DCIT (CIR) 6(1)(2), MUMBAI V. BHANDER POWER LTD, MUMBAI

ITA 1675/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1886 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Deemed to accrue or arise in india; Question of law; Tax effect
• Section: 143(3); 14A; 115JB; 147

Judgement Text

AAYAKR APILAIYA AIQAKRNA AAYAKR APILAIYA AIQAKRNA AAYAKR APILAIYA AIQAKRNA AAYAKR APILAIYA AIQAKRNA B NYAAYAPIZ MAMUBA[ NYAAYAPIZ MAMUBA[ NYAAYAPIZ MAMUBA[ NYAAYAPIZ MAMUBA[- -- - MAO. MAO. MAO. MAO. IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AG GARWAL, AM AAYAKR APILA SAM AAYAKR APILA SAM AAYAKR APILA SAM AAYAKR APILA SAM . / ITA NO. 1675/MUM/2017 ( INAQA-ARNA BAYA- / ASSESSMENT YEAR 2007-08) THE ASST. COMMISSIONER OF INCOME TAX (CIR)-6(1)(2) R. NO. 563, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, CHURCHATE, MUMBAI-20 VS. BHANDER POWER LTD. ESSAR HOUSE, NO. 11, K.K. MARG, MUMBAI-400 034 ( APILAAQAI APILAAQAI APILAAQAI APILAAQAI - -- - / APPELLANT) .. ( P`%YAQAAI P`%YAQAAI P`%YAQAAI P`%YAQAAI- -- - / RESPONDENT) . / PAN NO. AAACB6693B SAM SAMSAM SAM . /CO NO. 219/MUM/2018 ( ARISING IN ITA NO. 1675/MUM/2017 FOR AY 2007-08) BHANDER POWER LTD. ESSAR HOUSE, NO. 11, K.K. MARG, MUMBAI-400 034 VS. THE ASST. COMMISSIONER OF INCOME TAX (CIR)-6(1)(2) R. NO. 563, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, CHURCHATE, MUMBAI-20 ( APILAAQAI APILAAQAI APILAAQAI APILAAQAI - -- - / APPELLANT) .. ( P`%YAQAAI P`%YAQAAI P`%YAQAAI P`%YAQAAI- -- - / RESPONDENT) ! ' / APPELLANT BY : SHRI SANTANU KUMAR SAIKIA, CIT-DR $%! ' / RESPONDENT BY : SHRI ANUJ KISNADWALA, AR ' '( / DATE OF HEARING: 10 .10.2018 ' '( / DATE OF PRONOUNCEMENT : 16 . 1 1 .2018 2 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 AADOSA AADOSA AADOSA AADOSA / O R D E R PER MAHAVIR SINGH, JM: THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY A SSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-12, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO. CIT(A)-12/I T173/DCIT 6(1)(2)/2015-16 VIDE DATED 05.12.2016. THE ASSESSME NT WAS FRAMED BY THE DY. COMMISSIONER OF INCOME TAX- CIRCLE 6(1)2, M UMBAI (IN SHORT DCIT/ AO) FOR THE A.Y. 2007-08 VIDE ORDER DATED 3 1.03.2015 UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF RECEIPT OF SALE PROCEEDS OF PRODUCTION FROM TRIAL RUN OF THE PLANT AT PHASE-II OF THE POWER PROJECT HOLDING THE SAME AS REVENUE IN NATURE. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO. 1: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF 42,75,00,000/- MADE ON ACCOUNT OF RECEIPT OF SALE PROCEEDS OF PRODUCTION FROM THE TRIAL RUN OF THE PLANT AT PHASE-II OF THE POWER PROJECT AND IGNORING THE FACT THAT THE SAID RECEIPT WAS REVENUE IN NATURE AND THE SAME SHOULD HAVE BROUGHT INTO THE PROFIT AND LOSS ACCOUNT INSTEAD OF TAKING IT TO THE CAPITAL WORK IN PROGRESS. 3 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF POWER GENERATION. THE ASSESSEE FILE D ITS RETURN OF INCOME FOR RELEVANT AY 2007-08 ON 25.10.2007 DECLARING INC OME OF 71,26,674/- UNDER NORMAL PROVISIONS AND INCOME UNDER SECTION 11 5JB OF THE ACT AMOUNTING TO 14,96,10,303/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY THE AO VIDE ORDER DATE D 23.03.2009 ASSESSING THE INCOME AT THE RETURN INCOME WITHOUT M AKING ADDITION OR DISALLOWANCE. SUBSEQUENTLY, THE AO NOTICED THAT THE INCOME FROM POWER GENERATION AMOUNTING TO 42.75 CRORES WAS REDUCED FROM THE CAPITAL WORK IN PROGRESS INSTEAD OF CREDITING THE SAME TO THE P& L ACCOUNT AND THEREFORE THE ASSESSEE HAS NOT OFFERED INCOME FOR T HE PURPOSE OF TAXATION UNDER SECTION 115JB OF THE ACT. ACCORDING TO AO, TH IS AMOUNT OF 42.75 CRORES IS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF BOOKING PROFIT UNDER SECTION 115JB OF THE ACT. THE AO ALSO RECORDED THE REASONS THAT AN AMOUNT OF 14,26,513/- WAS DISALLOWABLE UNDER SECTION 14A IN THE AUDIT REPORT AND FURTHER EXPENSES AMOUNT ING TO 27,65,069/- WAS DISALLOWED BUT THE SAME WAS NOT DONE BY THE ASS ESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CONT ENDED THAT THE INCOME OF RS. 42.75 CRORES ARE NOT REVENUE RECEIPT SINCE IT IS ONLY RECEIPT ON TRIAL RUN OPERATION BEFORE COMMENCEMENT OF PHASE -2 OF THE PROJECT AND THUS IT HAS RIGHTLY BEEN TAKEN TO PRINCIPAL OPE RATIONS INCOME/ REDUCED FROM THE CAPITAL WORK IN PROGRESS WHILE ACCOUNTING FOR UNDER THE COMPANIES ACT. BUT, THE AO HAS NOT ACCEPTED THE CON TENTION OF THE ASSESSEE AND ACCORDING TO AO ON VERIFICATION OF PRO FIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 31.03.2007, IT HAS CREDITED AN INCOME FROM OPERATION AT 57 CRORES WHICH REPRESENTS RECEIPTS OBTAINED FROM GENERATION OF POWER FOR THE PERIOD ON 01.04.20 06 TO 31.03.2007. FURTHER, THE AO NOTED THAT THESE RECEIPTS CLAIMED T O HAVE BEEN OBTAINED DURING THE TRIAL PERIOD ARE FOR OVER A PERIOD OF FU LL YEAR IN PHASE-1, SUGGESTS THAT PLAN IN PHASE-2 HAS BEEN ERECTED TO I TS FULLEST CAPACITY AND 4 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 CAPABILITY. ACCORDINGLY, HE ADDED THESE RECEIPTS OF 42.75 CRORES TO THE BOOK PROFIT OF THE ASSESSEE WHILE COMPUTING THE INC OME UNDER SECTION 115JB OF THE ACT. ACCORDINGLY, HE ASSESSED THESE RE CEIPTS TO THE RETURNED INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERR ED THE APPEAL BEFORE CIT(A). 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CONSIDERING THE DECISIONS OF HONBLE SUPREME COURT IN APOLLO TYRES LTD. VS. CIT (2002) 255 ITR 273 (SC) DELETED THE ADDITIO N BY OBSERVING AS UNDER: - HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THE ASSESSING OFFICER OBSERVED THAT THE RECEIPT FRO M TRIAL RUN OPERATIONS IS NOT OFFERED TO TAX BUT IS ADJUSTE D NETTED OFF IN THE CAPITAL WORK IN PROGRESS ACCOUNT. THEREF ORE, IN THIS CONNECTION, THE A.O. ASKED THE APPELLANT TO EX PLAIN AS TO WHY THE TRIAL RUN INCOME SHOULD NOT BE TAXED UND ER THE HEAD 'INCOME FROM OTHER SOURCES'. IN RESPONSE TO TH E SHOW CAUSE NOTICE GIVEN BY THE ASSESSING OFFICER, T HE APPELLANT EXPLAINED THAT THE APPELLANT WAS IN THE P ROCESS OF CONSTRUCTION OF THE POWER PLANT FOR THE DISTRIBU TION OF POWER AND NO COMMERCIAL ACTIVITY HAS BEGUN AND THEREFORE ALL THE INCOME ANTI EXPENDITURE INEXTRICA BLY LINKED TO SETTING UP OF THE POWER PLANT HAVE BEEN CAPITALIZED. THE ACCOUNTING TREATMENT BEING IN ACCO RDANCE WITH RELEVANT ACCOUNTING STANDARDS NO ADDITIONS SHO ULD BE EFFECTUATED IN THE APPELLANT'S CASE. VARIOUS HON 'BLE SUPREME COURT AND HON'BLE HIGH COURT DECISIONS WERE CITED BY THE APPELLANT IN SUPPORT OF ITS CLAIM. IT WAS FURTHER CLARIFIED TO THE A.O. THAT THE TRIAL RUN OPERATION ARE INEXPLICABLY LINKED WITH THE CONSTRUCTION OF THE PL ANT AND THUS WAS RIGHTLY CAPITALIZED AND SHOWN UNDER CWIP. 5 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT A ND THE OBSERVATIONS OF THE A.O. THE FACT THAT THE APPELLAN T COMPANY IS IN THE PROCESS OF SETTING UP OF THE POWE R PLANT HAS NOT BEEN DISPUTED BY THE A.O. IN THE ASSESSMENT ORDER. THIS, ALONG WITH THE FACT THAT THE APPELLANT COMPANY HAD NOT COMMENCED ITS BUSINESS OPERATIONS FOR PHASE II AND III DURING THE YEAR UNDER CONSIDERATION IS ALSO UNDISPUTED BY THE A.O. IT WAS ALSO BROUGHT ON RECOR D BY THE APPELLANT THAT INCOME OF THE SAME NATURE WAS AL SO DERIVED BEFORE THE COMMENCEMENT OF OPERATIONS OF PH ASE I IN EARLIER YEARS AND IN SUBSEQUENT YEARS FOR PHAS E II AND ILL. THIS STAND OF THE APPELLANT WAS DULY ACCEPTED BY THE A.O. WHERE THE TRIAL RUN INCOME IS REDUCED FROM CAP ITAL WIP. MOREOVER, THE ASSESSING OFFICER SEEMS TO HAVE IGNOR ED THE POWER PRODUCTION CAPACITY OF THE PLANT. THE ASS ESSING OFFICER HAS SIMPLY DISALLOWED THE ABOVE SUM ON MERE SUSPICION AND PRESUMPTION THAT INCOME GENERATED FRO M TRIAL RUN IS HIGH COMPARED TO THE ALREADY OPERATION AL PHASE I OF THE PLANT. I HAVE EVEN CONSIDERED THE PRINCIPLES LAID DOWN IN VARIOUS HONBLE SUPREME COURT AND HON'BLE HIGH COURTS' DECISIONS AND AM OF THE OPINION THAT THE SAME CAN INVARIABLY BE CONCLUDED THAT THE DECISIONS RELIED U PON BY THE APPELLANT ARE APPLICABLE IN THE PRESENT CASE, W HERE IT IS HELD THAT ANY SUCH INCOME EARNED WHICH IS INEXTR ICABLY LINKED TO THE SETTING UP OF THE BUSINESS HAS TO BE CAPITALIZED AND ACCORDINGLY REDUCED FROM THE BALANC E OF 'CAPITAL WORK IN PROGRESS'. FURTHER, THE TREATMENT OF SUCH INCOME IN THE PREPARATION OF ANNUAL ACCOUNTS OF THE APPELLANT IS ALSO IN CONSONANCE WITH MANDATORY ACCOUNTING STANDARDS APPLICABLE TO THE APPELLANT. I TS ALSO THE FACT THAT THESE ACCOUNTING STANDARDS ARE FOLLOW ED CONSISTENTLY BY THE APPELLANT YEARS AFTER YEAR IN 6 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 PREPARATION OF ITS ANNUAL ACCOUNTS. THESE ANNUAL ACCOUNTS ARE MANDATORILY AUDITED AS PER THE PROVISI ONS OF THE COMPANIES ACT. THESE AUDITED ACCOUNTS WERE ALSO APPROVED BY THE SHAREHOLDERS IN THE ANNUAL GENERAL MEETING HELD FOR THIS PURPOSE: THEY ARE ALSO SUBMIT TED BEFORE (LIE REGISTRAR OF COMPANIES AND APPARENTLY N O OBJECTION WAS RAISED BY THE ROC W.R.T. THIS ACCOUNT ING TREATMENT. IN VIEW THEREOF AND ALSO CONSIDERING THE SPECIFIC PROVISIONS OF S. 115JB, WHICH ARE DEEMING PROVISIONS AND HENCE TO BE CONSTRUED STRICTLY. FURT HER, S. 115JB IS A SELF-CONTAINED CODE IN ITSELF AND ALLOWS ONLY SPECIFIC ADDITIONS AND REDUCTION IN THE PROFITS OF A COMPANY TO ARRIVE AT 'BOOK PROFIT'. CONSIDERING ALL THESE ASPECTS, IN MY OPINION IT CAN SAFELY BE CONCLUDED T HAT NO ADDITIONS CAN BE EFFECTED IN 'BOOK PROFITS'. UNDER SECTION IISJB OF THE INCOME TAX ACT, 1961. MY CONCLUSION, A S ABOVE IS ALSO SUPPORTED BY THE DECISION OF THE HON' BLE APEX COURT. IN THE CASE OF APOLLO TYRES LTD. V/S CIT 255 ITR 27 3 THE HON'BLE SUPREME COURT HELD THAT THE ASSESSING OFFIC ER, WHILE COMPUTING THE INCOME UNDER SECTION 115JB, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF AC COUNT ARE CERTIFIED BY THE AUTHORITIES TINDER THE COMPANI ES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WI TH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTION S AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION . TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN T HE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN T HE EXPLANATION TO SECTION 115113. THE ACT OF THE ASSESSING OFFICER, IN THE PRESENT CA SE, IS ULTRA VIRES AD GOES BEYOND THE POWER VESTED IN HIM BY THE INCOME TAX ACT, 1961. THE ADJUSTMENTS MADE TO THE B OOK 7 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 PROFITS L. BEYOND HIS POWERS. THE SAME VIEW WAS ALS O TAKEN BY THE HON'BLE JURISDICTIONAL MUMBAI HIGH COU RT IN THE CASE OF CIT VS. FOREVER DIAMONDS PVT. 'AD. THIS CAN BE CONCLUDED BY OBSERVING THAT, THERE IS N O DENIAL TO THE FACT THAT THE PROVISION OF SECTION 11 5JB IS A SELF CONTAINED CODE IN ITSELF AND ANY ADJUSTMENT TH ERETO HAVE TO BE RESTRICTED TO THE EXTENT PERMITTED IN TH E EXPLANATION THERETO. IT IS A DEEMING PROVISION AND HAS TO BE INTERPRETED STRICTLY. THE MANDATORY ACCOUNTING STANDARDS REQUIRED TO BE FOLLOWED BY - THE COMPANY IN ITS PREPARATION OF ITS ANNUAL ACCOUNTS, HAS BEEN CONSIS TENTLY BEEN FOLLOWED AND ACCORDINGLY, IT HAD REDUCED THE B ALANCE IN THE CAPITAL WIF TO THE EXTENT OF THE TRIAL RUN I NCOME DERIVED DURING THE CONSTRUCTION OF THE ASSET. THUS, SINCE SUCH AN ACCOUNTING TREATMENT WAS ADOPTED AND APPROV ED BY ALL THE STAKEHOLDERS CONCERNED I.E. MANAGEMENT, AUDITORS, SHAREHOLDERS AND THE ROC, THE SAME NEED N OT BE TINKERED WITH BY THE ASSESSING OFFICER. IN THE P RESENT EASE, THE ADDITIONS EFFECTED BY THE ASSESSING OFFIC ER ARE BEYOND THE PROVISIONS OF SECTION 115JB. THIS IS AS PER THE RATIO DOWN BY THE HONBLE SUPREME COURT AND ALSO HON'BLE JURISDICTIONAL HIGH COURT AND HENCE, IN ORD ER TO MAINTAIN JUDICIAL DISCIPLINE, HAS TO BE FOLLOWED BY THE SUBORDINATE AUTHORITIES. BASED ON ABOVE OBSERVATIONS AND PERUSAL OF FACTS IN THE APPELLANT'S CASE, THE ASSESSING OFFICER IS HEREBY D IRECTED THAT THE ADDITIONS OF RS. 42,75,00,000/- BE DELETED . GROUND OF APPEAL NO.1 IS ALLOWED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE TRIBUNAL . 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED CIT DEPARTME NTAL REPRESENTATIVE HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICE R. THE FACTS OF THE CASE 8 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 ARE THAT DURING THE YEAR UNDER CONSIDERATION THE CO NSTRUCTION PERIOD OF PHASE II AND III OF THE PLANT WAS IN DEVELOPMENT. T RIAL RUN INCOME WAS GENERATED IN THE YEAR UNDER CONSIDERATION AS WELL A S THE SUBSEQUENT ASSESSMENT YEAR TO THE TUNE OF RS. 42,75,00,000/- A ND 47,08,68,972/- RESPECTIVELY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED TOTAL RECEIPTS AMOUNTING TO 99,75,00,000/- OF WHICH 57,00,00,000/- WAS CREDITED TO PROFIT AND LOSS ACCO UNT/STATEMENT WHILE THE BALANCE OF 42,75,00,000/- WAS CAPITALISED TO THE WORK IN PROG RESS. IT IS OBSERVED FROM THE REASSESSMENT ORDER PASSED BY T HE AO THAT HE HAS GROSSLY ERRED IN COMPARING THE TOTAL RECEIPTS GENER ATED FROM PHASE I AND PHASE II AND III DEBARRING THE VERY BASIC ELEMENT O F THE PHASES I.E. CAPACITY OF THE PLANT TO GENERATE POWER. ON COMPARI NG THE CAPACITY OF PHASE II AND III COMBINED WITH THAT OF THE PHASE I, THAT THERE IS A WHOOPING DIFFERENCE IN THE SAME. MOREOVER, THE FACT CANNOT BE IGNORED THAT THE CAPACITY UTILIZATION OF THE COMMISSIONED P LANT VARIES DEPENDING ON THE REQUIREMENT OF THE CUSTOMER. THE TRIAL RUN INCO ME EARNED FROM PRODUCTION OF POWER FROM PHASE II AND III CANNOT BE COMPARED WITH THE GENERATED FROM PHASE I WHICH HAS ALREADY BEEN COMMI SSIONED. TRIAL RUN OPERATIONS ARE UNDERTAKEN TO EXAMINE AND INSPECT TH E PROGRESS OF THE PLANT BEFORE IT IS COMMISSIONED FOR COMMERCIAL PURP OSES. THERE ARE PRE- DETERMINED CRITERIA LAID DOWN TO EVALUATE THE EFFIC IENCY OF THE PLANT AND TO ANALYZE THE FLAWS. ONCE THE TRIAL RUN OPERATIONS AR E CONDUCTED, THE RESULTS GIVE A ROADMAP TO SUITABLE MODIFICATIONS REQUIRED I N THE PROJECT. IF HOWEVER, MAJOR CHANGES ARE REQUIRED BY THE PLANT AF TER COMMISSIONING IT WOULD LEAD TO HUGE EXPENSES AND THUS THIS ACTS AS A PREVENTIVE STEP TO EVALUATE THE PLANT. THE SAID PRACTICE IS VERY COMMO N AND IS USUALLY ADOPTED BY ALL THE ENTITIES IN THIS INDUSTRY. THE P RODUCTION OF POWER FROM PHASE II AND III WOULD VARY DEPENDING ON THE PREDEF INED CRITERIA. IT IS NOT FOR THE AO TO DETERMINE IF THE UNITS GENERATED FROM TRIAL RUN ARE HIGH IN NUMBER OR NOT. WHILE, THE PRODUCTION OF POWER FROM PHASE I WOULD 9 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 BASICALLY BE TO FULFILL THE REQUIREMENT OF ITS CUST OMER. IT WOULD ALSO BE PERTINENT TO NOTE THAT THE INCOME DERIVED FROM THE PHASE II AFTER ITS COMMISSIONING HAS ALSO BEEN HIGHER IN THE SUBSEQUEN T YEARS. THE SAME WAS VERIFIED FROM COMPARATIVE RECEIPTS OF EACH PHAS E. WE FIND THAT DURING THE SUCCEEDING ASSESSMENT YEARS I.E. AY 2008-09 AND AY 2009-10, THE TOTAL RECEIPTS FROM PHASE II AND PHASE III OPERATIO NS IS HIGHER THAN THAT OF PHASE I. THE AO ON PAGE 3 OF ITS ORDER DATED 31.03. 2015 HAS STATED THAT A PLANT THAT HAS YET TO COME TO OPERATION OBTAINING S UCH HIGH RECEIPTS IS ABNORMAL. THE AO HAS ON HIS OWN FANCIES AND ASSUMPT IONS TAKEN A STAND THAT THE RECEIPTS OF 42,75,00,000/- IS ABNORMAL AND UNJUSTIFIED. HE HAS TOTALLY IGNORED THE FACTS OF THE CASE, THE OPERATIN G CAPACITY OF THE PHASES AND ITS SUBSEQUENT RECEIPTS. THE TABLE BELOW CLEARL Y REFLECTS THAT DUE TO HIGHER CAPACITY OF POWER PRODUCTION, THE INCOME EAR NED BY THE ASSESSEE THROUGH PHASE II/ III IS REASONABLY HIGHER THAN THA T OF PHASE I. THE RELEVANT CHART READS AS UNDER: PROJECT INCOME EARNED FROM EACH PHASE (CREDITED TO P&L A/C) A.Y. 2006-07 A.Y. 2007-08 A.Y. 2008-09 A.Y. 2009-1 0 PHASE 1 12,10,48,387 57,00,00,000 57,00,00,000 33,25,00,000 PHASE 2 / PHASE 3 -- -- 25,30,03,226 56,06,80,646 12,10,48,387 57,00,00,000 82,30,03,226 89,31,80,646 10 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 PROJECT TRIAL RUN INCOME EARNED BEFORE COMMISSIONIN G, (REDUCED FROM CAPITAL WIP) A.Y. 2006-07 A.Y. 2007-08 A.Y. 2008-09 A.Y. 2009-1 0 PHASE 1 12,10,48,387 -- -- -- PHASE 2 / PHASE 3 -- 42,75,00,000 47,08,68,972 7,65,83,708 6. EVEN OTHERWISE, WE FIND THAT THE AO HAS MADE AN ADJUSTMENT TO THE BOOK PROFIT OF THE RECEIPTS OF 42.75 CRORES WHILE COMPUTING THE INCOME UNDER SECTION 115JB OF THE ACT AND THE ASSESSEE HAS TREATED THE RECEIPTS EARNED WHICH IS LINED TO THE SETTING UP OF THE BUSI NESS AND ACCORDINGLY CAPITALIZED BY REDUCING FROM THE BALANCE OF CAPITAL WORK IN PROGRESS. THIS TREATMENT OF SUCH INCOME WAS DISCLOSED IN THE PREPA RATION OF ANNUAL ACCOUNTS OF THE ASSESSEE, WHICH IS INCONSONANCE WIT H MANDATORY ACCOUNTING STANDARDS APPLICABLE TO THE ASSESSEE. TH E ASSESSEE IS FOLLOWING THE ACCOUNTING STANDARDS CONSISTENTLY AND PREPARING ITS ANNUAL ACCOUNTS ACCORDINGLY. THIS ANNUAL ACCOUNTS ARE AUDI TED AS PER THE COMPANIES ACT AND APPROVED BY SHAREHOLDERS IN THE A GM HELD FOR THIS PURPOSE. THESE AMOUNTS WERE SUBMITTED BEFORE THE RO C. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THIS ISSUE IS SQUARE LY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AP OLLO TYRES LTD. VS. CIT [255 ITR 273], WHEREIN HONBLE SUPREME COURT HA S OBSERVED AS UNDER: - 5. FOR DECIDING THIS ISSUE, IT IS NECESSARY FOR US TO EXAMINE THE OBJECT OF INTRODUCING S. 115J IN THE IT ACT WHICH CAN BE EASILY DEDUCTED FRO M THE BUDGET SPEECH OF THE THEN HONBLE FINANCE MINISTER OF INDIA MADE IN THE PARLI AMENT WHILE INTRODUCING THE SAID SECTION WHICH IS AS FOLLOWS : 11 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 'IT IS ONLY FAIR AND PROPER THAT THE PROSPEROUS SHO ULD PAY AT LEAST SOME TAX. THE PHENOMENON OF SO-CALLED 'ZERO-TAX' HIGHLY PROFITABL E COMPANIES DESERVES ATTENTION. IN 1983, A NEW S. 80VVA WAS INSERTED IN THE ACT SO THAT ALL PROFITABLE COMPANIES PAY SOME TAX. THIS DOES NOT SEEM TO HAVE HELPED AND IS BEING WITHDRAWN. I NOW PROPOSE TO INTRODUCE A PROVISION W HEREBY EVERY COMPANY WILL HAVE TO PAY A 'MINIMUM CORPORATE TAX' ON THE PROFIT S DECLARED BY IT IN ITS OWN ACCOUNTS. UNDER THIS NEW PROVISION, A COMPANY WILL PAY TAX ON AT LEAST 30 PER CENT OF ITS BOOK PROFIT. IN OTHER WORDS, A DOMESTIC WIDELY-HELD COMPANY WILL PAY TAX OF AT LEAST 15 PER CENT OF ITS BOOK PROFIT. THI S MEASURE WILL YIELD A REVENUE GAIN OF APPROXIMATELY RS. 75 CRORES.' THE ABOVE SPEECH SHOWS THAT THE IT AUTHORITIES WERE UNABLE TO BRING CERTAIN COMPANIES WITHIN THE NET OF INCOME-TAX BECAUSE THES E COMPANIES WERE ADJUSTING THEIR ACCOUNTS IN SUCH A MANNER AS TO ATT RACT NO TAX OR VERY LITTLE TAX. IT IS WITH A VIEW TO BRING SUCH OF THESE COMPANIES WIT HIN THE TAX NET THAT S. 115J, WAS INTRODUCED IN THE IT ACT WITH A DEEMING PROVISI ON WHICH MAKES THE COMPANY LIABLE TO PAY TAX ON AT LEAST 30 PER CENT O F ITS BOOK PROFITS AS SHOWN IN ITS OWN ACCOUNT. FOR THE SAID PURPOSE, S. 115J MAKE S THE INCOME REFLECTED IN THE COMPANIES BOOKS OF ACCOUNTS AS THE DEEMED INCOM E FOR THE PURPOSE OF A ASSESSING THE TAX. IF WE EXAMINE THE SAID PROVISION IN THE ABOVE BACKGROUND, WE NOTICE THAT THE USE OF THE WORDS 'IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT' WAS MAD E 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 AUTHENTICI TY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WH ICH 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 A UDITORS 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 STATUTO RY OBLIGATION ALSO TO EXAMINE AND SATISFY THAT THE ACCOUNTS OF THE COMPAN Y ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES A CT. IN SPITE OF ALL THESE PROCEDURES CONTEMPLATED UNDER THE PROVISIONS OF THE COMPANIES ACT, WE FIND IT DIFFICULT TO ACCEPT THE ARGUMENT OF THE REVENUE THA T IT IS STILL OPEN TO THE AO TO RE-SCRUTINISE THIS ACCOUNT AND SATISFY HIMSELF THAT THESE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF COM PANIES ACT. IN OUR OPINION, RELIANCE PLACED BY THE REVENUE ON SUB-S. (1A) OF S. 115J OF THE IT ACT IN SUPPORT OF THE ABOVE CONTENTION IS MISPLACED. SUB-S . (1A) OF S. 115J DOES NOT EMPOWER THE AO TO EMBARK UPON A FRESH INQUIRY IN RE GARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. THE SAID SU B-SECTION, AS A MATTER OF FACT, MANDATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT WHICH MANDATE, AC CORDING TO US, IS BODILY LIFTED FROM THE COMPANIES ACT INTO THE IT ACT FOR T HE LIMITED PURPOSE OF MAKING THE SAID ACCOUNT SO MAINTAINED AS A BASIS FOR COMPU TING THE COMPANYS INCOME FOR LEVY OF INCOME-TAX. BEYOND THAT, WE DO NOT THIN K THAT THE SAID SUB-SECTION EMPOWERS THE AUTHORITY UNDER THE IT ACT TO PROBE IN TO THE ACCOUNTS ACCEPTED BY THE AUTHORITIES UNDER THE COMPANIES ACT. IF THE STATUTE MANDATES THAT INCOME PREPARED IN ACCORDANCE WITH THE COMPANIES AC T SHALL BE DEEMED INCOME FOR THE PURPOSE OF S. 115J OF THE ACT, THEN IT SHOULD BE THAT INCOME WHICH IS ACCEPTABLE TO THE AUTHORITIES UNDER THE CO MPANIES ACT. THERE CANNOT BE TWO INCOMES ONE FOR THE PURPOSE OF COMPANIES ACT AND ANOTHER FOR THE PURPOSE OF INCOME-TAX BOTH MAINTAINED UNDER THE SAM E ACT. IF THE LEGISLATURE 12 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 INTENDED THE AO TO REASSESS THE COMPANYS INCOME, T HEN 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 E RRED IN REVERSING THE SAID VIEW OF THE TRIBUNAL. THEREFORE, WE ARE OF THE OPINION, THE AO WHILE COMP UTING THE INCOME UNDER S. 115J HAS ONLY THE POWER OF EXAMINING WHETHER THE BO OKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E AO THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION. TO PUT IT DIFFEREN TLY, THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN T HE P&L A/C EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO S. 115J. 7. FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE HA S ALSO SUBMITTED AND CONSIDER THE DECISION OF HONBLE BOMBAY HIGH CO URT IN ITA NO. 1609 OF 2013 IN THE CASE OF CIT VS. M/S. FOREVER DIAMOND S PVT. LTD. VIDE ORDER DATED 12.08.2015, WHEREIN THE HONBLE JURISDICTIONA L HIGH COURT HELD AS UNDER :- 3.THE GRIEVANCE OF THE REVENUE IS THAT, WHEN ACCOR DING TO THE ASSESSING OFFICER THE ACCOUNTS AS PREPARED AND AS AUDITED ARE MANIFESTLY IN CONFLICT WITH THE MANNER IN WHI CH THE ACCOUNTS HAVE TO BE PREPARED UNDER THE COMPANIES ACT, THEN IT IS OPEN TO THE ASSESSING OFFICER TO RECAST THE ACCOUNTS FOR THE PURPOSES OF SECTION 115JB OF THE ACT. THE TRIBUNAL, BY THE IMPUGNED OR DER NEGATIVED THE REVENUE'S CONTENTION BY RELYING UPON THE DE CISION OF THE SUPREME COURT IN APOLLO TYRES LTD. V/S C.I.T., REPO RTED IN 255 ITR 273. IT HAS VERY PERTINENTLY QUOTED THE FOLLOWING OBSERVATIONS FROM APOLLO TYRES LTD. IN THE IMPUGNED ORDER AS UNDER: THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PROFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME TAX ACT, 1961, 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 ASSESSING OFFICER, THEREFORE, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J. T HE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE 13 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISION OF PARTS II AND III OF THE SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING IN TO THE ACCOUNT OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFI ED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. THE AFORESAID OBSERVATIONS OF THE APEX COURT CONCLU DES THE ISSUE BY HOLDING THAT THE ASSESSING OFFICER DOES NOT HAVE A POWER TO EMBARK UPON THE FRESH ENQ UIRY WITH REGARD TO THE ENTRIES MADE IN THE BOOKS OF AC COUNTS OF THE COMPANY WHEN THE ACCOUNTS OF AN ASSESSEE COMP ANY IS PREPARED IN TERMS OF PART II SCHEDU LE VI OF THE COMPANIES ACT SCRUTINIZED AND CERTIFIED BY THE STA TUTORY AUDITORS, APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER FILEDBEFORETHE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AN D BE SATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MA INTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPA NIES ACT. THUS, THE ISSUE IS NO LONGER RES INTEGRA. MOREO VER, IF THE GRIEVANCE OF THE REVENUE IS TO BE ACC EPTED, THEN THE CONCLUSIVENESS OF ACCOUNTS PREPARED A ND AUDITED IN TERMS OF SECTION 115JB OF THE COMPANIES ACT WOULD BE SET AT NAUGHT. THIS WITHOUT SUCCESSFULLY IMPEACHING THE AUDITOR'S CERTIFICATE OR WITHOUT THE REGISTRAR OF COMPANIES HOLDING THAT THE ACCOUNTS HAVE NOT BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. 4.MR.CHHOTARAY, LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT APOLLO TYRES LTD. (SUPRA) WAS DEALING WITH SECTION 115J OF THE ACT, 14 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 WHILE THIS APPEAL DEALS WITH SECTION 11 5JB OF THE ACT, THEREFORE NOT APPLICABLE. HOWEVER, WE DO N OT FIND ANY SUCH DISTINCTION WHICH COULD WARRANT THE ASSESSING OFF ICER IGNORING THE DECISION OF THE APEX COURT IN APOLLO TY RES LTD. (SUPRA) WHILE APPLYING THE PROVISIONS OF SECTION 115JB OF THE ACT WHICH, ACCORDING TO US, ARE SIMILAR IN NATURE TO THE PROVISIONS OF SECTION115J OF THE ACT. IT MAY ALSO BE NOTED TH AT NO SUCH DISTINCTI ON WAS SOUGHT TO BE MADE EITHER BEFORE THE TRIBUNAL OR RAISED IN THE GROUNDS OF APPEAL FILED BEFORE US . 5.IT IS ALSO PERTINENT TO NOTE THAT WHILE CORRECTIN G THIS ORDER DICTATED IN COURT, WE FOUND THAT IN THE GROUNDS OF APPEAL TA KENBEFORE US, THE REVENUE CONCEDES THAT THE RELIANCE IN THE IMPUGNED ORDER ON THE DECISION OF THIS COURT IN C.I.T. V/S ADBHUT TRA DING CO. (P) LTD., REPORTED IN 338 ITR 94, WOULD CONCLUDE THE ISSUE.HO WEVER, THE GROUNDS MENTION THAT THE SAME NEED NOT BE FOLLOWED AS IT IS NOT ACCEPTED BY THE REVENUE, ALTHOUGH NO APPEAL WAS FILED TO THE APEX COURT IN VIEW OF LOW TAX EFFECT. IN S PITE OF THE VERY ISSUE BEING CONCLUDED BY AN ORDER OF THIS C OURT IN RESPECT OF SECTION 115JB OF THE ACT, THE SAME WAS NOT POINT ED OUT AT THE HEARING. INSTEAD THE COUNSEL FOR THE REVENUE INSIS TED ON SEEKING TO MAKE DISTINCTION BETWEEN SECTIONS 115JB A ND 115J OF THE ACT WITHOUT POINTING OUT THE DECISION OF THIS COURT IN ADBHUT TRADING (SUPRA) AND TAKING UP THE COURT'S TIME. WE EXPECT THE COUNSEL APPEARING BEFORE US TO BE CANDID AND WHEN MATTERS A RE COVERED BY ORDERS OF THIS COURT OR THE APEX COURT AND TO STATE SO. THIS WOULD ENSURE QUICKER DISPOSAL OF MATTERS. 6. IN VIEW OF THE ABOVE, AS THE ISSUE STANDS SETTLED BY THE DECISION OF THE APEX COURT IN APOLLO TYRES (SUP RA), AND OF THIS COURT IN ABDHUT TRADING (SUPRA), THE QUESTION AS PR OPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. ACCO RDINGLY, APPEAL DISMISSED. NO ORDER AS TO COSTS. 8. IN VIEW OF THE ABOVE FACTUAL MATRIX OF THE CASE AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYR ES (SUPRA) AND HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF C IT VS. M/S. FOREVER DIAMONDS PVT. LTD (SUPRA), WE ARE OF THE VIEW THAT THE ISSUE ON MERITS AS WELL AS ON JURISDICTION IS COVERED IN FAVOUR OF ASS ESSEE AND AGAINST REVENUE. HENCE, WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. THE APPEAL OF REVENUE ON THIS ISSUE IS DISMISSED. 15 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 9. THE ISSUE IN CROSS OBJECTION OF THE ASSESSEE IS AS REGARDS TO REOPENING OF ASSESSMENT. SINCE LD.COUNSEL FOR THE ASSESSEE HAS NOT ARGUED THIS AND HENCE THE SAME IS DISMISSED, AS NOT PRESSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED AND CROSS- OBJECTIONS RAISED BY ASSESSEE WILL BECOME INFRUCTUO US. ORDER PRONOUNCED IN THE OPEN COURT ON 16 -11-2018 AADOSA KI GAAOYANAA KULAO MAO IDNAMK AADOSA KI GAAOYANAA KULAO MAO IDNAMK AADOSA KI GAAOYANAA KULAO MAO IDNAMK AADOSA KI GAAOYANAA KULAO MAO IDNAMK 16 -11- 2018 KAO KI GA[ KAO KI GA[ KAO KI GA[ KAO KI GA[- -- - . .. . SD/- SD/- ( / MANOJ KUMAR AGGARWAL) ( /MAHAVIR SINGH) ( / ACCOUNTANT MEMBER) ( / JUDICIAL MEMBER) MUMBAI, DATED: 16-11 - 2018 SUDIP SARKAR /SR.PS 16 ITA NO. 1675/MUM/2017 & CO NO. 219/MUM/2018 COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//