THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN R.C. No.44 of 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The two questions referred to this Court under Section 256(1) of the Income Tax reads as under: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Assessing Officer was justified in making adjustments for decapitalisation of interest and/or extra shift allowance and re-casting the profit and loss account to arrive at the profit in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, for the purpose of determining “Book Profits” as provided in Sub-Sec. (1A) of sec.115J of the Income-tax Act, 1961? For asst. Year 1990-91: 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest under Secs.234B and 234C of the Income-tax Act, 1961, are attracted for non-payment of advance tax on “Book Profits” under sec.115J of the Act? The brief background leading to the reference, after the order was passed by the Learned Income-tax Appellate Tribunal, is as follows:- For the assessment years 1989-90 and 1990-91, the assessee filed its returns –Rs.1,53,45,695/- for the former and Rs.2,50,42,293/- for the later year. The Assessing Officer recomputed the assessment for both the years adding an amount of Rs.93,16,176/- for the assessment year 1989-90. While doing so, the assessing officer allowed interest expenditure of Rs.60,29,519/- debited to the p & l account, but disallowed Rs.60,96,787/- representing extra shift depreciation for earlier years and Rs.32,19,389/- representing a portion of the interest expenditure of earlier years. Similarly, for the assessment year 1990-91, the assessing officer recomputed the profit under Section 115J refusing to accept the assessee’s computation of business loss of Rs.3,64,54,240/-. The Commissioner of Income-tax (Appeals) (CIT(A)), in his order dated 24.01.1994, observed that Schedule VI of the Companies Act, which relates to preparation of profit and loss account, in Note IV requires the amount, provided for as depreciation, renewal or diminution in the value of fixed assets, to be shown and, if provision is not made, its effect to be indicated on the quantum of arrears of depreciation computed in accordance with Section 205(2) of the Act, and to be disclosed by way of a note; Section 115J (1A) requires the accounts to be in accordance with Parts II and III of Schedule VI of the Companies Act; in the earlier years, as well as in the current year, the accounts were not in accordance with the provisions of Parts II and III of Schedule VI; once the accounts are required to be in accordance with Schedule VI, notional effect has to be given in the respective earlier years also in view of the set offs permitted under Section 115J(1A)(iv) and, for this purpose, notionally the accounts needs to be recast by making adjustments to the revenue account by deducting the actual interest payable, and adding to that the excess depreciation claimed. On the question of charging interest, under Section 234 (B) and (C), the CIT (A) held that charging of interest thereunder was correct. Aggrieved thereby the assessee carried the matter in appeal to the Income-tax Appellate Tribunal. The Learned Tribunal observed that the profit and loss account is to be so made as to clearly disclose the results of the working of a company during the period covered by the account; the transactions of non- recurring and exceptional nature are to be disclosed specifically; depreciation, renewals or diminution in the value of fixed assets is to be provided; if such provision is not made by means of depreciation charge, the method adopted for making such provision is to be disclosed; the entries for decapitalisation of interest and extra-shift allowance of the broken period, shown as expenditure in the profit and loss account of the two years, were not in accordance with any principle of accountancy and, therefore, the Assessing Officer was justified in making adjustment thereof and recasting the profit and loss account to arrive at the book profit in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act. On the question of charging of interest, under Section 243(B) and (C) of the Income-tax Act, the Tribunal followed the earlier order of the Special bench of the Tribunal in the case of Sutlej Cotton Mills Ltd where, in similar circumstances, liability to interest under Section 215 was upheld. Consequent thereupon the aforesaid two questions were referred for our opinion at the behest of the assessee. Though notices are served, the assessee did not appear. Therefore this Court requested Ms. Anjali Agarwal to assist the Court as amicus curiae. She made her submissions relying on the decisions of the Supreme Court in Apollo Tyres Ltd. v. Commissioner of Income-tax[1] and Malayala Manorama Co. Ltd. v. Commissioner of Income-tax[2]. According to the Learned Amicus Curiae, these two decisions cover question No.1 and has to be answered in favour of the assessee. In so far as question No.2 is concerned, the Learned Amicus Curiae relies on the decision of the Karnataka High Court in Kwality Biscuits v. Commissioner of Income-tax[3] which was confirmed by the Supreme Court in Commissioner of Income Tax v. Kwality Biscuits Ltd.[4]. Per contra, the Junior Standing Counsel for Income-tax department relies on Explanation –I to sub-section (1) of Section 43 and submits that, while calculating depreciation, the actual cost of the asset as stipulated under the said provision should be taken into consideration. After perusing the orders of the assessing authority, the CIT(A) and the Learned Tribunal, and on going through the precedents cited, we are convinced that the two questions have to be answered in the negative and in favour of the assessee. The reasons are as follows. Section 115J of the Income-tax Act stipulates that, while assessing the income of a company which has submitted its audited accounts in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956, for the purpose of levying tax, 30% of the book profit should be taken into consideration. Once the company has filed its audited accounts, the assessing officer cannot recompute the accounts since, as held by the Supreme Court in Apollo Tyres Ltd.1, the same would amount to reckoning two accounts one for the purpose of the Income-tax Act and the other for the purposes of the Companies Act. I n Apollo Tyres Ltd.1, the Supreme Court considered the question whether, while assessing a company under Section 115J, the correctness of the p & l accounts, prepared by the assessee company and certified by statutory auditors of the company, could be examined. Answering the question in the negative it was held as follows: “While so looking into the accounts of the company, an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Inspite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the Assessing Officer to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-section (1A) of section 115J of the Income-tax Act in support of the above contentions is misplaced. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the Income-tax Act for the limited purpose of making the said account so maintained as a basis for computing the company’s income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of the Companies Act and another for the purpose of income-tax both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company’s income then it would have stated in section 115J that “income of the company as accepted by the Assessing Officer”. In the absence of the same and on the language of section 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal.” The above view was reiterated by the Supreme Court in Malayala Manorama Co. Ltd.2. The 2nd question is also no longer resintegra. The Karnataka High Court, in Kwality Biscuits3, considered the question whether in an assessment year, where the assessee company’s income is computed as per the provisions of Section 115J, interest under Section 234-B and 234-C can be levied. It was held as follows: “Section 234B casts the liability for payment of interest for default in payment of advance tax if the assessee is liable to pay advance tax under section 208 and has failed to pay such tax, or where the advance tax paid by such assessee under the provisions of section 210 is less than 90 per cent. Of the assessed tax, then he is liable to pay simple interest at the rate of two per cent. For every month to the date of determination of total income under section 143(1) and, where the regular assessment is made, to the date of such regular assessment on the amount equal to the assessed tax or, as the case maybe, on the amount by which the advance tax paid has fallen short of the assessed tax. Under the Explanation, “assessed tax” means the tax on the total income as declared in the return or the tax on the total income determined under section 143(1) or on regular assessment, as reduced by the amount of tax deducted or collected as source in accordance with the provisions of Chapter XVII. Under Section 234C also, if there is liability to pay advance tax under section 208 and if there is failure to pay such tax or if it is not paid in instalments prescribed in the section, then the liability for interest arises.” When the revenue carried the matter in appeal to the Supreme Court, the same was dismissed in Kwality Biscuits4. In Deputy Commissioner of Income-tax (Asstt.) v. Bhopal Motors Ltd.[5], the Division bench of the Madhya Pradesh High Court, following the decision of the Supreme Court in Kwality Biscuits4, concurred with the Karnataka view. We are bound by the decision of the Supreme Court and, therefore, these references are answered accordingly in favour of the assessee. Before we part with the case, we must place on record our appreciation of the valuable assistance rendered by the learned amicus curiae. ______________ V.V.S.RAO, J ____________________________ RAMESH RANGANATHAN,J Date: 27.09.2010 MRKR [1] (2002) 255 ITR 276 [2] (2008) 300 ITR 251 (SC) [3] (2000) 243 ITR 519 (Karnataka) [4] (2006) 248 ITR 434 (SC) [5] (2010) 323 ITR 684 (MP).