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TMI Blog2007 (9) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the sales-tax from the buyers but need not be paid immediately to the Government, as in the case of other dealers. The payment of the sales-tax collected from the buyers was deferred for a period of ten years from the respective year of collection. The sales-tax collection for a particular year was deferred and had to be paid after the end of the tenth year. The payments were to be made in five equal annual instalments. The payment of the sales-tax was at par; without the burden of any interest, in the books of account maintained by the assessee, the sales-tax collected under the above deferral scheme was credited to a separate account on the liability side as sales-tax payable account. As a matter of its policy, the assessee company used to value this sales-tax payable liability on the basis of present value of rupee. The valuation was made by actuarial valuer. As the sales-tax liability was to be paid without any interest, the valuation was worked out on the basis of appropriate discounting factor. For the impugned asst. yr. 1998-99, the sales-tax payable account was thus discounted for 16 per cent per annum and the present value of the liability was determined. The differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a/c does not have the character of any income. The assessee, being a limited company, is bound by the provisions of Companies Act in preparing final statements of accounts as well as bound by the accounting standards and other rules prescribed for the purpose of disclosure. The assessee company is supposed to prepare its P L a/c and balance sheet so as to exhibit a true and fair view of the state of affairs of the company at the end of a particular year. The assessee company was enjoying the incentive declared by the Government of Maharashtra. The incentive scheme was known as sales-tax deferral scheme. The assessee was permitted to collect sales-tax on the sales made to customers. Instead of remitting the sale-tax collection immediately to the State Government, the assessee was keeping the money with it for improving and stabilizing its business. The amount has to be paid to the Sales-tax Department only at the end of the tenth year. There was no charge of interest. Therefore, according to the accounting concept, the value of the payment of the sales-tax after ten years would be lesser in value when compared to the sales-tax collected by the assessee during that particular year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k by the assessee should be treated as part of book profits for the purpose of s. 115JA. The Tribunal held that s. 115JA has to be applied on real book profits which have been earned by the companies during the relevant assessment year and not on artificial income which was not accrued to the company during the relevant previous year. The Tribunal held that the credit entries were passed by the assessee company to comply with the accounting principles and thus the write back did not generate any income in the hands of the assessee. Therefore, the contention of the assessee was accepted and the credit by way of write back was ordered to be excluded in computing the book profit under s. 115JA. The chartered accountant also relied on the decision of Tribunal, Mumbai Bench 'I' in the case of ITO vs. Frigsales (India) Ltd. (2005) 4 SOT 376 (Mumbai) wherein the Tribunal has held that a receipt which is not in the nature of income, cannot be taxed as income under s. 115JA. He also relied on the Special Bench decision of Tribunal, Calcutta in the case of Sutlej Cotton Mills Ltd. vs. Asstt. C1T (1993) 46 TTJ (Cal)(SB) 310 : (1993) 199 ITR 164 (Cal)(AT) where that Special Bench had considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional as contended by the assessee. 9. The learned CIT further relied on the decision of the Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) where the Supreme Court has held that the AO has no power to scrutinize except as provided in the Explanation and s. 115J does not empower the AO to embark upon a fresh enquiry in regard to the entries made in the books of account of the company and therefore, any adjustment claimed by the assessee as well as made by the assessing authority, both should confine to the items provided under Explanation to s. 115JA. The credit entry of the revaluation of deferred sales-tax liability does not come under the Explanation provided in s. 115JA and therefore. in the light of the decision of Apollo Tyres Ltd., it is not permissible to exclude the said entry from computing the book profits for the purpose of s. 115JA. 10. The learned CIT further explained that the amount involved in the present case is not a capital subsidy or something like that considered by the Tribunal in its earlier decisions. The subject-matter of collection in the present ease is sales-tax which according to the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt has not overlooked the basic legislative intention regarding the nature of items to be excluded in computing the book profits for the purpose of s. 115JA. It is in the above context that the decisions of the Tribunal placed by the chartered accountant appearing for the assessee have to be examined by us. In the case of Hit1cari Fibres Ltd., the Tribunal has held that MAT is levied on real book profits which have been earned by companies and not on artificial income which has not accrued to companies but has been credited to P L a/c as per the accounting principles. In the said case, the assessee had credited the P L a/c with the amounts of write backs of liabilities. The same view was adopted by the Mumbai Tribunal in the case of Frigsales (India) Ltd. In that case, the Tribunal justified the exclusion of capital gains. The Special Bench of Tribunal, Calcutta Bench in the case of Sutlej Cotton Mills Ltd. has also taken the same view. 13. The above decisions are dealing with the extraordinary items credited or debited by a assessee company in its P L a/c while drawing its final accounts in the format prescribed in Sch. VI to the Companies Act, 1956. The Tribunal has consisten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... play in the relevant decision making process. But, the consequences of such revaluation have to be taken care of, as provided in the company law and standard accounting practices. Under the Companies Act, the assessee company has to make proper disclosure in its balance sheet and P L a/c regarding the factum and effect of revaluation of assets. The provision for depreciation has also to be made on the revalued cost of the assets. These are necessary for the purpose of exhibiting a true and fair view of the state of affairs of the company in its balance sheet and P L a/c for the relevant previous year. 15. The Tribunal continued to hold in the said decision that the company law has prescribed certain compulsions on the part of a company in the matter of revaluation of assets and providing depreciation thereon. The compulsions are two types: disclosure compulsions and accounting compulsions. 'The accounting compulsions which are relevant in the present case are two-fold. The first one is that, if the assets of the company have been revalued then those assets have to be reflected in the balance sheet at their revalued cost. The second is that depreciation has to be provided for on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the AO in not allowing the assessee company to claim more amount of losses. 17. The present case is also similar to the above case. but on the reverse side. In the case considered by the Tribunal that of Vijay Spg. Mills Ltd., the assessee was debiting the additional expenditure. In the present case, the assessee has credited the additional income just like the case of Vijay Spg. Mills Ltd. The revaluation of future liability was made by the assessee company at its own option and not by any compulsion of law. In the case of Vijay Spg. Mills Ltd., it was the case of revaluation of assets. In the present case, it is a case of revaluation of future liabilities. The surplus arising out of revaluation of the future liability is an accounting profit in the hands of the assessee company and docs not form part of the P L a/c by dictum of the Companies Act. Therefore, such an entry passed by the assessee company in its P L a/c should not be permitted to artificially boost the income of the assessee for the purpose of s. 115JA. Such extraordinary item reflected in the P L a/c, as a result of accounting policies followed by the assessee company. has to be excluded in computing the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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