Appeal Details
Counselvise Citation
141021114 RSA 2013
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-01-2015
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
26-11-2014
Assessment Year
2008-2009
Appeal Filed On
11-10-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO. 1410/BANG/ 2013 ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(2), BANGALORE. VS. M/S. SOBHA DEVELOPERS, SOBHA, SARJAPUR-MARATHALLI ORR, DEVARABEESANAHALLI, BANGALORE. PAN : AABCS 7723E APPELLANT RESPONDENT APPELLANT BY : SHRI C.H. SUNDAR RAO, CIT-I (DR) RESPONDENT BY : SHRI V. SRINIVASAN, C.A. DATE OF HEARING : 26.11.2014 DATE OF PRONOUNCEMENT : 09.01.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 19.07.2013 OF THE CIT(APPEALS), LTU, BANGALORE RELATING TO ASSESS MENT YEAR 2008-09. 2. GROUND NO.1 IS GENERAL IN NATURE AND CALLS FOR N O ADJUDICATION. 3. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS:- 2. THE LD. CIT(A) OUGHT NOT TO HAVE DELETED THE RE DUCTION OF RS.5,06,11,025/- FROM 80IB AS DONE BY THE AO. ITA NO. 1410/BANG/2013 PAGE 2 OF 25 4. THE ASSESSEE IS A PROPERTY DEVELOPER CARRYING ON SEVERAL HOUSING PROJECTS IN THE CITY OF BANGALORE AND OTHER METROS IN INDIA. THE ADDITION CHALLENGED IN GROUND NO.2 BY THE REVENUE IS A SUM O F RS.5,06,11,025. THIS COMPRISES OF TWO SUMS VIZ., A SUM OF RS.1,55,1 8,769 AND ANOTHER SUM OF RS.3,50,92,256. 5. ADDITION OF THE SUM OF RS.1,55,18,769 WAS MADE BY THE AO FOR THE FOLLOWING REASONS:- THE ASSESSEE DECLARED INCOME FROM HOUSING PROJECT SOBHA DAFFODIL. THE LAND ON WHICH THIS PROJECT WAS CARRIED OUT BY THE A SSESSEE BELONGED TO ANOTHER SISTER COMPANY OF THE ASSESSEE, M/S. SOBHA INNER CITY TECHNO QUALIS PVT. LTD. [STP FOR SHORT]. STP PURCHASED THE LAND FROM THE OWNERS AND HAS AN ARRANGEMENT WITH THE ASSESSEE FOR DEVELO PMENT TO BE CARRIED OUT OVER THE LAND BY THE ASSESSEE. STP AS OWNER OF THE LAND WHOLLY CONVEYS SHARE OF UNDIVIDED INTEREST IN THE LAND OVE R WHICH THE PROJECT SOBHA DAFFODIL WAS DEVELOPED BY THE ASSESSEE AND SOLD TO THE PROSPECTIVE PURCHASERS OF FLATS FROM THE ASSESSEE. THE CONSIDERATION PAYABLE BY THE PURCHASERS OF THE FLAT FROM THE ASSE SSEE FOR THE UNDIVIDED SHARE OF LAND WOULD BE APPROPRIATED TO STP AND THE ASSESSEE. THE ASSESSEE HAD SHOWN A SUM OF RS.1,55,18,769 BEING PR OFIT ON SALE AND DEVELOPMENT OF LAND IN RESPECT OF THE PROJECT SOBH A DAFFODIL. ACCORDING TO THE AO, DEVELOPMENT OF THE LAND IS CARRIED OUT B Y THE SISTER COMPANY AND ITA NO. 1410/BANG/2013 PAGE 3 OF 25 NOT BY THE ASSESSEE. ACCORDING TO THE AO, ASSESSEE WAS ONLY A BUILDER OF THE PROJECT AND IT CANNOT TREAT THE PROFIT ON SALE AND DEVELOPMENT OF LAND AS PART OF THE PROFITS DERIVED FROM DEVELOPING THE HOU SING PROJECT AND CLAIM DEDUCTION ON SUCH PROJECTS U/S. 80IB(10) OF THE ACT . THE AO ACCORDINGLY DENIED THE DEDUCTION U/S. 80IB(10) IN RESPECT OF RS .1,55,15,769. 6. ON THIS ISSUE, THE CIT(APPEALS) FOUND THAT SIMIL AR ISSUE WAS CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE A.Y. 2005-06 IN ITA NO.965/BANG/2009 IN FAVOUR OF T HE ASSESSEE HOLDING THAT PROFITS ON SALE OF LAND WILL ALSO BE ELIGIBLE FOR DEDUCTION U/S. 80IB(10) OF THE ACT. FOLLOWING THE AFORESAID DECISION OF THE T RIBUNAL, THE CIT(A) DIRECTED THE AO TO ALLOW DEDUCTION U/S. 80IB(10) OF THE ACT ON A SUM OF RS.1,15,18,769. 7. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(APPE ALS), THE REVENUE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. AT THE TIME OF HEARING OF THE APPEAL, IT WAS BROUGHT TO OUR NOTICE THAT SIMILAR I SSUE HAD BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y . 2005-06 IN ITA NO.965/BANG/2009 AND THIS TRIBUNAL ON IDENTICAL ISS UE HELD AS FOLLOWS:- 18. . 19. .. 19.1 .. 19.2. WHEN THE AUTHORITIES HAVE DULY ASSESSED THE PROFIT ON SALE OF LAND AS ADMITTED BY THE ASSESSEE AS ITS INCOME, THE REVENUE CANNOT TAKE A DIFFERENT STAND THAT THE ASSE SSEE WAS NOT ITA NO. 1410/BANG/2013 PAGE 4 OF 25 THE OWNER OF THE LAND ONLY TO DENY THE DEDUCTION TO THE ASSESSEE U/S 80IB OF THE ACT. 19.3. IT IS NOT UNCOMMON IN HOUSING SECTOR THAT. W HEN THE DEVELOPER OR THE OWNER SELLS THE APARTMENTS TO CUST OMER AND THE SALE OF APARTMENT WOULD GENERALLY BE ACHIEVED BY EN TERING INTO AN AGREEMENT FOR SALE OF UNDIVIDED INTEREST IN LAND TO GETHER WITH A CONSTRUCTION AGREEMENT FOR CONSTRUCTING AND DELIVER ING THE BUILT- UP AREA. EVEN THOUGH, THERE WERE TWO SEPARATE AGREE MENTS TO CONVEY THE UNDIVIDED INTEREST IN LAND AND THE BUILT -UP AREA, BUT, IN PRACTICE, THERE WOULD BE A SINGLE AND COMPOSITE TRA NSACTION, I.E., SALE OF APARTMENT. THE CONSIDERATION FOR SALE OF AN APARTMENT WOULD BE FIXED BASED ON THE EXTENT OF BUILT-UP AREA AND THE SALE PRICE. ONCE THE DEAL WAS STRUCK, THE BUILDER OR TH E OWNER, AS THE CASE MAY BE, MAKE A BIFURCATION OF SALE PROCEEDS TO WARDS THE SALE OF UNDIVIDED INTEREST IN LAND AND THAT OF THE SALE OF THE BUILT UP AREA. THIS BIFURCATION COULD BE RESORTED TO MAINLY FOR THE REGISTRATION OF THE UNDIVIDED INTEREST IN LAND IN F AVOUR OF THE BUYER WHICH CANNOT BE CATEGORIZED THAT THERE WERE T WO DIFFERENT TRANSACTIONS BETWEEN THE BUILDER AND THE BUYER OF THE APARTMENT. IN FACT, THERE WOULD BE A COMPOSITE TRANSACTION FOR SALE OF AN APARTMENT AS SALE OF APARTMENT CULMINATES THE OWNER SHIP OF THE UNDIVIDED INTEREST IN LAND TO BE TRANSFERRED TO THE BUYER. THE DEVELOPER CLASSIFIES THE PROFIT AS ON SALE OF LAND PURELY FOR THE PURPOSE OF ACCOUNTING ENTRIES PASSED IN HIS/ITS BOO KS OF ACCOUNT, HOWEVER, THE FACT REMAINS THAT THE PROFIT DERIVED B Y THE DEVELOPER WAS FROM THE DEVELOPMENT OF THE HOUSING PROJECT ONL Y AND NOTHING ELSE. 19.4. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE, THE ENTIRE PROFIT EARNED BY A DEVELOP ER WAS PART AND PARCEL OF THE OVER ALL PROFITS DERIVED FROM THE HOU SING PROJECT. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE EXCLUSION OF THE PROFIT ON THE SALE OF LAND ON A SOLE GROUND THAT TH E ASSESSEE HAD SHOWN THE PROFITS SEPARATELY AND THE SAME WOULD NOT RELATE TO THE ASSESSEE WAS MISCONCEIVED AND, THUS, EXCLUSION OF THE PROFIT ON SALE OF LAND WAS RATHER UNJUSTIFIED . IT IS ORDERED ACCORDINGLY. ITA NO. 1410/BANG/2013 PAGE 5 OF 25 8. FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE CIT(APPEALS) AND DISMISS THE GRIEVANCE PROJECTED BY THE REVENUE IN GROUND NO.2 IN THIS REGARD. 9. THE OTHER PART OF THE DEDUCTION ALLOWED U/S. 80I B(10) OF THE ACT BY THE CIT(A) VIZ., A SUM OF RS.3,50,92,256 WHICH IS C HALLENGED BEFORE THE TRIBUNAL BY THE REVENUE ARISES OUT OF THE FOLLOWING CIRCUMSTANCES. 10. AS WE HAVE ALREADY SEEN, ASSESSEE IS A PROJECT DEVELOPER. THE ASSESSEE CARRIES OUT PROJECTS ON WHICH IT IS ENTITL ED TO CLAIM DEDUCTION U/S. 80IB(10) ON PROFITS DERIVED FROM SUCH PROJECTS AND ALSO PROJECTS ON WHICH NO SUCH DEDUCTION U/S. 80IB(10) OF THE ACT IS AVAIL ABLE ON PROFITS DERIVED FROM SUCH PROJECTS. ASSESSEE HAS COMMON OVERHEAD E XPENSES (COH) WHICH IS ALLOCATED BETWEEN THE PROJECTS WHICH ARE E LIGIBLE FOR DEDUCTION U/S. 80IB(10) AS WELL AS PROJECTS WHICH ARE NOT ENTITLED TO DEDUCTION U/S. 80IB(10). THE AO WAS OF THE VIEW THAT ASSESSEE ALL OCATED COH EXPENSES IN SUCH A WAY THAT LESS COH IS SHOWN IN PROJECTS EL IGIBLE FOR DEDUCTION U/S. 80IB(10) AND MORE EXPENSES ARE SHOWN IN THE PROJECT S NOT ELIGIBLE FOR DEDUCTION U/S. 80IB(10) OF THE ACT. THIS, ACCORDIN G TO THE AO, WOULD REDUCE THE TOTAL INCOME IN RESPECT OF PROFITS OF TH E ASSESSEE DERIVED FROM PROJECTS WHICH ARE NOT ELIGIBLE FOR DEDUCTION U/S. 80IB(10) OF THE ACT. THE AO ALSO FOUND THAT ASSESSEE WAS ALLOCATING COH BASE D ON COST OF GOODS SOLD IN THE PAST AND HAD LATER CHANGED THE METHOD T O ALLOCATION ON THE BASIS OF TURNOVER. THE ASSESSEE EXPLAINED BEFORE T HE AO AS FOLLOWS:- ITA NO. 1410/BANG/2013 PAGE 6 OF 25 ALLOCATION OF COMMON EXPENSES TO 80-LB RELATED PRO JECTS HAVE BEEN DONE BASED ON THE TURNOVER BASIS ONLY AND HENC E THERE IS NO NEED FOR FURTHER REWORKING IS WARRANTED. (THE DETAI LED WORKING FOR THE SAME HAS ALREADY BEEN FURNISHED). DURING THE ASSESSMENT YEAR 2007-08, THE COMMON EXPE NSES WERE NOT ALLOCATED IN THE RATIO OF TURNOVER AND WAS ALLOCATED ON THE BASIS OF COST OF GOODS SOLD. HOWEVER, WE HAVE S WITCHED OVER TO THE METHOD OF ALLOCATING THE OVERHEAD BASED ON T URNOVER. WE HAVE FURNISHED THE DETAILS OF UNALLOCATED OVERHEAD ALONG WITH THE DETAILS FURNISHED EARLIER YEAR AND IN CASE YOUR HON OUR ADOPTS THE METHOD FOLLOWED DURING THE EARLIER YEARS, (IE ADOPT ING THE NOTIONAL PERCENTAGE) REJECTING THE ACTUAL COMMON OV ERHEAD EXPENSES INCURRED, IT TANTAMOUNT TO DISTRIBUTION OF THE SAME EXPENSE TWICE TO THE PROJECTS WHICH IS IRRATIONAL. HENCE WE REQUEST YOU TO ADOPT THE SAME PERCENTAGE RATIO AS P ER THE UNALLOCATED COH EXPENSES TO THE TURNOVER WHICH HAS BEEN ALREADY ADOPTED BY US. IN THIS REGARD HONBLE ITAT HAS CONSIDERED THE SAME ISSUE IN DETAIL AND HAS SET ASIDE THE ORDER OF YOUR PREDECES SOR FOR THE AY 2005-06 GIVING OUT THE DETAILED REASONS FOR SETTING ASIDE THE ASSESSMENT ORDER ON THIS SAME ISSUE. HENCE WE REQUE ST YOUR HONOUR NOT TO DISTURB THE SYSTEM OF ALLOCATION OF C ORPORATE OVERHEADS TO THE VARIOUS PROJECTS AS ALREADY WORKED OUT BY US. 11. THE AO, HOWEVER, DID NOT AGREE WITH THE AFORESA ID SUBMISSIONS MADE BY THE ASSESSEE. HE FOUND THAT THE FOLLOWING WERE THE TOTAL COH, TOTAL SALES AND SALES IN RESPECT INCOME FROM PROJEC TS WHICH ARE ELIGIBLE FOR DEDUCTION U/S. 80IB(10) OF THE ACT:- TOTAL COH 470,014,859 TOTAL SALES 14,363,430,000 TOTAL SALES FOR 80IB PROJECTS 480,37,75,886 ITA NO. 1410/BANG/2013 PAGE 7 OF 25 12. THE AO FOUND THAT THE BASIS OF ALLOCATION OF CO H BY THE ASSESSEE WAS AT 3.27% I.E., THE RATIO OF TOTAL OVERHEAD EXPE NSES TO THE TOTAL TURNOVER. HE ALSO OBSERVED THAT TURNOVER OF THE ASSESSEE HAS INCREASED TO RS.1442.981 CRORES IN AY 2008-09 FROM RS.1194.749 C RORES IN AY 2007- 08. THE AO HAS THEREAFTER OBSERVED AS FOLLOWS:- 4.10 THE ASSESSEE HAS ALLOCATED THE COMMON OVERHE AD EXPENSES AT 3.27% WHICH IS VERY LOW COMPARED TO THE TURNOVER OF THE ASSESSEE. THE ALLOCATION SHOULD BE ATLEAST 4% ON TH E REASONS DISCUSSED AS ABOVE. THEREFORE, THE PERCENTAGE OF AL LOCATION IS INCREASED BY 0.73% (I.E THE RATIO OF THE TOTAL COMM ON OVERHEAD EXPENSES TO THE TOTAL TURNOVER). 13. THEREAFTER, THE AO HAS REWORKED THE ALLOCATION OF COH TO PROJECTS ELIGIBLE FOR DEDUCTION U/S. 80IB(10) AND PROJECTS N OT ELIGIBLE FOR DEDUCTION U/S. 80IB(10). ON THAT BASIS, HE HAS PREPARED A CH ART AT TABLE 7, WHICH IS AT PAGE 15 OF THE ORDER OF ASSESSMENT IN WHICH HE H AS ARRIVED AT A REDUCTION IN PROFITS OF 80IB PROJECTS TO THE EXTENT OF RS.3,50,92,256 ON ACCOUNT OF REALLOCATION OF COH. ACCORDINGLY, DEDUC TION U/S. 80IB(10) OF THE ACT WAS DENIED ON THE AFORESAID SUM BY THE AO. 14. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DEL ETED THE ADDITION MADE BY THE AO OBSERVING AS FOLLOWS:- 4. I HAVE GONE THROUGH THE AOS DISCUSSION ON THI S MATTER AND THE APPELLANTS SUBMISSIONS AND FIND THAT THE A O HAS MENTIONED AT PAGE 12 AND 13 THAT THERE IS NO DISPU TE ABOUT THE FACT THAT THE DIRECT INPUT COSTS VARY ACCORDING TO THE NATURE OF THE PROJECT. LUXURY APARTMENTS AND PREMIUM APARTMENTS I NCUR MORE ITA NO. 1410/BANG/2013 PAGE 8 OF 25 COSTS IN RESPECT OF INPUTS. BUT OVERHEADS SUCH AS H EAD OFFICE EXPENSES ARE AFFECTED BY THE INCIDENCE OF HIGH COST S IN SUCH PROJECTS. THE AO, HOWEVER, HAS NOT POINTED OUT ANY INSTANCE OF HOW THE HEAD OFFICE EXPENSES ARE LIABLE TO GO UP WH EN DIRECT PROJECT EXPENSES INCREASE. I ALSO FIND NO DISCUSSIO N ABOUT THE RATIONALE FOR ADOPTING 4% AS THE COMMON OVERHEAD EX PENSES ATTRIBUTABLE TO 80IB PROJECTS INSTEAD OF ANY OTHER FIGURE. I AM, THEREFORE, LED TO CONCLUDE THAT THE ENTIRE EXERCISE BY THE AO HAS STARTED FROM A DOUBT BUT HAS NOT BEEN CONCLUDED TO ANY CERTAINTY USING FACTS AND EVIDENCES FROM THE ACCOUNTS OF THE APPELLANT. I FIND THAT THE HIGHER ESTIMATION, WITHOUT IDENTIFYIN G SPECIFIC INSTANCES OF IMPROPER ALLOCATION OF EXPENSES TO THE PROJECTS AND TO THE COMMON OVERHEAD BASKET, IS ARBITRARY AND, HE NCE, UNSUSTAINABLE. THE ADDITION IS DIRECTED TO BE DELET ED. THIS GROUND, THEREFORE, SUCCEEDS. 15. AGGRIEVED BY THE ORDER OF CIT(APPEALS), REVENUE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 16. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O REITERATED THE STAND OF THE AO AS REFLECTED IN THE ORDER OF ASSESS MENT. THE LD. AR RELIED ON THE ORDER OF CIT(APPEALS). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE A RE OF THE VIEW THAT THE ORDER OF CIT(APPEALS) DOES NOT CALL FOR ANY INT ERFERENCE. AS RIGHTLY OBSERVED BY HIM, IN PARA 4.10 OF THE ORDER OF ASSES SMENT, THE AO HAS GIVEN NO BASIS FOR ALLOCATING COH AT 4% AS AGAINST 3.27% ADOPTED BY THE ASSESSEE. THE AOS CONCLUSION IS THAT ALLOCATION O F COH AT 3.27% IS VERY LOW COMPARED TO THE TURNOVER OF ASSESSEE. HE HAS A LSO GIVEN NO BASIS FOR ADOPTING 4%. AS RIGHTLY OBSERVED BY THE CIT(APPEAL S), THE AO HAS PROCEEDED ON SURMISES THAT ASSESSEE WAS INCREASING THE PROFITS OF ITA NO. 1410/BANG/2013 PAGE 9 OF 25 80IB(10) UNITS AND DECREASING THE PROFITS OF NON-80 IB UNITS TO GAIN TAX ADVANTAGE. THERE IS NO BASIS WHATSOEVER FOR THIS A SSUMPTION OF THE AO. THERE IS NO DISPUTE ALSO THAT ALLOCATION OF COH BAS ED ON TURNOVER WILL RESULT IN DISTORTION OF PROFITS OF 80IB(10) UNITS AND NON- 80IB(10) UNITS. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT ORDER OF THE CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 18. GROUNDS NO.3 & 4 CAN BE DEALT WITH TOGETHER. T HE FACTS MATERIAL FOR ADJUDICATION OF AFORESAID GROUNDS OF APPEAL ARE AS FOLLOWS. FOR THE AY 2008-09, TOTAL INCOME OF THE ASSESSEE WAS ULTIMATEL Y DETERMINED BY APPLYING THE PROVISIONS OF SECTION 115JB OF THE ACT . TAX PAYABLE UNDER THE NORMAL PROVISIONS OF THE I.T. ACT, 1961 WAS LESS TH AN THE TAX COMPUTED U/S. 115JB OF THE ACT AND THEREFORE TOTAL INCOME AND TAX PAYABLE BY THE ASSESSEE WAS COMPUTED BY THE AO U/S. 115JB OF THE A CT. CALCULATIONS IN THIS REGARD ARE GIVEN IN TABLE 13 & 14 AT PAGES 43 & 44 OF THE AOS ORDER. IN ARRIVING AT THE BOOK PROFITS U/S. 115JB OF THE A CT, THE AO ADDED TO THE PROFIT AS PER P&L ACCOUNT PREPARED IN ACCORDANCE WI TH THE PROVISIONS OF PART II OF SCHEDULE-VI TO THE COMPANIES ACT, 1956, A SUM OF RS.24,64,632 WHICH WAS EXPENDITURE RELATABLE TO INCOME TO WHICH PROVISIONS OF SECTION 10(35) AND 10(2A) OF THE ACT ARE APPLICABLE AND THE REFORE NOT FORMING PART OF THE TOTAL INCOME OF THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE ASSESSEE EARNED INCOME IN THE FORM OF DIVIDENDS ON UNITS OF MUTUAL FUNDS AND ALSO SHARE INCOME FROM A PARTNERSHIP FIRM IN WHICH IT WA S A PARTNER. BOTH THE ITA NO. 1410/BANG/2013 PAGE 10 OF 25 AFORESAID ITEMS OF INCOME DO NOT FORM PART OF TOTAL INCOME UNDER THE ACT, IN VIEW OF PROVISIONS OF SECTIONS 10(35) AND 10(2A) O F THE ACT RESPECTIVELY. ACCORDING TO THE AO, IN VIEW OF PROVISIONS OF EXPLA NATION 1(F) TO SECTION 115JB(2) OF THE ACT, SUM OF RS.24,64,632 WHICH WAS EXPENDITURE INCURRED ON EARNING THE AFORESAID EXEMPT INCOME SHOULD BE AD DED TO THE PROFITS AS PER P&L ACCOUNT. A SUM OF RS.24,64,632 WAS, ADMITT EDLY, A DISALLOWANCE MADE BY THE AO U/S. 14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES. THE AFORESAID COMPUTATION OF EXPENDITURE WAS MADE BY TH E AO WHILE COMPUTING INCOME OF THE ASSESSEE UNDER THE NORMAL P ROVISIONS OF THE ACT. IT IS NOT IN DISPUTE THAT NO DIRECT EXPENSES WERE A TTRIBUTABLE TO EARNING OF EXEMPT INCOME AND WHAT WAS DISALLOWED WAS ONLY INDI RECT INTEREST EXPENSES AND OTHER EXPENSES WHICH WERE DISALLOWED I NVOKING PROVISIONS OF RULE 8D(2) (II) AND (III) OF THE RULES. 19. WHILE WORKING OUT THE BOOK PROFITS, THE ASSESSE E SUBMITTED BEFORE THE AO THAT IT HAD EARNED A SUM OF RS.6,63,79,683 B EING SHARE OF PROFITS FROM A PARTNERSHIP FIRM IN WHICH THE ASSESSEE WAS A PARTNER. THIS AMOUNT HAD BEEN CREDITED TO THE P&L ACCOUNT. THE ASSESSEE SUBMITTED THAT IN VIEW OF EXPLANATION (1)(II) TO SECTION 115JB(2) OF THE ACT, THE AFORESAID SUM SHOULD BE REDUCED FROM THE BOOK PROFITS. ASSESSEE MADE THIS CLAIM BEFORE THE AO IN THE FORM OF LETTER DATED 20.12.2010. 20. THE AO REFUSED TO ENTERTAIN THE CLAIM OF ASSESS EE FOR THE FOLLOWING REASONS:- ITA NO. 1410/BANG/2013 PAGE 11 OF 25 IN THIS REGARD THE ASSESSEES REPLY (WAS) AS F OLLOWS: APART FROM THE ISSUE RELATING TO THE CLAIM OF INTE REST, WE ALSO WOULD LIKE TO DRAW YOUR HONOURS KIND ATTENTION TO THE FACT THAT THERE HAS BEEN AN ERROR IN THE COMPUTATION OF INCOME U/S. 115JB OF THE ACT IN THE REVISED RETURN OF INCOME. IT IS SUBMITTED THAT WHIL E COMPUTING THE INCOME U/S. 115JB OF THE ACT, WE HAVE NOT DEDUCTED A SUM OF RS.6,63,79,683/- BEING THE SHARE OF A PROFITS FROM A PARTNERSHIP FIRM M/S. SOB HA CITY. IT IS SUBMITTED THAT THE SHARE INCOME OF FIRM IS EXEMPT U/S. 10[2A] OF THE ACT AND ALSO DEDUCTIBLE WHILE COMPUTING BOOK PROFIT IN TERMS OF EXPLANATION [1] SUB-CLAUSE [II] TO SECTION 115JB OF THE ACT. WE REQUEST THAT THE BOOK PROFIT MAY BE CORRECTLY DETERMINED WHILE CONCLUDING THE ASSESSMENT. WE REQUEST YOUR HONOUR THAT THE INCOME U/S. 1 15JB OF THE ACT, MAY KINDLY BE CONSIDERED AFTER EXCLUDING THAT SHARE OF PROFIT AS DISCUSSED ABOVE. THE ASSESSEES CONTENTION IS NOT ACCEPTABLE. AS S EEN FROM THE ASSESSEES REPLY IT HAS NOT CLAIMED THE DEDUCTI ON OF RS.6,63,79,683/- BEING THE SHARE OF PROFIT FROM A P ARTNER SHIP FIRM M/S SHOBA CITY NEITHER IN THE REVISED RETURN OF INC OME FILED ON 18.03.2009. AS PER CASE LAW GOETZE (INDIA) LTD VS. CIT (2006) 157 TAXMAN 1 (SC). THE ASSESSING AUTHORITY HAS NO POWER TO ENTERTAIN A CLAIM MADE BY THE ASSESSEE, AFTER FILING ORIGINAL RETURN, OTHERWISE THAN FILING REVISED RETURN. HENCE THE ASSESSEES CLAIM IS NOT CONSIDERED. 21. AGGRIEVED BY THE AFORESAID ACTION OF THE AO, AS SESSEE PREFERRED APPEAL BEFORE THE CIT(A). ASSESSEE CONTENDED BEFOR E CIT(A) THAT EXPLANATION 1(F) TO SECTION 115JB(2) OF THE ACT DOE S NOT MAKE ANY REFERENCE TO PROVISIONS OF SECTION 14A OF THE ACT O R RULE 8D OF THE RULES AND THEREFORE DISALLOWANCE MADE UNDER THE AFORESAID PROVISIONS CANNOT ITA NO. 1410/BANG/2013 PAGE 12 OF 25 AUTOMATICALLY BE IMPORTED INTO THOSE PROVISIONS AND ADDITION MADE TO THE PROFIT AS PER P&L ACCOUNT OF THE ASSESSEE. WITH RE GARD TO ACTION OF THE AO IN NOT REDUCING FROM THE BOOK PROFITS THE SHARE INC OME WHICH THE ASSESSEE RECEIVED AS PARTNER OF THE PARTNERSHIP FIRM, WHICH WAS EXEMPT U/S. 10(2A) OF THE ACT, RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (SUPRA), IT WAS SUBMITTED THAT THE SAME WAS NOT CORRECT AND THAT THE APPELLATE AUTHORITIES UNDE R THE ACT HAVE THE POWERS TO LOOK INTO ANY LEGITIMATE CLAIM MADE BY THE ASSES SEE, EVEN WITHOUT THERE BEING NO REVISED RETURN OF INCOME FILED BY THE ASSE SSEE. IN OTHER WORDS, IT WAS SUBMITTED THAT THE RESTRICTION LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) IS APPLICABLE ONLY TO THE AO AND NOT TO THE APPELLATE AUTHORITIES UNDER THE ACT. 22. THE CIT(A) AGREED WITH THE CONTENTIONS PUT FORT H BY THE ASSESSEE AND HELD AS FOLLOWS:- 14. I HAVE GONE THROUGH THE AOS ORDER AND THE A PPELLANTS SUBMISSION AND AM IN AGREEMENT WITH THE LATTER SINC E THE COMPUTATION OF BOOK PROFIT FOR PURPOSES OF SEC. 115 JB FOR DETERMINING THE MINIMUM ALTERNATIVE TAX IS DONE AS PER THE BOOK PROFIT EVIDENT FROM THE FINANCIAL STATEMENTS DRAWN UNDER THE COMPANIES ACT. SEC.14A AND THE DISALLOWANCE ENVIS AGED UNDER IT BY APPLYING RULE 8D ARE ADJUSTMENTS SPECIFIC TO THE INCOME TAX ACT. EVEN WHERE THE BOOK PROFIT AS PER THE COMP ANIES ACT HAS BEEN ALLOWED TO BE ADJUSTED BY THE IT ACT, IT H AS BEEN DONE THROUGH VERY SPECIFIC PROVISIONS IN TERMS OF THE EX PLANATIONS TO SEC. 115JB. WHEN THE LANGUAGE OF THE EXPLANATION IS SPECIFIC AND UNEQUIVOCAL AND MENTIONS SPECIFIC EXEMPTED INCOMES IN EXPLANATION 1(F), THERE IS NO SITUATION FOR READING IN ANY OTHER INTERPRETATION EVEN IF THEY ARE ANALOGOUS TO THE SP ECIFIED SECTIONS. ITA NO. 1410/BANG/2013 PAGE 13 OF 25 WHILE SEC.14A DEALS WITH DISALLOWANCE OF EXPENDITUR E RELATED TO EXEMPT INCOME, IT CANNOT BE EQUATED IN LETTER AND S PIRIT WITH EXEMPTED INCOME U/S.10 AND EXPENDITURE RELATED TO I T WHICH IS PROVIDED IN EXPLANATION 1(F) OF SEC.115JB. HENCE, T HE AOS EXTENSION OF THESE PROVISIONS TO THE AMOUNT DISALLO WED U/S. 14A IS NOT WITHIN THE SCHEME OF THE LEGAL PROVISIONS AN D THE SAME IS THEREFORE, DIRECTED TO BE DELETED. 12. BEFORE ME THE AR STATED THAT THE ABOVE DECISIO N ONLY LAYS DOWN A BROAD PROPOSITION THAT THE AO CANNOT ENTERTA IN CLAIMS WHICH ARE NOT CONTAINED IN A VALID RETURN OF INCOME BEFORE HIM. HE ALSO RELIED UPON THE CBDTS CIRCULAR NO, 14 OF 1 955 DT. 11.4.1955 WHEREIN IT WAS EXPRESSED THAT THE AOS ARE EXPECTED TO EDUCATE THE ASSESSEE AND ALLOW CLAIMS THAT ARE LEGI TIMATELY DUE TO THE ASSESSEE, EVEN WHEN SUCH A CLAIM IS NOT MADE. I AM CONVINCED BY THE ARGUMENTS OF THE AR. IN FACT, IN THE DECISIO N IN THE CASE OF GOETZE INDIA (SUPRA) THE APEX COURT HAS ALSO CLARIF IED THAT THE VIEW TAKEN DOES NOT IMPINGE UPON THE POWER OF THE C IT(APPEALS) TO ADMIT THE ADDITIONAL GROUND. SINCE THE APPELLANT S SHARE IN THE FIRMS PROFIT IS EXEMPT U/S. 10(2A) AND DEDUCTIBLE WHILE COMPUTING BOOK PROFIT, THE AO IS DIRECTED TO EXCLUD E THE SAME WHILE COMPUTING THE BOOK PROFIT. THIS GROUND, THERE FORE, SUB- CLAUSE (III) I.E SUCCEEDS. 23. AGGRIEVED BY THE ORDER OF CIT(APPEALS), REVENUE HAS RAISED GROUNDS NO.3 & 4 BEFORE THE TRIBUNAL. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. D R DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 115JB EXPLANATION 1(F) AND SUBMITTED THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WH ICH SECTION 10 APPLIES, SHOULD BE ADDED TO THE PROFIT AS PER THE P&L ACCOUN T. HIS SUBMISSION WAS THAT SECTION 14A OF THE ACT R.W. RULE 8D OF THE RUL ES IS A REASONABLE METHOD OF CALCULATING THE AMOUNT OF EXPENDITURE AND THEREFORE WITHOUT GOING INTO THE QUESTION OF WHETHER RULE 14A CAN BE IMPORTED INTO THE ITA NO. 1410/BANG/2013 PAGE 14 OF 25 PROVISIONS OF CLAUSE (F) TO EXPLANATION (1) TO SECT ION 115JB OF THE ACT, THE CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION MADE BY THE AO. WITH REGARD TO THE SHARE OF INCOME OF THE ASSESSEE, WHICH WAS S OUGHT TO BE REDUCED BY THE ASSESSEE AND REJECTED BY THE AO, THE LD. DR REL IED ON THE ORDER OF AO. 25. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT SECTION 14A OF THE ACT IS VERY SPECIFIC AND IS APPL ICABLE ONLY FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE A CT. HIS SUBMISSION WAS THAT SECTION 115JB APPEARS IN CHAPTER XII-B OF THE ACT DEALING WITH SPECIFIC PROVISIONS RELATING TO CERTAIN COMPANIES AND THEREF ORE THOSE PROVISIONS CANNOT BE APPLIED. IT WAS HIS FURTHER SUBMISSION T HAT EVEN ASSUMING THAT THOSE PROVISIONS ARE APPLICABLE U/S. 115JB OF THE A CT, IT IS ONLY DIRECT EXPENSES THAT ARE CONTEMPLATED AS CAPABLE OF BEING ADDED TO THE PROFITS AS PER P&L ACCOUNT. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE EXPRESSION EXPENDITURE RELATABLE USED IN SUB-CLAUSE (F) OF EXPLANATION (1) TO SECT ION 115JB OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE CONTRASTED THE ABOVE EXPRESSION WITH THE EXPRESSION USED IN 14A OF THE A CT WHICH SAYS EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO . HE ALSO POINTED OUT THAT IN THE PRESENT CASE, THERE WAS NO DIRECT EXPEN SES IN EARNING THE EXEMPT INCOME AND THIS FACT IS ACCEPTED BY THE AO I N THE ORDER OF ASSESSMENT. HE THEREFORE PRAYED THAT THE ORDER OF CIT(APPEALS) SHOULD BE SUSTAINED. ITA NO. 1410/BANG/2013 PAGE 15 OF 25 26. WITH REGARD TO REDUCTION OF A SUM OF RS.6,63,79 ,683 WHICH WAS SHARE OF PROFITS RECEIVED BY THE ASSESSEE AS PARTNE R FROM A PARTNERSHIP FIRM WHICH WAS EXEMPT U/S. 10(2A) OF THE ACT, THE LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS WITH REGARD TO CLAIM U/S. 115JB ARE ALREADY AVAILABLE ON RECORD AND NOTWITHSTANDING THE ASSESSE ES FAILURE TO MAKE A CLAIM IN THE RETURN OF INCOME, IT WAS INCUMBENT ON THE PART OF THE AO TO COMPUTE THE BOOK PROFITS IN ACCORDANCE WITH THE MAN DATE LAID DOWN IN SECTION 115JB OF THE ACT. 27. THE LD. DR IN HIS REJOINDER SUBMITTED THAT U/S. 115JB(4) OF THE ACT, COMPUTATION OF BOOK PROFITS HAS TO BE SUPPORTED BY A REPORT OF AUDITOR IN THE PRESCRIBED FORM AND THAT SUCH A REPORT OF THE AUDIT OR DID NOT CONTAIN EXCLUSION OF THE SUM IN QUESTION FROM THE BOOK PROF ITS. THE LD. DR ALSO SUBMITTED THAT REVISED COMPUTATION OF BOOK PROFITS U/S. 115JB BY THE ASSESSEE WAS NOT SUPPORTED BY A CERTIFICATE OF THE AUDITOR. 28. IN REPLY TO THE AFORESAID CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT REQUIREMENT OF SECTION 115J B(4) IS ONLY PROCEDURAL AND THEREFORE NOT MANDATORY. IT WAS ALSO HIS SUBMI SSION THAT THE REPORT IS NOT CONCLUSIVE IN THE MATTER. ACCORDING TO HIM, IT IS NOT FAIR TO DENY THE ASSESSEE A RELIEF PURELY ON TECHNICALITIES, WHEN OT HERWISE, THE ASSESSEE WAS ENTITLED TO THE SAME. IN THIS REGARD, LD. COUN SEL PLACED RELIANCE ON THE DECISION OF ITAT, BANGALORE BENCH DECISION IN THE C ASE OF SRI LAKHAN SINGH V. ACIT, ITA NO. 1025/BANG/2011 FOR THE AY 2007-08 , WHEREIN ITA NO. 1410/BANG/2013 PAGE 16 OF 25 THE TRIBUNAL HAD AFTER MAKING A REFERENCE TO THE CB DT CIRCULAR NO.14/1955 DATED 11.4.1955 AND CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) HELD AS FOLLOWS:- 10.6 THE HONBLE SUPREME COURT IN THE CASE OF GOE TZE (INDIA) LIMITED V. COMMISSIONER OF INCOME-TAX (SUPRA) RELIE D ON BY THE CIT IS DISTINGUISHABLE ON THE FACTS. THE QUESTION B EFORE THE COURT WAS WHETHER THE APPELLANT-ASSESSEE COULD MAKE A CLA IM FOR DEDUCTION, OTHER THAN BY FILING A REVISED RETURN. A FTER THE RETURN WAS FILED, THE APPELLANT SOUGHT TO CLAIM A DEDUCTIO N BY WAY OF A LETTER BEFORE THE ASSESSING OFFICER. THE CLAIM, THE REFORE, WAS NOT BEFORE THE APPELLATE AUTHORITIES. THE DEDUCTION WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE ACT TO MAKE AN AMENDMENT IN THE RETURN OF INCOME BY MODIFYING AN APPLICATION AT THE ASSESSMENT STAGE WI THOUT REVISING THE RETURN. THE COMMISSIONER OF INCOME-TAX (APPEALS ) ALLOWED THE ASSESSEES APPEAL. THE TRIBUNAL, HOWEVER, ALLOW ED THE DEPARTMENTS APPEAL. IN THE SUPREME COURT, THE ASSE SSEE RELIED UPON THE JUDGMENT IN NATIONAL THERMAL POWER COMPANY LIMITED CONTENDING THAT IT WAS OPEN TO THE ASSESSEE TO RAIS E THE POINTS OF LAW EVEN BEFORE THE TRIBUNAL. THE SUPREME COURT HEL D :- 4. THE DECISION IN QUESTION IS THAT THE POWER OF THE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX AC T, 1961, IS TO ENTERTAIN FOR THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE O F LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DOE S NOT IN ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWIS E THAN BY FILING A REVISED RETURN. IN THE CIRCUMSTANC ES OF THE CASE, WE DISMISS THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE ISSUE IN THIS CASE IS LIMITE D TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POWER OF THE INCOME-TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961. THERE SHALL BE NO ORDER AS TO COSTS. [EMPHASIS SUPPLIED] 10.7 THE HONBLE SUPREME COURT DID NOT HOLD ANYTHI NG CONTRARY TO WHAT WAS HELD IN THE PREVIOUS JUDGMENTS TO THE EFFECT THAT EVEN IF A CLAIM IS NOT MADE BEFORE THE ASSESSI NG OFFICER, IT CAN ITA NO. 1410/BANG/2013 PAGE 17 OF 25 BE MADE BEFORE THE APPELLATE AUTHORITIES. THE JURIS DICTION OF THE APPELLATE AUTHORITIES TO ENTERTAIN SUCH A CLAIM HAS NOT BEEN NEGATED BY THE SUPREME COURT IN THIS JUDGMENT. IN F ACT, THE SUPREME COURT MADE IT CLEAR THAT THE ISSUE IN THE C ASE WAS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND THAT TH E JUDGMENT DOES NOT IMPINGE ON THE POWER OF THE APPELLATE AUTHORITI ES. 10.8 A DIVISION BENCH OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. JAI PARABOLIC SPRINGS LIMITED (2008) REPORTED IN 306 ITR 42 HAD DISTINGUI SHED THE HONBLE APEX COURT JUDGEMENT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA). THE HONBLE DELHI HIGH COURT, IN PARAGRAPH 17 OF THE JUDGMENT HELD THAT THE SUPREME COURT DISMISSED THE APPEAL MAKING IT CLEAR THAT THE DECISION WAS LIMITED TO TH E POWER OF THE ASSESSING AUTHORITY TO ENTERTAIN A CLAIM FOR DEDUCT ION OTHERWISE THAN BY A REVISED RETURN AND DID NOT IMPINGE ON THE POWERS OF THE TRIBUNAL. IN PARAGRAPH 19, THE HONBLE HIGH COURT H ELD THAT THERE WAS NO PROHIBITION ON THE POWERS OF THE TRIBUNAL TO ENTERTAIN AN ADDITIONAL GROUND WHICH, ACCORDING TO THE TRIBUNAL, ARISES IN THE MATTER AND FOR THE JUST DECISION OF THE CASE. 29. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. THE RELEVANT PROVISIONS OF SEC.115JB(2) AND EXPLANA TION THERETO NEED TO BE SEEN. THE SAID PROVISIONS READ THUS: SEC.115JB: SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COMPANIES. 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSE SSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOM E AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2012, IS LESS THAN EIGHTEEN AND ONE-HALF PER CENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL IN COME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RAT E OF EIGHTEEN AND ONE-HALF PER CENT. ITA NO. 1410/BANG/2013 PAGE 18 OF 25 (2) EVERY ASSESSEE, ( A ) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE ( B ), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCO RDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956); OR ( B ) BEING A COMPANY, TO WHICH THE PROVISO TO SUB-SECT ION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLICABLE, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE IT S PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY: PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, ( I ) THE ACCOUNTING POLICIES; ( II ) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SU CH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; ( III ) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS A CCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETI NG IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 1956 (1 OF 1956) : PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956) 97B , WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THI S ACT, ( I ) THE ACCOUNTING POLICIES; ( II ) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SU CH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; ( III ) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, ITA NO. 1410/BANG/2013 PAGE 19 OF 25 SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPREC IATION WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLU DING PROFIT AND LOSS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. EXPLANATION [ 1 ].FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON (2), AS INCREASED BY ( A ) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR ( B ) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVER NAME CALLED [, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC]; OR ( C ) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MAD E FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILI TIES; OR ( D ) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBS IDIARY COMPANIES; OR ( E ) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOS ED ; OR ( F ) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 38 ) THEREOF) OR SECTION 11 OR SECTION 12 APPLY; OR ( G ) THE AMOUNT OF DEPRECIATION, ( H ) THE AMOUNT OF DEFERRED TAX AND THE PROVISION THER EFOR, ( I ) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, ( J ) THE AMOUNT STANDING IN REVALUATION RESERVE RELATI NG TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET, IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OR IF ANY AMOUNT REFERRED T O IN CLAUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY, ITA NO. 1410/BANG/2013 PAGE 20 OF 25 ( I ) OR ( II ) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIO NS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 38 ) THEREOF)] OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR ( IIA ) .. [OTHER PORTIONS OF THE SECTION ARE NOT RELEVANT FOR THE PRESENT CASE]. 30. A READING OF THE PROVISIONS OF SEC.115JB(1) SHO WS THAT WHEN AN ASSESSEE IS A COMPANY AND THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT (UNDER THE NORMAL PROVIS IONS OF THE ACT) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR IS LESS THAN PRESCRIBED PERCENTAGE (THIS PERCENTAGE KEEPS CHANGI NG FOR VARIOUS AYS) OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED T O BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF EI GHTEEN AND ONE-HALF PER CENT. BOOK PROFIT FOR THE PURPOSE OF SEC.115JB OF THE ACT HAS BEEN DEFINED BY EXPLN.-1 BELOW SEC.115JB(2) AS NET PROFIT AS SHO WN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARE D IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANI ES ACT, 1956 (1 OF 1956). EXPLN.1 BELOW SEC.115JB(2) ALSO PROVIDES FOR CERTAI N ADDITIONS AND DEDUCTIONS FROM THE SAID PROFIT WHERE SUCH SUMS HAV E EITHER BEEN ADDED OR ITA NO. 1410/BANG/2013 PAGE 21 OF 25 REDUCED WHILE ARRIVING AT THE PROFIT AS PER PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 195 6). 31. IN THE PRESENT CASE WE ARE CONCERNED WITH ONE ITEM WHICH NEEDS TO BE ADDED TO THE TOTAL INCOME LAID DOWN IN THE FIRST PART OF EXPLN.1 CLAUSE (F) VIZ., THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABL E TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAIN ED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY. ANOTHE R ITEM WHICH NEEDS TO BE EXCLUDED TO THE TOTAL INCOME LAID DOWN IN THE SECON D PART OF EXPLN.1 CLAUSE (II) VIZ., THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. 32. ON THE ISSUE OF REDUCING/EXCLUDING THE SHARE O F PROFITS FROM THE PROFIT AS PER THE P&L ACCOUNT, IN VIEW OF CLAUSE (I I) TO EXPANATION (1) TO SECTION 115JB(2) OF THE ACT, VIZ., THE AMOUNT OF IN COME TO WHICH ANY OF THE PROVISIONS OF SECTION 10, WE ARE OF THE OPINION THA T THE CONTENTIONS PUT FORTH BY THE ASSESSEE ARE ACCEPTABLE. IN THIS REGARD, WE ARE ALSO OF THE VIEW THAT DECISION RENDERED BY THE BANGALORE BENCH OF THE TRI BUNAL REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLEARLY SUPPORTS T HE STAND TAKEN BY THE ASSESSEE. WE, THEREFORE, CONCUR WITH THE VIEW OF T HE CIT(APPEALS) ON THIS ISSUE AND FIND NO MERIT IN GROUND NO.4 RAISED BY TH E REVENUE. ITA NO. 1410/BANG/2013 PAGE 22 OF 25 33. AS FAR AS GROUND NO.3 IS CONCERNED, VIZ., THE A DDITION TO THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, U/S.10 OF THE ACT, IT IS SEEN THAT THE QUANTUM OF EXPENDITURE DIS ALLOWED BY THE AO BY INVOKING THE PROVISIONS OF SEC.14A OF THE ACT WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT HAS NOT BEEN CHALLENGED BY THE ASSESSEE AND THE SAID DISALLOWANCE HAS BEEN ACCEPTE D BY THE ASSESSEE. THE PROVISIONS OF SECTION 115JB EXPLANATION 1(F) LA Y DOWN THAT THE AMOUNT OF EXPENDITURE RELATABLE TO INCOME TO WHICH SECTION 10 APPLIES, SHOULD BE ADDED TO THE PROFIT AS PER THE P&L ACCOUNT. SECTIO N 14A OF THE ACT R.W. RULE 8D OF THE RULES IS A REASONABLE METHOD OF CALC ULATING THE AMOUNT OF EXPENDITURE, IN A CASE WHERE THE ASSESSEE HAS NOT B EEN ABLE TO SATISFY THE AO REGARDING THE QUANTUM OF EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. IF THE ASSESSEE SATISFIES THE AO REGARDING THE QUANTUM OF EXPENDITU RE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT THAN THAT CAN BE ADOPTED FOR THE PURPOSE OF ADDITION UNDER CL AUSE (F) OF EXPLN.1 BELOW SEC.115JB(2) OF THE ACT. RULE 8D OF THE RULE S COME INTO PLAY ONLY WHEN THERE IS NO OTHER BASIS FOR ARRIVING AT THE QU ANTUM OF EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 34. IN OUR OPINION, THE QUESTION FORMULATED BY THE CIT(A) WHETHER SEC. 14A OF THE ACT READ WITH RULE 8D OF THE RULES CAN B E IMPORTED INTO THE ITA NO. 1410/BANG/2013 PAGE 23 OF 25 PROVISIONS OF CLAUSE (F) TO EXPLANATION (1) TO SECT ION 115JB OF THE ACT, IS ITSELF ERRONEOUS. THE QUESTION TO BE ASKED IS AS T O HOW TO GIVE EFFECT TO THE PROVISIONS OF CLAUSE (F) TO EXPLANATION (1) TO SECT ION 115JB OF THE ACT. WE DO NOT THINK THAT THERE IS ANY PROHIBITION TO ADOPT THE DISALLOWANCE MADE BY THE AO U/S.14A OF THE ACT READ WITH RULE 8D OF THE RULES, WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT . THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SECTION 14A O F THE ACT IS VERY SPECIFIC AND IS APPLICABLE ONLY FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT AND THAT SECTION 115JB APPEARS IN CHAPTER XII- B OF THE ACT DEALING WITH SPECIFIC PROVISIONS RELAT ING TO CERTAIN COMPANIES AND THEREFORE THE PROVISIONS OF SEC.14A READ WITH R ULE 8D OF THE RULES CANNOT BE APPLIED WHILE MAKING ADDITION TO NET PROF IT AS PER PROFIT AND LOSS ACCOUNT U/S.115JB EXPLN.1 CLAUSE (F) OF THE ACT, B ECAUSE THE EXPRESSION EXPENDITURE RELATABLE IS USED IN SUB-CLAUSE (F) O F EXPLANATION (1) TO SECTION 115JB OF THE ACT WHEREAS EXPRESSION WITH TH E EXPRESSION USED IN 14A OF THE ACT IS EXPENDITURE INCURRED BY THE ASSE SSEE IN RELATION TO AND THEREFORE ONLY DIRECT EXPENDITURE ATTRIBUTABLE TO E ARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T CAN BE ADDED UNDER CLAUSE(F) OF EXPLN.1 BELOW SEC.115JB(2) OF THE ACT, CANNOT BE ACCEPTED. IN OUR VIEW, THERE IS NO DIFFERENCE BETWEEN THE EXPRES SION EXPENDITURE RELATABLE AND THE EXPRESSION EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO. BOTH THE EXPRESSIONS MEAN THAT WHATE VER EXPENDITURE ARE INCURRED TO EARN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER ITA NO. 1410/BANG/2013 PAGE 24 OF 25 THE ACT, BOTH DIRECT AND INDIRECT EXPENDITURE, HAVE TO BE DISALLOWED. THERE IS NO BASIS FOR THE ARGUMENT U/S. 115JB OF THE ACT, IT IS ONLY DIRECT EXPENSES THAT ARE CONTEMPLATED AS CAPABLE OF BEING ADDED TO THE PROFITS AS PER P&L ACCOUNT UNDER CLAUSE (F) TO EXPLN.1 BELOW SEC.115JB (2) OF THE ACT. 35. AS WE HAVE ALREADY SEEN, THE QUANTUM OF EXPENDI TURE DISALLOWED BY THE AO BY INVOKING THE PROVISIONS OF SEC.14A OF THE ACT WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT HAS NOT BEEN CHALLENGED BY THE ASSESSEE AND THE SAID DISALLOWANC E HAS BEEN ACCEPTED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, WE DO NOT S EE ANY REASON WHY THE SAME DISALLOWANCE CANNOT BE ADOPTED WHILE ARRIV ING AT THE BOOK PROFITS U/S.115JB (2) OF THE ACT READ WITH EXPLANATION 1(F) THERETO. IN OUR VIEW THE CIT(A) HAS FALLEN INTO AN ERROR IN COMING TO A CONC LUSION CONTRARY. WE THEREFORE REVERSE THE ORDER THE CIT(A) AND RESTORE THE ORDER OF THE AO IN THIS REGARD. 36. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF JANUARY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 9 TH JANUARY, 2015. /D S/ ITA NO. 1410/BANG/2013 PAGE 25 OF 25 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.
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