M/S. MANOHARLAL SANTRAM HIRING CO. PVT. LTD, MUMBAI V. THE ACIT CIR 6(3),

ITA 2217/MUM/2008

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7264 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 28-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN SATHE
• Keywords: Depreciation; Deemed dividend
• Section: 115JB

Judgement Text

1 ITA NOS 2217 & 3299/2008 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI P M JAGTAP, AM & SHRI VIJAY PAL RAO, JM ITA NO. 2217/MUM/2008 (ASST YEAR 2005-06) M/S MANOHARLAL SANTRAM HIRING CO P LTD SAI NIWAS 154 P D MELLO ROAD CARNAC BUNDER, MUMBAI VS THE ASST COMMR OF INCOME TAX CIR 6(3), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 3299/MUM/2008 (ASST YEAR 2005-06) THE ASST COMMR OF INCOME TAX CIR 6(3), MUMBAI VS M/S MANOHARLAL SANTRAM HIRING CO P LTD SAI NIWAS 154 P D MELLO ROAD CARNAC BUNDER, MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACM5951B ASSESSEE BY SHRI ARUN SATHE REVENUE BY SHRI SUNIL KUMAR SINGH DT.OF HEARING 28.7.2011 DT OF PRONOUNCEMENT 5 TH AUG 2011 PER VIJAY PAL RAO, JM THESE CROSS APPEALS BY ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER DATED 18.2.2008 OF THE CIT(A) FOR THE ASSESSM ENT YEAR 2005-06. ITA NO. 2217/MUM/2008 (BY THE ASSESSEE) 2 THE ONLY GROUND RAISED BY THE ASSESSEE IN ITS APP EAL READS AS UNDER: THE LD CIT(A) HAS ERRED IN CONFIRMING ACTION OF THE ACIT 6(3), MUMBAI OF INCLUDING EXCESS DEPRECATION WRITTEN OFF PREVIOUSLY CRE DITED TO P&L LOSS 2 ITA NOS 2217 & 3299/2008 APPROPRIATION A/C OF RS. 14,72,414/- FOR THE PURPOSE OF COMPUTATION OF INCOME /S 115JB. 2.1 THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROU ND VIDE LETTER DATED 14 TH MAY 2009 AS UNDER: THE CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICE RS ORDER IN TREATING AN AMOUNT OF RS. 6,85,000/- AS DEEMED DIVIDEND AND FAI LED TO APPRECIATE THAT PROVISIONS OF SEC. 2(22)(E) OF I T ACT, 1961, ARE NO T APPLICABLE IN THE PRESENT CASE SINCE NO BENEFIT ACCRUES TO ANY OF THE SHAREHO LDERS. 3 REGARDING COMPUTATION OF BOOK PROFIT U/S 115JB, T HE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS SHOWN NET PROFIT OF RS.5,17, 238/-. BELOW THIS ITEM A FURTHER AMOUNT OF RS. 14,72,414/- WAS CREDITED AS EXCESS D EPRECIATION WRITTEN OFF. SINCE THIS AMOUNT OF RS. 14,72,414/- WAS NOT ADDED BACK FOR TH E PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THIS SUM SHOULD NOT BE INCLUDED FOR THE PURPOSE OF COMPUTATION OF INCOME U/S 115JB. THE ASSESSEE MAINLY CONTENDED BEFORE THE AS SESSING OFFICER THAT DUE TO CHANGE IN THE METHOD OF DEPRECATION, THE EXCESS DEP RECATION CLAIMED PREVIOUSLY WAS CREDITED TO PROFIT AND LOSS APPROPRIATION ACCOU NT AND THEREFORE, THIS AMOUNT CANNOT BECOME THE PART OF BOOK PROFIT AS PER SEC. 1 15JB OF THE I T ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESS EE AND ADDED THE SAID AMOUNT WHILE COMPUTING THE BOOK PROFIT U/S 115JB AND HELD THAT THE ENTRY MADE BY THE ASSESSEE ON BELOW LINE BASIS HAS THE IMPACT OF INCR EASING THE RESERVES OF THE ASSESSEE AND THUS, SQUARELY FALLS WITHIN CLAUSE (B) OF EXPLANATION TO SC. 115JB. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSE SSING OFFICER. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT SINCE THIS EXCESS DEPRECATION WAS NOT DEBITED TO THE P&L ACCOUNT BUT WAS CREDITED TO PROFIT AND LOSS 3 ITA NOS 2217 & 3299/2008 APPROPRIATION ACCOUNT; THEREFORE, NO ADJUSTMENT IS REQUIRED UNDER EXPLANATION TO SEC. 115JB. THE LD AR HAS SUBMITTED THAT THE ASSESS ING OFFICER HAS COMMITTED AN ERROR BY MAKING THE ADJUSTMENT OF THE AMOUNT UNDER CLAUSE (B) OF EXPLANATION TO SEC. 115JB. HE HAS REFERRED THE PROVISIONS OF SEC. 115JB AND SUBMITTED THAT AS PER CLAUSE (B) OF EXPLANATION I, THE AMOUNT CARRIES TO ANY RESERVES OTHER THAN A RESERVE SPECIFIED U/S 33AC AFTER DEBITED TO THE P&L ACCOUNT CAN BE ADDED BACK WHILE COMPUTING BOOK PROFIT U/ 115JB. SINCE THE ASSESSEE HAS NOT DEBITED THIS AMOUNT TO THE P&L ACCOUNT IN THE RELEVANT PREVIOUS YEAR AND T HE AMOUNT WAS RATHER CREDITED TO PROFIT AND LOSS APPROPRIATION ACCOUNT; THEREFORE , NO ADJUSTMENT IS REQUIRED AS PER EXPLANATION 1 FOR COMPUTATION OF BOOK PROFIT. HE HA S FURTHER CONTENDED THAT THE ACCOUNTS OF THE ASSESSEE ARE PREPARED AS PER PROVIS IONS OF PART II & II OF SCHEDULE VI OF THE COMPANIES ACT, WHICH WERE DULY AUDITED AND A PPROVED IN THE ANNUAL MEETING. HE HAS RELIED UPON THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF NATIONAL HYDROELECTRIC POWER CORPN LTD VS CIT R EPORTED IN 320 ITR 374 (SC); THEREFORE, NO ADJUSTMENT CAN BE MADE. 4.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE EXCESS DEPRECIATION EARLIER CLAIMED AND WRITTEN OFF BY THE ASSESSEE DUR ING THE YEAR UNDER CONSIDERATION IS REQUIRED TO BE PART OF THE BOOK PROFIT OF THE AS SESSEE. HE HAS FURTHER SUBMITTED THAT THE P&L ACCOUNT PREPARED BY THE ASSESSEE BY EX CLUDING THE WRITTEN OFF EXCESS DEPRECIATION AMOUNT IS NOT AS PER THE PROVISIONS OF COMPANIES ACT. THE AMOUNT SHOULD HAVE BEEN EXCLUDED FOR THE PURPOSE OF COMPUT ATION OF PROFIT U/S 115JB R.W.S 205 OF THE COMPANIES ACT. HE HAS RELIED UPON THE DE CISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KWALITY BISCUI TS LTD VS CIT REPORTED IN 243 ITR 519(KAR) AND THE DECISION OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF IN THE 4 ITA NOS 2217 & 3299/2008 CASE OF ALFA LAVAL INDIA LTD VS DCIT REPORTED IN 13 3 TAXMAN 740( BOM). THE LD DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE THE ADJUSTM ENT OF RS. 14,72,414/- BY APPLYING CLAUSE (B) OF EXPLANATION 1 TO SEC. 115JB( 2). THE ASSESSING OFFICER OBSERVED THAT THE EFFECT OF THE ENTRY OF WRITING BACK THE DE PRECIATION WOULD INCREASE THE RESERVES AND SURPLUS OF THE ASSESSEE. THUS, IT IS N OT THE CASE OF THE REVENUE THAT THE ACCOUNTS OF THE ASSESSEE ARE NOT PREPARED AS PER PA RT II & III OF SCHEDULE VI OF THE COMPANIES ACT. THE ASSESSEE HAS NOT CREDITED THIS AMOUNT OF WRITING BACK OF EXCESS DEPRECATION DUE TO CHANGE OF RATE OF DEPRECIATION T O THE P&L ACCOUNT; BUT THE ENTRY WAS MADE TO PROFIT AND LOSS APPROPRIATION ACC OUNT. THUS, THERE IS NO QUESTION OF WITHDRAWAL OR REDUCING THE SAID AMOUNT FROM THE PROFIT AS SHOWN BY THE ASSESSEE AND ACCORDINGLY NO ADJUSTMENT FOR COMPUTATION OF BO OK PROFIT. SINCE THE EXCESS AMOUNT IS NOT A RESERVE CREATED BY DEBITING TO THE P&L ACCOUNT; THEREFORE, CLAUSE (B) OF EXPLANATION 1 IS NOT APPLICABLE. THE DECISIO NS RELIED UPON BY THE LD DR WOULD ALSO NOT APPLICABLE TO THE FACTS OF THE CASE BECAU SE THIS IS NOT A CASE WHERE THE AMOUNT WAS FIRST CREDITED TO THE P&L ACCOUNT AND TH EN REDUCED BY THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT U/S 115JB. THE AS SESSING OFFICER WHILE COMPUTING BOOK PROFIT U/S 115JB HAS LIMITED POWER IN MAKING A NY INCREASE/REDUCTION AS PROVIDED IN THE EXPLANATION. THE ASSESSING OFFICER DOES NOT HAVE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE P&L ACCOUNT EXCE PT PROVIDED IN THE EXPLANATION. THE ACCOUNTS OF THE ASSESSEE COMPANY ARE MAINTAINED AS PER THE PROVISIONS OF COMPANIES ACT AND SCRUTINISED AND CERTIFIED BY THE STATUTORY AUDITORS AS WELL AS APPROVED BY THE COMPANY IN THE GENERAL METING SHALL NOT BE SUBJECTED TO FRESH 5 ITA NOS 2217 & 3299/2008 ENQUIRY BY THE ASSESSING OFFICER IN REGARD TO THE E NTRIES MADE IN THE BOOKS OF ACCOUNT U/S 115JB AS HELD BY THE HONBLE SUPREME CO URT IN THE CASE OF APOLLO TYRES VS CIT REPORTED IN 255 ITR 273. ACCORDINGLY, NO A DJUSTMENT IS REQUIRED IN RESPECT OF THE AMOUNT OF RS. 14,72,414/- BEING AN ENTRY IN THE PROFIT AND LOSS APPROPRIATION ACCOUNT ON ACCOUNT OF EXCESS DEPRECIATION PREVIOUS LY WRITTEN OFF WHILE COMPUTING THE BOOK PROFIT U/S 115JB. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ADDITIONAL GROUND: 6 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE WAS RAISED BEFORE THE CIT(A) AND THE CIT(A) HAD DECIDED THIS ISSUE AGAINST THE ASSESSEE WHILE PASSING THE IMPUGNED ORDER. HOWEVER, INADVERTENTLY, THIS ISSUE HAS NOT BEEN RAISED IN THE ORIGINAL GROUNDS WHILE FILIN G THE APPEAL ALONG WITH APPEAL MEMO IN FORM 36. HE HAS FURTHER CONTENTED THAT SINC E THE ISSUE HAS ARISEN FROM THE IMPUGNED ORDER AND NOT A FRESH ISSUE; THEREFORE, TH E SAME MAY BE ADMITTED FOR ADJUDICATION. 6.1 ON THE OTHER HAND, THE LD DR VEHEMENTLY OBJECTE D TO THE ADMISSION OF THE ADDITIONAL GROUND AND SUBMITTED THAT THE ASSESSEE H AS NOT EXPLAINED THE SUFFICIENT REASONS FOR NOT RAISING THIS ISSUE IN THE ORIGINAL GROUNDS OF APPEAL. 7 AFTER CONSIDERING THE RIVAL CONTENTION AND CAREFU LLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE NOTED THAT THE ISSUE W AS RAISED BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A) AND THE CIT(A) HAS ADJUDICATED THIS ISSUE IN THE IMPUGNED ORDER; THUS, THIS ISSUE IS NOT A FRESH POI NT RAISED BY THE ASSESSEE BEFORE THIS 6 ITA NOS 2217 & 3299/2008 TRIBUNAL. HOWEVER, THE ASSESSEE DID NOT RAISE THIS ISSUE IN THE ORIGINAL GROUND BUT RAISED BY WAY OF ADDITIONAL GROUND. 7.1 THIS ISSUE IS PURELY LEGAL IN NATURE AND NO VER IFICATION OR EXAMINATION OF FACTS IS REQUIRED FOR ADJUDICATION OF THE ISSUE. THEREFORE, HAVING REGARD TO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NTPC, THE ADDITIONAL G ROUND RAISED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION 8 ON MERIT, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS NOT A REGISTERED SHARE HOLDER OF M/S OBHAM WAREHOUSING P LTD FROM WHOM THE ASSESSEE HAS TAKEN A LOAN OF RS. 6,85,000/-. THEREFORE, THE PROVISIONS OF SEC.2 (22)(E) ARE NOT APPLICABLE ON THE ASSESSEE WHEN THE ASSESSEE IS NO T A REGISTERED SHARE HOLDER OF THE COMPANY, WHOSE HAS PROVIDED THIS LOAN. HE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS UNIVERSAL MEDICARE P LTD REPORTED IN 324 ITR 263 AS WELL AS THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS HOTEL HILTOP REPORTED N 313 ITR 116. HE HAS ALSO RELIED UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ACIT VS BHAUMIK COLOUR P LTD REPORTED 27 SOT 270 8.1 THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS N OT RAISED THIS ARGUMENT BEFORE THE LOWER AUTHORITIES AND FOR THE FIRST TIME RAISED THIS POINT BEFORE THIS TRIBUNAL. THEREFORE, THE MATTER IS REQUIRED TO BE EXAMINED BY THE LOWER AUTHORITIES. HE HAS RELIED UPON THE DECISION OF THE HONBLE MADHYA PRAD ESH HIGH COURT IN THE CASE OF CIT VS TOLLLARAM HASSOMAL REPORTED IN 298 ITR 22. 7 ITA NOS 2217 & 3299/2008 9 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORDS. NOW, THIS ISSUE IS SETTLED BY VARIOUS DECISIONS INCLUDING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F UNIVERSAL MEDICARE P LTD (SUPRA) WHEREIN IT HAS BEEN HELD THAT SECTION 2(22)(E) DEFI NE THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF SEC. 2(22)(E) IS TO BROADEN INCLUSIVE OF DEFINITION OF EXPRESSION DI VIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS DIVID END. IT WAS FURTHER HELD THAT THE DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT D IVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. THUS, IT WAS OBSERVED THAT EVE N ASSUMING THAT IT WAS A DIVIDEND, IT WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE A SSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. ACCORDINGLY, FOLLOWING THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE P LTD (SUPRA), WE HO LD THAT DEEMED DIVIDEND AS PER SEC 2(22)(E) CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE, WHO IS NOT A REGISTERED SHARE HOLDER OF THE COMPANY WHO HAS GRANTED THE LOA N. ITA NO. 3299/MUM/2008 ( BY THE REVENUE) 10 THE ONLY GROUND RAISED BY THE REVENUE READS AS U NDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD CIT(A) ERRED IN DELETING THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 40% ON CRANES AS AGAINST 20% ALLOWED BY THE ASSESSING OFFICER AND THEREBY DELETI NG THE DISALLOWANCE OF RS.. 11,25,223/- ON THE ABOVE ACCOUNT. 11 `WE HAVE HEARD THE LD DR AND THE LD AR OF THE AS SESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ONLY DISPUTE IN TH IS CASE IS TREATING THE MOBILE CRANE AS MOTOR VEHICLE FOR THE PURPOSE OF HIGHER RATE OF DEPRECIATION. THE ASSESSEE IS IN THE BUSINESS OF CRANE HIRING AND TRANSPORTATION. T HE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE OF HIGHER DEPRECATION AT 40% ON THE GROUND THAT MOBILE CRANE 8 ITA NOS 2217 & 3299/2008 DOES NOT FALL UNDER THE DEFINITION OF MOTOR VEHIC LE. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BHOLA RAM REPOR TED IN 260 ITR 381 AS WELL AS THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF GUJCO CARRIERS REPORTED IN 256 ITR 50. SINCE NOTHING CONTRARY HAS BEEN BROUGHT BEFORE US; THEREFORE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CI T(A), WHO HAS ADJUDICATED THIS ISSUE BY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIG H COURT IN THE CASE OF BHOLA RAM( SUPRA) AS WELL AS HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJCO CARRIERS (SUPRA). 12 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 5 TH , DAY OF AUG 2011. SD/- SD/- (P M JAGTAP ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 5TH AUG 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI