Follows v. Cit 255 Itr 273 (Sc). We,Therefore, Find No Merit In The Submission Of Theassessee And Uphold The Order Ofthe Ld. Cit [A

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD WEDNESDAY,THE TWENTY FIRST DAY OF DECEMBERTWO THOUSAND AND TWENTY TWO PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN THE HON'BLE SRI JUSTICE C.V. BHASKAR REDDY INCOME TAX TRIBUNAL APPEAL NO: 232 OF 2006 Appeal Under Section 260A of the lncome Tax Act 196'l against theorder dated 23-12-2005 in 4411 Hyd/ 2000 ( Asst. Year 1990-91 ) on the file ofthe lncome Tax Appellate Tribunal, Hyderabad Bench - B, Hyderabadpreferred against the order of the Commissioner of Income Tax ( Appeals) lV ,Hyderabad dated 15-03-2000 in Appeal No. 677 / DCSR .1 /ClT (A) lV / 99 -2000 preferred against the order of the Deputy Commissioner of lncome Tax(Assts ) Special Range -1 , Hyderabad dated 30-09-1992 in PAN/ GIR No. A- 7 Between: A.P.State Seeds Development Corporation Ltd., 11-5-47111 , Red Hills, Hyderabad -4. ...APPELLANT AND -The Commissioner of lncome Tax-|, Aayakar Bhavan, Basheerbagh, Hyderabad 500 00't. ...RESPONDENT Counsel for the Appellant: SRl. C. P. RAMASWAMI Counsel forthe Respondent: Ms. K. MAMATACHOUDARY SENIOR SC FORI.T. DEPT. FOR SRI B. NARASIHMA SARMA The Court made the following: ORDER D THE HO] I'I]LE THE CHIEF JUSTICE UJJAL BHITYANANDTHE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY I.T.T.A.No.232 of 2006 JUDGMENT: l\. t:.e Hoi'ble the C'tticl JLtstice u.j.jc,l Brluyon) Heard Mr. C.P.Ramaswami, lea-rned counsel for theappellant and Ms. K.Mamata Choudary, learned SeniorStanding Cour sel for Income Tax Department appearing onbehalf of Mr. I].Narasimha Sarma, learned counsel for therespondent. 2. This is a-r appeal under Section 260A of the IncomeTax Act, 196 1 (briefly, "the Act" hereinafter) liled by theassessee as the appellant against the order dated23.l2.2OO5 passed by the Income Tax Appellate Tribunal,Hyderabad Ilench ts', Hyderabad (Tribunal)1nI.T.A.No.44 1 lHvd/2OOO for the assessment year 1990-91. 3. From th: docket proceedings we find that on26.06.2006 thr: appeal u,as admitted for hearing, but nosubstantial que stion of law was framed. 4 . However, in the memo of appeal the appell4nt hasproposed the following questions as substantial questionsof law:of law: 1. Whether on the facts and in the circumstances ofthe case, the Tribunal is correct in law in confirming tJleaddition of prior period adjustments of Rs.3,O9,5O4.00by the lower authorities to the book profits arrived at inaccordance with parts II and III of Schedule VI of theCompanies Act when no such addition is permitted interms of Explanation below sub-section (lA) to SectionI l5J of the Act? 2. Whether on the facts arrd in the circumstances ofthe case, the Tribunal is correct in law in dismissing theappellant's appeal despite Tribunal's considered opinionthat the assessee's case is squarely covered by thedecision of the Supreme Court in Apollo Tyres Ltd. v.Commissioner of Income Tax ([2002] 255 lTR 273(SC))? 5. Short point for consideration in this appeal1Swhether prior period adjustments are to be included orexcluded for working out book profit for the purpose ofSection 115J of the Act? 6. Appellant before us is an assessee under the Acthaving the status of a company in which publicaresubstantially interested. The assessment year under consideration is 1990-9i. For the assessment year [-under]consideration appellant had filed return of incomedeclaring net loss of Rs.13,47,830.00. While computingthe income from business, assessing officer vide theassessment crcler dated 30.O9.1992, noted that net prolitas per the profit and loss account was Rs.33,222.O0.However, rvh le computing the tax to be levied underSection 1 1 5.J of the Act, the net profit was taken atRs.3,42,727.C0 by excluding prior period adjustment ofRs.3,09,50a.00. 6. Appellant before us is an assessee under the Acthaving the status of a company in which publicaresubstantially interested. The assessment year under consideration is 1990-9i. For the assessment year [-under]consideration appellant had filed return of incomedeclaring net loss of Rs.13,47,830.00. While computingthe income from business, assessing officer vide theassessment crcler dated 30.O9.1992, noted that net prolitas per the profit and loss account was Rs.33,222.O0.However, rvh le computing the tax to be levied underSection 1 1 5.J of the Act, the net profit was taken atRs.3,42,727.C0 by excluding prior period adjustment ofRs.3,09,50a.00. 7. In appe before the Commissioner of Income Tax(Appeals) IV, I{yderabad (briefly, "the CIT(A)"), the firstappellate atrt hority took the view that action of theassessing ofli:er was supported by a decision in CIT v.Krishna Oil E xtraction Limitedt which had given a clearfinding that prior period adjustments are to be excluded forworking out b rok proht for the purpose of Section 115J ofthe Act \rlrsesl rso crR (r\ tp) 13l I 8. On further appeal before the Tribunal it was held as follows: 3. We have heard both the parties and perused therecord. As has been noted at page-2 of the CIT(A)'sorder, the appellant in its annual account has workedout net profit at a figure of Rs.3,42,7 26. From this, ithas claimed a prior period adjustment of Rs.3,09,504.This being the treatment glen by the assessee as perPart II and III of Schedule Vl of the Companies Act, weare of the considered opinion that the assessee's case issquareiy covered by the Supreme Court's decision in thecase of Apollo Tyres Ltd. v. CIT 255 ITR 273 (SC). We,therefore, find no merit in the submission of theassessee and uphold the order ofthe ld. CIT [A). 9. Thus, Tribuna-l held that appellant had adjusted priorperiod of expenses of Rs.3,09,504.00 from the net profitIigure of Rs.3,42,726.OO to arrive at the figure ofRs.33,222.00 as the net prolit which according to theappellant should also be taken as the book profit in termsof Section 115J of the Act. However, after noting that caseof the appellant is clearly covered by the decision of theSupreme Court in Apollo Tyres Limited v. Commissionerof Income Tax2, Tribuna-l instead of setting aside the orderof the assessing officer as affirmed by the CIT(A), however I'I2oo2l2ss [rrR ][223 ][(sc)] I ,/ R upheld the order of CIT(A) and dismissed the appeal-of theappeilant. 1 0. To app ['eciate ]the above, we may advert to therelevant porti )r1 of Section 1 15J of the Act which reads asfollows: 115-J. (1 Notwithstanding anything contained in anyother pro,,ision of this Act, where in the case of anassessee being a company (other than a companyengaged i r the business of generation or distribution ofelectricity , the total income, as computed under this Actin respet t of aly previous year relevant to theassessmer rt year commencing on or aJter the lst day ofApril, l9ti8 but before the lst day of April, 1991(herein:rftr r in this section referred to as the relevantprevious lezu), is less than thirty per cent of its bookprofit, the total income of such assessee chargeable totax for th€ relevant previous year shall be deemed to bear1 afiloun equal to thirty per cent of such book prolit. (1A) Ever5 assessee, being a company, shall, for thepurposes rf this section, prepare its profrt and lossaccount fr r the relevant previous year in accordancewith the p:ovisions of Parts II and III of Schedule VI tothe Companies Act, 1956 (1 ol 1956).account fr r the relevant previous year in accordancewith the p:ovisions of Parts II and III of Schedule VI tothe Companies Act, 1956 (1 ol 1956). Explanatio e- For the purposes of this section, 'bookproht' mears the net profits as shown in the profrt andloss account for the relevant previous year preparedunder Sub.section (1A), as increased by -- tI I \ (a) tJle amount of income-tax paid or payable, and theprovision therefor; or (1A) Ever5 assessee, being a company, shall, for thepurposes rf this section, prepare its profrt and lossaccount fr r the relevant previous year in accordancewith the p:ovisions of Parts II and III of Schedule VI tothe Companies Act, 1956 (1 ol 1956).account fr r the relevant previous year in accordancewith the p:ovisions of Parts II and III of Schedule VI tothe Companies Act, 1956 (1 ol 1956). Explanatio e- For the purposes of this section, 'bookproht' mears the net profits as shown in the profrt andloss account for the relevant previous year preparedunder Sub.section (1A), as increased by -- tI I \ (a) tJle amount of income-tax paid or payable, and theprovision therefor; or (b) the amounts carried to any reserves (other thal thereseryes specilied in Section 8OHHD or sub-section (1) ofSection 33AC), by whatever name called; orreseryes specilied in Section 8OHHD or sub-section (1) ofSection 33AC), by whatever name called; or (c) the amount or amounts set aside to provisions madefor meeting liabilities, other than ascertained liabilities;orfor meeting liabilities, other than ascertained liabilities;or (d) the amount by way of provision for losses ofsubsidiary companies; orsubsidiary companies; or (e) the amount or amounts of dividends paid orproposed; orproposed; or (f) the amount or arnounts of expenditure relatable toany income to which any of the provisions of Chapter IIIapplies; orany income to which any of the provisions of Chapter IIIapplies; or (g) the amount withdrawn from the reserve accountunder Section 80HHD, where it has been utilised for anypurpose other than those referred to in Sub-section (4)under Section 80HHD, where it has been utilised for anypurpose other than those referred to in Sub-section (4)of that section; or (h) the amount credited to the reserve account underSection 80HHD, to the extent that amount has not beenutilised within the period specified in sub-section (4) ofthat section; (ha) the amount deemed to be the piofits under sub-section (3) of Section 33AC; If any amount referred to in clauses (a) to (f) is debitedor, as the case may be, the amount referred to in clauses (l) and (h) is not credited to the [profit ]and lossaccounl. rnd as reduced by -- (i) the an ount withdrawn from reserves (other than theresenres ;pecified in Section 80HHD) or provisions, ifany su<:L amount is credited to the [profit and lossaccount : Provided tlrat, where this section is applicable to anassessec in any previous year (including the relevantprevious ycar), the amount withdrawn from reservescreated or provisions made in a previous year relevant tothe assessment year commencing on or after the lst dayof April, 1188 shall not be reduced from the book prohtunless tht book profit of such year has been increasedby those r'eserves or provisions (out of which the saidamount wirs witidrawn) under this Explanation; or (i) the am< unt of income to which any of the provisionsof Chapter III applies, if any such amount is credited tothe profit z nd loss account; or (ii) the .rm runts las arrived at after increasing the netprofit b1' tl e amounts referred to in clauses (a) to (f) andreducing t. rc net profit by the amounts referred to inclauses (i) and (ii)l attributable to the business, theprofits lrorn which are eligible for deduction underSection 80lHC or Section 80HHD; so, however, thatsuch amou rts are computed in the manner specified insub-section (3) or sub-section (3A) of Section SOHHC orsub-section (3) of Section SOHHD, as the case may be;or (iv) the amo rnt of the loss or the amount of depreciationwhich woul l be required to be set off against the profitwhich woul l be required to be set off against the profit / I \ of the relevant previous year as if the provisions ofclause (b) of the first proviso to sub-section (1) of Section205 of the Companies Act, 1956 (1 of 1956), areapplicable. (iv) the amo rnt of the loss or the amount of depreciationwhich woul l be required to be set off against the profitwhich woul l be required to be set off against the profit / I \ of the relevant previous year as if the provisions ofclause (b) of the first proviso to sub-section (1) of Section205 of the Companies Act, 1956 (1 of 1956), areapplicable. (2) Nothing contained in sub-section (l) sha.ll a-ffect thedetermination of the amounts in relation to the relevantprevious year to be carried forward to the subsequentyear or years under the provisions of sub-section (2) ofSection 32 or sub-section (3) of Section 32A or clause (ii)of sub-section (1) of Section 72 or Section 73 or Section74 or sub-section (3) of Section 74A or Sub-section (3) ofSection 80J. 11. From the above, it is seen that as per sub-section (1),which starts with a non-obstante clause, in case of anassessee which is a company (other than a companyengaged in the business of generation or distribution ofelectricity) the tota-l income as computed under the Act inrespect of any previous year relevant to the assessmentyear commencing on or a-fter the first day of April, 1988 butbefore the first day of April, 199 1, was less than 30% of itsbook profit, the total income of such assessee chargeable totax for the relevant previous year shall be deemed to be alarnount equa,l to 30% of such book profit. Sub-section (1A)clarifies that the profit and loss account to be prepared by I ) the assessee 'or the aforesaid [previous ]years should'be inaccordance r.'i1-h the provisions of Parts II and III ofSchedule VI to the Companies Act, 1956. Explanationbelow sub-se, :t Lon (1A) defines 'book proht' to mean, thenet prolit as ;hown in the profit and loss account for therelevant previ,)l-1s year prepared under sub-section (1A) andas increased 1ry the provisions mentioned in clauses (a) to(i) thereunder. 12. From th: above it is seen that the statute does notprovide that p [-ior ]period adjustments are to be excluded towork out the Look profit as per sub-section (1A). 13. In Apollo Tyres Limited (supra) Supreme Court was considering arr()ngst others the question as to whether anassessing offic:r while assessing a company under Section115J of the Ar:t can question the correctness of the profitand loss accorrnt prepared by the assessee in accordancewith Parts II a rd III of Schedule VI to the Compalies Act,1956. 14. In the aborze context, Supreme Court referred to theobject behind insertion of Section 1 15J in the Act and tI thereafter observed that income tax authorities wereunable to bring certain companies within the net of incometax because these companies were adjusting their accountsin such a manner as to attract no tax or very little tax. Itwas with a view to bring such companies within the tax netthat Section 1 15J was introduced in the Act having adeeming provision that the company would be liable to payincome tax on at least 3O%o of its book profit as shown byitself in its own account. Thereafter, Supreme Courtanalysed the above provision and held that use of thewords "in accordance with prouisions of Parts II and III ofSchedule VI to the Companies Acl" was made for the limitedpurpose of empowering the assessing authorit5r to relyupon the authentic statement of accounts of the company.Whiie so looking into the accounts of the company, anassessing officer under the Act has to accept theauthenticity of the accounts with reference to theprovisions of the Companies Act, 1956, which obligates thecompany to maintain its account in a manner provided by\the Companies Act, 1956. Therefore, an assessing oflicerwhile computing the income under Section 115J has only - t- t I\ - t- t I\ the power to r:xamine vi'hether the books of accounts arecertified by th e authorities r-rnder the Companies Act, 1956,as having br,en properlv maintained in accordance with theCompanies A,:t, 1956. Assessing officer thereafter has thelimitecl powe : of making increases and reductions asprovided for irr the Explanation to the said Section. Puttingit differentlv. Jupreme Court held that an assessing officerdoes not havt the jurisdiction to go beyond the net prolitshown in the profit and loss account except to the extentprovided in th: Explanation to Section 115J of the Act. i 5. Il that I re the position, assessing oflicer could nothave taken ar other figure as the net profit instead of thenet profit of R;.33,222.00 shown as per the profit and lossaccount prepa:t:d in terms ol Parts II and III of Schedule VIto the Comparies Act, 1956.have taken ar other figure as the net profit instead of thenet profit of R;.33,222.00 shown as per the profit and lossaccount prepa:t:d in terms ol Parts II and III of Schedule VIto the Comparies Act, 1956. 16. That beirrg the position, the substantial questions oflaw as extrac ted above are answered in favour of theappellant and rrgainst the respondent. 17. Appeal is accordingly allowed. Miscellaneous [applications ][pending' ][if ][any'" ][shall]stand closed. [However, ][there shall ][be ][no ][order ][as ][to ][costs'] ( Sd/.M,VIJAYA BHASKARJOINT REGISTRARSECTION OFFICER //TRUE COPY// To 1. The lncome Tax Appellate Tribunal, Hyderabad Bench - B, Hyderabad 2. The Commissioner of lncome Tax ( Appeals) lV , Hyderabad3. the Deputy Commissioner of lncome Tax ( Assts ) Special Range -1 ,Hyderabad3. the Deputy Commissioner of lncome Tax ( Assts ) Special Range -1 ,Hyderabad 4. One CC to SRl. C P RAMASWAMI Advocate 5. One CC to Sri B. NARASIMHA SARMA, Advocate (OPUC) 6. One CC to SRl. J V PRASAD (SC FOR INCOME TAX) IOPUC] 7. Two CD Copies J.+e- I HIGH COURT DATED:21l1212022 5TATEo-r: \\,f:i0r11$\NLlbtloL)IJUDGMENT.trDFEITTA.No.232 o12006 ALLOWTNG I }TE APPEAL r\t}.$r/