BHUPATI INVESTMENTS & FINANCE P.LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 3430/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9924 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Section: 143(3); 115JB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.3430/MUM/2016 ASSESSMENT YEAR: 2008-09 BHUPATI INVESTMENTS & FINANCE P LTD., B-34/35, 3 RD FLOOR, PARAGON CONDOMINIUM, P B MARG, WORLI, MUMBAI 400 018. PAN AAACB0441P VS DCIT 5(1) MUMBAI (APPELLANT) RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI RAM TIWARI DATE OF HEARING :03.01.2018 DATE OF PRONOUNCEMENT : 13.03.2018 O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER OF LEARNED CIT(A)- 21, MUMBAI, DATED 24.02.2018 AND PERTAINS TO ASSESS MENT YEAR 2008-09. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT-(A)] ERRED IN UPHOLDING THE ASSESSING OFFICER'S (AO) ACTION OF INVOKING SECTION 154 OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE CIT-(A) ERRED IN NOT CONSIDERING THE JUDICIAL DECISIONS CITED BY THE APPELLANT IN WRITTEN SUBMISSION FILED BEFORE HIM. 3. THE CIT-(A) ERRED IN CONFIRMING THE ACTIO N OF THE AO OF ADDING PROFIT ON SALE OF ASSETS AND INVESTMENTS AMO UNTING TO RS. 1,29,97,997/- CREDITED TO CAPITAL RESERVES TO THE B OOK PROFITS U/S 115JB OF THE ACT. ITA NO.3430/MUM/2016 BHUPATI INVESTMENTS & FINANCE P LTD. 2 4. THE CIT-(A) ERRED IN CONFIRMING THE AO'S DECISION OF LEVYING INTEREST U/S 234D OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAS PASSED ORDER U/S 143(3) ON 21/12/2010 BY MAKING DISALLOWANCE UND ER SECTION 14 A READ WITH RULE 8D. SUBSEQUENTLY, THE ASSESSING OFFICER H AS NOTICED FROM THE ACCOUNTS FILED DURING THE COURSE OF ASSESSMENT PROC EEDINGS U/S 143(3) THAT THE ASSESSEE HAS TAKEN THE PROFITS ON SALE OF ASSET S AND INVESTMENTS DIRECTLY TO THE BALANCE SHEET UNDER 'RESERVES & SURPLUS' WIT HOUT ROUTING IT THROUGH THE P&L ACCOUNT. THE ASSESSING OFFICER WAS OF THE O PINION THAT THE PROFITS ON SALE OF ASSETS AND INVESTMENTS BY NOT TAKING INTO P &L ACCOUNT HAS REDUCED THE BOOK PROFIT TO THE EXTENT OF RS. 1,29,97,997/- FOR THE PURPOSE OF SECTION 115 JB. AS A RESULT THE TAX LIABILITY UNDER 115 JB WAS REDUCED. THE ASSESSING OFFICER HAS ALSO MADE AN OBSERVATION THAT THE BOOK PROFITS UNDER SECTION 115 JB WERE NOT WORKED OUT BY THE ASSESSEE AS PER THE P ROVISIONS OF PART-LL AND PART-ILL OF SCHEDULE-VI OF COMPANIES ACT, 1956. SIN CE IT IS A MISTAKE APPARENT FROM RECORDS, THE ASSESSING OFFICER HAS RESORTED TO RECTIFY THE MISTAKE BY INVOKING THE PROVISIONS U/S 154 OF THE ACT. 4. BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THAT THE ISSUE AS TO WHETHER THE PROFITS FROM SALE OF ASSETS AND INVESTMENTS SHO ULD BE ROUTED THROUGH P&L ACCOUNT OR CAN BE TAKEN DIRECTLY TO BALANCE-SHEET, IS A DEBATABLE ONE THEREFORE, IT CANNOT BE RECTIFIED UNDER SECTION 154 OF THE ACT. IN SUPPORT OF THIS CLAIM ASSESSEE RELIED ON THE DECISIONS, INCLUD ING THE DECISION OF THE HONORABLE HIGH COURT IN THE CASE OF FOREVER DIAMOND S PRIVATE LIMITED AND THE DECISION OF THE SUPREME COURT IN THE CASE OF AP OLLO TYRES LTD , 255 ITR 273. 5. CONSIDERING THE ABOVE LEARNED CIT(A) HAS HELD UN DER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED AR IN THE LIGHT OF THE FACTS OF THE CASE. AS SEEN FROM TH E FACTS OF THE CASE THE BOOK PROFITS UNDER SECTION 115 JB HAD TO BE WOR KED OUT AS PER THE PROVISIONS OF PART-LL AND PART-ILL OF SCHEDULE- VI OF COMPANIES ITA NO.3430/MUM/2016 BHUPATI INVESTMENTS & FINANCE P LTD. 3 ACT, 1956. THE AO HAS ELABORATELY DISCUSSED HOW THE APPELLANT HAS FAILED TO ADHER TO THE LAID DOWN PROCEDURE UNDER TH E ABOVE PROVISIONS WHILE WORKING OUT BOOK PROFITS FOR THE P URPOSE OF 115 JB. SINCE IT IS THE LAID DOWN PROCEDURE TO BE FOLLOWED WHILE WORKING OUT THE PROFITS AND WHEN THE APPELLANT FAILS TO FOLLOW SUCH PROCEDURE WHICH THE AO NOTICES IN DUE COURSE, IN MY CONSIDERE D OPINION, THE AO CAN RECTIFY THE MISTAKE UNDER SECTION 154 OF THE ACT TREATING IT AS A MISTAKE APPARENT FROM RECORDS. I AM FULLY CONV INCED THAT NOT BRINGING THE PROFITS OUT OF SALE OF ASSETS AND INVE STMENTS INTO THE P&L ACCOUNT IS DEFINITELY A MISTAKE APPARENT FROM R ECORD. I ALSO HOLD THAT THERE IS NO AMBIGUITY AND ALSO THERE IS N O POSSIBILITY OF TWO OPINIONS AS TO WHETHER SUCH PROFITS SHOULD BE B ROUGHT TO P&L ACCOUNT OR NOT. THE APPLICABILITY OF THE DECISION G IVEN BY THE HONORABLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD (SUPRA) RELIED ON BY THE APPELLANT IS ON A DIFFERENT CONTEX T AND NOT RELEVANT TO THE PRESENT ISSUE ON HAND. THE RATIO OF THE DECI SION OF THE HONORABLE SUPREME COURT IS ON THE POSSIBILITIES OF DISTURBING THE BOOK PROFIT ARRIVED AT AS PER THE PROVISIONS OF PAR T-II AND PART-ILL OF SCHEDULE-VI OF COMPANIES ACT, 1956. IN VIEW OF THIS I CONFIRM THE ACTION OF THE AO IN INVOKING THE SECTION 154 OF THE ACT AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ISSUE ON MER ITS IS COVERED IN FAVOUR OF THE ASSESSEE BY TRIBUNAL'S DECISION IN ASSESSEE'S O WN CASE ON SIMILAR ISSUE. HE SUBMITTED THAT IN THE SAID ORDER THE TRIBUNAL HA S DULY FOLLOWED HONBLE JURISDICTIONAL HIGH COURT DECISION ON THE SAME ISSU E. HE FURTHER SUBMITTED THAT WHEN THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE UP ON MERIT ITSELF THERE CANNOT BE ANY JUSTIFICATION OF INVOCATION OF SECTION 154 OF THE IT ACT. 6. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT THE ACCOUNTS PREPARED BY THE ASSESSEE ARE NOT IN ACCORD ANCE WITH SCHEDULE VI OF THE COMPANIES ACT. HE SUBMITTED THAT ASSESSEE WHILE PREPARING THE ACCOUNTS HAS NOT FOLLOWED THE BASIC PRINCIPLES OF ACCOUNTANC Y. HE SUBMITTED THAT WHEN AN ASSET IS SOLD THE SALE PROCEEDS ARE DEBITED TO C ASH /BANK AND THE ITA NO.3430/MUM/2016 BHUPATI INVESTMENTS & FINANCE P LTD. 4 CORRESPONDING CREDIT IS GIVEN TO THE WRITTEN DOWN V ALUE OF THE ASSET AND THE DIFFERENCE BEING CREDITED TO PROFIT ON SALE OF ASSE T/ DEBITED TO LOSS ON SALE OF ASSET AS THE CASE MAY BE. HE FURTHER SUBMITTED THAT THE PROFIT ON SALE OF ASSET AFTER BEING BROUGHT INTO THE BOOKS IN THE PRO FIT AND LOSS ACCOUNT CAN THEREAFTER BE APPROPRIATED TO THE RESERVE ACCOUNT. HENCE, HE SUBMITTED THAT THE ASSESSEE BY DIRECTLY CREDITING THE PROFITS TO T HE RESERVE ACCOUNT HAS GROSSLY VIOLATED THE ACCOUNTING PRINCIPLES AND THE CORRESPONDING ACCOUNTING STANDARDS. HE SUBMITTED THAT THE COMPANIES ACT PROV IDES THAT ACCOUNT OF THE COMPANY HAS TO BE PREPARED FOLLOWING THE ACCOUNTING STANDARDS. HENCE, HE SUBMITTED THAT THE ACCOUNTS PREPARED BY THE ASSESSE E ARE NOT IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT. HENCE, HE SU BMITTED THAT THE ACTION OF THE AUTHORITIES BELOW SHOULD BE UPHELD. 7. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED T HE RECORDS. WE FIND THAT ON THE ISSUE OF LD CIT-A'S DIRECTION TO THE AS SESSING OFFICER TO INCREASE THE BOOK PROFIT BY THE AMOUNT OF CAPITAL GAIN NOT E XEMPT, WHICH WAS NOT CREDITED TO PROFIT AND LOSS ACCOUNT BUT WAS DIRECTL Y CREDITED TO CAPITAL RESERVES, THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006 -07 IN ITA NO. 6291/MUM/2010, VIDE ORDER DATED 4/8/2017 , HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY NOTING AS UNDER 11. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED T HE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED UPON . WE FIND THAT ISSUE HAS BEEN ELABORATELY CONSIDERED BY THE COORDI NATE BENCH OF THIS TRIBUNAL IN CASE OF FOREVER DIAMONDS PRIVATE L IMITED V. DCIT IN ITA NO. 5720/MUM/2011 DATED 23.01.2013 WHEREIN THE COORDINATE BENCH TAKING NOTE OF VARIOUS DECISIONS OF THE JURIS DICTIONAL HIGH COURT INCLUDING THE DECISION IN THE CASE OF CIT V. AKSHAY TEXTILE TRADING (SUPRA) WHEREIN IT WAS HELD THAT CAPITAL GA INS NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT UNDER THE COMPANY ACCOU NT CANNOT BE ADDED WHILE COMPUTING THE BOOK PROFITS. ITA NO.3430/MUM/2016 BHUPATI INVESTMENTS & FINANCE P LTD. 5 UPON CAREFUL CONSIDERATION, WE FIND THAT THE SUBMIS SIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE CANNOT BE SUMMARILY DIS MISSED. HOWEVER, WE NOTE THAT SIMILAR ISSUE HAS BEEN DECIDED UPON MERIT S IN FAVOUR OF THE ASSESSEE . FURTHERMORE WHEN THE ISSUE ON MERITS IS CLAIMED TO BE COVERED IN FAVOUR OF THE ASSESSEE, THERE CANNOT BE ANY OCCASIO N FOR THE ASSESSING OFFICER MAKING A RECTIFICATION IN HIS ORDER UNDER S ECTION 154 OF THE IT ACT FOR RECTIFYING MISTAKES APPARENT FROM RECORD. FURTHERMO RE WE NOTE THAT THE ABOVE DECISION OF THE ITAT WAS BASED UPON A DECISIO N OF HONBLE JURISDICTIONAL HIGH COURT ON SIMILAR ISSUE. HENCE, WHEN THERE ARE DECISIONS ON MERITS IN FAVOUR OF THE ASSESSEE, IT CANNOT BE SAID THAT THERE WAS A MISTAKE APPARENT FROM RECORD IN THE ORDER OF THE ASSESSING OFFICER WHICH WAS IN ACCORDANCE WITH THOSE DECISIONS. HENCE, ADMITTEDLY THE ISSUE BECOMES DEBATABLE AND IN SUCH SITUATION THE RECTIFICATION O F MISTAKE UNDER SECTION 154 OF THE IT ACT IS NOT SUSTAINABLE. 8. ACCORDINGLY IN THE BACKGROUND OF AFORESAID DISCU SSIONS AND PRECEDENT, WE SAID ASIDE THE ORDERS OF AUTHORITIES BELOW AND D ECIDE THE ISSUE IN FAVOUR OF ASSESSEE. 9. IN THE RESULT THIS APPEAL BY THE ASSESSEE STANDS ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3 TH MARCH, 2018. SD/- SD/- (RAM LAL NEGI) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 13 TH MARCH , 2018. SA ITA NO.3430/MUM/2016 BHUPATI INVESTMENTS & FINANCE P LTD. 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), 4. THE C I T 5. THE DR, D BENCH BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI