M/s.Webtek Software Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 2261/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7386 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-07-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 20-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M K BIJU J
• Assessee Lawyers: ROHIT JAIN
• Keywords: Capital receipt
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 2261 /BANG/201 6 ASSESSMENT YEAR : 20 1 3 14 M/S. WEBTEK SOFTWARE PVT. LTD., (UNDER VOLUNTARY LIQUIDATION), C/O M/S DUA ASSOCIATES, ADVOCATES, 130/1, 2 ND FLOOR, ULSOOR ROAD, BANGALORE 560 042. PAN: AAACW3178L VS. THE DCIT, CIRCLE 1 (1)(1), BANGALORE APPELLANT RESPONDENT ASSESSEE BY : SHRI ROHIT JAIN , C. A. REVENUE BY : SHRI M. K. BIJU , J CIT (DR) DATE OF HEARING : 26 . 10 .201 7 DATE OF PRONOUNCEMENT : 27 .10 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF CIT (A) 7, BENGALURU DATED 26.08.2016 FOR ASSESSMENT YEAR 2013 14. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - THE APPELLANT SUBMITS AS UNDER: 1. ORDER BAD IN LAW THE ORDERS PASSED BY COMMISSIONER OF INCOME-TAX (AP PEALS)-7 ['THE CIT(A)'] UNDER SECTION 250 OF THE ACT, IN SO FAR AS IT IS AGAINST THE APPELLANT, IS BAD IN LAW. 2. ERRONEOUS TREATMENT OF THE FOREIGN EXCHANGE FLUC TUATION GAIN AS 'REVENUE RECEIPT' A) THE CIT(A) ERRED IN CONFIRMING THE ASSESSMENT OR DER, WHICH WAS BAD ON FACTS AND IN LAW. B) THE CIT(A) ERRED IN NOT HOLDING THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN REALISED BY THE APPELLANT IS CAPIT AL RECEIPT, NOT CHARGEABLE TO TAX. C) THE CIT(A) ERRED IN NOT HOLDING THAT THE GAINS O N REALISATION ARE NOT TAXABLE IN THE ABSENCE OF BUSINESS/ COMMERCIAL OPERATIONS DURING ITA NO.2261/BANG/2016 PAGE 2 OF 5 THE YEAR OF REALISATION. D) THE CIT(A) ERRED IN CONSIDERING THE ACCOUNTING E NTRY/ACCOUNTING NORMS FOR DETERMINING TAXABILITY. E) WITHOUT PREJUDICE TO OUR CONTENTION THAT THE FOR EIGN EXCHANGE GAINS WAS CAPITAL RECEIPT IN NATURE AND NOT TAXABLE AND A FTER HAVING BROUGHT TO TAX THE FOREIGN EXCHANGE GAIN OF RS13,175,930, T HE CIT (A) ERRED IN NOT DIRECTING THE AO TO GRANT A DEDUCTION FOR THE E XPENSES INCURRED BY THE APPELLANT. 3. TAXABILITY OF THE GAIN UNDER SECTION 115JB OF TH E ACT A) THE CIT(A) ERRED IN NOT HOLDING THAT PROVISION O F SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE APPELLANT. 4. RELIEF THE APPELLANT PRAYS THAT THE CIT (A) BE DIRECTED TO GRANT ALL SUCH RELIEF ARISING FROM THE PRECEDING GROUNDS AS ALSO A LL RELIEF CONSEQUENTIAL THERETO. THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY D ELETION, SUBSTITUTION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, AT ANY T IME BEFORE OR DURING THE HEARING OF THE APPEAL. THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE IN DEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 3. REGARDING GROUND NO. 1, LEARNED AR OF THE ASSESS EE SUBMITTED THAT THIS IS A GENERAL GROUND AND NO ADJUDICATION IS CALLED FOR. R EGARDING GROUND NO. 2, HE PLACED RELIANCE ON A JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. CANARA BANK LTD. AS REPORTED IN 63 ITR 328. REGARDING GROUND NO. 3, HE SUBMITTED THAT SINCE THE ASSESSEE COMPANY IS UND ER LIQUIDATION, IT IS NOT REQUIRED TO PREPARE P & L ACCOUNT AS PER SCHEDULE VI OF THE COMPANIES ACT AND THEREFORE, SECTION 115 JB IS NOT APPLICABLE LEA RNED DR OF THE REVENUE SUPPORTED THE ORDER OF CIT (A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE EXA MINE THE FACTS IN THE CASE OF CIT VS. CANARA BANK LTD. (SUPRA) TO DETERMINE THE A PPLICABILITY OF THIS JUDGMENT IN THE PRESENT CASE. IN THAT CASE, THE ASSESSEE BAN K OPENED ONE BRANCH IN ITA NO.2261/BANG/2016 PAGE 3 OF 5 KARACHI ON 15.11.1946. AFTER THE PARTITION OF INDIA , THE CURRENCIES OF INDIA & PAKISTAN CONTINUED TO BE AT PAR UNTIL THERE WAS DEV ALUATION OF INDIAN RUPEES ON 18.09.1949. PAKISTAN DID NOT DEVALUE ITS CURRENCY A ND TILL 27.02.1951, THE EXCHANGE RATIO BETWEEN THE TWO CURRENCIES WAS NOT D ETERMINED. IN THE LIGHT OF THESE AND VARIOUS OTHER FACTS, THE TRIBUNAL IN THAT CASE CONCLUDED THAT THE AMOUNT LYING IN PAKISTAN WAS A BLOCKED AND STERL ISED BALANCE AND THE ASSESSEE WAS UNABLE TO DEAL WITH THAT AMOUNT OR USE IT BECAUSE THE PERMISSION TO REMIT THE MONEY TO INDIA WAS NOT BEING GRANTED B ECAUSE OF DIFFICULTIES IN CURRENCY SITUATION. ON THE BASIS OF THESE FACTS, HO NBLE APEX COURT HELD THAT THE MONEY CHANGED ITS CHARACTER OF STOCK IN TRADE WHE N IT WAS BLOCKED AND STERLISED AND THEREFORE, INCREMENT IN ITS VALUE OWI NG TO EXCHANGE FLUCTUATION MUST BE TREATED AS CAPITAL RECEIPT. IN THE PRESENT CASE, THIS IS NOT A CLAIM OF THE ASSESSEE THAT THE AMOUNT LYING IN EEFC ACCOUNT WAS BLOCKED FOR ANY REASON AND THEREFORE, IN THE FACTS OF THE PRESENT CASE, TH IS JUDGMENT IS NOT APPLICABLE. IN THE PRESENT CASE, THE JUDGMENT OF HONBLE APEX C OURT RENDERED IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD., 312 ITR 254 IS APPLICABLE. AS PER THIS JUDGMENT, THE BANK BALANCE IN FOREIGN CURRENCY HAS TO VALUED IN INDIAN CURRENCY ON THE BALANCE SHEET DATE AND ACCOUNTING T REATMENT IS TO BE GIVEN TO THE DIFFERENCE AND THE SAME IS REVENUE ITEM EXCEPT LIABILITY TO ACQUIRE FIXED ASSETS FOR WHICH THE EFFECT WILL GO TO INCREASE OR DECREASE THE VALUE OF THE RELEVANT ASSET AS THE CASE MAY BE. IN THE PRESENT C ASE, THE DIFFERENCE BROUGHT TO TAX IS ALREADY REALIZED AND NOT A MERE VALUATION DIFFERENCE ON THE BALANCE SHEET DATE. HENCE, ON THIS ISSUE, WE DECLINE TO INT ERFERE IN THE ORDER OF CIT (A). GROUND NO. 2 IS REJECTED. ITA NO.2261/BANG/2016 PAGE 4 OF 5 5. REGARDING GROUND NO. 3, WE FIND THAT AS PER THE PROVISIONS OF SECTION 11JB (2), EVERY ASSESSEE BEING A COMPANY SHALL FOR THE PURPOS E OF THIS SECTION IS REQUIRED TO PREPARE ITS P & L ACCOUNT IN ACCORDANCE WITH PART II & II OF SCHEDULE VI TO THE COMPANIES ACT, 1956. AS PER EXPLANATION ( 1) TO SECTION 115 JB, BOOK PROFIT MEANS THE PROFIT SHOWN IN THE P & L ACCOUNT PREPARED UNDER SUBSECTION 115 JB (2) AFTER CERTAIN ADDITION/ REDUCTION AS PRE SCRIBED THEREIN. AS PER SUB SECTION (1) OF SECTION 115JB, IF TAX PAYABLE AS PER NORMAL PROVISIONS IS LESS THAN 18.5% OF THE BOOK PROFIT OF A COMPANY ASSESSEE, THA N SUCH ASSESSEE HAS TO PAY TAX @ 18.5% OF BOOK PROFIT. THERE IS NO SUCH PR OVISION THAT IF A COMPANY IS NOT REQUIRED TO PREPARE ITS P & L ACCOUNT IN ACCORD ANCE WITH PART II & II OF SCHEDULE VI TO THE COMPANIES ACT, 1956, THAN SUCH C OMPANY IS NOT REQUIRED TO PAY TAX @ 18.5% OF BOOK PROFIT. IN FACT, THE PRO VISIONS OF SUB SECTION (2) OF SECTION 115 JB SUGGESTS THAT EVERY COMPANY SHALL FO R THE PURPOSE OF THIS SECTION IS REQUIRED TO PREPARE ITS P & L ACCOUNT IN ACCORDANCE WITH PART II & II OF SCHEDULE VI TO THE COMPANIES ACT, 1956. IN OUR CONS IDERED OPINION, THESE PROVISIONS OF SUB SECTION (2) OF SECTION 115 JB ARE TO ADDRESS THIS SITUATION WHERE A COMPANY ASSESSEE IS NOT REQUIRED TO PREPARE ITS P & L ACCOUNT IN ACCORDANCE WITH PART II & II OF THE COMPANIES ACT, 1956 BY PRESCRIBING THAT EVERY COMPANY ASSESSEE FOR THE PURPOSE OF THIS SECT ION IS REQUIRED TO PREPARE ITS P & L ACCOUNT IN ACCORDANCE WITH PART II & II O F SCHEDULE VI TO THE COMPANIES ACT, 1956. HENCE, WE HOLD THAT IT IS IMMA TERIAL THAT THE PRESENT ASSESSEE COMPANY IS NOT REQUIRED UNDER THE COMPANIE S ACT, 1956 TO PREPARE ITS P & L ACCOUNT IN ACCORDANCE WITH PART II & II O F THE COMPANIES ACT, 1956 BECAUSE THE COMPANY IS UNDER LIQUIDATION. AS PRESCR IBED IN SUB SECTION (2) OF SECTION 115JB, THE PRESENT ASSESSEE IS ALSO REQUIRE D TO PREPARE ITS P & L ITA NO.2261/BANG/2016 PAGE 5 OF 5 ACCOUNT IN ACCORDANCE WITH PART II & II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND HAS TO PAY TAX AS PER THE PROVISIONS OF SU B SECTION (1) OF SECTION 115 JB. GROUND NO. 3 IS ALSO REJECTED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (VIJAY PAL RAO) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 27 TH OCTOBER, 2017. /MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.