COMMISSIONER OF INCOME TAX (CENTRAL), ANDHRA PRADESH, HYDERABAD Vs. NAGARJUNA FERTILIZERS AND CHEMICALS LTD

JUDGEMENT

(1.) THIS appeal preferred by the revenue presents an important question of law which in turn would unfold as and when the discussion progresses.

(2.) THE respondent is a company incorporated under the Companies Act and was submitting the returns year after year. The disparity between the profits that are posted by a company in its annual report on the one hand and those that are shown in the returns filed under the Income Tax Act, 1961 (for short, the Act) was a matter of serious concern for the revenue. After making several efforts to fill up the gap, the Parliament enacted Section 115JA of the Act. According to this provision, wherever the profits of the company as reflected in the returns are less than 30% of what is posted in the books of account submitted as part of its obligation under the Company Act, the tax leviable would be 30% of the latter. Obviously for this reason, the profit and loss account which is part of annual report of a company becomes relevant.

(3.) FOR the assessment year in its book profits, the respondent posted a sum of Rs.4,28,17,995/ -. This included a sum of Rs.3,81,48,960/ - which is said to be interest on inter corporate deposits for the four consecutive previous years i.e., 1985 -86 to 1988 -89. A note was appended to the returns with a request to exclude the amount of Rs.3,81,48,960/ - from assessment by stating that the said amount is referable to the earlier assessment years and has also suffered tax. In his order dated 31.03.1993, the Assessing Officer did not accept that plea. Thereupon, the respondent filed I.T.A.No.77/CC.III/CIT(A)III/93 -94 before the Commissioner of Appeals -III, Hyderabad. The plea of the appellant was that once the amount has suffered tax and its inclusion in the book profit was only for the purpose of reflecting the financial state of affairs, there was no basis to bring it under the purview of the tax once again under Section 115J of the Act. That was accepted and the Commissioner partly allowed the appeal by deleting the profits for the assessment years 1986 -87 and 1987 -88 on the ground that Section 115J of the Act was not in force at the relevant point of time. However, he did not allow such deduction for the assessment year 1988 -89 and 1989 -90. The respondent filed I.T.A.No.570/Hyd/94 before the Hyderabad Bench of the Income Tax Appellate Tribunal (for short, the Tribunal). Revenue also filed I.T.A.No.796/Hyd/94 feeling aggrieved by the deletion of the component of interest from the purview of Section 115J of the Act for the assessment years 1986 -87 and 1987 -88. Through its common order dated 21.06.2002, the Tribunal accepted the contention of the respondent for all the four years and to that extent, it has set aside the order of the Assessing Officer. Hence, this appeal by the revenue.