The ACIT(OSD)-I, Range-4, Ahmedabad V. Fairdeal Suppliers Pvt.Ltd., Ahmedabad

ITA 1553/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1454 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L CHANDEL
• Assessee Lawyers: PF JAIN
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ACIT(OSD), CIRCLE - 4, AHMEDABAD (APPELLANT) VS FAIRDEAL SUPPLIERS PVT. LTD, 4 TH FLOOR, SHALIN BUILDING, ASHRAM ROAD, AHMEDABAD PAN: AAACF2878C (RESPONDENT) REVENUE BY : S H RI S.L. CHANDEL , SR. D . R. ASSESSEE BY: S H RI P. F. JAIN , A.R. DATE OF HEARING : 10 - 03 - 2 016 DATE OF PRONOUNCEMENT : 31 - 05 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REVENU E S APPEAL FOR A.Y. 2007 - 08 , AR ISES FROM ORDER OF THE CIT(A) - VIII, AHMEDABAD DATED 11 - 03 - 2011 IN APPEAL NO. CIT(A) - VIII/DC.CIR.4/717/09 - 10 , DELETING BOOK PROFIT ADDITION U/S. 115JB AMOUNTING TO RS. 4,63,39,528/ - MADE BY THE ASSESSING OFFICER IN I T A NO . 1553 / A HD/20 11 A SSESSMENT YEAR 200 7 - 08 I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 2 ASSESSMENT ORDER DATED 24 - 12 - 2009, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. IT IS NOTICED AT THE OUTSET THAT THE LEARNED CIT(A) HAS ELABORATELY DISCUSSED ASSESSEE S SUBMISSIONS AND ASSESSING OFFICER S FINDINGS IN HIS O RDER AS UNDER: - 4.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE A.O AS WELL AS THE SUBMISSIONS OF THE APPELLANT. DURING THE ASSESSMENT PROCEEDINGS THE A.O OBSERVED THAT THE ASSESSEE HAS TAKEN BOOK PROFIT OF RS.8,30,88,419/ - WHICH IS AFTER ADJUSTMENT O F PRIOR PERIOD OF RS.4,63,39,528/ - . THE A.O ASKED TO FURNISH DETAILED WORKING OF BOOK PROFIT AS WELL AS THE REASON FOR DEDUCTING THE PRIOR PERIOD EXPENSES FROM THE PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. THE ASSESSEE COMPANY VIDE LETTER DATED 1 1/11/09 HAS FURNISHED THE FOLLOWING SUBMISSIONS BEFORE THE A.O. 1. THE ENTRY IS PASSED IN THE BOOKS OF THE CURRENT YEAR THOUGH NOT CLAIMED UNDER THE NORMAL PROVISIONS OF THE I.T. ACT. 2. AS PER AS - 5, IT IS NECESSARY TO DISCLOSE PRIOR PERIOD ADJUSTMENT SEPA RATELY AND IT DOES NOT CHANGE THE PROFIT/LOSS FIGURE. 3. THERE ARE DEFINED ITEMS FOR ADJUSTMENT OF BOOK PROFIT AND THE SAME HAS BEEN FOLLOWED AND THUS PRIOR PERIOD ADJUSTMENT WAS NOT ADDED. 4. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF H'BLE SUPREME CO URT IN THE CASE OF APOLLO TYRES LTD. VS CIT 255 ITR 273 WHEREIN IT IS HELD THAT THE ASSESSING OFFICER CANNOT REVISE THE BOOKS OF ACCOUNT. 4.3.1 THE A.O DID NOT FIND THE EXPLANATION OFFERED BY THE ASSESSEE COMPANY AS SATISFACTORY AND ACCORDINGLY ADDED THE PRIOR PERIOD ADJUSTMENT AMOUNTING TO RS.4,63,39,528/ - TO THE INCOME OF THE APPELLANT COMPANY FOR THE PURPOSE OF PROFIT UNDER MAT. ON THE OTHER HAND THE LD. A.R ON BEHALF OF THE APPELLANT STRONGLY OBJECTED THE ADDITION FOR CALCULATING THE PROFIT U/S.115JB OF THE ACT. THE LD. A.R. PLACED RELIANCE MAINLY ON THE CASE OF HON'BLE I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 3 SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT 255 ITR 273 WHEREIN IT IS HELD CATEGORICALLY THAT THE A.O CANNOT REVISE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE DISCLOSURE REQU IREMENT OF SCHEDULE VI CANNOT BE A VALID REASON FOR MAKING THE ADDITION BECAUSE THE BOOKS OF ACCOUNTS OF THE COMPANY ARE TO BE PREPARED AS PER COMPANIES ACT, 1956. THE LD. A.R. FURTHER SUBMITTED THAT THE PREVIOUS YEAR EXPENSES HAVE BEEN CHARGED AND THE NEC ESSARY ENTRY HAS BEEN PASSED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT IN THE CURRENT YEAR UNDER CONSIDERATION. IN VIEW OF THAT, THE CURRENT YEAR'S PROFIT AVAILABLE FOR APPROPRIATION ALSO GETS REDUCED BY SIMILAR AMOUNT OF PREVIOUS YEAR EXPENSES. HE ALSO SU BMITTED THAT SUCH EXPENDITURE IS IDENTIFIED SEPARATELY ONLY AS PER THE REQUIREMENT OF ACCOUNTING STANDARD - 5 FOR DISCLOSING THE PROFIT BEFORE PRIOR PERIOD ADJUSTMENT VIS - A - VIS PROFIT AFTER PRIOR PERIOD ADJUSTMENT. IT IS AN ADMITTED FACT THAT AN AMOUNT OF RS .4,63,39,528/ - WAS CLAIMED AS ALLOWABLE EXPENDITURE IN THE A.Y. 2006 - 07, ONLY IN THE COMPUTATION OF INCOME STATEMENT FOR A.Y. 2006 - 07 AND THE SAME WAS ALLOWED BY THE A.O IN A.Y. 2006 - 07 ITSELF FOLLOWING THE JUDGEMENT OF KEDERNATH JUTE MILLS LTD. (SC) ON TH E BASIS OF MERCANTILE METHOD OF ACCOUNTING FOR CLAIMING THE EXPENDITURE. THE REQUIRED ENTRIES FOR THAT AMOUNT OF RS. 4,63,39,528/ - WERE NOT PASSED IN THE BOOKS OF ACCOUNT FOR THE A.Y. 2006 - 0.7. THE REQUIRED ENTRY WAS PASSED DURING F.Y.2006 - 07, THAT IS CORR ESPONDING TO A.Y. 2007 - 08 WHICH IS THE RELEVANT YEAR UNDER CONSIDERATION. DUE TO PASSING OF THE ENTRY DURING THE YEAR UNDER CONSIDERATION THE BOOK PROFIT OF THE CURRENT YEAR WAS LOWER BY RS.4,63,39,528/ - AND ACCORDINGLY THE SAME WAS CLAIMED OR THE SAME WAS NOT ADDED BACK FOR THE PURPOSE OF CALCULATING THE BOOK PROFIT U/S.LLSJB. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. 255 ITR 273 THE AMOUNT OF PRIOR PERIOD ADJUSTMENT HAS NOT BEEN ADDED BACK TO THE PROFIT UNDER MA T. THERE ARE SPECIFIC ITEMS FOR ADJUSTMENT OF BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT. UNDER THE DEFINED CLAUSES U/S. 115JB OF ADDITIONS AND DELETIONS FOR THE PURPOSE OF BOOK PROFIT, THERE IS NO SPECIFIC ITEM RELATED TO THE ADJUSTMENT OF PRIOR PERIOD EXPENSES. 4.3.2 THE LD. A.R. ALSO FILED THE COPY OF THE SUPREME COURT DECISION OF APOLLO TYRES LTD. FOR THE SAKE OF CLARITY THE RELEVANT OBSERVATION OF THE HON'BLE SUPREME COURT, IN THIS REGARD ARE REPRODUCED BELOW: - COMPANY - BO OK PROFIT UNDER S. 115 J - POWER OF AO TO QUESTION CORRECTNESS OF P&L ALE VIS - A - VIS ADJUS TMENTS UNDER I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 4 EXPLANATION TO S. 11 5J - USE OF THE WORDS 'IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND HI OF SCH. VI TO THE COMPANIES ACT' WAS MADE FOR THE LIMITED PURP OSE OF EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY - WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY THE AO: HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPA NIES ACT - IT IS NOT OPEN TO THE AO TO RE - SCRUTINISE THE ACCOUNTS TO VERIFY WHETHER THE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT - SUB - S. (1A) OF S. 115J DOES NOT EMPOWER THE AO TO EMBARK UPON A FRESH ENQUIRY IN REGA RD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT AO HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT - AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE P&L A/C EXCEPT TO THE EXTENT PRO VIDED IN THE EXPLANATION TO S. 11 5J. HELD THE USE OF THE WORDS 'IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT' WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, AN AO UNDER THE IT ACT HAS TO ACCEPT THE AUTHENTICITY OF THE AC COUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WHICH OBLIGATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN A MANNER PROVIDED BY THE COMPANIES ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND WILL HAVE TO BE APPROVED BY THE COMPANY IN ITS GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND SATISFY THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. 9 RELIANCE PLACED BY THE REVENUE ON SUB - SO (1A) OF S. 115J IN SUPPORT OF THE ABOVE CONTENTION IS MISPLACED. SUB - SO (1A) OF S. 115J DOES NOT EMPOWER THE AO TO EMBARK UPON A FRESH INQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COM PANY. THE SAID SUB - SECTION, AS A MATTER OF FACT, MANDATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT WHICH MANDATE IS BODILY I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 5 LIFTED FROM THE COMPANIES ACT INTO THE IT ACT FOR THE LIMITED PURPOSE OF MAKING T HE SAID ACCOUNT SO MAINTAINED AS A BASIS FOR COMPUTING THE COMPANY'S INCOME FOR LEVY OF INCOME - TAX. BEYOND THAT, THE SAID SUB - SECTION DOES NOT EMPOWER THE AUTHORITY UNDER THE IT ACT TO PROBE INTO THE ACCOUNTS ACCEPTED BY THE AUTHORITIES UNDER THE COMPANIES ACT. IF THE STATUTE MANDATES THAT INCOME PREPARED IN ACCORDANCE WITH THE COMPANIES ACT SHALL BE DEEMED INCOME FOR THE PURPOSE OF S. 1153, THEN IT SHOULD BE THAT INCOME WHICH IS ACCEPTABLE TO THE AUTHORITIES UNDER THE COMPANIES ACT. THERE CANNOT BE TWO INC OMES ONE FOR THE PURPOSE OF COMPANIES ACT AND ANOTHER FOR THE PURPOSE OF INCOME - TAX BOTH MAINTAINED UNDER THE SAME ACT. IF THE LEGISLATURE INTENDED THE AO TO REASSESS THE COMPANY'S INCOME, THEN IT WOULD HAVE STATED IN S. 115J THAT 'INCOME OF THE COMPANY AS ACCEPTED BY THE AO'. IN THE ABSENCE OF THE SAME AND ON THE LANGUAGE OF S. 115J , IT WILL HAVE TO HELD THAT VIEW TAKEN BY THE TRIBUNAL IS CORRECT AND THE HIGH COURT HAS ERRED IN REVERSING THE SAID VIEW OF THE TRIBUNAL. THEREFORE, THE AO WHILE COMPUTING THE INCOME UNDER S. 115J HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE AO THEREAFTER HAS THE LIMITED POWER OF M AKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION. TO PUT IT DIFFERENTLY, THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE P&L ETC EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO S. 115J . - CIT VS. APOLLO TYRES LTD. (1998) 149 CTR (KER) 538 : (1999) 237 ITR 706 (KER) : TC 5242490 SET ASIDE. (PARA 5) CONCLUSION WHILE ASSESSING A COMPANY FOR INCOME - TAX UNDER S. 115J THE CORRECTNESS OF THE P&L ETC PREPARED BY THE ASSESSEE - COMPANY AND CERTIFIED BY THE STATUTORY AUDITORS OF THE COMPANY AS HAVING BEEN PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT CANNOT BE EXAMINED BY THE AO; AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN T HE P&L ETC EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO S. 115J. DECISION IN FAVOUR OF ASSESSEE I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 6 4.3.3 IN THE ABOVE CITED JUDGEMENT THE HON'BLE SUPREME COURT CATEGORICALLY HELD THAT IN SPITE OF ALL THESE PROCEDURE CONTEMPLATED UNDER THE PROVISIONS OF COMPANIES ACT, IT IS DIFFICULT TO ACCEPT THE ARGUMENT OF THE REVENUE THAT IT IS STILL OPEN TO THE A.O TO RE - SCRUTINIZE THE ACCOUNT AND SATISFY HIMSELF THAT THESE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. SUB - SECTION 1A OF SECTION 115J DOES NOT EMPOWER THE A.O TO EMBARK UPON A FRESH INQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. THE A.O THEREFORE HAS A LIMITED POWER OF MAKING INCREASES AND REDUCTIONS IN THE PROFIT AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION. IT IS AN UNDISPUTED FACT THAT THE ITEM RELATING TO 'ADJUSTMENT OF PRIOR PERIOD EXPENSES' IS NOT MENTIONED IN THE EXPLANATION TO SECTION 115J OF THE ACT. 4.3.4 IN VIEW OF THE ABOVE REFERRED FACTS AND LEGAL POSITI ON AND PARTICULARLY WITH REFERENCE TO THE DECISION OF THE APEX COURT CITED SUPRA NO ADDITION ON PRIOR PERIOD EXPENSES CAN BE MADE BY THE A.O FOR THE PURPOSE OF CALCULATING PROFIT U/S. 115JB, AS ENTRY HAS BEEN PASSED BY THE ASSESEEE IN THE BOOKS OF ACCOUNT DURING THE YEAR UNDER CONSIDERATION. THE ADDITION MADE BY THE A.O AMOUNTING TO RS. 4,63,39,528/ - FOR T HE PURPOSE OF BOOK PROFIT U/S.115J IS DELETED. AS SUCH THIS GROUND OF APPEAL IS ALLOWED. THIS LEAVES THE REVENUE AGGRIEVED. 3. WE HAVE HEARD BOTH THE LD. REPRESENTATIVES. THEY REITERATE THEIR RESPECTIVE CASES FOR AND AGAINST THE IMPUGNED BOOK PROFIT ADDITION. FACTS OF THE CASE ARE IN A VERY BRIEF COMPASS. THE ASSESSING OFFICER ADDED THE IMPUGNED SUM OF RS. 4,63,39,528/ - BY REJECTING ASSESSEE S PRIOR P ERIOD ADJUSTMENT ON THE GROUND THAT THE ENTRY IN QUESTION HAD BEEN PASSED IN CURRENT YEAR S BOOKS ALTHOUGH NOT CLAIMED UNDER NORMAL PROVISIONS AND BY FOLLOWING AS - 5. THE ASSESSEE S FURTHER CASE WAS THAT IT HAD INCLUDED DEFINED ITEMS THEREIN. IT QUOTED HO N BLE APEX COURT DECISION IN APOLO TYRES CASE I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 7 (SUPRA) . THE ASSESSING OFFICER REJECTED ITS CONTENTIONS. THE CIT(A) CITES A CATENA OF CASE LAW TO HOLD THAT AN ASSESSING OFFICER DOES NOT HAVE JURISDICTION TO EXAMINE CORRECTNESS OF DULY AUDITED ACCOUNTS AS CERTIFIED BY STATUTORY AUDITORS UNDER SCHEDULE VI OF THE COMPANIES ACT. IT IS EVIDENT THAT A LEARNED CO - ORDINATE BENCH IN COROMANDAL STAMPINGS & STONES LTD VS. ACIT (2014) 65 SOT 276 (HYDERABAD) ALSO REITERATES THE VERY VIEW BY DRAWING SUPPORT FROM THE ABOVE STATE D JUDICIAL PRECEDENCE ON THIS ISSUE . THE REVENUE FAILS TO DRAW ANY DISTINCTION ON FAC TS OR LAW THEREIN. WE AFFIRM CI T(A) S FINDINGS DELETING THE IMPUGNED BOOK PROFITS ADDITION OF RS. 4,63,39,528/ - IN QUESTION. 4. THIS REVENUE S APPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 31 - 05 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 31 /05 /2016 AK / COPY OF OR DER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , I.T.A NO. 1553 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. FAIRDE AL SUPPLIERS PVT. LTD 8 / ,