CIT vs International Auto Ltd.

Heard learned counsel for the parties at length. The following questions of laws are involved in this appeal:

(i) Whether on the facts and in the circumstances of the case the learned Tribunal has erred by holding that the AO has not made the impugned additions under the regular provisions of the Act whereas the records show to the contrary thereby making the said finding perverse?

(ii) Whether on the facts and in the circumstances of the case the learned Tribunal has erred in law by impliedly upholding the deletion of addition of Rs. 7,49,672 representing unverifiable transactions?

(iii) Whether on the facts and in the circumstances of the case the learned Tribunal has erred in law by impliedly upholding the deletion of addition of Rs. 34,44,754 representing disallowance under s. 40(a)(ia) of the Act?

Learned counsel for the appellant submitted that in fact the assessee was assessed u/s 143(3) of the IT Act, 1961, which is apparent from the assessment order dated 26-12-2007, copy of which has been placed on record as Annex. 1. It is submitted that it is true that the assessee wanted to take benefit u/s 115JB and he has also shown his total income for the assessment year 2005-06 as nil but AO issue-wise considered various components and before that, he issued letters u/s 133(6) to different parties. In some of the cases, reply was received and in others, either the letter remained unserved or no reply was received. Thereafter, a show-cause notice was also given to the assessee about the above facts and he was asked to show reasons as to why the books of account should not be rejected. After considering the contentions of the assessee, the AO observed that the representative of the assessee could not produce any evidence for the proof of some of transactions and, therefore, held that assessee was unable to prove the genuineness of transactions with the above parties. The books of accounts were not believed and the transactions made with the above parties are treated as unexplained and relevant amounts were added to the total income of the assessee and thereafter, the AO ordered to proceed u/s 271(1)(c) of the Act of 1961 for imposition of penalty. AO also considered the claim of the assessee u/s 40(a)(ia) of the Act of 1961 and after rejecting the claim, added the income of Rs. 34,44,754.17. Some of the expenses were also found unverifiable expenses and thereafter, specifically in the operative part of the assessment order, ordered "assessed u/s 143(3) of the IT Act, 1961 on a total income of Rs. 67,52,390.00. Allowed B/F losses if any." However, it appears that learned AO inadvertently or wrongly also ordered--"The computation as per 115JB is modified accordingly" and "Charge interest as per law. Penalty proceeding u/s 271(1)(c) of the IT Act, 1961 is hereby initiated for the above. Issued demand notice with challan."

This clearly indicates that the assessment order was u/s 143(3) and not u/s 115JB of the Act of 1961.

The assessee preferred appeal against the said assessment order which was partly allowed by the CIT(A) vide order dated 23-1-2009. The CIT(A) also considered each and every component which has been considered by the AO and thereafter, deleted the above addition which could have been done only in regular assessment u/s 143(3) and not u/s 115JB. However, while considering ground No. 4, the CIT(A) held that "the AO has added back the sum of Rs. 7,49,672, Rs. 4,86,973 and Rs. 34,44,754 to the book profit for the purpose of charging tax u/s 115JB without giving any reason." The CIT(A) directed the AO to remove the amounts added by him to the sum of Rs. 20,70,995.

Aggrieved against the order of CIT(A) dated 23-1-2009, the Revenue preferred appeal and the cross-objection was submitted by the assessee. The Tribunal was also of the view that the CIT(A) has deleted the addition u/s 40(a)(ia) which does not have any relevance for the calculation made u/s 115JB. The Tribunal considered the books profit of the assessee which was shown to be Rs. 2,05,94,131, which is much higher than the profit computed as Rs. 67,52,394. However, the Tribunal was of the view that a patent mistake has been crept in the order of the AO which has been dealt with by the CIT(A) without appreciation of the facts. The Tribunal also held that the endeavour of the AO was not to tax under the regular provisions of the Act when the assessee is paying more tax under the provisions of section 115JB. The Tribunal also took note of the fact that CIT(A) heard the assessees appeal on the demand notice issued by the AO u/s 115JB and therefore, on the solitary issue of the rectification of the demand notice u/s 115JB, the matter was restored to the file of the AO for recomputing the demand u/s 115JB.

According to learned counsel for the appellant, it was a case of assessment u/s 143(3), whereas according to learned counsel for the assessee, it was assessment u/s 115JB.

Learned counsel for the assessee relied upon a judgment of Hon''ble Supreme Court delivered in the case of Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, wherein purpose of introduction of section 115J has been considered in detail and that too, after considering the Budget Speech of the Finance Minister made in the Parliament while introducing the said section.

Learned counsel for the assessee vehemently submitted that in view of this decision of Hon''ble Supreme Court, the AO had no jurisdiction to even look deeply into the books of account of the assessee when the books of account have been maintained as required under the provisions of Companies Act and have been duly audited. Hon''ble Supreme Court clearly held that such enquiry is beyond the scope u/s 115JB. According to learned counsel for the appellant, the assessee submitted returns of his income as nil and he has right to submit such returns in a case where his case is squarely covered u/s 115JB which is a Special provision for the companies who are showing less profit than the profit shown in previous years to the relevant year. The provision has been made for taxing such companies also and in that situation also, some tax can be imposed. The complete proceeding for assessment in such a situation has been given u/s 115JB wherein the provision has been made with respect to the computation of income and provision for disallowance on certain components whereas some permissible depreciations are allowed. It is submitted that in view of the fact that the petitioner submitted his returns u/s 115JB and the AO in his order itself, very clearly mentioned that the computation is required to be as per section 115JB and such finding has been upheld by the CIT(A), then it is a pure question of fact and that has been upheld by the Tribunal. Therefore, no question of law is involved in the present appeal. Otherwise also, on merit, there is no illegality committed by the CIT(A) as well as by the Tribunal in holding that the case of the petitioner is covered u/s 115JB.

We have considered the submissions of the parties, perused all the facts of the case and reasons given by the AO, CIT(A) and the Tribunal.

After going through the assessment order, Annex. 1, we are of the considered opinion that the assessee may have submitted his returns showing his total income as nil and has shown book profit of Rs. 2,05,86,930 u/s 115JB but AO has not proceeded to consider the case of the petitioner u/s 115JB and clearly mentioned in first para of the order itself that "the case was duly processed u/s 143(1)(a) and thereafter on selection of the case of scrutiny, statutory notices under sections 143(2) and 142(1) were issued." Such notices were duly responded by the assessees representative and the case was contested and proceeded u/s 143(1)(a) and assessment was made u/s 143(3) of the Act of 1961. Therefore, before the AO, assessee tried to justify the books of account and did not rely upon the principle that u/s 115JB, the AO need not go into the details of the scrutiny of the books of account. The AO not to only proceeded in this manner u/s 143, but in fact, disbelieved the books of account and added Rs. 7,49,672 in the income of the assessee as unexplained income. Then, the AO proceeded to examine the claim of deduction u/s 40(a)(ia) and added Rs. 34,44,754.17 in the total income of the assessee and thereafter, rejected certain expenses in unequivocal term and declared the assessment u/s 143(3) of the Act of 1961 on a total income of Rs. 67,52,390. However, in the entire order, without there being any consideration of section 115JB, this line has been mentioned in operative part of the order--The computation as per 115JB is modified accordingly."

We are of the considered opinion that this assessment was u/s 143(3) of the Act and the two orders cannot co-exist, one u/s 143(3) and another u/s 115JB. Since in operative part of the order, the purpose was to be u/s 143(3) and that finds support from the reasons mentioned in the order, we are of the considered opinion that it was a mistake on the part of the AO, who observed that the computation as per u/s 115JB is to be made.

The CIT(A) also proceeded to decide the matter as though it was a regular assessment u/s 143(3) and, therefore, after computing each and every addition made by the AO, on facts, reversed the findings recorded by the AO. At this juncture, we may make it clear that the issue is not that whether addition made by the AO was rightly deleted by the CIT(A) and the issue before us is only with respect to the nature of the order for the purpose of finding out whether under which provisions of section 143(3) or section 115JB, the AO or the CIT(A) proceeded to decide the matter.

As we have already made clear that AO decided the matter as per provisions of section 143(3), the CIT(A) also proceeded to delete the addition by examining the books of account and relevant material facts and not on the ground that the AO had no jurisdiction to question the correctness of the audited accounts, balance sheet, books of accounts u/s 115JB; even CIT(A) also proceeded to examine the matter u/s 143(3) and deleted the addition. At this juncture, it is worthwhile to mention here that CIT(A) also, while considering the ground No. 4 of addition of disallowance made to the book profit, held that it is a case u/s 115JB. Therefore, the order of the CIT (A), on the face of it, is contrary to the earlier findings recorded in other additions made by the AO and deleted by the CIT(A) when it decided the addition of disallowance made to book profit.

The Tribunal also held that the AO committed error and same error has been committed by the CIT(A) irrespective of the fact that the AO decided in favour of the assessee; yet according to Tribunal, both committed mistakes. The Tribunal came to the conclusion that when the assessee is paying more tax u/s 115JB and even observed that it is no body''s case that the regular assessment under the provisions of section 143(3) would have fetched more tax to the Revenue; we do not find any reason for such observation when Tribunal was of the view that neither the AO nor the CIT(A) had appreciated the facts. The Tribunal also ignored this fact that the AO and CIT(A), both considered each and every fact, which is required to be considered u/s 143(3) and then in that situation, merely because of the one line in the operative part of the order contrary to the specific facts mentioned in the first para that the case is duly processed u/s 143(1)(a), the Tribunal should not have directed the AO to rectify the demand notice u/s 115JB and the Tribunal held in this way--Therefore, on the solitary issue of the rectification of the demand notice u/s 115JB, the issue is restored to the file of the AO for recomputing the demand u/s 115JB under the strict provisions of taxation of book profits u/s 115JB". In view of the above, the question No. 1 is answered that the Tribunal has erred by holding that the AO has not made the impugned additions under the regular provisions of the Act, obviously, u/s 143(3) of the Act of 1961 and the Tribunal has also committed error of law in upholding the deletion of addition of Rs. 7,49,672 and Rs. 34,44,754, referred above. However, we are of the considered opinion that the AO should have considered the plea of the assessee also before holding that he is proceeding u/s 143(1)(ia), and in pursuance of notice under sections 143(2) and 142(1) of the Act of 1961, but he should have considered the assessee claim u/s 115JB, which has not been and as such, rejected the plea of the assessee in spite of taking note of the fact that assessee has shown the book profit of Rs. 2,05,86,930 u/s 115JB. Therefore, the impugned orders i.e., order of the Tribunal dt. 14th July, 201; the order of the CIT(A) dated 23-1-2009; and the assessment order dated 26-12-2007 are set aside. The matter is remanded to the AO for fresh consideration in the light of the observations made hereinabove, obviously to decide whether the assessment is required to be made u/s 115JB or u/s 143(3) of the Act of 1961.

This appeal is allowed accordingly.