| SooperKanoon Citation | sooperkanoon.com/70487 |
| Court | Income Tax Appellate Tribunal ITAT Delhi |
| Decided On | Apr-26-1999 |
| Appellant | Deputy Commissioner of Income Tax |
| Respondent | Eicher Goodearth. (Eicher |
2. Shri Ajay Vohra, the learned counsel appearing on behalf of the assessee, submitted that, this appeal was inadvertently filed before the Tribunal instead of filing the same before the CIT(A). He, however, requested that the CIT(A) may be directed to condone the delay in filing the appeal, now before him, which has occurred on account of filing of the appeal inadvertently before a wrong forum. He relied upon the decision Continental Construction Ltd. vs. Union of India (1990) 185 ITR 230 (Del) to support this contention.
3. The learned senior Departmental Representative submitted that appeal against the order of the AO is not maintainable before the Tribunal.
Once it is found that the appeal is not maintainable, the Tribunal cannot give any direction for condonation of delay by the CIT(A).
4. We have considered the submissions made by the learned representatives of the parties. The appeal against order of the AO is not maintainable before the Tribunal. Hence, the said appeal against order under s. 250 of IT Act, 1961, passed by the Dy. CIT, Special Range-2 is held to be not maintainable and is accordingly rejected. It is true that delay in furnishing of the appeal due to mistake committed by the counsel in filing appeal before a wrong forum may be treated as a reasonable cause, as has been held in the case of Alaib Singh AIR 1989 Punj 153 but the Tribunal cannot give any direction to the CIT(A) for condonation of any delay in an appeal which is not maintainable before it., The question relating to condonation of delay is exclusively within the domain of the learned CIT(A). In view of the aforesaid facts and discussion, the assessee's appeal No. 1627/Del/1994 is dismissed as not maintainable.
5. ITA No. 7092/Del/1992 by the assessee and ITA No. 7078/Del/1992 by the Revenue are cross-appeals which are directed against the order dt.
7th August, 1992, passed by the CIT(A) for asst. yr. 1989-90.
6. We will first deal with assessee's appeal being ITA No.7092/Del/1992. The assessee has raised the following grounds in this appeal : "1. That the CIT(A) erred on facts and in law in upholding the action of the AO in adjusting the book profits under s. 115J by Rs. 135.13 lacs.
1.1 That the CIT(A) erred on facts and in law in upholding that the AO was fully justified in adding the expenses of the previous year in order to arrive at the book profits of the previous year as per s. 115J of the Act.
1.2 That the CIT(A) erred on facts and in law in not appreciating that the amount of Rs. 135.13 lacs did not represent previous year expenses but represented the differential liability for earlier year consequent upon change in the basis of accounting for foreign exchange fluctuations.
2. That the CIT(A) erred on facts and in law in not giving any finding with regard to the ground of appeal No. 10 regarding disallowance under r. 6B of the IT Rules. " 6.1. Shri Ajay Vohra, the learned counsel, invited our attention towards a chart in which the facts relating to aforesaid grounds and the gist of arguments on behalf of the assessee have been briefly stated. The facts and submissions relating to Ground Nos. 1, 1.1 and 1.2 as given in the said chart are as under : 6.2. The assessee in the course of its business entered into management service agreement with Eicher Gmbh. Subsequently, the assessee with the approval of the Government of India invested in the capital of Eicher Gmbh as a business investment, by availing foreign currency loan.
6.3. Initially the additional liability on account of foreign exchange fluctuations was being recognised on cash basis. With the amendment of s. 209 of the Companies Act by the Companies (Amendment) Act, 1988, w.e.f. 15th June, 1988, making it mandatory for companies to maintain accounts on accrual basis, the company changed the method of accounting for foreign exchange fluctuations from cash to accrual basis during the relevant previous year. As a result of the change in the method, the company provided for an aggregate amount of Rs. 152.78 lacs as loss on account of foreign exchange fluctuations, out of which Rs. 110.87 lacs related to earlier years.
6.4. The AO accepted the change in the method of accounting from cash to accrual basis and allowed the entire debit of Rs. 152.78 lacs while computing income under the normal provisions of the Act. However, while computing books profits under s. 155J of the Act, the AO added Rs. 135.13 lacs (later rectified to Rs. 110.87 lacs) on the ground that (a) the loss on account of foreign exchange fluctuations was capital expenditure and, alternatively, (b) the expenditure on account of foreign exchange fluctuations pertain to earlier years.
6.5. The CIT(A) held the loss on account of foreign exchange fluctuations to be a revenue loss, taking into account the circumstances in which the investment was made in Eicher Gmbh. The Revenue is not in appeal against the finding of the CIT(A).
6.6. The CIT(A), however, upheld the alternative contention of the AO that the loss on account of foreign exchange fluctuations pertaining to earlier years was required to be added back while computing book profits under s. 115J of the Act.
6.7. The change in the method of accounting for loss on account of foreign exchange fluctuations from cash to mercantile basis has been accepted by the AO inasmuch as (a) the AO has allowed the debit of Rs. 152.78 lacs while calculating normal income, and (b) only an amount of Rs. 135.13 lacs (later rectified to Rs. 110.87 lacs) has been added back (instead of aggregate amount of Rs. 152.78 lacs) while calculating book profits under s. 115J of the Act. Once the change in the method of accounting is accepted, it follows as a necessary corollary that the changed method has to be applied from the initial year and the deficiency/surplus charged/credited to the P&L a/c of the year of change.
6.8. The Institute of Chartered Accountants of India in the Guidance Note on Accounting for Depreciation in Companies, has held that "when a change in the method of depreciation is made, depreciation should be recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective recomputation of depreciation in accordance with the new method would be adjusted in the accounts in the year in which the method of depreciation is changed. In case the change in the method results in deficiency in depreciation in respect of past years, the deficiency should be charged to the P&L a/c.
6.9 Taking into account the aforesaid views of the Institute of Chartered Accountants of India, it has been held by the following Benches of the Tribunal that arrears of depreciation consequent upon the change in the basis of providing depreciation is a necessary charge while calculating book profits in the year of change and such arrears debited to the P&L a/c cannot be added back while calculating book profits under s. 115J of the Act : (i) Apollo. Tyres Ltd. vs. Dy. CIT (1992) 44 TTJ (Coch) 534 : (1992) 43 ITD 464 (Coch) (ii) Bombay Tyres International Ltd. vs. Dy. CIT (1994) 51 ITD 339 (Bom) (iv) Sterling Steels & Wires Ltd. Dy. CIT (Appeal No. 35/ASR/91 (Amrltsar Bench).
6.10. It has been further held in the above cited cases that such arrears of depreciation cannot also be held as relating to earlier years, warranting an adjustment to the book profits as disclosed in the P&L a/c to the extent of such arrears.
6.11. Even in case of change in the method of valuation of closing stock, it has been held by the Courts that the opening stock does not have to be disturbed in the year of change, in the following casesMelmould Corpn. vs. CIT (iii) Radharani Tea & Estate (P) Ltd. vs. Dy. CIT (1990) 184 ITR 581 (Cal) 6.12. On the aforesaid analogy, once the change in the method of accounting for loss on account of foreign exchange fluctuation from cash to mercantile basis was accepted, the AO was duty-bound to take into account the additional liability as a result of recalculation of such liability on the changed basis from the initial year and as such the additional liability cannot be added back while computing book profits under s. 115J of the Act.Sutlej Cotton Mills Ltd. vs. Asstt. CIT (1993) 46 TTJ (Cal)(SB) 310 : (1993) 199 ITR (AT) 164 at p. 197 has held that ordinarily the AO would have no powers to disturb the book profits as shown in the P&L a/c prepared in accordance with the provisions of Part II and Part III of Sch. VI to the Companies Act, except to the extent stated in s. 115J.6.14. Apart from the submissions of the assessee that the additional liability on account of recalculation of loss on account of foreign exchange fluctuation on the changed basis is a necessary charge while computing book profits of the year of change, there is no provision in s. 115J requiring add back of such liability to arrive at the book profits, even if such amount is to be regarded as pertaining to earlier years." 6.15. Contents of para 6.2 to 6.14 have been reproduced from the chart submitted by Shri Vohra and they only represent submissions made on behalf of the assessee.
6.16. Shri Ajay Vohra invited our attention towards the relevant findings given in the aforesaid decisions, guidance notes issued by the Institute of Chartered Accountants as well as towards the Accounting Standard A3-11 to support his contention the entry relating to additional liability arising on account of foreign exchange fluctuations made in the year under consideration was in conformity with the guidance notes, accounting standards and was necessitated in view of mandatory requirement introduced in s. 209 of the Companies Act w.e.f. 15th June, 1998. The learned counsel also invited our attention towards decisions in New India Industries vs. CIT (1993) 203 ITR 933 (Guj), Padamlee Pulp and Paper Mills Ltd. vs. CIT (1994) 210 ITR 97 (Bom) and Telemecanique & Controls (I) Ltd. vs. Dy. CIT (1997) 60 ITD 483 (Del) to support his contention that such accrual of liability has to be understood with reference to the method of accounting followed by the assessee. Since the provisions of Companies Act were amended w.e.f.
15th June, 1988, making it mandatory for the companies to maintain accounts on accrual basis, the company had to debit the entire amount of additional liability on account of foreign exchange fluctuations in the year under consideration. No sub-clause under s. 115J authorises the AO to add back such amount debited in P&L a/c. The P&L a/c prepared by the assessee was perfectly in conformity with part II and Part III of Sch. VI of the Companies Act. The AO is bound to compute the book profits within the meaning of s. 115J on the basis of such P&L a/c prepared in accordance with the Schedule VI and the provisions of Companies Act. He also pointed out that the auditors have not given any qualified report in respect of said sum. The requirement of Part 11 of Sch. VI only requires disclosure of such material features separately and that is why the necessary facts were separately shown. The auditors have, however, not adversely commented on the said P&L a/c, balance sheet and notes on accounts. He strongly urged that the AO should be directed to delete the addition of Rs. 135.13 lakhs (which was subsequently rectified to Rs. 110.87 lakhs) for calculating book profit under s. 115J of IT Act, 1961.
6.16. The learned senior Departmental Representative submitted that provisions of s. 115J(1A) clearly provides that for the purposes of s.
115J every assessee, being a company, shall prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. The use of expression "for the relevant previous year" clearly shows that expenditure and income of the relevant year only can be debited in the P&L a/c in order to meet the requirement of Part II and Part III of Sch. VI to the Companies Act. He also drew our attention towards s. 211(2) of the Companies Act which also provides that every P&L a/c of a company shall give true and fair view of the profit or loss of the company for the financial year and shall, as aforesaid, comply with the requirements of Part II of Sch. VI. The use of words "for the financial year" in s.
211(2) further fortifies this view that expenditure relating to the relevant financial year alone can be debited in the P&L a/c of the company. In the present case, the assessee has accounted for the entire amount of additional liability not only pertaining to the two period under consideration but also pertaining to the prior years. The liability pertaining to the prior years cannot be charged to P&L a/c of the relevant financial year under consideration. He relied upon the elaborate reasons given in the assessment order as well as in the order of the CIT(A).
6.17. The learned senior Departmental Representative also heavily relied upon the judgment of Hon'ble Kerala High Court in the case of CIT vs. Apollo Tyres Ltd., wherein the decision rendered by the Tribunal in the case of Apollo Tyres Ltd. was reversed. The Hon'ble High Court has held that arrears of depreciation of earlier years cannot be taken into account for computing book profits under s. 115J as per P&L a/c prepared in accordance with Part 11 and Part III of Sch.
VI of Companies Act, 1956. He submitted that the decision of the Hon'ble Kerala High Court squarely applies to the facts of the present case. The learned senior Departmental Representative thus strongly supported the order of the CIT(A).
6.18. In the rejoinder, Shri Ajay Vohra submitted that profits of the previous year used in s. 115J(1A) or the expression "financial year" used in s. 211(2) of the Companies Act does not mean that the amount in question should relate to that year only but it refers to the events on the basis of which liability has accrued in the relevant previous year or relevant financial year. The term accrual of liability and the relating of the liability to a particular period have different connotation in a situation like this where due to mandatory change in the method of accounting from cash basis to accrual basis, the entire amount of additional liability was necessarily required to be adjusted so that as at the date of the balance sheet, it would reflect a true and fair position about the amount of liability payable in terms of Indian currency. He relied upon the judgment of Hon'ble Gujarat High Court Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1998) 213 ITR 523 (Guj) to support his contention.
6.19. The learned Counsel also submitted that the decision of Hon'ble Kerala High Court in the case of Apollo Tyres Ltd. (supra) does not in any manner go against the assessee. He submitted that the case of Apollo Tyres Ltd. are clearly distinguishable case. The Hon'ble High Court has clearly observed that the (sic) fact, did not change the method of computation of depreciation provided in s. 205(2) of the Companies Act. The company continued to compute the amount of depreciation as per the method provided under s. 205(2)(b) viz., straight-line method and in addition to the same calculated depreciation on the basis of extra shifts worked by the company on its plant and machinery from the date of acquisition of its original assets. On these facts, the Hon'ble High Court held that this is not a matter covered by the guidance notes contained in As-5 or As-6. Such practice adopted by the assessee was, therefore, considered to be not permissible under the guidance notes issued by the ICAI under the head "Provisions for depreciation in respect of extra or multiple shift allowance". However, in the present case, the entire amount of additional liability on account of foreign exchange fluctuations which was being recognised on cash basis and which had to be changed to accrual basis in view of the amendment of s. 209 of the Companies Act w.e.f. 15th June, 19881 was perfectly in accordance with the guidance notes issued by ICAI and was also in conformity with the amendment provisions of Companies Act. He submitted that the judgment of Hon'ble Kerala High Court in a way supports the assessee that wherever the P&L a/c are in accordance with the guidance notes issued by ICAI, the P&L a/c should be treated as in conformity with Part II and Part III of Sch. VI of Companies Act. Shri Vohra, the learned counsel for the assessee once again strongly urged that the assessee's contention should be accepted.
6.20. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the orders of the learned. Departmental authorities as well as all other documents to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of both sides.
6.21. The relevant previous year relating to asst. yr. 1989-90, being the transitional year, when uniform previous year was introduced in s.
3 of IT Act, 1961, covered the period from 1st July, 1987, to 31st March, 1989. The first audited balance sheet of the appellant company relates to the year ended on 30th June, 1988. The balance sheet for the second period relates to the period from 1st July, 1988, to 31st March, 1989. The accounts of the appellant company were audited by M/s. A. F.Ferguson & Co., Chartered Accountants, under the provisions of the Companies Act, 1956. The tax audit report under s. 44AB of IT Act year was given by M/s. Vaish & Associates, Chartered Accountants. The audited balance sheet in the year ended on 30th June, 1988, in Sch. 'L' gives notes to the accounts. The relevant note No. 10 is reproduced hereunder "Pursuant to the amendment to s. 209 of the Companies Act, 1956 by the Companies (Amendment) Act, 1988, the Company has changed its method of accounting for the fluctuation in foreign-currency rates in respect of a foreign currency loan taken by the company in a previous year from the payment basis hitherto consistently followed to the accrual method of accounting. As a result of this change an additional amount of Rs. 104.85 lacs has been charged to the P&L ale comprising a charge of Rs. 110.87 lacs relating to earlier years and a credit of Rs. 6.02 lacs relqting to the current year." 6.22. The audited balance sheet for the period from 1st July, 1988, to 31st March, 1989, also gives the notes to the accounts in Sch. 'M' in which there appears no specific notes on accounts in relation to the adjustment on account of loss due to foreign exchange fluctuations. The appellant company charged an amount of Rs. 135.13 lacs to the P&L a/c for the year ended on 30th June, 1988, representing loss on account of foreign exchange fluctuations. The outstanding loan balance in foreign exchange currency, namely, D. M. payable to the Hongkong & Shanghai Banking Corporation, London, borrowed in the month of February, 1984, was translated into rupees exchange prevalent on 30th June, 1988.
Accordingly, the aforesaid amount of Rs. 135.13 lakhs was debited to the P&L a/c for the aforesaid period due to amendment of s. 209(3) of the Companies Act which made it obligatory for every company to maintain accounts on accrual basis only. In the accounts for the period from 1st July, 1988, to 31st March, 1989, an amount of Rs. 17.6 lakhs was charged representing loss on account of exchange rate in accordance with the changed method of accounting. Thus, an aggregate amount of Rs. 152.78 lakhs was provided for as loss on account of foreign exchange fluctuations during the previous year covering the period from 1st July, 1987, to 31st March, 1989, relevant to the assessment year under appeal. The assessee paid tax on Rs. 25,89,006 being book profits under s. 115J of IT Act, 1961. For this purpose, the book profits were taken at Rs. 1,18,93,961 and after adjusting brought forward business loss or depreciation, whichever is lower, the book profits for the purpose of s. 115J was adopted at, Rs. 86,30,022. 30% thereof comes to Rs. 25,89,006 on which tax was paid by the assessee under s. 115J.6.23. The AO observed that the appellant company have availed of foreign currency loan of DM-5 million from the Hongkong & Shanghai Banking Corporation, London, in February, 1984, to purchase shares of Eicher (Germany). The investment in shares was capital investment in so far as it was for the purposes of extension of business by controlling the other company. The AO has given elaborate reasons in the assessment order. He also relied on several decisions including the decision of Hon'ble Calcutta High Court in the case of Basto Ball Indza Ltd. vs.
CIT (1979) 117 ITR 789 (Cal). The AO relying on the aforesaid judgment of Hon'ble Calcutta High Court and in view of elaborate discussions made in the assessment order, held that the expenditure 'of Rs. 1,52,78,000 debited under the head 'Foreign Exchange Fluctuations' is capital in nature. The AO further considered the question relating to computation of profits under s. 115J. He relied upon the provisions of s. 115J(1A), s. 211(2) of the Companies Act and the requirement of Part II of Sch. VI for arriving at the conclusion that the P&L a/c should give a true and fair view of the P&L a/c of the company for the relevant financial year. He, therefore, held that the aforesaid expenditure of Rs. 1,52,78,000 on account of foreign exchange fluctuations should be added to book profit disclosed by the assessee as the accounts have not been prepared in accordance with Parts II and III of Sch. VI to the Companies Act. The AO in view of detailed discussion and reasons given in the assessment order added the said amount of Rs. 1,52,78,000 for arriving at the book profit liable to tax under s. 115J of IT Act, 1961. It was, inter alia, contended on behalf of the assessee before the AO that investment in shares of Eicher (Germany) has been held to be a business investment and the loss incurred in respect of those shares on liquidation of the company w&s held to be a business loss in the asst. yr. 1986-87. This fact stated before the AO on behalf of the assessee was not controverted or disputed by the AO in the assessment order.
6.24. The CIT(A) on p. 3 of the appellate order passed by him has also observed that the loss on account of fluctuations is a revenue loss. He further observed that the issue whether the shares in M/s. Eicher Germany were capital assets or business assets is not before him and i.e., not relevant to the issue relating to computation of book profit under s. 115J in relation to the disputed item of loss on account of foreign fluctuations, debited in the P&L a/c. The CIT(A), therefore, refrained himself from giving any finding on the point whether the investment in shares was capital asset or business asset. However, the categorical finding given by the CIT(A) that the loss on account of foreign exchange fluctuations is a revenue loss has not been challenged by the, Revenue in the cross-appeal submitted by them.
6.25. The CIT(A) has observed that the appellant company changed its method of calculation of foreign exchange fluctuation from cash to accrual method from asst. yr. 1989-90 and this has resulted in a loss of Rs. 1,52,78,000, which includes Rs. 1,35,13,000 relating to earlier years. He, relyind upon the elaborate reasons given in the assessment order, provisions of s. 115J, provisions of Companies Act 'and the requirements of Parts II and III to Sch. VI of the Companies Act, 1956, held that the P&L a/c of the company in order to give a true and fair picture of the P&L a/c of the company should incorporate the items of expenditure of the relevant financial year and then alone it can comply with the requirements of Part II and Part III of Sch. VI. He, therefore, further held that the AO was fully justified in adding the previous year's expenses in order to arrive at the book profits of the previous year as per s. 115J of IT Act. Thus, it appears that the CIT(A) had confirmed an addition of Rs. 135.13 lakhs made by the AO for computing the book profits under s. 115J of the Act.
6.26. The provisions of s. 115J(1A) along with 'Explanation is reproduced hereunder : "115J(1A) Eyery assessee, being a company, shall, for the purposes of this section, prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956).
Explanation. - For the purposes of this section, "book profit" means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (1A), as increased by - (a) the amount of income-tax paid or payable, and the provisions therefor; or (b) the amounts carried to any reserves (other than the reserves specified in s. 80HHD or sub-s. (1) of s. 33AC, by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III (applies; or) (g) the amount withdrawn from the reserve account under s. 80HHD, where it has been utilised for any purpose other than those referred to in sub-s. (4) of that section; or (h) the amount credited to the reserve account under s. 80HHD, to the extent that amount has not been utilised within the period specified in sub-s. (4) of that section; (ha) the amount deemed to be the profits under sub-s. (3) of s.
33AC;.
(If any amount referred to in cls. (a) to (f) is debited or, as the case may be, the amount referred to in cls. (g) and (h) is not credited to the P&L a/c and as reduced by .........." 6.27. It is clear from the various items enumerated in the Expln. to s.
115J(1A) that the loss on account of foreign exchange fluctuations debited by the assessee in the P&L a/c due to statutory change in the method of accounting does not fall within any of the aforesaid specific permissible adjustments mentioned in the said Explanation. Therefore, the only question which requires our consideration is to examine as to whether the P&L a/c prepared by the appellant company for the relevant previous year is in accordance with the provisions of Part II and III of Sch. VI to the Companies Act, 1956, and if not whether the AO can recast the P&L a/c in accordance with the provisions of Parts II and III of Sch. VI for purposes of computing book profits liable to tax under s. 115J of IT Act, 1961.
6.28. It may be relevant here to refer to the judgment of Tribunal Special Bench in the case of Sutlej Cotton Mills Ltd. vs. Asstt. CIT (supra). At pp. 197 to 199, the Special Bench has held as under : "Can the AO recast the book profit The contention of the Revenue was that if the book profit shown by the assessee is not in accordance with the provisions of the Companies Act or if it had been manipulated to show less than the amount which was required to be shown in the P&L a/c, AO had required to be shown in the P&L a/c.
The contention of the assessee was that the tax was on the book profit as shown by the assessee and whatever is shown has to be accepted without question. This proposition is too widely stated, for, obviously, it cannot take into account a case of fraud or misrepresentation or a case where the P&L a/c was not prepared in accordance with the provisions of Part II and Part II of the Sixth Schedule to the Companies Act, 1956. If the P&L a/c prepared by the assessee is fraudulent or misleading giving figures which are found to be false and even though such P&L a/c was approved by the board of directors of a company, still the AO would be entitled to verify and satisfy himself as to whether the P&L a/c so prepared was in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act, 1956. The mandate given by s. 115J to the AO is implied in the words 11 prepared in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act" and the "net profit as shown in the P&L a/c. These two expressions convey an idea of an implied mandate given to the AO to verify and satisfy himself as to whether the net profit was as shown in the P&L a/c for the relevant previous year and as to whether the P&L a/c was prepared in accordance with Part II and Part III of Sixth Schedule to the Companies Act. If the AO finds that the net profit was not as shown by the P&L a/c or the P&L a/c was not prepared in accordance with Part II and Part III of the Sixth Schedule to the Companies Act, he is entitled to adjust the profit.
To this extent, we are of the opinion that the power to adjust the book profit will have to be conceded to the AO, But not beyond that with a view to adjust the book figures to bring out even a fraudulent or misleading statement given in the accounts in which case, he would be competent to compute the income by applying the provisions of s. 145 of the IT Act which he cannot do for the purposes of ascertaining the book profit when they were as shown by the P&L a/c prepared in accordance with Part II and Part III of the Sixth Schedule to the Companies Act. But, in a case where there is no allegation of fraud or misrepresentation but only a difference of opinion as to the question whether a particular amount should be properly shown in the P&L a/c or in the balance sheet, the provisions of s. 115J do not empower the AO to disturb the profit as shown by the assessee. As the intention of s. 115J was only to extract some tax in spite of the companies being eligible for certain concessions in computing the income from business, it is the book profit which is the starting point for the computation of the income of the assessee which could be the basis for the tax under s.
115J also. It would, therefore, be anomalous to concede to the AO the power to disturb the starting point itself in a case other than a case where the P&L a/c was not prepared in accordance with Part II and Part]E of the Sixth Schedule to the Companies Act. In the case where the P&L a/c was prepared in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act, the AO will have no power to disturb the book profit except as stated in s. 115J. We are, therefore, of the opinion that the AO is bound to proceed with the computation only on the basis of the book profit as shown in the P&L a/c, unless it is discovered that the P&L a/c is not drawn up in accordance with the provisions of the Companies Act, 1956." 6.29. In view of the aforesaid decisions and in view of the plain language of s. 115J(1A), it is clear that where the AO finds that where the P&L a/c was not prepared in accordance with the Part II and Part III of Sch. VI to the Companies Act, he is entitled to adjust the profit so as to bring it in conformity with the requirement of Part II and Part III of the Sixth Schedule.
6.30. It may, therefore, be necessary to examine the relevant provisions of the Companies Act and also the requirements of Parts II and III of Sch. VI of the Companies Act. The provisions of s. 211(2) of the Companies Act, 1956 is reproduced hereunder : "211(2) Every P&L a/c of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Sch. VI, so far as they are applicable thereto." 6.31. It may now be relevant to refer to s. 209(3) of the Companies Act, which was substituted by the Companies (Amendment) Act, 1988 w.e.f. 15th June, 1988 : "209(3) for the purposes of sub-ss. (1) and (2), proper books of account shall not be deemed to be kept with respect to the matters specified therein, (a) If there are not kept such books as are necessary to give a true and fair views of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions; and the double (b) if such books are not kept on accrual basis and according to entry system of accounting." 6.32. The relevant requirement of Part II and Part III of Sch. VI as given on p. 11 of the assessment order are reproduced hereunder : "further Part II of Schedule II (sic) of Schedule VI of the Companies Act Provides that "(1) The provisions of this part shall apply to the income and expenditure account referred to in sub-s.
(2) of s. 210 of the Act, in like manner as they apply to a P&L a/c but subject to the modification of references as specified in that sub-section.
(a) shall be so made out as clearly to disclose the result of the working of the, company during the period covered by the account; and (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature." Clause (3) of Part II of Sch. VI enumerates the items which need to be disclosed in the P&L a/c of the period covered by the account. It provides that the P&L a/c should disclose turnover, commission, brokerage & discount, raw, material, consumed, goods purchased, opening and closing stock, depreciation, interest paid, provision for income-tax, reserves and provisions, expenditure on account of consumption of stores and spare parts, power and fuel, rent repairs to buildings and machinery, salary, wages, bonus, contribution to P.F. and other funds, staff welfare expenses, insurance, rate and taxes and Misc. expenses, etc." 6.33. The insertion of the concept of "true and fair" in place of "true and correct" was made to do away with the view prevailing that accounts should disclose only arithmetical accuracy. The Companies Act does not give definition of the expression "true and fair view".
The substitution of the expression "true and fair" as against earlier expression used in these provisions as "true and correct" clearly indicates that the annual financial statements should not only be made correctly but they should convey an overall fair view and should not give any misleading impression. All the relevant information should be disclosed in the balance sheet and P&L a/c in such a manner that the financial position and the working results reflect true and fair position. There should neither be an overstatement nor an understatement. The basic objective is to ensure that the financial statements should disclose not only an arithmetical accurate position but should also give a fair view of the state of affairs and working results of the company. The requirement of making a disclosure of every material feature made in Part II of Sch. VI is also to ensure that the relevant information should be disclosed in a clear and unambiguous manner. All significant accounting policies, every material feature including debits of expenses in respect of non-recurring transactions or transactions of an exceptional nature should be separately disclosed so as to provide a true and fair view of the profits/loss, as shown in the P&L a/e of the relevant year, and state of affairs as on the date of balance sheet, etc. In case of a change in accounting policies which is a material effect in the current period, the amount by which any item in the financial statements is effected by such change, should also be disclosed to the extent ascertainable. The requirements of disclosure of such material and significant events and features is only with a view to ensure that the balance sheet and P&L a/c disclose a true and fair position. Sec. 209(3) inserted by the Companies (Amendment) Act, 1988, w.e.f. 15th June, 1988, is also step towards achieving that objective of presenting a true and fair view of the state of affairs of the company or its profit or loss for a period.
Cash system of accounting does not disclose a true and fair view of the state of affairs of the company or its profit or loss for the relevant period. That is why, s. 209(3) Was substituted w.e.f. 15th June, 1988, providing that every company should keep its books of accounts on accrual basis and according to the double entry system of accounting.
The accrual basis of accounting records the financial effect of the transactions, events and circumstances of an enterprise in the period in which they occur rather than recording them in the period in which cash is received or paid by the enterprise. The mandatory accrual method of accounting popularly known as mercantile system of accounting was introduced in the Companies Act with a view to ensure that the financial statements disclosed a true and fair view of the state of affairs as well as of the profit or loss of the company.
6.34. Let us now examine the impact and effect of the amendment of s.
209(3) of Companies Act w.e.f. 15th June, 1988, by which accrual method of accounting was made mandatory in relation to assessee's liability for repayment of foreign currency loan of DM 5 million borrowed from the Honkong & Shanghai. Banking Corporation, London, in February, 1994.
The loan was repayable in 11 equal half-yearly instalments commencing after 2 years from the date of taking the loan. Upto the asst. yr.
1988-89, the assessee-company was charging the exchange rate different on repayment of the loan instalments to the P&L a/c of the year in which the instalment was repaid. The loss arising due to difference in exchange rate at the time or repayment of the respective instalment was debited in the P&L a/c, as and when the instalment was actually paid.
However, the loan amount at the end of each previous year was shown as the balance amount of loan in DM (foreign currency) converted at the rate of exchange prevalent on the date when the loan was taken. Let us take an example. Suppose loan in foreign currency of 1,00,000 dollars was taken in the year 1984 while was repayable in 10 equal annual instalments commencing after two years from the date of taking the loan. Exchange rate in the year 1984 when loan was taken was one dollar = Rs. 30. In 1987, the assessee repaid one instalment of 10,000 dollars when the exchange rate, was say Rs. 35. Exchange rate of Rs. 5 attributable to the instalment repaid in the year 1987 was debited to P&L a/c. The balance amount of loan outstanding to the tune of 90.000 dollars was shown in the balance sheet as a liability by converting the same at the exchange rate of Rs. 30 per dollar at Rs. 2,70,00,000 in the balance sheet as on 30th June, 1987, Before the next accounting year ended on 30th June, 1988, the assessee repaid second instalment of 10,000 dollars, and there remained an outstanding balance out of principal amount of loan to the tune of Rs. 80,000 dollars. According to the old method of accounting followed by the assessee, the said outstanding loan of 80,000 dollars would have been shown in terms of Indian currency by applying the exchange rate of Rs. 30 per dollar at Rs. 2,40,00,000 although the exchange rate prevailing as on 30th June, 1988, was Rs. 40 per dollar. The amendment in s. 209(3) made w.e.f.
15th June, 1988, has made it mandatory for every company to keep its account on accrual basis, failing which, the balance sheet and the P&L a/c will not be treated as having disclosed a true and fair view of the state of affairs of the company and of its profit and loss. After the said amendment, if the basis of old exchange rate of Rs. 30 per dollar, such balance sheet would not disclose true and fair view after introduction of s. 209(3). It is incumbent upon the company to show its liability on accrual basis. The liability as on 30th June, 1988, which can be said to represent a true and fair view, is necessarily required to be shown at the exchange rate prevailing as on the date of the balance sheet i.e., Rs. 40 per dollar. Therefore, the company on the basis of accrual method of accounting will have to show the outstanding loan of 80,000 dollars at Rs. 3,20,00,000 by applying the exchange rate of Rs. 40. In the first year when the change in the method of accounting from cash basis to accrual basis was required to be adopted to comply with a mandatory requirement of law, the difference between the real amount of liability outstanding in terms of Indian currency at Rs. 3,20,00,000 as against the liability worked out on the basis of exchange rate prevailing at the time when the loan was taken (which comes to Rs. 2,40,00,000), will have to be debited in the P&L a/c in the year ended on 30th June, 1988, so that the outstanding amount of foreign currency loan is shown in the balance sheet at the correct and real amount payable by the assessee. In the present case, the company has changed its method of accounting for the fluctuations in foreign currency rates in respect of foreign currency loan taken by the company in the first accounting period ended on 30th June, 1988, in view of amendment to s. 209 made w.e.f. 15th June, 1988. As a result, of this change, the additional amount of Rs. 110.87 lacs was charged to P&L a/c relating to earlier years. This was necessitated in view of the mandatory provisions introduced in s. 209(3) of the Company Act, 1956, which was amended in the currency of the relevant accounting year on 15th June, 1988, i.e., before the relevant year ended on 30th June, 1988. The debit of the loss as a result of change in the method of accounting in respect of the aforesaid items was necessary, for disclosure of a true and fair, liability in respect of the said foreign currency loan as on 30th June, 1988, on the basis of accrual method of accounting. Such P&L a/c prepared by the appellant company was duly approved by the directors, we are responsible for preparing the P&L a/c and balance sheet in accordance with Part II and Part III of Sch. VI to the Companies Act, 1956. The note was given in Sch. 'L' under the head notes to the accounts in respect of the aforesaid item was meant for disclosure of significant and material events, which took place in the relevant previous year so as to ensure that the financial statements clearly disclosed a true and fair state of affairs to its shareholders as well as to the entire connected outside world. The auditors, M/s. A.F. Furguson & Co. in their audit report has not given any qualified report. They have clearly stated that the P&L a/c and the balance sheet gives a true and fair view of the profit of the company for the period 1st July, 1988 to 31st March, 1989. They have riot qualified their audit report in any manner to indicate that the balance sheet and the P&L a/c for the relevant accounting periods do not reflect true and fair view on account of the adjustments made in respect of additional liability debited on account of change in the method of accounting in relation to fluctuation in foreign currency rates in respect of foreign currency loan taken by the company. 6.35. It may also be relevant here to reproduce the relevant extracts from the guidance notes on accounting for depreciation in companies issued by the Institute of Chartered Accountants of India (ICAI) : "Change in the method of proidding depreciation : 6. The depreciation method selected should be applied consistently from period to period. A change from one method of providing depreciation to another should be made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise. When a change in the method of depreciation is made, depreciation should be recalculated in accordance with the new method would be adjusted in the accounts in the year in which the method of depreciation is changed. In case the change in the method results in deficiency in depreciation in respect of past years, the deficiency should be charged to the P&L a/c. In case the change in the method results in surplus, it is recommended that the surplus be initially transferred to the "appropriations" part of the P&L a/c and thence to general reserve through the same part of the P&L a/c. Such a change should be treated as a change in accounting policy and its effects should be quantified and disclosed." 6.36. It is clear from the aforesaid guidance note that whenever a change in the method of accounting is adopted, the liability should be recalculated in accordance with the new method from beginning and the deficiency arising from retrospective recomputation in accordance with the method should be charged to the P&L a/c.
6.37. The Accounting Standard marked as AS-11 (Revised) relating to accounting for the effect of changes in foreign exchange rates also provides that monetary items denominated in a foreign currency should be reported as on the date of the balance sheet by using the closing rate. The closing rate has been defined as the exchange rate as on the balance sheet date. It also clearly provides that monetary items should be translated using the closing rate.
6.38. Once the change in the method of accounting is accepted, it follows as a necessary consequence that the changed method has to be applied from the initial year and the resultant deficiency/surplus will have to be charged/credited to the P&L a/c of the year of change. In the present case, the change in method of accounting in respect of foreign exchange fluctuations from cash to mercantile basis was necessitated on account of amendment of s. 209(3) made w.e.f. 15th June, 1988, which falls within the relevant previous year. There cannot be any doubt that such a change in the method was not only bona fide but was necessitated on account of statutory requirement. The change in the method of accounting has been accepted by the AO. Therefore, the entire amount of additional liability of Rs. 152.78 lakhs (including Rs. 110.87 lakhs) on account of foreign exchange fluctuations computed on accrual basis was required to be changed to P&L a/c of the relevant accounting period when the change in the method of accounting had taken placed. This was necessary to disclose a true and fair view of the liability repayable by the assessee in respect of the loan taken in foreign currency as on the date of the balance sheet. The outstanding loan balance taken in foreign currency, namely, DM was required to be translated into rupees at the exchange rate prevailing as on 30th June, 1988, to comply with the requirements of disclosing true and fair view according to the mercantile method of accounting.
6.39. It may be relevant here to refer to the judgment of Hon'ble Bombay High court in the case of Melmould Corporation vs. CIT (supra), in which it has been held that whenever there is a change in the method of valuation, there is bound to be some distortions in the calculation of profit in the year in which the change takes place. But if the change is brought about bona fide and is in accordance with the normally accepted accountancy practice, there is no reason whey such a change should not be permitted. In the present case, the change in the method of accounting relating to foreign exchange fluctuation is not only bona fide but in conformity with the normally accepted accounting practice but it had to be adopted in order to comply with a mandatory provisions of ss. 209(3) introduced by the Companies Act in the relevant year under consideration.
6.40. The learned senior Departmental Representative had placed reliance on the judgment of Hon'ble Kerala High Court in the case of CIT vs. Apollo Tyres Ltd. (supra). In that case, the assessee had shown net profits per P&L a/c at Rs. 60,91,306. While arriving at the net profit, the assessee made a deduction of Rs. 13,66,39,051 by way of arrears of depreciation. The deduction of Rs. 39,66,39.051 representing the arrears of depreciation, according to the assessing authority, was not in accordance with the provisions of Part II and Part 111 of the Sch. VI of the Companies Act. The Hon'ble High Court referred to in Accounting Standard AS-6 in paras 14 and 15 at p. 562. The Hon'ble High Court observed as under "Paras 21 to 30 deal with Accounting Standard. Para 22 provides that the depreciation method, selected should be applied consistently from period to period and that a change from one method of providing depreciation to another should be made only in the following circumstances : (2) if the new method is required for compliance with an accounting standard; or (3) if it is considered that the change would result in a more appropriate preparation or presentation of the financial statement of the enterprise.
It also provides that when a change in the method of depreciation is made, the unmortised depreciable amount of the asset should be charged to revenue over the remaining useful life by applying the new method and further, such a change should be treated as a change in accounting policy and its effect should be quantified and disclosed.
15. It would appear from the Guidance Note, AS-5 and AS-6, particularly from the paragraphs mentioned above, that prior year depreciation can be separately provided in the P&L a/c and can be made a charge against the profit of the year along with the current year's depreciation. The reason stated is that this is required to have a true and fair account of the financial position of the company for the use of the public. But it is relevant to note that this accounting policy can be adopted only in a case where para 22 of AS-6 mentioned above is attracted. " 6.41. The Hon'ble High Court at p. 566 has further observed that the company, in fact, did not change the method of computation of depreciation provided in s. 205(2) of the Companies Act. In other words, the company continued to compute the amount of depreciation as per the method provided under s. 205(2)(b), viz., straight line method and in addition to the same calculated depreciation on the basis of extra shifts work by the company on its plants and machinery from the date of acquisition of its original assets. The Hon'ble High. Court on these facts observed that this is not a matter covered by the guidance not contained in AS-5 or AS-6. This practice adopted by the assessee during the year in question cannot also be considered permissible under the guidance note issued by the ICAI. The charge of arrears of depreciation pertaining to earlier years was thus held to be not in conformity with the guidance notes or accounting standards issued by ICAI and such a P&L a/c was held to be not in conformity with part 11 and Part III of Sch. VI to the Companies Act. However, the facts, of the present case are absolutely different. The new method of accounting, namely, accrual method was adopted by the appellant company to meet the mandatory requirement of s. 209(3), which was amended w.e.f. 15th June, 1988, falling in the relevant previous year. It is clear from the aforesaid judgment of Hon'ble Kerala High Court that in the case of Apollo Tyres Ltd., the said company did not change the method of computation of depreciation from straight-line method (SLM) but in addition to depreciation as per SLM method, the company calculated depreciation on the basis of extra shifts worked by the company on its plant and machinery from the date of acquisition of its original assets and charged the entire amount of such arrears of extra shifts depreciation in the P&L a/c of the relevant year in asst. yr.
1988-89, the year in which s. 115J was introduced. In the present case, the change in the method of accounting had to be adopted by the appellant company from asst. yr. 1989-90 in view of the amendment made s. 209(3) of Companies Act w.e.f. 15th June, 1988. The assessee neither had the choice of choosing the year for making a change nor it had an option continue to follow the old cash system of accounting for the loss on account of foreign exchange fluctuations after the said amendment. The new method, namely, accrual method of accounting was adopted to meet the said mandatory requirements of law.
6.42. In view of the aforesaid facts and discussion, we are of the considered opinion that the CIT(A) was not justified in upholding the action of the AO in adjusting the book profits under s. 115J by adding back the amount of loss due to foreign exchange fluctuations pertaining to the earlier years, charged/debited in the P&L a/c of the relevant previous year under consideration. The AO is directed to delete the said addition for purposes of computing book profit liable to tax under s. 115J of IT Act, 1961.
7. As regards ground No. 2 of assessee's appeal, the learned counsel submitted that AO disallowed Rs. 78,073 being expenditure on presentation of articles not carrying the name and logo of the company under r. 68 of IT Rules. The assessee raised a specific ground viz., ground No. 10 of its appeal before the CIT(A). The CIT(A) has noted the submissions of the assessee but has given no finding on the aforesaid ground. It was further contended that allowability of such deduction and non-applicability of r. 6B in relation to such expenditure on presentation of articles not carrying the name and logo of the company is supported by judgment of Hon'ble Delhi High Court CIT vs. Indian Aluminium Cables Ltd. (1990) 183 ITR 611 (Del) and CIT vs. Modi Spng & Wvg. Mills Co. Ltd (1993) 202 ITR 708 (Del).
7.1. The learned Senior Departmental Representative submitted that since the CIT(A) has not given any finding in relation to the aforesaid point, the matter may be sent back to the CIT(A) for giving his finding after examining the relevant facts.
7.2. In our view the point relating to ground No. 2 should be restored back to the CIT(A) as he has not given any finding on a specific ground No. 10 raised in assessee's appeal filed before him. This matter is, therefore, restored back to the CIT(A) for deciding the same in accordance with the provisions of law and the relevant judgments after providing reasonable opportunity to both sides.
8. We will now consider the Revenue's Appeal being ITA No.7078/Del/1992. The Revenue has raised the following grounds in this appeal : "On the facts and in the, circumstances of the case, the learned CIT(A) has erred in; 1. directing the AO to allow the deduction amounting to Rs. 5,49,162 representing expenses in respect of transit houses despite the fact that s. 37(4) specifically prohibits such expenses.
2. excluding the amount of Rs. 18,95,992 representing the liabilities written back unilaterally to the credit of P&L a/c by holding that such action does not result in remission of cessation of liabilities in terms of s. 41(1) of IT Act.
3. directing the AO to remit the interest charged under s. 234B of IT Act despite failure to pay advance tax and existence of the provisions of s. 115J of the IT Act prior to the due dates of the year under consideration." 8.1. At the outset, it was submitted by the learned representative of both sides that ground No. 1 is covered by an earlier order of the Tribunal in assessee's own case for asst. yr. 1983-84, wherein it has been held that s. 37(4) overrides on s. 37(1) and expenditure which are allowable under ss. 30 and 31 are outside the purview of s. 37(1) of the Act and, therefore, expenses which are allowable under ss. 30 and 31 cannot be disallowed under s. 37(4). The assessee claimed expenditure on rent amounting to Rs. 4,58,600 and repairs amounting to Rs. 11,682 in respect of the transit house allowable under ss. 30 and 31. These amounts are not hit by s. 37(4) of the Act. CIT(A) observed that the disallowance of Rs. 5,49,162 (Rs. 4,58,600 + 11,682 + 78,800) was made out of the expenditure in respect of transit house maintained by the appellant company for the use of its employees and executives.
This disallowance was apart from the surrender of an amount of Rs. 78,800 being the maintenance expenses of the transit house. The amount of disallowance representing the expenditure of Rs. 4,58,600 as rent and Rs. 11,682 being expenditure of repairs. The CIT(A) directed the AO to allow the assessee's claim after necessary verification in the light of the order of the Tribunal for asst. yr. 1983-84. The view taken by the CIT (A) is also fortified by the judgment in CIT vs. Chase Bright Steel Ltd. (19.89) 177 ITR 128 (Bom), Century Sprig. & Mfg. Co. Ltd. vs. CIT (1991) 189 ITR 660 (Bom), Kelvinator of India Ltd. vs. Dy. CIT (1996) 56 ITD 25 (Del), Hindustan Lever Ltd. vs. IAC (1996) 56 TTJ (Bom) 598 : (1996) 58 ITD 555 (Bom), Bhilai Engg. Corpn. Ltd. vs. Dy.
CIT 8.2. In our view, the aforesaid facts and discussion, we do not find any infirmity in the view taken by the CIT(A) in relation to ground No.1 hence, ground No. 1 of Revenue appeal is rejected.
8.3. As regards ground No. 2, the learned senior Departmental Representative submitted that the Hon'ble Supreme Court in the cases of CIT vs. Karam Chand Thapar & Ors. (1996) 222 ITR 112 (SC) and CIT vs.
T. V. Sundaram Iyengpr & Sons (1996) 222 ITR 344 (SC), has held that unilateral action of the assessee in writing back the liability resulted in remission/cession, the said liability and attracts the provisions of s. 41(1) of the Act. He, therefore, submitted that the order of the CIT(A) in relation to ground No. 2 should be set aside and that of the AO should be restored.
8.4. The learned counsel appearing on behalf of the assessee relied on the decision in Gannon Dunkerley & Co. Ltd. vs. CIT (1975) 102 ITR 428 (Bom), CIT vs. Pre-Stressed Concrete Co. (S.I.) P. Ltd. (1986) 162 ITR 314 (Mad), CIT vs. Combined Import Co. (P) Ltd. (1988) 174 ITR 528 (MP) and CIT vs. Sadabhakti Prakashan Printing Press (P) Ltd. (1980) 125 ITR 326 (Bom). He also submitted that in a later judgment in CIT vs.
Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC), the Hon'ble Supreme Court has taken a view in favour of the assessee on identical point. The later judgment of the Hon'ble Supreme Court should be followed.
8.5. We have considered the submissions made by the learned representatives and have gone through the various judgments relied upon by the learned representatives of both sides. In the latest judgment in the case of CIT vs. Sugauli Sugar Works, (P) Ltd. (supra), the Hon'ble Supreme Court has held that the mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that s. 41(1) would apply and the amount should be included in the total income of the assessee. This judgment supports the assessee's contention. However, the said judgment was delivered by a Bench comprising of two Hon'ble Judges of the Supreme Court, the judgment in the case of CIT vs. T. V. Sundaram Iyengar & Sons (supra) was rendered by Hon'ble 3 Judges on the Supreme Court. In this case, the Hon'ble Supreme Court has held as under : "Held, that if a commonsense view of the matter were taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its P&L a/c. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties, by lapse of time, the claim of the deposit became time-barred and the amount attained a totally different quality. It became a definite trade surplus. The assessee itself had treated the money as its own money and taken the amount to its P&L a/c. The amounts were assailable in the hands of the assessee." 8.6. The judgment of Hon'ble larger Bench of the Supreme Court will have to prefer over the decision rendered by the Hon'ble O.I. of the apex Court. The relief granted by the CIT(A) in relation to this point will, therefore, have to be set aside and the issue has to be decided against the assessee. We accordingly set aside the order of the CIT(A) and confirm the action of the AO holding that the amount of Rs. 18,95,992 representing unclaimed liabilities written back and credited to the P&L a/c is liable to tax under s. 41(1) of the Act. The order passed by the CIT(A) in relation to this ground is set aside and that of the AO is restored. Hence, ground No. 2 of Revenue's appeal is allowed.
9. As regards ground No. 3, the learned counsel appearing on behalf of the assessee was himself fair enough to state that this point is covered against the assessee by the decision of Tribunal, Special Bench on the case of Sutlel Cotton Mills Ltd. vs. Asstt. CIT (supra).
Respectfully following the decision of the Tribunal, Special Bench in the case of Sutlej Cotton Mills Ltd., (supra) we hold that the CIT(A) was not justified in directing the AO to remit the interest charged under s. 234B. The order of the CIT(A) in relation to ground No. 3 is set aside and the action of the AO of charging interest under s. 234B in a case where the total income has been computed under the provisions of s. 115J of IT Act is upheld. Hence, ground No. 3 of Revenue's appeal is also allowed.
10. In the result, the assessee's appeal being ITA No. 7092/Del/1992 is allowed, Revenue's Appeal No. ITA 7078/Del/1992 is partly allowed and assessee's Appeal being ITA No. 1627/Del/1994 is dismissed.