Itta/234/2003 Of The Commissioner Of Income Tax Hyd v. M/S Sirpur Papers Mills Ltd

HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A No. 234 OF 2003 15-10-2014 BETWEEN The Commissioner of Income Tax, Andhra Pradesh – II,Hyderabad …Appellant And M/s. Sirpur Paper Mills Ltd., 5-9-22/1, Adarsh Nagar, Hyderabad…..Respondent HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos. 234 OF 2003 JUDGMENT:(per the Hon'ble Sri Justice L. Narasimha Reddy) The respondent is a company undertaking the activity ofmanufacture of paper and allied products. For the assessmentyear 1990-91, it has maintained profit and loss account as requiredunder the Indian Companies Act, 1956 and submitted returnsunder the Income Tax Act, 1961 (for short, ‘the Act’). Theassessing officer took into account, Section 115J of the Act and proposed to levy income tax on 30% of the income reflected in thebooks of accounts. However in the process, he sought to add asum of Rs.13,26,000/- which is earmarked as adhoc provision andpassed an order of assessment on 26-02-1993. The respondentcarried the matter in appeal to the Commissioner of Income Tax(Appeals)-I, Hyderabad. Through his order dated 10-10-1995, theCommissioner took the view that though no exception can betaken to the addition of Rs.13,26,000/- to the books of accountsunder Section 115J, the claim of the respondent that a sum ofRs.4,00,000/- was shown under the same account in the earlierassessment year, but was disallowed; was taken into account andthe assessing officer was directed to verify the same. He made itclear that if the amount was mentioned in the returns for the year1989-90 and was disallowed, the said amount shall not be addedfor the assessment year 1990-91. The department carried thematter in appeal to the Hyderabad Bench ‘A’ of the Income TaxAppellate Tribunal (for short, ‘the Tribunal’) by filing I.T.A No.159/Hyd/96. Through its order dated 23-08-2000, the Tribunal dismissed the appeal. Hence, this furtherappeal under Section 260A of the Act. Heard Sri J.V. Prasad, learned counsel for the appellant andSri Vijay Ashrit, learned counsel for the respondent. It is not in dispute that the case of the respondent iscovered by Section 115J of the Act. The purport thereof is that incase discrepancy of income reflected in the returns filed for aparticular assessment under the Act is less than 30% of what is reflected in the profit and loss account maintained as part ofobligation under the Companies Act, the tax shall be levied on 30%of the one reflected in the profit and loss account. By and large,the profit and loss account is taken on its face value and theassessing officer does not touch it. However, if one takes intoaccount the explanation to Section 115J of the Act, it becomesclear that the assessing officer can verify the details of the profitand loss account and may add or delete certain items mentionedin the explanation. In the instant case, the assessing officer intended to addRs.13,26,000/- to the figures reflected in the profit and lossaccount referable to Section 115J. The respondent did notseriously object to it. However, it pleaded that out ofRs.13,26,000/-, a sum of Rs.4,00,000/- has already been reflectedin the previous assessment year but the same was disallowed. Ifthat is true, it would mean that the amount of Rs.4,00,000/- wassubjected to tax and a sum upon which tax has been paid cannotbe subjected to taxation once again. The Commissioner did notsay any final word on this aspect. The matter was left forverification by the assessing officer. The only thing he clarifiedwas that in case the amount of Rs.4,00,000/- was shown in thereturns for the assessment year 1989-90 and it was disallowed,the same shall not be added for the subsequent assessment year. Learned counsel for the appellant is not able to say as to how sucha direction runs contrary to law. The Tribunal upheld the order ofthe Commissioner and we do not find any basis to interfere withthe same.