Binani Cement Ltd., Kolkata V. CIT, Central - I, Kolkata, Kolkata

ITA 239/KOL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59645 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 14-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MAHAPATRA
• Assessee Lawyers: ARVIND SONDE; KUNAL BESWAL
• Keywords: Assessment record
• Section: 263; 143(3); 115JB

Judgement Text

I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER), AND SHRI MAHAVIR SINGH (JUDICIAL MEMBER) I.T.A. NO.: 239/ KOL. / 2011 ASSESSMENT YEAR : 2006-07 BINANI CEMENT LIMITED, 37/2, CHINAR PARK, NEW TOWN, RAJARHAT MAIN ROAD, P.O. HATIARA, NORTH-24-PARGANAS, KOLKATA-700 157 ..APPELLANT [PAN : AABCB 3087 C] -VS.- COMMISSIONER OF INCOME TAX, CENTRAL I, KOLKATA.....RESPONDENT APPEARANCES BY: ARVIND SONDE AND KUNAL BESWAL, FOR THE APPELLANT A.K. MAHAPATRA, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : MARCH 22, 2012 DATE OF PRONOUNCING THE ORDER : MARCH , 2012 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE-APPELLANT HA S CHALLENGED CORRECTNESS OF LEARNED COMMISSIONERS ORDER DATED 2 0 TH JANUARY, 2011, UNDER SECTION 263 READ WITH SECTION 143(3) OF THE I NCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2006-07, ON THE FOLLOWING G ROUNDS :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ORDER PASSED U/S. 263 OF THE INCOME TAX ACT IS BAD IN LAW, VOID AB INITIO. THE ASSESSMENT ORDER PASSED U/S. 14 3(3) I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 2 OF 8 DATED 05.11.2008 IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTEREST OF REVENUE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT DID NOT APPRECIATE THAT THE IMPUGNED LOSS O F RS.919.52 LACS DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE COMPANY IS NOT COVERED AND NOT REQUIRED TO BE ADDED TO THE BOOK PROFIT UNDER EXPLANATION 1 OR OTHER APPLICABLE PROVISIONS OF SEC. 115JB OF THE I.T. ACT. (3) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT DID NOT CONSIDER THE APPLICABILITY OF THE V ARIOUS JUDGMENTS CITED BEFORE HIM WHEREIN IT WAS CLEARLY H ELD THAT UNLESS IT IS SPECIFICALLY PROVIDED IN THE EXPL ANATION(S) TO SEC. 115JB OF THE I.T. ACT NO AMOUNT CAN BE ADDE D BACK OR REDUCED TO THE BOOK PROFIT FOR THE PURPOSES OF E XAMINING THE TAX LIABILITY. 2. THE MATERIAL FACTS ARE NOT IN DISPUTE. THE ASSES SMENT UNDER SECTION 143(3) WAS COMPLETED ON 05.11.2008. SUBSEQU ENTLY, VIDE ORDER DATED 18 TH OCTOBER, 2010, LEARNED COMMISSIONER REQUIRED THE A SSESSEE TO SHOW CAUSE AS TO WHY THE SAID ORDER NOT BE SUBJE CTED TO REVISION PROCEEDINGS UNDER SECTION 263 ON THE GROUNDS SET OU T BELOW :- IN THE PROFIT & LOSS A/C., THE ASSESSEE-COMPANY HAS BOOKED LOSS OF RS.919.52 LAKH ON CAPITAL REDUCTION AS PER SCHEME OF ARRANGEMENT BY DISINVESTMENT OF SHARES WHICH WAS HELD AS INVESTMENT, TO ANOTHER COMPANY. BY SUCH DISINVES TMENT OF SHARES THE PAID UP CAPITAL OF THE COMPANY HAS BE EN ACCORDINGLY REDUCED. THEREFORE, THE LOSS IS A FICTI TIOUS LOSS ON CAPITAL REDUCTION AND THE SAME IS REQUIRED TO BE ADDED BACK, ALTHOUGH THE LOSS HAS BEEN BOOKED IN THE PROF IT & LOSS A/C. BUT THE SAME HAS NOT BEEN DONE. IN THE ASSESSMENT ALSO THE AMOUNT HAS NOT BEEN ADDED BACK FOR COMPUTATION OF BOOK PROFIT U/S. 115JB. AS THE ASSESSING OFFICER HAD COMMITTED AN ERROR OF LAW IN NOT ADDING BACK THE LOSS OF RS.919.52 LAKH IN THE COMPUTATION OF BOOK PROFIT, THE ASSESSMENT ORDER IS ERRONEOUS AND IS PREJUDICIAL TO THE INTEREST OF REV ENUE I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 3 OF 8 INASMUCH AS LEGITIMATE REVENUE DUE TO THE EXCHEQUER HAS NOT BEEN REALIZED DUE TO THE ERRONEOUS ORDER REFERR ED TO ABOVE. 3. IN REPLY TO THE ABOVE SHOW CAUSE NOTICE, IT WAS, INTER ALIA, SUBMITTED BY THE ASSESSEE THAT THE LOSS ARISING OUT OF TRANSFER OF INVESTMENT DIVISION WAS NOT REQUIRED TO BE ADDED BA CK TO THE BOOK PROFITS AS SUCH AN ADJUSTMENT WAS NOT CONTEMPLATED UNDER THE SCHEME OF SECTION 115JB. IT WAS POINTED OUT THAT THE ADJUS TMENTS CONTEMPLATED UNDER SECTION 115JB ARE SET OUT IN THE EXPLANATION 1 TO SECTION 115JB. IT WAS ALSO EXPLAINED THAT UPON TRANSFERRING THE INVES TMENTS WORTH RS.2,316.64 LAKHS, THE ASSESSEE HAS RECEIVED EQUITY SHARE CAPITAL OF RS.1,396.64 LAKHS, AND THUS THE BALANCING FIGURE, B EING LOSS ON TRANSFER OF INVESTMENTS, HAS BEEN DEBITED TO THE PROFIT & L OSS ACCOUNT. IT WAS ALSO EXPLAINED THAT THE ABOVE WAS PURSUANT TO THE S CHEME OF ARRANGEMENT BETWEEN THE ASSESSEE AND ITS INVESTMEN T COMPANY, NAMELY DAISY COMMERCIALS PVT. LTD., AND THEIR SHARE HOLDERS, WHICH WAS APPROVED BY HONBLE CALCUTTA HIGH COURT. THE AS SESSEE THUS EXPLAINED THAT THE LOSS BOOKED IN THE PROFIT AND LO SS ACCOUNT, ON ACCOUNT OF TRANSFER OF INVESTMENTS WORTH RS.2,316.6 4 LAKHS FOR A CONSIDERATION OF SHARES OF RS.1,396.64 LAKHS, WAS R IGHTLY DONE, AND SECTION 115JB DOES NOT CONTEMPLATE ANY ADJUSTMENT I N RESPECT OF THE SAME. THESE SUBMISSIONS, AS ALSO OTHER SUBMISSIONS ADVANCED BY THE ASSESSEE, DID NOT IMPRESS THE LEARNED COMMISSIONER. HE PROCEEDED TO REJECT ALL THESE CONTENTIONS AND OBSERVED AS FOLLOW S :- I HAVE GONE THROUGH THE ASSESSMENT RECORDS AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE IN RESPONSE TO THE SHOW -CAUSE NOTICE U/S. 263. THE FACTS OF DEBITING RS.929.52 LA KHS TO THE P/L A/C. ON SHARE CAPITAL REDUCTION FOR DISINVESTME NT IN SHARES HELD AS INVESTMENT AS PER SCHEME OF ARRANGEM ENT AND I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 4 OF 8 OF NOT ADDING BACK THE SAME FOR THE PURPOSE OF COMP UTATION OF BOOK PROFIT FOR MAT U/S. 115JB OF THE ACT, HAVE NOT BEEN DISPUTED BY THE ASSESSEE. THE RELEVANT FACTS ARE AVAILABLE FROM NOTES ON A/CS . NO. 8 OF SCHEDULE-15 OF THE AUDITED ACCOUNTS OF THE ASSESSEE -COMPANY. AS PER THE NOTES, IN ACCORDANCE WITH A SCHEME OF AR RANGEMENT THE ASSESSEE COMPANY TRANSFERRED THE INVESTMENT DIV ISION OF DAISY COMMERCIALS P. LTD. (DCPL) ON 28.09.2005 AGAI NST WHICH DCPL ALLOTTED 1,39,66,434 EQUITY SHARES OF RS .10 EACH CREDITED AS FULLY PAID UP AGGREGATING TO RS.1396.64 LAKH TO THE SHAREHOLDERS OF THE COMPANY BASED ON OPTIONS FO RMS RECEIVED BY DCPL FROM SHAREHOLDERS. ON ALLOTMENT OF THE SHARES BY DCPL, 13,66,434 EQUITY SHARES OF RS.10 EA CH HELD BY SUCH SHAREHOLDERS WERE CANCELLED AND THE PAID UP SHARE CAPITAL OF THE COMPANY WAS REDUCED TO RS.20,310.13 LAKH DIVIDED INTO 20,31,01,274 EQUITY SHARES OF RS.10 EA CH FULLY PAID UP. THE DIFFERENCE OF RS.919.52 LAKH HAS BEEN ADJUSTED AGAINST THE BALANCE IN P&L A/C. AS PER TERMS OF THE SCHEME. THE GIST OF CONTENTIONS OF THE ASSESSEE- COMPANY IN THE WRITTEN SUBMISSION IS AS UNDER :- (1) ADEQUATE FACTUAL DISCLOSURES WERE MADE WHICH THE AO DEALT WITH WHILE FRAMING THE ASSESSMENT U/S. 143(3)/115JB. (2) WHAT IS DISALLOWABLE UNDER NORMAL PROVISIONS ARE NO T DISALLOWABLE IN COMPUTATION OF BOOK PROFIT U/S. 115 JB AND ONLY THE AMOUNTS TO BE ADDED BACK AS PER EXPLANATION (1) TO SEC. 115JB ARE DISALLOWABLE. (3) MAT IS ONLY ADVANCE TAX BECAUSE SET OFF IS ALLOWABL E U/S. 115JAA IN SUBSEQUENT YEAR AND AS SUCH ADVANCE COLLECTION OF MAT CANNOT TANTAMOUNT TO PREJUDICIAL TO REVENUE. (4) THE ASSESSEE HAS RELIED UPON SOME CASE DECISIONS IN PARA 8.4 TO 8.6, 9 & 12 IN RESPECT OF SOME ISSUES RELATING TO BOOK PROFIT. I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 5 OF 8 (5) THE ACCOUNTS HAVE BEEN PREPARED STRICTLY AS PER THE COMPANIES ACT. THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES (255 ITR 273). BUT THE CONTENTIONS RAISED BY THE ASSESSEE COMPANY ARE NOT JUSTIFIED OR REASONABLE BECAUSE OF THE FOLLOWING :- (1) IT IS APPARENT FROM RECORD THAT THE AO HAS NOT AT A LL CONSIDERED/ EXAMINED THE ISSUE. (2) THE CONTENTION IS NOT CORRECT SINCE THE DEBIT OF TH E AMOUNT UNDER CONSIDERATION IS NOT AS PER PART-II & III OF SCHEDULE-VI OF THE COMPANIES ACT. IT IS ALREADY HELD BY THE DELHI HIGH COURT IN THE CASE OF CIT VS.- HARI MACHINE LTD. (2009) 311 ITR 285 THAT SUCH CAPITAL REDUCTION IS FICTITIOUS. ON SIMIL AR FACTS, THE DELHI ITAT HELD THAT SUCH FICTITIOUS LOS S ON CAPITAL DEDUCTION MAY A BALANCE SHEET ADJUSTMENT BUT CANNOT BE AN ITEM OF P&L A/C AND THE LOSS BOOKED IN THE P&L A/C. IS REQUIRED TO BE ADDED BACK FOR COMPUTATION OF BOOK PROFIT U/S. 115JB. THE ASSESSEES CONTENTION IS NOT TENABLE BECAUSE OF PREJUDICIAL NATURE OF THE ASSESSMENT REGARDING MAT PAYABLE FOR THIS YEAR. (3) THE CASE DECISIONS RELIED UPON BY THE ASSESSEE ARE NOT RELEVANT/ APPLICABLE SINCE THE ISSUES IN THOSE CASES BEFORE THE COURT/ ITATS WERE TOTALLY DIFFERE NT. (4) THE ISSUE IS REQUIRED TO BE DECIDED AFTER EXAMINING WHETHER THE ACCOUNTS WERE PARED AS PER PART-II & II I OF SCHEDULE-VI OF THE COMPANIES ACT AND THE CASE DECISION AS REFERRED TO IN (2) ABOVE. THE BASIC ISSUE IS WHETHER THE CONDITION STIPULATED IN SUB-SECTION (2) OF SEC/ 115JB THAT THE ACCOUNTS HAVE TO BE PREP ARED AS PER PART- II & III OF SCHEDULE-VI OF THE COMPANIES ACT IS SAT ISFIED OR NOT. FROM THE FACTS STATED ABOVE IT IS APPARENT THAT THE LOSS BOOKED IN THE P/L A/C. IS FOR SHARE CAPITAL REDUCTION. THERE IS N O SCOPE FOR SUCH ACCOUNTING AS PER PART-II & III OF SCHEDULE-VI OF T HE COMPANIES I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 6 OF 8 ACT. BESIDES, SUCH LOSS IS FICTITIOUS AS HELD BY IT AT, DELHI IN QUANTUM APPEAL IN A SIMILAR CASE OF DEBIT IN THE CA SE OF HARI MACHINES LTD. IN 166 TAXMAN 84 (2008), WHICH WAS IN RESPECT OF PENALTY U/S. 271(1)(C) BUT IN THE FACTS SUCH FINDIN G OF ITAT HAS BEEN DISCUSSED. THEREFORE, SUCH SHARE CAPITAL REDUC TION CANNOT BE AN ITEM OF P/L A/C. AS PER PART-II & III OF SCHEDULE-V I OF THE COMPANIES ACT. THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF APOLLO TYRES LTD. IN RESPECT OF ADJUSTMENTS ONLY AS PER EXPLANATION-1 IS APPLICABLE ONLY AFTER THE ACCOUNTS HAVE BEEN PREPARED AS PROVIDED IN SUB-SECTION (2) OF SECTION 115JB OF THE ACT. THE CONDITION NOT HAVING BEEN SATISFIED, THE AMOUNT WAS REQUIRED TO BE ADDED BACK IN COMPUTATION OF BOOK PROFIT FOR MAT U/S. 115JB. BUT IT IS APPARENT FROM THE RECORDS THAT THE ISSUE HAS NOT BEEN EXAMINED BY THE AO AT ALL WHILE PASSING THE ASSESSM ENT ORDER AND NO SUCH ADDITION HAS BEEN MADE. THEREFORE, IT IS HELD THAT THE ASSESSMENT ORDER U/S . 143(3) DATED 05.11.2008 PASSED BY THE AO IS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE SO FAR AS THE ABOVE MENTION ED ISSUE IS CONCERNED AND ACCORDINGLY, THE ORDER IS SET ASIDE T O THAT EXTENT AND THE AO IS DIRECTED TO DECIDE THE ISSUE IN ACCORDANC E WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 4. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFOR E US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 6. WE FIND THAT IRRESPECTIVE OF WHETHER OR LOSS SUC H A LOSS IS DEDUCTIBLE IN COMPUTATION OF TAXABLE INCOME OR NOT, WHAT WE HAVE TO REALLY DECIDE IS WHETHER OR NOT THE ASSESSING OFFIC ER COULD HAVE MADE ADJUSTMENT IN RESPECT OF THIS LOSS, AS BOOKED IN TH E PROFIT AND LOSS ACCOUNT, IN COMPUTATION OF BOOK PROFITS U/S. 115JB. IT IS, THEREFORE, NOT MATERIAL WHETHER THE LOSS IN QUESTION WAS ALLOWABLE DEDUCTION IN I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 7 OF 8 NATURE. LEARNED CITS RELIANCE ON HONBLE DELHI HIG H COURTS JUDGMENT IN THE CASE OF HARI MACHINES LTD. (SUPRA), WHICH DE ALS WITH PENALTY IN RESPECT OF QUANTITATIVE DISALLOWANCE IN COMPUTATION OF INCOME IS THUS WHOLLY MISPLACED. WE ARE ALSO OF THE CONSIDERED VIE W THAT THE LOSS IN QUESTION IS A LOSS ON REDUCTION OF CAPITAL, BECAUSE THE ENTRY IN QUESTION IS NOT IN RESPECT OF THE REDUCTION OF CAPITAL IS NO T IN THE CASE OF THE ASSESSEE. AS FAR AS ASSESSEE IS CONCERNED, THE ASSE SSEE HAS BEEN GIVEN SHARES IN CONSIDERATION OF ITS TRANSFER OF INVESTM ENTS. THERE IS NOTHING IN SCHEDULE VI OF THE COMPANIES ACT WHICH PROHIBITS THIS LOSS BEING BOOKED IN THE PROFIT AND LOSS ACCOUNT NOR COULD LEA RNED DEPARTMENTAL REPRESENTATIVE POINT OUT THE SAME. UNLESS IT IS POI NTED OUT THAT THE BOOK PROFIT IS NOT ARRIVED AT ON THE BASIS OF PROFI T AND LOSS ACCOUNT COMPUTED IN ACCORDANCE WITH PART && AND III OF SCHE DULE VI TO THE COMPANIES ACT, OR UNLESS THERE ARE NO SPECIFIC ENAB LING PROVISIONS FOR ADJUSTMENT IN SECTION 115JB ITSELF, THE BOOK PROFIT AS PER PROFIT AND LOSS, DULY APPROVED BY THE AUDITOR AND DULY ADOPTED BY THE COMPANY, CANNOT BE TINKERED WITH HONBLE SUPREME COURTS JUD GMENT IN THE CASE OF APOLLO TYRES LTD. VS.- CIT (255 ITR 273) HOLDS SO. AS REGARDS NOTE NO. 8 IN THE BALANCE SHEET, IT IS NOT AN OBJECTION OR QUALIFICATION BY THE AUDITOR BUT IT IS A PART OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS WHICH IS MAINLY INFORMATIVE IN NATURE. BY NO STRETCH OF LOGIC, THIS CAN BE TREATED AS QUALIFICATION IN THE AUDITOR S REPORT. IN VIEW OF THESE DISCUSSIONS, IN OUR CONSIDERED VIEW, THE ADJU STMENT DIRECTED BY THE CIT IS DEVOID OF LEGALLY SUSTAINABLE MERITS. I.T.A. NO.:239 KOL / 2011 ASSESSMENT YEAR : 2006-07 PAGE 8 OF 8 6. FOR THE REASONS SET OUT ABOVE, WE VACATE THE IMP UGNED REVISION ORDER. AS THE ASSESSEE HAS SUCCEEDED ON MERITS, WE SEE NO NEED TO DEAL WITH OTHER PERIPHERAL LEGAL ISSUES RAISED BY THE AS SESSEE. 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 30 TH DAY OF MARCH, 2012. SD/- SD/- MAHAVIR SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACC OUNTANT MEMBER) KOLKATA, THE 30 TH DAY OF MARCH, 2012 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.