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TMI Blog2015 (9) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... arrive at book profit for the purpose of Section 115JA? (3) Whether the Tribunal is justified in holding that since the appellant has already got some benefits, the same has to be surrendered?'' 2. Heard Mr.R.Vijayaraghavan, learned counsel for the appellant/assessee and Mr.J.Narayanasamy, learned standing counsel for the department. 3. With respect to the assessment year 1997-98, the assessee filed a return of income on 28.11.97 admitting a loss. The return was processed under Section 143(1) on 30.3.98. 4. However, on the ground that the assessee had written back depreciation wrongly in their profit and loss account and that therefore the income chargeable to tax had escaped assessment, a notice under Section 148 was issued, to assess the escaped income under Section 115JA of the Act. 5. By an order passed on 24.2.2000, the assessing officer held that the book profit was the net profit as shown in the profit and loss account prepared under sub-section (2) of Section 115JA and that it was deliberately inflated to bring back depreciation written back in the earlier years. Therefore, the assessing officer treated 30 per cent of the book profit so calculated as the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 but ending before the 1st day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. ...." 9. Before we actually get into the scope of the Explanation under subsection (2) of Section 115JA, it may be relevant to take note of the object behind the introduction of Chapter XII-B. The object behind the introduction of Chapter XII-B was indicated by the Supreme Court in Dynamic Orthopedics P.Ltd. v. Commissioner of Income Tax, (2010) 321 ITR 300, on the following lines:- "7. In our view, with respect, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited companies. It needs to be reiterated that, once a company falls within the ambit of it being a MAT company, section 115J of the Act applies and, under that section, such an assessee-company was required to prepare its profit and loss account only in terms of Parts II and III of Schedule VI to the 1956 Act. The reason being that rates of depreciation in rule 5 of the Income Tax Rules, 1962, are different from the rates specified in Schedule XIV to the 1956 Act. In fact, by the Companies (Amendment) Act, 1988, the linkage between the two has been expressly de-linked. Hence, what is incorporated in section 115J is only Schedule VI and not section 205 or section 350 or section 355. This was the view of the Kerala High Court in the case of CIT v. Malayala Manorama Co.Ltd., reported in (2002) 253 ITR 378, which has been wrongly reversed by this court in the case of Malayala Manorama Co.Ltd. v. CIT reported in (2008) 300 ITR 251." 10. Therefore, the very object of introduction of Chapter XII-B was to make very prosperous companies that managed to be "zero tax" companies by a clever process of accounting, pay tax. But what happened was that Chapter XII-B had to evolve over a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case with the reference so made, as the same relates to the method of computation as stipulated in the Companies Act, 1956 and the one that is prescribed by the Income Tax Rules. 13. What happened in the case of the appellant/assessee is that they had made a provision for depreciation in relation to certain assessment years which did not happen to be the relevant previous year for the assessment year commencing on or after the first day of April, 1997. But after the insertion of Section 115JA, the assessee switched over from the written down value method of depreciation to the straight-line method of depreciation. The assessee did it in terms of the provisions of Section 205(2)(b) of the Companies Act, 1956. This created a surplus in the provision for depreciation to the extent of Rs. 130.97 lakhs. For the purpose of income tax, the appellant/assessee showed a loss of Rs. 10,81,859/-. However, after taking the surplus in the provision for depreciation that accrued on account of a change in the method of depreciation, the profit and loss account of the assesee showed a profit of Rs. 1,20,15,429/-. 14. The assessing officer as well as the Tribunal held that in terms of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee being a company as shown in the profit and loss account for the relevant previous year is increased by the amounts indicated in the Explanation (a) to (g), the assessee may not be entitled to the reduction under (i) to (ix). In support of the said contention, the learned standing counsel relies upon the decision of the Supreme Court in Indo Rama Synthetics (I) Ltd. v. Commissioner of Income Tax, (2011) 330 ITR 363. 17. It is seen from the decision of the Supreme Court in Indo Rama Synthetics that the Supreme Court was concerned in the said case primarily with the question as to whether the amount transferred from the revaluation reserve and set off against the amount of depreciation debited to profit and loss account could be excluded in terms of Explanation (i) to Section 115JB(2) read with the proviso thereto or not. Though the decision of the Supreme Court arose out of Section 115JB, the principles laid down in the said decision, if were applicable to the case on hand, would apply in principle to the cases arising under Section 115JA also. This is for the reason that the scope and ambit of Sections 115J, 115JA and 115JB are one and the same, except the fact that they had the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the same yardstick to the method of computation stipulated in Section 115JA, we think that the decision of the Supreme Court in Indo Rama Synthetics cannot go beyond that point. The reason is that in the case on hand, we are concerned about a provision made or reserve created by the assessee in a previous year which is not relevant to the assessment year commencing from first day of April, 1997. This is an issue which was not addressed in Indo Rama Synthetics. In Indo Rama Synthetics, the Supreme Court was concerned with the creation of a reserve during the assessment year 2000-2001. But in this case, the provision was made long prior to the year that could be taken as the previous year relevant to the assessment year commencing from the first day of April, 1997. 20. The proviso under clause (i) of the Explanation makes it clear that in case where Section 115JA is applicable to an assessee in any previous year, the amount withdrawn from the reserves created or provisions made "in a previous year relevant to the assessment year commencing on or after the first day of April, 1997", shall not be reduced from the book profit unless the book profit of such year has been increased ..... X X X X Extracts X X X X X X X X Extracts X X X X
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