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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 ..... nent to note that the Income derived from the Phase II after its commissioning has also been higher in the subsequent years. The same was verified from comparative receipts of each phase. We find that during the succeeding Assessment years i.e. AY 2008-09 and AY 2009-10, the total receipts from Phase II and Phase III operations is higher than that of Phase I. The AO on page 3 of its order dated 31.03.2015 has stated that a plant that has yet to come to operation obtaining such high receipts is abnormal. AO has on his own fancies and assumptions taken a stand that the receipts of 42,75,00,000/- is abnormal and unjustified. He has totally ignored the facts of the case, the operating capacity of the Phases and its subsequent receipts. The table below clearly reflects that due to higher capacity of power production, the income earned by the assessee through Phase II/ III is reasonably higher than that of Phase I. We find that the AO has made an adjustment to the book profit of the receipts of ₹ 42.75 crores while computing the income under section 115JB of the Act and the assessee has treated the receipts earned which is lined to the setting up of the business and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 71,26,674/- under normal provisions and income under section 115JB of the Act amounting to ₹ 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 ₹ 42.75 crores was reduced from the capital work in progress instead of crediting the same to the P L account and therefore the assessee has not offered income for the purpose of taxation under section 115JB of the Act. According to AO, this amount of ₹ 42.75 crores is required to be considered for the purpose of computation of booking profit under section 115JB of the Act. The AO also recorded the reasons that an amount of ₹ 14,26,513/- was disallowable under section 14A in the audit report and further expenses amounting to ₹ 27,65,069/- was disallowed but the same was not done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant that income of the same nature was also derived before the commencement of operations of Phase I in earlier years and in subsequent years for Phase II and Ill. This stand of the appellant was duly accepted by the A.O. where the trial run income is reduced from Capital WIP. Moreover, the assessing officer seems to have ignored the power production capacity of the Plant. The assessing officer has simply disallowed the above sum on mere suspicion and pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing 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 thereto. It is a deeming provision and has to be interpreted strictly. The mandatory accounting standards required to be followed by - the company in its preparation of its annual accounts, has been consistently been followed and accordingly, it had reduced the balance in the Capital WIF to the extent of the trial run income derived during the construction of the asset. Thus, since such an accounting treatment was adopted and approved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teria 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 pertinent to note that the Income derived from the Phase II after its commissioning has also been higher in the subsequent years. The same was verified from comparative receipts of each phase. We find that during the succeeding Assessment years i.e. AY 2008-09 and AY 2009-10, the total receipts from Phase II and Phase III operations is higher than that of Phase I. The AO on page 3 of its order dated 31.03.2015 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting standards consistently and preparing its annual accounts accordingly. This annual accounts are audited as per the companies Act and approved by shareholders in the AGM held for this purpose. These amounts were submitted before the ROC. In view of these facts, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according 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 ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parts II and III of the 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 account of accounts of the company. While so looking in to the account 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Adbhut Trading (supra) and taking up the Court's time. We expect the counsel appearing before us to be candid and when matters are covered by orders of this Court or the Apex Court and to state so. This would ensure quicker disposal of matters. 6. In view of the above, as the issue stands settled by the decision of the Apex Court in Apollo Tyres (supra), and of this Court in Abdhut Trading (supra), the question as proposed does not give rise to any substantial question of law. Accordingly, appeal dismissed. No order as to costs. 8. In view of the above factual matrix of the case and the decision of the Hon ble Supreme Court in the case of Apollo Tyres (supra) and Hon ble Bombay High Court judgment in the case of CIT Vs. M/s. Forever Diamonds Pvt. Ltd (supra), we are of the view that the issue on merits as well as on jurisdiction is covered in favour of assessee and against Revenue. Hence, we confirm the order of CIT(A) on this issue. The appeal of Revenue on this issue is dismissed. 9. The issue in Cross objection of the assessee is as regards to reopening of assessment. Since Ld.Counsel for the assessee has not argued this and hence the same is dismissed, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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