Commissioner Of Income Tax vs M/S Prakash Tubes Limited
2013 Latest Caselaw 3655 Del

$~Part II-B (R-23)

*       IN THE HIGH COURT OF DELHI AT NEW DELHI


+                    INCOME TAX APPEAL NO. 52/2000


                                        Date of decision: 21st August, 2013


        COMMISSIONER OF INCOME TAX
                                                              ..... Appellant
                              Through Mr. Abhishek Maratha, Sr. Standing
                              Counsel.


                              Versus


        M/S PRAKASH TUBES LIMITED
                                                            ..... Respondent
                              Through Mr. Prakash Kumar, Advocate.


        CORAM:
        HON'BLE MR. JUSTICE SANJIV KHANNA
        HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL):

        This appeal by the Revenue under Section 260A of the Income

Tax Act, 1961(Act, for short) relates to Assessment Year 1989-90.

The following substantial question of law was admitted for hearing

vide order dated 30th November, 2000:-

                  "Whether the Tribunal has correctly interpreted
                  the provisions of Section 115-J so far as mode

ITA No. 52/2000                                                     Page 1 of 5
                   of computation of income is concerned?"

2.      The respondent-assessee is a limited company and for the year

under consideration it has filed its return declaring income of

Rs.91,25,683/- under Section 115-J of the Act. The assessee, however,

had claimed that it was entitled to carry forward its loses including

investment allowance of Rs.2,19,04,511/- as its taxable income was

being assessed on the basis of book profits under Section 115-J and not

under the normal provisions.

3.      The Assessing Officer did not agree, observing that the

computation of income under Section 115-J of the Act does not effect

the determination of the amount to be carried forward to the

subsequent year under the normal provisions. The Assessing Officer

also made other additions while assessing the taxable income under the

normal provisions.

4.      Commissioner of Income Tax (Appeals) agreed with the

Assessing Officer on the question of carry forward of loses, including

investment allowance.         He, however, allowed some relief to the

respondent-assessee on additions made under the normal provisions.

5.      Aggrieved, the respondent-assessee preferred an appeal before

the tribunal.       No appeal was preferred by the appellant-Revenue

against the order passed by the CIT(Appeals).

6.      Income Tax Appellate Tribunal by the impugned order dated

ITA No. 52/2000                                               Page 2 of 5
 16th August, 1999 followed its earlier order for the preceding year

1988-89, which in effect means that the appeal filed by the respondent-

assessee was allowed. In other words, the stand of the respondent-

assessee that they were entitled to carry forward of unabsorbed losses,

including investment allowance was accepted in view of the fact that

income taxable had been computed on book profits under Section 115-

J and not under the normal provisions.

7.      The aforesaid view of the tribunal is not in consonance with the

authoritative pronouncement of the Supreme Court in Karnataka

Small Scale Industries Development Corporation Limited versus

Commissioner of Income Tax, 2002 (258) ITR 770 (SC) wherein the

contours of Section 115-J and the normal provisions have been

explained. It has been held that Section 115-J (1) commences with the

non-obstante clause and provides for two stage assessment. The first

stage requires computation of income under the normal provisions and

the second stage requires computation of book profits as per provisions

of Section 115-J. In case the income computed under the normal

provisions is less than 30% of the book profits, then the assessee's

deemed total income chargeable to tax for the relevant previous year

would be equal to 30% of the book profits. At the first stage, profits

are computed under the normal provisions and deductions allowable

under the Act have to be taken into consideration.                    The

ITA No. 52/2000                                                 Page 3 of 5
 deduction, which are allowed, do not get disturbed or obliterated even

if the assessee pays tax on the book profits under Section 115-J. Thus,

when Section 115-J is invoked and is applied, it does not affect the

computation made under the normal provisions. They stand on their

own legs and do not get effected. Accordingly, the unabsorbed loses,

including investment allowance, which were duly taken into

consideration and accounted for while computing tax under the normal

provisions, do not get displaced or erased and adjustments made have

to be given full effect to.

8.      Accordingly, the question of law mentioned above has to be

answered in favour of the appellant-Revenue and against the

respondent-assessee.

9.      At this stage, learned counsel for the respondent-assessee

submits that similar issues had arisen for Assessment Years 1988-89

and 1991-92, but Revenue had not preferred any appeal and they

accepted the order of the tribunal. If this is correct, the consequences

will follow. It is also stated that there has been re-computation of the

investment allowance pursuant to the order passed by the CIT

(Appeals), which has attained finality. This is a factual matter. In case

any order has attained finality, the same will be given due effect to.

However, we clarify that investment allowance, etc. which has to be

adjusted      while   computing   the   deduction   under   the    normal

ITA No. 52/2000                                                   Page 4 of 5
 provisions will not be allowed to be carried forward. The appeal is

disposed of. No order as to costs.
,



                                     SANJIV KHANNA, J.

SANJEEV SACHDEVA, J. AUGUST 21, 2013 VKR