M/s. Bessar Concrete Systems Ltd., Kancheepuram V. ACIT, CHENNAI

ITA 458/CHNY/2007

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5417 (ITAT-CHENNAI)
• Duration Of Justice: 7 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-02-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 19-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: S SRIDHAR
• Keywords: Principle of natural justice
• Section: 143(3); 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , !' , # $! % BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO. 458(MDS)/2007 # & '& / ASSESSMENT YEAR : 2000-01 M/S BESSER CONCRETE SYSTEMS LTD., C/O SHRI S. SRIDHAR, ADVOCATE, NEW NO.14, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI - 600 020. PAN : AAACV 3634 Q V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI - 600 034. (')/ APPELLANT) (+,')/ RESPONDENT) ') - / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE +,') - / RESPONDENT BY : SHRI SHAJI P. JACOB, IRS, ADDL. CIT . - /0 / DATE OF HEARING : 11 TH FEBRUARY, 2014 12' - /0 / DATE OF PRONOUNCEMENT : 20 TH FEBRUARY, 2014 / O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2000-01. THE APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS)-III AT 2 I.T.A. NO. 458/MDS/2007 CHENNAI, ON 4.1.2007. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) READ WITH SECTION 14 7 OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEAL BEFORE THE TRIBUNAL, WHICH IS EXTRACTED BELOW:- (1) THE CIT(APPEALS) ERRED IN CONFIRMING THE ADDITI ON OF ` 12,35,137/- BEING THE PAYMENT OF INTEREST TO THE PARENT COMPANY WITHOUT DEDUCTION OF TAX AT SOURCE UPON INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. (2) THE CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF ` 5,72,400/- BEING THE FOREIGN EXCHANGE FLUCTUATION LOSS, DISALLOWED BY THE ASSESSING OFFICER AS NOTIONAL. (3) THE CIT(APPEALS) ERRED IN SUSTAINING THE ADDITI ON OF ` 29,25,308/- BEING THE WAIVER OF LIABILITY BY M/S WIPRO FINANCE LTD. AND IN THIS REGARD THE FINDINGS RECORDED PARA 5.4 OF THE IMPUGNED ORDER WERE INCORRECT, WRONG, ERRONEOUS AND NOT SUSTAINABLE BOTH IN FACTS AND IN LAW. (4) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT HAVE NO APPLICATION TO THE FACTS OF THE CASE ESPECIALLY IN THE LIGHT OF THE DECISION REPORTED IN 88 ITD 150. (5) THE CIT(APPEALS) ERRED IN CONFIRMING THE ADDING BACK OF ` 7,46,46,043/- BEING THE WAIVER OF LIABILITY BY M/S BANK OF MADURA AND M/S WIPRO FINANCE LIMITED IN THE COMPUTATION OF BOOK PROFIT IN TERMS OF SECTION 115JA OF THE ACT. (6) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 115JA OF THE ACT WHILE ADDING BACK THE SAID AMOUNT IN COMPUTATION OF BOOK PROFITS WERE STRETCHED BEYOND ITS SCOPE AND APPLIED IN CONTRADICTION TO THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE REPORTED IN 255 ITR 273. 3 I.T.A. NO. 458/MDS/2007 (7) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PROVISIONS OF EXPLANATION (B) TO SUB-SECTION 2 TO SECTION 115JA OF THE ACT HAD NO APPLICATION TO THE FACTS OF THE CASE. (8) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THER E WAS NO PROPER OPPORTUNITY GIVEN BEFORE FRAMING THE ASSESSMENT AND AS WELL AS IN THE APPELLATE PROCEEDINGS UNDER CONSIDERATION AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS NULLITY IN LAW. (9) THE CIT(APPEALS) ERRED IN NOT CONSIDERING THE GROUNDS CHALLENGING THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT AND IN THIS REGARD THE FINDINGS RECORDED IN PARA 7 WERE WRONG, INCORRECT, INVALID, ERRONEOUS AND NOT SUSTAINABLE BOTH ON FACTS AND IN LAW. (10) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE REASSESSMENT UNDER CONSIDERATION WAS INVALID, ERRONEOUS, AND INCORRECT ESPECIALLY IN VIEW OF LACK OF FRESH MATERIALS. 3. WE HEARD SHRI S. SRIDHAR, THE LEARNED COUNSEL, A PPEARING FOR THE ASSESSEE AND SHRI SHAJI P. JACOB, THE LEARNED A DDITIONAL COMMISSIONER OF INCOME TAX, APPEARING FOR THE REVEN UE. 4. REGARDING THE FIRST ISSUE OF CONFIRMING THE ADDI TION OF ` 12,35,137/- UNDER SECTION 40(A)(I), WE ARE IN FULL AGREEMENT WITH THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) DISCUSSED IN PARAGRAPH 3 OF HIS ORDER. THE ASSESSEE-COMPANY HAS MADE A PAYMENT OF ` 12,35,137/- BY WAY OF INTEREST TO THE PARENT-COMPA NY IN USA, WITHOUT DEDUCTING TAX AT SOURCE. IN FACT, THIS PARTICULAR 4 I.T.A. NO. 458/MDS/2007 GROUND RAISED BY THE ASSESSEE WAS CONCEDED BEFORE T HE COMMISSIONER OF INCOME TAX (APPEALS). WE DO NOT KN OW HOW THE ASSESSEE HAS RAISED THIS GROUND BEFORE THE TRIBUNAL , TOO. THIS GROUND IS ACCORDINGLY DISMISSED. 5. THE NEXT ISSUE IS THE DISALLOWANCE OF ` 5,72,400/-, WHICH IS IN THE NATURE OF FOREIGN EXCHANGE FLUCTUATION LOSS. T HE COMMISSIONER OF INCOME TAX (APPEALS) HAS DISCUSSED THIS ISSUE IN PARAGRAPHS 4.1 AND 4.2 OF HIS ORDER. THE COMMISSIONER OF INCOME T AX (APPEALS) HAS MADE A CLEAR FINDING OF THE FACT THAT THE FOREI GN EXCHANGE LOSS CLAIMED BY THE ASSESSEE DID NOT RELATE TO ANY SALES OR REVENUE TRANSACTIONS. IT IS ALSO TO BE SEEN THAT THE AMOUN T DID NOT REPRESENT ANY REAL LOSS BUT ONLY ESTIMATED LOSS. WE, THEREFO RE, FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED I N CONFIRMING THE SAID ADDITION MADE BY THE ASSESSING OFFICER. 6. NEXT WE WILL CONSIDER THE ISSUE OF ` 7,46,46,043/- ADDED BY THE ASSESSING OFFICER TO THE BOOK PROFITS UNDER SEC TION 115JA. THIS AMOUNT WAS THE INTEREST LIABILITY WAIVED BY M/S BAN K OF MADURA AND M/S WIPRO FINANCE LTD. THIS ISSUE HAS BEEN DISCUSS ED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN PARAGRAPHS 6, 6.1, 6.2, 6.3 AND 6.4 OF HIS ORDER. 5 I.T.A. NO. 458/MDS/2007 7. WHEN THE INTEREST LIABILITY WAS WAIVED BY THE BA NK AND THE FINANCE INSTITUTION, THE WAIVER CREDIT WAS MADE BY THE ASSESSEE- COMPANY DIRECTLY TO ITS RESERVE ACCOUNT. THE CREDI TED AMOUNT WAS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TA X (APPEALS) HELD THE VIEW THAT IN THE LIGHT OF SECTION 41(1), A NY REMISSION OF LIABILITY WOULD BE IN THE NATURE OF INCOME AND THE IMPACT OF SECTION 41(1) CANNOT BE IGNORED WHILE COMPUTING THE BOOK PR OFITS FOR THE PURPOSE OF SECTION 115JA. THE CASE OF THE ASSESSEE , ON THE OTHER HAND, IS THAT THE AMOUNT, WHICH HAS NOT BEEN ROUTED THROUGH PROFIT & LOSS ACCOUNT CANNOT BE ADDED BACK TO THE BOOK PRO FITS. BOOK PROFIT IS EXPLAINED UNDER SECTION 115JA. CLAUSE ( B) PROVIDES THAT THE AMOUNTS CREDITED TO ANY RESERVES, BY WHATEVER N AME CALLED, SHALL BE ADDED TO THE BOOK PROFIT. THE ASSESSEE CO NTENDS THAT THE AMOUNTS CREDITED TO ANY RESERVES EXPLAINED IN CLA USE (B) RELATE TO ONLY THOSE AMOUNTS TRANSFERRED FROM THE PROFIT & LO SS ACCOUNT AND IT DOES NOT APPLY TO THE AMOUNT DIRECTLY TRANSFERRED T O THE RESERVE ACCOUNT. THE VIEW OF THE REVENUE IS THAT CLAUSE (B ) EMPOWERS THE ASSESSING OFFICER TO MAKE AN ADDITION OF ANY AMOUNT TRANSFERRED BY AN ASSESSEE TO RESERVE, EITHER DIRECTLY OR THROUGH THE PROFIT & LOSS ACCOUNT. 6 I.T.A. NO. 458/MDS/2007 8. A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE HONB LE HIGH COURT OF MADRAS IN THE CASE OF CIT V. VIJAYASHREE F INANCE & INVESTMENT CO. (P) LTD. (2008) 216 CTR (MAD) 191. THE HONBLE HIGH COURT WAS CONSIDERING THE ISSUE IN THE CONTEXT OF SECTION 115J. IN THAT CASE, THE ASSESSEE-COMPANY HAD SOLD CERTAIN LAND AND MADE CERTAIN GAINS OUT OF THE SALE. THE SURPLUS ON SALE OF LAND WAS TRANSFERRED BY THE ASSESSEE-COMPANY DIRECTLY TO ITS CAPITAL RESERVE AND IT DID NOT FORM PART OF THE BOOK PROFI T. THE ASSESSING OFFICER ADDED THE PROFIT FROM THE SALE OF LAND TO T HE BOOK PROFITS WHILE MAKING COMPUTATION UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961. IN THIS CONTEXT, THE HONBLE HIGH COURT , REFERRING TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F APOLLO TYRES LTD. V. CIT (2002) 255 ITR 273 (SC), HELD THAT THE ASSESSING OFFICER, WHILE COMPUTING INCOME UNDER SECTION 115J OF THE ACT, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF AC COUNTS ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T, 1956 AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THAT ACT. THE ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWE R OF MAKING INCREASES OR REDUCTION AS PROVIDED IN THE EXPLANATI ON TO THE SAID SECTION. THE HONBLE HIGH COURT HELD THAT THE ASSE SSING AUTHORITY DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN 7 I.T.A. NO. 458/MDS/2007 THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROV IDED FOR IN THE EXPLANATION TO SECTION 115J OF THE ACT. 9. IN VIEW OF THE JUDGMENT OF THE HON'BLE JURISDICT IONAL HIGH COURT, WE HOLD THAT THE LOWER AUTHORITIES ARE NOT J USTIFIED IN ADDING BACK ` 7,46,46,043/- TO THE BOOK PROFITS OF THE ASSESSEE- COMPANY. THE SAID ADDITION IS ACCORDINGLY DELETED. 10. NEXT WE WILL CONSIDER THE GROUND RAISED BY THE ASSESSEE IN RESPECT OF SECTION 41(1), NUMBERED AS GROUND NO.4. THIS GROUND BECOMES ACADEMIC IN VIEW OF OUR FINDING RENDERED IN RESPECT OF THE COMPUTATION OF BOOK PROFITS UNDER SECTION 115JA. 11. GROUND NO.8 STATES THAT THE ASSESSEE WAS NOT GI VEN PROPER OPPORTUNITY BEFORE FRAMING THE ASSESSMENT. WE DO N OT FIND MUCH FORCE IN THIS GENERAL ARGUMENT. 12. IN GROUND NOS. 9 AND 10, THE ASSESSEE HAS CONTE NDED THAT THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 W AS NOT JUSTIFIED. ON GOING THROUGH THE RECORDS OF THE CAS E, WE FIND THAT THIS IS ONLY A FEEBLE ARGUMENT. THESE GROUNDS ARE ACCOR DINGLY REJECTED. 13. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 8 I.T.A. NO. 458/MDS/2007 ORDER PRONOUNCED ON THURSDAY, THE 20 TH OF FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K. NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 20 TH FEBRUARY, 2014. KRI. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT, CHENN AI-I, CHENNAI 4. CIT(A)-III , CHENNAI 5. DR 6. GF.