ORDER SHEET ITA 163 OF 2009 IN HIGH COURT AT CALCUTTA Special Jurisdiction (Contempt) ORIGINAL SIDE APEEJAY SHIPPING LIMITED Versus COMMISSIONER OF INCOME TAX (CENTRAL) BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 25th February, 2015. For appellant/assessee : Mr.R.N.Bajoria,Sr.Advocate Mr.J.P.Khaitan,Sr.Advocate Ms.Anupa Banerjee,Advocate Ms.Swati Agarwal,Advocate Ms.Aindila Biswas,Advocate. Mr.A.Sengupta,Advocate For respondent/revenue : Mr.P.Dhudhoria,Advocate. Court :The subject matter of challenge in this appeal is judgement and order dated 23rd January, 2009 by which learned Tribunal dismissed appeal preferred by assessee concurring with views of CIT who had exercised power under section 263. learned Tribunal dismissed appeal with following observations : After hearing both sides at length, we find that as per normal provision of IT Act, profits or gains of business were 2 determined at loss of Rs.7,04,41,568/-. Since assessee was not entitled for deduction u/s.33AC as per normal provision of computation of income, assessee was not entitled for such deduction in computing income u/s.115JB of IT Act.. Since assessee was not entitled for deduction u/s.33AC of IT Act as per provision of law (creation of reserve ?) by debiting to P & L a/c. by amount of Rs.6,14,13,839/- equivalent to book profit was not in accordance with law. Therefore, we find that order of AO was not only erroneous, but also prejudicial to interest of revenue. AO has failed to appreciate legal position in this regard. He has also not applied his mind. Therefore, we hold that order of AO was erroneous as well as prejudicial to interest of revenue in view of these facts. Hence, we dismiss appeal of assessee. question formulated, at time of admission of appeal, reads as follows : Whether book profit can be increased by amount carried to reserve created for shipping business for purposes specified in Section 33AC of Income Tax Act, 1961 (hereinafter referred to as said Act ) under Clause (b) of explanation to Section 115JB of said Act on ground that no deduction with reference to such resrve has been allowed in computation of total income under normal provisions of said Act ? facts and circumstances, appearing from records, are as follows : 3 From assessment order dated 28th February, 2006 for assessment year 2003-04, following particulars are available : Income from Business :- Net Profit as per Profit & Loss Account Rs.6,14,13,839/- Add : Depreciation debited to P & L Account Rs.12,58,67,094/- Rs.18,72,80,933/- Less : Depreciation as per Tax Audit Report Rs.25,77,22501/- Total Loss Rs. 7,04,41,568/- assessing officer expressed following opinion. Since assessee-company has transferred entire Book Profit of Rs.6,14,13,839/- to Resereve Account under Section 33AC of Income Tax Act, no Tax is charged under Section 115JB of Income Tax Act. CIT in exercise of power under section 263 held as follows : As per normal provision of I.T.Act, profit and gain to business was determined at loss of Rs.7,04,41,568/-. Since there was no profit chargeable under Income Tax Act, assessee was not entitled to deduction u/s.33AC of I.T.Act. As deduction u/s.33AC was not allowable under normal provisions of I.T.Act, deduction of same was not admissible u/s.115JB of 4 Income Tax Act, either. Accordingly, book profit in this case u/s.115JB would be net profit i.e. Rs.6,14,13,839/-. Omission to invoke provision of section 115JB had led to underassessment of income by Rs.6,14,13,839/-. In view of above it is clear that none of submissions of assessee has any merit. Assessing Officer has passed order u/s.143(3) without proper appreciation of legal position and proper application of mind. order u/s.143(3) passed by I.T.O. is therefore, erroneous and prejudicial to interest of revenue. I, therefore, set aside assessment made vide order u/s.143(3) dated 28.02.2006 with direction to make fresh assessment after giving proper opportunity to assessee. It is this order which was under challenge before learned Tribunal and Tribunal held against assessee. Mr.Bajoria, learned Senior Advocate appearing for assessee/appellant submitted that section 115JB is complete code. Effect has to be given to provisions contained therein irrespective of provision contained in Income Tax Act. He, in support of his submission, relied on judgement of Apex Court in case of Ajanta Pharma Ltd. v. CIT, reported in (2010) 327 ITR 305 (SC). second submission advanced by Mr.Bajoria is that clause (b) of explanation 1 to Section 115JB specifically provides that jurisdiction to make 5 increases does not extend to reserve created under section 33AC. He contended that assessing officer has in letter and spirit merely followed aforesaid mandate as would appear from paragraph 13 of assessment order which we have also quoted above. He added that whether benefit under section 33AC can or cannot be availed may be question for consideration in case of normal assessment but in case of alternative assessment under section 115JB that cannot be question for consideration at all. exercise of jurisdiction under section 263, Mr. Bajoria contended, is not permissible in those cases where assessing officer has taken either possible view or in case question is susceptible to two views and possible view has been taken. He contended that assessing officer took view plainly in terms of section and for that his assessment could not have been invalidated nor was exercise of power under section 263 competent in facts of case. Therefore, view adopted both by CIT (Appeal) and learned Tribunal is contrary to law and should be set aside. We have not been able to persuade ourselves to accept submissions advanced by Mr.Bajoria. reserve under section 33AC has been saved by clause (b) of explanation 1 to Section 115JB whereas other reserves have not been saved. It is open to assessee to make as many reserves as may be permissible but he cannot claim 6 any benefit for any such reserve unless that is specifically provided for by law. reserve created by assessee for shipping business is permitted reserve in sense that by resorting to creation of such reserve assessee gets benefit of tax deduction to extent of 50% of profits derived from business of operation of ships. Therefore, reserve created by assessee from out of profits derived from business of operation of ships is alone reserve contemplated by Section 33AC and that alone is saved by clause (b) of explanation 1 to Section 115JB. But if it is reserve not created out of profits derived from operation of ships then that reserve does not have any claim for any distinction nor does it come within purview of section 33AC. assessee in this case did not make any profit. Therefore, there was no case for creation of any reserve. Even assuming that on basis of section 349 and 350 of Companies Act, assessee had in computing its depreciation, claimed depreciation at lower rate and on that basis there was book profit of Rs.6,14,13,839/-, fact remains that assessee was entitled to higher rate of depreciation under Income Tax Act. Once that is taken into account, figure comes at loss of Rs.7,04,41,568/-. In absence of profit within meaning of I.T.Act there could be no valid basis for creation of reserve under section 33AC. 7 If assessee chooses to make any such reserve in absence of profit, and brands it to have been made under section 33AC, that does not qualify for protection under clause (b) of explanation 1 to section 115JB. On top of that, even assuming for sake of argument that such reserve could be created out of book profit of sum of Rs.6,14,13,839 as contended by Mr.Bajoria, reserve could not have been created for entire sum under Section 33AC. reserve could have only been created for 50% of aforesaid sum. It is, therefore, clear that alleged reserve had no claim to legitimacy. We are, as such, of opinion that views expressed by learned Tribunal are unexceptionable. question formulated, at time of admission of appeal, is accordingly answered against assessee. appeal is dismissed. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) ssaha AR(CR) Apeejay Shipping Limited v. Commissioner of Income-tax (Central)