THE ACIT CIR 2(2), MUMBAI V. M/S. NANAVATI SONS PVT. LTD, MUMBAI

ITA 4745/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55103 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP SHARMA
• Keywords: Opportunity of being heard; Earning of tax free income; Deemed to accrue or arise in india
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI. J. SUDHAKAR REDDY (A.M.) AND SHRI. VIJ AY PAL RAO (J.M) ITA NO.4745/MUM/2008 ASSESSMENT YEAR : 2005-2006 A.C.I.T. CIR-2(2), HOMI MODI STREET, NANAVATI MAHALAYA, FORT, MUMBAI 400 023. VS. NANAVATI SONS PVT. LTD. NANAVATI MAHALAYA, 18, HOMI MODY ST. FORT, MUMBAI 400 023. PAN : AABCN0966E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRADEEP SHARMA. RESPONDENT BY : SHRI JITENDRA JAIN. O R D E R PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30.05.2008 OF CIT(A)-II, MUMBAI FOR THE ASSESSMENT YEAR 2005-06. 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF ` 3,97,777/- MADE BY THE ASSESSING OFFICER U/S.14A OF I.T. ACT, 1961 WITHOUT APPRECIATING THE FACT THAT NO DETAILS OF EXPENSE INCURRED FOR EARNING EXEMPT INCOME WERE FURNISHED B Y THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S. 2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIO N OF ` .4,27,72,035/- (BEING PROFIT ON SALE OF INVESTMENT) MADE TO THE BOOK PROFIT U/S.115JB WITHOUT APPRECIATING THE FACT THAT NOT CREDITING SUCH AMOUNT TO THE P & L A/C. WAS IN VIOL ATION OF PART II & III OF SCHEDULE VI OF THE COMPANIES ACT AND RE VALUATION OF ASSET WAS NOTHING BUT A COLOURABLE DEVICE EMPLOYED BY THE ASSESSEE TO DEFRAUD THE REVENUE. 3. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIO N OF ` 3,97,777/- FROM THE BOOK PROFIT U/S.14A WITHOUT APP RECIATING THE FACT THAT THESE EXPENSES ARE INCURRED FOR EARNI NG EXEMPT INCOME. 3. THE GROUND NO.1 AND 3 ARE REGARDING SECTION 14A. ITA NO.4745/MUM/2008 ASSESSMENT YEAR : 2005-2006 2 4. THIS ISSUE IS REQUIRED TO BE RECONSIDERED , IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE LTD. (2010) 234 CTR (BOM) 1, WHEREIN IT IS HELD THAT RULE 8D OF INC OME TAX RULE, 1962 IS APPLICABLE ONLY FROM A.Y.08-09. AS FURTHER HELD B Y THE HONBLE BOMBAY HIGH COURT THAT, DISALLOWANCE U/S.14A FOR THE YEARS PRIOR TO ASSESSMENT YEAR 08-09 HAS TO BE MADE BY ADOPTING SOME REASONAB LE METHOD. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE IMPUGNED ORDER OF THE LD CI T(A) ON THE ISSUE UNDER CONSIDERATION AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO RECOMPUTE THE DISALLOWANCE OF THE EXPENSES WHICH HA S TO BE MADE U/S.14A BY APPLYING SOME REASONABLE METHOD AFTER GIVING THE ASSESSEE A PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. 5. GROUND NO.2 REGARDING COMPUTATION OF BOOK PROFIT . 6. WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT RECORD. AT THE OUT SET, WE NOTE THAT THE ISSUE IS CONSIDERED AND ADJUDICATED BY THE COORDINATE BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO.557/MUM/06 VIDE ORDER DATED 12.11.2008. THIS TRIBUNAL HAS HELD IN PARA 6 AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE RECORD OF THE CASE. ADMITTEDLY, THE ASSESSEES AC COUNTS WERE DULY CERTIFIED BY THE AUDITORS OF THE COMPANY AS PE R THE REQUIREMENTS OF THE COMPANIES ACT AND, THEREFORE, T HE NET PROFIT SHOWN IN THE P & L A/C. COULD BE INCREASED OR REDUC ED ONLY AS PROVIDED IN THE EXPLANATION TO THE PROVISIONS OF SE CTION 115JB IF A PARTICULAR ITEM WAS DEBITED/CREDITED TO THE P & L A/C. OTHERWISE, THE NET PROFIT AS CERTIFIED BY THE STATU TORY AUDITORS COULD NOT BE TINKERED WITH BY THE ASSESSING OFFICER IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF APOLL O TYERS (SUPRA), WHEREIN IT WAS HELD AS UNDER: FOR DECIDING THIS ISSUE, IT IS NECESSARY FOR US TO EXAMINE THE OBJECT OF INTRO- DUCING SECTION 115J IN THE INCOME-TAX ACT WH ICH CAN BE EASILY DEDUCED FROM THE BUDGET SPEECH OF THE THEN FINANCE MINISTER OF INDIA MADE IN PARLIAMENT WHILE INTRODUCING THE SAID SECT ION WHICH IS AS FOLLOWS (SEE [1987] 165 ITR (ST.) 14) : IT IS ONLY FAIR AND PROPER THAT THE PROSPEROUS SH OULD PAY AT LEAST SOME TAX. THE PHENOMENON OF SO-CALLED ZERO-TAX HIGHLY PROFITABLE COMPANIES DESERVES ATTENTION. IN 1983, A NEW SECTI ON 80VVA WAS INSERTED IN THE ACT SO THAT ALL PROFITABLE COMPANI ES PAY SOME TAX. THIS ITA NO.4745/MUM/2008 ASSESSMENT YEAR : 2005-2006 3 DOES NOT SEEM TO HAVE HELPED AND IS BEING WITHDRAW N. I NOW PROPOSE TO INTRODUCE A PROVISION WHEREBY EVERY COMPANY WIL L TO HAVE TO PAY A MINIMUM CORPORATE TAX ON THE PROFITS DECLARED BY IT IN ITS OWN ACCOUNTS. UNDER THIS NEW PROVISION, A COMPANY WILL PAY TAX ON AT LEAST 30 PER CENT. OF ITS BOOK PROFIT. IN OTHER WORDS, A DOMESTIC WIDELY HELD COMPANY WILL PAY TAX OF AT LEAST 15 PER CENT. OF IT S BOOK PROFIT. THIS MEASURE WILL YIELD A REVENUE GAIN OF APPROXIMATELY RS. 75 CRORES. THE ABOVE SPEECH SHOWS THAT THE INCOME-TAX AUTHORI TIES WERE UNABLE TO BRING CERTAIN COMPANIES WITHIN THE NET OF INCOM E-TAX BECAUSE THESE COMPANIES WERE ADJUSTING THEIR ACCOUNTS IN SUCH A MANNER AS TO ATTRACT NO TAX OR VERY LITTLE TAX. IT IS WITH A VIEW TO BR ING SUCH OF THESE COMPANIES WITHIN THE TAX NET THAT SECTION 115J WAS INTRODUCED IN THE INCOME-TAX ACT WITH A DEEMING PROVISION WHICH MAKE S THE COMPANY LIABLE TO PAY TAX ON AT LEAST 30 PER CENT. OF ITS BOOK PROFITS AS SHOWN IN ITS OWN ACCOUNT. FOR THE SAID PURPOSE, SECTION 115 J MAKES THE INCOME REFLECTED IN THE COMPANYS BOOKS OF ACCOUNT THE DE EMED INCOME FOR THE PURPOSE OF ASSESSING THE TAX. IF WE EXAMINE THE SAID PROVISION IN THE ABOVE BACKGROUND, WE NOTICE THAT THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COM- PANIES ACT WAS MADE FOR THE LIMITED PURPOSE O F EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AUTHENTIC STA TEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, AN ASSESSING OFFICER UNDER THE INCOME-TAX ACT HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WHICH OBLIGATES THE COM- PANY TO MAIN TAIN ITS ACCOUNT IN A MANNER PROVIDED BY THE COMPANIES ACT AND THE SAM E TO BE SCRUTINISED AND CERTIFIED BY THE STATUTORY AUDITORS AND WILL HAVE TO BE APPROVED BY THE COMPANY IN ITS GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A S TATUTORY OBLIGATION ALSO TO EXAMINE AND SATISFY THAT THE ACCOUNTS OF T HE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. IN SPITE OF ALL THESE PROCEDURES CONTEMPLATED UNDER THE PROVISIONS OF THE COMPANIES ACT, WE FIND IT DIFFICULT TO ACCE PT THE ARGUMENT OF THE REVENUE THAT IT IS STILL OPEN TO THE ASSESSING OFFI CER TO RESCRUTINISE THIS ACCOUNT AND SATISFY HIMSELF THAT THESE ACCOUNTS HA VE BEEN MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE COM- PANIE S ACT. IN OUR OPINION, RELIANCE PLACED BY THE REVENUE ON SUB-SECT ION (1A) OF SECTION 115J OF THE INCOME-TAX ACT IN SUPPORT OF THE ABOVE CONTENTION IS MISPLACED. SUB-SECTION (1A) OF SECTION 115J DOES NO T EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH INQUIRY I N REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPAN Y. THE SAID SUB- SECTION, AS A MATTER OF FACT, MANDATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN ACCORDANCE WITH THE REQUIRE- MENTS OF TH E COMPANIES ACT WHICH MANDATE, ACCORDING TO US, IS BODILY LIFTED F ROM THE COMPANIES ACT INTO THE INCOME-TAX ACT FOR THE LIMITED PURPOSE OF MAKING THE SAID ACCOUNT SO MAINTAINED AS A BASIS FOR COMPUTING THE COM- PANYS INCOME FOR LEVY OF INCOME-TAX. BEYOND THAT, WE DO NOT THIN K THAT THE SAID SUB- SECTION EMPOWERS THE AUTHORITY UNDER THE INCOME-TAX ACT TO PROBE INTO THE ACCOUNTS ACCEPTED BY THE AUTHORITIES UNDER THE COMPANIES ACT. IF THE STATUTE MANDATES THAT INCOME PREPARED IN AC CORDANCE WITH THE COMPANIES ACT SHALL BE DEEMED INCOME FOR THE PURPO SE OF SECTION ITA NO.4745/MUM/2008 ASSESSMENT YEAR : 2005-2006 4 115J OF THE ACT, THEN IT SHOULD BE THAT INCOME WHI CH IS ACCEPTABLE TO THE AUTHORITIES UNDER THE COM- PANIES ACT. THERE CA NNOT BE TWO INCOMES ONE FOR THE PURPOSE OF THE COMPA- NIES ACT AND ANOTHER FOR THE PURPOSE OF INCOME-TAX BOTH MAINTAINED UNDER THE SAME ACT. IF THE LEGISLATURE INTENDED THE ASSESSING OFFICER TO REASS ESS THE COMPANYS INCOME, THEN IT WOULD HAVE STATED IN SECTION 115J T HAT INCOME OF THE COMPANY AS ACCEPTED BY THE ASSESSING OFFICER. IN T HE ABSENCE OF THE SAME AND ON THE LANGUAGE OF SECTION 115J, IT WILL HAVE TO HELD THAT VIEW TAKEN BY THE TRIBUNAL IS CORRECT AND THE HIGH COUR T HAS ERRED IN REVERSING THE SAID VIEW OF THE TRIBUNAL. THEREFORE, WE ARE OF THE OPINION, THE ASSESSING OF FICER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY T HE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFI ED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO TH E SAID SECTION. TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAV E THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PRO- VIDED IN THE EXPLANATION TO SECTION 115J. THUS, IT IS CLEAR THAT ASSESSING OFFICERS POWER AR E LIMITED TO THE EXTENT OF MAKING ADJUSTMENTS AS PROVIDED IN THE EXPLANATION TO THE PROVISIONS OF SECTION 115JB TO T HE NET PROFIT SHOWN IN THE DULY AUDITED P & L A/C. WE FIND THAT LEARNED CIT(A) DELETED THE ADDITION FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES (SUPRA). THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF THE LEARNED CIT(A) AND ACCORDINGLY, UPHOLD THE SAME . 7. THE LEARNED DR HAS SUBMITTED THAT THE REVENUE HA S FILED A M.A. AGAINST THE EARLIER ORDER OF THE TRIBUNAL, THEREFOR E, THE ORDER FOR THE ASSESSMENT YEAR 2003-04 MAY NOT BE FOLLOWED IN VIEW OF THE M.A. FILED BY THE REVENUE. UPON THIS THE LEARNED AR OF THE ASSES SEE HAS STATED AT BAR THAT IF THE EARLIER ORDER IN THE CASE OF THE ASSESS EE IS FOLLOWED AND SUBSEQUENTLY IF ANY MODIFICATION OR AMENDMENT IS MA DE BY THIS TRIBUNAL IN PURSUANCE TO THE M.A. FILED BY THE REVENUE, THE SAM E WILL BE APPLICABLE AND THE ASSESSEE WOULD HAVE NO OBJECTION IN ADOPTING TH E SAME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION EXCEPT THE LEGA L REMEDIES AVAILABLE TO THE ASSESSEE. 8. IN VIEW OF THE ABOVE STATEMENT WHEN THE ASSESSEE HAS NO OBJECTION IF ANY AMENDMENT OR MODIFICATION IS MADE IN EARLIER OR DER THE SAME WILL BE ITA NO.4745/MUM/2008 ASSESSMENT YEAR : 2005-2006 5 APPLIED IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WE FOLLOW THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2003-04. ACCORDINGLY, THE GROUND NO.2 IS DECIDED IN FAVOUR O F THE ASSESSEE ANDAGAINST THE REVENUE SUBJECT TO OUTCOME OF THE M.A. IF ANY F ILED BY THE REVENUE AGAINST THE EARLIER ORDER OF THIS TRIBUNAL. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 30 TH DAY OF AUGUST, 2011. SD/- (J. SUDHAKAR REDDY) (ACCOUNTANT MEMBER) SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) MUMBAI, DATED 30.08.2011 JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUM BAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI