M/S CHAMBAL FERTILISERS & CHEMICALS, Kota V. ACIT, Jaipur

ITA 1126/JPR/2011

• Counselvise Citation: 112623114 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHAANDRA
• Assessee Lawyers: M L PATODI; P J PARDIWALA SMT RITU DAS
• Keywords: Depreciation; Residential status; Double taxation relief; Retrospective amendment; Bad and doubtful debts; Revised return
• Section: 43B; 143(3); 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 1126/JP/2011 ASSESSMENT YEARS : 2002-03 PAN : AAACC 9762 A M/S. CHAMBAL FERTILISERS & CHEMICALS LTD. VS. THE ACIT GADEPAN, CIRCLE- 2 KOTA KOTA (APPELLANT) (RESPONDENT) ITA NO. 1140/JP/2011 ASSESSMENT YEARS : 2002-03 PAN : AAACC 9762 A THE ACIT VS. M/S. CHAMBAL FERTILISERS & CHEMICAL S LTD CIRCLE- 2 GADEPAN KOTA KOTA (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.J. PARDIWALA, SMT. RITU DAS AND SHRI M.L. PATODI DEPARTMENT BY: SHRI SUBHASH CHAANDRA DATE OF HEARING: 11-08-2014 DATE OF PRONOUNCEMENT: 24-09-2014 ORDER PER R.P. TOLANI, JM THESE ARE THE CROSS APPEALS AGAINST THE ORDER OF T HE LD. CIT(A), KOTA DATED 28-10-2011 FOR THE ASSESSMENT YEAR 2002- 03 ALLOWING PART RELIEF IN PENALTY IMPOSED U/S 271(1) (C ) OF THE AC T WHEREIN BOTH THE PARTIES ARE AGGRIEVED AS UNDER:- 2 (I) THE ASSESSEE FOR RETENTION OF PENALTY AT RS. 3,93,37,909/- FROM RS. 8,64,76,559/- U/S 271(1)(C ) OF THE ACT. (II) THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A), KOTA HAS ERRED IN:- (I) DELETING PENALTY U/S 271(1) (C ) OF I.T. ACT, 1961 ON THE ADDITION OF RS. 37.38 CRORES ON ACCOUNT OF DOWNWAR D IMPACT OF RETENTION PRICE SUBSIDY. (II) DELETING PENALTY U/S 271(1) (C ) OF I.T. ACT , 1961 ON THE ADDITION OF RS. 11.62 LACS ON ACCOUNT OF CONSU LTANTS FEE PAID FOR DRAFTING OF SHAREHOLDERS AGREEMENT. (III) HOLDING THAT PENALTY U/S 271(1) (C ) IS LEVI BALE IN RESPECT OF ADDITION MADE ON ACCOUNT OF PROVISION FOR DEFERRED TAXATION TO THE EXTENT OF RS. 4215.03 LACS ONLY AS AGAINST ADDITION OF RS. 6624.20 LACS MADE BY AO AND CONFIRMED BY HON 'BLE ITAT, JAIPUR BENCH, JAIPUR 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PUBLIC LIMITED COMPANY WHICH IS ENGAGED IN THE MANUFACTURE AND SAL E OF FERTILIZERS, TEXTILE, SOFTWARE, FOOD PROCESSING AND ALSO TRADING OF DAP AND ALLIED PRODUCTS AT ITS INDUSTRIAL UNITS AT GADEPAN (DISTT. KOTA), BADDI, CHENNAI & SONEPAT. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29-10-2002 WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 10-02-2003. THEREAFTER THE ASSESSEE FILED A REVISED RETURN OF INCOME U/S 139(5 ) ON 30-03-2004 ALONG WITH STATEMENT OF REASONS NECESSITATING THE REVISED RETURN BEING DEPRECIATION LOSS OF RS. 4,01,43,383/-. MINIMUM ALT ERNATE TAX U/S 115J 3 OF THE ACT WAS WORKED OUT AT RS. 6,73,10,934/- I.E. 7.65% OF BOOK PROFIT OF RS. 87,98,81,489/-. 3.0 ON THE BASIS OF THE REVISED RETURN, THE AO, KOT A MADE VARIOUS DISALLOWANCES/ADDITIONS AND COMPLETED THE ASSESSMEN T U/S 143(3) VIDE HIS ORDER DATED 29-03-2005. AGGRIEVED ASSESSE PREFERRED FIRST APPEAL ON MERITS OF ADDITIONS. 4.0 LD. CIT(A) PASSED ORDER ON 14-12-2006 PARTLY AL LOWING THE ASSESSEE'S APPEAL. AFTER GIVING THE APPEAL EFFECT, THE INCOME WAS DETERMINED AT RS. 33,62,71,496/- AND BOOK PROFIT WA S WORKED OUT AT RS. 2,01,06,05,781/- RESULTING IN TAX LIABILITY OF RS. 15,38,1,343/-, AS AGAINST THE LIABILITY CALCULATED BY THE ASSESSEE BY WAY OF REVISED RETURN AT RS. 6,73,10,934/-. 5.0 AGGRIEVED, BOTH THE PARTIES PREFERRED SECOND AP PEALS. ITAT JAIPUR BENCH VIDE ITS CONSOLIDATE ORDER DATED 22-10-2010 PASSED THE ORDER IN WHICH BOTH THE APPEALS WERE PARTLY ALLOWED. 6.0 IN THE MEANWHILE, THE AO ISSUED PENALTY NOTICE U/S 271(1) ( C ) OF THE ACT AND THE ASSESSEE IN RESPONSE THERETO FILED THE WRITTEN REPLY ON 28- 02-2008. ASSESSEES REPLY DID NOT FIND FAVOR WITH A O WHO IMPOSED THE PENALTY OF RS. 8,64,76,559/- U/S 271(1) OF THE AC T ON THE BASIS OF LD. CIT(A)S ORDER ON MERITS. THE ITAT ORDER ON MERIT I S PASSED SUBSEQUENTLY, THEREFORE, LD. CIT(A) PASSED THE IMPU GNED ORDER AFTER 4 CONSIDERING ITAT ORDER AND REDUCED THE PENALTY AGA INST WHICH BOTH THE PARTIES ARE BEFORE US. 7.0 IN THE BACKDROP OF THESE FACTS, THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT IT WAS WORTHWHILE TO MENTION THAT THE AO IMPOSED THE PENALTY AFTER THE LD. CIT(A)S ORDER. WHEREAS THE L D. CIT(A)S IMPUGNED PENALTY ORDER IS PASSED AFTER CONSIDERING THE ORDE R DATED 22-1-2010 OF ITAT ON MERITS. THE ITAT ORDER RESULTED IN THE FOLL OWING ADDITIONS TO THE INCOME OF THE ASSESSEE IN RESPECT OF BOOK PROFI TS AND INCOME. PARTICULARS ADDITION IN BOOK PROFIT ADDITION IN INCOME ADDITION ON ACCOUNT OF DIMINUTION IN VALUE OF SHARE U/S 115JB 9,17,90,000 DEDUCTION ON ACCOUNT OF PROVISION FOR DEFERRED TAXATION WHILE COMPUTING THE BOOK PROFIT U/S 115JB 66,24,20,000 ADDITION ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS 3,12,000 RECEIPTS FROM IMACID 9,28,030 9,28,030 ADDITION TO TOTAL INCOME IN RESPECT OF ASSUMED PROPORTIONATE EXPENDITURE IN RESPECT OF EARNING OF TAX FREE DIVIDEND INCOME 10,00,000 ADDITION DUE TO INTEREST PAID U/S 234C FOR LATE DEPOSIT OF INSTALMENT OF ADVANCE TAX 2,557 ADVANCE ON ACCOUNT OF 21,792 5 SECTION 43B LD. CIT(A) CHARTED OUT THE ABOVE ADDITIONS WHICH WE RE CONFIRMED BY THE ITAT AND PROCEEDED TO DEAL WITH PENALTY QUA SEPARAT E ISSUE WHICH WERE RETAINED BY THE ITAT. A ISSUES ON WHICH PENALTY IS CONFIRMED BY LD. CIT(A ) (1) DIMINUTION IN VALUE OF SHARES RS. 9,17,90,000/- THE LD. CIT(A) REFERRED TO AS-13, ACCOUNTING POLIC Y AND DEALT WITH FOLLOWING CASES CITED BY THE ASSESSEE IN SUPP ORT OF ITS CONTENTION. 1. SUTLEJ COTTON MILLS LTD. VS. ACIT, 45 ITD 222 (CAL. ) 2. VIJAY SOLVEX VS. ACIT, 92 ITD 24 (JP) 3. RAJASTHAN SPINNING & WEAVING MILLS LTD. VS. DCIT, 199 CTR 305 (RAJ.) 4. PEERLES GENERAL FINANCE & INVESTMENTS CO. LTD. VS. ACIT, 10T TTJ 186 (KOL.) THEREAFTER THE PENALTY QUA THIS ISSUE WAS CONFIRME D BY LD CIT(A) BY FOLLOWING OBSERVATIONS. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT CAPIT AL GAIN ON SALE OF SHARES IS NOT PART OF BOOK PROFITS AS THE E XPRESSION 'BOOK PROFIT' IS INTENDED TO BE CONFINED TO BUSINESS PROF ITS AND NOT INTENDED TO INCLUDE PROFIT ON REALIZATION OF ANY AS SET. THE RATIO LAID DOWN BY THE HON'BLE HIGH COURT EQUALLY APPLIES IN THE CASE OF LOSS ALSO. IN THE CASE OF ASSESSEE, THE PROVISIO N FOR REDUCTION IN VALUE OF SHARES BY THE SAME LOGIC CANNOT BE PART OF BOOK PROFITS AND HAS TO BE EXCLUDED FROM COMPUTATION OF BOOK PRO FITS. THE ASSESSEE'S CASE IS ON A WEAKER FOOTING THEN THE CASES REFERRED ABOVE AS BY FOLLOWING THE RATIO OF HON'BLE 1TAT, EVEN ACTUAL LOSS HAS TO BE EXCLUDED FROM COMPUTATION OF BOOK PROFITS 6 WHEREAS IN THE CASE OF ASSESSEE IT WAS ONLY NOTIONA L LOSS AS THE SHARES WERE NOT SOLD DURING THE YEAR BUT ONLY RE-VA LUED. THE ASSESSEE'S CLAIM THAT THE VALUE OF SHARES WAS PERMANENTLY WRITTEN DOWN IS ALSO NOT CORRECT AS THE VALUE OF SHARES KEEP ON VARYING FROM TIME TO TIME AND THIS F LUCTUATION CANNOT BE TREATED AS PERMANENT. THE EXAMPLES OF PER MANENT REDUCTION CAN BE AS UNDER :- A). REDUCTION IN SHARE, CAPITAL (DUE TO HEAV Y LOSSES). B). LIQUIDATION OF COMPANY RESULTING IN REDU CTION IN VALUE OF SHARE. THE ASSESSEE'S CASE DOES NOT FALL IN ANY OF THE ABO VE CATEGORY OR IN A CATEGORY WHICH CAN BE CONSIDERED A S A CASE WHERE VALUE CAN BE TREATED AS REDUCED PERMANENTLY. IT IS ALSO SEEN THAT THE VALUE OF THE SAME SHARES W AS MUCH LOWER THAN THEIR PURCHASE PRICE IN EARLIER YEA RS ALSO BUT ASSESSEE HAS NOT MADE ANY SUCH PROVISION IN EARLIER YEAR. IN VIEW OF THE ABOVE, IT IS HELD THAT THE TREATMENT GIVEN BY ASSESSEE IS NEITHER AS PER THE ACCOUNTING POLICI ES OF THE COMPANY NOR AS PER THE ACCOUNTING STANDARDS PRESCRI BED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS. THE OTHER CASE LAWS QUOTED BY ASSESSEE ARE IN RELAT ION TO ADDITIONS MADE DURING THE COURSE OF ASSESSMENT WHER EAS WE ARE DEALING WITH PENALTY U/S 271(L)(C) W.R.T. CONFI RMED ADDITIONS AND THEREFORE, THESE CASE LAWS ARE NOT RELEVANT. WH AT IS RELEVANT IS THE FACT WHETHER THE ACTION OF ASSESSEE TO CLAIM THESE EXPENDITURES WAS BONAFIDE OR NOT. THE ASSESSEE'S PLEA, THAT THE AUDITORS' HAVE EXAMIN ED THIS ISSUE, IS ALSO NOT WORTH ACCEPTING IN VIEW OF THE FACTUAL AND LEGAL POSITION MENTIONED ABOVE. IN VIEW OF THE ABOVE, IT IS HELD THAT THE CONDUCT O F ASSESSEE CANNOT BE TREATED AS BONAFIDE AND PENALTY U/S 271(1)(C) IS HELD TO BE LEVIABLE. 7 (2) PROVISIONS FOR DEFERRED TAXATION: LD. CIT(A) PARTLY UPHELD THE PENALTY BY FOLLOWING OBSERVATIONS: THE ASSESSEE SUBMITTED THAT PRIOR TO AMENDMENT IN THE SECTION 115JB, PROVISION FOR DEFERRED TAXES WAS ALL OWABLE IN VIEW OF VARIOUS COURT JUDGMENTS AND NO PENALTY IS L EVIABLE IN THE CASE OF ASSESSEE ON THE BASIS OF RETROSPECTIVE AMENDMENT. I AGREE WITH THE VIEW OF THE ASSESSEE THAT IF AN AM OUNT BECOMES TAXABLE ON LY DUE TO RETROSPECTIVE AMENDMENT THEN NO PENALTY SHOULD BE LEVIED. HOWEVER, TO FIND OUT THE CLAIM OF ASSESSEE THE UNDE RSIGNED EXAMINED THE ACCOUNTING STANDARD AS-22 WHICH WAS CL AIMED TO HAVE BEEN FOLLOWED BY ASSESSEE IN MY VIEW, PENALTY MAY NOT BE LEVIABLE IN RESPECT OF ANY PROVISION MADE AS PER THESE ACCOUNTING STANDARD , HOWEVER, IF THE ASSESSEE HAS NOT FOLLOWED THESE ACC OUNTING STANDARDS THEN THE ISSUE OF PENALTY HAS TO BE CONSI DERED ON MERITS. AS PER AS-22, AN ENTERPRISE HAS TO PROVIDE FOR THE TIME EFFECT. IN COMMON MEN'S LANGUAGE WE CAN UNDERSTAND IT AS DIFFERENCE BETWEEN TAX ON INCOME AS COMPUTED AS PER PROVISIONS OF COMPANY LAW AND TAX ON INCOME AS COMP UTED AS PER INCOME TAX ACT. FOR EXAMPLE - PROFIT AS PER COMPANY ACT RS. 100/- TAX ON THIS RS. 40/- INCOME AS PER I.T. ACT RS. 50/- TAX ON THIS INCOME RS. 20/- PROVISION FOR TAXATION RS. 10/- PROVISION FOR DEFERRED TAX (RS.40-20-10) RS. 10/- 8 IN AS-22, CERTAIN EXAMPLES WERE ALSO GIVEN FOR ILLU STRATION, HOWEVER THE ASSESSEE'S CASE DOES NOT FIT INTO ANY O F THESE FOR THE REASON THAT ASSESSEE HAS ALREADY MADE PROVISION FOR PART OF THE INCOME TAX. THE CASE OF ASSESSEE CAN BE ILLUSTR ATED BY FOLLOWING EXAMPLES:- PROFIT AS PER COMPANY ACT TAX ON THIS INCOME AS PER INCOME TAX ACT TAX ON THIS INCOME PROVISION FOR TAXATION PROVISION FOR DEFERRED TAX (RS. 40-20-10) FOLLOWING THE ABOVE ILLUSTRATION, THE PROVISION FOR DEFERRED TAX IN THE CASE OF ASSESSEE IS COMPUTED AS UNDER (ENCLOSED ANN EXURE-A FOR DETAILED WORKING):- PROFIT AS PER COMPANY ACT RS. 15438.37 LACS TAX ON THIS @ 36.75% RS.5673.60 LACS INCOME AS PER INCOME TAX ACT RS. 5665.63 L ACS TAX ON THIS INCOME RS.2082.12 LACS PROVISION FOR TAXATION AS PER(ANNUAL REPORT) RS.1181.71 LACS PROVISION FOR DEFERRED TAX RS. 2409. 77 LACS (RS. 5673.60 2082.12 1181.71 = 2409.77) FROM THE ABOVE, IT CAN BE SEEN THAT MAXIMUM LIABILI TY FOR PAYMENT OF TAX (TREATING THE ENTIRE PROFIT AS PER COMPANY L AW AS TAXABLE) COMES TO RS. 5673.60 LACS. AS AGAINST TAX ON INCOME COMPU TED AS PER I.T. ACT COMES TO RS. 2082.12 LACS. THE DIFFERENCE COMES TO RS. 3591.48 LACS OUT OF THIS ASSESSEE HAS ALREADY MADE PROVISION FOR TAX ATION AMOUNTING TO RS. 11,81,71,000/- AND TO TAKE CARE OF TIMING DIFFE RENCE THE ASSESSEE WAS REQUIRED TO PROVIDE FOR AT THE MOST RS. 2409.17 LACS AS PROVISION FOR DEFERRED TAX. AS AGAINST THIS, THE ASSESSEE HAS MADE PROVISION FOR DEFERRED TAXATION AMOUNTING TO RS. 6624.20 LACS. THUS ASSESSEE HAS MADE EXCESS PROVISION OF RS. 4215 .03 LACS (RS. 6624.20 LACS - 2409.17 LACS) WHICH WAS NOT REQUIRED AT ALL. RS. 100 RS.40 RS. 50/- RS.20 20/ - RS. RS10. 10/ - 9 THE DIFFERENCE BETWEEN THE ASSESSEE'S COMPUTATION A ND MY COMPUTATION IS DUE TO THE FOLLOWING REASONS:- I) THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT PROVISION O F TAXATION AMOUNTING TO RS. 11,81,71,000/-. II) THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT TAX ON IT'S INCOME AS PER I.T. ACT. IT IS HUMBLY SUBMITTED THAT THE COMPLICATED WORKING GIVEN BY ASSESSEE IS NOT AT ALL REQUIRED. WHAT WE HAVE TO FI ND OUT IS THE AMOUNT OF DIFFERENCE IN TAX AS PER INCOME COMPUTED AS PER COM PANY LAW PROVISIONS AND AS PER PROVISIONS OF INCOME TAX ACT. IN VIEW OF THE ABOVE DISCUSSIONS, THE CONDUCT OF AS SESSEE CANNOT BE TREATED AS BONAFIDE W.R.T. EXCESS PROVISI ON OF RS. 4215.03 LACS WHICH WAS NOT AT ALL REQUIRED. I THEREFORE HELD THAT THE ASSESSEE HAS MADE EXCESS PROVISION FOR DEFERRED TAX LIABILITY WITH A VIEW TO REDUCE ITS TA X BURDEN . IT IS THEREFORE, HELD THAT PENALTY U/S 271(1)(C) IS LEVIABLE WITH RE SPECT TO THIS AMOUNT OF RS. 4215.03 LACS (3) RECEIPT FROM IMACID: LD CIT(A) CONFIRMED THE PE NALTY BY FOLLOWING OBSERVATIONS: THE AO LEVIED THE PENALTY IN THIS BEHALF OBSERVIN G AS UNDER:- 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O NOTED THAT THE ASSESSEE COMPANY HAS ASSISTED ITS MOROCCO BASED JOINT VENTURE COMPANY IMACID BY PROVIDING VARIOUS SERVICE S IN THE FORM OF TECHNICALLY TRAINED STAFF ETC. FOR THE SERV ICES SO RENDERED, THE JOINT VENTURE COMPANY PAID SERVICE CHARGES TO T HE ASSESSEE COMPANY AND ALSO DEDUCTED TAX AT SOURCE FROM SERVIC E CHARGES. WHILE ACCOUNTING THE SERVICE CHARGES, THE ASSESSEE COMPANY CREDITED THE P&L ACCOUNT BY THE NET AMOUNTS OF THE SERVICE CHARGES I.E. AFTER DEDUCTING TDS OF RS. 7,8 0,018/- MADE BY THE IMACID. THE A.O. IN VIEW OF PROVISION OF SEC TION 50 OF THE IT ACT TOOK THE GROSS RECEIPTS OF SERVICE CHARGES A ND MADE AN 10 ADDITION OF RS. 7,80,018/- TO THE TOTAL INCOME AS W ELL AS FOR COMPUTING THE BOOK PROFITS. IN THE APPEAL, THE ID. CIT(A) UPHELD THE ACTION OF AO. DURING THE APPELLATE PROCEEDINGS, IT HAS ALSO BEEN POINTED OUT TO THE CIT(A) THAT THE AMOUNT OF TDS WHICH WAS NOT INC LUDED IN THE TOTAL INCOME WAS RS. 9,28,030/- INSTEAD OF RS. 7,80,018/-. HENCE, THE CIT(A) DIRECTED TO TAKE THE FIGURE OF TD S AT RS. 9,28,030/- AND THEREFORE, AMOUNT OF CONCEALMENT OF INCOME ON THIS ACCOUNT IS TAKEN AT RS. 9,28,030/~. FOR THIS P ENALTY FOR CONCEALMENT / FURNISHING INACCURATE PARTICULARS IS ALSO INITIATED U/S 271(L)(C) OF THE IT ACT, 1961'. THE ASSESSEE DID NOT OFFER ANY EXPLANATION W.R.T. L EVY OF PENALTY ON THIS AMOUNT. ACCORDINGLY, IT IS HELD THA T PENALTY IN RESPECT TO THIS AMOUNT IS LEVIABLE. THUS TO SUM UP, THE LD. CIT(A) HELD THAT PENALTY IS LEVIABLE WITH RESPECT TO FOLLOWING ADDITIONS ONLY: (I) DIMINUTION IN VALUE OF SHARES RS. 9,17,90,0 00/- (II) EXCESS PROVISION FOR DEFERRED TAXATION RS. 4 2,15,03,000/- (III) RECEIPT FROM IMACID RS. 9,28,030 TOTAL RS. 51,52,21,030/- TAX @ 7.65% ON THE ABOVE RS. 3,93,37,909/- PENALTY LEVIABLE @ 100% OF TAX RS. 3,93,37,909/ - 8.0 AGGRIEVED, BOTH THE PARTIES ARE BEFORE US. 9.0 LD. COUNSEL FOR THE ASSESSEE SHRI P J PARDIWALA SR ADVOCATE REITERATED THE FACTS ABOUT THE ISSUE OF DIMINUTION IN VALUE OF SHARES AS 11 EXPLAINED BEFORE THE AUTHORITIES BELOW. IT IS CONTE NDED THAT THE ASSESSEE WHILE CALCULATING THE BOOK PROFITS U/S 115JB OF THE ACT CLAIMED DEDUCTION OF RS. 197.90 LACS ATTRIBUTABLE TO DIMINUTION IN TH E INVESTMENTS OF FOLLOWING SHARES . WHILE CALCULATING THE BOOK PROFITS U/S 115JB, THE ASSESSEE COMPANY HAD PROVIDED FOR DEDUCTION OF RS. 917.90 L AKHS ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENTS AS FOLLO WS:- (A) IDBI SCHEME RS. 698.86 LAKHS (B) BOB SHARES RS. 172.73 LAKHS UTI SHARES / UNITS RS. 46.32 LAKHS TOTAL RS. 917.90 LAKHS THE AO DISALLOWED THE ABOVE AMOUNT TREATING IT TO B E A PROVISION FOR MEETING LIABILITIES OTHER THAN ASCERT AINED IN VIEW OF CLAUSE (C) OF EXPLANATION TO SECTION 115JB. ALTERNA TIVELY HE HAS ALSO HELD THAT IF THE DIMINUTION IN THE VALUE OF INVESTM ENT IS TREATED AS RESERVE THEN ALSO IT IS DISALLOWABLE IN VIEW OF CLA USE (B) OF EXPLANATION. IN FIRST APPEAL LD. CIT (A) HAS ALSO UPHELD THE ABO VE DISALLOWANCE. THE ASSESSEE VIDE LETTER DATED 29-04- 2011 CONTENDED THAT PRIOR TO AMENDMENT VIDE FINANCE ACT, 2009 WITH RETR OSPECTIVE EFFECT FROM 01-04-2001, NO ADDITION ON ACCOUNT OF SUCH DE BITS CAN BE MADE. THUS IT IS VERY CLEAR THAT DISALLOWANCE BECAME EFFE CTIVE AFTER RETROSPECTIVE AMENDMENT BY FINANCE ACT, 2009 WEF 1-4-2001, BY WHI CH A FETTER WAS PUT FOR AVAILING OF CLAIM IN RESPECT OF DIMINUTION OF S HARES. AT THE RELEVANT THERE 12 WAS NO SUCH EXPRESS PROVISION. RATHER CASE LAWS AS MENTIONED ABOVE EXISTED WHICH SUPPORTED THE VIEW OF THE ASSESSE. 10. IT IS A TRITE LAW THAT NO PENALTY CAN BE IMPOS ED ON THE ASSESSE QUA AN ADDITION WHICH IS OCCASIONED BY THE OPERATION OF A RETROSPECTIVE LEGISLATION. ASSESSEE CANNOT BE PENALIZED FOR A PURPORTED WRONG WHICH DID NOT EXIST ON STATUTE BOOK AT THE TIME THE ASSESSEE MADE A CLAIM AT THE TIME OF FILING ITS RETURN OR COMPLETION OF ASSESSMENT. IT IS ONLY AT T HE ITAT LEVEL THAT THE RETROSPECTIVE AMENDMENT WAS PASSED BY WHICH ITAT CO NFIRMED THE ADDITION. THEREFORE, THERE IS NO JUSTIFICATION IN T HE ORDER OF THE LD. CIT(A) HOLDING THAT IN HIS VIEW WITHOUT EVEN RETROSPECTIV E AMENDMENT, THE ASSESSEE COULD NOT HAVE MADE THIS CLAIM. THE LD. COUNSEL VEH EMENTLY COUNTERED THIS PROPOSITION ON THE PLEADING THAT IF THE PROVISION W AS SO CLEAR THERE WAS NO NEED FOR THE LEGISLATURE TO PASS THE RETROSPECTIVE AMENDMENT. BESIDES NO CASE LAWS AS MENTIONED ABOVE WOULD HAVE BEEN PASSED . THUS IN ANY CASE THERE EXISTED A JUDICIAL DEBATE ON SUCH CLAIM, BESI DES ALL THE RELEVANT DETAILS WERE DISCLOSED ALONG WITH THE RETURN BY WAY OF AUDI TED ACCOUNT STATEMENTS AND CERTIFICATES. THE ASSESSEE IS FOLLOWING A CONSI STENT METHOD OF ACCOUNTING ON MERCANTILE BASIS. THERE IS NO ADVERSE QUALIFICAT ION BY THE AUDITORS EITHER ON ACCOUNTING POLICIES OR CONSISTENCY IN METHOD OF ACCOUNTING. RELIANCE IS PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF APOLLO TYRES 13 VS. CIT, 255 ITR 273. IT IS SETTLED LAW NOW THAT WH ILE COMPUTING THE BOOK PROFITS, REVENUE AUTHORITIES CANNOT INTERFERE IN A UDITED ACCOUNTS. IN THIS LEGAL POSITION NO PENALTY CAN BE LEVIED. 11. THE LD. CIT(A) DESPITE CONSIDERING THE LEGISLAT IVE RETROSPECTIVE AMENDMENT HAS PRESUMED THAT PENALTY WAS LEVIABLE. IN ANY CASE, THE CONSISTENT METHOD OF ACCOUNTING FOLLOWED IS SUPPORT ED BY VARIOUS JUDGMENTS LIKE SUTLEJ COTTON MILLS VS. ACIT (CAL.), RAJASTHAN SPINNING & WEAVING MILLS LTD. VS. DCIT (RAJ.) AND OTHER JUDGMENTS (SUP RA) CITED IN THIS BEHALF. 12. APROPOS THE PROVISION FOR DEFERRED TAXATION , THE LD. CIT(A) HAS CLEARLY AGREED THAT THIS AMOUNT BECAME TAXABLE DUE TO RETROSPECTIVE AMENDMENT ONLY. DESPITE THIS FINDING LD. CIT(A) SOM EHOW OR OTHER HAS DISTINGUISHED THE CASE LAWS CITED BY THE ASSESSEE A ND SPLIT THE AMOUNT OF DEFERRED TAXATION AND HELD THAT PENALTY WAS LEVIABL E QUA PART OF IT AND NOT LEVIABLE QUA FOR ANOTHER PART BY FOLLOWING OBSERVAT IONS: THUS ASSESSEE HAS MADE EXCESS PROVISION OF RS. 42 15.03 LACS (RS.6624.20 LACS RS. 2409.17 LACS) WHICH WAS NOT REQUIRED AT ALL. THE DIFFERENCE BETWEEN THE ASSESSEE'S COMPUTATION A ND MY COMPUTATION IS DUE TO THE FOLLOWING REASONS:- (I) THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT PROVISI ON OF TAXATION AMOUNTING TO RS. 1,81,71,000/-. 14 (II) THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT TAX ON ITS INCOME AS PER I.T. ACT. IT IS HUMBLY SUBMITTED THAT THE COMPLICATED WORKING GIVEN BY ASSESSEE IS NOT AT ALL REQUIRED. WHAT WE HAVE TO FI ND OUT IS THE AMOUNT OF DIFFERENCE IN TAX AS PER INCOME COMPUTED AS PER COMPANY LAW PROVISIONS AND AS PER PROVISIONS OF INC OME TAX ACT. IN VIEW OF THE ABOVE DISCUSSION, THE CONDUCT OF ASS ESSEE CANNOT BE TREATED AS BONA FIDE W.R.T. EXCESS PROVISION OF RS. 4215.03 LACS WHICH WAS NOT ALL REQUIRED. I THEREFORE, HOLD THAT THE ASSESSEE HAS MADE EXCESS PROVISION FOR DEFERRED TAX LIABILITY WITH A VIEW TO REDUCE IT S TAX BURDEN. IT IS THEREFORE, HELD THAT PENALTY U/S 271(1)( C) I S LEVIABLE WITH RESPECT TO THIS AMOUNT OF RS. 4215.03 LACS. THE AMOUNT ACCOUNTED FOR AS DEFERRED TAXATION IS B ASED ON THE SAME AUDIT REPORT WHICH WAS PROVIDED BASED ON CONSISTENT METHO D OF ACCOUNTING POLICY AND IT HAS BEEN ACCEPTED SO BY THE C.A. AND STATUTO RY AUDITORS. THE LD. CIT(A) ARBITRARY HELD THAT PART OF IT WAS LIABLE FO R PENALTY. RELIANCE IS AGAIN PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES VS. CIT (SUPRA) FOR THE PROPOSITION THAT ONCE THE ASSESSEE'S ACCOUNTS ARE AUDITED AND BOOK PROFITS ARE COMPUTED ACCORDING TO THE AUDIT REPORT THEN THE REVENUE AUTHORITY CANNOT INTERFERE WITH THE AUD ITED FIGURES. 13. APROPOS 3 RD ISSUE I.E. IN RESPECT OF IMACID DEPOSIT, THE LD. C OUNSEL FOR THE ASSESSEE CONTENDS THAT THE LD. CIT(A) HAS O BSERVED AS UNDER:- 15 THE ASSESSEE DID NOT OFFER ANY EXPLANATION W.R.T. LEVY OF PENALTY ON THIS AMOUNT. ACCORDINGLY, IT IS HELD THA T PENALTY IN RESPECT OF THIS AMOUNT IS LEVAIABLE IT IS PLEADED THAT THE OBSERVATION OF THE LD. CIT(A ) IS NOT CORRECT INASMUCH AS BEFORE LOWER AUTHORITIES THE ASSESSEE SUBMITTED THE FOLLOWING SUBMISSIONS . 1. THAT ACCORDING TO THE DTAA BETWEEN INDIA AND THE KINGDOM OF MOROCO IN THE CASE OF INDIA DOUBLE TAXAT ION IS TO BE ELIMINATED AS FOLLOWS:- WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN ACCORDANCE WITH THE PROVISION OF THIS CONVENTION , MAY BE TAXED IN MOROCCO, INDIA SHALL ALLOW AS A DEDUCTI ON FROM THE TAX ON THE INCOME OF THAT RESIDENT AS DEDU CTION AT SOURCE. SUCH AMOUNT SHALL NOT, HOWEVER, EXCEED T HAT PART OF INCOME TAX, AS COMPUTED BEFORE THE DEDUCTIO N IS GIVEN, WHICH IS ATTRIBUTABLE TO THE INCOME, WHICH M AY BE TAXED IN MOROCCO. 2. FURTHER , THE SAID DTAA IS SILENT ON THE POINT A S TO WHETHER THE NET INCOME OR GROSS INCOME IS TO BE TAK EN AS TAXABLE INCOME. 3. AS REGARDS THE CLAIM OF TDS BEYOND THE PRESCRIBE D ONE YEAR BUT DURING THE COURSE OF ASSESSMENT PROCEEDING S U/S 143(3) I.E. BEFORE THE COMPLETION OF THE ASSESSMENT PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEAR WE WISH TO DRAW YO UR KIND ATTENTION TO THE CONCLUSION IN THE CASE OF DCIT VS. LAB INDIA INSTRUMENTS (P) LTD. REPORTED IN 94 TTJ 113 WHEREIN IT HAS BEEN HELD THAT CLAIM DURING THE ASSESSMENT YEAR BY WAY O F TIME BARRED REVISED RETURN HAS TO BE ENTERTAINED. RATHER IT IS THE DUTY OF THE ASSESSING OFFICER TO APPRISE THE ASSESSEE AB OUT THE PROVISIONS OF LAW. 16 IN THE AGREEMENT BETWEEN THE ASSESSEE AND THE MOROC CAN JOINT- VENTURE PARTNER CONDITION NO. 9.7 READS AS FOLLOWS: - THE TDS (DEDUCTED AT SOURCE) AT THE RATE OF 10% O N VAT AND ON TECHNICAL ASSISTANCE SERVICES SHALL BE T O CFCL ACCOUNT. CERTIFICATES OF SUCH DEDUCTIONS SHALL BE F URNISHED BY CFCL BY IMACID. THE TDS DEDUCTED BY IMACID & OCP HAS NOT BEEN RECEI VED IN INDIA AND, THEREFORE, TDS AMOUNT CANNOT FORM PART O F INCOME. THE VIEW IS ALSO SUPPORTED BY THE FOLLOWING JUDGEME NTS. 1. CIT VS. NADIR RASHID & ANR. REPORTED IN 227 ITR PAG E 227 (MP ) 2. CIT VS. AMBA LAL KELA CHAND REPORTED 210 ITR PAGE 8 44 (BOM. ). 3. CIT VS. YAWAR RASHID & ORS. REPORTED IN 218 ITR 699 ( M.P.). 4. CIT VS. YNS HOBBS REPORTED IN 116 ITR PAGE 20 (KER. ) BY A CONSISTENT ACCOUNTING METHOD & POLICY WHILE CA LCULATING FOR SERVICE CHARGES, THE ASSESSEE WAS CREDITING THE NET AMOUNT AFTER REDUCTION OF TDS AMOUNT WHICH WAS CREDITED SEPARATELY. PROPER EXPLAN ATION HAS BEEN FILED, IN THESE FACTS AND CIRCUMSTANCES THERE WAS NO JUSTIFIC ATION FOR LD. CIT(A) IN HOLDING THAT NO EXPLANATION WAS FURNISHED. THUS THE IMPOSITION OF PENALTY IS UNTENABLE FOR THIS OMISSION OF FACT, BESIDES ALL TH E RELEVANT PARTICULARS WERE FILED ALONG WITH RETURN OF INCOME IN THE FORM OF ST ATEMENT OF AUDITED ACCOUNTS AND TDS CERTIFICATES. THUS THE ENTIRE INFO RMATION EMANATED FROM THE ASSESSEE'S ACCOUNTS AND RETURN ONLY. 17 14. THE LD. COUNSEL FOR THE ASSESSEE ON THESE FACTS AND CIRCUMSTANCES VEHEMENTLY RELIED ON THE HON'BLE SUPREME COURT JUD GMENT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. 322 ITR 1 58, FOR THE PROPOSITION THAT WHEN ALL THE PARTICULARS OF INCOME ARE EXPLAIN ED AND FILED THE RETURN OF INCOME, THE MERE FACT THAT THE CLAIM IS NOT ALLOWED OR PARTIALLY ALLOWED WILL ENTAIL INTO PENALTY U/S 271(1)( C) OF THE ACT. IT I S PLEADED THAT THIS PROPOSITION IS SQUARELY APPLICABLE TO THE ABOVE ISSUE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED ON THE FOLLOWING CASE LAWS TO SUPPOR T HIS ARGUMENTS:- 1. CIT VS. YOKOGAWA INDIA LTD., 204 TAXMAN 306 (KER.) 2. DCIT VS. ESCORTS CONSTRUCTION EQUIP. 36 CCH 124 (D EL) 3. CIT VS. PETALS ENGINEERS (P) LTD. 42 TAXMAN 433 (BO MBAY) 15. THE LD. DR RELIED ON THE ORDER OF THE AO AND FU RTHER RELIED ON THE FOLLOWING CASE LAWS. 1. CIT VS. GOLD COIN HEALTH FOOD (P) LTD.304 ITR 308 ( SC) 2. CIT VS. MOSER BAER INDIA LTD., 315 ITR 460 (SC) 16 APROPOS REVENUES APPEAL, THE LD. COUNSEL FOR TH E ASSESSEE POINTED OUT THAT GROUND NO. 1 AND 2 OF THE REVENUE ARE INFR UCTUOUS INASMUCH AS QUANTUM ADDITION IN THIS BEHALF HAVE BEEN DELETED B Y ITAT WHICH IS RECORDED BY THE LD. CIT(A) IN HIS ORDER. 18 17. APROPOS GROUND NO. 3 RD ISSUE, THE SAME IS INTERCONNECTED WITH THE ASSESSEES APPEAL ON THE ISSUE OF PROVISION FOR DEF ERRED TAXATION. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS CLEAR THAT TWO OF THE AD DITIONS I.E. DIMINUTION IN VALUE OF EQUITY SHARES AND PROVISIONS FOR DEFERRE D TAXATION WERE MADE ORIGINALLY AND CONTESTED BY THE ASSESSEE IN APPEAL. BY THE TIME THE APPEAL REACHED THE ITAT LEVEL A RETROSPECTIVE AMENDMENT WA S INTRODUCED BY FINANCE ACT, 2009 WEF 1-4-2001 WHICH RETROSPECTIVEL Y COVERS THE IMPUGNED ASSESSMENT YEAR I.E. 2002-03. THE ITAT JAIPUR BENCH UPHELD THE ADDITION KEEPING IN VIEW THE RETROSPECTIVE AMENDMENT. IN THE SE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE PENALIZED FOR CLAIMS WHICH WERE NOT DISALLOWABLE BY ANY EXPRESS P ROVISION ON THE STATUTE BOOK AT THE RELEVANT TIME. THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. APOLLO TYRES (SUPRA) LAYS DOWN THE PROPOSITION THAT ONCE THE BOOK PROFITS ARE COMPUTED ON THE BASIS OF THE AUDIT ED ACCOUNTS THEN THE AO CANNOT INTERFERE IN THE BOOK PROFITS CALCULATIONS. BESIDES, WE FIND MERIT IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE T HAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. (SUPRA) IS APPLICABLE TO THE ASSESSEE'S CASE AS ALL THE RELEVANT FACTS AND INFORMATION WERE FILED ALONG WITH RETURN OF INCOME. IT LAYS DOWN THAT PENALTY 19 IS IMPOSSIBLE ON THE BASIS OF INFORMATION FURNISHED THE RETURN. IF THE ASSESSE HAS FURNISHED ALL THE RELEVANT DETAILS AND INFORMAT ION ALONG WITH THE RETURN, THEN DISALLOWANCE OF ANY CLAIM BY ASSESSING OFFICER IS NOT EXIGIBLE TO PENALTY. BESIDES A JUDICIAL DEBATE EXISTED ON THE I SSUE ABOUT AOS POWER TO INTERFERE WITH AUDIT STATEMENT IN CALCULATING BOOK PROFITS UNDER SEC. 115J. THE RELIANCE IN THE CASES OF DCIT VS. ESCORTS CONST RUCTION EQUIPMENT 36 CCH 124 (DEL. TRIBUNAL) AND CIT VS. PETALS ENGINEER S (P) LTD. 42 TAXMAN 433 (BOMBAY) ALSO SUPPORT THE ASSESSES PROPOSITIONS . 19. APROPOS ADDITION ON ACCOUNT OF IMACID DEPOSIT, WE FIND THAT THE ASSESSEE HAD GIVEN PROPER EXPLANATION IN THIS BEHAL F, WHICH HAS BEEN OVERLOOKED BY LD. CIT(A). THE MISTAKE IS BONAFIDE, THE ENTRIES WERE MADE AS PER REGULAR ACCOUNTING POLICY IN THIS BEHALF. BE SIDES ALL THE RELEVANT PARTICULARS FOR THIS ACCOUNTIMNG OF IMACD HAVING BE EN FILED ALONG WITH RETURN OF INCOME, THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD. (SUPRA) IS SQUARELY APPLICABLE TO THIS ISSUE. IN VIEW THEREOF, WE DELETE THE PENALTY RETAI NED BY THE LD. CIT(A). THUS THE APPEAL OF THE ASSESSEE IS ALLOWED. APROPOS THE REVENUES APPEAL GROUND NO. 1 AND 2 DOES NOT ARISE AT ALL AND GROUND NO. 3 IS A PART OF 2 ND GROUND I.E. PROVISION FOR DEFERRED TAXATION QUA WHICH WE HAVE H OLD THAT PENALTY IS NOT LEVIABLE. 20 20. IN THE RESULT ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24-0 9-2014 SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 24 TH SEP. 2014 *MISHRA COPY FORWARDED TO:- 1. M/S. CHAMBAL FERTILISERS & CHEMICALS LTD. , KOTA 2. THE ACIT, CIRCLE- 2, KOTA 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR BY ORDER 5..THE LD. DR 6.THE GUARD FILE (IT NO. 1126/JP/2011) AR ITAT, JAIPUR 21 22 23