Nagaraj & Company Pvt Limited, CHENNAI V. ACIT, CHENNAI

ITA 450/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8907 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset
• Section: 143(3); 115JB; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.450/MDS/2016 ( / ASSESSMENT YEAR: 2007-08) M/S. NAGARAJ & COMPANY PVT.LTD., 156, DEVELOPED INDL. ESTATE, PERUNGUDI, CHENNAI-96. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(4) CHENNAI-600 034. PAN:AAACN2265K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 5 TH MAY, 2016 /DATE OF PRONOUNCEMENT : 2 ND AUGUST, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 8, CHENNAI DATED 16.11.2015 IN ITA NO.55/2013-14 P ASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED THREE GROUNDS IN ITS AP PEAL, HOWEVER THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS.3,58,79,307/- BEING SURPLUS ON THE SALE OF 18 GROUNDS OF LAND AT PERUNGUDI TO THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT 2 ITA NO.450 /MDS/2016 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF OFFSET PRINTING FILED ITS RETURN OF INCOME ON 26.10.2010 DECLARING NIL INCOME AND THE RETURN WAS INITIALLY PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY NOTICE WAS ISSUED UNDER SECTION 148 OF THE ACT AND THEREAFTER ASSESSMENT WAS COMPLETED UNDER SECTI ON 143(3) R.W.S 147 OF THE ACT. IN THE ASSESSMENT PROC EEDINGS, IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT T HE ASSESSEE HAD SOLD 18 GROUNDS OF LAND AT PERUNGUDI A ND THEREBY DERIVED INCOME OF ` 3,58,79,307/- . THE ASS ESSEE COMPANY HAD ABSORBED THE ENTIRE PROFIT OF `3,58,79 ,307/- IN ITS BALANCE SHEET DIRECTLY WITHOUT ROUTING IT THROU GH PROFIT & LOSS ACCOUNT OF THE COMPANY. THEREFORE, THE LEARN ED ASSESSING OFFICER ADDED THE SAME TO THE BOOK PROFIT OF THE ASSESSEE COMPANY FOR DETERMINING THE TAX LIABILITY UNDER SECTION 115JB OF THE ACT, WHICH IS IN ACCORDANCE WI TH THE COMPANIES ACT, 1956 SCHEDULE VI PART II & III. VARI OUS DECISIONS WERE RELIED UPON BY THE LEARNED ASSESSING OFFICER WHILE ARRIVING AT THE DECISION. 3 ITA NO.450 /MDS/2016 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE ONLY ISSUE IS TO BE DECIDED WHETHER THE CAPITAL GAI NS FROM SALE OF LAND CAN BE CONSIDERED AS PART OF THE BOOK PROFITS U/S.115 JB OF THE INCOME TAX ACT. THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.3,58,79,307/- TO THE BOOK PROFITS. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE APPELLANT AND RECOMPUTED BOOK PROFIT U/S 115JB OF T HE INCOME TAX ACT, AFTER DULY TAKING INTO ACCOUNT THE RECEIPTS FROM THE SALE OF LAND, THE ASSESSING OFFICER RELIED ON THE FOLLOWING CASES IN SUPPORT OF HIS CONTENTION . 1. VEEKAYLAL INVESTMENTS VS.CIT (249 ITR 597) (BOM) 2. RAIN COMMODITIES VS. CIT 3. KOPRAN PHARMACEUTICALS LTD VS;DCIT(ITAT-MUMBAI) (119 ITD 355) 4. DUKE OFFSHORE LTD VS.DCIT(ITAT, MUMBAI] (45 SOT 399) THE . APPELLANT HAS RELIED ON THE . CASE . OF ADBHU T TRADING COMPANY LTD.(SUPRA) AND FOREVER DIAMONDS PVT. LTD. I HAVE GONE THROUGH BOTH THE CASES IN DETAIL. IN ADBHUT TRADING THE HON'BLE HIGH COURT OF BOMBAY IN ITS SHO RT JUDGMENT OBSERVED AS UNDER: IN THE PRESENT CASE, THE TRIBUNAL HAS CONFIRMED THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS 1.98 CROR ES MADE BY THE AO WHILE COMPUTING THE BOOK PROFIT UNDER S. L15TB OF THE IT ACT, 1961, BY FOLLOWING THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS, CIT (2002) 174 CTR (SC) 521: (2002) 255 ITR 273 (SC). ACCORDING TO THE REVENUE, THE ASSESSEE HAS INTENTIONALLY PREPARED A WRONG P&L A/C. ONCE THE ACCOUNTS INCLUDING THE P&L ETC ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T IT IS NOT OPEN TO THE AO TO CONTEND THAT THE P&L A/C HAS NOT BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956. IT MAY SEE FROM THE ABOVE THAT THE ISSUE DECIDED BY THE HONBLE HIGH COURT OF BOMBAY HAS NO RELEVANCE T O THE ISSUE ON HAND. WHAT IS MORE RELEVANT IS A CASE DECIDED BY THE HONBLE HIGH COURT OF BOMBAY WHICH I S SIMILAR TO THE CASE ON HAND I.E. CIT VS.VEEKAYLAL 4 ITA NO.450 /MDS/2016 INVESTMENT CO. P.LTD., (2001) 249 ITR 0597 WHEREIN THE HIGH COURT DECLARED AS UNDER WITH REGARD TO INCOME FROM CAPITAL GAINS: INCOME' FROM CAPITAL GAINS UNDER S. 45 HAS TO BE INCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS UNDER S. 115J. AS FAR AS THE TRIBUNAL DECISIONS' RELIED ON BY THE APPELLANT ARE CONCERNED THIS ISSUE WAS PUT TO REST BY THE SPECIAL BENCH OF THE HON'BLE ITAT IN THE CASE O F RAIN COMMODITIES LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2010) 40 SOT 0265: (2010) 4 ITR 0551 WHEREIN IT WAS STATED AS UNDER: MERELY BECAUSE THE LONG-TERM CAPITAL GAIN IS EXEMPT UNDER S. 47(IV) UNDER THE NORMAL PROVISION OF THE. ACT, IT I S NOT CORRECT TO SAY THAT IT IS ALSO. TO BE REDUCED FROM THE NET PROFIT FOR THE PURPOSE OF COMPUTING . BOOK PROFIT UNDER S. 115JB WHEN THE EXPLANATION TO S. 115JB DOES NOT PROVIDE FOR ANY DEDUCTION IN TERMS OF S. 4 7(IV); ASSESSEE IS NOT ENTITLED TO THE EXCLUSION IN RESPE CT OF CAPITAL GAIN ON TRANSFER OF ASSETS TO 100 PER CENT SUBSIDIARY CO MPANY. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY HON'BLE HI GH COURT OF BOMBAY IN . VEEKAYLAL INVESTMENT CO.(P) LTD., AN D THE SPECIAL BENCH OF ITAT DECISION IN RAIN COMMODITIES LTD., THE ADDITION MADE BY THE ASSESSING OFFICER TO THE B OOK PROFIT U/S.115JB IS SUSTAINED. THE APPELLANT FAILS ON THIS GROUND. 5. THE LEARNED AUTHORIZED REPRESENTATIVE BY RELYING ON VARIOUS DECISIONS ARGUED BY STATING THAT THE PROFIT ON SALE OF CAPITAL ASSETS CARRIED TO CAPITAL RESERVE ACCOUNT C ANNOT BE ADDED TO BOOK PROFIT UNDER SECTION 115JB OF THE ACT , WHILE AS THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDERS OF THE REVENUE. 5 ITA NO.450 /MDS/2016 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD . AT THE OUTSET, WE FIND THAT ON THE IDENTICAL ISSUE, THIS BENCH OF THE TRIBUNAL IN THE CASE OF M/S. PVP CORPORATE PARKS P.LTD. VS. DCI T IN ITA NO.497/MDS/2016 VIDE ORDER DATED 01.08.2016 HELD T HE ISSUE AGAINST THE ASSESSEE. THE GIST OF THE SAID DE CISION IS REPRODUCED HEREUNDER:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE PROVISIONS OF COMPANIES ACT, 1956 AS WELL. SCHEDUL E VI PART II OF THE COMPANIES ACT PROVIDES THE MANNER IN WHICH THE PROFIT & LOSS ACCOUNT IS TO BE ARRIVED AT. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- PART II REQUIREMENT AS TO PROFIT AND LOSS ACCOUNT: 1. THE PROVISIONS OF THIS PART SHALL APPLY TO THE I NCOME AND EXPENDITURE ACCOUNT REFERRED TO IN SUB-SECTION (2) OF SECTION 210 OF THE ACT IN LIKE MANNER AS THEY APPLY TO A PROFIT AND LOSS ACCOUNT, BUT SUBJECT TO THE MODIFIC ATION OF REFERENCES AS SPECIFIED IN THAT SUB-SECTION. 2. THE PROFIT AND LOSS ACCOUNT- (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COV ERED BY THE ACCOUNT; AND ( B) SHALL DISCLOSE EVERY MATERIAL FEATURE INCLUDING CREDITS OR RECEIPTS AND DEBITS OF EXPENSES IN RESPE CT OF NON-RECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATURE. 3. .. . MISCELLANEOUS EXPENSES: 6 ITA NO.450 /MDS/2016 (I) PROVIDED THAT ANY ITEM UNDER WHICH THE EXPENSES EXCEED 1 PER CENT OF THE TOTAL REVENUE OF THE COMPA NY OR ` 5,000 WHICHEVER IS HIGHER SHALL BE SHOWN AS A SEPAR ATE AND DISTINCT ITEM AGAINST AN APPROPRIATE ACCOUNT HE AD IN THE PROFIT AND LOSS ACCOUNT AND SHALL NOT BE COMBIN ED WITH ANY OTHER ITEM TO BE SHOWN UNDER MISCELLANEOUS EXPENSES. (XI)A) THE AMOUNT OF INCOME FROM INVESTMENTS, DISTINGUISHING BETWEEN TRADE INVESTMENTS AND OTHER INVESTMENTS. . (XII) A) PROFITS OR LOSSES ON INVESTMENTS SHOWING DISTINCTLY THE EXTENT OF THE PROFITS OR LOSSES EAR NED OR INCURRED ON ACCOUNT OF MEMBERSHIP OF A PARTNERSHIP FIRM (TO THE EXTENT NOT ADJUSTED FROM ANY PREVIOUS PROVISION OR RESERVE. ( B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OF A KIND NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPTIONAL OR NON-RECURRING NATURE, IF MATERIAL IN AMOUNT . (C) MISCELLANEOUS INCOME. 7. FROM THE ABOVE, IT IS APPARENT THAT WHATEVER BE THE NATURE OF PROFIT OR LOSS IS INCURRED BY THE ASS ESSEE IT HAS TO BE DISCLOSED IN THE PROFIT AND LOSS ACCOUNT MANDATORILY AS PER THE PROVISIONS OF THE COMPANIES ACT, 1956. ONLY THE ASSETS & LIABILITIES AND THE PROFIT/ LOSS CARRY FORWARDED FROM THE PROFIT AND LOSS ACCOUNT ARE DISC LOSED IN THE BALANCE SHEET. THE FORMAT OF BALANCE SHEET A S PROVIDED UNDER SCHEDULE VI OF THE COMPANIES ACT ITS ELF INDICATE THE FACT THAT ONLY THE ASSETS & LIABILITIE S INCLUDING RESERVES AND CARRY FORWARD OF PROFIT/LOSS FROM THE PROFIT & LOSS ACCOUNT ARE TO BE DISCLOSED IN THE BALANCE SHE ET. THUS THE PROFIT DETERMINED IN THE PROFIT & LOSS ACC OUNT OF THE ASSESSEE COMPLYING WITH THE COMPANIES ACT SHALL BE THE BOOK PROFIT OF THE ASSESSEE COMPANY FOR THE PURPOSE OF SECTION 115JB OF THE ACT, SUBJECT TO THE OTHER PROVISIONS OF THE INCOME-TAX ACT. TO MAKE IT CLEAR , THERE IS NO PROVISION IN THE COMPANIES ACT TO DIRECTLY AB SORB ANY PROFIT OR LOSS IN THE BALANCE SHEET DIRECTLY OT HER THAN ROUTING IT THROUGH THE PROFIT AND LOSS ACCOUNT OF T HE ASSESSEE. THEREFORE, IT IS APPARENT THAT THE ASSESS EE COMPANY HAD DIRECTLY ABSORBED THE PROFIT DERIVED FR OM 7 ITA NO.450 /MDS/2016 THE SALE OF ITS CAPITAL ASSET IN THE BALANCE SHEET THEREBY AVOIDED TO DISCLOSE THE SAME IN ITS PROFIT AND LOSS ACCOUNT IN ORDER TO ESCAPE FROM THE CLUTCHES OF THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT. THIS IS AGAINST THE PROVISIONS OF THE COMPANIES ACT AS W ELL AS AGAINST THE INCOME TAX ACT. THE DECISIONS CITED BY THE LEARNED AUTHORIZED REPRESENTATIVE HAS NOT CONSIDERE D THE MANDATORY PROVISION OF COMPANIES ACT, 1956 WI TH RESPECT TO SCHEDULE VI PART II & III. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED ASSESSING OFFI CER HAS CORRECTLY COMPUTED THE BOOK PROFIT AS PER THE PROVISIONS OF THE ACT, WHICH IS RIGHTLY UPHELD BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IN TH ESE CIRCUMSTANCES, WE DO NOT FIND IT NECESSARY TO INTER FERE WITH THE ORDERS OF THE REVENUE ON THIS ISSUE. 7. THEREFORE FOLLOWING THE ABOVE DECISION, WE DO NO T FIND IT NECESSARY TO INTERFERE WITH THE DECISION OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. ACCORDINGLY, THE GROUND IS DECIDED AGAINST THE ASSE SSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 2 ND AUGUST, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 2 ND AUGUST, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF