), in one of its monographs entitled : 'Guidance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e comply with Schedule VI of the Companies Act, 1956 as well as the Accounting Standard issued by the ICAI so that the financial statement shows the true and fair view, which is the most prime requirement of the Companies Act, 1956. There is, therefore, no way that the net profit as revealed by the assessee could be increased by the amount of the provision for 'Deferred Tax Liability'. 10.3 On this point the assessee places reliance on the Hon'ble Supreme Court's verdict in the Apollo Tyres Ltd.'s case (supra). Gist of the verdict is as follows : "The use of the words 'in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act' was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the Company. While so looking into the accounts of the Company, an Assessing Officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to section 115J.--CIT v. Apollo Tyres Ltd. [1998] 149 CTR (Ker.) 538; [1999] 237 ITR 708 (Ker.) : TC S34.2490 set aside. Conclusion : While assessing a company for income-tax under section 115J the correctness of the P&L a/c prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act cannot be examined by the Assessing Officer; Assessing Officer does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to section 115J." (Emphasis supplied) It may be germane to the issue in the present case, to consider the view given by the ITAT, Special Bench in case of Joint CIT v. Usha Martin Industries Ltd. [2007] 288 ITR 63 (AT)(Cal.) held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lustration dealt with and the view taken in the above matter by the said Special Bench, what becomes clearer is that in arriving at the figure of book profit for the purpose of levying the Minimum Alternate Tax under the special provisions of section 115JB, the Assessing Officer is only required to follow the dictates specifically laid down in the said section and the Explanation appended thereto. The Apex Court's verdict in the Apollo Tyres' matter lays down clearly that there is no room for assuming discretion to read more than what is expressly stated in the said provision; and to try to enhance, dilate or extend the scope of the items specifically enumerated in the said Explanation. 'Deferred Tax Liability' is not covered under any of the items of the Explanation and as such addition thereof has to be deleted. This is accounted for to comply with the AS-22 and the provisions of the Companies Act. There is nothing in the Income-tax Act, which requires this to be added to net profit for the limited purpose of levying MAT under section 115JB. 12. The ld. D/R on the other hand justified the first appellate order with the submission that provision laid down under section 115JB was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5B(2) is debatable one and thus the Assessing Officer was not justified in invoking the provisions of section 154 of the Act to include the sum of Rs. 1,14,24,000 being the 'deferred tax liability' appearing in the Profit & Loss account in the book profit. With the above submissions, the ld. A/R has tried to establish that the 'deferred tax liability' though not an item which is to be paid or payable under the provisions of the Act, but is nevertheless an ascertained liability, computed in accordance with the prescribed method under the said Accounting Standard-22 and is required to be accounted for in terms of relevant provisions of law. We find substance in the submission of the ld. A/R that the deferred tax liability can be better understood as the liability, the existence as well as the quantum whereof as on the date of the balance sheet, is absolutely ascertained, determined and certified. In contrast, the 'provisions' are those amounts where the amount cannot be determined with substantial accuracy/certainty. Thus where the existence as well as the amounts is certain, it does not even need to be termed as a provision. The meaning of the provisions laid down under section 115J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the tax liability can be related with reference to the corresponding income earned. The deferred tax liability is the amount which is to be computed as per the prescribed method and is required to be accounted for in terms of and in accordance with the requirement of Accounting Standard-22 for 'Accounting for taxes on income', read with the provisions of sub-sections (3A) to (3C) of section 211 of the Companies Act, 1956. The deferred tax liability is neither income-tax 'paid' or 'payable' nor a 'provision' against the same. The deferred tax liability so recognized and accounted for in the books would turn into current tax in the future years because this liability is very much an existing liability due to timing difference. It is nevertheless an ascertained liability duly certified as such in terms of the legally incumbent Accounting Standards under the Companies Act. We also find substance in the submission of the ld. A/R that in future when the deferred tax liability would be getting converted into current tax and would then necessarily be provided for as the current tax, then of course the same would be liable to be added back to the then net profit for the purpose of levying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or retained by way of providing for any known liability, of which the amount cannot be determined with substantial accuracy". The deferred tax liability though not an item which is to be 'paid' or 'payable' under the provisions of the Act, but is nevertheless an 'ascertained liability', computed in accordance with the prescribed method under the said Accounting Standard and is required to be accounted for in terms of the relevant provision of law. The deferred tax liability can be thus better understood as the liability, the existence as well as quantum whereof as on the date of the Balance Sheet, is absolutely ascertained, determined and certified. On the contrary, the provisions are those amounts where the amount cannot be determined with substantial accuracy/certainty. Therefore, where the existence as well as the amounts is certain, it does not even need to be termed as a provision. Adjustment in respect of deferred tax is certainly not an amount of income-tax that is paid or payable, which is only a notional adjustment to mitigate a timing mismatch. As discussed above, it can also not be considered as a "provision". The charge in respect of deferred tax for the current finan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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