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TMI Blog2018 (12) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... re. For this Revenue has raised the following ground No. 1: - "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 42,75,00,000/- made on account of receipt of sale proceeds of production from the trial run of the plant at Phase-II of the power project and ignoring the fact that the said receipt was revenue in nature and the same should have brought into the profit and loss account instead of taking it to the capital work in progress." 3. Briefly stated facts are that the assessee company is engaged in the business of power generation. The assessee filed its return of income for relevant AY 2007-08 on 25.10.2007 declaring income of Rs. 71,26,674/- under normal provisions and income under section 115JB of the Act amounting to Rs. 14,96,10,303/-. The assessment was completed under section 143(3) of the Act by the AO vide order dated 23.03.2009 assessing the income at the return income without making addition or disallowance. Subsequently, the AO noticed that the income from power generation amounting to Rs. 42.75 crores was reduced from the capital work in progress instead of crediting the same to the P&L account and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer, the appellant explained that the appellant was in the process of construction of the power plant for the distribution of power and no commercial activity has begun and therefore all the income anti expenditure inextricably linked to setting up of the power plant have been capitalized. The accounting treatment being in accordance with relevant Accounting Standards no additions should be effectuated in the appellant's case. Various Hon'ble Supreme Court and Hon'ble High Court decisions were cited by the appellant in support of its claim. It was further clarified to the A.O. that the trial run operation are inexplicably linked with the construction of the plant and thus was rightly capitalized and shown under CWIP. I have considered the submission of the appellant and the observations of the A.O. The fact that the appellant company is in the process of setting up of the power plant has not been disputed by the A.O. in the assessment order. This, along with the fact that the appellant company had not commenced its business operations for Phase II and III during the year under consideration is also undisputed by the A.O. It was also brought on record by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Assessing Officer, while computing the income under section 115JB, has only the power of examining whether the books of account are certified by the authorities tinder the Companies Act as having been properly maintained in accordance 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 profit and loss account except to the extent provided in the Explanation to section 115113. The act of the assessing officer, in the present case, is ultra vires ad goes beyond the power vested in him by the Income Tax Act, 1961. The adjustments made to the book profits L. beyond his powers. The same view was also taken by the Hon'ble Jurisdictional Mumbai High Court in the case of CIT vs. Forever Diamonds Pvt. 'Ad. This can be concluded by observing that, there is no denial to the fact that the provision of section 115JB is a self contained code in itself and any adjustment thereto have to be restricted to the extent permitted in the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the commissioned plant varies depending on the requirement of the customer. The Trial run income earned from production of power from Phase II and III cannot be compared with the generated from Phase I which has already been commissioned. Trial run operations are undertaken to examine and inspect the progress of the plant before it is commissioned for commercial purposes. There are predetermined criteria laid down to evaluate the efficiency of the plant and to analyze the flaws. Once the trial run operations are conducted, the results give a roadmap to suitable modifications required in the project. If however, major changes are required by the plant after commissioning it would lead to huge expenses and thus this acts as a preventive step to evaluate the plant. The said practice is very common and is usually adopted by all the entities in this industry. The production of power from Phase II and III would vary depending on the predefined criteria. It is not for the AO to determine if the units generated from Trial Run are high in number or not. While, the production of power from Phase I would basically be to fulfill the requirement of its customer. It would also be pertinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the view that this issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT [255 ITR 273], wherein Hon'ble Supreme court has observed as under: - "5. For deciding this issue, it is necessary for us to examine the object of introducing s. 115J in the IT Act which can be easily deducted from the Budget Speech of the then Hon'ble Finance Minister of India made in the Parliament while introducing the said section which is as follows : "It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called "zero-tax" highly profitable companies deserves attention. In 1983, a new s. 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a "minimum corporate tax" on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely-held company will pay tax of at least 15 per cent of its book profit. This measure will yield a rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the IT Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of s. 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income-tax both maintained under the same Act. If the legislature intended the AO to reassess the company's income, then it would have stated in s. 115J that "income of the company as accepted by the AO. In the absence of the same and on the language of s. 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the AO while computing the income under s. 115J has onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 scrutinized 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 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company". The aforesaid observations of the Apex Court concludes the issue by holding that the Assessing Officer does not have a power to embark upon the fresh enquiry with regard to the entries made in the books of accounts of the Company when the accounts of an assessee Company is prepared in terms of Part II Schedule VI of the Companies Act scrutinized and certified by the statutory auditors, approved by the Company in general meeting and thereafter filedbeforethe Registrar of Companies who has a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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