ACIT, Circle-16(2), Hyd, Hyderabad V. Medinova Diagnostic Services Ltd., Hyd, Hyderabad

ITA 1329/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6619 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 25-04-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 02-12-2015
• Court: TRIBUNAL
• Department Lawyers: R M MUJUNDA R
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Tax effect
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES B , HYDERABAD BEFORE S HRI D . MA NMOHAN , VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1 329 /H YD /20 15 ASSESSMENT YEAR: 200 6 - 0 7 ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 16 - (2 ) , HYDERABAD VS M/S. MEDINOVA DIAGNOSTIC SERVICES LTD., HYDERABAD [PAN: AA CCM2130N ] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI R.M. MUJUNDA R , DR FOR ASSESSEE : SHRI C.P. RAMASWAMY , AR DATE OF HEARING : 27 - 04 - 201 6 DATE OF PRONOUNCEMENT : 29 - 04 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : TH IS IS REVENUE S APPEAL AGAINST THE ORDER OF THE LD. COM MISSIONER OF INCOME TAX ( APPEALS ) - 4 , HYDERABAD DATED 0 8 - 0 9 - 201 5 ON THE ISSUE OF ADDITION OF PRIOR PERIOD EXPENSES TO THE BOOK PROFIT DECLARED BY ASSESSEE. 2. ASSESSEE WHILE FILING THE RETURN ADMITTED NIL INCOME AFTER SET - OFF OF LOSSES UNDER NORMAL PROVISIONS AND BOOK PROFIT OF RS. 25,97,880/ - UNDER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT [ACT] . WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAD DEBITED AN AMOUNT OF I.T.A. NO. 1 329 / HYD / 20 15 M/ S. MEDINOVA DIAGNOSTIC SERVICES LTD., : - 2 - : RS. 67,83,189/ - TOWARDS PRIOR YEAR ADJUSTMENT/EXTRAORDINARY ITEMS AND CONSIDERED THAT THESE ARE NOT TO BE DEBITED AND AC CORDINGLY DISALLOWED THE SAME AND RE - COMPUTED THE BOOK PROFIT AT RS. 93,81,069/ - AND ARRIVED AT A TOTAL TAX OF RS. 7,89,416/ - . IN APPEAL BEFORE THE LD. CIT(A), LD. CIT(A) HELD THAT AO IS WRONG BY MAKING ADDITION OF PRIOR PERIOD EXPENSES AS THEY ARE NOT PROVIDED UNDER EXPLANATION - I TO SECT ION 115JB AND AO CANNOT MAKE ADDITIONS OR DELETIONS EXCEPT THOSE PRESCRIBED AS PER SECTION 115JB. REVENUE IS AGGRIEVED AND RAISED THE GROUNDS. 3. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE AGREE WITH THE LD. CIT(A) AS THE PRIOR PERIOD EXPENDITURE CANNOT BE DISALLOWED WHILE COMPUTING THE BOOK PROFIT U/S. 115JB. THE SAME OPINION IS EXPRESSED IN THE CASE OF GULF OIL CORPORATI ON L T D., VS. ACIT [111 ITD 124], WHEREIN IT WAS HELD THAT: SECTION 115JB(2) PROVIDES THAT EVERY ASSESSEE - COMPANY SHALL PREPARE ITS P&L ACCOUNT IN ACCORDANCE WITH PART II AND PART III OF SCHEDULE - VI TO THE COMPANIES ACT, 1956. THE SAID SCHEDULE - VI DOES NOT MAKE ANY DISTINCTION BETWEEN P&L ACCOUNT AND P&L APPROPRI ATION ACCOUNT, IN FACT, IT DOES NOT SPEAK OF THE APPROPRIATION ACCOUNT AT ALL. IT IS ONLY AS A MATTER OF PRESENTATION, THAT MOST OF THE COMPANIES SEGREGATE TO REFLECT AS TO WHAT HAS BEEN APPROPRIATED OUT OF THE PROFITS EARNED BY THEM, OTHERWISE, SUB - CLAUSE S (A) AND (B) OF CLAUSE (VIII) OF NOTE - II IN PARA 3 OF PART - II OF SCHEDULE - VI SPECIFICALLY PROVIDE THAT THE AGGREGATE AMOUNTS SET ASIDE OR PROPOSED TO BE SET ASIDE TO RESERVES SHOULD BE DISTINCTLY SHOWN IN THE P&L ACCOUNT, SIMILARLY, SUB - CLAUSE (B) AND SUB CLAUSES (A) AND (B) OF CLAUSES (XII) AND (XIII), RESPECTIVELY, IN NOTE - II OF PART - II OF SCHEDULE - VI PROVIDE THAT PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS NOT USUALLY UNDERTAKEN OR UNDERTAKEN IN EXCEPTIONAL CIRCUMSTANCES OR WHICH ARE OF NON - RECURRING NA TURE SHOULD BE SHOWN IN THE P&L ACCOUNT. THE AGGREGATE AMOUNT OF DIVIDENDS PAID AND PROPOSED ARE ALSO TO BE SHOWN IN THE P&L ACCOUNT. THIS SHOWS THAT ALL THE ITEMS, WHICH ARE GENERALLY CLASSIFIED IN THE APPROPRIATION ACCOUNT, ARE IN FACT TO BE INCLUDED IN THE P&L ACCOUNT PREPARED AS PER PARTS - II AND III OF SCHEDULE - VI THEREFORE, THE STARTING POINT FOR COMPUTATION OF BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB SHOULD BE RS. 660.811AKHS WHICH WAS THE FINAL BALANCE IN THE P&L ACCOUNT CARRIED TO BALANCE - SHEET, THUS, EVEN EXTRAORDINARY ITEMS HAD TO BE DEBITED TO THE P&L ACCOUNT. HAVING ADOPTED THE FIGURE OF RS. 660.81 LAKHS AS THE I.T.A. NO. 1 329 / HYD / 20 15 M/ S. MEDINOVA DIAGNOSTIC SERVICES LTD., : - 3 - : STARTING POINT, THE SAME HAD TO BE INCREASED BY THE ITEMS SPECIFIED IN CLAUSES (A) TO (F) AND HAD TO BE REDUCED BY THE ITEMS SPECIFIE D IN CLAUSES (I) TO (VII) GIVEN IN THE EXPLANATION. NO OTHER ADJUSTMENT IS PERMITTED BY THE LAW AS LAID DOWN BY THE SUPREME COURT IN APPOLLO TYRES LTD. V. CIT [2002] 255 ITR 273/122 TAXRNAN 562. NONE OF THE CLAUSES GIVEN IN THE EXPLANATION PROVIDES FOR TH E INCREASE OR DECREASE OF THE BOOK PROFITS BY EXTRAORDINARY ITEMS. THE REFERENCE TO ACCOUNTING STANDARD - 5 (AS - 5) BY THE REVENUE DID NOT IN ANY MANNER ADVANCE THE CASE OF THE REVENUE. IT MERELY SAYS THAT PRIOR PERIOD AND EXTRAORDINARY ITEMS SHOULD BE SEPAR ATELY DISCLOSED ALONG WITH THEIR NATURE, SO THAT THEIR IMPACT ON THE OPERATING RESULTS CAN BE PERCEIVED. IT DOES NOT SAY THAT THEY ARE NOT PART OF THE P&L ACCOUNT. SIMILARLY, THE GUIDANCE NOTE ISSUED BY THE ICAI ALSO DID NOT HELP THE REVENUE AS IT MERELY S AYS THAT SOMETIMES, APPROPRIATION ACCOUNT IS INCLUDED AS A SEPARATE SECTION OF THE P&L ACCOUNT. BUT, PARTS II AND III OF SCHEDULE - VI DO NOT SPEAK OF APPROPRIATION ACCOUNT AT ALL. IN THE LIGHT OF THE ABOVE IT WAS IN ACCORDANCE WITH LAW FOR THE ASSESSEE TO H AVE TAKEN RS. 978.55 LAKHS AS THE BASE FIGURE TO COMPUTE THE BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB. 3.1. IN VIEW OF THE CO - ORDINATE BENCH DECISION WITH WHICH WE AGREE, THERE IS NO MERIT IN REVENUES APPEAL AND ACCORDINGLY THE GROUNDS ARE TO BE DI SMISSED. 4. BEFORE PARTING WITH THE ISSUE, WE NOTICE THAT REVENUE HAS NOT APPLIED ITS MIND WHILE PREFERRING SECOND APPEAL. THE AMOUNT INVOLVED IN THE DECISION OF THE CIT(A) IS RS. 67,83,189/ - . HOWEVER, THE GROUND RAISED BY THE AO , AS APPROVED BY THE LD . CIT IN THE AUTHORIZATION , WAS ONLY RS. 29,13,914/ - . WHEN ASKED ABOUT TH IS DISCREPANCY IN THE AMOUNT CONTESTED, LD. DR COULD NOT CLARIFY FROM WHERE THIS AMOUNT HAS BEEN TAKEN. THIS SHOWS NON - APPLICATION OF MIND NOT ONLY BY T HE AO BUT ALSO BY THE LD. CIT . TH I S SORRY STATE OF AFFAIRS REFLECT S VERY BADLY NOT ONLY THE REVENUE ADMINISTRATION BUT ALSO THE COMPETENCE OF OFFICERS INVOLVED. EVEN, LD. DR COULD NOT BRING IT TO THE NOTICE OF AO/CIT AND WHEN ENQUIRED, COULD NOT EVEN EXPLAIN HOW DEPARTMENT PREFERRED A PPEAL ON AN AMOUNT WHICH WAS NOT SUBJECT MATTER OF APPEAL BEFORE CIT(A). WE HOPE AND WISH THAT THE SENIOR OFFICERS LIKE COMMISSIONERS OF INCOME I.T.A. NO. 1 329 / HYD / 20 15 M/ S. MEDINOVA DIAGNOSTIC SERVICES LTD., : - 4 - : TAX APPLY THEIR MIND BEFORE PREFERRING SECOND APPEALS ON IRRELEVANT GROUNDS. AT LEAST THE AMOUNTS INVOLVED SHO ULD HAVE BEEN CORRECTLY VERIFIED. 5. FURTHER, AS SEEN FROM THE ORDER OF THE AO, THE ENTIRE TAX RAISED EVEN AFTER INCLUDING THE ABOVE DISPUTED AMOUNT WAS ONLY RS. 7,89,416/ - . THEREFORE, SINCE THE AMOUNT INVOLVED IS LESS THAN RS. 10 LAKHS, REVENUE SHOULD HAVE WITHDRAWN THE APPEAL AS PER THE RECENT BOARDS CIRCULAR NO.21/2015 DATED 10 TH DECEMBER, 2015, BEARING F.NO.279/ - MISC.142/2007 - ITI(PT) . ADMITTEDLY, THERE IS NO MECHANISM IN THE DEPARTMENT TO IDENTIFY SUCH APPEALS. AT LEAST, WHEN THE CASE WAS POSTED, DR COULD HAVE TAKEN STEPS TO WITHDRAW THE APPEAL. INSTEAD LD. DR PREFERRED TO ARGUE THE CASE. THIS CASE IS ALSO COVERED BY THE BOARDS CIRCULAR ON TAX EFFECT WHICH SHOULD HAVE BEEN WITHDRAWN. DUE TO WEEKLY POSTINGS OF DR IN ITAT, THERE IS NO RESPONSIBIL ITY FIXED ON ANY OFFICER. WE MAY BE CONSTRAINED TO TAKE SEVERE STEPS LIKE LEVYING COSTS ON OFFICERS, IF THE MATTERS ARE NOT SET RIGHT AND ATTENDED TO BY THE PR. CCIT/CCIT. 6 . W ITH THESE OBSERVATIONS , REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN T HE OPEN COURT ON 29 TH APRIL , 201 6 SD/ - SD/ - (D . MANMOHAN ) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH APRIL , 2016 TNMM I.T.A. NO. 1 329 / HYD / 20 15 M/ S. MEDINOVA DIAGNOSTIC SERVICES LTD., : - 5 - : COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCL E - 16 ( 2 ), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD . 2 . M/S. MEDINOVA DIAGNOSTIC SERVICES LTD., 6 - 3 - 652, KAUTILYA, SOMAJIGUDA, HYDERABAD. 3 . CIT ( APPEAL S ) - 4 , HYDERABAD. 4. THE PR. CIT - 4 , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . G UARD FILE.