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TMI Blog2002 (5) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as on the date of disallowance, (2) disallowance of ₹ 185 lakhs, being the claim of the assessee as deduction of ascertained interest liability due to financial institutions, while computing book profits under section 115JA. 4. Brief facts of the case as gathered from the record are as follows. The assessee is a company carrying on the business of Distrillieries, Export of Molasses and services. For the assessment year 1997-98, the assessee filed its return of income on 1-12-1997 declaring ₹ 13,246 as total income. While doing so, it computed its profit under section 115J at Rs. nil . The Assessing Officer after scrutiny, determined the total income in regular assessment at ₹ 7,51,127 and also computed book profit under section 115J at ₹ 1,83,43,466. Aggrieved of the above, assessee carried the matter in appeal before the CIT(A), who confirmed the order of the Assessing Officer. Aggrieved, the assessee is in appeal before us. 5. The first ground of appeal in this case is against disallowance of ₹ 9,37,920 being the interest due to Indian Renewable Energy and Development Authority (IREDA for short). Ld. counsel for the assessee submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se law. 6. As regards the second ground of appeal i.e., against disallowance of the claim of ₹ 185 lakhs, being provision for arrears of interest due on financial institutions, debited to Profit Loss Account disclosed separately in the P L A/c and claimed as deduction in the computation of book profits, the ld. counsel for the assessee submitted that : (a)The assessee-company took over a sick distillery unit at Kakinada on auction from the ARSFC and APIIDC. As part of the takeover of the unit, the assessee-company requested financial institutions for waiver of interest and also reschedulement of the repayment of principal. The assessee had been representing that without such concession, the unit could not be made financially viable. For these reasons, the assessee had not recognised the interest liability in the earlier years nor did it provide for the same, which invited qualification from the statutory auditors of the assessee. During the previous year relevant to the assessment year under consideration, the financial institutions turned down the request of the assessee for concessional treatment and also seized the unit. Therefore, the management of the assessee ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable and claimed as a deduction in P L A/cdisclosed separately in the P L A/c cannot be added to the net profits for purposes of computation of book profits under section 115J of the Income-tax Act, 1961. 8. Ld. Deptl. Representative on the other hand vehemently controverted all the arguments of the ld. counsel for the assessee and submitted that on the first issue of disallowance under section 43B, the order of the ld. CIT(A) has to be upheld. He relied on para 8 of the CIT(A) s order and submitted that deduction is allowable only in the year of actual payment. He contended that as on the date of payment of loan and during the current financial year, the institution is a public financial institution. He argued that what is to be seen is to whom the interest in question is paid. He relied on the other of the ld. CIT(A) and once again submitted that the stress taken in question is on the loan and not on the interest. 9. Coming to the adjustments made under section 115JA, he contended that what is referred to in section 115JA sub-section (2) is on the profit and loss for the relevant previous year. He took us through page 3 of the paper book filed by the assessee, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words in accordance with the provisions of Parts II III of Schedule VI to the Companies Act. In section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking to the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit and loss appropriation account arose on account of adjustments made in the appropriation account. The first item of adjustment related to the adjustment for the earlier years. It is a well-known fact that in many cases, adjustments for earlier years are allowed to be taken into consideration while arriving at the net total income of an assessee to be computed for income-tax purposes. Whereas under the Companies Act, all items of expenses relating to earlier years are shown as adjustments for prior years and are usually taken care of in the profit and loss appropriation account by making debit or credit entries according to the circumstances of the case, for income-tax purposes, however, many of these items will have to be allowed as expenses or added back as income by way of liabilities/income, although relating to earlier years, actually, however, accruing during the previous year under consideration. It is therefore, not at all uncommon to compute the taxable income of an assessee by taking into consideration fully or partially the figures of adjustments relating to earlier years shown in the profit and loss appropriation account. It would also be unfair to conclude that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no necessity of sub-clause (b) to be inserted to Explanation to section 115JA(2). The principle that net profit of the year is profit after appropriation items, is also affirmed by the Bangalore Bench of the Tribunal reported in 46 ITD 203 (Bang.). Thus, the issue is decided in favour of the assessee and against the revenue. 12. This brings us to the question as to whether the net profit as disclosed after adjustments to the profit and loss appropriation account is to be increased by the amount of provision made towards arrears of interest to financial institutions. It is the contention of the revenue that the arrears of interest made by the company is nothing but a provision made for meeting liabilities and that it cannot be considered an ascertained liability. It is the case of the assessee that the amount in question is an ascertained liability and hence the book profits should not be increased by this amount. To briefly recaptulate the facts of the instant case, the assessee had been trying for waiver of interest payable to financial institutions. During the period of these trails for waiver, the assessee company had not provided for the interest liability in its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the proposition of the ld. counsel for the assessee. Section 43B sub-clause (d) reads as follows : any sum payable by the assessee as interest on any loan or borrowing from any public financial institution (or a State financial corporation or a state industrial investment corporation), in accordance with the terms and conditions of the agreement governing such loan or borrowing. As on date, there is a loan and the lender is a public financial institution. To our mind, non payments of interest on a loan from a public financial institution does not permit the assessee to claim a deduction. Thus, on this issue we uphold the finding of the ld. CIT(A) and dismiss the ground raised by the assessee. 15. In the result, appeal ITA 270/Hyd./2001 is partly allowed. 16. Coming to ITA 269/Hyd./2001, the issue is whether the adjustment made is amenable to adjustments under section 143(1)(a). The adjustment made is on the computerisation of book profits. For the detailed reasons given in the order on the issue, we have to necessarily take a view that the adjustment on account of provision of interest payable to public financial institutions being a highly debatable issue, was n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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