Procon Instrumentation Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1648/CHNY/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8057 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 20-08-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Reason to believe
• Section: 115JB; 148; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1648/MDS/2013 / ASSESSMENT YEAR : 2006-07 PROCON INSTRUMENTATION PVT. LTD., 1-H, SAKTHI TOWERS, 766, ANNA SALAI, CHENNAI - 600 002. [PAN: AAACP 5175A] VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE -V(2), CHENNAI. ( /APPELLANT) ( /RESPONDENT) $ % / APPLICANT BY : SHRI G. BASKAR, ADVOCATE ()$ % / RESPONDENT BY : SHRI CLEMENT RAMESH KUMAR, ADDL. CIT % /DATE OF HEARING : 19.10.2016 % /DATE OF PRONOUNCEMENT : 15.11.2016 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE HON'BLE HIGH COURT IN TAX CASE APPEAL NO. 1117/ 2015 DATED 10.02.2016 HAS SET ASIDE THE ORDER OF TRIBUNAL IN I TA NO. 1648/MDS/2013 DATED 28.11.2014 AND CONDONED THE DELAY IN FILING T HE APPEAL BEFORE THE ITA NO. 1648/MDS/2013 :- 2 -: TRIBUNAL AND DIRECTED THE TRIBUNAL TO TAKE UP THE C ASE FOR HEARING IN THE USUAL COURSE AND AS PER THE DIRECTIONS THE CASE IS HEARD. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) IS WRO NG IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RE-COMPUTIN G THE BOOK PROFIT, WHEN THE ASSESSING OFFICER HAS NO JURISDICTION TO DO SO. 2.2 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT SALE OF LAND BEING AN EXTRA-ORDINARY ITEM NEED TO BE ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. 2.3 THE COMMISSIONER OF INCOME TAX (APPEALS) WENT W RONG IN HOLDING THAT THE PROFIT AND LOSS ACCOUNT PREPARED BY THE A SSESSEE IS NOT IN ACCORDANCE WITH SCHEDULE-VI OF THE COMPANIES ACT, WARRANTING RE- COMPUTATION OF BOOK PROFITS FOR THE PURPOSE OF SEC TION 115JB OF INCOME TAX ACT. 2.4 THE COMMISSIONER OF INCOME TAX (APPEALS) WENT W RONG IN NOT FOLLOWING THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF APPOLO TYRES VS. CIT. 2.5 THE ORDER OF ASSESSMENT AND THE ORDER OF THE CO MMISSIONER OF INCOME TAX (APPEALS) ARE LIABLE TO BE QUASHED AS C ONTRARY TO FACTS AND DUE TO NON APPLICATION OF MIND. ITA NO. 1648/MDS/2013 :- 3 -: 3. THE BRIEF FACTS OF THE CASE, THAT THE ASSESSEE C OMPANY IS IN THE BUSINESS OF MANUFACTURING OF ELECTRONIC PROCESS CON TROL INSTRUMENTS INCLUDING SUPPLY, ERECTION AND COMMISSIONING AND FILED RETURN OF INCOME ON 30.11.2006 WITH TOTAL INCOME OF RS. 2,75,994/- AND THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE ACT ON 18.02.2008. SUBSEQUENTLY , THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT THERE IS INCOME ESCAPING ASS ESSMENT AND OBSERVED THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S. 54EC TO THE EXTENT OF RS. 2,22,94,324/- AND NOT COMPLETED THE PROVISIONS OF T HE LAW AND ISSUED NOTICE U/S. 148 OF THE ACT. IN COMPLIANCE TO THE NOTICE T HE ASSESSEE COMPANY FILED LETTER TO CONSIDER THE RETURN OF INCOME FILED ORIGI NALLY ON 30.11.2006 AS IN RESPONSE TO THE NOTICE. THE ASSESSING OFFICER ON VE RIFICATION OF THE RECORDS FOUND THAT THE ASSESSEE HAS CLAIMED EXPENDITURE OF ERECTION AND COMMISSIONING IN PROFIT & LOSS ACCOUNT WERE AS SAME HAS TO BE TREATED AS CAPITAL IN NATURE AND ALSO EXCESS CLAIM OF DEDUCTIO N U/S. 54EC OF THE ACT. FURTHER, THE ASSESSING OFFICER FOUND THAT THE ASSES SEE COMPANY HAS NOT CREDITED PROFIT ON SALE OF LAND TO PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PART II AND III OF SCHEDULE VI OF COMPANIES ACT AND ACCOUNTING STANDARDS OF ICAI, BUT THE ASSESSEE COMPANY CREDITED THE PROF IT ON SALE OF LAND UNDER APPROPRIATION ACCOUNT UNDER HEAD OF EXTRA ORDINARY INCOME AND IS NOT IN ACCORDANCE WITH THE LAW. THE ASSESSING OFFICER DIS PUTED THAT PROFIT ON SALE OF LAND WAS NOT CONSIDERED BY THE ASSESSEE FOR CALCULA TION OF BOOK PROFITS U/S. 115JB OF THE ACT AND UNILATERALLY RE-ARRANGED THE P ROFIT AND LOSS ACCOUNT AND ITA NO. 1648/MDS/2013 :- 4 -: CALCULATED THE TAXABLE INCOME OF RS. 20,09,524/- UN DER PROVISIONS OF SECTION 115JB OF THE ACT ON BOOK PROFITS OF RS. 2,38,80,279 /- AND RAISED THE DEMAND OF RS. 28,93,870/-INCLUDING INTEREST. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE COMPANY HAS FILED AN APPEAL WITH THE CIT(A), THE LD . AR AND ARGUED THE GROUNDS AND RELIED ON THE JUDICIAL DECISIONS OF SUP REME COURT, HIGH COURT AND SUBMITTED THAT THE ASSESSEE COMPANY HAS FOLLOWED TH E ACCOUNTING POLICIES AND THE PROVISIONS UNDER PART II AND PART III OF COMPAN IES ACT. THE LD. CIT(A) CONSIDERED THE DECISIONS RELIED BY THE ASSESSEE AND DISCUSSED THE APPLICABILITY OF PROVISIONS OF SECTION 115JB OF THE ACT AT PAGE 6 -8 OF HIS ORDER AND IS OF THE FIRM OPINION THAT THE PROFIT ON ACCOUNT OF SALE LAN D WAS EXCLUDED FOR BOOKS PROFITS CALCULATION AND WAS CREDITED TO THE APPROPR IATION ACCOUNT. THE LD. CIT(A) JUSTIFIED THE ACTION OF ASSESSING OFFICER ON PROVISIONS OF SCHEDULE VI OF THE COMPANIES ACT AND CALCULATION OF BOOK PROFITS U /S. 115JB OF THE ACT AND THE DISTINGUISHED THE CASES RELIED BY THE ASSESSEE AND UPHOLD THE ACTION OF THE ASSESSING OFFICER AND PARTLY ALLOWED THE APPEAL. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS ASSILED APPEAL WITH THE TRIBUNAL. THE LD. AR OF THE ASSESS EE REITERATED SUBMISSIONS MADE IN THE APPEAL PROCEEDINGS AND THE LOWER AUTHOR ITIES AND ARGUED THAT THE ORDER OF LD. CIT(A) CONFIRMING THE ACTION OF THE AS SESSING OFFICER IS BAD IN ITA NO. 1648/MDS/2013 :- 5 -: LAW. THE ASSESSEE COMPANY SOLD THE LAND AND PROFIT ON SALE WAS TRANSFERRED TO THE CAPITAL RESERVE ACCOUNT AND OFFERED TO TAX S EPARATELY. WHEREAS, THE ASSESSING OFFICER HAS RE-CASTE THE PROFIT AND LOSS ACCOUNT AND INCLUDED PROFIT ON SALE OF LAND FOR THE PURPOSE OF CALCULATION OF B OOK PROFITS U/S. 115JB OF THE ACT. THE LD. CIT(A) HAS NOT CONSIDERED THE DECISIO N OF COORDINATE BENCH AND APEX COURT DECISION OF APOLLO TYRES VS. CIT (2002) 255 ITR 273 (SC) WERE HELD THAT THE ASSESSING OFFICER DOES NOT HAVE POWER TO MAKE CHANGES AND RECAST THE FINANCIAL WERE AS THE LD. AO HAS UNILAT ERALLY DEALT ON THE ISSUE OVERLOOKING THE JUDICIAL DECISIONS. THE LD. AR ALS O SUPPORTED HIS SUBMISSIONS WITH THE DECISION OF THE COORDINATE BENCH IN THE CA SE OF M/S. THAMBI MODERN SPINNING MILLS LTD., ITA NO. 765/MDS/2015 DATED 30. 12.2015 WHERE THE TRIBUNAL HAS CONSIDERED THE JUDGMENT OF JURISDICTIO NAL HIGH COURT AND OTHER COORDINATE BENCH DECISION AND PRAYED FOR ALLOWING T HE APPEAL. 6. CONTRA, THE LD. DR RELIED ON THE ORDER OF THE CI T(A) AND OPPOSED TO THE GROUNDS. WE HEARD THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED , THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING ACTIVITY AND COMPLIED THE PROVISIONS OF COMPANIES ACT AND THE ACCOUNTING STANDARDS AND ACCOUNTING POL ICIES. WE FOUND THAT THE SIMILAR ISSUE ON APPLICABILITY OF PROVISION OF SECT ION 115JB OF THE ACT WAS DEALT IN THE CASE OF M/S. THAMBI MODERN SPINNING MILLS LT D. (SUPRA) AT PARA 9, PAGE 6 OF THE ORDER. ITA NO. 1648/MDS/2013 :- 6 -: ' WE HEARD THE SUBMISSIONS OF BOTH THE PARTIES, MA TERIAL AVAILABLE ON RECORD, ORDERS OF THE LOWER AUTHORITIES AND THE JUDICIAL DECISIONS CITED. THE ASSESSEE COMPANY'S ACCOUNTS ARE AUDITE D UNDER THE COMPANIES ACT AND FOLLOWED THE ACCOUNTING STANDARD S AND ACCOUNTING POLICIES REPORTED BY THE AUDITOR AND PL ACED IN ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS REITERAT ED THE SUBMISSIONS BEFORE THE LOWER AUTHORITIES THAT THER E IS NO DIFFERENCE IN THE PROVISIONS OF SEC. 115J, 115JA AND PRESENTL Y 115JB. OVER A PERIOD OF TIME, THESE PROVISIONS HAVE BEEN CONSIDE RED UNDER DIFFERENT SECTIONS. WE FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. BESSER CONCRETE SYSTEMS LTD VS AC IT IN ITA NO. 458/MDS/2007 HAS CONSIDERED SIMILAR ISSUE AND OBSERVED IN PARA 8 AND 9 OF ITS ORDER AS UNDER: 8. A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE HON BLE HIGH COURT OF MADRAS IN THE CASE OF CIT V. VIJAYASHREE FINANCE & INVESTMENT CO. (P) LTD. (2008) 216 CTR (MAD) 191. THE HONBLE HIG H COURT WAS CONSIDERING THE ISSUE IN THE CONTEXT OF SECTION 11 5J. IN THAT CASE, THE ASSESSEE-COMPANY HAD SOLD CERTAIN LAND AND MAD E CERTAIN GAINS OUT OF THE SALE. THE SURPLUS ON SALE OF LAND WAS T RANSFERRED BY THE ASSESSEE-COMPANY DIRECTLY TO ITS CAPITAL RESERVE AND IT DID NOT FORM PART OF THE BOOK PROFIT. THE ASSESSING OFFICE R ADDED THE PROFIT FROM THE SALE OF LAND TO THE BOOK PROFITS WHILE MA KING COMPUTATION UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961. IN THIS CONTEXT, THE HONBLE HIGH COURT, REFERRING TO THE JUDGMENT OF T HE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. V. CIT (2002) 255 ITR 273 (SC), HELD THAT THE ASSESSING OFFICER, WHI LE COMPUTING INCOME UNDER SECTION 115J OF THE ACT, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNTS ARE CERTIF IED BY THE AUTHORITIES UNDER THE COMPANIES ACT, 1956 AS HAVIN G BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THAT ACT. THE ASSESS ING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKING INCREA SES OR REDUCTION AS PROVIDED IN THE EXPLANATION TO THE SAID SECTION . THE HONBLE HIGH COURT HELD THAT THE ASSESSING AUTHORITY DOES NOT H AVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED FOR IN THE EXPLANATION TO S ECTION 115J OF THE ACT. 9. IN VIEW OF THE JUDGMENT OF THE HON'BLE JURISDIC TIONAL HIGH COURT, WE HOLD THAT THE LOWER AUTHORITIES ARE NOT JUSTIFI ED IN ADDING BACK ITA NO. 1648/MDS/2013 :- 7 -: 7,46,46,043/- TO THE BOOK PROFITS OF THE ASSESSEE- COMPANY. THE SAID ADDITION IS ACCORDINGLY DELETED. ITA NO. 765/15 W E FIND THAT FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE SI MILAR TO THE FACTS OF THE CASE DECIDED EARLIER AND RESPECTFULLY FOLLO WING THE SAME, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIO N OF PROFIT ON SALE OF LAND CONSIDERED FOR CALCULATION OF BOOK PROFITS..' 7. WE RESPECTFULLY FOLLOW THE CO-ORDINATE BENCH DEC ISION AND DIRECT THE ASSESSING OFFICER TO DELETE THE PROFIT ON SALE OF L AND FOR THE PURPOSE OF CALCULATION OF BOOK PROFITS U/S. 115JB OF THE ACT A ND THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON TUESDAY, THE 15TH DAY OF NOVEMB ER, 2016 AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) ) /JUDICIAL MEMBER /CHENNAI, 1 /DATED: 15TH NOVEMBER, 2016 JPV % (!34 54 /COPY TO: 1. $ /APPELLANT 2. ()$ /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 / CIT 5. 4 (!! / DR 6. : / GF