ITO 5(2) (2), MUMBAI V. JDV AUTOMOTIVE ENGG. P. LTD, MUMBAI

ITA 2163/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4085 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CAPT PRADEEP ARYA
• Keywords: Capital receipt
• Section: 143(3); 115JB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO.2163/MUM/2014 ASSESSMENT YEAR: 2010-11 ITO - 5(2)(2), R.NO. 567, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS. M/S JDV AUTOMOTIVE ENGG. PVT. LTD., 8, GROUND FLOOR, ASHISH BUILDING, 335 BELASIS ROAD, TARDEO, MUMBAI- 400034 PAN:AAACJ4000C (APPELLANT) (RESPONDENT) REVENUE BY : CAPT. PRADEEP ARYA (DR) ASSESSEE BY : SHRI NISHIT GANDHI DATE OF HEARING : 23.09.2015 DATE OF PRONOUNCEMENT : 03.02.2016 O R D E R PER SANDEEP GOSAIN, JM: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER DATED 02.01.2014 PASSED BY CIT(A)-9, MUMBAI THEREBY PARTL Y ALLOWING THE APPEAL OF THE ASSESSEE AGAINST THE ORDER OF ASSESSMENT DATED 03.0 1.2013 MADE BY ASSESSING OFFICER (AO) U/S 143(3) OF THE INCOME-TAX ACT (FOR SHORT THE ACT) 1961. THE FOLLOWING GROUNDS OF APPEAL ARE RAISED IN THE APPEA L. 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. C1T(A) HAS ERRED IN DELETING THE ADDITION O F RS.1,62,39,644/- I.E. PROFIT OF SALE OF MODI CHAMBERS, MADE TO ME BOOK PR OFIT U/S.115JB?' 2 ITA NO.2163/M/2014 M/S JDV AUTOMOTIVE ENGG. PVT. LT D. 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. C1T(A) HAS FAILED TO APPRECIATE THE FACT TH AT FOR THE PURPOSE OF SECTION 115JB THE COMPANY ASSESSEE SHOULD PREPARE I TS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART 1 1 OF SCHEDULE VI TO THE COMPANIES ACT,1956?' 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD ANY OTHER GROUNDS WHICH MAY BE NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 3,22,225/- WAS E-FILED ON 29.09.2010 AND PROCES SED U/S 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY AFTE R SERVING THE STATUTORY NOTICES, THE ORDER OF ASSESSMENT WAS MADE BY AO VIDE ITS ORDER D ATED 03.01.2013. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DELETED THE ADDITION OF RS. 1,62,39, 644/- I.E. PROFIT ON SALE OF MODI CHAMBERS MADE TO THE BOOK PROFIT U/S 115JB OF THE A CT AND PARTLY ACCEPTING THE APPEAL VIDE ITS ORDER DATED 02.01.2014. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE FI LED THE PRESENT APPEAL BEFORE US ON THE GROUNDS REPRODUCED HERE IN ABOVE. GROUND NO.1 TO 4 TAKEN BY REVENUE ARE INTERRELATED. THEREFORE, THEY ARE BEING DISPOSED OF COLLECTIVELY BY THIS ORDER. 5. LD. DEPARTMENTAL REPRESENTATIVE (DR) REPRESENTIN G THE REVENUE RELIED UPON THE ORDER OF ASSESSMENT PASSED BY AO AND SUBMITTED THAT AFTER CONSIDERING THE STATEMENT OF ACCOUNT, FORM NO. 29B AND PROFIT & LOS S ACCOUNT. IT WAS RIGHTLY POINTED OUT BY AO THAT FOLLOWING THE MANDATE OF ACCOUNTING STANDARD, THE PROFIT ARISEN ON SALE, SHOULD HAVE BEEN ROUTED THROUGH P&L A/C. IT W AS OBSERVED FROM THE P&L A/C AND BALANCE-SHEET THAT THE PROFIT OF RS. 1,62,39,64 4/- ACCRUED TO THE ASSESSEE ON 3 ITA NO.2163/M/2014 M/S JDV AUTOMOTIVE ENGG. PVT. LT D. SALE OF MODI CHAMBERS HAS DIRECTLY BEING TAKEN TO B ALANCE-SHEET AS A CAPITAL RESERVE. SINCE THE PROFIT HAS NOT BEEN ROUTED THROUGH P&L A/ C AND THEREBY NOT CONSIDERED FOR BOOK PROFIT U/S 115JB OF THE ACT, WHICH SAYS THAT T HE MANDATE OF ACCOUNTING STANDARD, THE PROFIT ARISING ON SALE OF MODI CHAMBE RS AMOUNTING TO RS. 1,62,39,644/- SHOULD HAVE BEEN ROUTED THROUGH P&L A/C AND SINCE T HE ASSESSEE FAILED TO ADHERE THE ACCOUNTING STANDARD, THEREFORE, THE ADDITION WE RE RIGHTLY MADE U/S 115JB(2) OF THE ACT WHICH READS AS UNDER: .........EVERY ASSESSEE, BEING A COMPANY, SHALL FO R THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR T HE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956(1 OF 1956)......... AND SINCE THE ASSESSEE FAILED TO COMPUTE BOOK PROFI T U/S 115JB OF THE ACT IN THE MANNER PRESCRIBED, THEREFORE, THE ADDITION WERE RIG HTLY MADE BY THE AO AND THEREFORE, THE SAME MAY BE SUSTAINED, ON THE OTHER HAND LD. AUTHORISED REPRESENTATIVE (AR) REPRESENTING THE ASSESSEE HAS R ELIED UPON THE ORDER PASSED CIT(A) AND SUBMITTED THAT THE ADDITION OF RS. 1,62, 39,644/- I.E. PROFIT ON SALE OF MODI CHAMBERS WHICH IS ADDED TO THE BOOK PROFIT U/S 115J B OF THE ACT, IT WAS NOTICED THAT THE AO MADE THIS ADDITION ONLY ON THE GROUND THAT T HE ASSESSEE HAS NOT ROUTED THIS PROFIT THROUGH ITS P&L A/C WHICH WAS REQUIRED AS PE R ACCOUNTING STANDARD WHEREAS INFACT THE ASSESSEE DURING THE ORDER UNDER CONSIDER ATION HAS INVESTED THE ENTIRE SALE PROCEEDINGS OF THE SOLD ASSET I.E. OFFICE PREMISES IN THE ACQUISITION OF NEW IMMOVABLE PROPERTY WHICH IS REFLECTED FIXED ASSET S CHEDULE PREPARED IN ACCORDANCE WITH THE SCHEDULE OF THE COMPANIES ACT AND THEREFOR E, THE CIT(A) HAD RIGHTLY DELETED THE ADDITIONS MADE BY AO. THE AR FURTHER RELIED UPO N THE WRITTEN SUBMISSIONS SUBMITTED BEFORE THE CIT(A) WHICH READS AS UNDER: 4 ITA NO.2163/M/2014 M/S JDV AUTOMOTIVE ENGG. PVT. LT D. THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF T HE ASSESSEE COMPANY HAVE BEEN PREPARED IN ACCORDANCE WITH THE PROVISION S OF SCHEDULE VI OF THE COMPANIES ACT AND SOUND AND ACCEPTED PRINCIPLES OF ACCOUNTING PRACTICE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CO MPANY HAD SOLD IMMOVABLE PROPERTY (OFFICE PREMISES) OF THE COMPANY AND HAD PURCHASED ANOTHER IMMOVABLE PROPERTY OUT OF THE SALE PROCEEDS . THE ENTIRE SALES PROCEEDS WAS INVESTED IN THE ACQUISITION OF NEW IMM OVABLE PROPERTY AS CAN BE SEEN FROM THE FIXED ASSETS SCHEDULE PREPARED IN ACC ORDANCE WITH THE SCHEDULE VI OF THE COMPANIES ACT (REFER PAGE NO. 28 OF PAPER BOOK). THE ENTIRE PROFIT ON SALE OF OFFICE PREMISES IS A CAPITAL RECEIPT AND HAS BEEN CREDITED TO THE CAPITAL RESERVE ACCOUNT IN THE BALANCE SHEET AS THE PROFIT IS NOT PART OF THE DISTRIBUTABLE INCOME OF THE ASSESSEE COMPANY. THIS IS MORE SO BECAUSE THE SALES PROCEEDS HAVE BEEN RE-INVESTED IN ANOTHER FIX ED ASSET AND THE SAME IS NOT AVAILABLE FOR DISTRIBUTION AS PROFITS. HENCE AC CORDING TO THE CORRECT ACCOUNTING PRINCIPLES THE CAPITAL GAIN ON SALE OF O FFICE PREMISES HAS BEEN CREDITED TO CAPITAL RESERVE ACCOUNT IN THE BALANCE SHEET. BOOK PROFIT MEANS NORMAL BUSINESS PROFIT AND PROFIT ON SALE OF FIXED ASSET IS NOT NORMAL BOOK PROFIT PARTICULARLY WHEN THE SAME IS INVESTED IN IM MOVABLE PROPERTY AND IS NOT AVAILABLE FOR DISTRIBUTION AS DIVIDEND. THE FINANCI AL STATEMENTS HAVE BEEN PREPARED IN ACCORDING TO THE COMPANIES ACT AND THE SAME HAVE BEEN AUDITED BY CHARTERED ACCOUNTANT AND ACCEPTED BY THE SHAREHO LDERS AND ALSO BY THE REGISTRAR OF THE COMPANIES. HENCE AFTER CONSIDERING THE ADJUSTMENTS ALLOWED BY THE EXPLANATION 1 TO SECTION 115JB, THE BOOK PRO FITS IS A NEGATIVE FIGURE AND HENCE THERE IS NO MA T. THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSE OF MAT IS AS UNDER: NET PROFIT AS PER PROFIT AND LOSS A/C RS. 1,05,96 ,585 LESS : DIVIDEND INCOME EXEMPT U/S 10 RS. 1,09,22, 400 BOOK PROFIT (-) RS. 3,25,815 ==== ========= SINCE BOOK PROFIT IS A NEGATIVE FIGURE THE MAY PAYA BLE IS RS. NIL. THE ASSESSING OFFICER HAS ADDED THE AMOUNT OF CAPITAL R ESERVE TO THE PROFIT AS PER PROFIT AND LOSS ACCOUNT WHICH IS NOT PERMISSIBLE AS PER PROVISIONS OF SECTION 115JB AND AFTER DEDUCTING DIVIDEND INCOME HAS COMPU TED THE BOOK PROFIT FOR THE PURPOSES OF LEVY OF MAT AT RS. 1,59,13,8291- (R EFER PAGE 5 OF ASSESSMENT ORDER). IT HAS BEEN HELD BY THE APPELLATE AUTHORITIES THAT THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFITS HAS ONLY THE POWER OF EX AMINING WHETHER THE BOOKS OF ACCOUNTS ARE CERTIFIED BY THE CHARTERED AC COUNT AS BEING PROPERLY MAINTAINED IN ACCORDANCE WITH THE SOUND ACCOUNTING PRINCIPLES. ONCE THE CHARTERED ACCOUNT CERTIFIES THE SAME AND THE SHAREH OLDERS APPROVE THE ACCOUNTS IN THE AGM AND THE REGISTRAR OF COMPANIES ACCEPTS THE SAME, THE ASSESSING OFFICER HAS ONLY THE LIMITED POWER TO MAK ING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE PROVISIONS OF SEC TION 115JB. THE ASSESSING OFFICER CANNOT ADD THE CAPITAL GAINS CREDITED TO TH E CAPITAL RESERVE TO THE PROFITS AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. TH E ENTIRE ISSUE HAS BEEN DISCUSSED THOROUGHLY IN THE FOLLOWING CASES BY THE SUPREME COURT AND THE HON. ITAT, MUMBAI. THE COPIES OF THE APPELLATE ORDE RS ARE ON PAGE NOS. 38 TO 82 OF THE PAPER BOOK. 5 ITA NO.2163/M/2014 M/S JDV AUTOMOTIVE ENGG. PVT. LT D. ITO 6(3)(1) V. M/S. GALAXY SAWS P. LTD (ITA NO. 374 71MI2009 -ITAT, G- BENCH, MUMBAI) ITO 6(3)(1) V. M/S. GALAXY KNIVES P. LTD (ITA NO. 7 1251MUML2008 - ITAT, G- BENCH, MUMBAI) APOLLO TYRES LTD. V. CIT (AND VICE VERSE) - 2551TR 273 (SUPREME COURT) MALAYALA MONORAMA CO. LTD. V. CIT 300 ITR 251 (SU PREME COURT) 6. WE HAVE HEARD BOTH THE PARITIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAS R IGHTLY DEALT WITH THE ABOVE GROUNDS AND RIGHTLY HELD THAT IN THE PRESENT CASE T HERE IS NO TAXABLE INCOME IN THE FORM OF CAPITAL GAINS IN THE HANDS OF THE ASSESSEE BECAUSE THE SALE PROCEEDINGS OF FIXED ASSET HAS BEEN INVESTED INTO ANOTHER FIXED AS SET OF THE SAME NATURE I.E. IMMOVABLE PROPERTY DURING THE YEAR UNDER CONSIDERAT ION AND THE SAME IS REFLECTED IN THE FIXED ASSETS SCHEDULE PREPARED IN ACCORDANCE WI TH SCHEDULE 6 OF THE COMPANIES ACT. SINCE THE ADDITION TO THE SPECIFIC BLOCK OF AS SET OF THE PROPERTY WAS MORE THAN THE REDUCTION IN THE BLOCK OF ASSETS, THERE IS NO C ASE OF CAPITAL GAINS AS PER THE PROVISIONS OF SECTION 50 OF THE ACT. WE ALSO RESPEC TFULLY FOLLOWING THE JUDGMENTS CITED BY AR NAMELY ITO VS. M/S GALAXY SAWS P. LTD. (ITA NO. 3747/M/2009), ITO VS. M/S GALAXY KNIVES P. LTD. (ITA NO. 7125/M/2008) AND APOLLO TYRES LTD. VS. CIT (AND VICE VERSA) 255 ITR 273 (SC). THEREFORE, CONSIDER ING THE AFOREMENTIONED FACTS, NO INTERFERENCE IS REQUIRED IN THE ORDERS PASSED BY CI T(A), THEREFORE, THE ORDER PASSED BY THE CIT(A) IS UPHELD AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF FEBRUARY, 2016. SD/- SD/- ( D.KARUNAKARA RAO) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER 6 ITA NO.2163/M/2014 M/S JDV AUTOMOTIVE ENGG. PVT. LT D. MUMBAI, DATED: 03.02.2016 SHARWAN P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR J BENCH BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.