Appeal details
Counselvise Citation
[2023] 101 COUNSELVISE.COM (IT) 2011 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 8 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-08-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
30-05-2023
Assessment Year
2009-2010
Appeal Filed On
04-12-2019
Judgement Text
आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA Nos. 1547 to 1549/Chd/ 2019 िनधाᭅरण वषᭅ / Assessment Years : 2009-10 to 2011-12 M/s Venus Remedies Limited SCO 857, Cabin 10 , 2 nd Floor, NAC, Manimajra (Chandigarh) बनाम The Asstt. CIT Circle 5 (1), Chandigarh ᭭थायी लेखा सं./PAN NO: AAACV6524H अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Rajesh Sethi & Shri Jaspal Sharma, Advocate राज᭭व कᳱ ओर से/ Revenue by : Shri Sarabjeet Singh, CIT, DR सुनवाई कᳱ तारीख/Date of Hearing : 31/05/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 24/08/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : These are appeals filed by the Assessee against the order of the Ld. CIT(A)-2, Chandigarh dt. 02/09/2019 pertaining to Assessment Years 2009-10, 2010-11 & 2011-12. 2. Since common issues are involved, all these appeals were heard together and are being disposed off by this consolidated order. 3. At the outset it is noted that it is the second round of appellate proceeding before this Tribunal, in the earlier round the Coordinate Bench vide its order dt. 22/01/2018 in ITA Nos. 1238 to 1241/Chd/2017 and C.O. Nos. 51 to 54/Chd/2017 has set aside the matter to the file of the Ld. CIT(A) to decide the same afresh. 4. With the consent of both the parties, the case of the Assessee in ITA No. 1547/Chd/2019 pertaining to Assessment Year 2009-10 is taken as a lead case wherein the relevant facts are that the assessee filed its return of income on 2 30/09/2009 declaring total income of Rs. 12,91,67,010/- under normal provisions of the Act and for the purpose of MAT liability under section 115JB of the Act, the book profit were declared at Rs. 48,92,35,027/-. Subsequently, the case of the assessee was selected for scrutiny and after calling for information and documentation, the assessment order was passed on 30/12/2011 under section 143(3) wherein the income under the normal provision was determined at Rs. 14,22,51,760/- and book profit as declared by the assessee at Rs. 48,92,35,027/- was accepted. 5. The assessee thereafter filed a rectification application under section 154 dt. 31/03/2016 stating that there was a mistake apparent on record relating to revenue expenditure incurred by the company amounting to Rs 35,67,94,891/- which is liable for deduction from book profits for the purpose of calculation of MAT liability and which has not been allowed while computing the book profits and in support, reliance was placed on the decision of Hon’ble Supreme Court in case of M/s Karnataka Soaps and Detergents Limited in Special Leave to Appeal (C) No. 19860 of 2015 dt. 16/11/2015. 6. The AO thereafter passed the rectification order on 29/06/2016 wherein the application filed by the assessee seeking rectification was rejected. As per the AO, since assessee has omitted to raise the claim regarding deferred revenue expenditure in its return of income, it would amount to fresh determination of fact and for this reason the rectification under section 154 cannot be considered. 7. The assessee carried the matter in appeal before the Ld. CIT(A) and it was submitted that the revenue expenditure amounting to Rs. 35,67,94,891/- was incurred during the year on clinical trial, new market launches, new product launches, dossier development, product registration, R&D expenses related to development of new product, patent registration, material consumed, consultancy charges, testing charges, travelling and other administrative 3 expenses etc. and the same has been debited in the books of accounts as intangible asset under the head “Patents IPR Technologies” in the balance sheet and was amortised over ten years in equal proportion. It was submitted that the revenue expenditure treated as intangible asset was required to be reduced while calculating the book profits under section 115JB of the Act in view of the judgment of the Hon’ble Supreme Court in Karnataka Soaps and detergents (Supra) and hence, there was a mistake apparent from record which needs to be rectified and which the AO has failed to rectify. 8. The Ld. CIT(A) disposed off the assessee’s appeal by his order dt. 13/06/2017 restoring the matter to the file of the AO for passing a speaking order under section 154 of the Act. Thereafter, both the Revenue and the Assessee moved in appeal before the Tribunal and thereafter the Coordinate Bench vide its order dt. 22/01/2018 set aside the matter to the file of the Ld. CIT(A)to adjudicate the matter afresh. 9. Thereafter, the matter was taken up by the Ld CIT(A) and necessary information and documentation were called for and after taking into consideration the same, the appeal of the assessee was dismissed by the Ld. CIT(A) vide his impugned order dt. 02/09/2019 and against the said order and the findings of the Ld. CIT(A), the assessee has come again in appeal before this Tribunal. 10. Ground No. 1 & 2 are general in nature and does not require any specific adjudication. 11. In Ground No. 3, the assessee has challenged the findings of the Ld. CIT(A) wherein he has held that the decision of the Hon’ble Supreme Court in case of Karnataka Soaps & Detergents Ltd. was one of dismissal of SLP at the admission stage and the same cannot be construed as having interpreted the law or laid 4 down the law and the same cannot be construed as Supreme Court’s order to bring within the purview of CBDT Circular N. 68 dt. 17/11/1971. 12. In this regard, it was submitted that the Hon’ble Karnataka High Court in case of CIT Vs. Karnataka Soaps & Detergents Ltd. have passed an order dt. 13/10/2014 reported in (2015) 59 taxmann.com 43(Kar) in case of three matters and which has since attained finality as the SLP filed by the Revenue challenging the said order has been dismissed by the Hon’ble Supreme Court on 16/11/2015 disposing off two SLP and thereafter, on 14/12/2015 disposing off the third SLP. It was submitted that neither the Hon’ble Supreme Court nor any other Hon’ble High Court has passed any contradictory judgment in this regard till date which mean that the legal position laid down by the Hon’ble Supreme Court still holds good for all intents and purposes. 13. It was submitted that the ratio of the judgment of Hon’ble Karnataka High Court is binding on the Revenue authority and the Revenue Authorities cannot be permitted to say that the Authorities in Karnataka would follow the said decision where as the Authorities in other jurisdiction would not follow the said decision being the only decision available on the subject which is binding on the Revenue Authorities at the all India Level. It was further submitted that the plain reading of the order dt. 14/12/2015 passed by the Hon’ble Supreme Court makes it explicit clear that the Hon’ble Supreme Court has in-fact applied his mind before dismissing the said SLP. It was submitted that the Hon’ble Supreme Court has dismissed the SLP after careful consideration of facts and law after being fully convinced that the judgment rendered by Hon’ble Karnataka High Court does not require any interference on facts and law. 14. In Ground No. 4, the assessee has challenged the findings of the Ld. CIT(A) wherein he has held that once the accounts have been prepared as per the Companies Act and certified by the Statutory Auditors, then there is no adjustment that can be made for the purposes of section 115JB of the Act 5 except the changes enumerated therein. In this regard, it was submitted that the P&L account has to be prepared necessarily on the basis of books of accounts in accordance with Part II of Schedule VI to the Companies Act. Therefore any revenue expenditure incurred by the assessee during the previous year but not debited to the P&L account has to be reduced while calculating the book profit as contemplated in Part II of Schedule VI to the Companies Act. 15. In Ground No. 5, the assessee has challenged the findings of the Ld. CIT(A) wherein he has held that the assessee had precluded the department from examining the actual character of the expenditure whether revenue or capital. In this regard, it was submitted that the Ld. CIT(A) ought to have appreciated that the revenue expenses incurred by the appellant for a sum of Rs.35,67,94,891/- debited in the books of accounts as intangible asset under the head "Patents IPR Technologies" shown in the balance sheet is required to be reduced while calculating the book profit under section 115JB of the Act on the facts and circumstances of the case. It was submitted that the revenue expenses amounting to Rs.35,67,94,891/- were incurred during the relevant year on Clinical Trial, new market launches, new product launches, dossier development, product registration, R&D expenses related to development of new product, patent registration, material consumed, consultancy charges, testing charges, travelling and other administrative expenses etc which is evident from S.No.15 read with Note in schedule- E of 'depreciation schedule' annexed with the audited balance sheet already on record (page 64 of Paper book). Due to the said revenue expenditure, profit of the company would have been very low if debited directly to the Profit & Loss account and in order to reflect more profit in the profit & loss account for the purpose of shareholders, this revenue expenditure was charged to Balance sheet as intangible assets under the head "Patents IPR Technologies" As such, this amount of revenue expenditure treated as Intangible asset was required to be reduced while calculating the Book Profit in terms of part II of schedule VI of Companies Act. 6 Reliance in this behalf is placed on the decision of Hon'ble High Court of Karnataka in CIT Vs. Karnataka Soaps & Detergents Ltd where it has been held that it is the profit and loss account prepared on the basis of the books of accounts as contemplated in Part II of Schedule VI which should form and assist to find out what is the profit earned and on that profit, tax is levied. The SLP filed by the revenue against the above referred order of Karnataka High Court, was dismissed by the Hon'ble Apex Court vide order dated 14.12.2015 as submitted above. In other words, it was submitted that to find out what is net profit, one has to look into the books of accounts maintained by the company and the profit and loss account prepared on the basis of such books of accounts. 16. It was further submitted that while calculating the book profit as per MAT provisions u/s 115JB of the Income-tax Act, 1961, the deferred revenue expenditure reflected in the books of accounts were not taken into consideration and the appellant is entitled to reduce a sum of Rs.35,67,94,891/- while computing the book profit under section 115JB of the Act on the facts and circumstances of the case. It was submitted that the authorities below ought to have allowed the benefit of reducing a sum of Rs. 35,67,94,891/- while computing the books profit under section 115JB of the Act, which was not debited to the profit and loss account and shown as deferred revenue expenditure under the head "Patents IPR Technologies" as reflected in the balance sheet by considering the CBDT Circular No. 14(XL-35) of 1955, dated 11.04.1955 on the facts and circumstances of the case wherein the contents thereof read as under: "Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a tax payer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assesses on whom it is imposed by law, officers should- 7 (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs". 17. It was submitted that a reading of the aforesaid circular explicitly demonstrates that a duty is cast upon the Assessing officer to assist and help the assessee in the matter of taxation. They are obliged to advise the assessee and guide them and not to take advantage of any error or mistake committed by the assessee on account of their ignorance. The function of the Assessing Officer is to administer the statute with solicitude for public exchequer with an inbuilt idea of fairness to taxpayers. It was submitted that this very issue is also covered by the decision of the Hon'ble Supreme Court in the case of Anchor Pressings Pvt Ltd. vs CIT (1986) 161 ITR 159 (SC) where, the assessee had not claimed relief u/s 84 and made the claim for the first time in the application u/s 154. It was observed by the Hon'ble Supreme Court that there is no bar on admitting the claim of the assessee for the first time u/s 154 of the Income Tax Act but placed a rider that there must be clear data before the Assessing officer sufficient to enable him to consider whether the relief sought should be granted. It was submitted that the gamut of the aforesaid judgment of Anchor Pressing was subsequently applied by the Chandigarh Benches in Sangrur Vanaspati Mills limited vs Deputy Commissioner of Income tax (1996)57 ITD 208 (Chd) wherein it was held as under: "13. Under the Income Tax Act, the Assessing Officer has to compute the income according the provisions of law. Section 80HH is part of the Act. It is true that there is an obligation on the part Of the assessee also to claim a particular relief or deduction but the Assessing Officer has also a duty to see that if through inadvertence or otherwise a particular relief which is otherwise admissible to the assessee has been omitted to be claimed, it should be allowed to the assessee. In the present case, the claim for relief under section 80HH surfaced only when the Assessing officer passed the consequential order on 24.11.1988. The assessee there- upon filed application under section 154 and also an appeal against the said order. Under the circumstances, this is all what the assessee could do. Since the precise factual material and clear data for getting the necessary relief under section 80HH was available on record, the Assessing officer could not throw away 8 the assessee's application for rectification. In our opinion, the revenue authorities were not justified in rejecting the claim of the assessee. We accordingly hold that the assessee's application under section 154 did lie in the present case." 18. It was accordingly submitted that as all the relevant facts were already emerging from record as being available in the balance sheet and also in the assessment order passed u/s 143(3) dated 30.12.2011, the claim of the assessee that the revenue expenses incurred by the appellant for a sum of Rs.35,67,94,891/- debited in the books of accounts as intangible asset under the head "Patents IPR Technologies" shown in the balance sheet is required to be allowed while calculating the book profit under section 115JB of the Act on the facts and circumstances of the case. 19. It was further submitted that the assessee, inadvertently could not take into account the deferred revenue expenses while computing book profits under MAT provisions. It is apt to submit here that while drawing balance sheet as on 31.03.2009, an amount of Rs. 35,67,94,891/-representing revenue expenses was not debited to the P&L account, although it was shown as deferred revenue expenses under the head "Patents IPR Technologies" and is reflected at S.No.15 in schedule- E of 'depreciation schedule' annexed with the balance sheet. However, later while realizing its mistake, which is apparent from the documents available on record, the assessee filed the rectification application u/s 154 of Income Tax Act, 1961, to rectify the said mistake. It was submitted that assessee is entitled to claim the same i.e. to rectify the mistake which is apparent from records, even in subsequent proceeding(s) as have also been observed by Hon'ble Bombay High Court vide its judgement dated 21.06.2012 in a case titled as "Commissioner of Income Tax, Central-1, Mumbai Vs Pruthvi Brokers & Shareholders". The Hon'ble Court has stated as under: "It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their 9 jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction". 20. It was further submitted that looking at the matter from yet another angle, in case the present assessee /appellant herein, if it was/is being assessed in the State of Karnataka then the Income Tax Department is bound to acknowledge its similar claim as per ratio of "Commissioner of Income Tax, Central Circle, Bangalore Vs. Karnataka Soaps and Detergents Ltd." (supra) and in case it is being assessed anywhere else other than State of Karnataka then how the Income Tax Department in the similar facts and circumstances can deny / decline to adopt the same line of action and that too without there being any change in the fact situation. Such an action of the department in taking a self contradictory and inconsistent view qua applicability of law with regard to two similar assessees would on one hand be treated and termed as arbitrary, discriminatory, unfair and on the other hand would mean colourable exercise of power by department and which shall further give rise to confusion, uncertainty and inconsistency will also amount to be in utter defiance and disobedience of the first principle of law envisaging that the relationship between the State and Subject remains that of 'mother' and 'son'. That moreover it is also well settled fundamental principle of law that It is not necessary for every affected person to approach the Court seeking an order in his/her favour once the matter has already been settled by the Court- The benefit of judicial pronouncement after the same attains finality is required to be given automatically to all such persons whose cases are covered by such decision. In case any judicial precedent is required to be cited in this behalf then reference can be drawn from the one titled as "Jugal Kishore Vs. State of Haryana" reported in 2009(3) SCT 433; inter- alia observing as under: "A. Constitution of India, Articles 16 and 14- Judicial pronouncements- Benefit of higher scale granted by High Court accepting writ petition of an employee of University- It is incumbent upon university to grant said benefit to all such affected employees covered by decision of High Court- Held :-It is not necessary for every affected person to approach the Court seeking an order in his/her favour once the matter has already been settled by the Court- The benefit of judicial 10 pronouncement after the same attains finality is required to be given au- tomatically to all such persons whose cases are covered by such decision.” B. Constitution of India, Articles 16 and 14- Constitution of India, Article 141- Judicial pronouncements- Ratio decendi- Precedent- It is not necessary for every affected person to approach the Court seeking an order in his/her favour once the matter has already been settled by the Court- The benefit of judicial pronouncement after the same attains finality is required to be given automatically to all such persons whose cases are covered by such decision." 21. It was accordingly submitted that keeping in view the factual and legal submissions made herein-above, supported by aforesaid judgements, since all the relevant facts were available in the balance sheet and also in the assessment order passed u/s 143(3) dated 30.12.2011 forming part of the records, the claim of the assessee falls within the ambit of section 154 as per legal provisions & judicial precedents and as such, claim of assessee qua rectification may be allowed, in the interest of justice, equity and fair play. 22. Per contra, the Ld. CIT DR relied on the order of the Ld. CIT(A) and taken us through the findings of the Ld. CIT(A) and it was submitted that the main thrust of the Ld. AR is that the case of the assessee is made out under section 154 when in subsequent proceedings, the Hon’ble Supreme Court lays down the law of the land and which is also claimed to be in sync with CBDT Circular No. 68 dated 17.11.1971. It was submitted that undeniably, the import of both the circular and the interpretations of the statute by judicial forums clearly emphasize that the Section 154 can be done if the Supreme Court through subsequent interpretation lays down the law of the land and therefore in the instant case it is necessary to see whether the dismissal of the SLP by the Hon’ble Supreme Court qualifies as the one lays down the law of the land in terms of fresh interpretation. Referring to the decision of the Hon’ble Supreme Court in case of Kunhayammed Vs. State of Kerala [2000] 113 Taxman 470 (SC) and subsequent decision in case of Khoday Distriller Ltd., it was submitted that dismissal at the stage of SLP without reasons would lead neither to the principle 11 of res judicata nor the principle of merger. It was accordingly, submitted that the contention of the assessee relating to interpretation of the Hon’ble Supreme Court decision as lays down the law of the land and bringing the same within the applicability of CBDT Circular No. 68 dt. 17/11/191 cannot be accepted. 23. It was further submitted that the claim was not made earlier and it was fairly conceded by the assessee that in order to shore up its profits for the consumption of its shareholders had taken, what it construes as revenue expenses, to the balance sheet as intangible assets under the head 'Patents IPR Technologies". By adopting this, by implication, the assessee had precluded the department since the proceedings had been under taken u/s 143(3) from examining the actual character of the expenditure whether capital or revenue. It claims expenditure to be revenue expenses which prima facie may be construed as capital. 24. It was further submitted that it has been held in the case of Malayalam Manorma Vs. CIT [2008] 169 Taxman 471(SC) and Apollo Tyre Vs. CIT [2002] 122 Taxman 562(SC) that once accounts have been prepared as per the Companies Act, 1956 and certified by the statutory auditors then there is no adjustment that can be made for the purpose of Income Tax Act u/s 115JB except the changes enumerated therein. The confession that profits had been shored up for the consumption of its shareholders in the present case clearly implies that the same had been certified by the statutory auditors. There is nothing projected, on behalf of the assessee, to counter how the facts of its case don't attract adoption of the ratio laid down in the above cited cases by the Apex Court. Even if they did it would not, in any sense, be construed as a mistake apparent from record. 25. It was submitted that the reference to the decisions in the cases of ACIT vs Saurashtra Kutch Stock Exchange Ltd [2008] 173 Taxman 322(SC); CIT Vs Aruna Luthra 252 ITR 76(P&H); and Mepco Industries Ltd Vs CIT 319 ITR 208(SC) to drive 12 home the point that rectification can be made on the basis of decision of Hon'ble Supreme Court, is misplaced and not tenable in light of the finding of the ld CIT(A) that the decision in the case of Karnataka Soaps & Detergents Ltd was one of dismissal of SLP at the admission stage and which can't be construed either as having interpreted the law or laid down the law. Similarly, reliance placed on the Apex Court's decision on Anchor Pressings Pvt Ltd Vs CIT[1986] 161 ITR 159(SC) is also distinguishable. 26. It was accordingly submitted that there is no infirmity in the order of the AO rejecting the application u/s 154 and the ld CIT(A) confirming the same, thus, the appeal so filed by the assessee be dismissed. 27. We have heard the rival contentions and purused the material available on record. In the instant case, the assessment order under section 143(3) was passed on 30/12/2011 wherein the tax liability was determined by the AO under the provisions of section 115JB of the Act being higher than the tax liability computed under the normal provision of the Act. Subsequently, the assessee moved a rectification application under section 154 dt. 31/03/2016 stating that the revenue expenditure amounting to Rs. 35,67,94,891/- incurred during the year under consideration has not been reduced from book profit for the purpose of calculation of MAT liability. In this regard, it has been contended that the book profits have to be computed as per the P&L Account prepared in accordance with Part II of Schedule VI of the Companies Act. Therefore any revenue expenditure incurred by the assessee during the previous year even though not debited to the P&L Account has to be reduced while calculating the book profit as contemplated in Part II of Schedule VI of the Companies Act. It was submitted that in the instant case, the revenue expenditure amounting to Rs. 35,67,94,891/- was incurred during the year on Clinical Trial, new market launches, new product launches, dossier development product registration, R&D expenses etc. and the same have been shown in the books of account as 13 intangible assets under the head “ Patents IPR Technologies” in the balance sheet and the same has been amortised over a period of ten years instead of debiting the whole of the expenditure in the profit/loss account. It was submitted that the said accounting treatment was done for the purpose of reflecting higher net profits in the profit/loss account for the purposes of consumption of share holders and had the whole of the expenditure being debited to the P&L account, it would have resulted in lower profits. It was however submitted that if book profit have to be determined in terms of profit/loss account as per Part II of Schedule VI of the Act, the whole of the Revenue expenditure have to be taken into consideration to arrive at the correct profit and basis which the tax liability under section 115JB of the Act has to be computed. In support, reliance has been placed on the decision of Hon’ble Supreme Court in case of Karnataka Soaps (supra) wherein the SLP filed by the Revenue against the order of the Hon’ble Karnataka High Court has been dismissed and the matter has attained finality and is no more debatable. 28. The relevant facts before the Hon’ble Karnataka High Court were that in three cases, the assessee has been brought to tax under section 115JA of the Act and the Assessing authority had refused to reduce the deferred revenue expenditure from the book profit while working out the MAT computation by observing that there is no provision under section 115JA of the Act to change the nature of expenses shown in the books of account. The assessee contended that neither the Income Tax Act nor Schedule-VI of the Companies Act contemplates the concept of deferred revenue expenditure and to compute book profit, the deferred revenue expenditure has to be deducted. Whereas the contention of the Revenue was that as per Sub Section (2) of Section 115JA of the Act, every assessee being a company shall for the purposes of Section 115JA prepared its P&L Account in accordance with the provision of Part II and Part III of Schedule VI of the Companies Act subject to certain adjustment as so specified and in the instant case, the assessee had not specified whether the 14 deferred revenue expenditure is covered under any of the adjustment as so specified. The Hon’ble Karnataka High Court referred to the findings of the Tribunal wherein the Tribunal had held that the Act does not recognize or define the deferred revenue expenditure. It is something that is a fancy of the accounting world. This has been so enunciated for highlighting such an expenditure for the benefit which is said to accrue over the years and treat them as justifiable against income that could be earned in the future. It is something like expenditure incurred with the expectation of earning income and increasing the income over the years. It is with this concept based on which the accounting terminology brought about the word deferred revenue expenditure. Therefore the assessee is entitled to prepare its profit and loss account for the purposes of Section 115JA claiming the entire expenditure as revenue expenditure while in the published accounts it was claimed only partly. 29. The Hon’ble Karnataka High Court, thereafter referring to the order of the Hon’ble Supreme Court in case of Apollo Tyres Ltd. Vs. CIT and the speech of the Hon’ble Finance Minister while introducing Section 115J as well as Clause (2) of part II of Schedule VI which deals with the profit/loss account held that the provision of Section 115J deals with the deemed income and the object behind is to prevent the assessee from adjusting the accounts or manipulating the accounts so as to avoid payment of tax on the ground that they have not earned any profit at all therefore the said provision were introduced insisting on preparation of P&L Account in accordance with the provision of Part II and III of Schedule VI of the Companies Act and once the assessee has incurred expenditure and it is deducted in terms of Part II of Schedule VI of the Companies Act and the profit is arrived at, merely because in the printed P&L Account for the purpose of showing to the share holders, the profit is made by the Company and the entire expenditure is not deducted and a portion is shown as deferred revenue expenditure, the assessee cannot be denied the benefit of actual expenditure incurred. It has been further held by the Hon’ble 15 Karnataka High Court that when the assessee has actually incurred expenditure and tax liability is less when compared with the net profit arrived at after giving deduction to the actual expenditure, the tax payable is on that net profit and not on the fancy figure shown in the P&L Account for the purpose of showing profits to the share holders. It has been further held by the Hon’ble Karnataka High Court that for the purpose of determination of the net profit, one has to look into books of account maintained by the company and the P&L Account prepared on the basis of such books of account and what is shown in the printed balance sheet for the benefit of the share holders will not reflect the true state of affairs and cannot be made the basis for levying tax under this Act and accordingly, the findings of the Tribunal were confirmed. The relevant findings of the Hon’ble Karnataka High Court are contained in para 13 to 17 of its order which read as under: “13. From the aforesaid, speech-of the Hon'ble Finance' Minister of India, it is-, clear that the IT authorities were unable to bring certain companies within the net income tax because these companies were adjusting then accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies- within the tax net that Section 1.15 J, was introduced in the Act with a deeming provision which makes the company liable to pay tax or at least 30% of its book profits as shown in its own account. Therefore, the object of this Section is to prevent the mischief. Therefore while applying the Section what is to be borne in mind is whether the assessee is trying to avoid payment of tax by any manipulative process by adjustment of accounts, Sub-Section (2) of Section 115J(1A) makes it clear that every assessee, being a company shall for the purpose of this Section, prepare its profit and loss account for the relevant previous year in accordance with the provision of Parts II and III of Schedule-VI of the Companies Act, 1956. Thereafter, the same shall be placed before the Company at its Annual General Meeting in accordance with the provisions of Section 210 of the Companies Act. When once it is adopted, it attains finality. Therefore, the explanation provides for-the purpose of Section -115 JA, 'book profit' means the net profit as shown in the P & L account for the relevant previous year prepared under Sub-Section (2). Part-I of Schedule-VI of the Companies. Act, 1956 deals with the Form of Balance Sheet. Part-II of Schedule- VI deals with the Requirements as to Profit and Loss Account Clause (2) of Part-H of Schedule-VI which deals with the. Profit and Loss Account reads as under: " The profit and loss account - . (a) shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account; and. 16 (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exception nature”. Part-III of Schedule-VI deals with the Interpretation. Therefore, Part-II of Schedule- VI of the Companies Act specifically provides for preparation of profit and loss account disclosing the expenses in respect of non-recurring transactions or transactions of an exceptional nature. 14. It is not in dispute that the assessee has incurred the expenses as stated above for the years 1999-2000, 2000-01 and 2006-07. The net profit could be determined only after deducting the aforesaid amount. The assessee is seeking for. deduction of the said amount which has actually incurred. However, in the P&L account which is printed for the purpose of showing it to the shareholders in order to show that they have earned some profits, they do not want to deduct the entire-amount. They want to defer these expenses for the subsequent years in which they intend-to earn profits because of the expenditure in those years. Therefore, the figure of profits shown in the printed balance sheet is more than the profit earned by the assessee/company in terms of the books of account maintained according to Part-H and Part-Ill of Schedule VI of the Companies Act. 15. The argument is even though they have incurred the entire expenditure as in the printed P & L account, the same is not shown and a portion of it is shown as deferred expenditure. That portion as deferred expenditure cannot be deducted. There cannot be two balance sheets - one for the purpose of income tax and another for the purpose of showing it to the shareholders under the Income Tax Act and therefore, it was contended that the order passed by the Tribunal is incorrect. 16. As is clear from Section 115 JA of the Act, it deals with the 'deemed income'. In other-words it is not the actual income earned by the assessee. The object behind it is to prevent the assessee from adjusting the accounts or manipulating the accounts so as to avoid payment of tax-on the ground that they have not earned any profit at all. Therefore, the said provision was introduced insisting of preparation of profit and loss account for the .relevant previous year in accordance with the provisions of Part-II and III of Schedule-VI to the Companies Act, 1956. Once such an account is prepared and certified by the auditors, the same becomes the basis for levying tax on book profit. When once the assessee has incurred an expenditure and it is deducted in terms of Part-II of Schedule-VI of the Companies Act and the profit is arrived at, merely because in the printed P & L account for the purpose of showing to the shareholders that a profit is made by the Company, the entire expenditure is not deducted and a portion of it is shown as a deferred expenditure, the assessee cannot be denied the benefit of actual expenditure incurred. The assessee is not showing the actual expenditure incurred to avoid payment of tax. On the contrary when tire actual expenditure is given deduction to, the profit margin gets reduced. It is by showing it to the P & L account, a portion of it as a deferred payment, artificially the profit has gone up. The object of Section 115JA being to avoid adjustment of account, manipulation of figures to avoid payment of tax. When the assessee has actually incurred expenditure and the tax liability is less when compared with the net profit arrived at after giving deduction to the 17 actual expenditure, tire tax payable is on that net profit and not on the fancy figure shown in the P & L account for the purpose of showing profit to the shareholders. In other words, to find out what is net profit one has to look into the books of account maintained by the company and the profit and loss account prepared on the basis of such book of accounts. What is shown in the printed balance sheet is for the benefit of the shareholders as it will not reflect the true state of affairs and that cannot be made the basis for levying tax under the Act. This is precisely what the Tribunal has held. Neither under the Companies Act nor under the Income Tax Act, this concept of deferred expenditure is recognized. That is a-pathology used by the chartered accountants to show to the shareholders that the company has made profit though it has not earned profits. In other words it is nothing but a window dressing and the authority should not be mislead or guided by this balance sheet which is prepared to satisfy the shareholders. It is the P & L account prepared on the basis of the books of account as contemplated in Part-II of Schedule VI which should form and assist to find out what is the profit earned and on that profit, tax is levied. 17. In that view of the matter, the order passed by the Tribunal cannot be found fault with. It is in accordance with law. Hence, the substantial questions of law are answered in favour of the assessee and against the revenue.” 30. In the instant case, on perusal of the balance sheet, in particulars Schedule - E, we find that the assessee has incurred revenue expenditure of Rs. 35,67,94,891/- on Patents / Trademark registration, Clinical Trials, product launching registration, consultancy expenses, process validation etc. and these revenue expenditure are treated as deferred expenses under the head Patent/ IPR/ Technology for write off over the next few years and during the year under consideration, out of the same, an amount of Rs. 15,313,959/- has been written off and claimed in the P&L Account as apparent from Schedule Q under the head “Administrative & Other Expenses”. Therefore, there is no dispute that the assessee has incurred revenue expenditure during the year however only a part has been shown and debited in the P&L Account and the remaining amount has been shown in the balance sheet. Where the book profit have to be determined in terms of profit/loss account prepared in accordance with Part II Schedule VI of the Companies Act, the profit and loss account shall be so made out as clearly to disclose the results of the working of the company during the period and shall disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature, the whole of the revenue expenditure incurred by the 18 assessee amounting to Rs 35,67,94,891 (and not just a part thereof as shown currently at Rs. 15,313,959/-) during the previous year has to be reduced while calculating the net profit. There is no concept of part recognition of revenue expenditure in Part II Schedule VI of the Companies Act and therefore, where the assessee has debited a part of the revenue expenditure in the profit/loss account, the profit/loss account so prepared is not in accordance with Part II Schedule VI of the Companies Act and has apparently been done for presentation to and consumption of the shareholders. 31. We therefore find that these facts are clearly emerging from the books of accounts so prepared by the assessee and as so reflected on the face of the balance sheet and profit/loss account and does not require any long drawn process of reasoning or analysis and therefore where the tax liability has been computed under section 115JB of the Act, the book profit have to be determined in terms of Part II of Schedule VI of the Companies Act which necessarily include the book profit after allowing deduction for whole of the Revenue expenditure. We therefore find that the facts of the present case are pari materia with the facts as well as the issue (Section 115JA has been substituted by Section 115JB) before Hon’ble Karnataka High Court and the application of the assessee seeking rectification under section 154 of the Act drawn support rightly from the decision of the Hon’ble Karnataka High Court. 32. There is no other contrary decision either of the jurisdictional High Court or any other High Court which has been brought to our notice therefore we find that the claim of the assessee seeking rectification under section 154 deserves to be accepted. None of the lower authorities or the Ld. CIT DR during the course of proceeding before this Bench could point out any distinguishing features in assessee’s case vis a vis the case before the Hon’ble Karnataka High Court and the said decision is directly on the point raised in the present appeal. We therefore find that being the only decision on this subject which has been 19 brought to our notice and which has attained finality in view of the dismissal of SLP by Hon’ble Supreme Court, we are clearly guided by the decision of Hon’ble Karnataka High Court even though the same is not of the jurisdictional High Court and we see no reason except to follow the same. In this regard, useful reference can be drawn from the decision of the Hon’ble Bombay High Court in case of CIT vs Smt. Godavaridevi Saraf (1978) 113 ITR 589 wherein it was held that the Income Tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though, of a different state, so long as there is no contrary decision of any other High Court on that question. Further, the Hon’ble Bombay High Court in case of CIT vs Thana Electricity Supply Ltd (1994) 206 ITR 727 has held that it is well settled that though the decision of a High Court will have the force of binding precedent only in the state or territories on which the Court has jurisdiction, however, in other states or outside the territorial jurisdiction of that High Court, it may have persuasive effect. 33. Further, as we have noticed above, these facts are apparent on the fact of the record and not something which has to be established by the long drawn process of reasoning or whether two opinions are possible. The issue here is whether the profit/loss account should account for all expenditure incurred by the assessee during the year or not and the answer to the same is only one and that is, the whole of the expenditure has to be accounted for to arrive at the correct net profit and the net profit so arrived would form the basis for determination of MAT liability. This is what which has been provided in Part II of Schedule VI of the Companies Act and which has been considered and reiterated by the Hon’ble Karnataka High Court. The matter is no more debatable and has since attained finality in view of dismissal of SLP by the Hon’ble Supreme Court and the same is thus rectifiable in terms of Section 154 of the Act. The import of CBDT Circular No. 68 dt. 17/11/1971 therefore have to be read in context of matter attaining finality and no more debatable in view of decision of Hon’ble Supreme Court. 20 34. In fact, if we look at the order of the AO rejecting assessee’s application under section 154, he has merely rejected the application stating that since the assessee has not claimed the deferred revenue expenditure in the return of income, its claim does not came under the purview of Section 154 of the Act. We therefore find that even the AO has not disputed that these facts are emerging on the face of the record and only because the assessee has not claimed the same while filing the return of income, the said claim has been denied. 35. We find that the AO is apparently guided by the decision of the Hon’ble Supreme court in case of Goetze (India) Ltd. vs CIT (2006) 284 ITR 323 SC wherein dealing with the power of the Assessing officer, it was held that the Assessing officer cannot entertain a claim for deduction otherwise than by filing a revised return. We find that the matter has since travelled to the ld CIT(A) and even the ld CIT(A) has not allowed the claim of the assessee and there is nothing under law that the ld CIT(A) cannot entertain such claim during the course of appellate proceedings. All that is required is that there has to be mistake apparent from record which we have seen above is clearly emerging from the records that the profit/loss account so prepared by the assessee doesn’t account for whole of the revenue expenditure which is a mandatorily requirement under the Companies Act and which forms the basis for determination of book profits for the purposes of computing the MAT liability in terms of sub-section (2) of section 115JB of the Act. 36. In light of aforesaid discussions, we set-aside the order of the ld CIT(A) and direct the AO to allow the necessary relief to the assessee by allowing whole of the revenue expenditure of Rs 35,67,94,891/- while computing the book profits for the purposes of levy of MAT liability u/s 115JB of the Act. 37. In ITA No. 1547/CHD/2019 and 1548/CHD/2019 for A.Y 2010-11 and A.Y 2011-12 respectively, both the parties fairly submitted that the facts and 21 circumstances of the case are exactly identical and similar contentions as raised in ITA No. 1547/CHD/2019 may be considered. In light of submissions made by both the parties, our findings and directions contained in ITA No. 1547/CHD/2019 shall apply mutatis mutandis to these two appeals and the AO is directed to recompute the book profit after allowing deduction of the whole of the expenditure incurred by the assessee company amounting to Rs 40,17,28,061/- for A.Y 2010-11 and Rs 51,42,00,520 for A.Y 2011-12 respectively and compute the MAT liability u/s 115JB accordingly. 38. In the result, all three appeals are allowed. Order pronounced in the open Court on 24/08/2023 Sd/- Sd/- आकाश दीप जैन िवᮓम ᳲसह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 24/08/2023 FIT FOR PUBLICATION Sd/- Sd/- (A.D.JAIN) (VIKRAM SINGH YADAV) VICE PRESIDENT ACCOUNTANT MEMBER आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. आयकर आयुᲦ (अपील)/ The CIT(A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 6. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar
AI Insights
The case involves M/s Venus Remedies Limited, which appealed against the order of the CIT(A)-2, Chandigarh, pertaining to the assessment years 2009-10, 2010-11, and 2011-12. The primary issue was the treatment of revenue expenditure amounting to Rs. 35,67,94,891/-, which the assessee claimed should be deducted from the book profits while calculating the MAT liability under section 115JB of the Income Tax Act. The expenditure was incurred on various activities like clinical trials, new market launches, and R&D, and was treated as an intangible asset amortized over ten years. The Tribunal's decision was influenced by the precedent set by the Hon'ble Karnataka High Court in a similar case, which had been upheld by the Supreme Court.
