Ita/943/2009 Of The Commissioner Of Income Tax, Cochin v. Kerala Chemicals & Proteins Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 19 DAY OF JULY 2021 / 28TH ASHADHA, 1943 ITA NO. 943 OF 2009 AGAINST THE ORDER/JUDGMENT IN ITA 326/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHINBY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: KERALA CHEMICALS & PROTEINS LTD.,PANAMPILLY NAGAR,COCHIN.BY ADVS.SRI.JOSEPH KODIANTHARASRI.TERRY V.JAMES THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON19.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT S.V.Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned SeniorAdv.Mr.Joseph Markose. 2. Revenue is the appellant. Kerala Chemicals and Proteins Ltd.,Kochi/Assessee is the respondent. The instant Tax Appeal is filed by the revenueaggrieved by the order dated 23.11.2007 in ITA No.326/Coch/2006 of the InomeTax Appellate Tribunal (for short 'ITAT'), Cochin Bench. The subject matterdeals with the controversies in the finalisation of return of assessee for theassessment year 2002-2003. 3. The assessee is a company engaged in the business of manufacturing andtrading of Ossein, Compound Glue, Gelatine etc. The assessee, on 31.10.2002filed the income tax return for the assessment year 2002-03 declaring total loss ofRs.3,59,10,946/-. The Assessing Officer (AO) through assessment order dated3.3.2005 made under Sec.143(3) of the Act computed the total income of assesseeat Rs.2,99,81,060/-. The assessee filed appeal before the Commissioner of IncomeTax (Appeals) (for short 'CIT') in ITA No.1/R-I/CIT-II/05-06 and the CIT(Appeals) through order dated 30.3.2006 partly allowed the appeal. Since theCIT (Appeals) partly allowed the appeal and the assessee pursuaded the furtherremedy of appeal before ITAT in Appeal No.326/Coch/2006, the ITAT through IT Appeal No.943/2009 3 the order impugned in the appeal allowed the appeal of the assessee in part. Hence the appeal by the revenue and the following questions of law are raised forconsideration. 1. Whether, on the facts and in the circumstances of the case andalso in the light of Section 80AB the Tribunal is right inholding that while computing the book profit under Section115JB, the deduction under Section 80HHC is to be computedas per MAT provisions and not as per the normal provisions ofthe Income Tax Act, 1961?also in the light of Section 80AB the Tribunal is right inholding that while computing the book profit under Section115JB, the deduction under Section 80HHC is to be computedas per MAT provisions and not as per the normal provisions ofthe Income Tax Act, 1961? 2. Whether on the facts and in the circumstances of the case, theTribunal is right in law and factTribunal is right in law and fact i) in presuming that the Assessing Officer has consideredclause (c) of Explanation to Section 115JA in the Asst.year1997-98 & 1998-99;clause (c) of Explanation to Section 115JA in the Asst.year1997-98 & 1998-99; ii) in holding that merely because proper working is notavailable on record it cannot be said that the Assessing Officerhas not considered the same and are not the approach and theconclusion based presumptions and supposition perverse,arbitrary and illegal?available on record it cannot be said that the Assessing Officerhas not considered the same and are not the approach and theconclusion based presumptions and supposition perverse,arbitrary and illegal? 2. Whether on the facts and in the circumstances of the case, theTribunal is right in law and factTribunal is right in law and fact i) in presuming that the Assessing Officer has consideredclause (c) of Explanation to Section 115JA in the Asst.year1997-98 & 1998-99;clause (c) of Explanation to Section 115JA in the Asst.year1997-98 & 1998-99; ii) in holding that merely because proper working is notavailable on record it cannot be said that the Assessing Officerhas not considered the same and are not the approach and theconclusion based presumptions and supposition perverse,arbitrary and illegal?available on record it cannot be said that the Assessing Officerhas not considered the same and are not the approach and theconclusion based presumptions and supposition perverse,arbitrary and illegal? 3. (a) Whether on the facts and in the circumstances of the case,the Tribunal is justified in directing the Assessing Officer toreduce the net profit by the sum of Rs.3,29,27,056/- in place ofRs.1,42,02,335/- as has been done by the Assessing Officer?the Tribunal is justified in directing the Assessing Officer toreduce the net profit by the sum of Rs.3,29,27,056/- in place ofRs.1,42,02,335/- as has been done by the Assessing Officer? (b) Whether, on the facts and in the circumstances of thecase, the Tribunal is right in law in directing the Assessing Officerto allow an amount of Rs.1,87,24,721/- being the provision forexcise duty written back on the "presumption" that even though theprovision of MAT were not considered as the assessment werecompleted applying normal provisions of the Act; "the assessingofficer has considered clause (c) of Explanation to Section 115JA inthe assessment year 1997-98 and 1998-99? 4. The learned counsel appearing for the parties state that substantial IT Appeal No.943/2009 4 question Nos.1 and 2 are covered in favour of the assessee by the reportedjudgments of the Apex Court in Ajanta Pharma Ltd. v Commissioner of Income- Tax [2010]327 ITR 305(SC). Hence the questions are answered by following theprinciple laid down in Ajanta Pharma in favour of the assessee and against therevenue. 5. Substantial question No.3 deals with the provision made by the assessee towards the disputed central excise demand raised against the assessee. Thedetails concerning the said claim are stated thus: 6. The Central Excise Department during the assessment years 1997-98; 1998-99 and 1999-2000 demanded and levied excise duty on Dicalciumphosphate. The demand was disputed and contested by the assessee before theCESTAT. The assessee, keeping in view the levy and demand of excise duty bythe Central Excise Department, has made the provision towards disputed levy ofexcise duty as follows: 7. The assessee succeeded in the appeal filed before CESTAT against thelevy and demand of excise duty on dicalcium phosphate. The assessee, therefore, has written back in the previous year corresponding to the present assessment year and as follows: towards the disputed central excise demand raised against the assessee. Thedetails concerning the said claim are stated thus: 6. The Central Excise Department during the assessment years 1997-98; 1998-99 and 1999-2000 demanded and levied excise duty on Dicalciumphosphate. The demand was disputed and contested by the assessee before theCESTAT. The assessee, keeping in view the levy and demand of excise duty bythe Central Excise Department, has made the provision towards disputed levy ofexcise duty as follows: 7. The assessee succeeded in the appeal filed before CESTAT against thelevy and demand of excise duty on dicalcium phosphate. The assessee, therefore, has written back in the previous year corresponding to the present assessment year and as follows: 6. The assessee while working the book profit under Section 115JB reducedthe sum of Rs.3,29,27,056/- claiming reduction under clause 1 of explanation toSection 115JB of the Act. The AO noted that reduction for provision writtenback is available if at the time of creation of provision, the provision was addedto the net profit under Section 115JA or 115JB of the Act. The provisions ofSection 115JA were not applied to the case on hand by the A.O. in computingthe total income and tax payable for assessment years 1997-98 and 1998-99 yetwas determined. The total income charged to tax for both the years was theincome computed under the normal provisions of the Act. In other words, thespeical provisions under Sections 115JA or 115JB were not applied to thecomputation of income. The provisions created were disallowed in the assessmentyear under the normal provisions of the Act. For the assessment years 1997-98,1998-1999 the income computed was under the normal provisions of the Act ormore than 30% of the book profit. Special provisions under Section 115JB werenot attracted to the case on hand. Thus considering the controversy from the IT Appeal No.943/2009 6 said perspective, AO restricted the deduction under second proviso to subsection 2 of Section 115JB amounting to Rs.1,42,02,335/- and not 3,29,27,056/-rupees as claimed by the assessee. This disallowance to the income of the assesseeresulted in addition of Rs.1,87,24,721/-. The CIT (Appeals) examined the claimof assessee by referring to the normal assessment made by A.O. resulting inlevying tax at 30% on the total income for these two assessment years. CIT(Appeals) finds that the assessee did not file computation of income underSection 115JA. From the assessment orders it is clear that computation underSection 115JA has not been carried out or undertaken by the AO while passingthe orders dated 15.3.2000 and 29.1.2001. It is further held that assessee cannotreduce the provision written back unless the appellant was assessed under Section115JA or 115JB relating to the year in which the provision was debited by theassessee. The CIT (Appeals) flatly rejected the additional grounds raised by theassessee. The assessees claims that the AO ought to have ensured that thecomputation was done under Section 115JA for the assessment year 1997-98 and1998-1999 also. The two reasons given for rejecting the additional grounds arethat the additional ground is not relevant for deciding the appeal and theassessee is asking for the impossible and no AO can ensure while completing theassessment for the assessment year 2002-03 that computation under Section115JA was made for the assessment years 1997-98 and 1998-99. Thus it is clear IT Appeal No.943/2009 7 the CIT (Appeals) was in substantial agreement with the reasons recorded by the AO and rejected the case of assessee. The Tribunal accepted the case of assessee for writing back in the assessment year 2002-03 and allowed the appeal. 7. The Tribunal considered the issue and recorded the followingconclusions. IT Appeal No.943/2009 7 the CIT (Appeals) was in substantial agreement with the reasons recorded by the AO and rejected the case of assessee. The Tribunal accepted the case of assessee for writing back in the assessment year 2002-03 and allowed the appeal. 7. The Tribunal considered the issue and recorded the followingconclusions. "Section 115JB is a deeming provision and it overrides the otherprovisions under which the total income is computed in respect of thecompany which is an assessee. If income-tax payable is less than 71/2% of its book profit in that case, the assessee which is a company isliable to pay income-tax as per the provisions of section 115JB. Subsection (2) to section 115JB provides the method for computation ofthe book profit. Explanation is also provided to the said sub sectionbut from the language used by the legislature, the said explanation isapplicable to section 115JB as such, more particularly in the context ofbook profit. The explanation is divided into two parts. Part I consistsof clauses (a) to (g) and it is provided that book profit means the netprofit as shown in the profit and loss account which shall be increasedby the amount specified in clauses (a) to (g). In part 2 of the saidExplanation, book profit is to be reduced by certain amounts asspecified in clauses (i) to (vii). As per clause (i), more particularly inrespect of the provision made earlier and amount written back bycrediting th same to the profit and loss account and in consequence ofwhich the net profit as shown in the profit and loss account isincreased, then the said amount is to be reduced from the net profit inthe process of computing the book profit. By virtue of proviso toclause (i) to the Explanation, even if the amount is written back fromthe provision and credited to the profit and loss account, the sameshall not be reduced unless in respect of the provision made in theprevious year relevant to the assessment year commencing on or after1997-98, unless while computing the book profit u/s.115JA as then itwas applicable, the said amount so added. In the present case, for the asst. years 1997-98 and 1998-99, theassessments are framed by adopting the normal provisions of the Act.As admitted by the AO himself, the income computed under the deeming provisions of section 115JA. So our presumption would bethat the AO has considered clause (c) of Explanation to section 115JAin the asst. Years 1997-98 and 1998-99. Merely because proper workingis not available on record, it cannot be said that the AO has notconsidered the same. By virtue of provisions of section 115JA as theywere applicable in the asst. Years 1997-1998 and 1998-99, the AO wasunder the statutory obligation to consider the said provisions. In ouropinion, there was no justification to disallow the claim of the assesseeeither wholly or on pro-rata basis. We, therefore, direct the AO toreduce the net profit by the sum of Rs.3,29,27,056/- in place ofRs.1,42,02,335/- as has been done by the AO. This issue is decided infavour of the assessee and against the revenue." 8. Hence the appeal at the instance of revenue. 9. The learned standing counsel has reframed the substantial question Nos.2 and 3 as follows and made his submissions. 2.Whether on the facts and circumstances of the case, theTribunal is correct in law in directing the Assessing Officer torecompute the 'book profit' for the purpose of levy of tax underSection 115JB by reducing the entire provision written back ofRs.3,29,27,056/- from the net profit in terms of clause (i) of theExplanation in Section 115JB?3.Is not the order of the Tribunal without any basis and onassumptions and presumptions perverse? 9. It is argued for revenue that the assessee firstly made provision in the 8. Hence the appeal at the instance of revenue. 9. The learned standing counsel has reframed the substantial question Nos.2 and 3 as follows and made his submissions. 2.Whether on the facts and circumstances of the case, theTribunal is correct in law in directing the Assessing Officer torecompute the 'book profit' for the purpose of levy of tax underSection 115JB by reducing the entire provision written back ofRs.3,29,27,056/- from the net profit in terms of clause (i) of theExplanation in Section 115JB?3.Is not the order of the Tribunal without any basis and onassumptions and presumptions perverse? 9. It is argued for revenue that the assessee firstly made provision in the assessment years 1997-98 and 1998-99 towards disputed demand of excise duty.The assessments were finalised under Section 143(3) of the Act. The tax of 30%as applicable in normal provisions of the Act has been levied and demandedfrom the assessees. The assessee failed to establish that the computationstatement under Section 115JA or Section 115JB has been, firstly, filed by the assessee and secondly, considered by the AO in any manner. In the absence ofconsideration of book profits for the purpose of Sec.115JB, unless and until it isshown that in the corresponding applicable previous year to the assessment yearthe provision has been added, the provision now sought to be written backcannot be deducted while computing the book profit of the assessee undersection 115JB of the Act. The Tribunal has presumed and assumed that thenormal computation and finalisation of the return of the assessee is by takingnote of the effect of the provision made towards disputed levy and demand ofexcise duty. Therefore the finding recorded by the Tribunal is perverse andpresumptuous. Hence it is argued that substantial question No.3 and reframedquestion Nos.2 and 3 may be answered in favour of revenue and against theassessee. 10. Senior Adv.Joseph Markose prefaces his argument, by keeping in viewthe authoritative pronouncement of the Supreme Court in Ajanta Pharma Ltd.,that Section 115JB is a self contained code. The assessment has been made underSec.143(3) of the Act. Computation of book profit for the purposes of specialprovisions and comparing such computation with the income arrived at in thenormal provisions is on the AO. Once an order under Section 143(3) is made, itis now not available to revenue to contend that the AO, firstly, did not refer tothe computation for the purposes of Section 115JB of the Act, and that the assessee was called upon to pay income tax at 30% pre-supposes that the taxpayable is more under the normal provisions than under special provisions.Therefore tax has been collected as per the normal provisions for the A.O. isunder obligation to collect tax under applicable higher rate to wit if normalprovision at 30% and special provision at applicable rate in the previous year.The absence of reference to these details by A.O. at that point of time is easilyunderstandable because the special provisions have come into force with effectfrom 1.4.1997. The very fact that income tax has been collected at 30% as pernormal provisions shows that the AO has not committed a mistake and the non-reference in the respective assessment orders shall not be put against the assesseeor disallow the claim of writing back. There is no presumption or assumptionby the Tribunal. He further argued that the objection now raised by the revenueis a verifiable circumstance. To deny the benefit of writing back in thisassessment year the revenue ought to show one circumstance which wouldsupport the claim that in the previous year in which the provision was made itwas not debited in the P&L account of the assessee. In the absence of suchmaterial the conclusion drawn by the Tribunal is a pure finding of fact and thesubstantial questions as orginally framed and as reframed do not come withinthe scope of Section 260A of the Income Tax Act. He prays for answering thequestions in favour of assessee and dismissing the appeal. IT Appeal No.943/2009 11 11. We have perused the record and noted the submissions made by thelearned Advocates appearing for the parties. The controversy arises in a verylimited compass. Before expressing our view on the substantial questions of law,let us take note of the following the circumstances. 12. We directed the assessee to place before us the assessment orders madeby the AO for the assessment years 1997-98; 1998-99 and 1999-2000 i.e. the yearsduring which provision for disputed excise duty was made by the assessee. Theassessment orders for the first two years has been made by referring to normalprovisions of the Act and the necessity to refer to special provisions was notnoticed by the AO. The AO, as is clear from the respective assessment orders,did not find a case for applying minimum alternate tax i.e. Special Provisions asapplicable to the assessee for the first AY 1997-98; 1998-99 referred to above. TheAO as well as the CIT have proceeded on the reasoning that unless and untilbook profits under section 115JA or 115JB are established as duly computed bythe AO, the claim for writing back cannot be allowed in the subject assessmentyears. The reasoning of the primary authority and the first appellate authority isuntenable in our consideration of the circumstances of the case and scheme ofthe Act. We are of the view that once the return was filed by the assessee, it is theresponsibility on the AO to compute the income of assessee under normalprovisions and special provisions. The income tax is collected on the income IT Appeal No.943/2009 12 whichever is higher in these two methods i.e. either normal provision or specialprovision. Had it been a case where the AO has omitted or failed to do complywith Section 115JB the remedy available to revenue is different to work out thegrievances vis-à-vis the respective assessment orders allegedly made by A.O.without reference to the applicability of Section 115JA/115JB of the Act.However the omission on the part of the AO in referring to Special Provisionsought not to deny the writing back provision available under second proviso tosub section 2 of Section 115JB. The argument that the assessee gets doubleadvantage by allowing it to write back the provision now is equally incorrect forthe Tribunal has rightly found that proper working is not reflected in therespective assessment orders or the record cannot lead to the conclusion that AOhas not considered the applicability of special provision as well. The assessmentorder, in our view, has the presumption of having been made in accordance withthe requirements of law and obligations fastened on the A.O. It cannot now begain said that the AO failed to discharge the statutory obligation whilecomputing the income of assessee for the assessment years in which the provisiontowards disputed excise duty was made by the assessee. The first and foremostobjection of revenue on actual verification of provision made in respectiveassessment years is that the Tribunal presumed and pre-supposed that thecontemperaneous effect would have been given in the books of accounts without IT Appeal No.943/2009 13 IT Appeal No.943/2009 13 material on record. The argument is contrary to the orders made by the AO inthis behalf. The contention at the first blush though appears to be persuasive.With the help and assistance of learned counsel appearing for revenue andassessee, we have verified the assessment orders for the years 1997-98; 1998-99 and1999-2000 and the assessment order in which the present appeal arises and we areof the view that the primary and first appellate authority have, as matter of fact,presumed a circumstance against assessee which is not in the control of assessee.We appreciate and accept the conclusion recorded by the Tribunal by taking noteof the fact that the assessee was subjected to the slab rate of 30% for theassessment years 1997-1998 and 1998-1999 and computed the tax payable thereonunder normal provisions. The denial of writing back benefit to the assessee inthese assessment years are illegal and the finding recorded by the Tribunal is validand correct in the circumstances of this case. Hence the reframed question isanswered in favour of the assessee and against the revenue. The appeal fails andaccordingly dismissed. No order as to costs. Sd/- S.V.BHATTI Judge