1. This is an appeal filed by the assessee challenging the order of the Commissioner of Income-tax (Appeals)-V, (Central), Hyderabad dated 27-2-2001, for the assessment year 1997-98 on the following grounds : 1. The learned Commissioner erred in assuming that the Assessing Officer had power and jurisdiction to recalculate the book profit for the year ended 31-3-1996 as well as the year under appeal ending on 31-3-1997. He ought to have held that the Assessing Officer has no such power in the case of Sullej Cotton Mills Ltd. v. Asstt. CIT (Trib.) 321 in para 13 of the order. Further he ought to have noted that Karnataka High Court in Widia India Ltd. v. CIT [2000] 242 ITR 678 and in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519' had held that for the purposes of Section 115J the method of accounting is with reference to the provisions of Section 205(1)(&) of the Companies Act and that provision overrides any other provisions of IT Act. Therefore, the commercial concept as contemplated by Companies Act has to prevail over a concept under the Income-tax Act.
1.1 The learned Commissioner ought to have held that in rare cases where the Assessing Officer has given such power, there should be material to hold that the company has perpetuated a fraud or misrepresentation of facts. He ought to have held that there is no material to hold that such a serious charge could be levelled against the company.
1.2 The learned Commissioner ought to have held that the impugned addition to book profit of Rs. 5,37,42,942 has already been included in the assessment for 1996-97 and unless that has been validly and legally vacated, the same amount cannot again be considered in the next assessment year 1997-98; he ought to have held that whether this is assessable in 1996-97 or not is highly debatable and not amenable to rectification as the Assessing Officer had done without even giving an opportunity of hearing.
1.3 The learned Commissioner erred in assuming that the addition made to book profits could be considered as income in a commercial sense as coming under Section 205(1) of Companies Act. He ought to have held that remission of a past liability is not an income in the commercial sense as pointed out by Supreme Court in the case of CIT v. Hukumchand Mohanlal [1971] 82 ITR 624 explaining the reason why Section 41(1) has to be introduced in the Income-tax Act.
1.4 The learned Commissioner ought to have noticed that even in the accounts ending 31-3-1996, the impugned amount is not part of the profit and loss account but was a credit item below the line (in the appropriation account) and therefore, could not be taken as an admission of the assessee that the impugned amount is also commercial profit.
2. Assuming Ground No. 1 is held against the assessee even then, the Commissioner erred in holding that the impugned amount is book profit of the assessment year 1997-98. He ought to have held that the amount was rightly and properly treated as profit of the assessment year 1996-97.
2.1 The learned Commissioner ought to have recorded that all the negotiations for one time settlement of dues (CTS) were completed by the proposal of the assessee elated 5th Feb. 1996 and this proposal was considered by me Creditors Consortium on 17th April 1996. He ought to have held that the offer was made by the assessee on 5th Feb. 1996 and this was by and large accepted by the consortium in the meeting of creditors on 17-4-1996. He ought to have noted that there was no further query or demand for clarification from the creditors after 17-4-1996 and that the assessee's letter of 30-5-1996 also clearly assumes that the Consortium has accepted the offer of OTS except for the change of 'cut-off-date': the assessee wanted cut off date to be 30-9-1996 but the Consortium had stuck to 31-3-1996. Therefore, he ought to have held that the creditors had accepted the OTS on 17-4-1996.
2.2 The learned Commissioner erred in inferring from the letter of the assessee to IDBI dated 30-5-1996 that the proposal for OTS has not yet been accepted by the creditors. He ought to have noted that the letter itself shows that the OTS was accepted subject to the cut-off date being 31-3-1996 and all that the assessee wanted was that the 'cut-off-dale' should be extended to 30-9-1996.
2.3 The learned Commissioner erred in placing a wrong construction to the expression and words 'proposal has not yet been accepted' appearing in the letter of 30-5-1996. He ought to have known that by this expression the assessee is referring to the formal acceptance of OTS by the creditors individually and this is made clear by the latter part of the same paragraph in the letter where it is mentioned that considerable time would be taken for sanction of OTS by the participating creditors. He ought to have known that the Consortium of Creditors on 17-4-1996 had taken an in-principle decision and that is only an informal, nevertheless consensus decision, since it was not a formal acceptance as between the creditor and debtor as per records, each creditor has to individually quantify the benefit of OTS and this takes lime.
2.4 The learned Commissioner ought to have held that the decision of the Consortium on the meeting of 17-4-1996 was known to the assessee on that clay itself since the assessee's representative was present at the meeting.
2.5 The learned Commissioner ought to have understood the correct import of the letter of 30-5-1996 where it says: "we understand that the 'cut-off-date' has been fixed at 31-3-1996". This can arise only after the acceptance in principle of OTS subject to a different cut-off-date.
3. The learned Commissioner erred in holding that the guidelines in Accounting Standard-4 would not apply to the facts of the case, he ought to have held that the proposal for OTS was made during the accounting year relevant' to assessment year 1996-97, i.e., February, 1996 and it is this proposal which was being considered in April, 1996. He ought to have accepted that the event of the acceptance of OTS is of great importance coming after the elate of the balance-sheet and affecting the assets and liabilities position as on that date. The Chartered Accountant drawing up the accounts cannot ignore its impact on the accounts since accounting standard-4 has become mandatory from 1-1-1987 and therefore the results of OTS was rightly included in the accounts for 31-3-1996.
3.1 The learned Commissioner erred in relying on the dates on which the individual creditors had accepted the OTS to hold that the benefit of OTS arose only in the year 1997-98. He ought to have held that these elates are not important since the creditors had accepted in principle OTS in the meeting of the Consortium on 17-4-1996; these letters are only formal acceptance with the quantification since the agreement for term loans were with individual banks and institutions and not with the Consortium.
3.2 Assuming these letters are relevant, even then, the Commissioner ought to have held that they could be considered under Accounting Standarel-4; AS-4 requires the events occurring between the date of balance-sheet and the date of approval of the financial statements should be considered. He ought to have known that the balance sheet drawn on 31-3-1996 was not the accounting year for the shareholders and company, but solely and only for Income Tax; and the date of approval of the final accounts would be the date of filing of the return which was 30-11-1996 and so, acceptance of each of the creditors before 30-11-1996 has to be taken into. He ought to have held that OTS of all the creditors barring PNB and SBI had taken place before that elate and so, they refer to assessment year 1996-97; and in respect of the two banks, acceptance of OTS was after 1-4-1997 and so the benefit therefrom cannot be considered in Assessment Year 1997-98.
Thus under both ways the additions ought to have been held as invalid.
4. The learned Commissioner erred in confirming the levy of interest under Sections 234A and 234B. He ought to have held that these levies are invalid as held by Karnataka High Court in Kwality Biscuits Ltd. 's case (supra).
5. The learned Commissioner erred in upholding the disallowance under Section 43-B of the expenditure of profession tax and properly tax. He ought to have held that the assessee is entitled to claim deduction of those expenditure.
6. The learned Commissioner erred in elisallowing Rs. 3,81,004 under the head "P.P. Loan". He ought to have known from the nomenclature itself that it is not the contribution to Provident Pund. He ought to have found that the sum represents the loan sanctioned to the employees of the company and they represent monies payable to them by the Trustees of the Provident Fund. He ought to have known such payments do not come within the ambit of Section 43B at all. He ought to have allowed the deduction.
7. The learned Commissioner erred in holding that the addition of Rs. 10,51,91,185 was valid. He ought to have held that the addition could not be made for the assessment year 1997-98 since it has been already included in the assessment for 1996-97 and addition again for this year would amount to double assessment of the same income for two years. He ought to have held as submitted in the grounds now before the Tribunal numbered 2 to 5 that the addition is invalid for all the reasons which are applicable for the addition of Rs. 5,37,42,942 mentioned earlier.
2. The assessee, a company in which the Public are substantially interested and it carries on the business in manufacture of cement, cement sheets and ceramics etc. It filed its return of income for the assessment year 1997-98 on 1-12-1997 admitting an income of Rs. 56,17,565 computed in accordance with the provisions of Section 115JA of the Income-tax Act. For the purpose of business, the assessee had taken term loans from financial institutions like State Bank of India, Punjab National Bank and Vijaya Bank. As the assessee was unable to meet the commitments for repayment of the loan and interest it approached the financial institutions and blinks for a One Time Settlement (hereafter called as OTS) involving waiver of interest and re-scheduling of loans, with a view to reduce the high interest burden.
The assessee made a formal proposal in this regard on 5-2-1996. In a meeting of all the creditors and the assessee was held on 17-4-1996 at the instance of IDBI, wherein it was agreed to accept the proposal with some modification - the cut off date being 31-3-1996. The total waiver of interest as a consequence of this OTS was Rs. 1,867 lakhs. This amount was partly credited to goodwill account, cement block assets account-, deferred revenue account and Rs. 5.37 crores to the appropriation account. The assessee closes it accounts on 31st march every year. However, as the assessee apprehended that if this accounting year was followed without taking into account the OTS, the capital and reserves would be totally eroded by losses and it would have to be declared a sick company, which would require reference to BIFR and hence it asked for and got a change of the accounting year to 30lh Sept. 1996. But for income-tax purpose as the previous year has to be the financial year, accounts were made upto 31-3-1996 and the interest waived of Rs. 5.37 crores was shown in the appropriation account which amount was taxed for the assessment year 1996-97. For the assessment year 1997-98, though the assessed income was nil because of brought forward loss, but as there was book profit and provisions of Section 115JA were attracted, a return showing 30% of book profit was filed. This was not accepted by the Assessing Officer on the ground that the events relating to OTS which had taken place after 31-3-1996 do not relate to the conditions existing as on the balance-sheet dale i.e., 31-3-1996. According to him, unless and until the OTS proposal is accepted by the consortium, it could not be said that conditions were existing as on 31-3-1996 relating to OTS. He was also of the view that Accounting Standard-4 relating to the OTS is not at all applicable to the assessee. He was further of the view that the assessee's claim that waiver of interest being an extra-ordinary item required to be disclosed in the financial statements for the financial year 1995-96 as part of net income as per Accounting Standard-5, by the same accounting standard interest waiver should be disclosed in the P & L account for the financial year 1996-97 relating to the assessment year 1997-98.
Since the P & L account prepared by the assessee for the year under consideration was not according to the provisions of Parts-It and III of Schedule VI of the Companies Act, 1956 and accounting standards prescribed by the ICA, the Assessing Officer considered the action of the assessee in not disclosing the above extra-ordinary item of 5.37 crorcs as intentional with a view to shift the extra-ordinary item to the earlier assessment year 1996-97 to reduce the MAT liability under Section 115JA. Holding that the ratio laid clown in the case of McDowell & Co. Ltd. v. CIT [1985] 154 ITR 148 (SC)' is applicable to the assessee's case, the Assessing Officer brought the interest waived of Rs. 5,37,42,942 into the computation of the book profit of the assessee.
2.1 Not satisfied with the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appcals)-V, Hyderabad, raising various grounds. The bone of contention before the 1st appellate authority was whether the circumstances for waiver of interest were available on 31-3-1996 for treating the amount of Rs. 5,37,42,942 as part of book profit for the assessment year 1997-98. The assessee's contention before the Commissioner (Appeals) was that the circumstances were available on 31-3-1996 for wavier of interest and, therefore, the action of the assessee in treating the amount of interest waived as part of book profit for the year under appeal is not correct and therefore it pleaded for excluding the same from the computation made for the purpose of Section 115JA for the assessment year 1997-98. The 1st appellate authority while deciding the above ground has given a gist of events as given by the assessee culminating in the OTS, in his order at pages 5 to 8. The concluding para of his order deciding this issue reads as under: Therefore the contention of the appellant that the conditions/ circumstances were existing as on 31-3-1996, in view of the facts and circumstances would not carry any weight and inasmuch as the P & L Account prepared by the appellant company for the impugned accounting year ended 3 1-3-1997 relevant to the impugned assessment year 1997-98 is not in accordance with the Parts II and III of Schedule VI of the Companies Act and the Assessing Officer, in view of the decisions rendered in 46 ITD 280, 45 ITD 22, 63 TTJ 697, in my view is amply justified in including the amount of Rs. 5,37,42,942 as the book profit for the assessment year 1997-98 and the action of the Assessing Officer is thus confirmed.
The 1st appellate authority thus upheld the order of the Assessing Officer on this point.
3.2 The ground raised by the assesscc relating to disallowance made under Section 43B was also decided against the assesscc as though it was mentioned in the grounds of appeal that profession tax etc. were paid in time, no proof was furnished.
3.3 The next ground agitated before the 1st appellate authority was that the Assessing Officer was not right in holding that the income under Section 41(1) of Rs. 10,51,91,185 arose during the previous year relevant to the assessment year under appeal which according to the assesscc actually accrued during the previous year relevant to the assessment year 1996-97. For the same reasons given for upholding the addition of Rs. 5,37,42,942 the 1st appellate authority upheld the present addition too.
3.4 The asscssee had further raised an additional ground on the levy of interest under Section 234B and relied on the decision of the Supreme Court in the case of CIT v. RanaJii Club Ltd. [2001] 247 ITR 209. The 1st appellate authority distinguished the facts obtaining in the apex Court's decision of Randli Club Ltd. (suprci) from the facts of the present case and dismissed the ground. The result was the assessee failed on all grounds raised before the Commissioner (Appeals).
4. Aggrieved by the order of the Commissioner (Appeals) the asscssee is in appeal before us. Before vis the learned counsel for the assessee submitted that the following seven propositions require consideration : (i) The amount representing the interest waived docs not represent income and it has no characteristics of income.
(ii) Assuming it is income, then the Assessing Officer does not have power to tinker with the profit and loss a/c. drawn as per Schedule VI of Comp. Act; (iii) Assuming he has such power, since the income is shown already for the year ended 31-3-1996 as per AS 4, it has to be accepted as correct; (iv) Assuming the amount is not shown correctly for the year ended 31-3-1996, this amount has already been assessed to tax for assessment year 1996-97 and so cannot be assessed again for the year 1997-98; (v) Assuming he can still assess this income for 1997-98, even then, the entire amount of Rs. 5.37 crorcs cannot be included; the waiver relatable to SB[ and PNB was after 1-4-1997 and so cannot be included in 1997-98. Thus Rs. 2.67 crores gets excluded from Rs. 5.37 crores. Further, the assessee has debited interest for these creditors only on the basis of OTS. This would be inconsistent with the Departmental stand that waiver was on dates of letters of the creditors. Interest to be debited on account of these two banks has to be calculated at original rates thus further reducing the profits of this year; (vi) On the basis of the Department's view that there was no OTS for the year ended 31-3-1996, the interest debited should be as per the original agreements; so interest of Rs. 11.43 crores ought to have been debited instead of Rs. 4.54 crores actually debited. This would result in a loss of Rs. 2.50 crores for the year ended 31-3-1996.
This loss can be carried forward and set off against the book profits of 1997-98. The ultimate income for 1997-98 would be only Rs. 98.97 lakhs; (vii) In any case interest under Sections 234B and C cannot be levied.
4.1 The learned counsel for the assessee went to elaborate the above propositions and in support cited various decisions. Coming to the first proposition he contended that it is not income at all. For this contention reliance was placed on the decision of the House of Lords in the case of British Mexican Petroleum Co. Ltd. (16 Tax Cases 570), the decision of the Bombay High Court in Mohsin Rehman Penkarv. CIT [1948] 16 ITR 183 where waiver of interest on mortgage was held as not income which decision was approved by the Supreme Court in C. Ag. ITv. Kerala Estate Mooriad Chalapuram [1986] 161 ITR 155' and the decision of the apex Court in Hiikumchand Mohanlal's case (supra). He contended that since there is no definition of income or profits in Sch. VI of the Comp. Act, general law would apply and it cannot be treated as income.
He further contended that AS-9 does not recognise it.
4.2 Coming to the second proposition he argued that the assessing officer has no power to tinker with the P & L account drawn up as per Companies Act. His powers are confined to what is given in Section 115JA. He relied on the Special Bench decision of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asslt. CIT (SOT 124 at page 1107) wherein it was held that unless the Assessing Officer finds that the accounts were not drawn up as per Schedule VI of Companies Act, he has no power to alter the figures. The Companies accounts have to be audited by Chartered Accountants who have to follow the mandatory rules given in the accounting standards issued by Institute of Chattered Accountants of India. He contended that AS-9 docs not recognise as revenue any realised or unrealised gains consequent to the reduction in an obligation. Waiver of interest comes in it. Therefore, if accounts were drawn up for the year ending 31-3-1997 without the waiver of interest included, it is as per Schedule VI of the Companies Act.
According to the Special Bench if there is a case of fraud or misrepresentation, the Assessing Officer can recompute the income and this is lacking in this case. According to the assessee's counsel, AS-4 of ICAIhas to lake into account events after the balance-sheet date which materially affect the assets and liabilities. The waiver of interest was a matter going on since July, 1995. The 1st appellate authority has taken note of this as is evident from page 6 of his order. During the year ended 31-3-1996 OTS was under active consideration. The waiver of interest involved Rs. 18.66 crores which is a very big amount for a company with a capital of Rs. 16.22 crores.
He contended that AS-4 would directly apply and it was shown correctly for the year ended 31-3-1996. He therefore, contended that there was no fraud or misrepresentation. He contended that there was no basis for invoking the decision in McDowell & Co. Ltd. 's case (supra) in this case. The meeting of consortium of financiers on 17-4-1996 acknowledged that the capital net worth of the Company would be eroded which would result in declaration of the Company as a Sick unit if OTS was not given without loss of time. Similar charge was made in the case of Sutlej Cotton Mills Ltd. (supra) decided by the Special Bench of the Tribunal (Calcutta) wherein it was held by the Tribunal that 'if the transaction is genuine within the framework of law but incidentally results in a lax advantage, surely it cannot be ignored'. In the asscssee's case loo the entries are genuine and according to facts.
4.3 The third proposilion propounded by the learned counsel for ihc assessee was thai waiver of interest was correctly shown for the year ended 31-3-1996. This is as per AS-4 which required lhal cvenls afler the balance-sheet dale are lo be considered if ihcy have an impact on the asscls and liabililics. Here ihc event after the balance-sheet date is the meeting of consortium on 17lh April 1996 which accepted in principle the OTS. The proposals and clarifications were all given before 31-3-1996. Nothing has happened between 11-3-1996 ihc dale of laslclarificalionand 17-4-1996. The proposal was on ihc anvil from Oclober, 1995 as is clear from the page 6 of the Commissioner's order.
He therefore submitted thai the requirements of AS-4 are fully satisfied and since it is mandatory the accounts should show this in the year ended 31-3-1996. As already slalccl ihc amount involved being Rs. 18 crores it is a big cvcnl for a Company with a capital of Rs. 16 crores. On applicalion of AS-4 he referred lo an example given in Spice and Pcglcr 'Accountancy'. He then invited our attention to Illustration 5(6) at page 293, a photo copy of which is contained in the paper book at page 126, wherein the Company closed ils accounts on 30-6-1995 but sales of two divisions which took place a few days aflcr 30-6-1995 were taken into account. He further submilled that the Allahabad High Court loo held in CITv. U.D.S. Publishers & Distributors [1984] 147 ITR 114,' on ihc basis of ihc Apex Court's decision in CIT v. Shoorji Vallabhdas & Co. [1962] 46jITR 144 (SC) thai cvenls afler ihc date of balance-sheet can be considered.
4.4 Coming to the fourth proposition, the learned counsel for the asscssce submitted that the amount has already been assessed for the year ended 31-3-1996 ie., in assessment year 1996-97 and therefore, it cannot be assessed again in the assessment year under appeal. Though an order under Section 154 was passed by the Assessing Officer deleting this figure from the assessment for 1996-97, it was done without any hearing on a highly debatable point and the assessee's appeal against this order is pending.
4.5 On the fifth proposition, the counsel for the assessee submitted that the amount waived by SBI and Punjab National Bank totalled Rs. 2.57 crores. As this was done by letters of the banks on dates after 31-3-1997, according to the Department it had not accrued this year and has to be deducted. The learned counsel submitted that on the same reasoning the interest payable on the finances of these two banks has to be as per earlier agreements. So the interest debit has to be increased since the asscssee has debited only simple interest as per OTS. This according to him will further reduce the book profits.
4.6 The amount waived has been shown by the assessee in the year ended 31-3-1996. However, the Department found to be erroneous and shifted it to the year ended 31-3-1997. As the OTS has two consequences, one waiver and the other reduction of interest payable, both have to be carried out only after the OTS date which means that interest debited on loans for year ended 31-3-1996 must conform to the then existing agreements. Therefore, interest of Rs. 11.43 cr. ought to have been debited instead of 4.54 cr. Thus expenses for 31-3-1996 should go up by nearly 7 crores which would result in a book loss of Rs. 2.50 crores for that year, and this book loss can be brought forward and set off against book profits of 1997-98 assessment year in terms of Explanation (Hi) to Section 115 JA(2). The book profit for the year ended 31-3-1997 if reworked and on the above lines then the profit is only Rs. 98.97 lakhs after taking into account the amount waived of Rs. 279.70 lakhs.
4.7 Coming to the last proposition i.e., interest under Sections 234B and C cannot be levied in a 115JA assessment, the learned counsel relied on the decision in the case of Kwalily Biscuits Ltd. (supni).
4.8 On the disallowance of Rs. 3,81,004 under Section 43B, the learned counsel for the asscssee contended that this is not a contribution to PF. It is actually repayment of loans taken by employees which have to be passed on to PF Trust.
4.9 On the addition of Rs. 10,59,90,185 which was held by the first appellate authority as validly made, the learned counsel submitted that this is part of interest waived. According to him this can be added only under Section 41(1) but since these amounts have not been allowed as a deduction on the basis of Section 43B,as per the Supreme Court's decision Tirunelveli Motor Bus Services Co. P. Ltd. v. CIT [1970] 78 ITR 55, these cannot be added.
5.1 The learned Departmental Representative countered the submissions of the learned counsel for the assessee as follows. He submitted that the decision of the House of Lords in British Mexican Pelrolium Co.
Ltd. (supra) relied on by the assesscc's counsel has no application to the present case. He distinguished that case from the assessee's case, slating that the circumstances in the assesscc's case are entirely different from that obtained in the case decided by the House of Lords.
Coming to the second decision relied on by the learned counsel for the assessee in support of his first proposition i.e., the decision of the Bombay High Court Mexican Pelrolium Co. Ltd's case (supra), the learned Departmental Representative submitted that the said decision was rendered by the Court considering the normal provisions of the IT Act.
In the said case the Court had discussed the method of discharging of liability and since-the remission of liability was in the same accounting year, it was not considered as income whereas in the instant case interest was claimed as an expenditure in earlier years and by of waiver the same was brought into books as profit by the assessee. He therefore contended that the circumstances in the two cases being entirely different, the decision of the Bombay High Court has no application to the assessee's case. Referring to the decisions of the Supreme Court Kerala Estate Moorid Chaiapuram 's case (supra) and Hukumchand Mohanlal's case (supra), the learned Departmental Representative contended that those decisions were rendered by the Hon'ble Supreme Court on different facts. He went on to contend that in all the decisions relied on by the assessee's counsel in support of his first proposition were rendered as per normal provisions of Income-tax Act, whereas under Section 115JA method of computing the total income is with reference to the provisions of Section 205(i)(ii) of the Companies Act. He contended that since that provision overrides any other provision, the commercial concept as contemplated by the Companies Act should prevail over a concept as referred in the decisions cited by the learned counsel for the assessee. Under Section 211(2) of the Companies Act every profit and loss account of a company shall give a true and fair view of the profit and loss account of the company for the financial year. In the asscssee's case financial year account was extended for a period of 18 months and in the annual report the assessee has considered a sum of Rs. 537.40 lakhs in the Profit and Loss account under the heading extraordinary item. This fact, pointed out by the learned Departmental Counsel, clearly showed that according to commercial concept the assessee has considered an income in its Profit & Loss Account and determined profit of Rs. 1386.41 lakhs. In the P & L account for the year ended 31-3-1996 for income-tax purposes the assessee had considered the same amount as income unclc*r the heading 'extra ordinary item' as interest waived under OTS. He submitted that the decision rendered by the Karnataka High Court in Kwalily Biscuits Ltd's case (supra) was also under similar circumstances. The learned Departmental Representative further relied on the decision of the Supreme Court in the case of Bhagawandas Jain v.Union of India (\28 ITR315') to contend that which can be converted into income can be reasonably regarded as giving rise to income. He submitted that it is well settled that the entries in the Lists in the Seventh Schedule to the Constitution should not be read in a narrow or restricted sense and each and every subject mentioned in the entries should be read as including within its scope all ancillary and subsidiary matters which can fairly and reasonably be comprehended in it. Words in the Constitution conferring legislative power should be given a liberal construction and should be interpreted in their widest amplitude. He pointed out that in the instant case, the assessee had saved amount by not paying interest through OTS to Banks/FIs and reported interest income in its extended annual report for the period ended 30-9-1996. From the above, he concluded his submissions, saying that the assessee considered waiver of interest as an income and therefore it submissions that it is not income according to general law is not proper and correct.
5.2 Coming to the second proposition propounded by the learned counsel for the assessee in support of which reliance was placed on the decision of the Special Bench of the Tribunal in the case of Sutlej Cotton Mills SOT 1107 (supra), the learned Departmental Representative pointed out that it was held in that case by the Special Bench of the Tribunal that in case the Assessing Officer found the profit and loss account has not been prepared in accordance with the provisions of Part-11 and Part-Ill of Schedule VI to the Companies Act and also that if he finds that the profit and loss account prepared by the assessee is fraudulent or misleading giving figures which are found to be false the Assessing Officer is entitled to verify and satisfy himself. He then submitted that it is clear from the above finding of the Tribunal that the Assessing Officer has power to recast the profit and loss account if the circumstances so required. In the present case, the Assessing Officer considering all the events leading to one time settlement, has held that the waiver of interest was materialised in the accounting year relevant to the assessment year 1997-98. He submitted that while deciding the issue, the authorities below have considered letter elated 30-5-1996 issued by the assessee to the IDBI, resolution passed by the Board of Directors in its meeting held on 24-6-1996, letter dated 10-4-1996 issued by IDBI for convening a joint meeting of the participating institutions and banks on 17-4-1996 besides the letter dated 8-7-1996 as also other letters issued by the IDBI and other financial institutions for accepting the proposal for one time settlement of the assessee. The learned Departmental Representative submitted that according to Sub-section (4) of Section 115JA all other provisions of the Income-tax Act are applicable and therefore the provisions of Section 145 of the Income-tax Act are applicable while determining the income under the provisions of Section 115JA. He further submitted that while computing the income under the IT Act, the assessee is required to take into account the income earned in an exceptional circumstances or non-recurring nature, if material in amount. Clause (2)(a) Part-II of Schedule VI to the Companies Act, requires disclosure of credits or receipts and debits or expenditure in respect of non-recurring transactions or transactions of an exceptional nature. Further Clause 3(xii)(b) of Part-II of Schedule VI to the Companies Act requires disclosure of profit or losses from such transactions. Therefore in the given circumstances in the assessee's case, applying accounting standard 5(AS 5), interest waived under the OTS should have been shown in financial year relevant to assessment year 1997-98 for the purpose of computing income under Section 115JA of the Act. He also pointed out that the letter dated 30-5-1996 issued by the assessee to IDBIindicated that till that date proposal of the assessee for waiver of interest was not accepted. Quoting from the said letter, the Departmental Representative submitted that the said letter clearly revealed that approval from the participant financial institutions and banks will not come through before 30-9-1996. He submitted that though the approval letter dated 8-7-1996 of IDBI provided that the proposal for OTS are agreeable in principle it had put many conditions. The said letter inter alia contained the following two main conditions : (1) As a pre-condition to the OTS, the company shall obtain the approval of all participating institutions/banks for settlement of their dues in terms of the OTS. (2) This letter is being issued in duplicate. Please arrange to return the duplicate hereof duly signed by a Director authorised in this behalf as a token of having accepted the contents hereof.
He submitted that the above conditions clearly proves that till issue of acceptance letter by the Director as contemplated in the above conditions, the proposal of OTS cannot be said to have been accepted by the banks and financial institutions. He further submitted that since the leading financial institutions i.e., IDBI and other institutions/banks have accepted the proposal in the financial year relevant to the assessment year 1997-98, in the present case AS-4 cannot be applied, as according to him the said accounting standard is applicable only in those cases wherein events occurring after the balance-sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing on the balance-sheet date since in the present case all conditions from convening of the meeting of the financial institutions/ banks, acceptance of proposals of OTS by both the parties were taken place in the financial year 1996-97. The learned Departmental Representative further brought to the notice of the Bench the fact for the extension of the financial year upto 30-9-1996, the assessee had taken permission from the Registrar of Companies in order to incorporate the relief likely to get on account of OTS proposal of the Company. If the asscssee's view is correct that AS-4 is applicable in its case for showing interest income on account of OTS in P & L account as on 31-3-1996, then there was no need for asking the Registrar of Companies for cxlcncling.the accounting period upto 30-9-1996. He then submitted that the AS-9 recognises revenue arising in course of the ordinary activities of the enterprises. Item No. 3(z'v) of AS-9 is applicable in respect of amount forgiven by another party in the same accounting year while discharging of liability. But in the present case interest amount was claimed as expenditure in earlier years and in this financial year, the assessee has brought to books as income by way of interest waiver by FIs/banks. He therefore, submitted that the circumstances under which AS-9 is applicable are totally different from those obtaining in the present case. The learned Departmental Representative submitted that the letter dated 13-2-1996 clearly showed that the OTS proposal submitted by the assesscc on 5-2-1996 was not accepted by the IDBI. Further he pointed out that the asscssee's letter dated 11-3-1996 mentioned that it will submit a detailed proposal before the end of the month. This circumstance, according to the learned Departmental Representative, go to show that before the issue of letter on 8-7-1996 by the IDBI, the proposal was at initial stage which was rejected by the IDBI. From what has been stated above, it would be clear, he submitted, that the assesscc did not prepare its P & L account as on 31-3-1996 and 31-3-1997 filed along with the return of income for the assessment years 1996-97 and 1997-98 respectively, according to Part II and Part III of Schedule VI of the Companies Act.
Further it is also clear that the P & L account prepared by the assessee for the financial years are misleading as it gives incorrect income of the assessee as per the provision of Section 205(1)(e) of the Companies Act. Section 211 (2) of the Companies Act requires that every Profit and Loss account of the company shall give a true and fair view of the profit and loss of the company for the financial year. As the profit and loss account prepared for filing of return of income for assessment year 1996-97 was not correctly done, as already stated above, the Assessing Officer has made proper adjustment/recasting in/of the P&L account according to Part II and Part III of Schedule VI of the Companies Act. Considering the above circumstances, the learned Department contended that AS-5 is applicable in the asscssee's case and accordingly interest waived under OTS is an income of current year which is relevant for the assessment year 1997-98. The learned Departmental Representative submitted that after considering the provision of Section 115JA brought into the statute book w.c.f.
1-4-1997 by Finance Bill (No. 2) 1996 which was presented to, the Parliament on 27-7-1996, the assessee has shown waiver of interest accrued in one time settlement in the P&L account prepared as on 31 -3-1996 claiming to be as per AS-4 being income on account of events occurring after the balance sheet date. As already pointed out earlier in detail, he submitted, no circumstances were in existence for which the accounting standard 4 could have been applied by the assessee. He strongly contended (hat the main motive of the assessee behind this move was to reduce its tax liability as per the new provision of Section 115JA and therefore the ratio of McDowell's case comes into play. Referring to the example given in Spiccr and Pcgler Accountancy for application of AS-4 given by the counsel for the assessee, the learned Departmental Representative submitted that the post balance sheet events given in the said example are in respect of conditions already in existence on the balance sheet date whereas in the assessee's case all events leading to the settlement of waiver of interest by the FIs and Banks had taken place in the financial year relevant to the assessment year 1997-98. The proposal submitted by the assessee in February 96 by the assessee was rejected by the IDBI by its letter dated 13-2-1996. Consequently a fresh proposal was submitted by the assessee which was accepted by the IDBI and others in the financial year 1996-97. As per AS-5 extraordinary items of the enterprise during the period should be disclosed in the statement of profit and loss as part of net current income and therefore, the amount of interest waived by the FIs/banks ought to be considered as income of the current accounting year ie,, 1996-97 for the purpose of determining book profit in accordance with the provisions of Section 115JA of the Act.
Referring to the decision of the Allahabad High Court in U.B.S, Publishers & Distributor's case (supra) relied on by the assessee's counsel, the learned Departmental Representative submitted that the facts of that case are entirely different from those obtaining in the assessee's case, and therefore distinguishable. In the said case the accounting period ended on 31-5-1966 whereas the devaluation of currency took place on 6-6-1966. The assessee had imported books for the purpose of his business. As all circumstances were in existence at the end of the accounting year i.e., 31-5-1996, the Court held that the liability to pay in foreign currency accrued when the books were imported. However, in the assessee's case all events viz., calling of consortium meeting of FIs/Banks, approval of proposal by the FIs/Banks, acceptance of OTS by assessee with condition given in the approval letter of IDBI etc. were in the financial year 1996-97, In view of this in the assessee's case, it cannot be said that circumstances were in existence as on 31-3-1996 leading to waiver of interest by Banks/ FIs.
5.3 Coming to the 4th proposition of the assessee, viz., that the amount has already been assessed for the year ended 31-3-1996 and therefore, it cannot, again be assessed in the year 1997-98, the learned Departmental Representative submitted that as per provision of Section 4 of the Income-tax Act, income-tax shall be charged in respect of the total income of the previous year of every person. Further Section 5 provides that total income of any previous year of a person who is a resident includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person, or accrues or arises or is deemed to accrue or arise to him in India during such year. In the present case the proposal for OTS was approved and accepted in July 96 which falls in the previous year relevant to assessment year 1997-98. He relied on the decision of the Bombay High Court in the case of CIT v. ACE Builders P. Ltd. [1993] 202ITR 324' wherein it was held that income is held to accrue only when the assessee acquires a right to receive that income, or in other words, income can be said to accrue on the date when the debt becomes due, and unless the right to profits comes into existence, there is no accrual of profits. In the present case, the IDBI, other financial institutions and banks have accepted proposal for waiver of interest in the financialyear relevant to assessment year 1997-98. Therefore, the assesscc has got the right to receive waiver of interest in the light of the acceptance letter by FIs/Banks in the Fimmcial year 1997-98 only. Since the assessee's right to receive the amount arose in the financial year relevant to assessment year 1997-98 only, the Assessing Officer was right in assessing amount of interest waived in the said assessment year. In support he relied in the decision of the Karnataka High Court in CIT v. Mysore Tobacco Co. Ltd. [1979] 119 ITR 87. The learned Departmental Representative pointed out that the order under Section 154 was passed on 29-3-2000 for the assessment year 1996-97 as he noticed a mistake in the assessmen t record. However, he submitted that whether the issue is debatable or not it will not make any difference while assessing proper income in the proper assessment year.
5.4 The two grounds sought to be taken by the assessee's counsel in the Vth & Vlth propositions were raised for the first time, the learned Departmental Representative contended, on 12-1-2001 and in his written submission it has not submitted any application for entertaining the additional grounds as required under Rule 11 of the IT (Appellate Tribunal) Rules, 1963. He, therefore contended that the above two grounds cannot be entertained. Further the asscssce has also not raised the above grounds before the first appellate authority too. Without prejudice to his above submissions, he argued that as per Explanation to Section 115JA(2), 'book profit1 means the net profit as shown in the P & L account for the relevant previous year prepared according to the provisions of Part-II and Part-Ill of Schedule VI of the Companies Act.
He argued that since the assessee company has not debited interest payable as claimed above in the profit and loss account, any extra claim or notional liabilities on the basis of Assessing Officer's finding for considering interest waiver in the Financial year relevant to assessment year 1997-98 cannot be entertained. He relied on the decision of the M.P. High Court in the case of Krishna Oil Extraction Ltd. v. CIT [1998] 230 ITR 8062. He further argued that as the asscssce has not claimed interest payable to the FIs/Banks as mentioned in the Vth and Vlth propositions in its P & L account according to Clause V of Part-II of Schedule VI of the Companies Act, the same cannot be considered in assessment proceedings while determining income under Section 115JA of the Income-tax Act. Referring to the Vth proposition wherein the asscssee has mentioned that approval letter by the SBI and PNB was given after 31-3-1997, arid therefore the amount of interest waived by these two banks cannot be considered in the assessment year 1997-98 for determination of book profit, the learned Departmental Representative argued that book profit has to be considered on the basis of Profit and Loss account prepared as per Part-II and Part-Ill of Schedule VI of the Companies Act. The proposal of the assessee was accepted by leading bank i.e. IDBI and other various financial institutions in the financial year relevant to assessment year 1997-98 and the approval letters given by the above two banks were consequential to consortium meeting held on 17-4-1996 where representatives of these banks have attended. The approval letter of IDBI was given on 8-7-1996. The Departmental representative argued that in the extended accounting year, the assessee has shown waiver of interest related to these two banks as profit and, therefore, it has to be considered according to provisions of Section 115JA for determining the total income.
5.5 With regard to the V.IIlh proposition propounded by the assessee's counsel relating to charging of interest under Sections 234B & 234C, the learned Departmental Representative submitted that the decision relied on by the assessee's counsel in Kwality Biscuits Ltd. 's case (supra) is distinguishable on facts, inasmuch as in that case the assessment year involved was 89-90 for which Section 115J has application. The provision of Section 115JA was brought into the Statute with effect from 1-4-1997 with sub-vcclion (4) which says as under : save as otherwise provided in this section, all other provisions of this Act snail apply to every assessee being a company, mentioned in this section.
In view of the above, he submitted that interest under Sections 234B and 234C is chargeable in respect of income-tax payable under the provisions of sec:ion 115JA. In support he relied on the decisions of the M.P. High Court in the case of Itarsi Oils & Flours (P.) Ltd. v.OT[2001] 250ITR 686' and of the Gauhati High Court in the case of Assam Bengal Carriers Ltd. v. CYr[1999]239ITR862.
5.6 Coming to the regular assessment order, on the issue of disallowance under Section 43B of Us. 3,81,004 raised by the assessee's counsel, since no details/proof were furnished before the lower authorities, this issue can be set aside and remanded back to the Assessing Officer for verification and necessary action, the learned Departmental Representative submitted.
5.7 As regards the other issue raised by the learned counsel for the assessee in respect of the addition of Rs. 10,59,90,185, the learned Departmental Representative submitted that this is an additional ground raised by the assessee's counsel at the time of hearing and in his written submission. It was neither taken before the Commissioner (Appeals) nor before the Tribunal. He, therefore, argued that this ground need not be entertained.
5.8 Without prejudice to his contentions aforesaid, the learned Departmental Representative mentioned that in the computation of total income for the assessment year 1996-97, the asscssce has added total amount of Rs. 9,27,34,651 out of which it had reduced a sum of Rs. 6,59,15,277 being interest disallowed under Section 43B in assessment years 1994-95 and 1995-96. Thus a net addition of Rs. 2,68,19,374 was considered by the asscssce. However, at the time of passing of rectification order for the assessment year 1996-97, the assessing officer has reduced total sum of Rs. 10,59,90,185 and in the assessment for assessment year 1997-98, the same amount was added under Section 41 of the Income-tax Act. He submitted that full amount credited on account of goodwill is taxable as capital gain as cost of goodwill is Nil in asscssce's case as per Section 55(2)(a) of the I.T. Act.
5.9 Concluding, the learned Departmental Representative, in view of his elaborate arguments countering the submissions of the learned counsel for the asscssce, requested for upholding the order of the Commissioner (Appeals) for the year under consideration.
6. To the Revenue's counter, the learned counsel for the asscssee replied as under.
6.1 On the counter to the 1st proposition propounded by assesscc, the learned counsel replied that waiver of interest is not income/profit under general law. He once again relied on the four decisions already cited in support of his first proposition given in para 4.1 of this order. On the Revenue's attempt to distinguish each of the decisions cited on the ground that each of them was founded on the facts of that particular case and that no general principle could be culled out therefrom, the learned counsel replied that a mere reading of the judgments would show that the authorities have laid down general ratios of law and applied them to the facts of the case. Trying to put the matter beyond controversy, he relied on the decision of the Supreme Court in Hukamchand Mohanlal's case (supra) wherein it has laid down a general law de hors of facts that remissions are not income at all. He submitted that there is no definition of income or profit in Schedule VI of Companies Act, and therefore, the meaning given in general law would apply and it is not income/profit to be included in the 115JA assessment. Coming to the argument of the Revenue on 'book profit', the learned counsel submitted that there is a definition of 'book profit' in 115JA and that definition should prevail over general law, and it is wrong to say that Explanation to Section 115JA contains a book profit.
What it all says, according to the learned counsel, is the adjustments to be made to book profits. The Companies Act also docs not give a definition. The learned counsel, therefore, submitted that profit as per commercial parlance and general law would apply, and there is no escape for the finding that remission of interest is not income.
Inviting our attention to the fact that in the printed balance-sheet this amount of Rs. 5.37 crorcs was shown as a credit in the P&L account, the learned counsel also pointed out that the accounts prepared for the year ended 31-3-1996 also carried this figure for the purpose of filing the return. To the query of the Bench that since the accounts show the interest waiver us income why this should not be considered as part of 'book profit', he has drawn our attention to the entry in the printed balance-sheet and submitted that it did not say that the Banks and FIs have written of the interest. He has particularly drawn our attention to the words used (Note 3 at page 14 of the printed B/S) which read as under : ...at the consortium meeting agreed in principle for the proposal of Ihc company. The proposal which envisages the waiver of interest and other charges is as follows.
From the above, he submitted, it can be seen that the reference is only to consort ium meet on 17-4-1996 and the proposal stage and not actual write off. However, since the acceptance in principle has an impact on assets and liabilities as per AS-4 it was included in the printed balance-sheet. But it docs not mean that it is part of 'book profit'.
According to the learned counsel the settled position of law is that a mere entry in the book docs not mean that it becomes income. In support he relied on the decision of the Apex Court in CITv. India Discount Co.
Ltd. [1970] 75 ITR 191 wherein it was held that 'a receipt which in law cannot be regarded as income, cannot become so merely because the asscssee has erroneously credited to the P&L account. This proposition of the Supreme Court has to apply not only to income as per Income-lax Act but also to book profits. The learned counsel submitted that there could be entries in the P&L account which may not have any characteristics of income or expenditure, as some of the entries have to be made to balance the books. All that is entered in the P&L account cannot be income is laid down by the Bangalore Bench of the Tribunal in Sipani Automobiles Ltd. v. Dy. CIT[\ 993] 46 ITD 280. He also cited the judgment of the Supreme Court in CTT v. Bipin Chandra Mangalal & Co.
Ltd. [1961] 41 ITR 290 to point out that the excess of price realised over written down value of a depreciable asset cannot be considered as book profit for commercial purposes though shown in the return. He, therefore argued that the entries in the printed balance sheet is no indicator. Regarding ihc entries in the accounts for the year ended 31-3-1996, he stated that the reasons given for showing this in the printed balance-sheet holds good in respect of the accounts for year ending 31-3-1996. This was shown in the income-tax return for 1996-97 only because of the provisions of Section 41(1). To a query from the Bench as to why these should not be considered as income in view of the entries in books, the learned counsel for the asscssee pointed out that the subject-matter is the account prepared for the year ended 31-3-1997 and this item did not appear in those accounts. Since the assesscc has not shown it for this year it need not explain why it is shown ,if it is not income. It is for the Department to show that it is income in nature in law and it is relalable to the year ended 31-3-1997. He therefore replied that these are not relevant and does not advance the Revenue's case. He also pointed out that each assessment year is separate and has to be assessed on the facts of that particular year.
He further stated the assessee had shown the item in the printed account for an earlier year may be due to a mistake and there is no law which says that if it had made a mistake for 1996-97, it should be deemed to commit the same mistake in the succeeding years too. The learned counsel distinguished the decision of the Karnataka High Court in Kwalily Biscuits Lld.'s case (supra) which was relied upon by the Revenue for the proposition that amounts written back to P & L account cannot be excluded while making computation under Section 115J. Quoting from page 523 of the report, he submitted that what was credited in that case was excess depreciation debited to accounts due to change in method, and this is not write off of waiver of interest. In particular, he referred to the observation of the Court that this arose out of change in the accounting system and therefore includible as profits, and submitted the said decision has no relevance to the issue involved in the present appeal. Concluding his arguments on the counter of the Department to the submissions made in support of the 1st proposition of the assessee, the learned counsel submitted that there is no substance in the Revenue's submission to show that for the year ended 31-3-1997 this amount has to be included as income saying that the Supreme Court's ruling in Hukumchand Mohanlal's case (supra) cannot be so easily circumvented.
6.2 On the submissions of the Revenue in respect of the 2nd proposition, the learned counsel argued that on the powers of the assessing officer to change the P & L account drawn by the Company, broad principles have been laid down by the Special Bench in Sullej Cotton Mill's case. The Department referred to some dates of meetings etc. to show thai the waiver of interest accrued in 1997-98. He submitted that the only point relevant here is the reliance on Section 115JA under which all other provisions of the Act would apply, and all other provisions would mean all provisions excluding those for computing income like the entire Chapter IV. Since what is relevant here is the power of the Assessing Officer for computing income, he cannot go, by definition, outside Schedule VI of the Companies Act, argued the learned counsel. On the contention of the Revenue referring to Part II of Schedule VI of Companies Act that the interest waived should be shown for 1997-98, the learned counsel submitted that according to the assessee these apply to 1996-97 and was so shown for that year. On the contention of the Revenue that OTS is rclatable to 1997-98, he submitted that all proposals and clarifications were given before 31-3-1996 but nothing happened till 17-4-1996 when the consortium met, and agreed to all that was said before 31-3-1996. He further pointed out that the amount ultimately accepted was almost the same proposed by the assessee for write off. It was under these circumstances that by virtue of AS-4 it was shown for 1996-97, On the letter dated 30-5-1996 of the assessee to IDBI he submitted that the Revenue sought to make much of this letter. He pointed out that in the meeting of the consortium on 17-4-1996 the OTS was accepted in principle. But this was to be worked out by each one of the Banks which would take some time. As there was still time for the formal and legal document of waiver, the asscssee tried to get some further concession by requesting to shift the cut-off date to 30-9-1996. But by this letter what was accepted in principle on 17-4-1996 does not get wiped out. He ultimately submitted that the letter of the IDBI dated 8-7-1996 was only for formalisation of principles already agreed to, and there is nothing more to it. Regarding the change of accounting year from 31st March to 30th September, he pointed out that this was made much earlier to the consortium meeting on 17-4-1996. On the contention of the revenue that item 3(z'v) of AS-9 would deal with obligation waived in the same accounting year, the learned counsel, submitted that that is not at all apparent from the AS. On the conclusion drawn by the Revenue that the accounts were not as per Schedule VI, he submitted that the inference is an erroneous one not warranted by evidence. He contended that barring the year for showing the interest waiver which as per events took place before 31-3-1996 which was considered on 17-4-1996 and which the asscssee showed for the year ended 31-3-1996 there is nothing with the Department to show that the Profit and Loss account was not properly drawn up. Regarding the Revenue's contention that there is deliberate shift of the year to 1996-97 to avoid 115JA tax referring to the ratio in McDowell's case, the learned counsel contended that the Revenue has not referred to and met the materials given in the assesscc's note on the date of hearing. On the comments of the Revenue on the illustrations from Spicer & Pegler for application of AS-4, the learned counsel submitted that it was not correctly appreciated as in that case for the year ended 31-5-1994, sale of a division which took place after 31-3-1994 was shown. On the reference of the Revenue to AS-5, the counsel submitted that as per that AS any extraordinary item occurring during the year should be shown in the accounts. Write off or waiver would be an extra-ordinary item but at the same time the waiver is an item after the balance sheet which profoundly affects the assets and liabilities as on 31-3-1996 and the roots of the item were well entrenched long before 31-3-1996.
Therefore, the AS applicable is AS-4 and not AS-5. He submitted the decision of the Allahabad High Court in U.D.S. Publishers & Distributor's case (supra) was cited only for the proposition laid down thereby the it that 'events after the end' of the year can be considered and it was held as a 'well settled' proposition.
6.3 On the fourth proposition that the amount already assessed in 1996-97 and so cannot be assessed again, the learned counsel argued that Revenue did not meet this proposition at all except stating that income would be assessed when it accrues as per Section 5. He contended that the decision of the Karnataka High Court in Mysore Tobacco Co.
Ltd. 's case (supra) has no relevance to the facts of the present case at all. In that case, ITC was giving advances against purchase of tobacco from the assessee and this was being adjusted against supplies.
The assessee asked for increase in price to which after the end of the accounting year the company agreed and also waived certain advances which were outstanding. The High Court held that the amount waived would be income in the year of waiver. The counsel submitted that the amount in that case which had the character of loan changed its character and became part of sale price when the loans were waived and so it was includible in the year when it changed its character.
6.4 The Revenue's con tcntion on the fifth and sixth propositions that since the grounds therein are new grounds and should not be entertained the assessee's reply is two-fold. Firstly he submitted that when the entire addition is challenged, no separate ground is required to challenge what is only a part of the whole. This is well settled proposition in law. Secondly, it is not necessary for the Tribunal to confine itself strictly to the grounds of appeal. Reliance was placed on the decision of the Supreme Court in the case of CITv. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 wherein the Apex Court held that the right of the assessee to relief is not restricted to the pleas raised by him. The learned counsel for the assessee submitted that the interest of Rs. 11 crorcs claimed to be the correct debit for the year ended 31-3-1996 is. in fact not debited and the Revenue must go by the P & L account drawn up by the assessee. He submitted that there are more than one consequence (or shifting the OTS from year ending 31-3-1996 to 31-3-1997. Not only the waiver gets shifted but other consequences must also be given effect to. He submitted that after all the finding of the assessing officer is not on a prior reasoning. He did not straightaway say Rs. 5.37 crorcs is assessable, for 1997-98.
The assessing officer then went on logically shifting the year for reasons stated by him. But in doing so he had to consider all other consequences also. This is in fact what, the assesscc has submitted, argued the learned counsel. Another point made out by the Revenue was that Rs. 5.37 crs. was accepted for waiver by the consortium in the meeting held on 17-4-1996 and the approval of the 1DBI was given on 8-7-1996, hence, the whole amount was correctly included. The learned counsel for the assessee countered this by saying that there is a fallacy in assuming that the consortium is the lender. It is only a collective body to implement lending policies for the assesscc. There are agreements with each of the FI and Bank. Though a policy decision has been taken on 17-4-1996 the implementation part is to be carried out by each of them. The learned counsel submitted that it is under these circumstances that the date of their letters gathers importance and decides the year to which it relates to.
6.5 The 7th proposition is that interest under Sections 234B and 234C cannot be levied. While the assessee has relied on the decision of the Karnataka High Court in Kwalily Biscuits Ltd. 's case (supra) the Department relied on the decision of the M.P. High Court in Itarsi Oil & Flours P. Ltd.'s case (supra). The assesscc's counsel pointed out that there is no contradiction in the two decisions, iriasmuch as while the M.P. High Court went by the sections not mentioning any exceptions to 234B and 234C, the Karnataka High Court has highlighted the impossibility of complying with the requirement of 234B since assessment under Section 115J involved taking two steps; one computing income as per provisions e)f the Act and two comparing it with book profit. However, he submitted, as per the Karnataka High Court, this comparison can lake place only after the accounting year is over and therefore it is possible for a company to comply with it. For resolving this issue, the learned counsel for the assessee referred to the decision of the jurisdictional High Court in VV Transinvestment Ltd. v.OT[1994] 207 ITR 508' (MP) and drew our attention to the last but one para at page 527 of the report wherein it was observed as under : The assessee has first to compute the income in accordance with the Income-tax Act, and if the total income is less than thirty percent of the book profits, then, it has to prepare a profit and loss account under Sub-section (1A) of Section 115J for the relevant previous year...
The learned counsel then submitted that the steps envisaged by the Karnataka High Court was endorsed by the jurisdictional High, Court also and so it has to be held that even as per the A.P. High Court the payment of advance tax would be falling at a time when the year is over. However, he submitted that though this decision is not on the point of interest under Section 234B, but since the reason given by the Karnataka High Court is found here loo, the decision of the Karnataka High Court should be followed. He further submitted that though the decision of the Hon'ble A.P. High Court was reversed by the Supreme Court, this point was not commented upon by them.
6.6 Before concluding his submissions, the learned counsel for the assessee, reverting to the query made by the Bench as to why an amount cannot be assessed if it is shown in the P & L account irrespective of the position in law, relied on one more authority in Sullej Cotton Mill's case (SOT 1107) wherein at para 19.5 the Special Bench pointed out as under: Lastly, the proceeds by way of sale of an investment not being income, is not liable to tax under Section 115J unless there is a clear inlcndment. It is well recognized that there cannot be charge by implication.
He submitted that the above observation applies to waiver also, that it is not income in law and that there is no implication that it is deemed income under Section 115JA. Winding up his arguments, the learned counsel, to repeat, has submitted that the assessment involved is 1997-98 wherein the assessee has not shown this amount at all in the Profit and Loss account.
7. Rival contentions heard. We have gone through all the papers on record and the orders of the revenue authorities as well as the case laws cited before us.
8. It is now well-settled position of law that in the interpretation of statutes, one has to adopt such a construction that will promote the general legislative intent and purpose underlying the provisions.
9. Minimum alternative Tax has been introduced by the Legislature to take care of the phenomenon of prosperous zero tax companies which had continued but were paying no income-tax though "they had profits and were declaring dividends. A minimum corporate lax was sought to be ensured on these prosperous companies. It was not the intention of the Legislature to impose this minimum alternative tax on new projects that have just begun to make profits after some years of losses and also sick companies that have just turned the corner. This is amply clear from the amendment introduced to the Finance Bill by the Finance Minister in the year 1987 when he said as under : The Finance Bill inserts a new Section 115J in the Income-tax Act, 1961, to levy a minimum tax on book profits of certain companies.
Representations have been received that in computing book profits for the purpose of determining the minimum tax, losses and unabsorbcd depreciation pertaining to earlier years should be allowed to be set off. Otherwise, new projects that have just begun to make profits after some years of losses and sick companies that have just turned the corner, will become subject to minimum tax.
There is merit in this suggestion. Under Section 205 of the Companies Act, 1956, past losses or unabsorbcd depreciation, whichever is less, are allowed to be set off against the book profits of the current year for determining profits for the purpose of declaring dividend. It is proposed to allow ihc same adjustments in computation of book profits for purposes of new provision for levy of minimum tax.
10. This is a company which was in losses for a number of years and which could not meet the commitments for repayments towards loans and interest to various banks and financial inslilulions. It was a potential sick company. All the public financial inslilulions i.e.
IDBI, IFCI, ICICI etc. and public sector banks such as S.B.I, and P.N.B. have come togelhcr and accepted a one lime sclllcmcnt of liabilities lo bail out ihe company and in ihc process waived subslanlial portions of ihc interest due to them. Thus to our mind, taxing such a Company under the provisions of Section 115.TA is itself againsl the legislative intent. This is definitely not a prosperous company paying dividends. With this background we now examine the arguments of both sides.
10.1 The first and foremost ground of the assessee is that the Assessing Officer cannot assume jurisdiction to calculate the book profits for the year ended 31 -3-1996 as well as for the year ended 31 -3-1997 which is in appeal. On this ground the assessee is bound to succeed in view of the recent judgment of the Supreme Court in the case of Appolo Tyres Ltd. v. CIT [2002] 255 ITR 273'. The Hon'blc Supreme Court in its hcadnotc at page 274 held as follows : The Assessing Officer, while computing the book profits of a company under Section 115J of the Income-lax Acl, 1961, has only ihe 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, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to Section 115J. The Assessing Officer docs 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 provisions 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 provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scruiliniscd and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who 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) of Section 115J docs 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.
Held accordingly, that, while determining the "book profits" under Section 1 I5J, the Assessing Officer could not recompute the profits in the profit and loss account by excluding provisions made for arrears of depreciation.
Decision of the Kerala High Court in CIT v. Appolo Tyres Ltd. [1999] 237 ITR 706 reversed on this point.
In the case on hand, the Assessing Officer in effect recalculated the book profits not only for the year ended 31-3-1997 but also for the year ended 31-3-1996. The Company had shown a part of the waiver of interest of Rs. 5,37,42,942 in its accounts as on 31-3-1996. The claim of the Company is that the balance-sheet although drawn up by it as on 31 -3-1996 is as per Part II and Part III of Schedule VI of the Companies Act and that it has been certified as such by its statutory auditors. The assessing officer has not completely recast the balance-sheet as on 31-3-1996. We agree with the contentions of the learned counsel for the assessee that OTS has two consequences, viz., (i) waiver and (i) reduction of interest payable. If the OTS had to be ignored in tola then the interest of Rs. 11.43 crores is to be debited to the profit and lo^s account for the year ended 31 -3-1996 against the interest of Rs. 4.5 crores debited by the assessee. Only one aspect of the entire transaction cannot be taken while ignoring the other aspect. In other words, the Assessing Of ficcr ought to have done a complete exercise of recasting the profit and loss account as at 31 -3-1996 which only would have given him the correct figure of lo,ss that has to be carried forward. Without recasting all the figures of the earlier years, the accounts drawn up by the company, cannot be disturbed for the simple reason that it would give an absurd and inaccurate results. Accounting is made on the fundamental assumption that the concern in question is a going concern and the balance carried forward of the earlier year have profound effect on the results of the current year. We cannot see how the Assessing Officer can recast the profit and loss account in the year ended 31 -3 -1997 without recasting the profit and loss account for the year ended 31-3-1996 because the carried forward losses as on 31-3-1996 would have to undergo a change in case it is permitted. Going by reason given by the Hon'blc Supreme Court in its judgment which was not before us at the time of hearing, we have no other alternative but to hold that the Assessing Officer while computing the income under Section 115J has only the power of examining whether the books of account as certified by the Auditors under the Companies Act as having properly been maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. The Hon'ble Supreme Court in Appolo Tyres Ltd. s case (supra) at page 280 (G) stated as follows : To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J.10.2 Though Shri K.R. Meena, the Sr. Departmental Representative, had put in great efforts and brought out strong arguments in support of the assessment order we cannot go into the aspects of applicability of AS-4 and AS-5 and give our opinion on the accounts drawn up by the Company and certified by its auditors as in accordance with the Companies Act, 1956. Hence, we refuse to go in to the matter and adjudicate upon the issue as to whether the interest waiver in question must be taken for the year ended 31-3-1996 or for the year ended 31-3-1997 as it would only be an academic exercise having no bearing on the case for the reason that such power is not given under the Act. Thus the arguments of the learned Counsel for the asscssce Shri K.S. Viswanathan have necessarily to be accepted by following the Hon'ble Supreme Court's judgment. It would not be out of place to mention here that the proposition laid down by the Special Bench of the Tribunal in its judgment in the case of Sutlej Cotton Mills v. ACIT(Selected Orders of ITAT page 1107) giving the Revenue a right to recast the profits drawn up under Schedule VI of the Companies Act in case there is a fraudulent and misleading statement docs not hold good any more in view of the judgment of the Hon'ble Supreme Court in the case of Appolo Tyres Ltd. (supra).
10.3 The second argument put forth by the assessee is that the waiver of interest and consequent reduction in liability is not income under the general law. At this juncture, we observe that the total waiver of interest is Rs. 18.67 lakhs. The Revenue has taken only 5.37 lakhs into consideration the reason being the assessee'has taken only that amount as its income in its profit and loss account. The balance has been directly taken into the balance-sheet by the assessee company i.e. it has not routed this interest waiver through its profit and loss account. We cannot understand how the Revenue had not applied the same Yardstick for that amount of interest waived directly transferred by the assessee to the balance-sheet as it has applied to that portion of interest waiver which was credited by it as extra-ordinary item in the balance-sheet. In our considered opinion, the stand of the Revenue would have been consistent had it applied the same yardstick to the entire waiver of interest and not gone only by the amount credited by the assessee to the profit and loss account.
10.4 Now we examine the various propositions that are put forward before us by Shri K.S. Viswanathan while vehemently contending that the interest waived in question is not income or profit under general law.
The decision of House of Lords in British Mexican Petroleum Co. Ltd.'s case (supra) relied upon by the learned counsel for the assessee was a case where one Company had to pay another Company a particular amount for cost of oil supplied by it. The second Company was the producing company which was supplying oil to Ihc first company. The producing company released the first company from its liability to pay the balance remaining due viz. 945,232 and the first company directly carried this amount to the balance-sheet and has not routed the same through its profit and loss account. In its judgment their Lordship held that the release from liability cannot form a trading receipt in the account of the assessee for the year in which it is granted.
10.5 The Hon'ble Supreme Court in its judgment in the case of Ihikiiinchand Mohanlal (supra) had laid down the following proposition : As pointed by the High Court, under the general law if a trading liability has been allowed as a business expenditure and if this liability is remitted in any subsequent year, the amount remitted cannot be taxed as income of the year of the remission nor can the account for the year in which the liability was allowed be reopened or adjusted. Section 41(1) was enacted to supersede this principle but this section can apply only to the assessee.
This necessarily means that the principle under the general law is that a liability which is remitted in a subsequent year for the trading liability that has been allowed in earlier is not income.
10.6 The Hon'blc Supreme Court in the case of Kerala Estate Mooriad Chalapurain(snprct) in th,e last but one para of the judgment had referred to the case of Mohsin Rahman Penkar (supra) wherein at page 185, the Hon'blc Bombay High Court had observed: "It is impossible to sec how a mere remission which leads to the discharge of the liability of the debtor can ever become income for the purposes of taxation." In the same judgment it has expressed the opinion that the Hon'blc Mysore High Court in the case of CIT v. Lak.sh.rnamina'[l964] 52 ITR 789 had practically approved the judgment of the Hon'blc Bombay High Court.
Further the Hon'ble Supreme Court in the case of Dipinchaudra Maganlal & Co. Ltd. (suprci) liclcl as follows: In computing the profits and gains of a company under Section 10 of the Act, for the purpose of assessing the taxable income, the difference between the written down value of the machinery in the year of account and the price at which it was sold (the price not being in excess of the original cost) is to be deemed to be profit in the year of account, and being such profit, it is liable to be included in the assessable income in the year of assessment. But this is the result of a fiction introduced by the Act. What is truth is a capital return is by a fiction regarded for (he purposes of (he Act as income. Because this difference between the price realised and the written down value is made chargeable lo income-tax its character is not altered, and it is not converted into the asscssce's business profits. It docs not reach the assessee as his profit: it readies him as part of the capital invested by him, (he fiction created by Section 10(2)(vn), second proviso, notwithstanding.
The difference between the written down value of an asset and the price realized by the sale thereof, is not really income, but is made taxable income, for the purpose of computation of the assessable income by (lie fiction in the second proviso to Section 10(2)(v//) of She Income-tax Act read with Section 2(6C). On that account, it docs not become commercial profit and is not liable to be taken into account in assessing whether in view of the smallness of the profits a larger dividend would be unreasonable.
In this judgment though different on fact the proposition is clearly laid down that there is a distinguishable relationship between the assessable income and the profits of a business concern in a commercial sense. It is further held that for computation of income for the purpose of income-lax assessment is based on a variety of artificial rules and lakes into account several fictional receipts, deductions and allowances. Thus, a clear distinction has been drawn out between commercial profits and assessable profits. Going by Accounting Standard 9 issued by the institute of Chartered Accountants of India, it is stated thus: For the purpose of definition of the term revenue for that statement i.e. AS-9 unrealised gains from the re-statement of the carrying amount of an obligation and realised gains resulting from the discharge of an obligation at less than its carrying on amount are not included.
The only conclusion that can be drawn from this is that normally such extra-ordinary items are not considered as revenue. The Special Bench of the Tribunal in the case of Sullej Cotton Mill has clearly laid down the proposition that Section 45 of the Income-lax Act capital gains, as deemed income, cannot be brought to tax for the purposes of determining book profits under Section 115J. Thus the proposition is clearly laid down at para 19 of that judgment which is at page 1141. On similar analogy we are inclined to agree with the argument of the assessee's counsel that Section 41(1) which is brought into the Statute to supersede the principle that under general law remission of a trade liability is income cannot be brought in for the purposes of calculating book profit under Section 115J. The proposition laid down by the Hon'ble Supreme Court in that case of Bipin Chandra Maganlal & Co. Ltd. (supra) is binding on us and we do not have any other alternative but to agree with the arguments of the learned counsel for the assessee. No contrary judgments have been brought to our notice.
Shri Meena tried to distinguish these judgments. We are unable to agree with him and we are bound by the judgments and propositions. Thus this ground of the assessee has to be allowed.
10.7 Even otherwise as already slated it appears that the Revenue has limited its arguments to an amount of Rs. 5.37 crores only and not to the entire amount of Rs. 18.67 crores. If this logic of the Revenue that only Rs. 5.37 crores of waived interest out of a total of Rs. 18.67 crores is to be considered as income for the sole reason that the assessee had shown it in its books of account as such then we have to disagree for the reason that the Hon'ble Supreme Court in India Discount Co. Ltd.'s case (supra) laid down the proposition that "a receipt which in law cannot be regarded as income, cannot become so merely because the assessee has erroneously credited to the P&L a/c.".
The argument of the assessee that increase in the profit and loss account could be of the type which does not have any characteristics of income or expenditure has force and these arguments are supported by the decision of the Bangalore Bench of the Tribunal in the case of Sipani Automobiles Ltd. (supra). The judgment of the Hon'ble Karnataka High Court in the case of Kwalily Biscuits Ltd. v. CIT 243 ITR 519 relied upon by the Revenue docs not further his case as the same is different on facts. In that case what happened was that the assessee had changed its method of accounting i.e. method of providing depreciation and due to change in the method of providing depreciation certain amounts were written back to the profit and loss account. That was not a case of waiver of interest or remission of liability. The learned counsel for the assessee has rightly pointed out that the ruling of the Hon'ble Supreme Court in the case of Hukninchand Mohanlal cannot be easily circumvented by the Revenue. Thus applying the judgment of the Hon'ble Supreme Court that the remission of liability is not income under the general law and the decision of the Special Bench of the Tribunal that, what is not income under general law, cannot be treated as income for the purposes of 115J or deemed as income for the purpose of Section 115J, we uphold the contentions of the learned counsel for the assessee.
10.8 Coming to the argument of the learned counsel for the assessee that the amount was assessed in the earlier year and cannot be brought to tax once again during the current year and that an order under Section 154 was passed without giving appropriate opportunity, in view of our finding that the Assessing Officer has no power to recast the profits declared by the assessee under the Companies Act in the light of the judgment of the Hon'ble Supreme Court in Appolo Tyres Ltd.'s case (supra), we do not deem it necessary to go into a debate on this aspect though we find that the arguments of the assessee have considerable force on this issue. As we have already followed the judgment of the Hon'ble Supreme Court and upheld the claim of the assessee, we do not deem it necessary to go into the other limbs of the arguments which we do consider as having some force.
11. Coming to the other ground of the assessee i.e. levy of interest under Sections 234A and 234B, the assessee relied on the judgment of the Karnataka High Court in Kwalily Biscuits Ltd. 's case (supra), for the reason that the jurisdictional High Court in the case of V.V. Trans investment Ltd. (supra) last but one para has applied similar methodology of calculation and because this Bench is bound to apply a decision which is favourable to the assessee in case of conflict in decisions and because the proposition on which the Hon'ble Karnataka High Court decided the matter has not been reversed.
11.1 The relevant portion of the head note of the judgment of the Karnataka High Court in the case of Kwalily Biscuits Ltd. (supra) reads as under: Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of Section 207, 208, 209 or 210 cannot be made applicable unless and until the accounts are audited and the balance-sheet is prepared, because till then even the assessee may not know whether the provisions of Section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words "for the purposes of this section" in the Explanation to Section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of lax. Hence interest cannot be charged under Sections 234B and 234C.The Gauhati High Court in the case of Assam Bengal Carders Ltd. (supra) held as under : Inlcrcsl under Sections 234B and 234C of the Income-tax Act, 1961 is chargeable even in a case where tax liability arises only by applicability of the provisions of Section 115J of the Income-tax Act, 1961.
The word "loss" for the purposes of deduction to arrive at book profit as provided in Clause (iv) of the Explanation below Sub-section (1A) of Section 115J of the Act, means loss as arrived at after taking into account the depreciation to be provided under Section 205 of the Companies Act, 1956.
The Madhya Pradesh High Court in the case of Itarsi Oils & Flours P.Ltd. (supra) held as per the headnote as under : Scclions 234B and 234C of the Income-tax Act, 1961 do not make any reference to Section 115J. Section 234B lays down that where advance lax is required to be paid and there is failure to pay or if the amount of tax paid is less than 90% of (he assesssed lax, then the assessee is liable to pay interest. Similarly, Section 234C also says a company shall be liable to pay simple interest for a period of three months on the amount of the shortfall from 15 per cent, 45 per cent, or 75 per cent, as the case may be, of the tax clue on the returned income.
There is no mention in Sections 23413 and 234C of the Act that in case of Section 115J the sections would not become applicable. The crux of the matter is that whenever the assessee is liable to pay advance lax, irrespective of Section 115J, he has to pay the tax and if the tax deposited is less than 90 per cent, the assessee would have to pay simple interest.
From the above it will be seen that there is conflict between various High Courts on the subject.
11.2 To come to a conclusion on this issue, we take into consideration the recent judgment of the Hon'ble Supreme Court in the case of CIT v.Anjum M.H. Ghaswala [2001] 252 ITR 1 wherein it is held that levy of interest under Sections 234B and 234C are mandatory. This being so we are not in agreement with the arguments of the learned counsel of the assessee. The proposition of the High Court of Karnataka in the case of Kwalily Biscuits Ltd. (supra). On this issue has not been specifically followed or approved by the jurisdictional High Court in the case of V.V. Transinvestments (supra). Thus we are bound to apply the judgment of the Hon'ble Supreme Court along with the judgments of the Gauhati and MP High Courts and hold that levy of interest under Sections 234B and 234C is mandatory and has to be upheld. Thus we hold this ground in favour of Revenue and against the assessee.
12. Coming to the regular assessment done under Section 143(3) and disallowance made thereunder i.e. disallowance under Section 43B of expenditure or profession tax and property tax and disallowance of Rs. 3,81,004 under the head P.P. loan we take note of the arguments of the assessee contained in para 4.8 of our order and agree with the suggestion of the Revenue that the issues should be set aside to the file of the Assessing Officer to verify its claim and deal with the same in accordance with law.
13. Similarly on the addition of Rs. 10,51,91,185 we note the arguments of the learned counsel for the assessee in para 4.9 of our order and are of the considered opinion that this has to be considered afresh by the Assessing Officer and hence this addition is also set aside to his file for verifying the claim made and disposing of the same in accordance with law.
14. In the result, the appeal of the assessee is partly allowed for statistical purposes.