Income Tax Appeal v. M/S Kushal Bagh Marketing Pvt Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- M/S KUSHAL BAGH MINERALS PVT LTD (2)INCOME TAX APPEAL No. 15 of 2005 M/S BAIDHWAN GRANITES PVT LTD (3)INCOME TAX APPEAL No. 16 of 2005 V/S M/S KUSHAL BAGH MARKETING PVT LTD M/S KUSHAL BAGH MINERALS PVT LTD (6)INCOME TAX APPEAL No. 33 of 2005 (8)INCOME TAX APPEAL No. 35 of 2005 M/S KUSHAL BAGH MINERALS PVT LTD (9)INCOME TAX APPEAL No. 36 of 2005 M/S BAIDHWAN GRANITES PVT LTD (10) INCOME TAX APPEAL No. 37 of 2005 M/S KUSHAL BAGH MARKETING PVT LTD (11) INCOME TAX APPEAL No. 38 of 2005 (12) INCOME TAX APPEAL No. 39 of 2005 V/S M/S KUSHAL BAGH MINERALS PVT LTD (13) INCOME TAX APPEAL No. 40 of 2005 M/S KUSHAL BAGH MARKETING PVT LTD M/S KUSHAL BAGH MARKETING PVT LTD (15) INCOME TAX APPEAL No. 42 of 2005 M/S KUSHAL BAGH MARMO PVT LTD M/S BAIDHWAN GRANITES PVT LTD M/S BAIDHWAN GRANITES PVT LTD Mr. KK BISSA, for the appellant/s. Mr. ANJAY KOTHARI, for the respondent/s. HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI DEO NARAYAN THANVI,J. All these eighteen appeals arise out of the commonorder of the ITAT, and have been admitted by differentorders of this Court, by framing following substantialquestions of law: “1.Whether an intimation of taxcomputation issued under Sec.143 (1) by theAssessing Officer on the claim to deductionu/s 80IA/80IB made by the assessee in hisreturn, could be rectified under Sec.154for raising a demand by invoking Sec.115JA/115JB of the Income Tax Act, 1961as existed during the relevant assessmentyear? 2.If so, whether in absence of anycomputation of book profit as defined underExplanation to Sec.115JA/115JB on record,the Assessing Officer could assume theamount of Book Profit for invoking115JA/115JB by ignoring the claim of theassessee to deduction under Sec.80 IA/80IB? 3.Whether computation of 'Book Profit'for the purpose of Sec.115JA/115JB anddetermining the claim of assessee tobenefit u/s 80 IA/80 IB could at all beundertaken by the Assessing Officer u/s 143(1)? 4.If so, whether the amount allowable asdeduction under Sec.80 IA/80 IB, can at allform part of 'Book Profit' in view ofclause(v)ofExplanationtoSec.115JA/115JB?” The necessary facts are, that the returns were filed bythe assessee for different assessment years, which wereprocessed under Section 143(1), thereafter, the Audit Partyraised an objection to the effect, that according to theprovisions of Section 115JA/115JB, calculation of incomewas required to be made, but since, that has not been done,a notice under Section 154/155 of the Income Tax Act wasgiven to show cause as to why the liability may not beincreased, and after receiving the representation, thelearned Assessing Officer, in all the cases, passed orders,purportedly exercising powers under Section 154,calculating the income at the rate of 30% of the bookprofit, and the assessee was required to pay tax, at the rate of 35%, along with the interest and surcharge. rate of 35%, along with the interest and surcharge. Against these orders, appeals were filed, and the samewere dismissed by the learned Commissioner (Appeals). Then,all the matters were carried to the Tribunal, and thelearned Tribunal held, that the provisions of Section 143(1) and 154 have been amended by the Finance Act of 1999,whereby, the provisions were modified, and prima facieadjustments, additional tax, and issue of limitation etc.were done away with. Then, after the amendment, mere filingof the return by itself would complete the process ofassessment, limiting its scope only to raise demand andissue refund on the basis of the return filed, except forissuing intimations where any sum is payable by theassessee or refund is due to him, the acknowledgments shallbe deemed to be intimation, and simultaneously, amendmentswere also made in Section 154 to provide for rectificationof intimation or deemed intimation referred to in theproposed sub-section (1) of Section 143. Then, the learned Tribunal noticed this submission ofthe assessee, that Section 115JA provides, that for thepurpose of determining the “book profit”, from the totalprofits, amount by which the net profit has to be reduced,also consists of the amount of profits derived by anindustrial undertaking located in an industrially backwardState or District, referred to in Sections 80-IA and 80-IB, and such industrial undertaking is eligible to claim adeduction of 100% of the profits and gains under sub-section 80-IA(5) with effect from 1.4.2000, and underSection 80-IB(4) or Section 80-IB(5). Then, it was noticedthat the contention of the assessee is, that the assesseecompany is an industrial undertaking, situated/located inthe backward industrial State of District, therefore,whatever the income earned by the industrial undertakingis, it is 100% exempted from tax, as per the provisions ofSection 80-IA(2)(iv)(c) of the Income Tax Act, andtherefore, for the purpose of determination of “bookprofit” as per Section 115JA, the 100% exempted income,derived from such industrial undertaking, is required to bededucted, which aspect has not been considered by theAssessing Officer, otherwise, there would been no need topass the order under Section 154 of the Income Tax Act. Then, noticing this contention in Para 12, it wasobserved, that the undisputed facts of these cases are,that all these assessees are industrial undertakings, whichare situated in the backward areas, and for the assessmentyears 1998-99 to 2000-01, the Assessing Officer taxed bookprofit as per the provisions of Section 115JA by invokingthe provisions of Section 154, and charged interest underSections 234A, 234B and 234C. While, for the assessmentyears 2001-02 to 2002-03, the Assessing Officer taxed theassessee on book profit as per the provisions of Section 115B by invoking the provisions of Section 154, and alsocharged interest. Then, after noticing the contention ofthe assessee on the envil of Section 115JA, it was held,that the Tribunal was convinced with the arguments andsubmissions of the authorized representatives of theassessee, because a perusal of the impugned order passedunder Section 154 makes it ostensibly clear, that theorders in question are cyclostyled in pattern, which simplyput the figure of books profit, giving the impression, thatthe Assessing Officer was not aware of the very fact, as towhether in the impugned assessment years the provisions ofSections 115JA or 115JB are applicable or not, and ordershave been passed by simply being carried away by auditobjections. 115B by invoking the provisions of Section 154, and alsocharged interest. Then, after noticing the contention ofthe assessee on the envil of Section 115JA, it was held,that the Tribunal was convinced with the arguments andsubmissions of the authorized representatives of theassessee, because a perusal of the impugned order passedunder Section 154 makes it ostensibly clear, that theorders in question are cyclostyled in pattern, which simplyput the figure of books profit, giving the impression, thatthe Assessing Officer was not aware of the very fact, as towhether in the impugned assessment years the provisions ofSections 115JA or 115JB are applicable or not, and ordershave been passed by simply being carried away by auditobjections. Then, it has been held, that for the assessment years2001-02 to 2002-03, the orders were passed under Section154, and the provisions of Sections 115JA and 115JB wereinserted by the Finance Act, 2000, with effect from1.4.2000, and by virtue of the operation of the saidprovision, where the income with respect to any previousyear to the assessment year commencing on or after thefirst day of April 2001 is less than 7.5% of its bookprofit, the tax payable for relevant year shall be deemedto be 7.5%, but then the Proviso requires, that thereshould be report in the prescribed form from an accountantas defined in the Explanation appended to sub section (2) of Section 288, certifying that the book profit has beencomputed in accordance with the provisions of this Section,along with the return of income filed under sub section (1)of Section 139 or along with the return of income furnishedin response to the notice under clause (i) of Section 142. In our view, it clearly appears from the assessmentorders, that the orders proceeds in issuing initialintimation under Section 143(1). The provisions of Sections115JA and 115JB were not taken into consideration. True, itis, that the provisions of Section 115JB have been insertedwith effect from 1.4.2001, however, the provisions ofSection 115JA were inserted since 1.4.97 and, therefore,that provisions did apply to all the assessment years verymuch, but then, that is not the end of the problem. A bare reading of Section 115JA does show, that subsection (1) starts with non obstante clause, and provides,that notwithstanding contained anything in any otherprovision of this Act, where in the case of an assessee,being a company, the total income, as computed under thisAct in respect of any previous year relevant to theassessment year commencing on or after the 1[st] day of April,1997, but before the 1[st] day of April, 2001, is less thanthirty per cent of its book profit, the total income ofsuch assessee chargeable to tax for the relevant previousyear, shall be deemed to be an amount equal to thirty per cent of such “book profit”. Thus, by this sub section, onlyfiction is created to treat 30% of the “book profit” to bethe income chargeable to tax, for the relevant previousyears, and to be taxed accordingly, but then, the term“book profit” is of great significance. In the Explanationappended after sub section (2), “book profit” is defined byproviding, that for the purpose of this Section “bookprofit” means the net profit as shown in the profit andloss account for the relevant previous year prepared undersub-section (2), and then catalogues certain amounts, bywhich the said profit has to be increased, and thencatalogues another list of certain amounts, which isrequired to be reduced from that profit, and it in thissecond list, which contains Item No. 5 as under : “the amount of profits derived by anindustrial undertaking located in anindustrially backward State or districtas referred to in [sub-section (4) andsub-section (5) of section 80-IB], forthe assessment years such industrialundertaking is eligible to claim adeduction of hundred per cent of the[profits and gains under sub-section(4) or sub-section (5) of section 80-IB]” Thus, on the face of it, notwithstanding the totalincome of the assessee is less than 30% of the alleged“book profit”, the “book profit” is to be arrived at afterdeducting the amounts including the amount provided inclause 5 as noted above. It is not in dispute, that while making the order underSection 154, the learned Assessing Officer has not takeninto consideration this clause. Obviously under Section 80-IB and 80-IA, the assessee is entitled to 100% exemption,being an undertaking situated in the backward State ofDistrict. Thus, on the other hand, the order made by thelearned Assessing Officer purportedly under Section 154,rather suffers from error, apparent on the face of therecord, having been passed without considering theprovisions of above clause (5), and obviously, therefore,the learned Tribunal was right, though for additionalreasons as well, for setting aside the order. The net result of the aforesaid discussion is thatquestion no.2 is answered in negative, while question no.4is answered in affirmative as above, and consequent uponthese answers questions no.1 and 3 become academic.However, the ultimate result is that these appeals have noforce, and are dismissed. ms rathore