The Commissioner of income tax Hyd vs. M/s Sirpur Papers Mills Ltd.,

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ITTA/234/2003HC TelanganaHBHC01058694200315 October 2014Bench: CHALLA KODANDA RAM,L.NARASIMHA REDDY4 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal upheld the order of the Commissioner of Income Tax (Appeals). The core issue was the treatment of Rs.4,00,000/-, which was part of an ad-hoc provision of Rs.13,26,000/- sought to be added by the Assessing Officer under Section 115J for assessment year 1990-91. The assessee contended that this Rs.4,00,000/- had been disallowed in the previous assessment year (1989-90). The CIT(A) directed the AO to verify this claim and, if true, not to add the amount for AY 1990-91, as an amount already subjected to tax should not be taxed again. The Tribunal found no basis to interfere with this direction, noting that the Revenue's counsel could not demonstrate how the CIT(A)'s order was contrary to law. The appeal was dismissed.

What were the facts?

The assessee, M/s. Sirpur Paper Mills Ltd., is engaged in the manufacture of paper. For assessment year 1990-91, the Assessing Officer (AO) proposed to levy income tax under Section 115J of the Income Tax Act, 1961, on 30% of the profit and loss account figures. The AO sought to add Rs.13,26,000/-, an ad-hoc provision, to the book profits. The assessee appealed to the Commissioner of Income Tax (Appeals) (CIT(A)), who directed the AO to verify if Rs.4,00,000/- of this amount was disallowed in the previous assessment year (1989-90). If so, it should not be added for AY 1990-91. The department appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal. The Revenue has filed this further appeal under Section 260A.

What were the issues?

1. Whether the direction by the Commissioner of Income Tax (Appeals) to verify if a sum of Rs.4,00,000/-, part of an ad-hoc provision of Rs.13,26,000/-, was disallowed in the preceding assessment year (1989-90) and consequently not to add it for the current assessment year (1990-91) runs contrary to law, particularly in the context of Section 115J of the Income Tax Act, 1961. Assessee's contentions: The assessee pleaded that a portion of the ad-hoc provision of Rs.13,26,000/- amounting to Rs.4,00,000/- had already been reflected in the previous assessment year, but was disallowed. The implication is that this amount was already subjected to tax or considered for tax purposes in the prior year, and therefore, should not be taxed again in the current year. Revenue's contentions: The Revenue argued that the CIT(A)'s direction was contrary to law. However, the judgment notes that the learned counsel for the appellant (Revenue) was not able to explain how such a direction runs contrary to law.

Which sections of the Income-tax Act were involved?

Section 115J,Section 260A

AI-generated summary — verify with the full judgment below

HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’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 REDDY AND HON’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 of manufacture of paper and allied products. For the assessment year 1990-91, it has maintained profit and loss account as required under the Indian Companies Act, 1956 and submitted returns under the Income Tax Act, 1961 (for short, ‘the Act’). The assessing officer took into account, Section 115J of the Act and

proposed to levy income tax on 30% of the income reflected in the books of accounts. However in the process, he sought to add a sum of Rs.13,26,000/- which is earmarked as adhoc provision and passed an order of assessment on 26-02-1993. The respondent carried the matter in appeal to the Commissioner of Income Tax (Appeals)-I, Hyderabad. Through his order dated 10-10-1995, the Commissioner took the view that though no exception can be taken to the addition of Rs.13,26,000/- to the books of accounts under Section 115J, the claim of the respondent that a sum of Rs.4,00,000/- was shown under the same account in the earlier assessment year, but was disallowed; was taken into account and the assessing officer was directed to verify the same. He made it clear that if the amount was mentioned in the returns for the year 1989-90 and was disallowed, the said amount shall not be added for the assessment year 1990-91. The department carried the matter in appeal to the Hyderabad Bench ‘A’ of the Income Tax Appellate 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 further appeal under Section 260A of the Act.

Heard Sri J.V. Prasad, learned counsel for the appellant and Sri Vijay Ashrit, learned counsel for the respondent.

It is not in dispute that the case of the respondent is covered by Section 115J of the Act. The purport thereof is that in case discrepancy of income reflected in the returns filed for a particular assessment under the Act is less than 30% of what is

reflected in the profit and loss account maintained as part of obligation 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 the assessing officer does not touch it. However, if one takes into account the explanation to Section 115J of the Act, it becomes clear that the assessing officer can verify the details of the profit and loss account and may add or delete certain items mentioned in the explanation.

In the instant case, the assessing officer intended to add Rs.13,26,000/- to the figures reflected in the profit and loss account referable to Section 115J. The respondent did not seriously object to it. However, it pleaded that out of Rs.13,26,000/-, a sum of Rs.4,00,000/- has already been reflected in the previous assessment year but the same was disallowed. If that is true, it would mean that the amount of Rs.4,00,000/- was subjected to tax and a sum upon which tax has been paid cannot be subjected to taxation once again. The Commissioner did not say any final word on this aspect. The matter was left for verification by the assessing officer. The only thing he clarified was that in case the amount of Rs.4,00,000/- was shown in the returns 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 such a direction runs contrary to law. The Tribunal upheld the order of the Commissioner and we do not find any basis to interfere with the same.

The appeal is accordingly dismissed. There shall be no order as to costs.

___________________________ L. NARASIMHA REDDY, J

____________________________ CHALLA KODANDA RAM, J 15-10-2014 ks

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