B Seenaiah & Co. Projects Ltd., Hyderabad V. ACIT, Hyderabad

CO 53/HYD/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7029 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-06-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 27-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PHANI KISHORE
• Keywords: Earning of tax free income
• Section: 115JB; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.433/HYD/2009 ASSESSMENT YEAR 2002-03 THE ACIT, CIRCLE 1(3), HYDERABAD VS SHRI B. SEEN I AI AH & CO. (PROJECTS) LTD., HYDERABAD. (PAN AACB8316K) APPELLANT RESPONDENT CO.53/HYD/2009 IN ITA NO.433/HYD/2009 ASSESSMENT YEAR 2002-03 SHRI B. SEENIAIAH & CO. (PROJECTS) LTD., HYDERABAD. (PAN AACB8316K) VS THE ACIT, CIRCLE 1(3), HYDERABAD APP ELLANT RESPONDENT APPELLANT BY : SHRI PHANI KISHORE RESPONDENT BY : NONE DATE OF HEARING : 29.2.2012 DATE OF PRONOUNCEMENT : 9.3.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THE APPEAL PREFERRED BY THE REVENUE AND THE C ROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER PASSED BY THE CIT(A) II, HYDERABAD DATED 28.1.2009 AND ARE PERTAINING TO THE ASSESSMENT YEAR 2002-03. 2. BRIEF FACTS OF THE CASE ARE THAT IN THE ASSESS MENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CO MPANY HAD ITA NO.433/H/09 & CO.53/H/2009 SHRI SESHAIAH & CO. PROJECTS LTD., HYD. 2 NOT FURNISHED ANY COMPUTATION OF BOOK PROFITS AS PE R SECTION 115JB. ACCORDINGLY, THE ASSESSEE COMPANY WAS ASKED TO FILE COMPUTATION OF INCOME U/S 115JB OF THE ACT. THE AS SESSEE COMPANY VIDE ITS REPLY DATED 7.11.2006 STATED THAT THE REPLY HAD ALREADY BEEN FILED IN RESPONSE TO THE NOTICE U/S 15 4 AND CONTENDED THAT THERE WAS NO COMPUTATION U/S 115JB S INCE THE SAID PROVISION IS NOT APPLICABLE IN THEIR CASE. IT WAS ALSO STATED BY THE ASSESSEE THAT THE FINANCIAL STATEMENTS WERE PREPARED COMBINING THE ASSETS AND LIABILITIES, INCOME AND EX PENDITURE OF JOINTLY CONTROLLED ENTITIES OF (1) BSE, RBM PATI JO INT VENTURE AND (2) M/S BSE/C&C JOINT VENTURE ON LINE BY LINE B ASIS WHICH IS IN CONTRAVENTION OF THE PROVISIONS OF COMPANIES ACT 1956. THEREFORE, THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE AND THE FACT CAN BE SEEN FROM THE COMPUTATION OF INCOME WHERE THE INCOME FROM THE SAID TWO JOINT VENTURES WAS CLAIMED AS NON TAXABLE INCOME IN THE HANDS OF THE COMPANY. THEREF ORE, THE QUESTION OF PREPARING COMPUTATION STATEMENT U/S 115 JB DOES NOT ARISE. HOWEVER, THE EXPLANATION SUBMITTED BY T HE ASSESSEE WAS NOT ARISE. HOWEVER, THE EXPLANATION SUBMITTED BY THE ASSESSEE WAS NOT ACCEPTABLE BY THE ASSESSING OFFICE R. THE ASSESSING OFFICER WAS OF THE VIEW THAT ANY DOMESTIC COMPANY IS LIABLE TO PAY TAX U/S 1215JB AND THE ASSESSEE COMPA NY HAS DELIBERATELY NOT FURNISHED THE COMPUTATION TO AVOID PENALTY U/S 271(1)(C ). THE ASSESSING OFFICER REFERRED TO THE DIRECTORS REPORT AND THE AUDITORS REPORT FILED BY THE ASSESSEE AND HELD THAT THE ASSESSEE HAD FOLLOWED THE COMPANIES ACT AND HENCE, THE ASSESSEES CONTENTION THAT PROVISION OF SECTION 115 JB IS NOT APPLICABLE IN THEIR CASE IS NOT ACCEPTABLE. ACCORD INGLY, THE ASSESSING OFFICER COMPUTED THE BOOK PROFIT AT RS.13 ,81,88,757/- AND RAISED A TAX DEMAND OF RS.52,83,945/-. 3. THE CIT(A) AFTER ELABORATE DISCUSSION HELD AS F OLLOWS: ITA NO.433/H/09 & CO.53/H/2009 SHRI SESHAIAH & CO. PROJECTS LTD., HYD. 3 THE TRIBUNAL MUMBAI I BENCH IN THE CASE OF ITO V S. FRIGSALES (INDIA) LTD. (4 SOT 376) HAVE OBSERVED TH AT A RECEIPT WHICH IS NOT IN THE NATURE OF INCOME CANNOT BE TAXED AS INCOME U/S 115JA. THE DECISION WAS DELIVERED IN THE CONTEXT OF EXEMPT INCOME U/S 50 OF THE IT ACT. THE TRIBUNAL ALSO OBSERVED THAT SECTION 115JA IS ALSO A PART OF THE ACT. THOUGH IT OVERRIDES OTHER PROVISION OF THE ACT BUT THAT IS ONLY CONFINED TO DETERMINATION OF TOTAL INCOME. IT ONLY SUBSTITUTES THE TOTAL INCOME BUT IT DOES NOT ENLARG E THE SCOPE OF TAXABLE INCOME OR TOTAL INCOME WHICH IS CH ARGEABLE TO TAX. WHEN THE ACCOUNTS ARE PREPARED IN ACCORDAN CE WITH THE COMPANIES ACT, WHILE COMPUTING THE BOOK PROFIT AMOUNTS WHICH ARE NOT TAXABLE OR EXEMPT ARE EXCLUDE D BECAUSE SUCH AMOUNTS DO NOT REALLY REFLECT A RECEIP T IN THE NATURE OF INCOME AND THEREFORE SUCH AMOUNTS CANNOT FORM PART OF THE PROFIT REFLECTING THE CORRECT WORKING R ESULTS OF THE COMPANY. IN VIEW OF THE INSERTION OF SUB SECTION 4 IN SECTION 115JA OTHER PROVISIONS OF THE ACT WILL CONTINUE TO OPERATE. THEREFORE EXEMPT INCOME WOULD CONTINUE TO REMAIN EX EMPT SECTION 115JA BEING A PART OF THE ACT, EXEMPTION PR OVIDED BY ONE SECTION CANNOT BE TAKEN AWAY BY ANOTHER PROV ISION. THUS, CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE AND ALSO RELYING ON THE JUDICIAL PRONOUNCEMENTS AS CITED ABOVE, IT IS OF THE CONSIDERED VIEW THAT BOOK PROFI T COMPUTED BY THE ASSESSING OFFICER WITHOUT REDUCING THE SHARE INCOME OF THE JOINT VENTURE IS NOT PROPER AND JUSTIFIED ES PECIALLY WHEN THE ACCOUNTING METHOD ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENT BOTH IN THE PRECEDI NG AND SUCCEEDING THE ASSESSMENT YEAR IN QUESTION. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO REDUCE T HE SHARE OF THE JOINT VENTURE WHILE COMPUTING THE BOOK PROFIT. THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED ON MERI T. ITA NO.433/H/09 & CO.53/H/2009 SHRI SESHAIAH & CO. PROJECTS LTD., HYD. 4 4. WE FIND THAT THE ISSUE IS COVERED BY THE DECISI ON OF THE SPECIAL BENCH, B HYDERABAD IN THE CASE OF RAIN C OMMODITIES LIMITED VS. DCIT, CIRCLE 3(1), HYDERABAD (40 SOT 2 65) (HYD) (SB) WHEREIN THE TRIBUNAL HAS HELD AS FOLLOWS: THUS, FROM A READING OF THE SECTION 115JB AS WELL AS ANALYSES OF VARIOUS HIGH COURTS AND SUPREME COURT D ECISIONS, THE INESCAPABLE CONCLUSION IS THAT THE BOOK PROFITS HAV E TO BE CALCULATED ON THE NET PROFITS COMPUTED AS PER PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND AS ADJUS TED BY THE AMOUNTS MENTIONED IN THE EXPLANATION. NO FURTHER R EBATES OR DEDUCTIONS AFTER SUCH ADJUSTMENTS, NOTWITHSTANDING THE FACT WHETHER ANY INCOME IS TAXABLE OR NOT UNDER THE NORM AL PROVISIONS OF THE INCOME TAX ACT. COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS AND THE BOOK PROFITS ARE TWO PARALLEL CO MPUTATIONS. WHILE NORMALLY FOLLOWED METHOD OF ACCOUNTING IN THE BOOKS MAY ALSO BE TAKEN FOR THE PURPOSE OF COMPUTING INCOME U NDER THE IT ACT, THE ACTUAL COMPUTATION OF BOOK PROFITS WILL NO T AFFECT OR BE GOVERNED BY THE COMPUTATION OF INCOME UNDER THE NOR MAL PROVISIONS OF THE IT ACT. IN FACT ONLY BECAUSE OF THE GOVT FELT THAT COMPANIES AVAILING OF VARIOUS DEDUCTIONS PERMITTED UNDER THE IT ACT SHOWED A LOW INCOME FOR THE PURPOSE OF IT ACT B UT WAS ALSO ABLE TO SHOW HEALTHY PROFITS AS PER BOOKS WERE INTR ODUCED. BY AGAIN IMPORTING DEDUCTIONS ALLOWED UNDER THE NORMAL PROVISIONS OF IT ACT INTO COMPUTATION OF BOOK PROFITS, WE WILL BE NEGATING THE VERY PURPOSE FOR WHICH THESE SECTIONS WERE INTRODUC ED. TO SUM UP, WE HOLD THAT IN THE ABSENCE OF ANY PROVISION FO R EXCLUSION OF CAPITAL GAINS EXEMPTED IN THE COMPUTATION OF BOOK P ROFIT UNDER THE PROVISIONS CONTAINED IN EXPLANATION TO SECTION 115J B OF THE ACT, THE ASSESSEE IS NOT ENTITLED TO THE EXCLUSION THERE OF AS CLAIMED. ITA NO.433/H/09 & CO.53/H/2009 SHRI SESHAIAH & CO. PROJECTS LTD., HYD. 5 5. WE THEREFORE, ANSWER THE QUESTION REFERRED TO U S AGAINST THE ASSESSEE AND HOLD THAT IN THE ABSENCE OF ANY PR OVISION FOR EXCLUSION OF EXEMPTED CAPITAL GAIN IN THE COMPUTATI ON OF BOOK PROFIT UNDER THE PROVISIONS CONTAINED IN EXPLANATIO N TO SECTION 115JB OF THE ACT, THE ASSESSEE IS NOT ENTITLED TO T HE EXCLUSION THEREOF AS CLAIMED. 6. RESPECTFULLY, FOLLOWING THE DECISIONS OF THE TR IBUNAL, WE ALLOW THE DEPARTMENTAL APPEAL. 7. THE CROSS OBJECTION IS IN SUPPORT OF THE CIT(A) . SINCE WE HAVE DECIDED THE ISSUE BY ALLOWING THE DEPARTMENTAL APPEAL, THE CO FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. 8. IN THE RESULT, THE REVENUE APPEAL IS ALLOWED AN D THAT OF CO IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON: 9.3.2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 9 TH MARCH, 2012 COPY FORWARDED TO: 1. THE ACIT, CIRCLE 1(3), HYDERABAD 2. M/S B. SEENIAIAH & CO. PROJECTS LTD., 6-2-913/914, 5 TH FLOOR, PROGRESSIVE TOWERS, KHAIRATABAD, HYDERABAD HYDERABAD 3. THE CIT(A)-II, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/