9911796707
TMI Blog1987 (2) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ule nil Part II : Computation of chargeable profits 11,20,536 Amount of chargeable profit carried to Part I 1,33,07,659 Part III : Computation of capital 9. Net amount of capital 1,33,07,659 10. Capital as computed in accordance with provisions of the Second Schedule. 1,33,07,659 11. Amount of standard deduction 10 per cent of capital c/f to Part I 13,30,765 Notes : 1 and 2 ** ** ** 3. Surtax payable Net chargeable profit Deficit nil 2,10,229 Hence surtax payable is Rs. Nil 4. ** ** ** 5. As there being deficit in working out chargeable profit, proportionate increase in capital on account of issue of bonus shares has not been made. However, assessee claims that its computation of capital should be made taking into proportionate increase in capital on account of issue of bonus shares during the year. 4. On 24-7-1978, the STO framed the assessment under section 6(2) of the Act on a net chargeable profits of Rs. 4,96,941 with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- 4. Increase of paid-up capital 2,22,222 9,20,500 --------- -------- Net chargeable profits 4,96,941" -------- 5. Thereafteer, on 5-5-1979, the initiated proceeding under section 8(b) of the Act, and issued show-cause on the assessee which reads as under: "In consequence of information received I have reason to believe that the income assessable to tax has escaped assessment inasmuch as the capital employed has been wrongly calculated. 2. While computing the statutory deduction the sum of Rs. 2,22,222 has been included as increased paid up capital. It is noticed that there is no charge in the capital computed as the increase on the paid up share capital is offset by the similar decrease in the general reserve. Hence the addition of Rs. 2,22,222 has been wrongly made to the capital resulting in under assessment. 3. As per rule 1(iii) of the Second Schedule, other reserves (including general reserve) have to be reduced by the amounts credited to such reserve as have been all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dropped. The STO, however, rejected the assessee's contention and framed the assessment under section 6(2) read with section 8(b) on 16-12-1981 whereby, he determined the net chargeable profits of the assessee at Rs. 5,47,917. With a view to complete our order, we reproduce below the relevant portion of the order of the STO framed under section 16(2) read with section 8(b): "5. The contention of the assessee that no new information has come before the ITO on the basis of which the assessment was reopened is incorrect. In this respect attention is invited to the case of CIT v. Zenith Steel Pipes Ltd. [1978] 112 ITR 215(Bom.). According to this decision rule 1(iii) of the Second Schedule, other reserves including general reserve have to be reduced by the amounts credited to such reserve as have been allowed as a deduction in computing the total income. In the case of assessee it had created the development rebate reserve to the extent of 100 per cent instead of the development rebate admissible and as such it can be said that the balance of profit and loss account is transferred to the general reserve is more and hence the general reserve should have been reduced by such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the capital computed as the increase in the paid up share capital is offset by similar decrease in the general reserve. Hence the addition of Rs. 2,22,222 has been wrongly made to the capital resulting in underassessment of surtax payable. Under the circumstances, the assessee's argument is rejected." 8. Against the aforesaid order of the STO, the assessee preferred an appeal before the Commissioner (Appeals) and challenged the order of the STO both on legality of initiating proceedings under section 8(b) as well as on the merits of the the computation of capital base for the purpose of granting statutory deduction as contemplated under section 2(8) of the Act. The Commissioner (Appeals), in his order dated 29-9-1983, accepted the assessee's contentions regarding computation of capital base. In this view of the matter, he did not deem it fit to give his decision on the validity of initiating the proceedings under section 8(b). 9. Against the order of the Commissioner (Appeals), the revenue came up in appeal before the Tribunal with the following ground: "On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- Tax payable 1,53,952 Less : Paid already 1,29,738 -------- Balance payable 24,214" -------- Based on the aforesaid, the STO issued a fresh notice of demand dated 17-11-1984 which was served on the assessee on 19-11-1984. 11. Against the order of the STO dated 15-11-1984, the assessee once again filed an appeal before the Commissioner (Appeals) wherein, the grounds taken up read as under: "Your appellant being dissatisfied with the order passed by the learned Income-tax Officer, Ahmedabad, presents this appeal against the same on the following amongst other grounds: (1) The learned Income-tax Officer erred in passing order giving effect to Appellate Tribunal order and determining chargeable profit at Rs. 5,47,917. Your appellant submits that the Appellate Tribunal has set aside the entire order of the Commissioner of Income-tax (Appeals), only for limited purposes, having for his decision as regards challenge to the re-opening of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not an information for reopening the assessment under section 8(b). It was, therefore, urged that since the STO could not have reopened the assessment under section 8(b) the order passed by him on 16-12-1981 should be quashed. On the merits of the case it was urged on behalf of the assessee that there was no infirmity in the original order of the STO wherein, he had considered Rs. 2,22,222 as part of the capital base in order to grant statutory deduction as contemplated under section 2(8). As regards inclusion of the excess development rebate reserve of Rs. 2,87,540 in the capital base reliance was placed on a circular issued by the CBDT viz. No. 53 (F. NO. 7/2/68-TPL), dated 11-1-1971. It was, therefore, urged that even on the merits of the case, the STO was not justified in reducing the capital base by the amounts of Rs. 2,22,222 and Rs. 2,87,540. 14. Relying on certain reported decisions mentioned in his order under appeal, the Commissioner (Appeals) held that the reopening of the assessment was valid and that the STO was fully justified in reducing the capital base by the aforesaid two amounts. In other words, the Commissioner (Appeals) dismissed the appeal preferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Bombay High Court in the case of CIT v. New Swadeshi Sugar Mills Ltd. [1985] 151 ITR 220. As regards the treatment to be accorded to the excess of the development rebate reserve, the learned counsel for the assessee, strongly relied on the aforesaid circular issued by the CBDT and submitted that in the assessment originally framed the said excess reserve was rightly considered in determining the capital base for the purpose of granting statutory deduction as contemplated under section 2(8). He, therefore, submitted that since both in respect of the initiation of the proceedings under section 8(b) and determination of the capital base for the purpose of granting statutory deduction under section 2(8) the order of the STO passed on 16-12-1981 was had in law, the Commissioner (Appeals) ought to have set aside the same instead of confirming it in the manner he did. 17. The learned representative for the department, on the other hand, strongly relied on the orders of the surtax authorities and justified their action. According to him, in view of the aforesaid decision of the Hon'ble Supreme Court in the case of Indian Eastern Newspaper Society Ltd. the STO was fully justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 8(b) audit the aforesaid circular of the CBDT issued specifically in respect of the excess development rebate reserve created by the assessee, perhaps the matter would have ended there. In this connection, it is pertinent to note that in the earlier round of appeal before the Tribunal, the revenue had not taken up any ground regarding the decision of the Commissioner (Appeals) on this point. As noted above, on earlier occasion, the revenue had come up in appeal before the Tribunal in respect of Rs. 2,22,222 concerning issuance of bonus shares. Again, we are of the view that the initiation of the proceedings under section 8(b) cannot be supported on the basis of the aforesaid decision of the Hon'ble Madras High Court in the case of Sundaram Clayton Ltd. as the same was rendered much after the internal audit had raised objections. In this view of the matter, we hold that the STO was not justified in reopening the assessment under section 8(b). 19. As regards the merits of the case, there is nothing much to write except to say that the aforesaid decision of the Hon'ble Bombay High Court in the case of New Swadeshi Sugar Mills Ltd. clearly supports the assessee's case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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