ATULIVE DEVELOPERS LTD ( FORMERLY KNOWN AS KERRRY JOST ENGINEERING LTD), MUMBAI V. ACIT (OSD)-2CITY-2, MUMBAI

ITA 1374/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49192 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 31-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: BASANT KASAT
• Keywords: Valuation report; Set aside
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E : MUMBAI BEFORE SHRI R.S. PADVEKAR,(JM) AND SHRI RAJENDRA S INGH ,(AM) ITA NO.1374/MUM/2010 ASSESSMENT YEAR :2005-06 TULIVE DEVELOPERS LIMITED (FORMERLY KNOWN AS KERRY JOST ENGINEERING LTD.) 21/22, LOHA BHAVAN, GROUND FLOOR P.D. MELLO ROAD MUMBAI-400 009. ..( APPELLANT ) P.A. NO. (AAACK 4787 D) VS. THE ASSTT. COMMISSIONER OF INCOME TAX (OSD)-2 CITY-2, M.K. ROAD MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : SHRI SOUMEN ADAK AND SHRI BASANT KASAT RESPONDENT BY : SHRI B . JAYA KUMAR O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.1.2010 OF CIT FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS . 2. THE FIRST DISPUTE REGARDING ADJUSTMENT OF RS.7,6 6,40,049/- BEING THE REVALUATION RESERVED OF THE LAND SOLD BY THE ASSESS EE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAD SOLD THE PART OF VACANT LAND LOCATED AT 8, AVADI ROAD, I NDUSTRIAL ESTATE, AMBATTUR, CHENNAI. THE ASSESSEE SOLD PART OF THE LAND DURING THE YEAR FOR A CONSIDERATION OF RS.8,80,50,000/-. THE COST OF THE LAND IN THE BOOKS OF ACCOUNT WAS RS.1,16,320/- AND THE PROPORTIONATE COS T OF LAND SOLD WAS RS.93,951/-. THUS THE PROFIT ON SALE OF LAND WAS R S.8,79,56,049/-. THE ITA NO.1374/M/10 A.Y:05-06 2 ASSESSEE GOT THE LAND REVALUED ON 1.4.2004 BY REGIS TERED VALUER AT RS.9,50,04,000/- AND THE PROPORTIONATE VALUE OF THE PORTION OF THE PLOT SOLD AS PER REVALUATION REPORT WAS RS.7,67,34,000/-. TH E DIFFERENCE BETWEEN THE REVALUED COST AND ORIGINAL COST I.E. RS.7,66,40,049 /- HAD BEEN TAKEN BY THE ASSESSEE TO THE BALANCE SHEET AS REVALUATION RESERV E AND THE EXCESS OF SALE PRICE ABOVE REVALUATION COST RS.1,13,16,000/- (RS.8 ,80,50,000 7,67,34,000) HAD BEEN CREDITED TO THE P&L ACCOUNT. THE ASSESSEE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB HAD NOT I NCLUDED THE SUM OF RS.7,66,40,049/- AS WELL AS RS.1,13,16,000/- IN THE BOOK PROFIT. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THA T REVALUATION OF THE LAND HAD BEEN MADE IN ACCORDANCE WITH GUIDELINES ISSUED BY ICAI AND AS PER REQUIREMENT OF SCHEDULE VI OF COMPANIES ACT 1956. IT WAS ALSO SUBMITTED THAT BOOK PROFIT HAD TO BE COMPUTED ON THE BASIS O F PROFIT OR LOSS AS PER P&L ACCOUNT PREPARED IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT AND THEREAFTER ONLY THOSE SPECIFIED ADJUSTMENTS AS MENT IONED IN THE EXPLANATIONS TO SECTION 115JB (2) COULD BE MADE. THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT (255 ITR 273). THE ASSESSING OF FICER HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED AND OBSERVED THAT THE REVALUATION HAD BEEN MADE WITH CLEAR INTENTION OF AVOIDING PAYMENT OF TA XES. THE ASSESSING OFFICER ALSO OBSERVED THAT IN VIEW OF JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT C OMPANY PVT. LTD.(249 ITR 597) THE CAPITAL GAIN ON SALE OF LAND WAS REQUIRED TO BE ADDED WHILE COMPUTING THE BOOK PROFIT. THE ASSESSING OFFICER A LSO REFERRED TO SEVERAL DECISIONS OF THE TRIBUNAL IN THIS REGARD. THE ASSE SSING OFFICER THEREFORE, MADE ADDITIONS OF RS.7,66,40,049/- AND RS.1,13,16,0 00/-. IN APPEAL, CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. AR FOR THE ASSESSEE AT THE OUT SET SUBMITTED THAT THE ISSUE REGARDING ADJUSTMENT TO THE BOOK PROFIT ON AC COUNT OF REVALUATION RESERVE OF LAND IS COVERED BY THE DECISION OF THE T RIBUNAL IN THE CASE OF ITO ITA NO.1374/M/10 A.Y:05-06 3 VS. M/S. GALAXY SAWS PVT. LTD., IN IT NO.3747/MUM/1 0 IN WHICH THE TRIBUNAL VIDE ORDER DATED 11.3.2001, IN IDENTICAL SITUATION, DELETED THE ADDITION MADE. THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELO W. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE FIRST DISPUTE IS REGARDING ADDITION TO THE BOOK PR OFIT ON ACCOUNT OF REVALUATION RESERVE TAKEN BY THE ASSESSEE TO THE BA LANCE SHEET ON REVALUATION OF LAND. THE ASSESSEE HAD SOLD A PART O F THE LAND DURING THE YEAR. THE LAND HAD BEEN ACTUALLY REVALUED AT THE BEGINNIN G OF THE YEAR AND THAT THE DIFFERENCE BETWEEN REVALUED COST AND BOOK COST HAD BEEN TAKEN TO BALANCE SHEET AS REVALUATION RESERVE AND DIFFERENCE BETWEEN SALE PRICE AND THE REVALUED COST AMOUNTING TO RS.1,13,16,000/- HAD BEE N CREDITED TO P&L ACCOUNT. THE ASSESSEE WHILE COMPUTING BOOK PROFIT HAD NEITHER ADDED THE REVALUATION RESERVE NOR THE PROFIT CREDITED TO P&L ACCOUNT. HOWEVER, IN THE ASSESSMENT, THE ASSESSING OFFICER ADDED REVALUATION RESERVE AS WELL AS THE PROFIT TO THE BOOK PROFIT WHICH HAS BEEN CONFIRMED BY THE CIT(A). 4.1 IN OUR VIEW, THE ISSUE REGARDING ADJUSTMENT ON ACCOUNT OF REVALUATION RESERVE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO.3747/M/2010 IN THE CASE OF ITO VS. GALAXY SAWS PVT. LTD.(SUPRA). IN THE SAID CASE ALSO, SIMILAR REVALUATION HAD BEEN MADE AND THE DEPARTMEN T HAD ARGUED THAT THE ASSESSEE HAD ADOPTED A DEVICE TO REDUCE BOOK PROFIT BY PLACING RELIANCE ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE O F MC DOWELL & COMPANY (154 ITR 148). THE TRIBUNAL AFTER DETAILED CONSIDERATION OBSERVED THAT BOOK PROFIT HAD TO BE COMPUTED ON THE BASIS OF PROFIT AS PER P&L ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI OF COMPANIES ACT AND AS APPROVED IN THE ANNUAL G ENERAL MEETING OF THE COMPANY AND THEREAFTER THE SPECIFIED ADJUSTMENTS AS MENTIONED IN EXPLANATION -1 TO SECTION 115JB(2) IS TO BE MADE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SU PRA). THE TRIBUNAL ALSO OBSERVED THAT THE COMPANIES ACT 1956 REQUIRED THAT WHILE PREPARING THE ACCOUNTS, ACCOUNTING STANDARDS HAVE TO BE FOLLOWED AND REVALUATION OF THE ITA NO.1374/M/10 A.Y:05-06 4 ASSET IS ALLOWED AS PROVIDED IN PARA-13 OF THE ACCO UNTING STANDARD 10(AS- 10). FURTHER PARA 13.7 OF AS-10 ALSO PROVIDES THAT ANY INCREASE IN NET BOOK VALUE ON ACCOUNT OF REVALUATION HAS TO BE TAKEN TO CAPITAL RESERVE ACCOUNT AS REVALUATION RESERVE AND IS NOT AVAILABLE FOR DISTRI BUTION. THE TRIBUNAL FURTHER OBSERVED THAT THE DEPARTMENT HAD MADE NO CASE THAT THE VALUATION MADE WAS EXCESSIVE. THE TRIBUNAL ALSO CONSIDERED CLAUSE (B) OF EXPLANATION 1 TO SECTION 115JB(2) AND OBSERVED THAT AS PER THE SAID CLAUSE THE REVALUATION RESERVE COULD BE ADDED TO THE BOOK PROFIT ONLY WHEN THE RESERVE HAS BEEN DEBITED TO THE P&L ACCOUNT. THE FACTS IN THE CASE OF THE ASSESSEE ARE IDENTICAL AND NO DISTINGUISHING FEATURES HAVE BEEN BROUGHT TO OUT NOTICE. RESERVE IN THIS CASE HAS NOT BEEN DEBITED TO P&L AC COUNT AND TAKEN DIRECTLY TO THE BALANCE SHEET. NO CASE IS MADE BY THE DEPAR TMENT THAT VALUATION MADE BY THE REGISTERED VALUER WAS EXCESSIVE. THEREF ORE, IN OUR VIEW FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. GALAXY SAWS PVT. LTD.(SUPRA), NO DEDUCTION CAN BE MADE TO THE BOOK P ROFIT. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DELETE THE ADDITION OF RS.7,66,40,049/-. 5. THE SECOND DISPUTE IS REGARDING ADDITION OF RS.1 ,13,16,000/- BEING THE EXCESS OF SALE PRICE OVER REVALUATION COST OF LAND WHICH HAD BEEN CREDITED BY THE ASSESSEE TO THE P&L ACCOUNT. THE ASSESSEE HAD NOT INCLUDED THE SAID AMOUNT IN THE BOOK PROFIT BUT IN THE ASSESSMENT, TH E SAME WAS ADDED BY THE ASSESSING OFFICER WHICH WAS UPHELD BY THE CIT(A). A GGRIEVED BY SAID DECISION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5.1. WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. THE LD. AR FOR THE ASSESSEE CONCEDED THAT THE ISSUE WAS COVERED AGAINS T THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF RAIN COMMODITIES LTD. VS. DCIT (2010) 40 SOT 265. THE LD. DR, IN AD DITION, ALSO PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CAS E OF DCIT VS. BOMBAY DIAMOND CO. LTD. (2010) 33 DTR (MUM.)(TRIB.) 59 IN WHICH PROFIT ON SALE OF ITA NO.1374/M/10 A.Y:05-06 5 INVESTMENT HAS BEEN ADDED TO THE BOOK PROFIT EVEN T HOUGH THE ASSESSEE HAD NOT ROUTED THE SAME THROUGH THE P&L ACCOUNT. 5.2. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADJUSTMENT TO BOOK PROFIT ON A CCOUNT OF PROFIT ON SALE OF INVESTMENT. THE ISSUE IS COVERED BY THE DECISION O F THE TRIBUNAL IN CASE OF DCIT VS. BOMBAY DIAMOND CO. LTD. (SUPRA), IN WHICH IT WAS HELD THAT CAPITAL GAIN ON SALE OF ASSET EVEN IF NOT ROUTED THROUGH P& L ACCOUNT AND TAKEN TO CAPITAL RESERVES IN THE BALANCE SHEET HAS TO BE ADD ED TO THE BOOK PROFIT. IN THE PRESENT CASE, THE PROFIT HAS BEEN CREDITED TO T HE P&L ACCOUNT. FURTHER THE SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES LTD. VS. DCIT (SUPRA) HAS ALSO HELD THAT EVEN IF CAPITAL GAIN WAS EXEMPT FROM TAX, THE SAME HAD TO BE ADDED TO BOOK PROFIT. RESPECTFULLY FOLLOWING THE S AID DECISIONS, WE CONFIRM THE ORDER OF THE CIT(A) REGARDING ADDITION ON ACCOU NT OF PROFIT ON SALE OF LAND. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON (R.S. PADVEKAR) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.