COMMISSIONER OF INCOME TAX vs. SAMAY ELECTRONICS PVT. LTD.

O/TAXAP/599/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 599 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus SAMAY ELECTRONICS PVT. LTD.....Opponent(s) ================================================================ Appearance: MR M.R. BHATT SR. STANDING COUNSEL WITH MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 8

O/TAXAP/599/2006 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 11/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This appeal u/s.260A of the Income Tax Act, 1961 is filed against the judgment and order dated 02.12.2005 passed by the Income Tax Appellate Tribunal, Rajkot Bench in ITA No.301/RJT/2005 whereby, the appeal by the assessee was allowed. 2. Briefly stated, the facts are that the assessee-company is engaged in the business of manufacturing and trading of clocks and electronic goods and also its export. 3. The assessee filed its return of income on 31.01.2001

declaring

total

income

at Rs.1,05,89,860/-. The Book Profit u/s.115JB was shown to be Rs.5,50,75,347/- on which tax payable @ 7.5% was shown to be Rs.41,30,651/-. Assessment scrutiny was undertaken and ultimately, the Assessing Officer passed the order u/s.143(3) dated 29.03.2004. 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). Vide order dated 25.11.2004, the CIT(A) partly allowed the appeal of the assessee. Against the order of CIT(A), the assessee filed appeal before the Tribunal. After Page 2 of 8

O/TAXAP/599/2006 JUDGMENT hearing both the sides, the Tribunal partly allowed the appeal filed by the assessee. Hence, this appeal by the Revenue. The assessee has not preferred any appeal before this Court. 5. The appeal was admitted on 07.10.2006 in respect of the following substantial question of law; “Whether the Appellate Tribunal is right in law and on facts in holding that deletion of Rs.73,92,610/- made by the Assessing Officer for computation of book profit treating the same as unascertained liability under Explanation 9(c) to sub-section (2) of Section 115 JB out of provision for repair amounting to Rs.84.22 lakhs due to earthquake claimed by the assessee as deduction for the purpose of computation of profit u/s 115 JB of the Act was not legally sustainable ? 6. Mr. M.R. Bhatt learned Senior Standing Counsel appearing for the Revenue has taken us through the provisions of Section 115JB of the Act and submitted that since the liability arising out of the damage caused in the earthquake was not ascertained, the Tribunal ought not to have passed the impugned judgment in favour of the assessee, which is against the provisions of the Act. 6.1 Learned Senior Counsel Mr. Bhatt drew our Page 3 of 8

O/TAXAP/599/2006 JUDGMENT attention to clause-(c) of Explanation-(1) to Section-115JB, which read thus; “Explanation [1] – For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by - (a) …. (b) …. (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained; or” (d) to (j) …. 7. Mr. RK Patel learned counsel for the assessee submitted that the damage sustained in the earthquake was ascertained by the competent authority at the District Industries Centre, Rajkot, who has issued the Certificate dated 20.04.2001 whereby the total loss was assessed at Rs.84.22 Lacs. He, therefore, submitted that the Tribunal was completely justified in passing the impugned judgment. 8. We have heard learned counsel for both the sides and perused the material on record. While entertaining the appeal filed by the Revenue, the Tribunal made the following observations in Paras Page 4 of 8

O/TAXAP/599/2006 JUDGMENT – 5.1 to 5.3 of its judgment; ““5.1 In the case of Apollo Tyres Limited v. CIT (255 ITR 273), the Supreme Court observed as follows; “The Assessing Officer while computing the book profits of a company under section 115J of the Income Tax Act, 1961 has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, therefore, has the limited power of making increases and reduction as provided for in the Explanation to Section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words “in accordance with the provision of Parts II and III of Schedule VI to the Companies Act” in Section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provision of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter, to be filed before the Registrar of Companies who Page 5 of 8

O/TAXAP/599/2006 JUDGMENT has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) offers to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.” 5.2 Now, coming to the contention of CIT Departmental Representative, we find that provision of Sections 248 and 249 of the Companies Act, 1956 as emphasized by the CIT Departmental Representative are pertaining to the determination of net profit for the purpose of computation of remuneration payable to the managing agent of the Company. These provisions of Companies Act are not at all relevant and applicable to the computation of book profit for the purpose of Section 115JB. We have, therefore, no hesitation in holding that contention of learend CIT Departmental Representative was erroneous and devoid of any merit. 5.3 In view of the above discussion, we are persuaded to agree with the learned A.R Shri R.K. Doshi, C.A. that addition of Rs.73.92 lacs made by the Assessing Officer for computation of book profit treating the same as unascertained liability under Explanation (c) to sub-section (2) of Section 115JB, out Page 6 of 8

O/TAXAP/599/2006 JUDGMENT of provision for repairs amounting to Rs.84.22 lacs due to earth quake claimed by the assessee as deduction for the purpose of computation of profit under section 115JB of the Act, was not legally and factually sustainable.”” 9. Considering the facts of the case and the provision of Section 115JB, more particularly, Clause-c of Explanation-[1], we are of the view that the Tribunal was completely justified in reversing the order of the Assessing Officer. 10. In view of the above, the question of law as to whether the Tribunal is right in law and on facts in holding that deletion of Rs.73,92,610/- made by the Assessing Officer for computation of book profit treating the same as unascertained liability under Explanation 9(c) to sub-section (2) of Section 115 JB out of provision for repair amounting to Rs.84.22 lakhs due to earthquake claimed by the assessee as deduction for the purpose of computation of profit u/s 115 JB of the Act is answered in the affirmative in favour of the assessee and against the Revenue. 11. The appeal is, accordingly, dismissed. Page 7 of 8

O/TAXAP/599/2006 JUDGMENT (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 8 of 8