The DCIT, Circle-4(1)(2), Ahmedabad V. M/s. Takshashila Gruh Nirman Pvt.Ltd., Ahmedabad

ITA 444/AHD/2016

AI Insights

The case involves appeals by the Revenue against M/s. Takshashila Gruh Nirman Pvt. Ltd. concerning the adjustments made to the book profit under section 115JB of the Income Tax Act, 1961, due to revaluation of land. The revaluation was initially done in the books of erstwhile partnership firms, which were later converted into companies and subsequently amalgamated into the present assessee company. The main legal contention was whether the revaluation reserve should be added back to the book profit for the purpose of tax calculation under section 115JB. The CIT(A) had deleted the additions made by the Assessing Officer, a decision which the Tribunal upheld, citing the specific applicability of the law and accounting standards followed during the amalgamation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114283 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-08-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2016
• Other Referred Cases: Apollo Tyres Ltd. V. CIT (255 ITR 273(SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revised return; Set aside
• Section: 12; 10; 11; 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The DCIT, Circle-4(1)(2), Ahmedabad (Appellant) Vs M/s. Takshashila Gruh Nirman Pvt. Ltd. Ground Floor, Block-A, Manav Mandir, Nr. Old Aradhana Vidyalaya Cross Road, Maninagar, Ahmedabad PAN : AAACY1535D (Respondent) Assessee Represented: Shri Sudhir Mehta, A.R. Revenue Represented: Shri Pushpendra Singh Chaudhary, CIT & Shri Rakesh Jha, Sr. D.R. Date of hearing : 04-08-2023 Date of pronouncement : 23-08-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These appeals are filed by the Revenue as against two separate appellate orders dated 10.04.2015 & 18.12.2015 passed by the Commissioner of Income Tax [Appeals] - 8, Ahmedabad arising out of the assessment orders passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years (A.Ys) 2011-12 & 2012-13. ITA No. 1827/Ahd/2015 & ITA No. 444/Ahd/2016 Assessment Years 2011-12 & 2012-13 I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 2 2. The solitary issue raised by the Revenue in these appeals are that the Ld. CIT(A) right in deleting the adjustment made to book profit u/s. 115JB of the Act on the revaluation of land at Rs.17.04 crores for the A.Y. 2011-12 and Rs.9.98 crores for the A.Y.2012-13, which are part of the Profit and Loss account and required to be added to determine the book profit u/s. 115JB of the Act. Since this common issue is involved in both the asst. years, except change in figure of disallowance, the same are disposed of by this common order. 3. ITA No. 1827/Ahd/2015 is taken as the lead case. The Brief facts of the case is that the assessee filed its Return of Income on 29-09-2011 declaring total income of Rs.51,36,031/- and book profit u/s. 115JB of the Act of Rs.40,70,591/-. Thereafter the assessee filed a Revised Return of Income on 29-09-2012 declaring total income of Rs. 41,46,643/- and book profit u/s. 115JB of the Act at Rs. Nil. The Revised Return filed by the Assessee was to give effect of Amalgamation in respect of the Judgment passed by the Hon’ble Gujarat High Court dated 30-03-2012 in Company Petition No. 71 of 2011 and Company Application No. 263 of 2011. 4. As per Hon’ble High Court judgement in the above Company Petition, the present company was formed from amalgamation of the following five companies with effect from 01/04/2010 as below: S. No. Name of the company PAN 1. Chanakya Buildcon Pvt. Ltd. AADCC5027B 2. Chanakya Infracon Pvt. Ltd. AADCC5028Q 3. Takshashila Propreties Pvt.Ltd. AADCT0503H 4. Takshashila Realities Ltd. AACCT9094J 5. Youngstar Infracon Pvt.Ltd. AAACY3604R I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 3 4.1. Earlier, four of these companies were formed from the erstwhile Partnership firms as below with effect from 23/09/2008: Sl. No. Name of Company Name of Erstwhile Partnership Firm 1 Chanakya Buildcon Pvt Ltd M/s. Chanakya Buildcon 2 Chanakya Infracon Pvt Ltd M/s. Chanakya Infracon 3 Takshashila Properties Pvt Ltd M/s. Takshashila Gruh Nirman 4 Youngstar Infracon Pvt Ltd M/s. Youngstar Infrastructure (Naroda) 4.2. The revaluation of land had taken place earlier on different dates in the Partnership Firms as pointed out by the AO in para 6.4 of the assessment order as below: Name of the Partnership Firm Increase in value of land on Revaluation Date of revaluation M/s. Chanakya Infra Structure 42,71,87,326 15/04/2008 M/s. Chanakya Buildcon 7,96,07,792 15/04/2008 M/s. Youngstar Infra structure (Naroda) 7,18,02,176 28/04/2008 M/s. Takshashila Gruh Nirman 19,65,92,925 28/04/2008 4.3. Thus the facts on record explains that revaluation had taken place during the financial year 2008-09 in the case of erstwhile Partnership firms and the present assessee is the successor of those erstwhile firms. It is further noticed that the increased value of land was reflected as 'Current Capital' of Partners on credit side of the balance sheet of the firms. Thereafter, the above firms had I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 4 been converted in to Pvt. Ltd. Companies with effect from 23-09- 2008 and the capital account appearing in the Partnership firms (revaluation reserve) has been transferred to 'Unsecured Loan' received from the shareholders. Further, the above converted companies have been amalgamated with M/s. Takshashila Gruh Nirman Pvt. Ltd. with effect from 01-04-2010. 5. The Ld CIT (Appeals) deleted the additions on account of capital gain made in the hands of the Partners as he was of the opinion that the applicability of section 47(xiii)(b) at the time of conversion of the Partnership Firms into Companies can be considered only in the hands of the Firms to which the land belongs. It is seen from record that when the Firms were converted into 4 companies, at that time entire Capital and Reserves were not converted into equity of the company, but rather the Revaluation Reserve was converted into unsecured loans in the hands of share holders namely erstwhile Partners. Consequently the Ld CIT[A] deleted the addition made by the AO by adjusting the Book Profit u/s.115JB on the revaluation of land by observing as follows: “... 8. It is seen that after merger from 5 different companies, no revaluation has been done either in the hands of erstwhile companies or in the hands of present assessee. The merger was approved by Hon’ble High Court of Gujarat vide order dated 30-03- 2012 in Company Application no. 263 of 2011 under section 391 to 394 of the Companies Act, 1956 from the appointed date, namely 01- 04-2010 and the effective date of 25-05-2012. The transfer and vesting at para3 clearly pointed out that the undertaking of the transferor companies shall be transferred to and vested in the transferee company as a going concern and undertaking was to include all assets and interest of the transferee companies further all debts, I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 5 liabilities, contingent liabilities and obligations of every kind of the transferor companies were now to be discharged by the transferee company. 9. From the conditions specified it is further seen that "Amalgamation" cannot be said to be the "Amalgamation in the nature of purchase", rather it is in the nature of "Merger". In view of this, I agree with the contention of appellant that revaluation which was done in the books of erstwhile partnership firms cannot be reversed now while computing the book profit under section 115 JB. The only adjustments permitted to be made under explanation of Section 115JB are: (a) The amount of Income-Tax paid or payable, and the provision therefore, or (b) The amounts carried to any reserves, by whatever name called other than a reserve specified under Section 33AC, or-No adjustment is required in respect reserve created u/s.33AC of the Act w.e.f. A.Y.2003-04. (c) The amount or amounts set aside to provisions made for eeting liabilities, other than ascertained liabilities; or (d) The amount by way of provision for losses of subsidiary companies; or (e) The amount or amounts of dividends paid or proposed; or (f) The amount or amounts of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (g) The amount of deprecation, (h) The amount of deferred tax and the provision therefore, (i) The amount or amounts set aside as provision for diminution in the value of any asset. (j) The amount standing in the revaluation reserve relating to revalued assets on the retirement or on the disposal of such assets- Applicable from the A.Y/2013-14. It is clear that adjustments provided under clause (a) to (1) are not applicable. Further, as no revaluation reserve is created in the hands of the assessee company on account of disposal or retirement of any asset, so clause (1) above is also not applicable. It was clearly held in the case of Apollo Tyres Ltd. V. CIT (255 ITR 273(SC) that "while assessing a company for income-tax under a. 1151 the correctness of I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 6 the P&L ale prepared by the assessee-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Sch. VI to the Companies Act cannot be examined by the AO; AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s. 115.JB." 10. The observation of the Assessing Officer that inventory has not been shown at cost is not acceptable in view of the discussion made above that land was revalued in the hands of erstwhile firms which were converted into erstwhile companies. The lands after revaluation at the revised value were transferred to the companies which later merged to form the appellant company. It is also to be noted that the present amalgamation cannot be said to be the amalgamation in the nature of purchase and rather it is merger and so the appellant has followed AS-14 as applicable to it, under the pooling of interests method. Thus as per Accounting Standard 14, the value of assets and liabilities for the transferee company is the value at which the assets and liabilities were recorded in the books of transferor companies as on appointed date (01/04/2010). As the accounts of the company/assessee have been prepared as per the schedules prescribed under Companies Act, 1956 and the Accounting Standards prescribed under the same, the question of making any adjustments other than those prescribed under the Income tax Act does not arise and therefore, the case of ITAT Mumbai and the ITAT Visakhapatnam relied upon by the Assessing Officer are not applicable. As none of the adjustments provided in the explanation 1 to section 115 JB applies, the Assessing Officer wrongly added back the amount of revaluation on account of land done in the erstwhile firms. 11 In view of the above, the adjustment made to the book profit under section 115 JB is deleted. Thus, the ground of appeal raised by the appellant is allowed.” 6. Aggrieved against the appellate order the Revenue is in appeal before us raising the following Grounds of Appeal in ITA No. 1827/ Ahd/2015 for A.Y. 2011-12 reads as under: I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 7 1). "Whether the Ld. Commissioner of Income-Tax (Appeals) is right in law and on facts in deleting the adjustment made to book profit u/s 115JB of the Act by the A.0. despite the fact that revaluation of land of. Rs.17,04,69,149/- is a part of P & L account and required to be added to determine the book profit" 2). On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) ought to have upheld the order of the Assessing Officer. 3). It is therefore, prayed that the order of the Ld. Commissioner of Income- Tax (Appeals) may be set-a-side and that of the order of the Assessing Officer be restored. 7. The Grounds of Appeal raised by the Revenue in ITA No. 444/Ahd/2016 for A.Y. 2012-13 reads as under: 1). Whether the CIT(A) is right in law and on facts in deleting the adjustment made to book profit/s 115JB of the Act by the AO despite the fact that revaluation of land of Rs. 9,98,42,385/- is a part of P & L A/c and required to be added to determine the book profit. 2). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer. 3). It is therefore, prayed that the order of the Ld. Commissioner of Income- Tax (Appeals) may be set-a-side and that of the order of the Assessing Officer be restored. 8. The Ld. D.R. appearing for the Revenue supported the order passed by the Assessing Officer and pleaded that the same be restored. 9. Per contra, the Ld. Counsel Mr. Sudhir Mehta appearing for the assessee supported the order passed by the Ld. CIT(A) and also filed a small Paper Book which contains the Memorandum, Notes and Clauses of the Finance Bill 2012 which proposed to amend, by inserting a new clause ‘J’ in Explanation 1 to section 115JB of the Act, namely to include the book profit shall be increased by the I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 8 amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, if not credited to the profit and loss account. The Ld. Counsel thus pleaded these amendment will take effect from 1 st April, 2013 and will be applicable for the Assessment Year 2013-14 and subsequent assessment years. However the present appeals are relating to the Assessment Years 2011-12 & 2012-13, therefore clause ‘J’ of Explanation introduced in section 115JB will not be applicable and therefore the adjustments made by the Assessing Officer is rightly deleted by the Ld. CIT(A). Therefore the appeals filed by the Revenue are liable to be dismissed. 10. We have given our thoughtful consideration and perused the materials available on record. Prima facie, we are in agreement that clause ‘J’ in Explanation 1 to section 115JB of the Act, will be applicable from the Assessment Year 2013-14 onwards only. The A.O. is not correct in invoking clause ‘J’ of Explanation 1 and made adjustments in the book profits on account of revaluation of lands in the profit and loss account for the Assessment Years 2011-12 and 2012-13. Further the lands after revaluation, at the revised value were transferred to the companies which later merged to the present assessee company and the assessee has followed Accounting Standard-14 as applicable to it under the pooling of interests method. Therefore the adjustments made by the Assessing Officer in the book profit is not in accordance with law. Therefore the Ld. CIT(A) is correct in deleting the above addition/adjustments made by the Assessing Officer. We do not find any merits in the I.T.A Nos. 1827/Ahd/15 & 444/Ahd/2016 A.Y. 2011-12 & 2012-13 Page No DCIT Vs. Takshashila Gruh Nirman Pvt. Ltd. 9 grounds raised by the Revenue, therefore the same are hereby rejected. 11. In the result, the appeals filed by the Revenue in ITA Nos. 1827/Ahd/2015 and 444/Ahd/2016 are hereby dismissed. Order pronounced in the open court on 23-08-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 23/08/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद